Slide 1: Investor presentation Q3 2017
Investor presentation Q3 2017 1 November 2017
Slide 2: Strategic transformation
Strategic transformation Divestment of our upstream Oil & Gas Green share of total generated New name and brand business finalised power and heat (%) • A milestone in our strategic transformation from black to green energy >95 80 • Divestment gain of DKK 2.2bn • Reduction of net debt by DKK 4.6bn 59
Slide 3: Construction progress
Construction progress Walney Borkum Skærbæk Smart meter Project Race Bank Hornsea 1 Borssele 1&2 Hornsea 2 Renescience Extension Riffgrund 2 CHP roll-out Country Asset type 320MW Heat, 120,000 1m Capacity 573MW 659MW 450MW 1,200MW1 752MW 1,386MW 95MW Power tonnes waste installations Expected Q1 2018
Slide 4: Wind Power market development
Wind Power market development • EIA approvals expected • Massachusetts auction • Holland Coast South • Auction of 1.6GW in April • UK CfD auction Spring Q4 2017 in December 2017 1&2 tender of 700MW 2018 2019 in December 2017 • Allocation of grid • Final agreement for • Climate targets and • Hornsea
Slide 5: Q3 – Lower due to timing of partnership income
Q3 – Lower due to timing of partnership income Non-recurring items EBITDA Net profit Underlying net profit ROCE1 Continuing operations Continuing operations % DKKm DKKm 2,520 15 15 ~2,200 209 320 209 Q3 2016 Q3 2017 30 Sep 2016 30 Sep 2017 Reported EBITDA DKK 1.8bn Net profit down DKK 2.3bn ROCE of
Slide 6: Net debt unchanged
Net debt unchanged O&G divestment Net interest-bearing debt development Q3 Net profit Underlying net profit FFO / Adj. net debt of 42% DKKm Discontinued operations • Our key credit metric DKKm decreased to 42% from 55% due to higher adjusted net 2,931 debt, but still above our target of around 30% 2
Slide 7: Wind Power – Increased power generation, but no SPA gains booked in the quarter
Wind Power – Increased power generation, but no SPA gains booked in the quarter Power generation EBITDA Sites Free cash flow ROCE1 TWh DKKm Construction contracts DKKm % and divestment gains Other 1,642 1,674 1,094 -3,322 1,521 -4,122 1.7 16 1.3 872 504 9 -324 -351 Q3 2016 Q3 2017 Q3 2016 Q3 2017 Q3
Slide 8: Walney Extension transaction
Walney Extension transaction Estimation of construction and divestment gain based on company guidance and previous IPO guidance 50% divestment Divestment case, GBP and DKK 329.5 MW GBP 2.0bn GBP 0.2-0.3bn DKK 16.6bn DKK ~2.0bn DKK ~2.0bn DKK 16.6bn DKK 7.5-8.0bn DKK ~8.5-9.0bn CAPEX Company Ørsted C
Slide 9: Bioenergy & Thermal Power – Growth from Heat, but adverse market conditions for Power
Bioenergy & Thermal Power – Growth from Heat, but adverse market conditions for Power EBITDA Ancillary services Free cash flow DKKm Heat DKKm Power 65 73 35 84 -236 -604 -598 -291 -128 -142 Q3 2016 Q3 2017 Q3 2016 Q3 2017 EBITDA of DKK -0.1bn FCF of DKK -0.6bn • Negative effect from adverse • Free c
Slide 10: Distribution & Customer Solutions
Distribution & Customer Solutions EBITDA Non-recurring Free cash flow DKKm Underlying, DCS DKKm 1,508 1,613 1,147 202 361 202 -753 Q3 2016 Q3 2017 Q3 2016 Q3 2017 EBITDA decreased DKK 1.3bn FCF decreased by DKK 2.4bn • Lump sum compensation of • Proceeds from the gas DKK 1.1bn from renegotiation dis
Slide 11: Outlook – Guidance upgraded
Outlook – Guidance upgraded EBITDA (BUSINESS PERFORMANCE) OUTLOOK 2017 RETURN ON CAPITAL EMPLOYED (ROCE) Group DKK 19-21bn Group 12-14% Avg. 2017-2023 Wind Power 13-15% Avg. 2017-2023 BUSINESS UNIT EBITDA DIRECTION FY 2017 VS. FY 2016 Distribution & Customer Solutions 9-11% Avg. 2017-2023 Wind Power
Slide 12: Conference call
Conference call QEA DK: +4535 4455 83 UK: +44 (0) 203 194 0544 US: +1 855 269 2604 For questions, please press 01
Slide 13: Appendix
Appendix
Slide 14: Group – Financial highlights Q3 2017
Group – Financial highlights Q3 2017 FINANCIAL HIGHLIGHTS Q3 17 Q3 16 D EBITDA DKKm 1,757 3,099 (43%) • Wind Power 1,674 1,643 2% • Bioenergy & Thermal Power (142) (128) 11% • Distribution & Customer Solutions 202 1,507 (87%) Net profit – continuing operations 209 2,520 (92%) Net profit – discontinu
Slide 15: WP – Financial highlights Q3 2017
WP – Financial highlights Q3 2017 FINANCIAL HIGHLIGHTS Q3 17 Q3 16 D EBITDA DKKm 1,674 1,642 2% • Sites incl. O&Ms and PPAs 1,521 1,094 39% • Construction contracts and farm down gains 504 872 (42%) • Other incl. A2SEA and project development (351) (324) 8% ROCE1 % 15.8 9.4 6.4%p KEY BUSINESS DRIVER
Slide 16: Wind Power measures
Wind Power measures Key commentary Wind power measures % • Q3 2017 WEC at 75%, 3%- point lower than Q3 2016 • Q3 WEC in a normal wind year is 83%, i.e. Q3 2017 8%-point below normal wind year 83 • Availability at same level as last year 92 92 78 75 • Load factor of 34% in Q3 2017, on par with Q3 201
Slide 17: BTP – Financial highlights Q3 2017
BTP – Financial highlights Q3 2017 FINANCIAL HIGHLIGHTS Q3 17 Q3 16 D EBITDA DKKm (142) (128) 11% • Heat 84 35 140% • Ancillary services 65 73 (11%) • Power (291) (236) 23% Free cash flow (598) (604) (1%) KEY BUSINESS DRIVERS Heat generation TWh 0.7 0.4 75% Power generation TWh 1.2 1.3 (8%) Degree d
Slide 18: DCS – Financial highlights Q3 2017
DCS – Financial highlights Q3 2017 FINANCIAL HIGHLIGHTS Q3 17 Q3 16 D EBITDA DKKm 202 1,508 (87%) • Distribution 295 310 (5%) • Sales 15 5 200% • Markets (95) 1,246 n.a. • LNG (12) (53) (77%) ROCE1 % 23.0 59.1 (36.1%p) KEY BUSINESS DRIVERS RAB Power DKKm 10,623 10,648 (0%) Gas sales TWh 29.4 37.1 (2
Slide 19: Differences in Business Performance EBITDA and IFRS EBITDA
Differences in Business Performance EBITDA and IFRS EBITDA DKKm Q3 2017 Q3 2016 EBITDA – BUSINESS PERFORMANCE (BP) 1,757 3,099 BP adjustment in respect of revenue for the year (222) 85 BP adjustment in respect of COGS for the year 108 39 EBITDA – IFRS 1,643 3,223 Total BP adjustments for the year co
Slide 20: Investments
Investments GROSS AND NET INVESTMENTS (DKKm) Q3 2017 Q3 2016 Gross investments per Capital employed per business unit business unit Cash flow from investing activities (276) (296) Q3 2017 30 Sep 2017 Dividends received and capital reduction, reversed - - Purchase and sale of securities, reversed (2,
Slide 21: FFO/Adjusted net debt calculation
FFO/Adjusted net debt calculation FUNDS FROM OPERATIONS / ADJUSTED NET DEBT (DKKm) 30 Sep 20171 Full year 20161 30 Sep 20161 EBITDA – Business Performance 15,796 19,109 14,747 Interest expenses, net (543) (402) (317) Reversal of interest expenses transferred to assets (659) (574) (739) Interest elem
Slide 22: Debt overview
Debt overview Gross debt and hybrids Net debt Long term gross debt maturity Q3 2017 DKKbn schedule Q3 2017, DKKbn 12 75% 10 8% 8 37% 36.0 55% 6 DKKbn 10.3 4 5.9 2 0 Bonds Hybrids Bank loans 2018 2019 2020 2021 2022 2023 2024 2025 2025+ Q3 2016 Q3 2017 Bonds Bank loans 22
Slide 23: Management of interest rate and inflation exposure reduces risk
Management of interest rate and inflation exposure reduces risk Portfolio asset & liability duration-matching Nominal cash flow matching for inflation risk approach for interest rate risk management management Illustrative Illustrative <2Y Short duration (Bond holdings, Variable rate debt Power Dist
Slide 24: Interest rate risk and funding costs
Interest rate risk and funding costs Effective funding costs – gross debt Key risk figures Q3 2017 (excl. hybrid) Bond and bank debt (excl. hybrid), LHS (excl. hybrid) Gross interest expense (excl. hybrid), LHS Cost of Modified Avg. time to Average effective interest rate (excl. hybrid), RHS debt (%
Slide 25: Hybrid capital in short
Hybrid capital in short Hybrid capital can broadly be defined as funding • Deeply subordinated and only senior to DONG Energy has made use of hybrid capital to instruments that combine features of debt and common equity maintain our ratings at target level in connection equity in a cost efficient ma
Slide 26: Benefits of hybrid capital
Benefits of hybrid capital Hybrid capital is an attractive form of financing for corporates: Illustrative example – current example • Provides strength to the balance sheet at relatively attractive terms (tax deductible) ASSUMPTIONS • Supportive to credit ratings Pricing for a hybrid with first call
Slide 27: Financing strategy
Financing strategy We have a centralised financing All cash flow generated by our strategy as customary for vertically and subsidiaries supports the horizontally integrated European energy creditworthiness and rating of and thus utilities the debt taken up by the Group parent The centralised financi
Slide 28: Currency hedging principles
Currency hedging principles • The purpose of our currency risk management is to reduce the Group’s currency risks over a 5-year horizon • The main principle is to hedge FX exposure once it is deemed relatively certain that the underlying cash flows in foreign currency will materialise • Thus, FX ris
Slide 29: Hedging of FX and power risk in Wind Power
Hedging of FX and power risk in Wind Power Construction and Farm downs – Hedging of FX Commercial Operations – Hedging of FX and power Decision gates 100 • Early hedging of potential large DEVEX Pre-FID 80 items on a 100% basis 75 60 • Hedging of transmission asset divestment 50 Final Investment and
Slide 30: Significant pipeline of post 2020 offshore wind opportunities
Significant pipeline of post 2020 offshore wind opportunities Upcoming auctions and tenders in strategic markets Status • Taiwan EIA1 deadline • Holland Coast South 1 & 2 tender • 8.9GW capacity built or under construction H2 17 • US Massachusetts auction • >10GW capacity pipeline options • 2nd Germ
Slide 31: Innovation case: New design methodology
Innovation case: New design methodology Motivation Innovation case • Foundation design based on Oil & Gas approach from 1970’s • Innovation case established in 2013 and completed in 2016 • Conservative approach applied – not taking offshore wind characteristics • The project is based on theoretical
Slide 32: New design methodology developed and tested
New design methodology developed and tested 1. Field test 2. New design methodology 3. Outcome • 28 piles tested – different diameter, length • Development of improved design method • Significant reduction in design conservatism and wall thickness tailored to the offshore wind sector leading to: • 2
Slide 33: SPA/CA split and timing of CA gains on farm downs
SPA/CA split and timing of CA gains on farm downs Wind farm MW capacity Commissioning SPA/CA split 2015 2016 H1 17 H2 17e 2018e SPA All Gode Wind 1 330 Q4 16 CA: 75-100% 0-10% 65-75% 20-30% SPA Gode Wind 2 252 Q4 16 CA: 75-100% 55-65% 30-40% 0-10% SPA DKK 0.6bn Burbo Bank Ext. 258 Q1 17 CA: 75-100%
Slide 34: Radius welcomes the new regulation
Radius welcomes the new regulation New regulation effective from 1 January 2018 Current regulation is outdated – meets previous expectations Historical regulatory accounts settled and confirm the expected 5-year income cap with ex-ante approach and following elements historical revenues – thus uncha
Slide 35: Implementation of new regulation
Implementation of new regulation Pending issues in detailed implementation Benefits and opportunities in new regulation of new legislation • Within the 5-year regulation period, additional regulatory return 12/2017 06/2018 12/2018 is secured by performing better on costs and investments than DEA: ex