Orsted · OMXCOP:ORSTED
Orsted — DONG Energy — Q1 2017 Earnings Presentation
41 slides from Orsted's earnings presentation, 2017
Slide 1: Presentation Q1 2017
PRESENTATION Q1 2017 energy
Slide 2: Disclaimer
DISCLAIMER. Certain statements in this presentation are based on the beliefs of our management as well as assumptions made by and information currently available to the management. Forward-looking statements (other than statements of historical fact) regarding our future results of operations, finan
Slide 3: EBITDA and net profit
EBITDA - Continuing operations, DKKbn Net profit Net profit Continuing operations, DKKm Discontinued operations, DKKm 7.1 -3.0 -0.6 -0.7 +0.4 +0.1 3.3 4,980 1,426 EBITDA Non- Farm Construction Operating Other EBITDA 1,214 236 Q1 2016 recurring down contracts wind farms Q1 2017 items Q1 2016 Q1 2017
Slide 4: Free cash flow and net interest-bearing debt
Free cash flow Net interest-bearing debt FFO/Adjusted net debt1 Adjusted ROCE2 Continuing operations, DKKm DKKm % % 7,078 6,523 17.4 68 14.9 46 -1,549 940 Q1 2016 Q1 2017 Q1 2016 Q1 2017 Q1 2016 Q1 2017 Q1 2016 Q1 2017 FCF decreased DKK 8.6bn NIBD totalling DKK 6.5bn FFO/Adjusted net debt 46% Adjust
Slide 5: Wind Power results
Power generation EBITDA Sites Free cash flow Adjusted ROCE1 TWh DKKm Construction contracts DKKm % Other 2,900 2,139 1,771 4,827 2,145 2.1 1.7 1,598 14.9 311 8.9 -469 -317 -1,581 Q1 2016 Q1 2017 Q1 2016 Q1 2017 Q1 2016 Q1 2017 Q1 2016 Q1 2017 Power generation up 24% EBITDA down DKK 0.8bn FCF decreas
Slide 6: Wind power measures, Q1
Key commentary Wind power measures, Q1 % • Following weak winds in January, both February and March were close to a normal wind year • Q1 2017 WEC at 105%, 6%-point lower than Q1 2016 • Q1 WEC in a normal wind year is 120% • Availability 4%-point above last year, due to Walney Ext. cable failure in
Slide 7: Bioenergy & Thermal Power results
Revenue Degree days EBITDA Free cash flow DKKm DKKm DKKm DKKm 2,247 1,300 207 230 1,244 1,842 154 23 Q1 2016 Q1 2017 Q1 2016 Q1 2017 Q1 2016 Q1 2017 Q1 2016 Q1 2017 Revenue up DKK 0.4bn Warmer weather EBITDA increased DKK 0.1bn FCF increased by DKK 0.2bn • Heat revenue increased due to • Number of d
Slide 8: Distribution & Customer Solutions results
Reported EBITDA Underlying EBITDA Free cash flow Adjusted ROCE1 DKKm DKKm DKKm % 3,906 1,185 3,002 51.6 ~900 44.2 1,489 1,185 Q1 2016 Q1 2017 Q1 2016 Q1 2017 Q1 2016 Q1 2017 Q1 2016 Q1 2017 Reported EBITDA down Underlying EBITDA up FCF decreased by DKK 1.5bn Adjusted ROCE down 7%-point DKK 2.7bn DKK
Slide 9: Oil and gas results
Oil and gas production EBITDA Net profit Free cash flow BOEm Gas DKKm DKKm DKKm Oil 10.0 7.5 7.6 1,426 2,071 2,449 5.7 1,004 2.4 1.8 236 478 Q1 2016 Q1 2017 Q1 2016 Q1 2017 Q1 2016 Q1 2017 Q1 2016 Q1 2017 Production down 25% EBITDA up DKK 1.4bn Net profit up DKK 1.2bn FCF increased by DKK 1.6bn • Lo
Slide 10: Accumulated energy and currency exposures
Accumulated energy and currency exposures Q2 2017 - Q1 20221 Before hedging DKKbn After hedging 58.4 17.1 11.3 5.3 3.0 0.0 0.6 0.6 0.0 0.2 -4.4 -3.9 GBP USD Outright power Spread (power) Oil Gas • GBP exposure is almost fully hedged for 2017-2018, and • The power exposure is almost fully hedged in 2
Slide 11: Interest rate and inflation risk management
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 Distribution) Medium duration Inflation indexed and Fixed rate debt
Slide 12: Financial outlook reiterated
Financial outlook reiterated EBITDA (BUSINESS PERFORMANCE) OUTLOOK 2017 RETURN ON CAPITAL EMPLOYED (ROCE) Group DKK 15-17bn 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 Powe
Slide 13: DONG Energy
DONG energy
Slide 14: DONG Energy
DONG energy
Slide 15: Financial highlights
FINANCIAL HIGHLIGHTS Q1 17 Q1 16 D EBITDA DKKm 3,288 7,805 (54%) • Wind Power 2,139 2,900 (26%) • Bioenergy & Thermal Power 207 154 34% • Distribution & Customer Solutions 1,185 3,906 (70%) Net profit – continuing operations 1,214 4,980 (76%) Net profit – discontinued operations 1,426 236 504% Total
Slide 16: Wind Power financial highlights
FINANCIAL HIGHLIGHTS Q1 17 Q1 16 D EBITDA DKKm 2,139 2,900 (26%) • Sites incl. O&Ms and PPAs 2,145 1,771 21% • Construction contracts and farm down gains 311 1,598 (81%) • Other incl. A2SEA and project development (317) (469) (32%) Adjusted ROCE1 % 14.9 8.9 6.0%p KEY BUSINESS DRIVERS Power generatio
Slide 17: Bioenergy & Thermal Power financial highlights
FINANCIAL HIGHLIGHTS Q1 17 Q1 16 D EBITDA DKKm 207 154 34% • Heat 243 132 84% • Ancillary services 78 68 15% • Power (114) (46) 148% Free cash flow 230 23 900% KEY BUSINESS DRIVERS Heat generation TWh 4.2 4.3 (3%) Power generation TWh 3.2 3.0 6% Degree days # 1,244 1,300 (4%) Power price, DK EUR/MWh
Slide 18: Distribution & Customer Solutions financial highlights
FINANCIAL HIGHLIGHTS Q1 17 Q1 16 D EBITDA DKKm 1,185 3,906 (70%) • Distribution 468 680 (31%) • Sales 22 34 (35%) • Markets 631 3,260 (81%) • LNG 64 (68) n.a. Adjusted ROCE1 % 44.2 51.6 (7.4%p) KEY BUSINESS DRIVERS RAB Power DKKm 10,648 10,778 (1%) Gas sales TWh 41.5 41.6 (0%) Power sales TWh 10.1 1
Slide 19: Oil & Gas financial highlights
FINANCIAL HIGHLIGHTS Q1 17 Q1 16 D EBITDA DKKm 2,449 1,004 144% • Denmark 454 (715) n.a. • Norway 976 940 4% • United Kingdom 262 (13) n.a. • Exploration and appraisal (57) (77) (26%) • Hedges 814 869 (6%) Free cash flow 2,071 478 333% KEY BUSINESS DRIVERS Oil production BOEm 1.8 2.4 (25%) Gas produ
Slide 20: Oil and gas energy and currency exposures
Accumulated energy and currency exposures Q2 2017 - Q1 20221 (DKKbn) 10.0 9.6 5.6 6.0 5.4 4.2 0.0 0.0 0.0 -0.5 Oil Gas GBP USD NOK Before hedging After hedging • Significant long exposure on both gas and oil are labelled discontinued • Hedging of the price risk continuous until time of divestment to
Slide 21: EBITDA business performance vs IFRS
DKKm Q1 2017 Q1 2016 EBITDA – BUSINESS PERFORMANCE (BP) 3,288 7,085 BP adjustment in respect of revenue for the year 929 255 BP adjustment in respect of COGS for the year (374) 317 EBITDA – IFRS 3,843 7,657 Total BP adjustments for the year comprise: MtM of financial and physical hedging contracts r
Slide 22: Gross and net investments
GROSS AND NET INVESTMENTS (DKKm) Q1 2017 Q1 2016 Cash flow from investing activities (1,026) (4,846) Dividends received and capital reduction, reversed 0 0 Purchase and sale of securities, reversed (1,401) 3,680 Loans to associates and JVs, reversed 1 (86) Sale of assets and companies reversed (75)
Slide 23: Funds from operations / adjusted net debt
FUNDS FROM OPERATIONS / ADJUSTED NET DEBT (DKKm) Q1 20171 FY 20161 Q1 20161 Note: Following the initiated sales process of the O&G EBITDA – Business Performance 15,311 19,109 13,331 business and the fact that O&G is presented as asset Interest expenses, net (418) (402) (252) held for sale and discon
Slide 24: Net interest-bearing debt development
Net interest-bearing debt (NIBD) development Gross investments per Capital employed per DKKbn business unit - Q1 2017 business unit - Q1 2017 (continuing operations) (continuing operations) 2.5 1.0 6.5 5% 11% 2.5 0.1 15% 3% 3.5 0.9 2.5 64.6 DKKbn DKKbn 80% 86% NIBD, Cash from Gross Divestments Divid
Slide 25: Gross debt and hybrids, net debt, maturity schedule
Gross debt and hybrids Net debt Long term debt maturity schedule Q1 2017 DKKbn Q1 2017 12 594% 10 11% 1% 8 38.0 53% 6.5 6 DKKbn 35% 4 2 0.9 0 2025+ 2017 2018 2019 2020 2021 2022 2023 2024 2025 Q1 2016 Q1 2017 Bonds Hybrids Bank loans Other debt Bonds Bank loans 25
Slide 26: Key risk figures and effective funding costs
Effective funding costs - gross debt Key risk figures Q1 2017 (excl. hybrid) Bond and bank debt (excl. Hybrid), LHS, DKKbn (excl. hybrid) Gross interest expense (excl. Hybrid), LHS, DKKbn DKKbn Average effective interest rate (excl. Hybrid), RHS, % Cost of Modified Avg. time to % 70 6 debt (%) durat
Slide 27: Hybrid capital
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 manner • Without being dil
Slide 28: Hybrid capital relative cost analysis
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 in year 5: 3.5% (pre-tax)
Slide 29: Centralised financing strategy
We have a centralised financing strategy All cash flow generated by our subsidiaries as customary for vertically and supports the creditworthiness and rating of horizontally integrated European energy and thus the debt taken up by the Group utilities parent The centralised financing strategy was The
Slide 30: Currency risk management
• 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 risk is hedged concurrently wit
Slide 31: Hedging of FX in construction, farm downs and operations
Construction and Farm downs – Hedging of FX Commercial Operations – Hedging of FX and power Decision gates 100 • Early hedging of potential large DEVEX items Pre-FID 80 on a 100% basis 75 60 • Hedging of transmission asset divestment and 50 Final Investment CAPEX in GBP (100% share) 40 Decision • He
Slide 32: Offshore wind construction programme
MW 700 2 1,200 450 Target 6.5 GW 659 573 258 6,731 3,591 2016 Burbo Bank Race Bank Walney Borkum Hornsea 1 2020 Borssele Extension Extension Riffgrund 2 1&2 Country UK UK UK Germany UK Netherlands 1 Expected completion 2017 2018 2018 2019 2020 2020/21 On time/budget / / / / / / Siemens 7.0 MW Turbin
Slide 33: Fastest growing renewable technology in OECD
Fastest growing renewable technology in OECD Offshore wind offers multiple advantages Installed capacity CAGR, 2014-2020 % Offshore 25% Utility size power generation wind 659 MW Walney Extension will power more than 460,000 UK homes Solar PV 1 14% Offers +45% load factors2 Significantly higher than
Slide 34: Wind Power core competencies
DONG Energy Wind Power core competencies ~2000 : Full-time employees2 Develop Build Operate Own Identify and mature Manage construction, Conduct life-cycle Attract capital through projects sourcing and supply maintenance partnerships ~110 ~1,150 ~640 ~100 • Ability to design and optimise projects wi
Slide 35: Strong construction track-record, leader in operating offshore wind
Strong construction track-record due to full EPC1 Leader in operating offshore wind farms control # of operated turbines January 2017 GROSS DONG Energy 1020 COUNTRY ASSET FID CAPACITY(MW) FID BUDGET x2 UK Westermost Rough 2013 210 15-20%, below Vattenfall 443 Germany Borkum Riffgrund 1 2011 312 5-10
Slide 36: Partnership model and up-front value realisation
Significant up-front value realisation from Wind farm partners by type, geography and # of partnership model partnerships1 Illustrative Without farm down With farm down (100% ownership) (50% ownership) Institutional 2 debt Insurance. Investments Capital employed Infrastructure / sovereign wealth fun
Slide 37: Race Bank value creation example
Race Bank – a show case of value creation from the integrated business model Example Strong buying power December 2013 Innovative technology Project under development acquired Superior standardised design Synergies from O&M cluster June 2015 FID with double-digit 1st mover on 6.3 MW turbine1 IRR for
Slide 38: Farm-down deal elements and accounting
Deal elements Accounting Development Construction Operation Examples Westermost Burbo Bank 12-24 months Rough Extension FID Farm down (shared risk) (EPC wrap) Other operating SPA gain SPA Gain on shares income1 No paid tax locally During construction Revenue/COGS/ CA Construction agreement2 OPEX At
Slide 39: Offshore wind farms asset book
OFFSHORE WIND FARMS1 Asset Book updated as of 31 March 2017 Denmark Park Installed DE ow nership Ow ned Financial GWh Partners capacity, MW capacity, MW share, % capacity, MW consolidation Commercial operational date Subsidy regime Subsidy expiry Fixed feed-in tariff, DKK/MWh Anholt Pension Danmark,
Slide 40: Regulation and value creating business model
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 Contractor Cost in Ordinary Excess Regulatory • Ex
Slide 41: Investor Relations contacts
Henrik Brünniche Lund Sabine Lohse Rasmus Keglberg Hærvig Head of Investor Relations IR Officer IR Officer HEBRL@dongenergy.dk SABLO@dongenergy.dk RAKOL@dongenergy.dk