ANNUAL REPORT 2012 MOVING ENERGY FORWARD MANAGEMENT’S REVIEW PARENT COMPANY FINANCIAL STATEMENTS 1 Chairman’s statement 92 Statement of comprehensive income 2 DONG Energy at a glance 93 Balance sheet 4 Selected events 2012 94 Statement of changes in equity 5 CEO’s review 95 Statement of cash flows 7 Our activities 96 Notes 11 CSR report MANAGEMENT STATEMENT, INDEPENDENT AUDITOR’S Financial performance and outlook REPORT AND ASSURANCE REPORT 15 Performance highlights, financial 105 Statement by the Executive Board and the Board of Directors 17 Consolidated results 106 Independent auditor’s report, financial statements 23 Review of business units’ performance 107 Assurance report, non-financial statements 27 Outlook 28 Financial objectives 29 DONG Energy in the capital market ADDITIONAL Information 30 Risk and risk management 108 Company announcements published in 2012 109 Glossary Management information 111 Activity map 37 Corporate governance and internal controls 40 Executive Board and Group Executive Management 41 Board of Directors FURTHER INFORMATION Media Relations Karsten Anker Petersen CONSOLIDATED FINANCIAL STATEMENTS +45 9955 9662 44 Statement of comprehensive income Investor Relations 45 Balance sheet Allan Bødskov Andersen 46 Statement of changes in equity +45 9955 9769 47 Statement of cash flows 49 Notes www.dongenergy.com DONG Energy A/S CONSOLIDATED NON-FINANCIAL STATEMENTS CVR No. 36213728 87 Performance highlights, non-financial Kraftværksvej 53 88 Accounting policies 7000 Fredericia Denmark Tel +45 9955 1111 Language The report has been prepared in Danish and in English. In the event of any discrepancies between the Danish and the English reports, the Danish version shall prevail. DONG ENERGY ANNUAL REPORT 2012 Management’S REVIEW CHairMan’s stATEMENT Focused transformation to the sustainable energy system of the future As Denmark’s largest energy company DONG Energy has a vital role to In our supply of energy to end customers, enhanced energy ef- play in keeping the Danes supplied with energy. DONG Energy owns ficiency will become an important focus area for DONG Energy in the more than one-third of Danish electricity generation capacity (wind years ahead. We want to be our business customers’ preferred supplier and thermal) and produces district heat equivalent to one-third of of attractive energy solutions that improve their competitive position Denmark’s consumption, and more than one-third of Danish house- and the environment-conscious choice for our residential customers, holds receive their electricity or gas via DONG Energy’s supply network. with the customer experience in focus. DONG Energy therefore plays an important role when it comes In 2012, DONG Energy faced considerable financial challenges, to keeping the wheels of Danish society turning. We are very aware of partly due to a number of structural changes in the gas market, and our this responsibility. full-year result was not satisfactory. The Board of Directors and the Ex- The merger in 2006 provided DONG Energy with the firm founda- ecutive Board have therefore taken various steps, in the areas of costs, tion it needed to be able to compete on equal footing with other large investments and capital, in order to ensure a return to profitability. energy companies in the liberalised European energy market. However, In January 2013, the Danish National Audit Office, Rigsrevisionen, it was also clear that the company’s earnings base, in the form of the published its report on DONG Energy. The report confirmed, among large gas contracts with DUC and generation from power stations, other things, that DONG Energy’s financial position is under pressure, would not be enough to take the company into the next decade. Both especially in 2012, primarily due to losses in the gas market. The above the gas and the electricity markets were undergoing major changes, initiatives are designed to restore the Group’s financial capacity. and if Denmark was to continue to have a powerful energy company, At the start of March 2012, the Board of Directors let CEO Anders new growth areas had to be developed that could provide the company Eldrup go. On 27 August, Henrik Poulsen took up his post as the new with the necessary competitive edge. CEO. Our strategy has therefore been to develop two strong business Together, we look forward to continuing the development of DONG arms – offshore wind and oil and gas production – to supplement our Energy as one of Europe’s most progressive energy companies with the Danish supply business. Offshore wind is the fastest-growing renew- potential to make a vital contribution to the sustainable energy system able energy technology in Europe, and with a share of more than one- of the future. third of installed capacity, DONG Energy is an unrivalled market leader. On behalf of the Board of Directors, I would like to thank all our However, oil and gas will remain crucial building blocks for modern employees for their efforts in 2012. It was a turbulent year for DONG society for many years to come, and with increasing global demand Energy, but thanks to the competent and persistent efforts of our com- for these resources and decreasing European self-sufficiency, DONG mitted employees, the Group is on the right track. Energy aims to continue drawing on its strong expertise to develop oil and gas resources and create value. As a result, DONG Energy now plays a part in supplying energy not only to the Danes, but also to cus- 27 February 2013 tomers and homes across Northern Europe. Another focus area is increasing the share of sustainable biomass in the generation of electricity and heat by converting Danish power sta- tions that currently use fossil fuels. This will provide more clean energy Fritz H. Schur and by investing in innovation we will develop new technologies for Chairman of the Board of Directors more efficient utilisation of biomass and waste. DONG ENERGY ANNUAL REPORT 2012 1 MANAGEMENT’S REVIEW DONG ENERGY AT A GLANCE AT DONG ENERGY One of the leading energy groups in Northern Europe DONG Energy is one of the leading energy groups in Northern Europe. PERFORMANCE HIGHLIGHTS 2012 2011 2010 Revenue DKK million 67,243 56,842 54,616 Our business is based on procuring, producing, EBITDA DKK million 8,632 13,770 14,135 distributing and trading in energy and related products in Northern Europe. Profi t (loss) for the year DKK million (4,021) 2,882 4,499 Cash fl ows from operating activities DKK million 7,701 12,624 14,214 DONG Energy has 7,000 employees and is head - Net investments DKK million (14,642) (13,060) (8,530) quartered in Denmark. Interest-bearing net debt DKK million 33,494 23,615 22,139 Adjusted net debt / EBITDA x 4.1 1.9 1.9 Owners at 31.12.2012 Return on capital employed (ROCE) % (7.4) 5.7 9.6 The Danish State 79.96% CO emissions per energy unit generated g/kWh 443 486 524 SEAS-NVE Holding 10.88% 2 Lost time injury frequency (LTIF) per one million hours worked 3.6 4.1 4.6 Others 9.16% Note: All the Group’s performance highlights are set out on pages 15-16. EXPLORATION & PRODUCTION WIND POWER THERMAL POWER ENERGY MARKETS SALES & DISTRIBUTION Revenue, DKK billion (%)1, 2 11.9 (14%) 7.8 (9%) 9.0 (10%) 41.4 (47%) 17.1 (20%) EBITDA, DKK billion (%)1 6.6 (76%) 2.5 (29%) 2.1 (24%) -4.6 (-53%) 2.1 (24%) Gross investments, DKK billion (%)1 5.1 (26%) 12.7 (65%) 0.3 (2%) 0.3 (1%) 1.2 (6%) Employees, FTE (%)1 762 (11%) 1,951 (28%) 1,116 (16%) 324 (5%) 1,517 (22%) Exploration & Production Wind Power Thermal Power Energy Markets Sales & Distribution Core activities Oil and gas exploration and production Development, construction and operation Electricity and heat generation from Optimisation and hedging of energy port- Sales and distribution of electricity of offshore wind farms power stations folio, including wholesale trading in gas and gas and electricity Market position • Geographically concentrated positions • Market leader in offshore wind, has built • 48% of available thermal generation • Leading wholesale seller of electricity • Leading Danish electricity and gas in North West Europe 38% of European capacity capacity in Denmark and gas in Denmark distributor with market shares of 27% • Favourable access to infrastructure • Strong pipeline of projects in lead-up to • Generates one-third of Danish district • Electricity and gas positions in the UK, and 28% respectively • One of the largest E&P companies in DK 2020 heat consumption Germany and the Netherlands • Retail sales in Denmark, Sweden, the • Among top ten E&P companies in Norway Netherlands and the UK • Leading exploration company in West of Shetland (UK) Business drivers • Oil and gas prices • Wind conditions • Development in electricity prices, • Development in energy prices • Distribution tariffs (regulated) • Expenditure on oil and gas finds • Availability primarily Nord Pool • Seasonal fluctuations in gas prices • Development in electricity and gas margins • Retention of high uptime for plants • Electricity prices and subsidies • Development in fuel and CO2 prices • Market liquidity • Ensuring cost efficiency • Development in underlying cost • Industrialisation and maturing of value • The market’s need for flexibility • Renegotiation of long-term gas contracts • Ensuring security of supply level in supplier industry chain • Regulatory framework conditions • Delivering customer service • Securing supplies via framework agree- ments and partnerships • Partnerships with industrial and financial investors ROCE targets • 2016: > 20% • 2016: 6-8% • 2016: 7-9% • 2020: