Orsted · OMXCOP:ORSTED
Orsted — DONG Energy — Investor Presentation (June 2016)
63 slides from Orsted's investor presentation, June 2016
Slide 1: DONG Energy – Leading the Energy Transformation
Emphasise strong track record in building wind farms DONG Energy – LEADING THE ENERGY TRANSFORMATION April, 2016 DONG ENERGY – LEADING THE ENERGY TRANSFORMATION May/June, 2016 1
Slide 2: Important notice
Important notice THIS PRESENTATION IS BEING PROVIDED TO YOU SOLELY FOR The Company has not and does not expect to register any securities that it public information or any disclosure of such information to a third party may YOUR INFORMATION AND MAY NOT BE REPRODUCED OR may offer under the U.S. Secur
Slide 3: DONG Energy today
DONG Energy today Key figures 2015: DKK 70.8 Bn revenue % share of operating profit (EBITDA1), 2015 DKK 18.5 Bn EBITDA % share of capital employed as of 31 December 2015 ~6,700 employees Wind Power 34% 75% Danish utility 13% 16% Oil & Gas 53% 9% Global leader in attractive offshore wind mark
Slide 4: DONG Energy is at the forefront of shift towards renewable energy
DONG Energy is at the forefront of shift towards renewable energy 2015 production from new renewables in % of total1 compared with peers 100% 55% 34% 2 31% 24% 17% 6% 2 5% 5% 5% 4% 3% 2% 2% EDPR EDP Enel Iberdrola SSE EOn RWE Centrica Engie3 Vattenfall Verbund Fortum EDF Source: Company reports and
Slide 5: Outperforming most peers
Outperforming most peers Strong EBITDA growth track-record CAGR 2013–2015 % Q1 2016 y/y growth of 35% 11.4% 11.1% 4.6% 4.4% 1 4.1% 4.0% (4.3%) (5.8%) (7.0%) (9.3%) (13.3%) (14.9%) (20.0%) (20.6%) EDPR EDF EDP SSE Iberdrola ENEL RWE Engie E.ON Vattenfall Verbund Fortum Centrica Source: Company report
Slide 6: Investment strategy drives growth and returns
Investment strategy drives growth and returns Gross CAPEX target 2016-2020 Wind Power Danish utility Oil & Gas Growth engine Stable earnings and green conversion Cash generator – Invest in competitive advantage – Optimise regulated returns and – Manage quality producing assets and accelerated, profi
Slide 7: Offshore wind is a large scale renewable technology with growth rates exceeding other renewables
Offshore wind is a large scale renewable technology with growth rates exceeding other renewables Fastest growing renewable technology in OECD Offshore wind offers multiple advantages Installed capacity CAGR, 2014-2020 % Utility size power generation Offshore wind 25% 659 MW Walney Extension will pow
Slide 8: DONG Energy pioneered the offshore wind industry and is today the global leader
DONG Energy pioneered the offshore wind industry and is today the global leader Largest offshore wind player globally today Wind Power’s scale enables cluster synergies Global offshore wind capacity MW • 1 UK West coast (East Irish Sea): Barrow, Burbo Bank, Burbo Bank Extension, West of Duddon Sands
Slide 9: Robust and highly visible offshore wind build-out plan until 2020
Robust and highly visible offshore wind build-out plan until 2020 3.7 GW with secured consent and subsidies currently under construction Borkum DONG Energy installed capacity projection towards 2020 Riffgrund 2 GW Hornsea 1 (450 MW) 6.7 (1,200 MW)1 0.4 Walney Extension 1.2 Burbo (659 MW) Bank Race B
Slide 10: Wind Power has built a strong integrated end-to-end business model
Wind Power has built a strong integrated end-to-end business model DONG Energy Wind Power core competencies ~1,970 Full-time employees2 Develop Build Operate Own Identify and mature Manage Conduct life-cycle Attract capital projects ~100 construction, ~1,140 maintenance ~640 through partnerships ~90
Slide 11: Proven construction track-record and leading operating capabilities
Proven construction track-record and leading operating capabilities Construction track-record due to full EPC1 control Leader in operating offshore wind farms # of operated turbines end of 2015 Gross capacity Country Asset FID (MW) FID budget 900 Westermost Rough 2013 210 15-20%, below 2x Vattenfall
Slide 12: At the forefront of making the industry cost competitive
At the forefront of making the industry cost competitive Multiple levers to drive down cost in offshore wind Rapid technological development Wind turbine rotor diameter, year of commissioning Development Impact 180m 164m Turbines 6-8 MW +10 MW Fewer positions Boeing 747, 76m 154m and rotor siz
Slide 13: Partnership model allows for significant portfolio value with less capital and reduced risk
Partnership model allows for significant portfolio value with less capital and reduced risk Significant up-front value realisation from DKK +42 Bn secured between 2010-2016 partnership model Wind farm partners by type, geography and # of partnerships1 Illustrative Without farm down With farm down (1
Slide 14: Global potential with high long-term growth in existing and new offshore wind markets
Global potential with high long-term growth in existing and new offshore wind markets Strong growth in existing and new offshore wind Continued robust growth in Europe and potential long-term markets opportunity globally 9 GW/year Installed cumulative capacity forecast Political targets for offshore
Slide 15: 2021-2025 growth aspiration supported by substantial pipeline options
DONG Energy’s 2021-2025 growth aspiration of 5 GW supported by substantial pipeline options Pipeline options to date for 2021-2025 construction GW Post 2020 Wind Power opportunity segmentation Pipeline options (GW) Projects # projects 1 Competition among sites Hornsea 2 (1.8 GW) and Hornsea 3 (2
Slide 16: Connecting the dots: Shaping a double-digit IRR case in 18 months
Connecting the dots: Shaping a double-digit IRR case in 18 months Race Bank – a show case of value creation from the integrated business model Example Є Strong buying power Innovative technology December 2013 Project under development acquired Superior standardised design Synergies from O&M cluster
Slide 17: Danish utility
Danish utility % share of Danish utility 2015 operating profit (EBITDA) Distribution 67% Customer solutions 21% Bioenergy & Thermal Power 12% Stable earnings from regulated business Market leading B2C position with +700k 8 combined heat and power plants (CHPs), power and +90k gas supply B2C cu
Slide 18: Oil & Gas: Low-cost, low-risk asset portfolio
Oil & Gas: Low-cost, low-risk asset portfolio centred around three high-quality, cash generative assets Sizeable and well positioned portfolio Three attractive high-quality assets constituting ~75% of production in 2015 Focused North Western European footprint with more than 30 years of experience C
Slide 19: Strong growth in operating profit
Strong growth in operating profit Operating profit (EBITDA) DKK Bn, % Danish utility and Oil & Gas Wind Power CAGR 8-11% 20-23 18.5 16.4 15.0 13.7 8.6 10-12 6.1 6.2 4.3 1.8 2.5 2011 2012 2013 2014 2015 2016 outlook 19
Slide 20: Highly visible long-term growth in Wind Power with secured subsidies
Highly visible long-term growth in Wind Power with secured subsidies Regime overview for production capacity1, end of period GW, Production capacity 6.0 Based on Wind Power aspiration to construct 1 GW per year (2021-2025) 2.52 3.5 0.7 0.5 2.9 2.7 0.2 0.7 0.4 1.1 2.1 1.9 1.1 0.4 0.4 1.7 0.4 0.4 1.4
Slide 21: EPC wrap / Construction Agreement – selected items
Illustrative example of Wind Power Partnership mechanics: EPC wrap / Construction Agreement – selected items1 CAPEX – base EBITDA Without farm down Without farm down Y-4 Y-3 Y-2 Y-1 Y1 Y2 Y3 Y4 Y5 Y-4 Y-3 Y-2 Y-1 Y1 Y2 Y3 Y4 Y5 CAPEX EBITDA - Production CAPEX – base EBITDA With farm down With farm d
Slide 22: Quality of earnings is going up
Quality of earnings is going up Operating profit (EBITDA) contribution from regulated, quasi-regulated and contracted activities Share of operating profit (EBITDA) Market exposed Majority of the commodity price exposure Illustrative was hedged at the beginning of 20151 80-90% Contracted 7% 34% Regul
Slide 23: UK energy policy and hedging strategy mitigate potential risks of EU referendum
UK energy policy and DONG Energy’s hedging strategy mitigate potential risks of EU referendum View on impact of Brexit on UK energy policy and Conservative hedging policy limits FX risk commitment to offshore wind GBP exposure1 2016-2020 DKK Bn 56.7 UK energy policy independent of EU energy 15.9 p
Slide 24: ROCE growth supported by investments in offshore wind
ROCE growth supported by investments in offshore wind Adjusted ROCE1 Key ROCE drivers % Investment programme focused on attractive Wind Power projects Partnership model reduces capital employed while retaining NPV ROCE expected range Investments in Power Distribution and Bioenergy at solid, st
Slide 25: Committed to high single digit dividend growth towards 2020
Committed to high single digit dividend growth towards 2020 DONG Energy will expect to pay a dividend of DKK 2.5 Bn for FY 2016 For subsequent years towards 2020, DONG Energy’s target, supported by expected cash flow growth from new offshore wind farms coming into operation, is to increase the d
Slide 26: Continued strong earnings growth in Q1 2016
Continued strong earnings growth in Q1 2016 Growth trajectory continues Group EBITDA DKK Bn 35% EBITDA growth, both reported and underlying 18.5 Strong underlying growth in Wind Power with contribution 16.4 from new wind farms and higher activity on partnership 15.0 Wind contracts. Q1 2016 y/y g
Slide 27: Appendix – DONG Energy Group
APPENDIX – DONG ENERGY GROUP
Slide 28: Strong EBITDA growth
Strong EBITDA growth EBITDA1 % CAGR % CAGR, excl. non-recurring items3 DKK Bn, % 11% 8-24% 8%4 16-37% 20-23 18.5 0.1 16.4 15.0 6.1 0.3 6.1 5.7 2.2 1.4 0.4 10-12 2.3 6.2 0.7 4.9 4.3 1.7 1.1 2.5 2.5 ~3.5 1.6 (0.1) (0.2) 2016 2013 2014 2015 outlook Other activities / Wind Power Bioenergy & Thermal Powe
Slide 29: Directional business unit guidance for 2016-2017
Directional business unit guidance for 2016-2017 Direction of expected development vs. previous year 2015 to 2016 Guidance 2016 to 2017 Guidance Ramp up of power generation Ramp up of power generation from Substantially higher activity and earnings from farm down gains Higher activity from farm down
Slide 30: Overview of DONG Energy Group tax
Overview of DONG Energy Group tax P&L tax Key commentary DKK Bn, % Past development 534% (150%) (29%) The Group is subject to various tax regimes due to its operations in different 1.2 3.2 2.7 0.6 countries with the most significant being Norway, Denmark and UK 4.0 4.9 3.9 (2.7) (1.6) (0.5) From
Slide 31: Oil & Gas not expected to pay tax in Denmark and UK
Oil & Gas not expected to pay tax in Denmark and UK due to tax loss carry forward P&L tax Key commentary DKK Bn Substantial costs associated with establishing oil and gas production 4.9 3.3 facilities in Denmark and UK have resulted in the accumulation of 4.0 4.9 significant tax assets and no tax
Slide 32: Robust capital structure foundation for future growth
Robust capital structure foundation for future growth Solid credit metrics supporting rating target of Baa1/BBB+ FFO / Adjusted Net Debt, %1 Decisively improved credit metrics after decline in 2012 through divestment programme (DKK 23 Bn), equity injection (DKK 13 Bn) and cost reductions (DKK 1.4 Bn
Slide 33: Well balanced capital structure with a low risk profile
Well balanced capital structure with a low risk profile Stable ratings Well-balanced debt profile with long maturity2 Rating history (solicited ratings) DKK Bn Outstanding loans and bonds: DKK 35.7 Bn A- / A3 BBB+ / EUR bonds GBP bonds Bank loans 12.3 Baa1 EUR 524 MM (DKK 3.9 Bn) in total repurchase
Slide 34: Risk management mandates and historical risk exposure
Risk management mandates and historical risk exposure Centralised risk management Group hedge Market Trading Netting Hedging strategies are executed in the market VaR1: Max DKK 70 MM (BoD) and max DKK 50 MM (Group Market Management) (strict control of counterparties’ creditworthiness) Stress
Slide 35: Commodity price risk management
Commodity price risk management Energy price exposure and purpose of risk management Board mandates for minimum hedging requirements Outright power exposure from Actual hedge1 % Risk management purpose DONG Energy’s production 2016: 94% 2017: 92% Protect value of assets 75% 2018: 76% 50% Spread ex
Slide 36: Significant current value in Oil & Gas hedges
Significant current value in Oil & Gas hedges Extensive hedging to secure after tax result Illustrative example of hedging after tax DONG Energy has a conservative hedge policy with a hedge horizon of up to 5 years for oil and gas production Assumptions: Norwegian gas exposure of DKK 1,000 MM
Slide 37: Elsam cases
Elsam cases Cases against the competition authorities Pending claims for damages and economic exposure Elsam 03-04: Alleged abuse of a dominant position in the form 2003-2004 of excessive pricing in the Western Danish market for wholesale electricity in 2003 - 2004 Claims for Damages. Based on Els
Slide 38: Income statement
Income statement 2015 2014 2013 Business Business Business DKK MM Adjustments IFRS Adjustments IFRS Adjustments IFRS performance performance performance Revenue 70,843 3,544 74,387 67,048 4,781 71,829 73,105 (906) 72,199 Cost of sales (44,966) (106) (45,072) (42,226) (837) (43,063) (47,224) 101 (47,
Slide 39: Balance sheet & cash flow statement
Balance sheet & cash flow statement DKK MM 2015 2014 2013 DKK MM 2015 2014 2013 Balance Sheet Items Cash flow statement EBITDA 18,484 16,389 15,044 Tangible and intangible assets 81,363 87,275 93,689 Other adjustments (482) (658) 2,540 Assets held for sale 1,452 (1) 278 Financial items, net (658) (1
Slide 40: Segment information – 2015
Segment information – 2015 Bioenergy & Distribution & Reporting Other activities/ Business DKK MM Wind Power Oil & Gas Adjustments IFRS Thermal Power Customer Solutions segments eliminations performance INCOME STATEMENT External revenue 11,818 4,651 48,485 5,399 70,353 490 70,843 3,544 74,387 Intrag
Slide 41: Appendix – Wind Power
APPENDIX – WIND POWER
Slide 42: Wind Power fact sheet
Wind Power fact sheet Offshore wind farms1 Denmark Park Installed DE ownership Owned Financial Commercial Fixed feed-in tarif, GWh Partners capacity, MW capacity, MW share, % capacity, MW consolidation operational date Subsidy regime Subsidy expiry DKK/MWh Anholt Pension Danmark, PKA 400 400 50% 200
Slide 43: Gode Wind 1&2 project overview
Gode Wind 1&2 project overview Activity completed Activity commenced Component in fabrication Activity pending Geographic location Project status and challenges1 On budget On time HSE Borkum Riffgrund 1 Offshore Array First Gode Wind 1&2 substation cables power Borkum Riffgrund 2 Norddeich FID Found
Slide 44: Burbo Bank Extension project overview
Burbo Bank Extension project overview Activity completed Activity commenced Component in fabrication Activity pending Geographic location Project status and challenges1 On budget On time HSE Onshore Offshore Array First Walney civil works substation cables power Extension Walney 1&2 Barrow-in-Furnes
Slide 45: Race Bank project overview
Race Bank project overview Activity completed Activity commenced Component in fabrication Activity pending Geographic location Project status and challenges1 On budget Westermost Hornsea 1 On time Rough HSE Grimsby Race Bank Onshore Offshore Array First civil works substation cables power FID Onsh.
Slide 46: Walney Extension project overview
Walney Extension project overview Activity completed Activity commenced Component in fabrication Activity pending Geographic location Project status and challenges1 On budget On time HSE Project located next to Walney 1&2 Walney Onshore Offshore Array First (CoD in 2012) Extension civil works substa
Slide 47: Hornsea 1 project overview
Hornsea 1 project overview Activity completed Activity commenced Component in fabrication Activity pending Geographic location Project status and challenges2 On budget Westermost ~60% of main contracts signed incl. On time Rough Hornsea 1 export cables, offshore substation, turbines and onshore civi
Slide 48: Borkum Riffgrund 2 project overview
Borkum Riffgrund 2 project overview Activity completed Activity commenced Component in fabrication Activity pending Geographic location Project status and challenges1 Project located next to the Borkum Riffgrund 1 project (CoD in 2015) Gode Wind 1&2 Offshore Array First Borkum Riffgrund 1 substation
Slide 49: Wind Power value drivers – Execution assets
Wind Power value drivers Key drivers1 Capacity Year Owner- Name (MW) commissioned ship Execution Assets2 Gode Wind 1 330 Q3 2016 50% 48-50% (weighted average) Load Factor Burbo Bank Extension is an outlier with lower than average expected load factor Gode Wind 2 252 Q2 2016 50% Primarily include BSU
Slide 50: Key financial accounting and tax recognition effects for Wind Power partnerships
Overview of key financial accounting and tax recognition effects for Wind Power partnerships Deal elements Accounting Development Construction Operation Examples 12-24 months Westermost Burbo Bank Rough Extension FID Farm down (shared risk) (EPC wrap) SPA gain SPA Gain on shares Other operating inco
Slide 51: EPC wrap / Construction Agreement – all items
Illustrative example of Wind Power Partnership mechanics: EPC wrap / Construction Agreement – all items Without farm down1 With farm down Free cash flow Free cash flow Illustrative Illustrative Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 … Y15 … Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 … Y15 … Free cash flow Delta NWC (OFTO) Taxes Free
Slide 52: Appendix – Bioenergy & Thermal Power
APPENDIX – BIOENERGY & THERMAL POWER
Slide 53: Stable financial profile in Heat and Ancillary services
Stable financial profile in Heat and Ancillary services Volume1 EBITDA Free cash flow TWh DKK Bn DKK Bn Targeting positive free cash flow from Heat EBITDA is expected to more 2018, when current bio-conversions are than double from 2015 when the 5.2 complete and heat income from related bio-conversio
Slide 54: Resilient heat production business with growing contribution from converted biomass plants
Resilient heat production business with a growing contribution from converted biomass plants Transformation of business model On track to meet ambitious biomass strategic target is well underway From To Conversion CHP (MWe/MWth)1 DONG Energy heat capacity per fuel type (MW, %) a Herning (77/150) Str
Slide 55: Growth opportunities based on core capabilities in the bioenergy value chain
Growth opportunities based on core capabilities in the bioenergy value chain A range of growth opportunities are explored Country Idea/ Maturation Construction Operation REnescience – enzyme-based separation of unsorted Opportunity Description Analysis waste from households Conversions Bio-conversio
Slide 56: Appendix – Distribution and Customer Solutions
APPENDIX – DISTRIBUTION AND CUSTOMER SOLUTIONS
Slide 57: Distribution & Customer Solutions EBITDA anchored in stable Power Distribution business
Distribution & Customer Solutions EBITDA anchored in stable Power Distribution business EBITDA Free cash flow Capital employed and ROCE DKK Bn DKK Bn DKK Bn, % 49.7 48.1 49.4 5.9% 0.7% 11.5% 9-11% 2.3 2.2 14.6 1.4 3.0 0.9 0.7 2.7 4.5 9.9 8.7 2.2 0.8 0.1 0.6 0.1 ROCE 0.3 0.5 0.6 2.8 0.2 0.4 0.3 0.2 0
Slide 58: Regulatory framework provides for stable earnings
Regulatory framework provides for stable earnings Current regulation based on Revenue and Return Cap Value creating business model Illustrative Revenue level in Revenue Cap1 Corrections 2004 Return on Return Cap2 Cost Regulated Asset Base Cost-plus regulation capped by historical tariffs Cost and
Slide 59: Continued asset base growth and focus on efficiency
Continued asset base growth and focus on efficiency Increasing Regulated Asset Base1 Large investment projects increase RAB 5% DKK Bn Roll out of ~1 MM remote power meters (RPM) to all 13.7 Remote customers during 2017-2019 10.8 10.7 Power Meters Total CAPEX of DKK ~2.1 Bn, of which DKK ~1.7 Bn
Slide 60: Appendix – Oil & Gas
APPENDIX —- OIL & GAS DONG energy
Slide 61: Oil & Gas financial performance
Oil & Gas financial performance Revenue EBITDA pre-HCT1 Free cash flow3 DKK Bn DKK Bn DKK Bn 0.7 14.0 0.5 12.3 12.8 0.6 0.5 9.8 0.1 0.6 0.4 7.3 8.6 1.7 1.7 5.4 6.0 4.0 FCF 1.6 2.5 8.2 positive 7.9 2.5 7.5 1.2 (5.0) (6.0) 8.3 7.4 5.3 (9.6) 4.7 5.3 3.3 (0.9) (0.9) (1.3) (0.9) (1.7) (5.6) 2013 2014 201
Slide 62: O&G business managed for cash – targeting positive free cash flow from 2017
O&G business managed for cash – targeting positive free cash flow from 2017 5 key pillars of O&G way forward Exploration and appraisal investments kept to a minimum Honour existing licensing commitments and support continued Implications optimisation of core assets Focus on building a leading O&G
Slide 63: Hejre
Hejre Project status Two possible scenarios for the license going forward • The platform EPC contract has been terminated. As a result, the platform will not be completed and the Hejre project in its current form has been stopped • DONG Energy will be controlling the termination process and will ass