Slide 1: 2012 results and 2020 strategy
2012 results and 2020 strategy 27 February, 2013
Slide 2: Disclaimer
Disclaimer Certain statements in this presentation are based on the beliefs of our We urge you to read our annual report available on our website at management as well as assumptions made by and information currently www.dongenergy.com for a discussion of some of the factors that could available to
Slide 3: 2012 Annual Results, Financial Action Plan, 2020 Strategy, Targets
2012 Annual Results 2013-14 Financial Action Plan 2020 Strategy Targets and Guidance 2012 RESULTS AND 2020 STRATEGY 3
Slide 4: Unsatisfactory 2012 results
Unsatisfactory 2012 results EBITDA Challenging situation in Energy Markets Group EBITDA Low thermal production and spreads DKKbn -37% Siri repair 14.1 13.8 13.4 Higher oil & gas prices and higher production Gain from construction agreements in Wind Power 9.3 8.6 Increased production from
Slide 5: Four of five BUs on track
Four of five BUs on track EBITDA 2011 DKKbn 2012 5.7 Higher production and higher oil & gas prices E&P 6.6 Higher Siri repair costs 1.8 Earnings from construction for co-investors WP 2.5 Higher production from new wind farms 2.3 Lower production and spreads due to higher hydro levels TP 2.
Slide 6: Challenges in Energy Markets
Challenges in Energy Markets Energy Markets from 2011 to 2012 EBITDA Negative impact from oil/gas spread on long term DKKbn 2011 2.0 gas sourcing contracts Negative impact from reduced volumes from legacy One-off gas purchase contracts renegotiation gain in 2011 1.0 One-off gain in 2011 from r
Slide 7: Declining returns
Declining returns Group ROCE ROCE % % 11.6 9.6 5.5 5.7 -7.4 2008 2009 2010 2011 2012 2012 RESULTS AND 2020 STRATEGY 7
Slide 8: Capital structure under pressure
Capital structure under pressure Adjusted net debt/EBITDA Adjusted net debt 36 x 4.1 DKKbn 31 26 26 Non-cash 19 1.0 3.3 provisions Target <2.5x 2008 2009 2010 2011 2012 1.9 1.9 EBITDA ÷ 1.4 3.1 DKKbn 13 14 14 9 9 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 2012 RESULTS AND 2020 STRATEGY 8
Slide 9: Deterioration in credit metrics
Deterioration in credit metrics Credit metrics below rating requirements in 2012 Credit metrics FFO/Net debt and RCF/Net debt S&P downgrade to BBB+ in October 2012 Current rating on negative outlook from S&P and Fitch Significant decline Rating pressure expected to continue in the Utilities
Slide 10: 2013-14 Financial Action Plan
2013-14 Financial Action Plan 2012 RESULTS AND 2020 STRATEGY 10
Slide 11: 2013-14 Financial Action Plan
2013-14 Financial Action Plan 1 Divest DKK 10bn of non-core assets 2 Selective farm-down of core assets 3 Reduce costs by DKK 1.2bn, full effect in 2013 4 Restructure Energy Markets 5 Inject equity of at least DKK 6-8bn 2012 RESULTS AND 2020 STRATEGY 11
Slide 12: Restructure Energy Markets
Restructure Energy Markets Profitability restored from 2014 Focus on optimising gas and power flows and managing group exposure Renegotiate long term gas contracts with significant positive impact in the coming years Optimise value of CCGT, LNG and storage assets Flat and simplified organisa
Slide 13: Injecting equity
Injecting equity DONG Energy will seek to raise at least DKK 6-8bn of additional equity Process is supported by the majority shareholder, the Danish State DONG Energy will seek to raise the equity from new and/or existing shareholders [PICTURE] The Danish State will remain majority sharehold
Slide 14: Key assets on stream towards 2016
Key assets on stream towards 2016 London Array (630 MW1,2) West of Duddon Sands Borkum Riffg. 1 (277 MW1) Anholt (400 MW1) (389 MW1) Westermost R. (210 MW1) Lincs (270 MW1,2) 2013 2014 2015 South Arne phase 3 Laggan-Tormore Hejre (DK oil field – 16MMboe3) (UK gas field – 44MMboe3) (DK oil field – 10
Slide 15: Restoring financial robustness
Restoring financial robustness Rating metrics FFO/Net debt and RCF/Net debt DONG Energy to maintain minimum rating target of BBB+/Baa1 2012 Divestment of Core asset Cost reductions Restructure Inject equity Underlying Target performance non-core assets farm-downs Energy Markets business 2014 incl. n
Slide 16: 2020 Strategy
2020 Strategy 2012 RESULTS AND 2020 STRATEGY 16
Slide 17: What strategy must deliver
What strategy must deliver TRANSFORM BUSINESS TRANSFORM ENERGY SYSTEM CREATE FINANCIAL VALUE Share of Group EBITDA CO2 intensity ROCE Growth gCO2/kWh Legacy 2006 2020 2009 2020 2012 2020 2012 RESULTS AND 2020 STRATEGY 17
Slide 18: Future investment focus
Future investment focus INVESTMENT IN NEW ASSETS INVESTMENT IN EXISTING ASSETS NO FURTHER COMMITMENT Offshore Wind Danish Power Plants LNG Oil & Gas Distribution Grid Gas Storage Onshore Wind Hydro Gas Fired Power Plants Waste Fired Power Plants Electric Vehicles 2012 RESULTS A
Slide 19: 2020 strategy
2020 strategy Sustain market leadership; 1 quadruple capacity Reinforce regional position; 2 double production Convert to biomass; 3 provide flexibility Develop energy solutions and 4 intelligent grid 5 Simplify operating model 2012 RESULTS AND 2020 STRATEGY 19
Slide 20: Strategic focus
Strategic focus Projected share of investments 2013-2020 OFFSHORE WIND OIL AND GAS POWER PLANTS SALES & DISTRIBUTION DONG Energy capacity1 DONG Energy production DONG Energy biomass share2 Energy solutions3 GW '000 BOE/day % TWh Flexibility solutions 4x 2x 2x Energy savings 6.5 130 150 50 4x 40 3.5
Slide 21: Offshore Wind
Offshore Wind Market leadership; growth and value creation Priorities Mature and construct project pipeline Reduce cost of energy Further develop industrial and financial partnerships Standardise and increase operational efficiency Targets Installed gross capacity of 6.5GW in 2020 Offsho
Slide 22: Developing the offshore wind portfolio
Developing the offshore wind portfolio FOOTPRINT COST OF ENERGY Wind farms in operation To be commissioned 2013 Levelised cost of energy Projects committed EUR/MWh 1601 <1002 Walney Barrow Westernmost WoDS Rough Anholt 2012 2020 Horns Rev Middelgrunden Lincs Key focus areas Nysted Turbine Borkum
Slide 23: Oil and Gas
Oil and Gas Strong regional position; growth and value creation Priorities Optimise production on existing fields including satellite extensions Complete Siri repair Develop Hejre and West of Shetlands Secure long term reserves replacement Targets 150 kboe/day by 2020 Reserves-to-product
Slide 24: Developing the oil and gas portfolio
Developing the oil and gas portfolio FOOTPRINT SIRI VALUE CREATION CASE NPV4 Existing1 FID2 non-FID3 Siri, main Area New wells Total Platform Total development build-out Siri area repair 1. Siri area, Syd Arne, Lulita (DK); Ormen Lange, Marulk, Alve, Oselvar, Trym, Ula, Gyda, Tambar (NO) 2. Hejre (D
Slide 25: Power Plants
Power Plants Leader in biomass-to-energy; solid positive cash flow Priorities Sustain long-term viability of CHPs Convert Danish power plants to biomass Ensure flexible and efficient heat and power production Commercialise new innovative biotechnologies (Inbicon, REnescience and Pyroneer) Ta
Slide 26: Sales & Distribution
Sales & Distribution Efficient energy solutions; stable returns Priorities Develop value adding energy solutions Invest in intelligent distribution Reinforce operational excellence Deliver high customer satisfaction Targets Stable ROCE of 7-9% Top quartile customer satisfaction Climate
Slide 27: Group
Group Value adding stewardship and support DEVELOP FOUNDATION SIMPLIFY OPERATING MODEL People Brand Group wide project initiated Clarify role split between corporate centre and BUs Reduce process and interface complexity Simplify Group-wide staff set-up Empower front line to drive the busine
Slide 28: Inherent uncertainties
Inherent uncertainties Commodity prices Relative cost competitiveness of offshore wind Large-scale offshore construction projects New offshore wind technology Large E&P projects (Hejre and Laggan-Tormore) Siri repair solution Regulatory framework and political ambition for de-carbonisa
Slide 29: Focus and discipline
Focus and discipline Focus investments in businesses with competitive advantages Reduce net investment intensity compared to original ambition Restore financial capacity to match investment ambition Simplify operating model and reduce operating costs Reinforced cash discipline and ROCE foc
Slide 30: Targets and Guidance
Targets and Guidance 2012 RESULTS AND 2020 STRATEGY 30
Slide 31: Clear financial targets
Clear financial targets ROCE >10 % -7.4 2012 2016 EBITDA ~20 DKKbn 8.6 2012 2016 Adj. NIBD/EBITDA x 4.1 1.0 ~2.5 3.1 2012 2014 2012 RESULTS AND 2020 STRATEGY 31
Slide 32: Further reducing CO2 emissions
Further reducing CO2 emissions Reinforcing the CO2 reduction target for DONG Energy gCO2/kWh Previous target Achieved Target 650 600 550 500 450 443 400 350 320 300 260 250 2006 2008 2010 2012 2014 2016 2018 2020 2012 RESULTS AND 2020 STRATEGY 32
Slide 33: Ten targets defining our ambition and direction
Ten targets defining our ambition and direction 1 ROCE >10% by 2016 and >12% by 2020 2 Adjusted Net Debt/EBITDA < 2.5x 3 CO2 emission reduction to 260g CO2/kWh by 2020 4 From 1.7GW to 6.5GW installed gross offshore wind capacity by 2020 5 Offshore wind cost-of-energy below €100/MWh1 by 2020 6
Slide 34: Outlook
Outlook EBITDA DKK 11.5-12.5bn in 2013 Net investments DKK 25-30bn in 2013-2014 Adjusted net debt/EBITDA Around 2.5x in 2014 2012 RESULTS AND 2020 STRATEGY 34
Slide 35: Q&A
Q&A 2012 RESULTS AND 2020 STRATEGY 35
Slide 36: Direction towards 2020
Direction towards 2020 2013-14 Financial Action Plan 2020 Strategy Sustain market leadership; 1 Divest DKK 10bn of non-core assets 1 quadruple capacity Reinforce regional position; 2 Selective farm-down of core assets 2 double production Convert to biomass; 3 Reduce costs by DKK 1.2bn, full effect i
Slide 37: Appendix
APPENDIX 2012 RESULTS AND 2020 STRATEGY 37
Slide 38: Outlook Market Prices
Outlook Market Prices Estimate Actual 2013 2012 (average) Oil, Brent USD/bbl 107 112 Gas, TTF EUR/MWh 26 25 Gas, NBP EUR/MWh 27 25 Electricity, Nord Pool system EUR/MWh 38 31 Electricity, Nord Pool, DK1 EUR/MWh 43 37 Electricity, EEX EUR/MWh 44 43 Electricity, UK EUR/MWh 61 55 Coal, API 2 USD/tonne
Slide 39: Exploration & Production
Exploration & Production Higher prices and production Operational figures Operational highlights mboe Steady rise in production – increase in 2012 primarily coming 30 from the new fields Marulk and Oselvar as well as full ownership 25 of Siri 20 65% 65% 63% 65% However, production problems at so
Slide 40: Wind Power
Wind Power Contribution from new assets Operational figures Operational highlights TWh Around 30% of power production from renewables 5 40% 4 32% First power in H2 12 obtained from: 3 24% - Lincs (full commercial operation expected H1 13) 2 16% - Anholt (full commercial operation expected H1 13)
Slide 41: Thermal Power
Thermal Power Lower production and lower GDS Operational figures Operational highlights TWh TJ Lower thermal production due to low Green Dark Spread caused 20 60 by high hydro levels and mild weather 15 45 Efficiency improvements and capacity adjustments progressing 10 30 on plan 5 15 Negative
Slide 42: Energy Markets
Energy Markets Challenging gas business Operational figures Status on gas business TWh TWh Renegotiations ongoing with gas suppliers – DONG Energy 160 16 expects to obtain similar terms as other large gas purchasers. 120 12 In some cases arbitration has been initiated 80 8 As expected, negative
Slide 43: Sales & Distribution
Sales & Distribution Stable earnings Operational figures Operational highlights 2012 2011 Increasing gas sales (up 81% y/y) primarily due to the Gas sales TWh 36.8 20.3 acquisition of Shell Gas Direct in the UK, recognised from May 2012 Distribution of gas TWh 9.1 9.9 Power sales TWh 7.5 7.6 Neg
Slide 44: Debt overview
Debt overview Gross interest-bearing debt and hybrid capital Key ratios loan portfolio (excl. hybrid capital) DKKbn 2012 2011 70 Duration (years) 6.8 6.0 60 9.5 Average time to maturity (years) 10.5 9.4 2.8 50 0.3 Hybrid Average interest rate 3.9% 4.1% 9.5 Net interest cost risk (DKKm)1 46 32 18.4 1
Slide 45: Business Performance – 2012
Business Performance – 2012 In 2012, the difference between Business Performance and IFRS amounted to DKK -1.5bn Business Performance EBITDA DKK 8.6bn Adjustments DKK -1.5bn MtM of financial and physical hedging contracts relating to other periods DKK -0.5bn Deferred losses/gains relating to finan
Slide 46: Dividend, Funding and Rating
Dividend, Funding and Rating Long term capital structure target Funding strategy and Debt Programmes Maintain a minimum rating of BBB+ / Baa1 External funding primarily to be carried out through Adjusted net interest-bearing debt (1) up to 2.5 times parent company – to avoid structural subordi
Slide 47: Net debt calculation 2012
Net debt calculation 2012 54.5 2.8 12.2 2.2 35.7 3.6 33.5 0.3 2.1 0.2 Gross debt Repo’ed mark. Marketable Cash & cash Receivables Receivables Other Net debt 50% Adjusted incl. REPO’ed securities Securities equivalents from associates from minority outstanding net debt mark. shareholders hybrid due 3
Slide 48: Investments
Investments Investments in 2012 Main gross investments in 2012 Cash flow from investing activities -20.0bn Wind activities: DKK 12.7bn Purchase of securities (add back) 5.0bn London Array DKK 5.0bn Transactions with non-controlling interests 0.2bn Walney DKK 1.8bn Loans to jointly controlled ent
Slide 49: Larger decided construction projects
Larger decided construction projects Larger projects with production start in 2013-2015 Country MW (1) Commercial Own share of Announced Project Type of project operation date(2) project capex (3) London Array(4) Offshore wind farm UK 315MW 2013 50% DKK 8.2bn Anholt Offshore wind farm DK 200MW 2013