Ørsted Annual Report 2017

FY2017 Annual Report · Ørsted

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Ørsted
Annual report 2017

The Ørsted Way
Let’s create a world
that runs entirely on
green energy

Contents

Climate change is one of the biggest challenges for life on
Earth. Today, the world mainly runs on fossil fuels. We need
to transform the way we power the world; from black to
green energy.

At Ørsted, our vision is a world that runs entirely on green
energy. We want to revolutionise the way we power people
by developing green, independent and economically viable
energy systems. By doing so, we create value for the societies
that we are a part of and for all our stakeholders.

The way we work is based on five guiding principles:

Integrity
We are open and trustworthy
and uphold high ethical standards

Results
We set the bar high, take ownership
and get the right things done

Passion
We are passionate about what
we do and proud of what we achieve

Safety
We never compromise on health and safety
standards

Team
We value diversity and collaborate in a
non-hierarchical, respectful and trusting way

Integrity is our root. Passion is our energy.
Team is our strength. Results give us freedom.
The safe way or no way.

Ørsted Annual report 2017Contents

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65
66
67
68
69
70

Contents

Management’s review

Financial statements

Overview

Consolidated financial statements

Chairman’s statement
CEO’s review
Our geographic footprint
Our business model
Strong progress in consolidated results
Outlook 2018
Financial targets and policies

Group

Market situation
Our strategy
Strategic targets
Results
Five-year summary
Fourth quarter
Quarterly summary, 2016-2017

Business units

Our business units
Wind Power
Bioenergy & Thermal Power
Distribution & Customer Solutions

Governance

Risk and risk management
Corporate governance
Remuneration report
Shareholder information
Group Executive Management
Board of Directors

5
6
10
11
12
13
15

17
20
23
25
29
30
33

35
36
40
43

47
51
55
58
60
61

Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in equity
Statement of cash flows
Note summary
Notes

Consolidated ESG statements (additional information) 147

Introduction
Environment
Social
Governance
Basis of reporting

Parent company financial statements

Income statement
Balance sheet
Statement of changes in equity
Notes

Management statement,
auditor’s reports and glossary

148
149
151
153
154

155

156
156
157
158

165

Statement by the Executive Board
166
and the Board of Directors
167
Independent Auditors’ Report
Limited assurance report of the independent auditor 171
172
Glossary

Ørsted Annual report 2017Overview

Chairman’s statement

CEO’s review

Our geographic footprint

Our business model

Strong progress in consolidated results

Outlook 2018

Financial targets and policies

Contents

Headquarter in Denmark

5,638

employees

Revenue in 2017

DKK 59.5bn

Ørsted Annual report 2017Overview

Contents

Chairman’s statement

The transformation of the energy supply to
green energy is one of the biggest challenges
facing the world. Today, more than 80% of the
world’s energy supply comes from the burning
of fossil fuels, which leads to serious climate
change and impacts people’s living conditions
all over the planet. If we are to slow down this
development, we need to supply the world
with energy in a sustainable manner.

Over a period of 11 years, Ørsted has been
transformed from a Danish utility company
based on coal, oil and gas to an international
energy company based on green energy. In
2017, we decided to phase out our use of coal
by 2023, and we divested our oil and gas
business. We also guaranteed our Danish resi-
dential customers that the power they receive
from us is generated by offshore wind farms.

With the decisions we made in 2017, we com-
pleted our strategic transformation from black
to green energy. None of the other major en-
ergy companies in Europe have come this far
in their transformation processes, and among
this group, we are now the fastest-growing
company. As a result, we are a completely
different company today. That is why we de-
cided to change our name to Ørsted, inspired
by the world-renowned Danish scientist H.C.
Ørsted.

Our vision is a world that runs entirely on green
energy. We have strong competences within
sustainable energy solutions in all parts of our

“With the decisions we made in 2017, we

completed our strategic transformation
from black to green energy. None of the
other major energy companies in Europe
have come this far in their transfor-
mation processes.

business. We want to build on these strengths
and help the world’s transformation to green
energy systems.

Our commitment to sustainability is funda-
mental. We therefore run our business in a way
that supports the United Nations Sustainable
Development Goals (SDGs). In our Sustainabil-
ity Report, you can read more about how we
contribute to these goals.

The heading for our strategy is ’Green growth’.
In the coming years, growth will primarily be
driven by our build-out of offshore wind, where
we have the largest investment programme in
the sector. We are also looking into new growth
opportunities within green energy generation,

intelligent customer solutions and solutions
integrating generation and consumption.

per share, enabling us to retain an attractive
level of dividend.

In 2017, we continued our tireless work to im-
prove safety for our employees and suppliers.
We achieved a lost-time injury frequency of
1.6, the lowest level ever in the Group’s history.
On this basis, we are now switching to an
even more fine-meshed measuring method
comprising all accidents, whether they lead to
absence or not.

Profit for the year from continuing operations
amounted to DKK 13.3 billion, our best ever
result. The Board of Directors recommends
to the annual general meeting that dividend
payments be increased from DKK 6 to DKK 9

On behalf of the Board of Directors, I would
like to thank the management and employees
for having created one of the most successful
energy companies in Europe, and one that is
leading the way towards a world which runs
entirely on green energy.

Thomas Thune Andersen

Chairman

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Ørsted Annual report 2017Management’s reviewOverview

Contents

CEO’s review

Ørsted’s vision of creating a
world that runs entirely on
green energy was supported by
a strong performance in 2017.

— Strong growth in the Group’s operating

profit (EBITDA) of 18%

— Wind Power’s EBITDA increased by 74% to
DKK 20.6 billion, of which the farm-downs
of 50% of Walney Extension and Borkum
Riffgrund 2 accounted for almost half
— Good progress in the build-out of new

offshore wind farms

— New offshore wind projects awarded in

Germany and the UK

Results
In 2017, we achieved a strong operating profit
(EBITDA), which more than lived up to our
expectations at the beginning of the year.

Underlying growth in 2017 was 56%. The good
results were driven by yet another strong year
in Wind Power where EBITDA was up 74%
and ended at DKK 20.6 billion, fuelled by the
farm-downs of 50% of the Walney Extension
and Borkum Riffgrund 2 offshore wind farms.
In addition, there was an increase of 45%
in earnings from our offshore wind farms in
operation where the portfolio is continuously
expanded.

— Important milestones for our offshore wind

projects in the USA and Taiwan

— Inauguration of the biomass conversion of

Skærbæk Power Station and start-up of the
Asnæs Power Station conversion

— Divestment of our oil and gas business
— Change of name to Ørsted.

The reported EBITDA for 2017 amounted to
DKK 22.5 billion, corresponding to a growth of
18%. Our return on capital employed (ROCE)
increased to 25% in 2017 from 17% in 2016,
when adjusting for lump-sum payments
related to gas purchase contracts amounting
to DKK 4.3 billion in 2016.

The net profit for the continuing part of the
Group increased by DKK 1.1 billion to DKK 13.3
billion. In addition, the result from the divested
upstream oil and gas business contributed
with DKK 6.9 billion.

In 2017, the green share of our heat and power
generation increased by 14%-points to 64% as
a result of the conversion of our CHP plants to
sustainable biomass and increased generation
from offshore wind farms. Our target is to

“Our target is to

increase the green
share of power and
heat generation to
at least 95% in 2023.

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Ørsted Annual report 2017Management’s review

Overview

Contents

increase the green share of power and heat
generation to at least 95% in 2023.

Strategic development
Our vision is to create a world that runs entire-
ly on green energy. We want to spearhead the
green transformation. We do so by continu-
ously investing in our competitiveness and
core competences to create opportunities for
long-term, profitable growth within renewable
energy.

Our business activities consist of three areas:
offshore wind, utility business, as well as a
portfolio of new long-term growth options.

We have an ambitious plan for the build-out of
offshore wind that will enable us to maintain
and strengthen our global, market-leading po-
sition and continue to expand in both existing
and new markets. We will also maintain our fo-
cus on reducing the costs of offshore wind and
on further developing innovative technical
solutions. Over the next many years, offshore
wind will remain our primary driver of growth
and investment priority and constitute most of
our business. It is our strategic core and will re-
main our priority, should we face bottlenecks
in our resource allocation. We expect that
more than 85% of our gross investments will
be within offshore wind, and yield an average
return on capital employed of 13-15% in the
years up to and including 2023.

In our utility business, we are in the process of
completing our conversion from fossil fuels to
sustainable biomass, ensuring that coal can be
phased out completely by 2023. At the same
time, we will continue our roll-out of smart
meters, build a smart power distribution grid,

while also focusing on improving customer
experience through digitisation and innovation
of our products. Our utility business comple-
ments our wind power business, enabling us
to develop vertically integrated, green energy
solutions. In addition, it provides access to and
insight into the market and contributes stable,
regulated earnings.

There is strong global support for acceler-
ating the green transformation. In the past
few years, we have created significant value
through our investments in green energy,
and we want to gradually expand our access
to the significant, long-term growth oppor-
tunities, not just within offshore wind and
bioenergy, but potentially also other green
technologies. We want to build on Ørsted’s
vision, culture and competences to pursue
further profitable growth.

As much as possible, our long-term growth
must be a diversified journey combined with
the ability to change our focus and direction
in step with market developments. We cannot
predict what the future will bring.

Our strategy is based on the vision of an inte-
grated green energy system, where renewable
energy technologies can be combined with
each other and with energy storage solu-
tions, more flexible and intelligent patterns
of consumption and electrification of the
transport sector, heating systems and industry.
We believe that the ability to think integrat-
ed solutions across different technologies
and parts of the energy system may in itself
become a competitive advantage.

“We want to gradually expand

our access to the significant, long-
term growth opportunities, not just
within offshore wind and bioenergy,
but potentially also other green
technologies.

Our portfolio of new long-term growth
options includes, among other things, the
Renescience technology. We expect our first
full-scale plant to be commissioned in H1
2018. Furthermore, we are seeking to mature
our ’Energy-as-a-Service’ concept as a way of
meeting our industrial customers’ needs for
innovative and green energy solutions. We
have also established a new unit focusing on
energy storage and solar PV projects, and we
also look into onshore wind. It is early days for
these initiatives, and we are still working to es-
tablish a scalable commercial model for them.
Thus, they are not expected to contribute
significantly to the Group’s financial develop-
ment in the short term, but we are exploring
them as long-term growth options.

Currently, our above-mentioned growth
initiatives are all organic, but we will also
consider making focused acquisitions should
strategically relevant opportunities arise with
the potential to create value – both within
offshore wind and within new green growth
areas where we can build on existing compe-
tences. Geographically we focus on North-
western Europe, North America and selected
Asian markets.

When it comes to storage, solar PV and
onshore wind we first and foremost see value
creation where we can take over projects from
developers who do not have the scale, capa-
bilities, and balance sheet to extract the full
value from their projects. We have essentially
built our leadership position in offshore wind

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Ørsted Annual report 2017Management’s review

Overview

Contents

on the same business model. There are, of
course, differences in technology and market
dynamics across offshore wind, onshore wind,
storage and solar PV. However, we also see
many similarities where we can transfer this
experience and learning from our existing
business. Given the strength and growth of
our offshore wind business, we are not under
pressure to pursue new green avenues, but if
attractive opportunities can be found within
adjacent renewable technologies, a broader
portfolio will further add to our strategic scale
optionality, and long-term growth prospects.

In 2017, we changed our name to Ørsted – a
name which better supports our position as a
leading green energy company. The name is
a tribute to the Danish scientist H.C. Ørsted,
whose curiosity, dedication and skills, among
other things, led to the discovery of electro-
magnetism, which today is a key component in
the generation of power and thereby modern
society. The name has generally been well
received both internally in the company and
among our external stakeholders. A few bearers
of the Ørsted name have, however, chosen to
file a subpoena with the Copenhagen Maritime
and Commercial Court to prevent our use of
the name. We are, of course, sorry about that
as we have been keen to establish a friendly
and respectful relationship with all bearers of
the name. We still believe we are entitled to
name our company after H.C. Ørsted.

Most of our capital will go towards sup-
porting our existing ambitious growth plan
for offshore wind, where our ambition is to
reach an installed capacity of 11-12GW by
the end of 2025. In addition, we will finalise
the above-mentioned conversion of our CHP
plants to sustainable biomass and install one
million smart meters.

We maintain our strong commitment to our
credit rating target (BBB+/Baa1) and the, at any
time, announced expected dividend payments.
Our capital structure allows us to increase divi-
dends from DKK 6 to DKK 9 per share, totalling
DKK 3.8 billion for 2017. This is a significant
increase compared to our announcement at
the time of the IPO and attributable to strong
and growing cash flows from our offshore wind
farms in operation. For the period up until 2020,
we still expect a year-on-year high single-digit
percentage increase in dividends relative to our
new baseline.

Even with our current ambitious investment
plans, clear commitment to our credit rating
target and payment of increasing dividends,
we expect to build additional financial capac-
ity within a couple of years. This means that
in the future, after the expected farm-down
of Hornsea 1, we will only use farm-downs if
we can continue to attain an attractive value
creation or in order to spread our market and
project risk.

Capital allocation
From 2019, we expect our business activities to
generate sufficient cash flows to finance our
planned portfolio investments.

We will invest any further excess financial ca-
pacity in value-adding growth to complement
our existing investment plan, if we see relevant
opportunities in the market.

After that, excess capital will be returned to
our shareholders in the form of dividends and/
or share buybacks.

Wind Power
In 2017, we reached several new milestones
in our ambitious green strategy. Burbo Bank
Extension in the UK and Gode Wind 1 and 2
in Germany were inaugurated in the early
summer, contributing significantly to our
continued growth in earnings from operating
offshore wind farms. At the end of 2017, all
turbines at Race Bank and at the first part of
Walney Extension had been installed. Race
Bank was fully commissioned in January 2018
and Walney Extension is expected to follow in
H2 2018. In 2017, the build-out of our portfolio
also included German Borkum Riffgrund 2,
Dutch Borssele 1 and 2 and Hornsea 1 in the
UK, which will be the world’s largest offshore
wind farm when commissioned.

We continued our partnership model in 2017,
farming-down 50% of Walney Extension to
the Danish pension funds PKA and PFA as
well as 50% of Borkum Riffgrund 2 to Global
Infrastructure Partners. The farm-downs testify
to the continued considerable interest from
investors in the green transformation and
Ørsted’s market-leading partnership model.

In April, we won the rights to build three
offshore wind farms in the German part of
the North Sea. Two of them were won with
zero-subsidy bids. Commissioning of the pro-
jects is planned for 2024, provided that final
investment decisions, as expected, are made
in 2021.

In September, we were awarded a contract
to construct Hornsea 2 in the UK. With a
capacity of 1.4GW, it will overtake Hornsea 1
as the world’s largest offshore wind farm when
completed in 2022. The price of the contract
for difference (CfD) was 50% lower than in the
previous CfD round just two years ago. The
decline illustrates the rapid cost reductions in
the industry, which have made offshore wind
power competitive relative to conventional
power generation based on fossil fuels.

We are constantly observant to new oppor-
tunities for expanding our portfolio, creating
more value and safeguarding our market
position. This applies both in Europe, where
the interest in offshore wind remains strong,
and via business development in new markets,
such as the USA and Taiwan. In the autumn,
the UK and Dutch governments announced
new ambitious targets for additional build-out
of offshore wind in the 2020-2030 period.

In the USA, we bid at the first offshore wind
auction in Massachusetts in December
together with our partner Eversource Energy,
participating with the Bay State Wind project.
The preferred bidder or bidders are expected
to be selected in April 2018 and will be invited
to negotiate a fixed price contract with the
three local power distribution companies.
In addition, we entered into a partnership
agreement with Dominion Energy about a de-
velopment project off the coast of Virginia for
further build-out of offshore wind in Virginia.

Since offshore wind is an important compo-
nent in Taiwan’s future energy supply, it is a
potentially attractive market for us. At the end
of 2017, the Taiwanese EIA evaluation panel

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Ørsted Annual report 2017Management’s review

Overview

Contents

which make the employee unable to under-
take normal work, or where medical treat-
ment is required. It follows that there are more
facets to TRIR compared to the previously
used LTIF measure, and we believe that it
reflects everyday life in Ørsted better and will
help raise ambition levels for our safety efforts
even further.

Our employees again deserve credit and
acknowledgement for their dedicated perfor-
mance all through 2017. Their strong compe-
tences, entrepreneurial spirit and passion for
what Ørsted stands for and the work we do,
are the very foundation of our company.

Henrik Poulsen
CEO and President

recommended approval of our environmen-
tal impact assessment of the four Greater
Changhua projects with a total capacity of
up to 2.4GW. Final approval is expected in
Q1 2018. In addition, we have entered into
cooperation with local Taiwanese companies
on components for future projects. We expect
the first of the potential projects in Taiwan to
be commissioned in the early 2020’s.

Bioenergy & Thermal Power
In accordance with our overall strategy, we
continue to convert our Danish CHP plants to
sustainable biomass. The phasing-out of coal
is gaining momentum, and from 2023 we will
no longer use coal to generate heat and pow-
er. In October 2017, we inaugurated Skærbæk
Power Station’s new unit which can now run
up to 100% on sustainable biomass. We also
entered into an agreement to convert Asnæs
Power Station to sustainable biomass from
2019. Now, only Esbjerg Power Station remains
to be converted for us to achieve our objective
of coal-free operations.

Our first commercial Renescience plant in
Northwich, UK, was constructed in 2017.
Through enzymatic treatment, unsorted
household waste is converted into biogas and
recyclable materials. The work on testing and
optimising the mechanical parts of the plant
is still ongoing and has taken longer than
expected. We expect to commission the plant
in H1 2018. When fully operational, the plant
is expected to be able to treat waste from
approximately 110,000 British households.

Distribution & Customer Solutions
At the beginning of the year, and as part of
our green transformation, we decided that our

733,000 residential power customers in Den-
mark should have their total power consump-
tion covered by green power generated by our
offshore wind farms at no additional cost for
them. Since 1 January 2017, we have therefore
supplied green power to all our residential
customers. We buy certificates from our own
Danish offshore wind farms corresponding
to the power consumed by our residential
customers.

By the end of 2020, smart meters must be
installed for all our Danish power customers.
After a successful pilot project in late 2016 and
early 2017, we initiated the large-scale roll-out
in June. By the end of 2017, a total of 183,000
new meters were in use. In cooperation with
Danish meter producer Kamstrup, our power
distribution company Radius is tasked with
replacing more than one million smart meters
on Zealand.

Employees
We have a very strong focus on safety and
well-being. During the year, we maintained the
positive development in the Group’s lost-time
injury frequency (LTIF) and saw no life-chang-
ing accidents. Moreover, the feedback from
our employees in this year’s employee survey
was again positive. We believe that well-be-
ing, safety and positive results go hand in
hand. Therefore, we are working continuously
to maintain and increase employee satisfac-
tion and safety.

Effective from 2018, we have introduced a new
safety target – total recordable injury rate
(TRIR). This measure is more extensive than
LTIF, and includes, besides lost-time injuries,
accidents which do not result in absence, but

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Ørsted Annual report 2017Management’s review

Overview

Our geographic
footprint

Contents

Sweden

Anholt (400MW)

Denmark

Herning

Studstrup

Kyndby

Horns Rev 1 (160MW)
Horns Rev 2 (209MW)

Skærbæk

Asnæs

Esbjerg

Middelgrunden (20MW)

Svanemøllen
H.C. Ørsted
Avedøre 1 & 2

Barrow (90MW)

Westermost Rough (210MW)

OWP West (240MW)
Borkum Riffgrund West 2
(240MW)

Burbo Bank Extension (258MW)
Burbo Bank (90MW)

Renescience Northwich

Hornsea 1 (1,218MW)
Hornsea 2 (1,386MW)
Hornsea 3 (Up to 2,400MW)

Lincs (270MW)
Race Bank (573MW)1

Nysted (166MW)

Gode Wind 1 (345MW)
Gode Wind 2 (263MW)
Gode Wind 3 (110MW)

Borkum Riffgrund 1 (312MW)
Borkum Riffgrund 2 (450MW)

Germany

Netherlands

Borssele
1 & 2 (752MW)

Gunfleet
Sands 1 & 2 (173MW)

London
Array 1 (630MW)

Enecogen

New markets

USA

Bay State Wind
Ocean Wind

Coastal Virginia Offshore Wind

Walney Extension (659MW)
Walney 1 & 2 (367MW)
West of Duddon Sands (389MW)

Symbols

In operation

Under construction

Project and business
development

(MW)

Total wind farm capacity

In operation

Under construction

Sale of power and/or gas

Power distribution in Denmark

1) In operation from January 2018

Formosa 1

Taiwan

Greater
Changhua
Projects

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Ørsted Annual report 2017Management’s reviewOverview

Contents

Our business model

How we create a world that runs entirely on green energy

Key resources

Core activities

Value created

Financial capital
We finance our investments through cash
flow from operations, debt and divest-
ment of partnership interests

Energy assets
We invest in scalable, innovative green
technologies and solutions

Natural resources
We rely on natural resources, such as bio-
mass, as well as locations with attractive
wind speeds and seabed conditions

Human resources
We rely on a highly skilled workforce to
operate our business

Innovative culture
We continuously develop competitive
energy solutions through innovation

Stakeholder engagement
We depend on constructive relations with
our key stakeholders to ensure supportive
framework conditions for our business

Develop and
construct

Operate and
maintain

Sell and
optimise

Wind Power

Develop and build
offshore wind farms.
Five wind farms are
under con struction

Own 23 offshore wind
farms of which we
operate 19

Utilise our partnership
model and crystalise
value

Bioenergy
& Thermal
Power

Convert our CHP
plants from coal or
gas to sustainable
biomass

Own and operate ten
plants in Denmark
and one plant in the
Netherlands

Enter into long-term
contracts with our heat
customers and sell power
to the market

Distribution
& Customer
Solutions

Modernise our power
distribution grid in
Denmark

Operate and maintain
our grid infrastructure

Manage the Group’s
overall energy portfolio
and provide gas, power
and energy solutions for
our customers

We create value for our shareholders
in the form of competitive total returns

We address profound societal challenges
by developing green, independent and
economically viable energy systems that
reduce greenhouse gas emissions

We fulfil our customers’ energy needs
through green, innovative and efficient
energy solutions

We are committed to a sustainable
working life and keep a constant focus on
being a great and safe place to work with
motivated and satisfied employees

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Ørsted Annual report 2017Management’s reviewOverview

Contents

Strong progress in consolidated results

Operating profit (EBITDA), DKK billion
The increase was due partly to 45% growth in earn-
ings from our offshore wind farms in operation, partly
to higher partnership income from the farm-down
of Walney Extension and Borkum Riffgrund 2. The
increase was partially offset by the fact that 2016 was
positively affected by compensation of DKK 4.3 billion
from the renegotiation of gas purchase contracts.

22.5

19.1

8.7

Net profit (continuing operations), DKK billion
The increase was mainly due to higher EBITDA,
partially offset by a gain on the divestment of the
gas distribution network in 2016.

Return on capital employed (ROCE), %
ROCE increased by 1%-point due to the higher
EBITDA, which was partly offset by higher funds tied
up in capital employed as a consequence of our con-
tinued high investment level. ROCE totalled 17% in
2016 adjusted for compensation from renegotiations.

Gross investments, DKK billion
Investments were particularly substantial in 2017
due to construction on several offshore wind farms
including Walney Extension, Race Bank, Borkum
Riffgrund 2 and Hornsea 1.

12.2

13.3

1.0

3.6

24.4

25.2

12.7

15.0

17.7

2015

2016

2017

2015

2016

2017

2015

2016

2017

2015

2016

2017

Interest-bearing net debt, DKK billion
Net debt decreased by DKK 5.0 billion, due to the
proceeds from the divestment of the Oil & Gas
business and from its operation until the divestment.
The continuing operation also achieved a positive
free cash flow despite the high investments.

Credit metric (FFO/adjusted net debt1), %
The decline in FFO/adjusted net debt was primarily
due to lower FFO, as gains from the farm-downs
of the offshore wind farms are not included in the
calculation. Gains from the farm-downs were DKK 8
billion higher than in 2016, which on the other hand
was positively affected by compensation from the
renegotiations. However, debt was lower compared
to 2016.

Safety, LTIF
Our continued focus on safety resulted in a histori-
cally low lost-time injury frequency in 2017. Effective
from 2018, we have introduced a new safety target
– total recordable injury rate (TRIR).

Carbon emissions, gCO2e/kWh
Carbon emissions were reduced following the bio-
mass conversion of CHP plants as well as 42% higher
generation from offshore wind farms.

9.2

3.5

2015

2016

2017

-1.5

64.2

50.3

2.0

1.8

1.6

220

224

151

28.8

2015

2016

2017

2015

2016

2017

2015

2016

2017

1) Interest-bearing net debt including 50% of hybrid capital, cash and securities not available for use (with the exception of repo transactions), present value of lease obligations, and decommissioning obligation less deferred tax.

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Ørsted Annual report 2017Management’s reviewOverview

Contents

Outlook 2018

New EBITDA guidance method
We have, in 2018, decided to change our guid-
ance method. In the future, our guidance will
only include the effect from existing offshore
wind partnership agreements. Previously, our
outlook included the effect from partnership
agreements which we expected to conclude
during the year. That made our outlook par-
ticularly sensitive to the timing of farm-downs
in Wind Power as well as the distribution of
income between the years. Earnings from the
new partnerships concerning Borkum Riff-
grund 2 and Walney Extension amounted to
DKK 9.8 billion in 2017.

EBITDA
EBITDA (business performance) excluding new
partnership agreements is expected to be
DKK 12-13 billion in 2018. The outlook is based
on the expected development in the business
units (compared to 2017), as described below.

Wind Power (without new partnerships)
– higher
— Earnings from offshore wind farms in oper-
ation are expected to increase as a result
of the full commissioning of Race Bank in
January 2018 and Walney Extension in H2
2018, as well as higher earnings from Bur-
bo Bank Extension, which was completed
in May 2017

— Earnings from existing partnership agree-
ments are expected to decline relative
to 2017, when earnings were positively
affected particularly by Race Bank, but
also by Burbo Bank Extension and Gode
Wind 1 and 2. In 2018, earnings from existing
partnerships will primarily come from
Walney Extension and Borkum Riffgrund 2

— A more negative contribution than in 2017 is
expected from other activities as a result of
higher expensed project development costs.

Bioenergy & Thermal Power – higher
— Total EBITDA from our heat and power
generation activities is expected to
increase, primarily as a result of the com-
pleted bioconversion of Skærbæk Power
Station. Earnings from ancillary services are
expected to be in line with 2017.

Distribution & Customer Solutions
– significantly lower
— Earnings from Distribution are expected to

be in line with 2017

— In 2017, Markets achieved high earnings

Outlook 2018, DKKbn

2018 Guidance

2017 Realised

EBITDA (without new partnerships)*

Wind Power (without new partnerships)*

Bioenergy & Thermal Power

12-13

Higher

Distribution & Customer Solutions

Significantly lower

Gross investments

16-18

* EBITDA excluding new partnership agreements signed later than

1 January 2018 (respectively 2017).

12.7

10.8

0.2

2.1

17.7

Our EBITDA guidance
for the Group is the
prevailing guidance,
whereas the directional
earnings development
per business unit serves
as a means to support
this. Higher/lower
indicates the direction
of the business unit’s
earnings relative to the
results for 2017.

— In 2017, earnings from LNG were negatively
impacted by a provision regarding our
capacity in the Gate terminal in Rotterdam.
Earnings are thus expected to improve in
2018.

from our gas portfolio and trading activities.
We expect lower earnings from these activi-
ties in 2018. The increasing gas prices during
2017 led to an increase in the accounting
value of our gas inventories, especially
towards the end of the year. All else being
equal, this will lead to an offseting negative
effect in 2018 when we sell the gas

Hornsea 1
We still expect a 50% farm-down of Horn-
sea 1, either in H2 2018 or in 2019. Should
the divestment materialise in 2018, EBITDA
including new partnerships is expected to be
higher than the DKK 22.5 billion achieved in
2017. With a capacity of 1.2GW, this wind farm
is around 85% larger than Walney Extension.

Gross investments
Gross investments for 2018 are expected to
amount to DKK 16-18 billion. The outlook
reflects a high level of activity in Wind
Power (Walney Extension, Hornsea 1, Borkum
Riffgrund 2, Borssele 1 and 2 and Hornsea 2),
biomass conversion of Asnæs Power Station
and installation of smart meters.

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Work in progress
In addition to gross investments, significant
funds are temporarily tied up in connection
with the construction of offshore transmission
assets for offshore wind farms in the UK and
offshore wind farms for our partners. These
funds are a part of our operating cash flow.

At the end of 2017, funds tied up in work in
progress totalled DKK 7.5 billion. We expect
to divest the Burbo Bank Extension offshore
transmission asset during H1 2018, but we still
expect to see an increase in funds tied up in
work in progress in 2018 as a result of the con-
struction of transmission assets at Hornsea 1
and 2. The construction of Borkum Riffgrund 2
and Walney Extension is expected to be more
or less operating cash flow-neutral, as we will
be receiving milestone payments from our
partners during the construction phase.

Forward-looking statements

The annual report contains forward-looking
statements, which include projections of financial
performance and targets as well as our financial pol-
icies. These statements are not guarantees of future
performance and involve certain risks. Many direct and
indirect factors may affect future results and devel-
opments may therefore differ materially from what is
forecast due to a variety of factors.

These factors include, but are not limited to, changes in
temperature, wind conditions and precipitation levels,
the development in inflation, currency, power, gas,
coal, carbon, oil and interest rate markets, changes
in legislation, regulation or standards, changes in the
competitive environment in our markets, security of
supply and cable break-downs or other disruptions.
Reference is made to the ’Risk and risk management’
chapter and to note 7.

Uncertainties, prices and hedges
Our offshore wind farms are largely subject
to publicly regulated prices, implying a high
degree of certainty about the income. This
means that we know the price per generated
MWh for most wind farms in Denmark and
Germany as well as the CfD wind farms in the
UK. For our British ROC wind farms, we also
know the subsidy per generated MWh which
we will receive in addition to the market price.
In 2018, the ROCs are expected to account
for 60% of the total income from these wind
farms. In 2018, the total publicly regulated
prices and subsidies are expected to account
for 78% of the income from our offshore wind
farms in operation.

The part of our generation from offshore wind
farms and power stations, which is exposed
to market prices, has to a large extent been
hedged for 2018. The same applies to our
currency risks. The market value of financial
hedging instruments relating to our opera-
tions and divestment of assets deferred for
recognition in business performance EBITDA in
2018 amounted to DKK -0.2 billion at the end
of 2017. This effect is included in the outlook
for 2018 (see note 1.1).

The most significant uncertainty surrounding
the operating profit from existing activities in
2018 relates to the size of our power genera-
tion, which depends on the wind conditions,
the ramp-up of new wind farms and potential
break-downs, and to a less extent our earnings
from existing partnership agreements, heat
and market trading activities.

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Financial targets and policies

Financial targets

Target

Year

Return on capital employed (ROCE)

Group

Wind Power

12%-14%

2018-2023

13%-15%

2018-2023

Distribution & Customer Solutions

9%-11%

2018-2023

Free cash flow (FCF)

Bioenergy & Thermal Power

Positive

2018

Average yearly increase in EBITDA (CAGR)

Offshore wind farms in operation

13%-14% 2017->2023

We have maintained
our ROCE target, even
though we are excluding
2017, where we achieved
an ROCE of 25%.

We are introducing a
new directional target
for our offshore wind
farms in operation.

Financial policies

Rating

Capital structure

Min. Baa1/BBB+/BBB+ (Moody’s/S&P/Fitch)

~ 30% (FFO/adjusted net debt)

Our current rating is in
accordance with the
policy.

Financial policies
The Board of Directors recommends to the
annual general meeting that dividends of DKK
9 per share be paid for FY 2017, equating to an
increase of 50% and a total of DKK 3.8 billion.
This is a significantly higher increase than
envisaged in our dividend policy, which was re-
vised in connection with the IPO. The increase
is driven by a strong and increasing cash flow
from our offshore wind farms in operation. Our
objective is still to increase dividends annually
by a high single-digit rate compared to the
dividends for the previous year up until 2020.

As described in the strategy section of this
annual report, our dividend policy and other
expected capital allocation are subject to our
objective of maintaining a BBB+/Baa1 rating
profile.

At the end of 2017, we adjusted our credit
metrics to exclude the effect of gains on farm-
downs of offshore wind farms. We have done
this to align the metric to the credit rating
agencies’ method. Despite the alignment, our
target is still a ratio of about 30%.

Financial targets
Our target is an average return on capital
employed (ROCE) of 12-14% for the Group in
the 2018-2023 period (previously 2017-2023),
with Wind Power as the main contributor with
a targeted ROCE of 13-15% over the same
period. We have maintained our target, even
though we are now excluding 2017, where we
achieved an ROCE of 25% for the Group and
28% for Wind Power.

In Bioenergy & Thermal Power, the focus is on
realising positive free cash flows (FCF). Based
on the biomass conversion of our CHP plants
and the build-out of new bioenergy solutions,
we expect to realise positive free cash flows
for Bioenergy & Thermal Power from 2018.

This year, we are introducing a new direction-
al target for the operating profit from our
offshore wind farms in operation, as they will
account for the largest share of our total earn-
ings within a few years. Therefore, we expect
an average annual increase in EBITDA from off-
shore wind farms in operation (including O&M
agreements and power purchase contracts) of
13%-14% in the period from 2017 to 2023, from
a starting point of DKK 8.5 billion in 2017. The
portfolio includes the current decided offshore
wind farms through Hornsea 2, and does not
account for farm-downs after Hornsea 1, which
we expect to farm down in H2 2018 or 2019.

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Group

Market situation

Our strategy

Strategic targets

Results

Five-year summary

Fourth quarter

Quarterly summary, 2016-2017

17
20
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Market situation

Transforming global energy systems
to renewable energy
Global carbon concentrations are now
at 145% of the pre-industrial level of the
mid-1800s, and 2017 was the fourth year in a
row with extraordinarily high temperatures.
According to the World Meteorological
Organization, changes in the atmosphere over
the last 70 years have been more abrupt and
severe than ever before.

The vast majority of the world’s countries
acknowledged the need to fight climate
change by ratifying the Paris Agreement in
2016. Under the agreement, the countries
commit to keeping the global temperature
increase well below two degrees towards the
year 2100. The G20 summit in Hamburg in July
2017 emphasised the significance of that goal,
and the leaders of the G20 countries agreed
that developing innovative energy systems is
required for a sustainable future. Today, more
than 75% of the world’s power generation is
based on fossil fuels and nuclear energy.

Public support to continuing the green
transformation is crucial. To understand the
public opinion on the green transition, Ørsted
conducted the inaugural ‘Green Energy
Barometer’ survey in 2017, interviewing more
than 26,000 people across thirteen countries.
82% of the respondents believe it is important
to create a world fully powered by renewa-
ble energy. The support comes from all age
groups, educational backgrounds and political

beliefs. 85% would like their country to phase
out the use of coal.

Europe is leading the world’s energy transfor-
mation, having 39% of its total power gener-
ation provided by renewable energy sources.
In Europe, the share of renewables is expected
to increase significantly, reaching 55% by
2030. Besides the wish to decarbonise energy
generation, the key drivers behind the transi-
tion to green energy are the need to replace
aging generation capacity and safeguard the
security of energy supply as well as a wish to
create local jobs.

Outside Europe, the share of power generation
from renewables is considerably lower. In 2017,
24% of the power generation outside Europe
was based on renewables, including hydro.
Towards 2030, this share is expected to in-
crease to 35%, driven by cost improvements in
renewable energy technologies, and growing
regulatory support for ambitious renewable
deployment targets. By 2020, China aims to
reach 210GW of accumulated wind power
capacity, capable of generating 451TWh
of power, and 110GW of accumulated solar
capacity (PV and concentrated solar power),
capable of generating 188TWh.

Our market situation
Ørsted operates in various parts of the energy
value chain: offshore wind, bioenergy, energy
storage and consumption of energy.

Share of power generation

Nuclear
Hydro

Coal

Gas

Oil

Onshore wind

Biomass

Solar PV

Offshore wind

European power mix
2000

19%

3.7PWh

2017

2030

29%

31%

16%

17%

1%1

39%

3.4PWh

25%

21%

14%

16%

9% 3%

20%

19%

17%

14%

55%

3.3PWh

1) Offshore and onshore wind combined

Rest of the world power mix
2000

18%

13%

41%

18%

17%

11.8PWh

2017

2030

41%

23%

17%

24%

21.4PWh

35%

28.6PWh

10%

36%

17%

16%

8% 1%

Source: International Energy Agency (IEA), World Energy Outlook 2017;
Bloomberg New Energy Finance (BNEF), New Energy Outlook 2017.

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Offshore wind
2017 witnessed the largest annual build-out
of global offshore wind capacity, with more
than 4GW coming online. Cumulative installed
capacity reached 18GW globally. The offshore
wind market is expected to grow at an aver-
age of 19% in the coming years, and the global
offshore wind capacity is therefore expected
to quadruple towards 2025.

Installed offshore wind capacity, GW

Europe

China

New markets

2005

0.7

2015

11.9

10.9

1.0

2017

17.6

14.7

2.8 0.1

2020

2025

34.3

24.7

8.2

1.3

44.3

21.4

9.2

74.9

Source: Bloomberg New Energy Finance (BNEF),
H2 2017 Offshore Wind Market Outlook

Today, offshore wind farms are primarily
installed in Europe, but going forward, this
segment of energy generation will become in-
creasingly global. Towards 2020, the majority
of capacity additions will take place in Europe,
with 3.4GW being commissioned annually,
while North America and Asia combined are
expected to grow by 2.3GW annually. From
2020 to 2025, however, Europe is expected
to add 3.7GW annually, while North America
and Asia are expected to add 3.4GW annually.
With an expected average annual growth rate
of more than 150% from 2020 to 2025, the US
market is among the fastest-growing markets.

A key driver of this capacity expansion is a
significant reduction in costs. Over the past
five years, the cost of offshore wind has been
reduced by up to 60% in Northwestern Europe
and there is still considerable potential for
further cost reductions. Cost reductions are
derived from economies of scale from building
larger wind farms and installing larger wind
turbines, supported by technological improve-
ments in all parts of an offshore wind farm.
Moreover, increased industrialisation, digitali-
sation, technological innovation and increased
competition for the projects have contributed
to cost reductions.

The most recent offshore wind farm auctions
and tenders confirm the trend of rapidly falling
costs. The German auction in April 2017 saw the
first zero-subsidy bids for offshore wind projects
to date. Two projects, OWP West and Borkum
Riffgrund West 2, developed by Ørsted, will, if fi-
nally decided in 2021, be put in operation during
2024 without government subsidies. He Dreith,
another subsidy-free project, which is developed
by EnBW, is planned for commissioning in 2025.

Levelised cost of electricity for new generation capacity, Northwestern Europe,
EUR/MWh (2016 prices)

Final investment decision 2012

Final investment decision 2017

1651

104

652

150

1133

Offshore wind

Solar PV

Onshore wind

Natural gas

Coal

Nuclear

Source: Bloomberg New Energy Finance (BNEF) and UK Department for Business, Energy and Industrial Strategy
1) Generic offshore wind, including transmission, Northwestern Europe, final investment decision (FID) 2012.
2) Hornsea 2, UK, including transmission. Calculated as levelised revenue (price) of power over the lifetime of

the project. Market income based on BEIS (Department for Business, Energy & Industrial Strategy, UK) whole-
sale market price projections at the time of contracting.

3) Same approach as for Hornsea 2 with Hinkley Point strike price of GBP 92.5 per MWh in 2012 real prices.

Lifetime of 60 years and 91% capacity factor.

Similarly, in the UK offshore wind auction in
September 2017, the Hornsea 2 project (1.4GW
developed by Ørsted) saw record-low costs,
and was for the first time able to compete on
cost with new-builds of conventional coal- and
gas-fired power stations.

The allocation of offshore wind projects typi-
cally takes place through a public procurement
process, organised as an auction or a tender.

In auctions, project developers compete
with one or more of their own planned and

consented projects. The auction system is
prevalent in countries such as the UK, the US,
Germany (excluding part of the transmission
grid) and to some extent Taiwan. Bid price is
often the only award criterion.

In tenders, which is the method applied in
Denmark and the Netherlands, the regula-
tory authority carries out preparations such
as site investigations on wind, seabed and
environmental conditions for preselected
sites. For project developers who prequalify to
bid, tender processes typically require lower

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up-front investments than auction processes,
and the risk for project owners of obtaining the
necessary permissions is also lower. However,
numerious project developers risk spending
time and money on a project, for which only
one is awarded a contract. In a tender process,
the project is awarded to the bidder offering
the lowest cost.

Bioenergy
For a long time, the generation of power by
conventional fossil fuel-fired power stations in
Europe has been under pressure from declin-
ing power prices. This pressure is also seen
in Denmark, where Ørsted has the majority
of its combined heat and power plants. The
pressure on earnings from power generation
has put an increased focus on the generation
of district heating, which represents a stable

Offshore wind market development
– selected upcoming events

Germany
2nd German auction, 1,610MW in Q2 2018

The Netherlands
Holland Coast South 3 & 4 tender,
700MW in Q3 2018
Holland Coast 5, 700MW in 2019

United Kingdom
UK CfD auction in H1 2019

USA
Connecticut auction, 200MW in April 2018
New York auction, min 800MW (combined)
in H2 2018 and in H1 2019

Taiwan
Taiwan grid allocation, 3.5GW in Q2 2018

source of income due to the long-term heat
contracts with large urban communities. In
recent years, major heat customers have
demanded that their deliveries to be covered
by green sources, driving the conversions of
conventional power stations to sustainable
biomass. A bioenergy-based central heat
and power plant provides flexible generation
capacity to complement the fluctuating
energy generation from wind and solar PV and
provides large-scale green district heating.

On a European scale, between 0.5 and 1GW of
new bioenergy generation capacity has been
added annually since 2012, and by 2017, 30%
of global bioenergy generation capacity was
located in Europe. In Denmark, 13.4% of the
total power generation came from biomass in
2016 against 7.5% for Europe in total.

Global waste volumes are growing rapidly at
the moment and will continue to do so in the
foreseeable future, and most of the waste is
destined for landfills or dumped directly into
natural habitats, creating large environmental
problems, while missing the opportunity to
capture the resources in the waste for recy-
cling and energy production. New innovative
and cost-effective solutions are needed to
address this global challenge. Many countries
are currently entering or undergoing major
transformations of their waste systems, cre-
ating significant growth opportunities for com-
petitive green waste treatment technologies.

as enablers to balance supply and demand
in the power markets, thus facilitating energy
systems that are both green and secure. In
recent years, mainly flexible rapid-response
storage solutions have been deployed to
provide ancillary services.

The deployment of storage solutions is
expected to grow rapidly in the coming years.
Today, the global market for storage capacity
is 8GWh, but it is expected to increase to
121GWh by 2025, more than two thirds being
large-scale utility facilities. In 2017, 80% of
newly commissioned energy storage capacity
was located in the Americas.

The costs of storage systems are expected to
decrease significantly. Some analysts forecast
a 20% cost reduction towards 2020 and 40%
by 2025. As the volume of deployed storage
solutions increases, additional cost reductions
are expected, driven by economies of scale,
technological innovation and increased
competition.

Energy consumption
Energy customers are increasingly demanding
green and more intelligent energy solutions to
protect for the environment and save money.
New technological solutions are key drivers
in achieving this as they provide detailed
overviews of consumption, can add flexibility
and enable matching customers’ consump-
tion patterns topower generation based on
intermittent renewable sources.

Energy storage
Energy storage technologies are expected to
play an important role in an energy system
incorporating an increasing share of intermit-
tent renewable sources. Storage solutions act

Currently, smart meters are being rolled out
across Europe, providing customers with
timely information about their consumption.
By 2017, 128 million smart meters had been

installed in Europe, up from 96 million the year
before, and this number is forecast to reach
266 million by 2021.

A growing portfolio of innovative solutions
such as energy management systems allows
consumers to better monitor and manage
their power consumption. In 2016, EUR 8.3
billion were invested in smart energy solutions
globally, primarily in digitalisation (49%) and
energy efficiency solutions (30%).

Solutions to enable the green transformation
are also deployed in the European heating
sector. Electrification of heating with heat
pumps is picking up, with approximately 1 mil-
lion units sold in 2016 alone, totalling around
9.5 million units deployed across the EU. With
some 244 million residential buildings across
the EU, heat pumps cover approximately 4%
of the building stock today.

Another sector that is becoming increasingly
electrified is transportation. Towards 2030,
the share of electric vehicles sold globally is
expected to reach 24%. This will be driven by
a sharp decline in battery costs, supportive
regulation and a significant increase in avail-
able models with longer driving ranges, as car
manufacturers are increasingly committed to
lower greenhouse gas emissions.

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Our strategy

Transformation of the company
Over the past 11 years, Ørsted has undergone
a significant transformation towards green
energy. Ørsted (then DONG Energy) was
among the most coal-intensive utilities in
Europe in 2006, and only 13% of our heat and
power generation was based on renewable
energy sources. In 2017 this ratio was 64%, and
already by 2020 more than 80% of our heat
and power generation is expected to be based
on renewable sources. By 2023, when coal has
been phased out completely, more than 95%
of our heat and power generation will come
from renewable energy sources.

This green transformation has been driven
primarily by a significant expansion of our off-
shore wind capacity. More than DKK 80 billion
has been invested to expand our offshore wind
capacity to currently 3.9GW, and with more
than 5GW in the construction pipeline, Ørsted
is currently the largest European renewables
developer. Our scalable offshore wind build-
out has been instrumental in reducing the
offshore wind cost-of-electricity by 60% since
2012. A key component in our build-out has
been the formation of 16 project partnerships
with investors, enabling us to attract DKK 83
billion of capital, a key factor in financing our
expansion.

In our conventional power generation, we
have closed more than 40% of total capac-
ity and converted five of seven combined
heat and power plants (CHP) to biomass

to decarbonise our generation and ensure
sustainable financials. The initiatives taken
have been instrumental in lowering our carbon
emissions by 67% compared to 2006. By
2023 our CHP operations will be completely
coal-free, and we will have reduced our total
carbon emissions per produced kWh by 96%
compared to 2006.

In our retail business, we have initiated a stra-
tegic shift from commodity sales to develop-
ing integrated green energy solutions for our
private and business customers.

As part of Ørsted’s green transformation, we
announced in November 2016 the decision to
divest our upstream oil and gas business to
become a pure-play green energy company. A
sale to INEOS was announced in May 2017 and
closed in September. The divestment comple-
ted the strategic transformation of Ørsted.

The transformation has made Ørsted one
of the greenest and fastest-growing energy
companies in Europe.

In financial terms, we have shifted our capital
base profoundly from fossil fuels to renew-
ables, which now account for 83% of capital
employed, up from 21% in 2006. During the
same span of years, we have more than dou-
bled our operating profit (EBITDA) to DKK 22.5
billion, and more than quadrupled our return
on capital employed, from 6% to 25%.

Green share of generation,
%

Carbon emissions,
g CO2 e / kWh

462

-96%

>95

>80

151

100

<20

2006

2017

2020

2023

2006

2017

2020

2023

To reflect our transformation, we decided to
change our name from DONG Energy (Danish
Oil and Natural Gas) to Ørsted in honour
of the Danish 19th century scientist H.C.
Ørsted, who discovered electromagnetism
and thereby laid the foundation for modern
generation of electricity. We also launched a
new and bolder vision for the company: Let’s
create a world that runs entirely on green
energy. We do not have all the answers to the
climate problem, but we want to be part of
the solution. And as the global leader within
offshore wind, we are already an integral part
of the solution.

We expect more than
95% of our heat and
power generation in
2023 to be green.

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Strategic direction and priorities
We want to lead the transformation to
green energy. We do that by investing in our
competitiveness and core competences within
offshore wind, flexible and sustainable CHP
plants, intelligent grids and green customer
solutions. At the same time, we are looking
at further green growth initiatives that will
enable us to gradually expand our strategic
platform and flexibility. All of this with a view
to creating long-term profitable growth.

Our business can be divided into three areas:
offshore wind, our utility business and a port-
folio of new growth initiatives. Across all three
areas, our strategic focus is green growth.

Offshore wind

Utility business

New growth initiatives

— Maintain our market leadership in offshore

wind

— Complete biomass conversions of Danish
CHP plants and phase out the use of coal
by 2023

— Continue the commercial development of
our innovative Renescience technology for
enzymatic waste treatment

— Continue to pioneer new markets and

develop a global business

— Roll out smart meters to build an intelli-

— Keep innovating and reducing the cost of

electricity from offshore wind

— Leverage market-leading partnership

model for incremental value creation and
risk diversification

— Realise the current build-out plan of 8.9GW
towards 2022 and expand to 11-12GW by
2025

— Implement operational excellence and

digitisation initiatives across EPC and O&M

gent power distribution grid

— Enhance customer experience through
digitisation and product innovation

— Provide a competitive route-to-market for
our own and our customers’ generation
portfolios

— Optimise natural gas activities as a tran-

sition fuel to a world that runs entirely on
green energy

— Drive cost efficiency across the utility
business to maintain competitiveness

— Mature the Energy-as-a-Service concept for
our industrial and commercial customers

— Explore potential within other renewable

energy technologies:
– Energy storage
– Solar PV
– Onshore wind

Expected share of gross investment
2018-2023, %

Offshore wind
Utility business
New growth initiatives

85-90

5-10

0-10

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Each of the three areas plays a particular
role in our portfolio: Offshore wind is the main
growth engine and adds scale to our green
vision. Our utility business complements
our offshore wind business by providing a
route-to-market and enabling us to integrate
large volumes of renewable generation into
the energy system. Finally, our portfolio of
new growth initiatives provides options for
additional, profitable long-term growth that
support an integrated, cost-efficient and
green energy system. The growth initiatives
are all in an early stage, and we are working
on establishing a scalable, commercial model
for them. As such, we do not expect them to
make substantial financial contribution in the
short term. They will contribute by diversifying
our long-term growth journey and provide us
with the strategic agility required to continual-
ly adapt to the market.

To support innovation, growth and long-term
strategic renewal of our business platform, we
invest significantly in four areas that enable
our strategy: talent, digitalisation, operational
excellence and innovation.

Our talent programmes focus on bringing
people with the right competences into the
business, and developing the leaders and spe-
cialists we need to drive growth and maintain
a competitiveness in our business. We run our
own internal Ørsted Academy, which supports
talent at every level – from young talents to
specialists to new and experienced leaders –
to develop the professional and personal skills
they need to perform, develop our business
and create a good culture.

Our digital strategy is focused on bringing
digital technologies, advanced analytics
and automation to all parts of our business.
We focus in particular on our O&M and
EPC business in Wind Power, digitalising our
heat and power plants through our ‘Smart
Plant Programme’, as well as bringing more
intelligence to our power grid and to our
downstream customer solutions. To unleash
the full potential of digitalisation, we work
with new organisational models including
digital labs based on agile methods.

In our core operating entities we implement
excellence initiatives to drive efficiency, agility
and quality into our processes and daily
operations. These operational excellence
programmes are implemented particularly
within areas like grid operations, CHP plants,
EPC, O&M, customer service and shared
finance functions. Our cost efficiency and our
ability to execute with speed, precision and
according to high safety standards are, of
course, critical to both near-term results and
long-term competitiveness.

Within business innovation, we aim to stim-
ulate the sourcing of new ideas, both from
inside the company and from our external
environment. We run cross-company Innova-
tion Games, where internal teams collaborate
and compete to generate new business or
technology concepts to enhance our business.
To increase our exposure to external inno-
vation environments, we have established
Ørsted Ventures. Located in Silicon Valley,
California, Ørsted Ventures engages with
venture funds, start-up companies, universities
and think-tanks, to explore new technologies
and business models.

Capital allocation
From 2019, we expect the free cash flow
generated by our business to be sufficient to
finance our planned investment programme.

The majority of our free cash flow will support
our growth plan for offshore wind with the
ambition of an installed capacity of 11-12GW
by 2025. In addition, we will complete the con-
versions of our Danish CHP plants to biomass
and install 1 million smart meters at our grid
customers by 2020. In the period 2018-2023,
we expect to allocate around 85-90% of our
gross investments to offshore wind, 5-10% to
our utility business and 0-10% to new growth
initiatives.

In our ongoing capital allocation, we reaffirm
our strong commitment to maintaining a
BBB+ / Baa1 rating and to the dividend pay-
out expectations stated at any time.

Even in light of our current ambitious invest-
ment plans, the clear commitment to our
credit rating target and higher dividends,
we expect to have further financial capital
– dependingt on our success in winning new
offshore wind projects and the extent to which
we farm-down future projects. This means
that, beyond Hornsea 1, we will evaluate farm-
downs on a case-by-case basis, based on clear
value creation criteria and risk diversification
considerations.

To the extent possible, we will deploy poten-
tial excess investment capacity into new, val-
ue-creating growth initiatives that support our
green energy vision, reinforce our long-term
competitiveness, and deliver value for our
shareholders. If possible, we will, in particular,

pursue additional value-creating investment
opportunities in offshore wind beyond our
11-12GW ambition by 2025. In addition, we will
continue to work with and potentially scale
up new growth initiatives within Renescience,
Energy-as-a-Service, energy storage, solar PV
and onshore wind if they meet our investment
criteria. Growth investments can include both
CAPEX and OPEX for organic business building
as well as acquisitions.

Over time, excess capital beyond such
value-creating growth investments will be
distributed to shareholders through increased
annual dividends and/or share buy-backs.

Corporate social responsibility reporting

Our sustainability strategy and results are
reported on in our sustainability and ESG report,
which constitutes our annual Communication on
Progress to the UN Global Compact. The reports
highlight areas in which our expertise can make
a real difference when it comes to promoting the
UN’s global goals for sustainable development.
With this report, we live up to the requirements
for corporate social responsibility reporting
set out in section 99a of the Danish Financial
Statements Act as well as section 99b on the
gender balance at management levels etc.

See and download the reports here:
orsted.com/sustainability2017
orsted.com/ESGperformance2017

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Strategic targets

We implement our strategy by
pursuing eight strategic targets,
divided into four themes:

Create shareholder value

Address profound societal challenges

1. ROCE, %

2. Green share of generation, %

3. Carbon emissions, g CO2e / kWh

We create value for our shareholders
in the form of competitive total returns.

Our target is an average return on capital
employed (ROCE) of 12-14% for the Group in the
2018-2023 period (formerly 2017-2023).

In 2017, we decided to phase out our use of coal
completely by 2023. Our objective is for more
than 95% of our heat and power generation in
2023 to be green.

The conversion of our power stations to sustainable
biomass has reduced our carbon emissions by 67%
since 2006. Our target is to reduce emissions to no
more than 20g CO2e per kWh in 2023.

We address profound societal
challenges by developing green,
independent and economically viable
energy systems that reduce greenhouse
gas emissions.

We fulfil our customers’ energy needs
through green, innovative and efficient
energy solutions.

We are committed to a sustainable work
life and keep a constant focus on being
a great and safe place to work, with
motivated and satisfied employees.

3.6

24.4

25.2

12-14

2015

2016

2017

Avg.
2018-2023

>95

>80

462

151

100

<20

2006

2015

2016

2017

2020

2023

2006

2017

2020

2023

4. Installed offshore wind capacity, GW

Our ambition is to install 11-12GW by the end of 2025.
Those of our projects where a final investment decision has
already been made will increase capacity to 8.9GW at the
end of 2022. The rest will come from a significant pipeline.

2025

11-12

2017

2016

2015

2006

3.9
3.6

3.0

0.5

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Fulfil our customers’ energy needs

Be a great and safe place to work

5. Security of supply, power outage per customer

7. Employee satisfaction, scale 1-100

Our ambition is to offer a level of security of supply which is on a par with
or higher than the Danish average, which is approximately 0.4 outages
per customer per year.

We believe that well-being and positive results go hand in hand. Therefore,
we are working continuously to maintain and increase employee satisfac-
tion. The employee satisfaction in Ørsted is above comparable companies.

Radius

DK average (excluding transmission grid)*

Ørsted

Ennova benchmark

0.42

0.34

0.39 0.39

0.42

2015

2016

2017

2015

2016

2017

2020

* DK average is published in April

6. Customer satisfaction, scale 1-100

8. Safety, TRIR

Our ambition is to deliver a market-leading customer experience, which we
continuously strive to do. Our target of customer satisfaction is at least 80
from 2020.

B2C

B2B

Distribution

Target 2020

Effective from 2018, we have introduced a new safety target – total
recordable injury rate (TRIR). There are more facets to TRIR compared
to the previously used LTIF, and we believe that this reflects everyday
life in Ørsted better.

≥80

9.7

6.8

6.4

5.7

2015

2016

2017

2020

2015

2016

2017

2020

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Results

Follow-up on outlook announced for 2017
In the outlook announced in our annual report
for 2016, we expected an EBITDA of DKK 15-17
billion and gross investments of DKK 18-20
billion for 2017.

With an EBITDA of DKK 22.5 billion, our expec-
tations were exceeded. The main reasons were
the farm-down of 50% of Borkum Riffgrund 2
in 2017 rather than at the beginning of 2018,
as previously expected, and the fact that
the farm-down of 50% of Walney Extension
resulted in a different distribution of earnings
between 2017 and 2018 than expected. In
addition, earnings from our offshore wind
farms in operation were higher than expected,
especially towards the end of the year, as a
result of stronger winds and faster ramp-up of

generation from new offshore wind farms as
well as higher earnings from our gas portfolio
and trading activities. Gross investments
amounted to DKK 17.7 billion.

At the beginning of the year, we expected our
interest-bearing net debt to increase in 2017.
However, our net debt decreased by DKK
5.0 billion to DKK -1.5 billion at year-end. The
decline was mainly due to higher proceeds in
2017 from the farm-downs described above.
In addition, investments were at the low end
of the announced range, and cash flows from
operating activities were higher than expect-
ed. The latter was due partly to improved
underlying earnings, and partly to lower than
expected funds tied up in work in progress.

Follow-up on outlook
for 2017, DKKbn

Guidance
2 Feb 2017

Guidance
7 Aug 2017

Guidance
1 Nov 2017

Guidance
11 Dec 2017

2017
Realised

EBITDA

15-17

17-19

19-21

~21

22.5 √

Wind Power

Higher (>11.9)

Significantly
higher

20.6 √

Bioenergy &
Thermal Power

Higher (>0.1)

Higher

0.2 √

Distribution &
Customer Solutions

Significantly
lower (<7.1)

Significantly
lower

2.1 √

Gross investments

18-20

17.7 √

Business performance vs. IFRS

Ørsted uses business performance as an alternative to the results prepared in
accordance with IFRS. Business performance represents the underlying financial
performance of the Group in the reporting period as results are adjusted for tem-
porary fluctuations in the market value of contracts (including hedging transac-
tions) relating to other periods. The difference between the two principles will be
eliminated as the contracts expire. Apart from this, there is no difference between
business performance and the IFRS results.

EBITDA calculated in accordance with IFRS amounted to DKK 22.6 billion in
2017 against DKK 16.9 billion in 2016. Calculated in accordance with the business
performance principle, EBITDA was DKK 22.5 billion and DKK 19.1 billion, respec-
tively. The difference between the two principles was thus DKK 0.1 billion in 2017
compared with DKK -2.2 billion in 2016, and is specified below.

In the presentation of the results according to IFRS, Ørsted does not apply the
provisions on hedge accounting of commodities and related currency exposures.
The market value adjustments of these are continuously recognised in the income
statement, which means that the IFRS results for the individual years are not
comparable. IFRS results do not reflect the commercial risk hedging, according
to which the business units and the Group are managed and evaluated. In the
management’s review, comments are made on business performance only, unless
otherwise is specified. Reference is also made to note 1.1.

Business performance vs. IFRS, DKKm

EBITDA – business performance

2017

2016

22,519

19,109

Market value adjustments for the year of financial and
physical hedging contracts relating to a future period

(138)

(1,397)

Reversal of deferred gain (loss) relating to hedging
contracts from previous periods, where the hedged
production or trade is recognised in business
performance EBITDA in this period

EBITDA – IFRS

193

(773)

22,574

16,939

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Continuing and discontinued operations
Until 29 September 2017, Oil & Gas was
presented as assets held for sale and discon-
tinued operations. The results from the oil
and gas business are therefore presented in a
separate line in the income statement and the
statement of cash flows.

Revenue
Power generation from offshore wind farms
increased by 42% to 8.5TWh in 2017, as a result
of newly constructed offshore wind farms in
Germany and the UK and higher wind speeds
in 2017. Thermal power generation declined by
2% to 8.2TWh. Heat generation also declined
by 2% to 9.0TWh in 2017. Offshore wind power
accounted for 51% of our total power gener-
ation, while the renewable energy share of our

total heat and power generation accounted for
64% in 2017 compared with 50% in 2016.

Revenue declined by 3% to DKK 59.5 billion
in 2017 against DKK 61.2 billion in 2016. 2017
was primarily impacted by higher revenue
from power generation from our offshore wind
farms, an average increase in gas prices as well
as increased power sales in the UK. 2016 was
impacted by a high level of activity from our
construction contracts.

EBITDA
Operating profit (EBITDA) increased by
18%, amounting to DKK 22.5 billion in 2017
compared with DKK 19.1 billion in 2016.
Earnings from Wind Power were up 74%
compared to 2016, amounting to DKK 20.6

Financial results, DKKm

Revenue

EBITDA

Underlying EBITDA

Depreciation

Impairment losses

EBIT

Gain (loss) on divestment of enterprises

Net financial income and expenses

Tax

Tax rate

2017

2016

59,504

61,201

22,519

19,109

22,519

14,442

(5,739)

(5,232)

(545)

16,235

13,877

(139)

(1,042)

(1,765)

12%

1,250

(767)

(2,191)

15%

(3%)

18%

56%

10%

n.a.

17%

n.a.

36%

(19%)

(3%p)

In 2017, regulated
and quasi-regulated
activities and contract-
ed activities accounted
for 34% and 65% of our
EBITDA from continuing
operations respective-
ly, whereas market
exposed activities
accounted for 1%.

Read more about
profit for the year from
discontinued operations
in note 3.6.

Profit for the year from continuing
operations

Profit for the year from discontinued
operations

Profit (loss) for the period

13,279

12,161

6,920

1,052

20,199

13,213

558%

53%

billion. The higher earnings were attributable
to power generation from the newly con-
structed offshore wind farms as well as an
almost doubling of earnings from partnership
agreements, which totalled DKK 13.7 billion
in 2017. This was primarily due to gains from
the farm-downs of 50% of Walney Extension
and Borkum Riffgrund 2. EBITDA for 2016
was positively affected by one-off payments
of DKK 4.7 billion from the renegotiation of
gas purchase contracts and earnings from
the now divested gas distribution activities.
Adjusted for the above-mentioned non-recur-
ring income, our underlying EBITDA increased
by 56%.

EBIT
EBIT increased by 17% to DKK 16.2 billion in
2017, primarily driven by the higher EBITDA.

Depreciation increased by DKK 0.5 billion to
DKK 5.7 billion in 2017. The rise was due to
a higher number of offshore wind farms in
operation.

Impairment losses totalled DKK 0.5 billion and
related to capitalised project development
costs in Wind Power, due to uncertainty about
the carrying through of the projects.

Gain (loss) on divestment of enterprises
Gain (loss) on divestment of enterprises pri-
marily concerned A2SEA in 2017 and the gas
distribution network in 2016.

Financial income and expenses
Net financial income and expenses amounted
to DKK -1.0 billion and were DKK 0.3 billion
higher than in 2016. Both years were affected
by capital losses and costs relating to the

EBITDA

Wind Power
Bioenergy & Thermal Power
Distribution & Customer Solutions

DKK 22.5 bn.

90%

Underlying EBITDA development, DKK bn.

Underlying EBITDA
Non-recurring items

22.5

19.1

4.7

14.4

2016

2017

The underlying operating profit excludes one-off
payments related to renegotiations of gas purchase
contracts and earnings from divested gas distribu-
tion assets in 2016.

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early repurchase of bonds and, in 2016, also
early repayment of bank loans and interest
rate swaps. In 2016, there was a positive im-
pact from exchange rate adjustments of loans
and deposits.

Tax and tax rate
Tax on profit for the year amounted to DKK 1.8
billion, which was DKK 0.4 billion lower than
in 2016. The effective tax rate was 3%-points
lower than in 2016. In both periods, the tax
rate was affected by non-taxable divestment
gains. Gains on the farm-downs of Walney
Extension and Borkum Riffgrund 2 as well as a
deferred selling price for Race Bank impacted
the tax rate in 2017, while gains on the farm-
downs of Burbo Bank Extension and Race
Bank as well as the divestment of our gas
distribution activities impacted the tax rate in
2016.

Profit for the year from continuing
operations
Profit for the year from continuing opera-
tions increased by 9%, totalling DKK 13.3
billion in 2017. The increase of DKK 1.1 billion
is explained by substantial differences in
our operations between the two years. 2017
was positively impacted by the significant
increase in EBITDA in Wind Power, while 2016
was characterised by one-off payments from
the above-mentioned renegotiations of gas
purchase contracts.

Profit for the year from discontinued
operations
Profit after tax from discontinued operations
amounted to DKK 6.9 billion in 2017 against
DKK 1.1 billion in 2016. The increase was due
partly to a gain from the divestment of our

Oil & Gas business of DKK 2.4 billion, partly
to higher EBIT and lower tax. The higher EBIT
in 2017 relative to 2016 was due to the assets
classified as held for sale at the end of 2016,
not being depreciated in 2017. EBITDA was in
line with 2016 despite one less quarter of pro-
duction activities in 2017 compared with 2016
as a result of the divestment in September.
The lower tax in 2017 relative to 2016 primarily
reflected the reversal of the remaining tax
assets, which contributed negatively in 2016.

Cash flows from operating activities
Cash flows from operating activities totalled
DKK 1.0 billion in 2017 compared with DKK
11.3 billion in 2016. The decrease of DKK 10.2
billion was due to the lower EBITDA (adjusted
for gains from farm-downs, as they are not
recognised in cash flows from operating
activities), the settlement of ineffective price
hedges in the oil and gas business totalling
DKK 2.0 billion between the Group’s continu-
ing and discontinued operations in Q2 2017 (no
effect on the Group’s total net debt) as well as
a change in funds tied up in working capital of
DKK 7.9 billion in 2017 against DKK 1.5 billion
in 2016.

In 2017, funds tied up in work in progress in-
creased by DKK 3.7 billion due to the construc-
tion of transmission assets at Hornsea 1, Race
Bank and Walney Extension as well as the
construction of Race Bank for partners. This
was partially offset by milestone payments
received from partners in connection with the
construction of Borkum Riffgrund 2 in 2017
as well as high trade payables relating to the
construction of Walney Extension. Funds tied
up in work in progress in 2016 were lower than
in 2017 (DKK 2.4 billion) due to the divestment

Gain/loss on sale of
assets is part of EBITDA
but is presented as part
of the ’divestment’ cash
flow. The EBITDA effect
is thus reversed in the
specification of cash
flow from operating
activities.

Cash flow and net debt, DKKm

Cash flow from operating activites

EBITDA

Financial instruments

Change in provisions

2017

1,023

22,519

(528)

2016

11,272

19,109

806

(366)

Reversal of gain (loss) on sale of
assets

(10,835)

(2,939)

Other items

Interest expenses, net

Paid tax

Change in work in progress

Change in other working capital

Gross investments

Divestments

Free cash flow

Net debt at 1 January

Free cash flow continuing operations

Free cash flow from dicontinued
operations

Interest bearing receivable re Oil & Gas
divestment

Dividends and hybrid coupon paid

Exchange rate djustments etc.

Net debt at 31 December

297

(2,660)

(3,674)

(4,230)

217

(861)

(3,182)

(2,393)

881

(17,744)

(14,960)

16,982

261

3,461

(261)

9,055

5,367

9,193

(5,367)

(9,025)

(1,106)

(1,014)

3,523

1,799

(1,517)

1,016

(275)

3,461

(91%)

18%

n.a.

269%

37%

n.a.

(16%)

54%

n.a.

19%

88%

(95%)

(62%)

(95%)

n.a.

247%

n.a.

Key ratios, DKKm, %
ROCE

Adjusted net debt

FFO/adjusted net debt

2017
25.2

2016
24.4

15,900

18,046

%
0.8%p

(12%)

50.3

64.2

(13.9%p)

ROCE and FFO/adjusted
net debt is specified in
notes 2 and 6.6.

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Ørsted Annual report 2017Management’s reviewGroup

Contents

of the Westermost Rough transmission asset
and the receipt of milestone payments from
partners in connection with the construction
of Gode Wind 1 and Burbo Bank Extension,
among other factors.

The high level of funds tied up in other work-
ing capital was primarily due to lower prepay-
ments from heat customers in connection with
biomass conversions, lower VAT payables as
well as an increase in trade receivables as a
consequence of the high power generation in
Wind Power at the end of 2017.

Investments and divestments
Gross investments amounted to DKK 17.7
billion compared with DKK 15.0 billion in 2016.
The most important investments in 2017 were
as follows:
— offshore wind farms (DKK 15.7 billion),

including Walney Extension, Race Bank
and Hornsea 1 in the UK as well as Borkum
Riffgrund 2 in Germany

— power stations (DKK 1.4 billion), including
biomass conversions of the Skærbæk and
Asnæs power stations and construction of
a Renescience waste treatment plant in
the UK.

25%

ROCE increased by 8%-point compared with 2016,
when adjusting for lump-sums from renegotiations
and amounted to 25% in 2017.

Divestment of activities and enterprises
amounted to DKK 17.0 billion in 2017 and relat-
ed primarily to the farm-downs of 50% of Wal-
ney Extension and Borkum Riffgrund 2, receipt
of a deferred payment concerning Race Bank
as well as the divestment of A2SEA. Divest-
ments in 2016 consisted of the farm-downs of
50% of Burbo Bank Extension and Race Bank,
divestment of our gas distribution activities
and receipt of a deferred payment related to
the farm-down of 50% of Gode Wind 1 in 2015.

Interest-bearing net debt
Interest-bearing net debt totalled DKK -1.5
billion at the end of 2017 against DKK 3.5
billion at the end of 2016. The decrease was
mainly due to a free cash flow from discontin-
ued operations of DKK 9.0 billion, of which DKK
5.5 billion concerned cash flows from operating
activities, including DKK 2.0 billion from the
intragroup settlement of hedging instruments
in Q2 2017. In addition, the divestment of our
Oil & Gas business contributed positively with
DKK 4.6 billion (DKK 3.7 billion of free cash flow
and DKK 1.0 billion of interest-bearing receiv-
able). The continuing operations contributed a
positive free cash flow of DKK 0.3 billion.

This was partially offset by the payment of
dividends to shareholders of DKK 2.5 billion in
March.

Equity
Equity was DKK 71.8 billion at the end of
December 2017 against DKK 57.5 billion at the
end of 2016. The increase was primarily due to
the positive results for the year less dividends
paid.

Capital employed
Capital employed was DKK 70.3 billion on 31
December 2017 against DKK 61.0 billion at
the end of 2016. Wind Power’s share of capital
employed was 83% at the end of 2017.

Return on capital employed (ROCE)
Return on capital employed (ROCE) was
25% in 2017 against 24% in 2016 (and 17% in
2016 adjusted for compensation received in
connection with renegotiations). The increase
was attributable to higher EBIT.

Credit metric (FFO/adjusted net debt)
The credit metric ’funds from operations’ (FFO)
relative to adjusted net debt was 50% in 2017
compared with 64% in 2016. The decline was
attributable to the lower FFO, as gains from
the farm-downs of offshore wind farms are not
included in the calculation. Gains on divest-
ments were DKK 7.9 billion higher than in
2016, whereas 2016 was positively affected by
compensation from renegotiations of DKK 4.3
billion. However, adjusted net debt was lower.
Read more about the change of the credit
metric on page 15.

Non-financial results
Carbon emmisions
In 2017, carbon emissions from our heat
and power generation were 151 g CO2e/
kWh against 224 g CO2e/kWh i 2016. Carbon
emissions per kWh decreased due to the lower
coal and gas consumption for thermal power
generation as a result of the biomass conver-
sions of the Avedøre, Studstrup and Skærbæk
power stations. Moreover, generation from our
offshore wind farms increased.

Green share of heat and power generation
The green share of heat and power generation
was 64%, up 14%-points relative to 2016. The
increase was attributable to a larger share of
biomass-based generation as a result of the
conversions of the above-mentioned power
stations as well as increased generation from
offshore wind farms.

Safety
In 2017, we registered 32 lost-time injuries, 25
of which involved employees working for our
suppliers. Over the past 12 months, our lost-
time injury frequency (LTIF) has declined from
1.8 in 2016 to 1.6 in 2017.

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Ørsted Annual report 2017Management’s review
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Five-year summary

Income statement (business performance), DKKm

Revenue
EBITDA

Wind Power
Bioenergy & Thermal Power
Distribution & Customer Solutions
Other activities

Depreciation and amortisation
Impairment losses
Operating profit (loss) (EBIT)
Gain (loss) on divestment of enterprises
Net financial income and expenses
Profit (loss) from associates and joint ventures
Profit (loss) before tax
Tax
Profit (loss) for the year from continuing operations
Profit (loss) for the year from discontinued operations
Profit (loss) for the year

Balance sheet
Assets
Total equity

Shareholders of Ørsted A/S
Non-controlling interests
Hybrid capital

Interest bearing net debt
Capital employed
Additions to property, plant and equipment

Cash flow
Cash flow from operating activities
Gross investments
Divestments
Free cash flow

Financial ratios
Return on capital employed (ROCE)1, %
FFO/adjusted net debt2, %
Number of outstanding shares, 31 December, '000
Share price, 31 December, DKK
Market capitalisation, 31 December, DKK billion
Earnings per share (EPS) (BP), DKK
Dividend yield, %

Income statement (IFRS)
Revenue
EBITDA
Profit (loss) for the year from continuing operations

2017

59,504
22,519
20,595
152
2,082
(310)
(5,739)
(545)
16,235
(139)
(1,042)
(10)
15,044
(1,765)
13,279
6,920
20,199

146,521
71,837
54,791
3,807
13,239
(1,517)
70,320
20,022

1,023
(17,744)
16,982
261

25.2
50.3
420,155
338.7
142.3
46.4
2.7

2016

61,201
19,109
11,867
100
7,108
34
(5,232)
0
13,877
1,250
(767)
(8)
14,352
(2,191)
12,161
1,052
13,213

136,489
57,500
39,106
5,146
13,248
3,461
60,961
17,750

11,272
(14,960)
9,055
5,367

24.4
64.2
420,155
267.6
112.5
30.6
2.2

2015

65,444
8,730
6,151
283
2,173
123
(5,673)
(1,184)
1,873
56
(1,409)
(8)
512
455
967
(13,051)
(12,084)

147,457
51,736
32,090
6,398
13,248
9,193
60,930
19,843

7,521
(12,709)
1,982
(3,206)

3.6
28.8
417,726
-
-
(30.7)
-

2014

61,280
7,798
6,057
422
1,404
(85)
(5,319)
(216)
2,263
1,258
(838)
(484)
2,199
(298)
1,901
(7,185)
(5,284)

149,914
61,533
41,736
6,561
13,236
3,978
65,511
15,350

9,568
(10,327)
10,559
9,800

4.3
31.6
417,726
-
-
(14.9)
-

2013

68,555
7,680
4,252
744
2,348
336
(5,030)
(1,344)
1,306
2,045
(3,079)
(57)
215
478
693
(1,686)
(993)

145,672
51,543
31,599
6,708
13,236
25,803
77,345
19,437

5,754
(11,623)
15,329
9,460

2.2
13.1
293,710
-
-
(5.9)
-

59,709
22,574
13,321

57,393
16,939
10,467

66,708
9,888
1,854

61,866
7,546
1,708

67,329
6,555
(146)

Business drivers

2017

2016

2015

2014

2013

Wind Power
Decided (FID) capacity3, offshore wind, GW
Installed capacity, offshore wind3, GW
Generation capacity, offshore wind3, GW
Wind energy content (WEC)3, %
Wind speed3, m/s
Load factor3, %
Availability3, %
Power generation, TWh
Bioenergy & Thermal Power
Degree days3, number
Heat generation, TWh
Power generation, TWh
Distribution & Customer Solutions
Regulatory value of power distribution assets4
Power distribution, TWh
Power sales, TWh
Gas sale, TWh

People & environment
Employees (FTE), end of period, number
Lost-time injury frequency (LTIF),
per 1 million hours worked
Total recordable injury rate (TRIR),
Fatalities, number
Green share of heat and power generation, %
CO2 emmisions, g CO2e/kWh

8.9
3.9
2.5
95
9.3
44
93
8.5

7.4
3.6
2.0
93
8.9
41
92
6.0

2,705
9.0
8.2

10,623
8.4
37.7
136.1

2,715
9.2
8.4

10,648
8.5
36.7
150.4

5.1
3.0
1.7
103
9.7
45
93
5.8

2,621
9.3
7.1

10,778
8.4
35.5
159.1

3.8
2.5
1.4
97
9.2
44
94
5.0

3.6
2.1
1.3
97
9.0
42
93
5.3

2,462
8.7
8.7

10,373
8.4
34.5
151.3

2,890
11.2
13.8

10,127
8.6
25.5
131.7

5,638

5,775

5,947

5,751

5,807

1.6
6.4
0
64
151

1.8
6.8
0
50
224

2.0
9.7
0
49
220

2.5
10.9
0
44
280

3.5
12.0
0
35
311

Business performance vs. IFRS
Business performance represents the underlying financial
performance of the Group in the reporting period as
results are adjusted for temporary fluctuations in the
market value of contracts (including hedging transac-
tions) relating to other periods. Apart from this, there is
no difference between business performance and IFRS
results. Read more in note 1.1.

1) EBIT / average capital employed.
2) Net debt including 50% of hybrid capital, cash and

securities not available for use (with the exception of
repo transactions), present value of lease obligations,
and decommissioning obligations less deferred tax. The
definition of FFO has been changed in 2017. Compara-
ble figures have been restated.

3) See definition on page 172 and in the ESG statements.
4) The figures indicate values from the latest regulatory

ROCE is calculated for continuing operations.

financial statements (updated in June).

29 / 173

Ørsted Annual report 2017Management’s reviewGroup

Contents

Fourth quarter

Financial performance - Group
Revenue
Revenue in Q4 2017 was in line with Q4 2016
and amounted to DKK 15.6 billion compared
with DKK 15.7 billion in the prior-year period.
2017 was driven primarily by 77% growth in
revenue from wind farms in operation as a
result of increased power generation from
new wind farms as well as higher wind speeds.
Q4 2016 was impacted by high revenue from
construction contracts.

EBITDA
Operating profit (EBITDA) more than doubled
to DKK 13.0 billion against DKK 6.3 billion in
Q4 2016. The substantial increase was primar-
ily due to high operating profit from our wind
farms in operation as well as earnings from our
partnership agreements, mainly gains from the
farm-downs of 50% of Walney Extension and
Borkum Riffgrund 2. The operating profit for Bi-
oenergy & Thermal Power also doubled in Q4
2017, amounting to DKK 0.2 billion, primarily
driven by higher earnings from heat activities.
The increase was partially offset by one-off
payments from completed renegotiations of
gas purchase contracts, which contributed
positively in Q4 2016.

Profit for the period from continuing
operations
Profit for the period from continuing opera-
tions totalled DKK 9.4 billion compared with
DKK 4.0 billion in Q4 2016. The increase was
primarily driven by the higher EBITDA.

Profit for the period from discontinued
operations
Profit for the period from discontinued opera-
tions amounted to DKK 0.1 billion in Q4 2017
against DKK -0.5 billion in Q4 2016. The result
in Q4 2017 related to an adjustment of the
gains from the divestment of our oil and gas
business.

Cash flows from operating activities
Cash flows from operating activities totalled
DKK 3.1 billion in Q4 2017 compared with DKK
1.8 billion in 2016. The increase was mainly due
to a higher EBITDA (adjusted for divestment
gains and adjustment of provisions) as well as
prepayments and milestone payments from
partners in connection with the farm-downs
of 50% of Borkum Riffgrund 2 and Walney
Extension. The increase was partially offset by
receivables received from completed renegoti-
ations of gas purchase contracts in Q4 2016.

Gross investments and divestments
Gross investments amounted to DKK 5.8 billion
in Q4 2017, with investments in Wind Power
accounting for 86%. The main investments
related to Walney Extension, Race Bank and
Hornsea 1 in the UK and Borkum Riffgrund 2 in
Germany.

Farm-downs totalled DKK 14.9 billion in Q4
2017 and related to Walney Extension and
Borkum Riffgrund 2.

Financial performance, DKKm

Q4 2017

Q4 2016

Revenue

EBITDA

Underlying EBITDA

EBIT

Profit (loss) before tax

Tax

Profit (loss) for the period from continuing operations

Profit (loss) for the period from discontinued operations

Profit (loss) for the period

Cash flows and net debt, DKKm

Cash flow from operating activites

EBITDA

Financial instruments

Change in provisions

Reversal of gain (loss) on sale of assets

Other items

Interest expenses, net

Paid tax

Change in work in progress

Change in other working capital

Gross investments

Divestments

Free cash flow

Net debt, beginning of period

Free cash flow from continuing operations

Free cash flow from dicontinued operations

Interest-bearing receivable re Oil & Gas divestment

Dividends and hybrid coupon paid

Exchange rate adjustments etc.

Net debt, end of period

15,598

13,032

10,970

10,349

(999)

9,350

9,429

15,678

6,310

5,871

4,708

4,273

(285)

3,988

(473)

3,515

Q4 2017

Q4 2016

3,078

13,032

470

461

(9,468)

333

(136)

(2,652)

2,262

(1,224)

(5,805)

14,875

12,148

10,260

(12,148)

(289)

(1,014)

211

1,463

(1,517)

1,752

6,310

845

(276)

(2,695)

(75)

(3,231)

(8)

855

(4,732)

5,013

2,033

5,942

(2,033)

(1,020)

240

332

3,461

(1%)

107%

122%

133%

142%

251%

134%

n.a.

168%

76%

107%

(44%)

n.a.

251%

n.a.

81%

(18%)

n.a.

23%

197%

498%

73%

498%

72%

n.a.

(12%)

341%

n.a.

30 / 173

Ørsted Annual report 2017Management’s reviewFinancial performance - Business units
Wind Power
Power generation was up 61% on Q4 2016
due to generation from the new offshore wind
farms Gode Wind 1 and 2, Burbo Bank Exten-
sion, Race Bank and partially Walney Exten-
sion as well as high wind speeds in Q4 2017.

Revenue totalled DKK 5.6 billion in Q4 against
DKK 4.4 billion in Q4 2016. The increase was
driven by revenue from wind farms in opera-
tion, which was up 77% as a result of increased
power generation. Revenue from construction
contracts amounted to DKK 1.7 billion in Q4
2017 against DKK 2.2 billion in Q4 2016. The
decline was due to a high level of activity from
construction contracts in Q4 2016, relating
primarily to the construction of Burbo Bank
Extension for partners and transmission assets
in the UK. The decrease was partially offset by
activities in connection with contract work on
Race Bank and Walney Extension as well as
transmission assets in Q4 2017.

EBITDA was up 149%, totalling DKK 12.6 billion
in Q4 2017 compared with DKK 5.1 billion in Q4
2016.

Earnings from offshore wind farms increased
by 70% as a result of the commissioning of
new offshore wind farms as well as high wind
speeds in Q4 2017. Earnings from partnership
agreements tripled and were primarily attrib-
utable to gains on the farm-downs of 50%
of Walney Extension and Borkum Riffgrund
2 as well as the above-mentioned activities
in connection with contract work on Race
Bank and Walney Extension. The increase was
partially offset by a gain on the farm-down of
50% of Race Bank in Q4 2016 and a high level

EBITDA from other activities totalled DKK -0.7
billion in Q4 2017 against DKK -0.2 billion in
2016. The decrease was mainly due to higher
project development costs.

Cash flows from operating activities totalled
DKK 3.6 billion in Q4 2017 compared with
DKK -1.9 billion in Q4 2016. The increase was
primarily due to higher tax payments in Q4
2016. In addition, we received milestone pay-
ments from partners in connection with the
farm-downs of Borkum Riffgrund 2 and Walney
Extension in Q4 2017.

Bioenergy & Thermal Power
Revenue was DKK 1.8 billion in Q4 2017 against
DKK 2.0 billion in 2016. The decrease was due
to revenue from sales of power and ancillary
services which, due to lower generation,
totalled DKK 0.9 billion in Q4 2017 against
DKK 1.1 billion in the prior-year period. Revenue
from heat sales remained unchanged in the
two quarters in spite of lower generation. This
is primarily attributable to Avedøre, Studstrup
and Skærbæk power stations where heat gen-
eration was converted from coal to biomass at
the first two power stations at the end of 2016.
Skærbæk Power Station has generated heat
using biomass from Q4 2017.

EBITDA doubled relative to Q4 2016 and
amounted to DKK 0.2 billion in Q4 2017. The in-
crease was primarily driven by higher earnings
from heat activities on converted CHP plants.
In addition, earnings from ancillary services
and the power business were also higher.

Group

Contents

of activity from the construction contract for
Burbo Bank Extension in the same period.

Wind Power’s results,
DKKm

Q4 2017

Q4 2016

Revenue

Sites, O&M and PPA1

Construction contracts

Other incl. A2SEA

EBITDA

Sites, O&M and PPA1

5,558

3,848

1,678

12,591

3,226

4,415

2,173

2,159

5,054

1,899

Construction contracts and
divestment gains

Other incl. A2SEA and project
development

Cash flow from operating activities

Free cash flow

10,033

3,309

203%

(668)

3,590

13,417

(154)

334%

(1,948)

(958)

n.a.

For more details on
quarterly figures for our
business units, please
go to orsted.com/en/
Investors/Key-figures-
and-presentations.

1) O&M: Operation
and Maintenance
Agreements
PPA: Power Purchase
Agreements.

26%

77%

(22%)

(61%)

149%

70%

(9%)

(15%)

109%

37%

(20%)

(26%)

(51%)

(4%)

(86%)

(23%)

n.a.

Bioenergy & Thermal Power’s
results, DKKm

Q4 2017

Q4 2016

Revenue

Heat

Power incl. ancillary services

EBITDA

Heat

Ancillary services

Power

Cash flow from operating activities

Free cash flow

1,788

850

938

240

235

122

(117)

600

147

1,956

849

1,107

115

172

(146)

814

299

Distribution & Customer Solutions’
results, DKKm

Q4 2017

Q4 2016

Revenue

EBITDA

Distribution

Sales

Markets

LNG

Cash flow from operating activities

Free cash flow

10,396

179

172

575

(589)

214

(71)

10,879

1,243

223

(71)

1,131

(49%)

(40)

n.a.

1,081

(80%)

922

n.a.

31 / 173

Ørsted Annual report 2017Management’s reviewGroup

Contents

Distribution & Customer Solutions
Revenue was DKK 10.4 billion in Q4 2017
compared with 10.9 billion in Q4 2016.

EBITDA was DKK 0.2 billion compared with
DKK 1.2 billion in Q4 2016.

EBITDA from Markets decreased by DKK 0.6
billion, primarily due to one-off payments from
completed renegotiations of gas purchase
contracts totalling DKK 0.4 billion, which
made a positive contribution in Q4 2016.
Hence, underlying EBITDA from Markets was in
line with Q4 2016.

EBITDA from our LNG activities decreased by
DKK 0.5 billion, mainly as a result of further
provisions in Q4 2017 related to the onerous
contract at the Gate terminal in Rotterdam
as well as provisions regarding purchase
contracts.

Cash flows from operating activities totalled
DKK 0.2 billion in Q4 2017. The negative devel-
opment relative to Q4 2016 was primarily due
to the lower EBITDA as well as the positive
impact in Q4 2016 from receivables received
from completed renegotiations of gas pur-
chase contracts in both Q3 and Q4 2016.

32 / 173

Ørsted Annual report 2017Management’s reviewGroup

Contents

Quarterly summary, 2016-2017

Income statement
(business performance), DKKm
Revenue
EBITDA

Wind Power
Bioenergy & Thermal Power
Distribution & Customer Solutions
Other activities

Depreciation and amortisation
Impairment losses
Operating profit (loss) (EBIT)
Gain (loss) on divestment of enterprises
Net financial income and expenses
Profit (loss) from associates and joint
ventures
Profit (loss) before tax
Tax
Profit (loss) for the period from continuing
operations
Profit (loss) for the period from
discontinued operations
Profit (loss) for the period

Balance sheet
Assets
Total equity

Shareholders of Ørsted A/S
Non-controlling interests
Hybrid capital

Interest-bearing net debt
Capital employed
Additions to property, plant and
equipment

Cash flows
Cash flow from operating activities
Gross investments
Divestments
Free cash flow

Financial ratios
Return on capital employed (ROCE)1,5, %
FFO/Adjusted net debt2,5, %
Number of outstanding shares, end of
period, ’000
Share price, end of period, DKK
Market capitalisation, end of period,
DKKbn
Earnings per share (EPS) (BP), DKK

Income statement (IFRS)
Revenue
EBITDA
Profit (loss) for the period from continuing
operations

Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016

Business drivers

Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016

15,598
13,032
12,591
240
179
22
(1,517)
(545)
10,970
(14)
(649)

42
10,349
(999)

11,869
1,757
1,674
(142)
202
23
(1,385)
-
372
(108)
22

(7)
279
(70)

15,540
4,442
4,191
(153)
516
(112)
(1,541)
-
2,901
(6)
(81)

(2)
2,812
(306)

16,497
3,288
2,139
207
1,185
(243)
(1,296)
-
1,992
(11)
(334)

(43)
1,604
(390)

15,678
6,310
5,054
115
1,243
(102)
(1,602)
-
4,708
(80)
(352)

(3)
4,273
(285)

13,114
3,099
1,643
(128)
1,507
77
(1,239)
-
1,860
1,314
(114)

(4)
3,056
(536)

15,001
2,615
2,270
(41)
452
(66)
(1,215)
-
1,400
19
(589)

0
830
(157)

17,408
7,085
2,900
154
3,906
125
(1,176)
-
5,909
(3)
288

(1)
6,193
(1,213)

9,350

209

2,506

1,214

3,988

2,520

673

4,980

79
9,429

2,931
3,140

2,484
4,990

1,426
2,640

(473)
3,515

811
3,331

478
1,151

236
5,216

146,521 126,190 133,550 132,030 136,489 141,197 140,700 155,915
56,682
37,614
5,820
13,248
940
57,622

62,160
43,990
4,922
13,248
10,332
72,491

64,203
47,050
3,905
13,248
10,260
74,462

71,837
54,791
3,807
13,239
(1,517)
70,320

57,500
39,106
5,146
13,248
3,461
60,961

58,112
39,828
5,036
13,248
6,523
64,635

54,694
35,946
5,500
13,248
3,821
58,515

57,517
39,029
5,240
13,248
5,942
63,459

7,137

4,795

5,475

2,615

4,378

5,168

3,037

5,167

3,078
(5,805)
14,875
12,148

(1,095)
(5,150)
1,882
(4,363)

(1,848)
(4,287)
160
(5,975)

888
(2,502)
65
(1,549)

1,752
(4,732)
5,013
2,033

(56)
(4,658)
2,139
(2,575)

1,215
(2,339)
(46)
(1,170)

8,361
(3,231)
1,949
7,079

25.2
50.3

15.0
26.5

18.4
32.0

17.4
34.2

24.4
64.2

14.6
53.6

12.6
54.8

12.8
66.1

420,155 420,155 420,155 420,155 420,155 420,155 420,155 417,726
-

360.4

338.7

293.9

268.9

267.6

275.0

240.3

142.3
21.7

151.4
7.1

123.5
11.2

113.0
6.4

112.5
8.2

115.6
7.7

101.0
1.9

-
12.8

Wind Power
Decided (FID) capacity3, offshore wind, GW
Installed capacity3, offshore wind, GW
Generation capacity3, offshore wind, GW
Wind energy content3, %
Wind speed3, m/s
Load factor3, %
Availibility3, %
Power generation, TWh
Bioenergy & Thermal Power
Degree days3, number
Heat generation, TWh
Power generation, TWh
Distribution & Customer Solutions
Regulatory value of power distribution
assets4
Power distribution, TWh
Power sales, TWh
Gas sales, TWh

People & environment
Employees, end of period, number
Lost time injury frequency (LTIF), per
million hours worked5
Total recordable injury rate (TRIR)5
Fatalities, number
Green share of heat and power
generation, %
Carbon emissions, g CO2e/kWh

8.9
3.9
2.5
118
11.0
54
92
2.9

895
2.8
2.3

8.9
3.8
2.3
75
7.9
34
92
1.7

115
0.7
1.2

7.5
3.8
2.2
84
8.5
38
93
1.8

451
1.3
1.5

7.4
3.6
2.1
105
9.9
50
93
2.1

1,244
4.2
3.2

7.4
3.6
2.0
108
9.4
49
94
1.8

962
3.1
3.0

7.4
3.0
1.8
78
8.1
35
92
1.3

54
0.4
1.3

6.7
3.0
1.7
75
7.8
34
94
1.2

399
1.4
1.1

6.3
3.0
1.7
111
10.2
46
89
1.7

1,300
4.3
3.0

10,623
2.2
10.6
36.9

10,623
1.9
8.2
29.4

10,623
2.0
8.8
28.3

10,648
2.3
10.1
41.5

10,648
2.3
9.2
36.1

10,648
1.9
8.3
37.1

10,648
1.9
8.5
35.6

10,778
2.4
10.7
41.6

5,638

5,641

5,802

5,787

5,775

5,890

5,881

6,019

1.6
6.4
0

76
106

1.5
6.7
0

60
203

1.5
6.5
0

64
150

1.6
6.4
0

56
170

1.8
6.8
0

56
183

2.1
7.4
0

47
329

1.9
8.5
0

54
210

2.1
9.2
0

43
232

2) Net debt including 50% of hybrid capital, cash and

3) See definition on page 172 and in the ESG statements.
4) The figures indicate values from the latest regulatory

14,711
12,311

11,647
1,643

15,925
4,777

17,426
3,843

13,396
4,572

13,200
3,222

13,134
1,487

17,663
7,658

8,787

120

2,765

1,649

2,633

2,615

(207)

5,426

ROCE is calculated for continuing operations.
1) EBIT/average capital employed.

financial statements (updated in June).

5) Last 12 months.

33 / 173

Ørsted Annual report 2017Management’s review
Contents

Business units

Our business units

Wind Power

Bioenergy & Thermal Power

Distribution & Customer Solutions

35
36
40

Ørsted Annual report 2017Business units

Contents

Our business units

Ørsted

Core business
Green energy.

Wind Power

Bioenergy &
Thermal Power

Distribution &
Customer Solutions

Core business
Development, construction, ownership and
operation of offshore wind farms in the UK,
Germany, Denmark, the Netherlands, the USA
and Taiwan.

Core business
Power and heat generation from CHP plants
in Denmark.

Core business
Power distribution and sale of power and
gas in the wholesale and retail markets in
Denmark, Sweden, Germany and the UK
as well as optimisation and hedging of the
Group’s energy portfolio.

EBITDA 2016 -20171

Underlying EBITDA
Of which partnership gains
Non-recurring EBITDA

EBITDA 2016 -20171

Underlying EBITDA
Of which partnership gains

EBITDA 2016 -20171

Underlying EBITDA

2016

2017

DKK 19.1bn.

2016

2017

DKK 11.9bn.

DKK 0.1bn.

2016

2017

EBITDA 2016 -20171

Underlying EBITDA
Non-recurring EBITDA

2016

2017

DKK 7.1bn.

DKK 22.5bn.

DKK 20.6bn.

DKK 0.2bn.

DKK 2.1bn.

Key figures 2017
Revenue
Gross investments
Capital employed
ROCE
LTIF
Number of employees

DKK 59.5bn.
DKK 17.7bn.
DKK 70.3bn.
25.2%
1.6
5,638

Key figures 2017
Revenue
Gross investments
Capital employed
ROCE
LTIF
Number of employees

DKK 20.4bn.
DKK 15.5bn.
DKK 59.7bn.
28.4%
1.1
2,253

Key figures 2017
Revenue
Gross investments
Capital employed
Free cash flow (FCF)
LTIF
Number of employees

DKK 5.9bn.
DKK 1.4bn.
DKK 2.6bn.
DKK (0.8)bn.
2.8
749

Key figures 2017
Revenue
Gross investments
Capital employed
ROCE
LTIF
Number of employees

DKK 40.2bn.
DKK 0.9bn.
DKK 9.8bn.
13.1%
2.2
1,263

Financial target
ROCE

12-14% (avg. 2018-2023)

Financial target
ROCE

13-15% (avg. 2018-2023)

Financial target
FCF

Positive from 2018

Financial target
ROCE

9-11% (avg. 2018-2023)

1) The sum of the business units’ key figures for 2017 does not equal to the consolidated key figures due to other activities and eliminations. Read more in note 2.1.

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Business units

Contents

Wind Power

Highlights 2017

— Power generation from our wind farms in

operation increased by 42%

— We were awarded the contract for the

construction of Hornsea 2 in the UK, which
increased our FID capacity by 1.4GW
— We divested 50% of Walney Extension in
the UK and 50% of Borkum Riffgrund 2 in
Germany and divested A2SEA

— We inaugurated the Burbo Bank Extension
and Gode Wind 1 and 2 offshore wind farms

— All wind turbines on Race Bank, and

the first part of Walney Extension were
installed

— We were awarded three offshore wind farm
projects in Germany, two of which were
won with zero-subsidy bids

were higher in 2017. We commissioned Gode
Wind 1 and 2 in December 2016 and Burbo
Bank Extension in May 2017. At Race Bank, we
installed the last wind turbine in December
2017 and fully commissioned the wind farm in
January 2018. Walney Extension is expected to
be fully commissioned in H2 2018. Moreover,
power generation in 2016 was negatively
affected by a cable fault at Walney 2. Availa-
bility was 93% in 2017 against 92% in 2016.

Revenue from wind farms in operation was up
46%, driven by higher power generation and
higher power prices, which were partially off-
set by lower contributions from price hedges.
Walney 2 also contributed to the higher
revenue due to the cable fault in 2016.

— We participated in the first offshore wind
auction in Massachusetts, USA, together
with our partner Eversource Energy

Revenue from construction contracts
decreased by DKK 5.6 billion due to a high
level of activity in 2016 with both Gode Wind

EBITDA increased
by 74%.

1) O&M: Operation
and Maintenance
agreements
PPA: Power Purchase
Agreements

— We entered into a partnership agreement
with US-based Dominion Energy on an
offshore wind farm project in Virginia

— Our environmental impact assessments of
the Greater Changhua projects in Taiwan
were recommended for final approval
in Q1 2018.

Financial performance
Power generation increased 42% compared
to 2016, driven by Gode Wind 1 and 2 and
Burbo Bank Extension as well as the start-up
of power generation from Race Bank and
Walney Extension. In addition, wind speeds

“Our company has constructed the most offshore

wind farms globally. In addition to maintaining
our position as global market leader, we’ll
continue to pave the way for offshore wind
power in new markets and develop a global
business.

Martin Neubert
CEO, Wind Power

Performance highlights

Business drivers

Decided (FID) capacity, offshore wind

Installed capacity, offshore wind

Generation capacity, offshore wind

Wind speed

Wind energy content

Load factor

Availability

Power generation

Denmark

United Kingdom

Germany

Power price, LEBA UK

British pound

Financial performance

Revenue

Sites, O&M and PPA1

Construction contracts

Other, incl. A2SEA

EBITDA

Sites, O&M and PPA1

Construction contracts and
divestment gains

Other, incl. A2SEA and project
development

Depreciation

Impairment losses

EBIT

Gross investments

Divestments

Free cash flow

Capital employed

ROCE

2017

2016

m/s

TWh

8.9

3.9

2.5

9.3

8.5

2.5

4.5

1.5

7.4

3.6

2.0

8.9

6.0

2.2

3.1

0.7

GBP/MWh

DKK/GBP

52.6

8.5

42.7

9.1

DKKm 20,352

22,428

11,319

7,757

8,734

14,323

299

348

DKKm 20,595

11,867

8,529

5,869

20%

25%

2%p

3%p

1%p

42%

14%

45%

114%

23%

(7%)

(9%)

46%

(39%)

(14%)

74%

45%

13,667

7,012

95%

(1,601)

(1,014)

(4,080)

(3,565)

DKKm

(545)

DKKm 15,970

8,302

4,347

DKKm (15,462)

(12,426)

DKKm 16,737

6,874

DKKm

4,628

(1,205)

DKKm 59,652

52,825

58%

14%

n.a.

92%

(23%)

24%

143%

n.a.

13%

28.4

16.5

11.9%p

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Cash flow from operating activities

DKKm

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Ørsted Annual report 2017Management’s reviewBusiness units

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1 and 2 and Burbo Bank Extension under
construction for partners. The decrease was
also attributable to a higher level of activity
regarding the construction of transmission
assets in 2016 (Walney Extension, Race Bank
and Burbo Bank Extension) than in 2017 (Horn-
sea 1, Race Bank and Walney Extension). The
decrease was partially offset by activity at
Walney Extension and Race Bank, which were
under construction for partners in 2017.

EBITDA increased by 74% relative to 2016.

EBITDA from wind farms in operation increased
by 45% to DKK 8.5 billion, driven by the factors
described above.

EBITDA from partnership agreements almost
doubled to DKK 13.7 billion in 2017. The year
was positively affected by gains from the
farm-down of 50% of Walney Extension (DKK
7.5 billion) and Borkum Riffgrund 2 (DKK 2.2
billion). 2017 was also positively impacted by
the recognition of the deferred selling price and
milestone income from Race Bank, as well as
the construction of the wind farm for partners.
2016 was affected by a gain of DKK 2.5 billion
from the divestment of Race Bank as well as a
gain of DKK 0.6 billion from the farm-down of
50% of Burbo Bank Extension. In addition, 2016
was affected by high activity levels relating
to the construction of Gode Wind 1 and 2 and
Burbo Bank Extension for partners.

Depreciation increased by 14% due to the
commissioning of new offshore wind farms in
Germany and the UK.

Impairment losses totalled DKK 0.5 billion and
related to capitalised project development
costs in Wind Power, due to uncertainty about
the carrying through of the projects.

Cash flows from operating activities totalled
DKK 3.4 billion in 2017 compared with DKK 4.3
billion in 2016. The decrease was due to more
funds tied up in offshore wind farm construc-
tion contracts in progress for partners and
offshore transmission assets in the UK. In 2017,
funds tied up in work in progress increased by
DKK 3.7 billion due to the construction of trans-
mission assets at Hornsea 1, Race Bank and
Walney Extension as well as the construction
of Race Bank for partners. This was partially
offset by milestone payments received from
partners in connection with the construction
of Borkum Riffgrund 2 in 2017, as well as high
trade payables relating to the construction of
Walney Extension. Funds tied up in work in pro-
gress in 2016 were lower due to the divestment
of the Westermost Rough transmission asset
and the receipt of milestone payments from
partners during the construction of Gode Wind
1 and Burbo Bank Extension, among other fac-
tors. Funds tied up in work in progress totalled
DKK 7.5 billion at the end of 2017.

EBITDA from other activities totalled DKK
-1.6 billion in 2017 against DKK -1.0 billion in
2016. The decrease was mainly due to higher
project development costs.

The high level of funds tied up in other
working capital was primarily due to lower
VAT payable as well as an increase in trade
receivables following a high level of power
generation at the end of 2017.

Yearly wind speed for our offshore wind farms, m/s

9.0

9.2

9.7

8.9

9.3

The wind speed
indicates how many
metres per second the
wind has blown in the
areas where we have
offshore wind farms. The
weighting is based on
our generation capacity.

2013

2014

2015

2016

2017

Quarterly wind speed for our offshore wind farms, m/s

2016

2017

Normal wind year

10.2 9.9

8.5

7.8

8.1 7.9

11.0

9.4

8.9 9.3

The wind speed was
higher than normal in
Q4 2017.

Change from wind energy content (WEC) to wind speed

Wind speed and availability are the two most impor-
tant parameters that can affect the volume of pow-
er generated by our offshore wind turbines in a given
period. In the past, we have used wind energy con-
tent (WEC) as the residual for the power generation
that cannot be explained by the availability of the
offshore wind farms. However, this method means
that generation constraints, with no negative impact
on availability, are included in the calculation of wind
energy content. This type of impact increased in
2017. For example, the German transmission system

operator curtailed our generation from Borkum
Riffgrund 1 and Gode Wind 1 and 2 in periods of 2017
by reducing the available grid capacity.

In order to obtain a cleaner measure of the impact of
wind on our generation, we now apply the measure
of wind speed in metres per second. Wind speed is
based on external data sources and is a transparent
and easy-to-understand measure of how windy it has
been at our offshore wind farms in a given period.

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Ørsted Annual report 2017Management’s reviewBusiness units

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Gross investments amounted to DKK 15.5
billion in 2017. The largest investments related
to the construction of Walney Extension and
Race Bank, Hornsea 1 and Borkum Riffgrund 2.

Cash flows from divestments related to Wal-
ney Extension, Borkum Riffgrund 2, Race Bank
and A2SEA. Divestments in 2016 related to the
farm-down of 50% of Burbo Bank Extension,
Race Bank as well as receipt of the deferred
selling price from the farm-down of 50% of
Gode Wind 1 in 2015.

ROCE increased by 12%-points to 28%, particu-
larly impacted by a gain on the farm-downs.

Strategy follow-up

Wind Power’s strategic focus is to:
— maintain our market leadership in offshore

wind

— continue to pioneer new markets and

develop a global business

— keep innovating and reducing the cost of

electricity from offshore wind

— leverage market-leading partnership model
for incremental value creation and risk
diversification

— realise the current build-out plan of 8.9GW
towards 2022 and expand to 11-12GW by
2025

— implement operational excellence and

digitisation initiatives across EPC and O&M.

The world’s largest offshore wind farms since 2012, MW installed
(year indicates actual or expected commissioning)

1,386

1,218

630

659

367

Walney 1&2
2012

London Array1
2013

Walney Extension
2018

Hornsea 1
2020

Hornsea 2
2022

1) London Array was built in partnership with E.ON UK Renewables and Masdar
Source: Bloomberg New Energy Finance (BNEF)

Maintain our market leadership in
offshore wind
Offshore wind plays an increasingly important
role in the European conversion to green ener-
gy, and the potential is enormous. Worldwide,
we are the company that has constructed
most offshore wind farms. In fact, we have
constructed close to a quarter of the total
global capacity.

In 2017, we completed the Burbo Bank
Extension offshore wind farm in the UK, the
first offshore wind farm in the world to feature
the MHI Vestas 8MW offshore wind turbine.
Including Burbo Bank Extension, at the end of
2017 we had installed 3.9GW of offshore wind
capacity since the beginning in 1991, where
we constructed the world’s first offshore wind
farm off Vindeby in Denmark. After more than
25 years, the Vindeby offshore wind farm, as
the first offshore wind farm in the world, was
decommissioned in the autumn of 2017.

In September, we were awarded a contract
for difference (CfD) for our Hornsea 2 project
in the UK. With a total capacity of 1.4GW, it
will be the world’s largest offshore wind farm
when completed in 2022. The project will
thus be larger than our Hornsea 1 offshore
wind farm with a capacity of 1.2GW, which is
expected to be completed in 2020.

Continue to pioneer new markets and devel-
op a global business
2017 has been a year where we really fuelled
our project development in two new strategic
markets. Together with Eversource Energy, our
partner on the US Bay State Wind project, we
submitted a bid for capacity in the first offshore
wind auction in Massachusetts in December

2017. The preferred bidder or bidders are
expected to be selected in April 2018, followed
by an invitation to negotiate a fixed-price
agreement with the three local power distri-
bution companies. In addition, we entered into
an agreement to construct a demonstration
project for Dominion Energy off the Virginia
Beach coast. At the same time, we entered into
a letter of intent, which gives us the exclusive
right to negotiate a strategic partnership with
Dominion Energy concerning their 2GW devel-
opment project off the Virginia coast.

At the end of 2017, the Taiwanese EIA review
panel recommended approval of our environ-
mental impact assessments of the four Great-
er Changhua offshore wind sites in Taiwan with
a total capacity of 2.4GW. We will now await
the final approval by the EIA General Assem-
bly, which is expected to convene in Q1 2018.

Keep innovating and reducing the cost of
electricity from offshore wind
2017 was a breakthrough year for the com-
petitiveness of offshore wind. For example,
we were granted the Hornsea 2 CfD contract
at a price which is 50% lower than the price
in the CfD auction round only two years ago,
illustrating how fast costs are reduced. Costs
have been reduced across the industry by
means of increasing levels of industrialisation,
economies of scale and innovation.

A good example of our approach to innova-
tion is our work on developing a new design
standard for foundations for offshore wind
farms. Together with leading industry experts,
we have developed and tested a new foun-
dation design that enables us to use far less
steel. This design is used in the most recent

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Ørsted Annual report 2017Management’s reviewBusiness units

Contents

projects which we have bid for in auctions, and
it has contributed to significantly reducing the
cost of electricity.

Overall, the declining prices are tangible proof
of the global potential of offshore wind tech-
nology as a cornerstone in an economically
sustainable transition towards green energy
systems. As a result, we are making a dedicat-
ed effort to further reduce the cost of power
from offshore wind farms.

Leverage market-leading partnership
model for incremental value creation and risk
diversification
Our partnership model yet again proved its
worth through the 50% divestment of the
offshore wind farms Borkum Riffgrund 2 and
Walney Extension in 2017. Borkum Riffgrund 2
was divested to Global Infrastructure Partners,
which also owns 50% of our German offshore

New foundation design

wind farm Gode Wind 1, while Walney Exten-
sion was divested to a consortium consisting
of the Danish pension funds PFA and PKA. PKA
now has ownership interests in four Ørsted
offshore wind farms.

In addition to incremental value creation, the
partnership model contributes to diversifying
risk as well as releasing capital to invest in
other offshore wind farms in strategic markets.

Realise the current build-out plan of 8.9GW
towards 2022 and expand to 11-12GW by 2025
Race Bank was commissioned in January
2018 and consequently added 0.6GW to our
installed capacity. Up until 2022, we will con-
struct a further five offshore wind farms with
a total capacity of 4.5GW. Out of these five
wind farms, we have generated first power
from the British offshore wind farm Walney
Extension (40% of capacity commissioned),
which is expected to be fully commissioned
in H2 2018. The remaining four offshore wind
farms under construction are all progressing
according to plan, and when the last wind
farm, Hornsea 2 in the UK, is commissioned,
we will have 8.9GW installed by the end of
2022.

Up until 2025, we have a significant pipeline,
and our ambition is to have 11-12GW installed
by the end of 2025, provided that a healthy
risk and return profile can be achieved.

The figure shows our
current build-out plan of
8.9GW towards 2022.

Build-out plan, installed MW

2017

Race Bank (2018)

Walney Extension (2018)

Borkum Riffgund 2 (2019)

Hornsea 1 (2020)

Borssele 1&2 (2020/21)

Hornsea 2 (2022)

2022

3,875

573

659

450

+5,038

1,218

752

1,386

8,913

an option on 0.6GW capacity in Germany for
commissioning in 2024, provided that the final
investment decision is made in 2021.

The rest of the pipeline consists mainly of
projects which we have the exclusive right
to develop in preparation of an investment
decision, which is typically conditional on the
granting of subsidies via an auction process. A
minor part of the pipeline consists of projects
for which the authorities allocate capacity in a
competitive process involving tendering of pro-
ject rights. We are familiar with this process, e.g.
from the tendering in recent years of offshore
wind projects in Denmark and the Netherlands.

Implement operational excellence and digiti-
sation initiatives across EPC and O&M
The digital transformation is important in off-
shore wind. In Ørsted, we are exploring new and
wider opportunities for leveraging technolog-
ical advances. Using agile and advanced ana-
lytics in our business, we are starting to harvest
the benefits of the digital transformation.

As an operational example, a higher temper-
ature in the nacelle of the turbine puts the
converter module at risk. Previously, a turbine
would stop in case of high temperatures, which
led to an availability loss until the turbine
could be checked by a technician and restart-
ed. Now, continuous temperature monitoring
and predictive, in-house developed models
identify the risk. A notification is then sent to
the technician who proactively mitigates the
risk by repairing the component before the
turbine stops. This lowers lead time, limits the
availability loss and creates value.

39 / 173

Less use
of steel

In April, we were awarded the concessions for
the three German offshore wind farms OWP
West, Borkum Riffgrund West 2 and Gode
Wind 3 in competition with other developers.
Two of the wind farms have been awarded
on zero-subsidy terms. Overall, this gives us

In addition to the opportunities in Taiwan and
the USA, 2018 will see an auction for 1.6GW in
Germany and a 700MW tender in the Nether-
lands. They will be followed by a CfD auction
round in the UK in the spring of 2019 and anoth-
er 700MW tender in the Netherlands in 2019.

Ørsted Annual report 2017Management’s reviewBusiness units

Contents

Bioenergy & Thermal Power

Highlights 2017

— We entered into an agreement to convert
Asnæs Power Station to sustainable bio-
mass from 2019

— We inaugurated Skærbæk Power Station’s
new plant following the conversion from
gas to biomass. The plant can now run
100% on sustainable biomass

— In partnership with Bigadan, we decided to
build a biogas plant in Kalundborg which
will recycle and convert residues from the
Novo Nordisk and Novozymes production
facilities into biogas

— We completed our first commercial

Renescience plant in 2017. We expect to
commission the plant in H1 2018.

Financial performance
Revenue increased by 14% to DKK 5.9 billion
in 2017.

Revenue from heat sales increased by 16% de-
spite lower heat generation. This is attributa-
ble to Avedøre, Studstrup and Skærbæk power
stations where heat generation is based on
biomass. Revenue from power and ancillary
services rose by 13% to DKK 3.3 billion despite
lower generation. This is due to an increase in
the power price.

EBITDA increased by 52% to DKK 0.2 billion
in 2017. The increase was mainly due to heat
generation activities, where the bio-conversions
led to a 71% increase in earnings to DKK 0.7

billion in 2017. The increase was partially offset
by a decline in the power business where lower
generation as well as unfavourable market
conditions (primarily negative spreads) resulted
in earnings of DKK -0.9 billion against DKK -0.6
billion in 2016.

EBITDA from ancillary services was in line with
2016.

Cash flows from operating activities totalled
DKK 0.6 billion compared with DKK 1.3 billion
in 2016. The decrease was mainly due to
higher prepayments from heat customers in
connection with biomass conversions in 2016
than in 2017. The decrease was partially offset
by a lower level of funds tied up in inventories
(wood pellets and coal) in 2017.

Gross investments amounted to DKK 1.4 billion
in 2017. The largest investments related to
the biomass conversions of the Skærbæk and
Asnæs power stations as well as the construc-
tion of the Renescience plant in the UK.

Performance highlights

2017

2016

Operating profit from
the heat business
increased as a result of
biomass conversions.

Business drivers

Degree days

Heat generation

Power generation

Power price, DK

Green dark spread, DK

Green spark spread, DK

Financial results

Revenue

Heat

Power, incl. ancillary services

EBITDA

Heat

Ancillary services

Power

Depreciation

EBIT

Cash flow from operating
activities

number

2,705

2,715

TWh

EUR/MWh

9.0

8.2

31.0

(1.6)

(6.2)

9.2

8.4

28.0

3.4

(2.2)

DKKm

5,864

5,149

2,607

2,255

3,257

2,894

DKKm

152

695

321

(864)

(690)

(538)

100

407

300

(607)

(763)

(663)

DKKm

592

1,285

(0%)

(2%)

11%

n.a.

182%

14%

16%

13%

52%

71%

42%

(10%)

(19%)

(54%)

(28%)

(67%)

25%

12%

Gross investments

DKKm

(1,390)

(1,926)

Divestments

Free cash flow

DKKm

(796)

(635)

Capital employed

DKKm

2,554

2,283

ROCE

(22.2)

(29.5)

7.3%p

40 / 173

“In 2017, we reached new milestones on

our journey to convert all our CHP
plants to sustainable biomass.

Thomas Dalsgaard
CEO, Bioenergy & Thermal Power

Ørsted Annual report 2017Management’s reviewBusiness units

Contents

Strategy follow-up

Bioenergy & Thermal Power’s strategic
focus is to:
— continue the conversion of Danish CHP

plants to sustainable biomass and phase
out coal by 2023

— continue to strengthen operational

efficiency

— continue the commercial development

of our Renescience enzyme based waste
technology

— explore business opportunities within

energy storage solutions.

Continue conversions to sustainable bio-
mass and phase out coal by 2023
For several years, we have been committed to
converting our power stations to use sustaina-
ble wood pellets and wood chips. And in 2017,
we decided to phase out coal by 2023, as coal
is the fuel with the greatest carbon impact
per produced quantity of power and heat. Our
ongoing work will reduce our annual carbon
emissions in Denmark significantly towards
2023. In just over ten years, we will have gone
from being one of the most coal-intensive utili-
ties in Europe to having a completely coal-free
generation by 2023.

In cooperation with our heat customers, we
reached even more milestones in 2017 in the
execution of our large-scale biomass conver-
sion projects. The new biomass-fired CHP plant
in Skærbæk was inaugurated in October by
HRH Crown Princess Mary and now supplies
green heat to district heating customers in the
Danish Triangle Region and green power to the
Danish grid. Later in October, we cut the first
sod for our new biomass-fired CHP plant at

Asnæs near Kalundborg, Denmark. The plant is
expected to be completed by the end of 2019
and will supply green district heating to district
heating customers in and around Kalundborg,
green steam to Novo Nordisk and Novozymes
as well as green power to the Danish grid. In
November, we decided to invest in flue gas
condensation at the Herning Power Station,
enabling us to increase the energy efficiency
potential of the biomass used. At the same
time, we extended our agreement with the
heat customers in and around Herning until
2033. Finally, we are engaged in a construc-
tive dialogue with our heat customers in
and around Esbjerg on also supplying green
solutions to them within a few years.

Our portfolio of seven central CHP plants in
Denmark will thus be able to supply green
district heating equivalent to the consumption
of almost one million Danes in the near future.
Our power stations will be some of the largest
biomass-fired CHP plants in the world, making
them key to the green transformation of the
nearby towns, cities and municipalities – and
of Denmark as a whole.

It is important to us that our customers can be
confident that the biomass-based heat and
power we supply is sustainable and makes a
real and significant contribution to reducing
their carbon footprint. Therefore, we fully
support the Danish industry agreement on
sustainable wooden biomass which commits
not just Ørsted, but the entire Danish energy
industry to documenting the sustainability
of our use of biomass. Together with other
European energy companies, we are also
part of the Sustainable Biomass Programme
(SBP) which has developed a robust and

Share of fuels in the thermal power and heat generation, %

Coal

Oil

Natural gas

Biomass

Waste

Biomass conversions will
support a reduction in
the usage of coal in the
coming years.

3%
7%

18%

66%

26%

24%

27%

26%

48%

46%

42%

27%

30%

~95%

~5%

2006

2015

2016

2017

2023

independent scheme for the certification of
sustainable biomass. The Danish industry
agreement on sustainable wooden biomass
entered into force in 2016 and is being phased
in during the period up until 2019. In 2017, 72%
of our purchased biomass came from certified
partners, and our target is that 100% should
come from certified partners in 2020.

Continue to strengthen operational
efficiency
For much of 2017, market conditions remained
challenging for Danish CHP plants. Therefore,
we have focused on maintaining our leading

position as an efficient and flexible operator
and on continuing to reduce costs. In 2017, we
initiated a comprehensive digitisation pro-
gramme aimed at streamlining and automat-
ing production at our CHP plants. With this
programme, we introduce new technology
and improved analytical tools across our CHP
plants in order to strengthen our operational
efficiency. In addition, we have increased our
focus on our plant control processes. A case
in point is the development of systems that
support the balance between cost, risk and
performance at our plants. This provides for ef-
ficient prioritisation of our capital expenditures.

41 / 173

Ørsted Annual report 2017Management’s reviewContinue the commercial development of
our innovative Renescience enzyme based
waste technology
We are currently working to further develop
and expand our bioenergy business – with
special emphasis on the commercialisation
of our Renescience technology. By means of
enzymes, the technology efficiently converts
household waste into biogas and recyclable
materials (metal, plastic, etc.). In 2017, we es-
tablished the first full-scale plant in Northwich
in the UK. We are finalising the optimisation
of the plant’s mechanical operation, which
has taken longer than expected. We expect to
start full commercial operation in H1 2018. We
expect the plant to process 120,000 tonnes
of unsorted household waste per year, which
corresponds to the waste from approximately
110,000 British households.

Explore business opportunities within
energy storage solutions
In 2017, we established a new business unit,
Energy Storage Solutions. This unit will sup-
port initiatives across Ørsted and at the same
time offer battery power storage solutions,
potentially in combination with solar PV, for
our customers. In 2017, Radius commissioned
a battery solution for the power distribution
grid in the Nordhavn area in Copenhagen, and
we initiated the work to establish a storage
solution at our Burbo Bank offshore wind farm
in the UK.

Business units

Contents

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Ørsted Annual report 2017Management’s reviewBusiness units

Contents

Distribution & Customer Solutions

Performance highlights

Business drivers

2017

2016

Regulatory asset base (power)

DKKm 10,623

10,648

EBITDA was positively
affected by one-off
payments from gas
contracts of DKK 4.3
billion in 2016.

Gas distribution contrib-
uted DKK 0.4 billion to
EBITDA until divestment
in September 2016.

Highlights 2017

— At the end of 2017, the customers in our
power distribution company Radius had
taken 183,000 smart meters in use

— We decided that the power consumption
of our 733,000 Danish residential power
customers is to be covered by green power
from offshore wind farms – without any
surcharge

— We installed Denmark’s first large-scale

battery for balancing the grid in Nordhavn,
together with ABB

— We entered into an agreement with the

Good Energy trading company about the
supply of green power to their customers
from the Westermost Rough offshore wind
farm.

Financial performance
Revenue increased by 6% to DKK 40.2 billion
in 2017. The increase was driven primarily by
a 24% average increase in gas prices relative
to 2016 and higher power sales in the UK. The
increase was offset by lower revenue from
power distribution, given that duties and costs
are no longer invoiced on behalf of the trans-
mission asset owner, and from the distribution
of gas following the divestment of activities to
Energinet in September 2016.

EBITDA was DKK 2.1 billion compared with
DKK 7.1 billion in 2016. The decrease was ex-
pected and was mainly ascribable to non-re-
curring items of DKK 4.7 billion in 2016 as well

as a provision of DKK 0.4 billion related to
the onerous contract at the Gate terminal in
Rotterdam.

EBITDA from the distribution business
decreased by DKK 0.4 billion as a result of the
divestment of our gas distribution activities in
September 2016.

EBITDA from Markets decreased by DKK 4.3
billion, primarily due to one-off payments of
DKK 4.3 billion from completed renegotiations
of gas purchase contracts in 2016.

EBITDA from LNG declined by DKK 0.3 billion
as a result of further provisions related to
an onerous contract at the Gate terminal in
Rotterdam as well as provisions regarding
purchase contracts. This was partially offset
by improved margins from renegotiated con-
tracts, lower costs and short-term trades.

“Our ambition is to bridge the gap

between supply and demand in
the green transformation.

Morten Buchgreitz
CEO, Distribution & Customer Solutions

Degree days

Gas sales

Sales

Markets (excl. volumes to Sales)

Power sales

Sales

Markets (excl. volumes to Sales)

Gas distribution

Power distribution

Gas price, TTF

Oil price, Brent

US dollar

British pound

Financial results

Revenue

EBITDA

Distribution

Sales

Markets

LNG

Depreciation

EBIT

Cash flow from operating
activities

Gross investments

Divestments

Free cash flow

Capital employed

ROCE

(0%)

(10%)

(15%)

18%

(3%)

n.a.

(1%)

24%

(1%)

(7%)

(71%)

(25%)

n.a.

(75%)

133%

number

TWh

2,705

136.1

40.8

95.3

37.7

11.8

26.0

8.4

17.3

54.3

6.6

8.5

TWh

EUR/MWh

USD/boe

DKK/USD

DKK/GBP

2,715

150.4

37.6

112.7

36.7

10.0

26.8

5.8

8.5

14.0

43.7

6.7

9.1

DKKm 40,195

38,009

DKKm

2,082

1,199

7,108

1,602

(15)

1,422

5,766

(571)

(933)

(245)

(874)

1,149

6,234

(82%)

(628)

(857)

196

(1,289)

9,780

13.1

4,302

(569)

2,238

5,971

7,797

n.a.

51%

(91%)

n.a.

25%

75.8 (62.7%p)

43 / 173

Ørsted Annual report 2017Management’s reviewCash flows from operating activities totalled
DKK -0.6 billion in 2017. The decrease of DKK
4.9 billion was primarily due to lower EBITDA
and the early settlement of Oil & Gas price
hedges of DKK 1.6 billion in 2017. This was par-
tially offset by a lower level of funds tied up in
working capital, mainly higher trade payables
relating to gas purchases.

Gross investments totalled DKK 0.9 billion in
2017, relating primarily to maintenance of the
power distribution grid and installation of the
new smart meters.

ROCE was 13% in 2017. This is a decrease of
63%-points relative to 2016, as that year was
positively impacted by income in the form of
one-off payments from renegotiations. ROCE
adjusted for these one-off payments was 24%
in 2016.

Business units

Contents

Strategy follow-up

Distribution & Customer Solutions (DCS)
comprises four core activities: Sales B2C, Sales
B2B, Markets (including LNG) and Distribution,
bridging the gap between supply and demand
in the green transformation.

Distribution & Customer Solutions’ strate-
gic focus within these four areas is to:
— Sales B2C: make it easier and financially

possible for our customers to contribute to
the green transformation

— Sales B2B: help business customers benefit

from the green transformation

— Distribution: be industry-leading and

maintain high levels of security of supply
and customer satisfaction

— Markets (including LNG): manage Ørsted’s
energy portfolio and provide competitive
access to the energy market for customers.

Sales B2C: make it easier and financially
possible for our customers to contribute to
the green transformation
We will make it easier for our customers to
play a part in the green transformation. In
2017, we therefore decided to cover all our res-
idential customers’ power consumption with
green power from our own Danish offshore
wind farms by purchasing green certificates –
at no extra cost for our customers.

loyalty to 71 from 69. During the year, we have,
among other things, worked to make our
customer service more accessible and also
implemented a successful online chat function
and a new website in connection with the
launch of our new name.

By the end of 2020, all power customers in
Denmark will have the option of hourly settle-
ment of consumption via remote-read power
meters. This means that our power customers
can take advantage of variable power prices
during each 24-hour period – for example free
power during certain hours of the night – as
our most common subscription is based on the
hourly market prices.

We continuously strive to reduce our costs
and strengthen our competitiveness. Among
other things, we are developing a new, simple
and flexible digital platform. The new platform
will provide a better customer experience and
reduce our costs.

Sales B2B: help business customers benefit
from the green transformation
Across our geographical markets, we are
working to establish and develop our part-
nerships with business customers beyond the
classic role of a utility company. We are seeing
growing demand for integrated, green energy
solutions, and we would like to take the lead
on this development.

With 824,000 residential customers, our
ambition is to deliver Denmark’s best custom-
er experience, which we continuously strive
to do. In 2017, the customer satisfaction score
among residential customers, who had been in
touch with us, was unchanged at 76 on a scale
of 1-100. We have seen an increase in customer

Among other things, we offer our customers
in Denmark climate partnerships comprising
green power and advice on energy efficien-
cy and procurement. For example, we are
working with Novo Nordisk and Novozymes
on a new biogas plant in Kalundborg that

will convert by-products from their factories
to biogas.

We have also experienced strong growth in
our flexibility solutions which contribute to
balancing the energy system and ensuring
lower costs. For example, we give our business
customers the opportunity to move parts of
their production to times when demand in the
grid is lower. Our customer satisfaction score
for business customers has increased to 77 out
of 100.

Distribution: be industry-leading and main-
tain high levels of security of supply and
customer satisfaction
Ørsted’s distribution activities are undertaken
by the subsidiary Radius Elnet.

It is crucial that our customers experience a
high level of security of supply. This means that
their supply is rarely interrupted, and that we
ensure rapid response and communication of
correct information when this happens. In 2017,
customers experienced the security of supply
of 0.42 disconnections a year, excluding faults
in the primary transmission grid owned by the
Danish transmission system operator, Energinet.

As mentioned above, all Danish households
must have a remote-read power meter
installed by the end of 2020. We are thus work-
ing hard to replace one million power meters.
At the end of 2017, 183,000 meters were in use.
We focus on ensuring that the replacement
is a positive customer experience, so we are
pleased that we succeeded in maintaining a
high customer satisfaction score of 82 in 2017.
The remote-read power meters come with
a number of advantages for our customers.

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Ørsted Annual report 2017Management’s reviewBusiness units

Contents

Among other things, they no longer have
to read their power meters themselves, and
they can monitor and control their electricity
consumption during the day and the year. From
1 December, billing by the hour was introduced
for our first customers to have the new meters
installed. For the individual customer, this is a
chance to reduce costs by keeping consump-
tion low during peak hours in the grid. On the
other hand, customers with a more inexpedient
consumption pattern will pay more. The av-
erage consumer will not experience any price
changes.

On 1 January 2018, a new financial regulation
for grid companies came into force. During the
year, the Danish Energy Regulatory Authority
will define new revenue caps that will give us
healthier incentives and a more stable frame-
work. Initially, the financial consequences of
this regulation are as expected.

Markets (including LNG): manage Ørsted’s
energy portfolio and provide competitive
access to the energy market for customers
Markets manages and optimises Ørsted’s
energy portfolio as a whole, and hedges the
Group’s energy exposures as part of that. We
sell the Group’s power and gas as well as
green certificates in the market and buy with
a view to covering our customers’ consump-
tion. In this way, we make sure to continuously
balance the supply of, and demand for, power
and gas in our portfolio.

We offer external customers the same access
to the market as we deliver for Ørsted’s own
power generation, green certificates, etc. In this
way, we create synergies across the portfolio.

In 2017, we made significant progress in the
management of power portfolios – particu-
larly in relation to balancing products for
external customers. As a consequence, we
increased our number of external customers
and our managed production capacity. The
assets which we manage in portfolios include
offshore wind farms, onshore wind, waste-
fired power stations and small-scale gas-fired
electric motors. In addition to our focus on the
administration of renewable energy, we have
signed agreements with small and flexible
gas-fired power stations, supporting the objec-
tive of creating balance in the power grid.

In the transition to renewable energy, gas, as
the least polluting and most flexible of the
fossil energy sources, will continue to play an
important role on the way towards a fossil-free
energy system. Our gas portfolio consists part-
ly of long-term purchase contracts, partly of
contracts on capacity in gas storage facilities
and an LNG terminal. At the end of 2017, a plan
was announced for the full redevelopment of
the Mærsk-owned Tyra gas field in the North
Sea, which has increased the security of con-
tinued deliveries from the Danish Underground
Consortium (DUC) to us. In addition, we have
further reduced our exposure to oil prices in our
gas purchase contracts through renegotiations
with our counterparties.

Our LNG activities are loss-making. And even
though we experience great interest and ac-
tivity in LNG, the earnings from these activities
are not enough to cover our fixed costs for the
lease of the terminal.

45 / 173

Ørsted Annual report 2017Management’s reviewContents

Governance

Risk and risk management

Corporate governance

Remuneration report

Shareholder information

Group Executive Management

Board of Directors

51
55
58

Ørsted Annual report 2017Governance

Contents

Risk and risk management

In Ørsted, we regard risks as
a natural and integral part of
our business activities. Through
risk management, risks are
reduced to an acceptable level.

In addition to general operational and business
risks, we are exposed – as part of our activi-
ties – to a number of different risks, including
fluctuations in exchange rates, commodity
prices and interest rates as well as credits and
insurance. Managing these risks is an impor-
tant focus area for us. The purpose of our risk
management is to identify the various risks to
which we are exposed, and then decide how to
manage them. We assess the extent to which
individual risks are acceptable or perhaps even
desirable, as well as the extent to which these
risks can be reduced to ensure an optimum
balance between risk and return.

Following the divestment of our upstream
oil and gas business in September 2017, our
earnings are now to a large extent centred
within offshore wind and green energy. When
we invest in new assets and activities or divest
other assets, the risk associated with our port-
folio changes. We therefore assess the impact
of a given decision on the portfolio in advance.

We work systematically with risks and follow
a plan for the year according to which all
business units and selected staff functions
identify and prioritise their business risks. An
assessment is made of the potential financial
impact of individual risks and of whether they
are of a short-term, long-term or recurring
nature. The risks are consolidated and then
prioritised at Group level. The ultimate re-
sponsibility for the individual risks rests with a
member of the Group Executive Management.
Similar processes are in place for identifying
and prioritising risks related to sustainability,
cybersecurity/IT and compliance/legal.

considerable impact on the Group’s finances
and/or reputation. These include, among other
things:

Top 5 business risks

Effect on our value and credit metric

— 1,000-year storm, which can lead to the

loss of offshore wind farms

— Broken pipes at the Nybro gas treat-

ment plant in Denmark, which can lead
to personal injury and damage to the
environment

High

e
u
l

a
v
n
o
t
c
e
f
f
E

Effect on FFO/adjusted net debt

— Breakdowns at power stations that can
lead to personal injury and loss of assets.

High

(#1 2016)
Market risks

The most important business risks identified
in connection with the process in the autumn
of 2017 are shown on the right. They are
also illustrated in the figure based on their
potential impact (post-risk mitigation) on our
value and credit metrics over the next few
years. You can read more about these risks in
the following pages.

For each of the identified risks, Group Execu-
tive Management has assessed whether the
level of risk – after risk-reducing measures
have been implemented – is appropriate or
slightly or significantly higher than the desired
level. If the risk is higher than the desired level,
further risk-reducing measures are initiated to
the extent possible.

The risks related to sustainability, cybersecuri-
ty/IT as well as compliance/legal are assessed
using different parameters, which is why we
are unable to show a consolidated picture of
our combined risks. You can find a description
of the most significant sustainability risks in
our Sustainability Report and for each of the
two other areas on page 50.

Development in risks in 2017
The risk outlook diminished in 2017 after
the divestment of our upstream oil and gas
business, as that industry is generally charac-
terised by a high level of inherent risk.

Our five most important business risks are
unchanged in relation to last year, however.

In addition, we are exposed to risks entail-
ing a very small probability of having a

Market risks are still deemed to be the most
material business risks for us. Following the

Low

High

Quantification of risk
is based on a scenario
where the risk occurs
with 10% probability
(P90).

(#2 2016)
Development and con-
struction of production
assets

(#4 2016)
Operation of offshore
wind farms

(#3 2016)
Regulatory risks in Wind
Power

(#5 2016)
Cost of electricity for
offshore wind

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Ørsted Annual report 2017Management’s review

Governance

Contents

divestment of the oil and gas business, our
exposure to oil and gas prices has been
reduced. In contrast, our exposure to exchange
rate fluctuations, primarily GBP, has increased,
due to our large investments in offshore wind
farms in the UK.

Development and construction of production
assets is still ranked as the second-largest risk.
However, there were no significant challenges
in 2017.

Our risks associated with the operation of
offshore wind farms (risk no. 3) and regulatory
risks in Wind Power (risk no. 4) switched places
in 2017. This is due to an increasing risk of faults
on e.g. transmission cables, as more and more
offshore wind farms become operational. In
addition, we believe that the regulatory risks
in the European markets have diminished, as
the terms and regimes that apply to us are
well-known and clarified.

Further reducing the cost of electricity from
offshore wind (risk no. 5) remains an important
factor for us. 2017 saw a breakthrough for
the price of offshore wind power, and our
market-leading role in reducing the costs
was reaffirmed. In April, we were granted the
right to build three offshore wind projects
in the German part of the North Sea, and in
September we were awarded the contract
to construct Hornsea 2. Two of the German
projects were awarded on zero-subsidy terms,
and the settlement price for Hornsea 2 is 50%
lower than in the most recent CfD allocation
in the UK only two years ago.

1. Market risks

Our primary market risks relate to energy pric-
es, exchange rates, interest rates and inflation.

Risk management
The management of market price risks aims to
ensure stable and robust financial ratios that
support our growth strategy.

We hedge prices for up to five years to reduce
cash flow fluctuations. Prices are normally not
hedged in the longer term. This means that
our long-term market risks are determined by
our strategic decisions on investments in new
assets, the conclusion of long-term contracts,
debt issuance as well as any divestments of
assets.

Energy prices
Our energy price risks can be divided into
direct price risks, where the exposure depends
on a specific price, and spread risks, where the
exposure depends on the difference between
two or more prices. Direct price risks are gener-
ally considered to be higher than spread risks
as prices are often co-variant.

We hedge prices based on minimum hedg-
ing requirements, defined by the Board of
Directors, for the three business units. See note
7.1 in the financial statements. In the first two
years, a high degree of hedging is wanted to
ensure stable cash flows after tax. The degree
of hedging will be lower in the subsequent
years. This is due to declining certainty about
generated volumes and the increasing cost of
hedging instruments due to declining liquidity
of the instruments.

Risk horizon

We hedge market prices
with a horizon of up to
5 years.

High

Low

Up to 5 years

Energy exposure 2018-2022, DKK billion

Before hedging

After hedging

Our energy exposures
have been reduced from
DKK 20.7bn to DKK
8.3bn via hedging.

12.5

6.7

2.6

0.1

1.6

1.5

0.0

-4.0

Oil

Gas

Power

Spread

Our currency exposures
have been reduced from
DKK 68.4bn to DKK
14.0bn via hedging.

Currency exposure 2018-2022, DKK billion

Before hedging

After heding

67.4

14.0

1.0

0.0

GBP

USD

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Ørsted Annual report 2017Management’s reviewGovernance

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Exchange rates
Our international activities entail financial
exposure to exchange rate fluctuations. The
most important risk relates to GBP due to the
Group’s substantial investments in offshore
wind farms in the UK.

The main currency risk management principle
is that currency risks are hedged when it is
deemed relatively certain that the underlying
cash flows in foreign currencies will material-
ise. Currency risks relating to energy prices are
therefore hedged only when the energy price
is hedged.

Similarly, currency risks relating to divestments
and investments are hedged only when the
divestment and investment prices are suffi-
ciently certain.

Cash flows that relate to fixed tariffs and
guaranteed minimum prices from offshore
wind farms in the UK deviate from the main
principle and are hedged after deduction of
operating costs, with a decreasing degree of
hedging over the five-year risk management
horizon. See note 7.1 in the financial state-
ments. Fluctuations in GBP therefore consti-
tute a strategic risk for Ørsted.

Our EUR risk is subject to continuous assess-
ment, but is generally not hedged as we
believe that Denmark will maintain its fixed
exchange rate policy.

Interest rates and inflation
Our interest rate risks relate to interest-bear-
ing loans and borrowings, interest-bearing
assets and financial price hedges.

The management of interest rate risks is
based on the composition of our assets and
the interest rate sensitivity of the cash flows
generated by these assets. We match assets
and liabilities, aiming at fixed-interest financ-
ing of assets with fixed, interest-insensitive
cash flows over the same periods. Conversely,
more variable-interest financing is sought for
assets with varying, interest-sensitive cash
flows.

Our inflation risk primarily relates to fixed
nominal earnings from offshore wind farms in
Denmark, Germany and the Netherlands. We
match the inflation risk by issuing debt with
fixed nominal cash flows.

2. Development and construction
of production assets

Our strategy includes the construction of
large-scale investment projects, especially
within offshore wind. Value creation from new
projects heavily depends on choosing the right
technical and commercial solutions, on the
design and construction phase progressing as
planned, including compliance with our agree-
ments on the part of suppliers, on avoiding
investment budget overruns and on the timely
start-up of generation.

Most of our new investments are made in
offshore assets, which naturally increases risks
in the construction phase. The nature of the
seabed, weather conditions and dependence
on installation vessels are some of the risks
associated with the construction of offshore
assets.

In Wind Power and Bioenergy & Thermal Pow-
er, we have successfully completed several
investment projects in recent years, including
the construction of offshore wind farms in the
UK and Germany as well as bioconversions of
Danish CHP plants. Based on these experie-
nces, we have been able to significantly
reduce the risks associated with projects
in progress due to the implementation of
standard processes for the construction and
estimation of project costs.

3. Operation of offshore
wind farms

The risks associated with the operation of
offshore wind farms relate to forecasts for
availability and operating expenses as well as
faults in transmission cables and substations.

Our forecasts for availability and operating ex-
penses are based on a number of assumptions
received from our suppliers, and on historical
data. There is a risk that the assumptions
do not hold, and that fault rates and costs
are higher than expected. This may lead to
deviations between actual generation and the
forecasts.

In addition, we are exposed to faults in trans-
mission cables and substations, which may
result in breakdowns and loss of production
from parts of or an entire offshore wind farm
over an extended period of time. We are not
compensated for loss of production in the UK.
However, in Denmark we are fully compen-
sated, and in Germany we are compensated
for a large share of such operating losses.
The German transmission system operator,

TenneT, is entitled to deduct up to 28 days
for planned (10 days) and unplanned (18 days)
maintenance of the transmission grid before
we are entitled to financial compensation. The
final form of the compensation rules is not yet
clear in the new markets in the Netherlands,
the USA and Taiwan, but we are monitoring
the issue closely.

We have put in place various contingency
plans to cater for unforeseeable events, includ-
ing critical repair services to handle transmis-
sion cable faults. In addition, we are working
continuously to reduce the risk of faults in the
operation of offshore wind farms, among other
things, by monitoring and analysing operation-
al data collected and carrying out preventive
remedial work of emerging damage.

4. Regulatory risks in Wind Power

The risk associated with regulatory regimes is
twofold. It is associated with the possibilities
for obtaining subsidies and with the possibili-
ties for obtaining relevant approvals from the
local authorities.

The EU targets are unchanged, and member
states must still reduce carbon emissions by
40% and increase the share of generation
from renewable energy sources (RES) to at
least 27% of total generation – both targets
to be achieved before 2030.

Under the reformed EU guidelines on state
aid for environmental protection and energy,
subsidies are generally granted in a competi-
tive bidding process, with the price quoted by
the bidder being the only or most important

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Ørsted Annual report 2017Management’s reviewGovernance

Contents

criterion. This will increase the competition,
which can affect the profitability of the
projects and the number of projects we are
allocated. Denmark, Germany and the Neth-
erlands have tender-based funding schemes,
while funding schemes are auction-based in
the UK, the USA and Taiwan.

We do not expect changes to be made to
the subsidy schemes, including tax incentive
schemes, with retrospective effect for existing
offshore wind projects in any of the countries
where we have commissioned or planned
offshore wind farms.

The greatest risks relating to project develop-
ment are associated with the need to obtain
relevant approvals from the local authorities
and to be connected to the grid. Delays in
both areas may lead to the total or partial
loss of subsidies. This risk is significantly
reduced for projects where subsidies and pos-
sibly project rights are granted in competitive
bidding processes.

We mitigate the risks by monitoring political
developments in all the relevant countries
and by engaging in an active dialogue with
relevant authorities about environmental
approvals, regulatory milestones and the
economic regimes.

To ensure an appropriate pipeline and the
realisation of the desired level of build-out, we
are working with a flexible portfolio of pro-
jects, the number of which actually exceeds
our capacity. In this way, it is not critical if indi-
vidual projects fail to materialise. Furthermore,
we are continuously exploring new markets
with a view to spreading the geographical risk.

5. Cost of electricity for
offshore wind power

It is still imperative that the cost of electricity
from offshore wind is reduced further. Especial-
ly if offshore wind is to be less dependent on
subsidies and more competitive in relation to
other technologies, such as onshore wind and
solar PV. In addition, it is also important for us
to maintain our market-leading position by
continuing to win tenders and auctions in key
markets.

We will continue our efforts to optimise both
development and operations. We have cre-
ated a streamlined organisation and initiated
strategic cooperation with key suppliers to
ensure continuous cost reductions. However,
we are also very aware of the need to ensure
financial sustainability in our industry to the
benefit of all parties.

Other risks

Cybersecurity/IT
In 2017, several major cyberattacks were
launched against companies around the
world, and according to the Danish Centre for
Cybersecurity, the risk of cyberattacks aimed
at Danish companies is high. Thus, we have a
strong focus on IT security.

We are responsible for critical infrastructure,
and we own various types of intellectual
property rights. This means that we are a
potential target for cyberattacks or indus-
trial espionage. To ensure monitoring of
system-related risks, we have implemented a
global framework for safety risk management.

Our strategy also focuses on protecting us
against cyberattacks and on ensuring that
the necessary control systems are in place for
monitoring and managing the operation of
our activities.

Compliance and legal
Risks associated with compliance and legal
are assessed on the basis of financial signif-
icance and probability. Our most important
risks are described below.

Public procurement law
Most of our products and services are subject
to EU public procurement law, which is
generally complex and constantly changing.
Last year, a new EU Directive came into
force, which the various member states have
interpreted differently. This is making it difficult
to compete for contracts in different countries.
To counter the risk, we have ensured that
our procurement function is involved in the
relevant activities.

Financial regulation
We are subject to a number of financial re-
gimes, such as REMIT, MAR, EMIR, Dodd Frank,
MiFID, SFRT and AML. The financial rules and
related procedures are complex and constant-
ly changing. In 2016, we established a new
compliance structure to ensure a consistent
level of compliance controlling and reporting
on financial regulation throughout Ørsted.

General Data Protection Regulation
We are subject to a number of rules on pro-
cessing of personal data. From May 2018, we
will be subject to the new EU General Data
Protection Regulation (GDPR). Like today,
we will be obliged to implement appropriate
technical and organisational initiatives and
procedures to ensure the protection of the
rights of data subjects in connection with the
processing of personal data. In order to ensure
that we process personal data in a confiden-
tial and secure way, we have in recent years
implemented a number of initiatives and
carried out various analyses of our personal
data security.

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Corporate governance

Each year, we consider the
recommendations from the
Danish Committee on Corporate
Governance, describe our
corporate governance in the
annual report and prepare
a detailed report which you
can find on our website.

Our governance model is illustrated in the
figure to the right and explained below.

1. Shareholders
Our shareholders exercise their rights at the
general meeting, which for example appoints
the Board of Directors and the auditor.

2. General meeting
The general meeting adopts decisions in
accordance with the standard rules set out in
the Danish Companies Act. However, for the
general meeting to be able to approve pro-
posals to amend the Articles of Association
or to dissolve the company, the Danish State
as majority shareholder must participate in
the general meeting and vote in favour of the
proposal.

3. Nomination Committee
Members and duties
The Nomination Committee has been
appointed in accordance with the Articles of
Association and consists of the Chairman and
Deputy Chairman of the Board of Directors

and up to four members appointed by the
largest shareholders every autumn. If one of
the four largest shareholders does not want to
sit on the committee, the right of appointment
is transferred to the fifth largest shareholder
and so on.

Current members of the committee are
Thomas Thune Andersen, Lene Skole, Peder
Lundquist (elected by the Danish Ministry of
Finance), Jesper Hjulmand (elected by the
Danish energy company SEAS-NVE), Claus
Wiinblad (elected by the Danish pension fund
ATP) and Anders Damgaard (elected by the
Danish pension fund PFA Pension).

The committee’s work results in recommen-
dations for the re-election or new election of
board members. We publish and submit the
recommendations to the shareholders before
the general meeting. The committee does not
perform any other duties for the company.

The Nomination Committee’s duties, meetings,
etc., are described in its rules of procedure,
which you can find at orsted.com/en/About-us/
Corporate-Governance.

Special tasks in 2017
Claus Wiinblad, Poul Arne Nielsen and Martin
Hintze stepped down from the Board of Dir-
ectors in connection with the annual general
meeting in 2017.

Our governance
model

3. Nomination Committee
Presents recommendations on the composition
of the Board of Directors to the annual general
meeting. Consist of the chairman of the Board of
Directors and up to four members appointed by
the largest shareholders
Number of meetings: 5
Meeting attendance percentage: 93%

1. Shareholders

2. General
meeting
Our shareholders
exercise their
rights at the
general meeting,
which for example
appoints the
Board of Directors
and the auditors

4. Board of Directors
Consists of 10 mem-
bers. The Board of
Directors is respon-
sible for the overall
management of the
company and for ap-
pointing a competent
executive board
Meetings: 12
Meeting attendance
percentage: 95%

5. Remuneration
Committee
Number of
meetings: 3
Meeting attendance
percentage: 100%

6. Audit and Risk
Committee
Number of
meetings: 6
Meeting attendance
percentage: 100%

8. Executive Board
and Group Execu-
tive Management
The Executive
Board and the
Group Executive
Management is
responsible for
the day-to-day
management of
the company

7. Internal Audit

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Meeting attendance

Member of the board

Board of Directors

Audit and Risk
Committee

Remuneration
Committee

Nomination
Committee*

5/0

4/1

Thomas Thune Andersen

Lene Skole

Hanne Steen Andersen

Lynda Armstrong

Poul Dreyer

Pia Gjellerup

Benny Gøbel

Benny D. Loft

Jens Nybo Stilling Sørensen

Peter Korsholm

Martin Hintze

Poul Arne Nielsen

Claus Wiinblad

12/0

10/2

12/0

11/1

10/2

10/1

1/0

6/0

5/0

1/0

3/0

2/0

3/0

1/0

*The Nomination Committee is made up of four members in addition to the members from the Board of Directors.

The numbers indicate how many meetings the mem-
bers have attended and not attended respectively.

In February 2017, the Nomination Committee
recommended re-election of the other board
members and election of Peter Korsholm as
a new member of the Board. Peter Korsholm
strengthens the Board of Directors’ corporate
finance competences.

After the annual general meeting in March
2017, the committee continued the process
of finding a new board member with audit
and accounting experience. In July 2017, the
committee decided to recommend Dieter
Wemmer as a new board member at the
annual general meeting in March 2018.

In the autumn of 2017, the Nomination Com-
mittee decided to search for an additional
board member with experience from Ørsted’s
primary business areas. In January 2018, the
committee recommended Jørgen Kildahl as
a new board member and reelection of the
existing six members of the Board of Directors.

4. Board of Directors
Members and duties
The annual general meeting elects six to
eight members each year, and the employees
elect a number of members every four years,
corresponding to half of the board members

elected by the general meeting. The Board
of Directors currently has ten members. The
general meeting has elected six members, and
the employees have elected four members. An
election of employee representatives for the
Board of Directors will be held in 2018, where
the employees will have the right to elect
three members. The reduction is attributable
to the number of external board members
being six at the time the election commenced.

Information about the members of the Board
of Directors, their other supervisory and
executive positions, independence and special
competences can be found on pages 61-62.

The Board of Directors is responsible for the
overall management of the company. The
Board of Directors lays down the company’s
strategy and makes decisions concerning ma-
jor investments and divestments, the capital
base, key policies, control and audit matters,
risk management and significant operational
issues. The Board of Directors appoints the
Executive Board.

The Board of Directors has appointed two
committees from among its members, an Au-
dit and Risk Committee and a Remuneration
Committee.

The rules of procedure of the Board of
Directors describe the work and duties of the
Board of Directors and the two committees.
Each year, the Board of Directors assesses
the need to update the rules of procedure.
You can read the rules of procedure for the
two committees at orsted.com/en/About-us/
Corporate-Governance.

Important tasks for the Board of Directors in 2017

Investments and divestments
— Investment in the offshore wind power project

Hornsea 2 in the UK

— Investment in Taiwan’s first offshore wind power

project, Formosa 1

— Investment in the biomass conversion of Asnæs

Power Station in Denmark

— Divestment of the upstream oil and gas business

— Sale of ownership interests in A2SEA

— Farm-down of offshore wind farms Borkum Riffgr-
und 2 in Germany and Walney Extension in the UK

Other tasks
— Development of our offshore wind project portfo-
lio after 2020, including the German authorities’
grant of the right to construct three offshore wind
projects in Germany, submission of bid on the Bay
State Wind project in Massachusetts in the USA in
cooperation with Eversource as well as develop-
ment of the project portfolio in Taiwan

— Conclusion of the partnership agreement with

Dominion Energy on a development project in the
USA

— Settlement of the contract on the construction of
the Hejre platform and repair of the Siri platform

— Decision on a new organisation to support green

growth and to change name to Ørsted

— Completion of the annual strategy process

— Issuance of subordinated green hybrid bonds and
green unsecured senior bonds as well as buy-back
of senior bonds.

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Special tasks in 2017
Key tasks for the Board of Directors have been
the divestment of our upstream oil and gas
business, investment in the offshore wind farm
project Hornsea 2, the build-out of our project
portfolio in Germany, the USA, Taiwan and
the Netherlands, farm-down of offshore wind
farms in the UK and Germany as well as our
name change.

The Board of Directors conducted its annual
self-assessment in December 2017. All mem-
bers responded to an anonymous question-
naire before the Board of Directors discussed
the results. At the meeting, the Board of
Directors also considered the follow-up items
from last year’s self-assessment.

Remuneration
Each year, the general meeting approves the
remuneration for the members of the Board
of Directors for the coming year. In the section
on remuneration on page 57, you can read
more about the remuneration of the Board of
Directors.

5. Remuneration Committee
Members and duties
Thomas Thune Andersen (Chairman), Lene
Skole and Pia Gjellerup are the members of
the Remuneration Committee.

The committee assists the Board of Directors
in preparing and implementing the remunera-
tion policy. The committee assesses and pre-
pares recommendations on Group Executive
Management’s salary adjustments, bonuses,
the application of retention schemes for key

employees, the use of one-off payments and
introduction of new compensatory elements.

In 2017, the Remuneration Committee
discussed, among other things, payment of
retention bonuses granted in connection with
the divestment of our upstream oil and gas
business.

6. Audit and Risk Committee
Members and duties
Benny D. Loft (Chairman), Lene Skole and Peter
Korsholm are the members of the Audit and
Risk Committee.

The committee assists the Board of Directors
in overseeing the financial and non-finan-
cial reporting process, the capital structure
development, financial and business-related
risks, compliance with statutory and other
requirements from public authorities and the
internal controls.

Moreover, the committee approves the frame-
work for the work of the company’s external
and internal auditors, evaluates the external
auditors’ independence and qualifications as
well as monitoring the company’s whistle-
blower scheme.

Special tasks in 2017
In 2017, the Audit and Risk Committee focused
especially on the divestment of our upstream
oil and gas business, IT/cyber security and our
preparations for the implementation of the
new General Data Protection Regulation in
May 2018.

7. Internal Audit
Employees and duties
Internal Audit reports to the Audit and Risk
Committee and is therefore independent of
our administrative management structures.
Internal Audit evaluates and suggests ways of
improving and streamlining our processes and
control environment. Internal Audit is primarily
involved in reviewing and advising on our
central and critical processes, governance, risk
management and IT security.

The chairman of the Audit and Risk Com-
mittee is responsible for our whistleblower
scheme. The Internal Audit function receives
and considers any reports submitted.

Special tasks in 2017
Internal Audit undertook special audit and
consultancy tasks within the following areas:
Prevention of the risk of cybercrime, ensur-
ing adequate IT security in connection with
investments in major new IT systems, tests of
our crisis control setup at Group level, invest-
ment management, commodity and currency
hedging, ensuring adequate compliance and
continuous monitoring as well as screening
our suppliers’ compliance with relevant inter-
national standards.

Whistleblower scheme
Our employees and other associates may
report serious offences, such as cases of
bribery, fraud and other criminal offences,
to our whistleblower scheme or through our
management system. In 2017, the reports
resulted in three substantiated cases. Two
concerning violation of employment policies
and one concerning conflict of interest. The
cases had consequences for the individuals

Important tasks for the Audit and Risk Committee
in 2017

Audit and accounting
— Review of the recognition and presentation of the
divestment of our upstream oil and gas business

— Supervision of the work involved in the early

implementation of IFRS 9 as well as preparation
for IFRS 15 implementation in 2018

— Review of expectations for market prices,

exchange rates, discount rates and risk-free
interest rates

— Review of significant provisions and warranties
in the Group related to both continuing and
discontinued operations

— Monitoring of capital structure development

— Monitoring of the voluntary limit for non-audit
services as well as preliminary approval hereof

Risk
— Review of IT security in operational and

administrative areas as well as cybersecurity

— Assessment of liquidity reserve and redemption
of bonds as well as the basis for issuance of new
green bonds and hybrid capital

— Review and assessment of our exposure to

inflation

— Monitoring of currency and energy hedging

mandates

— Supervision of the work involved in ensuring

ompliance with the requirements of the future
General Data Protection Regulation.

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In November 2017, revised recommendations
for corporate governance were announced,
which will apply from 2018. We will review
these and we expect to adjust our policies
and procedures during 2018, so we can report
on these in the 2018 annual report. We will
present a proposal to update our remuner-
ation policy at the general meeting in March
2018, enabling it to comply with the revised
recommendations.

Our statutory report on corporate governance
can be found at https://orsted.com/en/About-
us/Corporate-Governance/Statutory-reports,
see section 107b of the Danish Financial State-
ments Act. The report describes in more detail
whether and how we comply with or deviate
from the 47 Recommendations on Corporate
Governance.

involved. None of the cases reported were
critical to our business, nor have they impact-
ed on our financial results. We take such cases
very seriously and do what we can to avoid
that similar cases occur again.

The Chairman of the Board of Directors and
the CEO also regularly discuss the coopera-
tion between the Board of Directors and the
Executive Board.

8. Executive Board and Group Executive
Management
Members and duties
Henrik Poulsen (CEO) and Marianne Wiinholt
(CFO) are the members of the Executive Board
of Ørsted A/S.

The Executive Board undertakes the day-to-
day management through the Group Execu-
tive Management, which from 1 February 2018
will consist of seven members. In addition to
Henrik Poulsen and Marianne Wiinholt, the
Group Executive Management comprises the
Executive Vice Presidents of our three business
units Martin Neubert (Wind Power), Thomas
Dalsgaard (Bioenergy & Thermal Power) and
Morten H. Buchgreitz (Distribution & Custom-
er Solutions) together with Executive Vice
President of Wind Power Engineering, Procure-
ment & Construction (EPC) Anders Lindberg
and Executive Vice President of Wind Power
Partnerships, M&A and Asset Management Ole
Kjems Sørensen.

The Board of Directors has laid down guide-
lines for the work of the Executive Board,
including the division of work between the
Board of Directors and the Executive Board
and the Executive Board’s powers to enter
into agreements on behalf of the company.
The Board of Directors regularly discusses the
CEO’s performance, for example by following
up on developments seen in relation to our
strategy and objectives.

You can find information about the members
of the Executive Board, including their previous
employment and other executive functions,
on page 60. We describe the remuneration of
the Executive Board in the section on remuner-
ation on page 55.

How we relate to the Recommendations on
Corporate Governance
We consider the Recommendations on Cor-
porate Governance prepared by the Danish
Committee on Corporate Governance on an
annual basis. You can find the recommenda-
tions at www.corporategovernance.dk.

We do not comply with or comply partially
with three out of 47 recommendations.

Our shareholders have decided that our
Nomination Committee should have other
members and duties than what is assumed in
the recommendations, and that our Articles of
Association should not stipulate a retirement
age for members of the Board of Directors.
From 2018, a fixed retirement age will no
longer be part of the recommendations. We
also have a share programme for the Execu-
tive Board with a slightly shorter first vesting
period (2½ years) than the recommended
three years, as the programme was issued in
continuation of our IPO. The vesting period of
future allotments is three years in accordance
with the recommendations.

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Remuneration report

Remuneration report
The overall objective of our remuneration
policy is to attract, motivate and retain qual-
ified members of our Board of Directors and
our Executive Board and to align the interests
of our Board of Directors and our Executive
Board with the interests of our shareholders.

In addition, the policy aims to strike the right
balance between the Executive Board’s fixed
and incentive-based remuneration with the
target of awarding the members in relation
to their achieved results for the company and
individually.

The remuneration policy is available at
orsted.com/en/About-us/Corporate-Governance.

Remuneration for the Executive Board
Remuneration 2017
The remuneration paid to our CEO totalled
DKK 15.9 million in 2017, representing an
increase of 17% compared to 2016. His fixed
salary increased by 6.4% to DKK 10.0 million
(63% of the total remuneration in 2017). The
cash bonus (STI) made up DKK 2.7 million, cor-
responding to 88% of the maximum bonus. The
bonus percentage reflects a performance in
excess of expectations as regards the Group’s fi-
nancial targets and our safety target. The score
for the CEO’s personal targets also exceeded
expectations. The score was, among other
things, affected by strong progress for our off-
shore wind farms under construction, auctions
won, business development in new markets

Remuneration structure and remuneration for the Executive Board

Henrik Poulsen

Marianne Wiinholt

Element

2017

2016

2015

2017

2016

2015 Objective

Remuneration level

Performance measure

Fixed salary

10,024

9,425

9,112

5,255

5,062

4,876 Attract and retain quali-
fied managers.

n/a

Competitive but not market
leading, compared to the
level in similar major listed
Danish companies with
international activities.

2,656

2,135

1,815

1,348

1,239

1,848

616

964

321

1,186 Ensure shared owner-
ship of the entire com-
pany’s performance and
a clear link between
value creation and
payment.

Target of 15% of the fixed
annual salary. The maximum
bonus amounts to 30% and
will be paid in case of full
achievement of all perform-
ance targets.

The performance reward
agreement consists of
three targets:
— financial target (30%)
— safety target (10%)
— personal targets (60%).

- Retain the Executive
Board after the IPO.
Phasing in to a long-
term incentive scheme

20% of the fixed annual
salary as per 1 July 2016.

Employment at
1 September 2018.

Cash-based in-
centive schemes
(STI)

IPO Executive
Retention Bonus

Share-based in-
centive scheme
(LTI)

1,367

1,427

2,784

713

889

1,790 Reward long-term value

creation and align the
Executive Board’s inter-
ests with those of the
shareholders.

Pension incl.
social security

Severance pay

2 n/a

Total, DKK ’000

15,897

13,605

13,713

8,282

7,513

7,854

The final number of
shares will be determined
on the basis of Ørsted’s
total shareholder return
benchmarked against ten
peers.

n/a

Target of 20% of the annual
fixed salary at the date of
grant. After three years,
shares will be allocated
at 0-200%, depending on
Ørsted’s return compared
to peers

The members of the
Executive Board are not
entitled to pension contribu-
tion, only social security

If a member of the Execu-
tive Board is terminated by
the company, the person
is entitled to 24 months’
salary, composed of salary
during the notice period (12
months) and a severance
pay.

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Amount of PSUs and shares owned by the
Executive Management

Henrik Poulsen Marianne Wiinholt

Maximum amount of PSUs per
31 December 2017

Number of Ørsted shares owned

Owned shares in percentage of fixed salary

28,838

130,500

441%

15,150

83,916

541%

Number of shares
The table shows that
both members of
the Executive Board
meet the share capital
requirement.

as well as farm-downs of offshore wind farms.
Moreover, the score was positively affected by
the divestment of our Oil & Gas business.

The remuneration paid to our CFO totalled
DKK 8.3 million, representing an increase of
10% compared to 2016. The fixed salary in-
creased by 3.8% to DKK 5.3 million (63% of the
total remuneration in 2017). The cash bonus
(STI) made up DKK 1.3 million, corresponding
to 86% of the maximum bonus. The bonus
percentage reflects the same general targets
that apply to the CEO. The score for the CFO’s
personal targets was above expectations.
Among other things, the score was affected
by the divestment of our Oil & Gas business
and the handling of derived consequences
in relation to our insurance captive, funding
structure and the internal reorganisation of
Ørsted, especially of the finance organisation.
Moreover, the score was positively affected by
the work done to establish a digital strategy
and make our IT organisation more supportive
of our business.

In 2017, the remuneration under the share-
based incentive programme consisted of the
market value of the scheme at the time of
granting, distributed over the vesting period.

Both members of the Executive Board are
covered by the share programmes from
September 2016 and April 2017. The IPO
retention bonuses for 2017 and 2018 constitute
the phase-in to the first share programme, the
vesting period of which ends in spring 2019.
The increases in the IPO retention bonuses
are attributable to the fact that the scheme
covered only four months of 2016.

Remuneration structure
In February, the Board of Directors decided to
keep the remuneration structure unchanged
for 2017. The remuneration structure and the
remuneration for the Executive Board are
shown in the table. The two incentive schemes
are described in more detail below.

Cash-based incentive schemes (STI)
The cash-based incentive scheme is an annual
bonus with a target of 15% of the fixed annual
remuneration and may not exceed 30%. The
agreement is based on three elements - two
general targets, and one individual target. The
general targets relate to the Group’s financial
performance (weighting of 30%) and safety
record (weighting of 10%). The individual tar-
get consist of personal performance targets
related to the strategy (weighting of 60%).

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Remuneration for the Board of Directors
Remuneration 2017
In March, the general meeting decided to keep
the Board of Directors’ fixed annual fee of
DKK 320 thousand for the coming year until
the general meeting in 2018.

Remuneration structure
The members of the Board receive a fixed fee
each year. The Chairmanship and the mem-
bers of the committees also receive a multiple
of the fixed fee for their extra work. None
of the members receives separate fees for con-
sultancy work for Ørsted. The members’ travel
costs are covered by the company.

The remuneration for the Board of Directors
comprises a fixed fee only. However, employ-
ee-elected board members may, based on
their employment, be covered by general
incentive schemes applicable to the Group’s
employees. Members of the Board of Directors
are not entitled to severance payments.

The Remuneration Committee sets bonus
targets and assesses the performance of the
CEO. The Chairman of the Board of Directors
and the CEO set bonus targets and assess the
performance of the CFO.

Share-based incentive scheme (LTI)
The Executive Board is covered by the leader
share programme in Ørsted. It is a condi-
tion for being granted performance share
units (PSUs) under the programme that the
participant holds a number of Ørsted shares
representing a value equal to a share of each
participant’s fixed annual remuneration. For
the CEO, this share is 75% of his fixed salary,
and for the CFO 50%.

If the participants fulfil the shareholding
requirement at the time of granting, they will
each year be granted a number of PSUs rep-
resenting a value equal to 20% of their fixed
annual remuneration on the date of granting.

The granted PSUs have a vesting period of
three years, after which each PSU entitles
the holder to receive a number of shares free
of charge, corresponding to 0-200% of the
number of granted PSUs. The final number of
shares for each participant will be determined
on the basis of the total shareholder return
delivered by Ørsted, benchmarked against ten
comparable European energy companies.

If a member of the Executive Board leaves
Ørsted as a result of his or her own resignation
or due to breach of his/her employment, the
entitlement to shares is lost.

Remuneration multiple 2017, Board of Directors and committees

Board of
Directors

Audit and Risk
Committee

Remuneration
Committee

Nomination
Committee

Chairman

Deputy Chairman

Member

3.0

2.0

1.0

0.6

n/a

0.3

0.4

n/a

0.25

n/a

Annual fee

Audit and risk
Committee

Remuneration
Committee

Remuneration for the Board of Directors

DKK ’000

Thomas Thune Andersen

Lene Skole

Hanne Steen Andersen1

Lynda Armstrong

Poul Dreyer1

Pia Gjellerup

Benny Gøbel1

Benny D, Loft

Jens Nybo Stilling Sørensen1

Peter Korsholm¹ (joined in March 2017)

Martin Hintze2 (resigned in March 2017)

Poul Arne Nielsen (resigned in March
2017)

Claus Wiinblad (resigned in March 2017)

960

640

320

267

Total

4,267

Remuneration for the Board of Directors
The table shows the remuneration paid to the
members of the Board of Directors and committees.
No remuneration is paid to the members of the
Nomination Committee.

192

392

2017

2016

1,088

803

320

400

320

512

320

347

688

320

400

320

512

320

104

416

128

275

4,934

5,024

Per 31 December 2017, the board members own
the following number of shares in Ørsted A/S:
Peter Korsholm 4,500, Hanne Steen Andersen 3,187
(2016: 837), Poul Dreyer 837 (2016: 837), Benny Gø-
bel 837 (2016: 837) and Jens Nybo Stilling Sørensen
837 (2016: 837). No other board members own
shares in Ørsted A/S.

2) Martin Hintze has waived his right to receive

Directors’ remuneration.

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Shareholder information

The Ørsted share yielded a total
return of 29% in 2017, an increase
in the share price of 27% and
dividends of DKK 6 per share.

Price development for
the Ørsted share in 2017
The Ørsted share started the year at a price
of DKK 268 and closed the year at DKK 339.
Prices of comparable European utility compa-
nies increased by 9%, and the OMX C25 cap
increased by 13% in 2017. The market value of
Ørsted was DKK 142 billion at the end of the
year. Since the IPO in June 2016, the Ørsted
share has generated an aggregate return from
the share price and dividends of 47%.

Share price development in 2017
Ørsted share price compared to peers.

Ørsted
MSCI Europe Utilities
OMX C25

DKK

390

360

330

300

270

240

Jan

Feb Mar Apr May June July Aug Sep Oct Nov Dec

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Shareholders at 31 December 2017,
voting share %*

Danish State (majority shareholder)
SEAS-NVE, Denmark
The Capital Group
The UK
Danish institutional investors
North America
Private investors
Others

10%

50%

10%

* See note 16 in the parent company
financial statement.

Share information

ISIN

Share classes

Nominal value

DK 0060094928220

DKK 10 per share

Average daily volume

723,784

Exchange

Ticker

Year high

Year low

Nasdaq OMX
Copenhagen

ORSTED

DKK 388 (11 October)

DKK 246 (3 February)

Registered share

99.6%

Number of shares

420,381,080 shares

Number of treasury shares 225,904 shares

The year’s highest traded price of DKK 388
was on 11 October. The year’s lowest traded
price of DKK 246 was on 3 February.

The average daily turnover on Nasdaq
Copenhagen was 724,000 shares. The trading
volume showed an increase of 44% compared
to 2016. This was particularly due to several of
the original shareholders opting to sell all or
some of their shareholdings in 2017 at a total
trading value of DKK 17 billion. This amount
should be compared to the value of the shares
sold at our IPO of just under DKK 20 billion.
New Energy Investment s.a.r.l. (managed by
Goldman Sachs) sold its entire shareholding of
13.3% distributed over four transactions. The
Danish energy company Syd Energi sold its
entire shareholding of 0.9% at the beginning
of the year, while the Danish pension fund ATP
reduced its holding in the course of the year.

Share capital
Ørsted’s share capital is divided into 420
million shares enjoying the same voting and
dividend rights. The company’s share capital
remained unchanged in 2017. At the end of
2017, the company held a total of 226 thou-
sand treasury shares, which will be used to
cover incentive schemes.

Composition of shareholders
At the end of the year, the number of share-
holders had increased by 12% to 24,600.
Although the geographical spread of the share
capital was greater, most of it (68%) is still with
Danish owners. The figure to the left shows the
composition of our shareholders by country,
specifying the three shareholders holding more
than 5% of the share capital each. Around 1% of
the share capital is owned by private investors.

Annual general meeting and dividends
The annual general meeting will be held on 8
March 2018 in Copenhagen. Dividends for the
year are expected to amount to DKK 9 per
share, corresponding to DKK 3.8 billion. In 2017,
dividends of DKK 6 per share were paid for the
2016 financial year, corresponding to a return
of 2.7% relative to a share price of DKK 338.7
per 31 December 2017.

Investor Relations
In order to achieve a fair pricing of our shares
and corporate bonds, we seek to ensure a high
level of openness and stability in our financial
communication. In addition, our management
and Investor Relations function engage in
regular dialogue with investors and analysts.
The dialogue takes the form of quarterly con-
ference calls, road shows, conferences, capital
market days and regular meetings with
individual or groups of investors and analysts.
The dialogue is subject to certain restrictions
from three weeks prior to the publication of
our financial reporting.

22 share analysts and 12 bond analysts
cover the Group. Their recommendations
and consensus estimates for Ørsted’s future
financial performance are available at orsted.
com/en/investors. On the site, it is also possible
to download our financial reports, investor
presentations and a wide range of other data.

Selected company announcements in 2017

13 Apr. Ørsted awarded three German offshore

wind projects

4 May Ørsted agrees on settlement regarding

the Hejre EPC contract

24 May Ørsted enters into agreement to divest its

upstream oil and gas business to INEOS

11 Sep. Ørsted awarded contract to build world’s

biggest offshore wind farm

29 Sep. Ørsted completes the divestment of its
upstream oil and gas business to INEOS

2 Oct.

DONG Energy to change company name
to Ørsted

10 Nov. Ørsted completes the divestment of
Walney Extension offshore wind farm

16 Nov. Ørsted issues green bonds

11 Dec. Ørsted completes the divestment of

Borkum Riffgrund 2 offshore wind farm

Financial calendar 2018

1 Feb.

Annual report 2017

8 Mar.

Annual general meeting

26 Apr.

Interim report for the first quarter of 2018

9 Aug.

1 Nov.

Interim report for the first half-year of
2018

Interim report for the first nine months
of 2018

59 / 173

Ørsted Annual report 2017Management’s review
Governance

Contents

Group Executive Management

Henrik Poulsen

Marianne Wiinholt

Registered as CEO
Chief Executive Officer (CEO) and
President since August 2012
Education: MSc (finance and accounting),
Aarhus School of Business 1994

Born 1967
Remuneration: DKK 15.897 thousand
Read more in the remuneration report.

Career and posts
1994-1995 Novo Nordisk A/S, Controller
1995-1996

Aarsø Nielsen & Partners, Senior
Consultant

1996-1999 McKinsey & Co., Senior Engagement

1999-2006

2006-2008
2008-2012
2012-

Manager
LEGO, VP, Business Development
(1999-2000), SVP, Global Segment 8+
(2000-2002), SVP, Global Innovation
and Marketing (2002-2003), Regional
Managing Director Europe and Asia
(2004-2005), EVP, Markets and Prod-
ucts (2005-2006)
Capstone/KKR. Operating Executive
TDC A/S, CEO and President
Ørsted A/S, CEO and President

Other management positions:
Kinnevik AB: Deputy Chairman and member of the
Audit Committee
ISS A/S: Member of the Board of Directors and Chair-
man of the Audit Committee
EQT Partners: Advisor

Registered as CFO
Chief Financial Officer (CFO)
since October 2013
Education: MSc in Business Administration and
Auditing, Copenhagen Business School 1990,
State Authorised Public Accountant 1992
Born 1965
Remuneration: DKK 8.282 thousand
Read more in the remuneration report.

Career and posts
1987-1997 Arthur Andersen, Accountant
1997-2003

Borealis A/S, Head of Group Accounting
and Tax (1997-2001), Head of Group
Finance and Auditing (2001-2003)

2004-2005 Ørsted A/S, VP, Group Finance and

2006-

Accounting & Tax
Ørsted A/S, SVP, Group Finance (2005-
2013), SVP, CFO Customers & Markets
(2013), EVP, Chief Financial Officer
(CFO) 2013-

Other management positions:
Hempel A/S: Member of the Board and Chairman of
the Audit Committee
Norsk Hydro ASA: Member of the Board and Audit
Committee
Lauritzen A/S: Member of the Board and Chairman of
the Audit Committee - Withdraws in April 2018

60 / 173

The Group Executive Management will consist of seven members from 1 February 2018.
From the left (bottom): Morten Hultberg Buchgreitz (Distribution & Customer Solutions),
Marianne Wiinholt (CFO), Anders Lindberg (Wind Power) and
Thomas Dalsgaard (Bioenergy & Thermal Power)
From the left (top): Ole Kjems Sørensen (Wind Power), Henrik Poulsen (CEO and President) and
Martin Neubert (Wind Power)

Ørsted Annual report 2017Management’s review

Governance

Contents

Board of Directors

Thomas Thune Andersen

Lene Skole2

Hanne Sten Andersen

Lynda Armstrong

Poul Dreyer

Chairman since 2014.
Born 1955.
Not independent.1
Joined/re-elected: 2014/2017.
Term of office expires: 2018.

Deputy Chairman since 2015.
Born 1959.
Independent.
Joined/re-elected: 2015/2017.
Term of office expires: 2018.

Special competencies:
Knowledge and experience within
Ørsted’s principal business areas. General
management, safety management,
risk management and stakeholder
management.

Special competencies:
General management, financial
management, safety management, risk
management, stakeholder management,
human resources management and
capital markets.

Other management positions:
Chairman: Lloyds Register Group and
Foundation
Deputy Chairman: VKR Holding A/S
Member: Arcon-Sunmark A/S,
BW Offshore ltd.

Present posts:
Lundbeckfonden, CEO.

Other management positions:
Deputy Chairman: ALK-Abello A/S,
H. Lundbeck A/S, Falck A/S, TDC A/S.
Member: Tryg A/S, Tryg Forsikring A/S,
two subsidiaries of Lundbeckfonden.

Employee representative.
Born 1960.
Not independent
Joined/re-elected: 2007/2014.
Term of office expires: 2018.

Special competencies:
General management and human
resources management.

Present posts:
Ørsted, Lead HR Business Partner,
Distribution & Customer Solutions.

Born 1950.
Independent.
Joined/re-elected: 2015/2017.
Term of office expires: 2018.

Special competencies:
General management, safety manage-
ment, risk management, stakeholder
management and human resources
management.

Other management positions:
Chairman: ECITB
Member: KAZ Minerals plc3,
Central Europe Oil Company,
SBM Offshore N.V.4

Employee representative.
Born 1964.
Not independent
Joined: 2014.
Term of office expires: 2018.

Special competencies:
Knowledge and experience within
Distribution & Customer Solutions.

Present posts:
Ørsted, Technician,
Distribution & Customer Solutions.

Independence: Thomas Thune Andersen is considered independent of shareholder interests. Until December 2017, he was a member of the Board of Directors of Petrofac Limited which has had significant business
relations with the oil and gas business now divested by Ørsted. Thus, he is not considered independent with respect to the 2017 reporting pursuant to the corporate governance recommendations.

2) In addition to the positions mentioned above, Lene Skole also holds the following positions: member of the Audit and Election Committee at ALK, member of the Remuneration and Science Committee at Lund-

beck, member of the Audit and Risk Committee at Tryg, member of the Remuneration and Election Committee at TDC, member of the Audit and Remuneration Committee at Falck A/S.

3) As well as Chairman of the Remuneration Committee, member of the HSE Committee and member of the Project Assurance Committee.
4) As well as member of the Technical and Commercial Committee and the Remuneration Committee.

61 / 173

Ørsted Annual report 2017Management’s reviewGovernance

Contents

Pia Gjellerup

Benny Gøbel

Peter Korsholm

Benny D. Loft

Jens Nybo Stilling Sørensen

Born 1959.
Independent.
Joined/re-elected: 2012/2017.
Term of office expires: 2018.

Employee representative.
Born 1967.
Not independent
Joined/re-elected: 2011/2014.
Term of office expires: 2018.

Born 1971.
Independent.
Joined: 2017.
Term of office expires: 2018.

Born 1965.
Independent.
Joined/re-elected: 2012/2017.
Term of office expires: 2018.

Special competencies:
General management, financial
management, stakeholder management
and human resources management.

Special competencies:
Knowledge and experience within
Bioenergy & Thermal Power.

Special competencies:
General management, financial man-
agement, risk management, stakeholder
management, capital markets and M&A.

Present posts:
Center for Public Innovation, Center
Director.

Present posts:
Ørsted, Engineer, Bioenergy & Thermal
Power.

Present posts:
DSVM Invest A/S, CEO, DSV Miljø Group
A/S, CEO, Togu ApS, CEO.

Other management positions:
Chairman: Vanførefonden, Fondet
Dansk-Norsk Samarbejde.
Member: Gefion Gymnasium

Other management positions:¹
Chairman: Nymølle Stenindustrier A/S,
GDL Transport Holding AB, Lion Danmark
and two wholly owned subsidiaries in the
Lomax group. Member: DSVM Invest A/S,
Bone’s Invest ApS, A/S United Shipping
and Trading Company, Uni-tankers A/S
and Bunker Holding A/S.

Special competencies:
General management, financial man-
agement, risk management, stakeholder
management, human resource manage-
ment, capital markets, IT and M&A.

Other management positions:
Member and Chairman of the Finance
and Audit Committee: New Xellia Group
A/S.

Employee representative.
Born 1968.
Not independent
Joined/re-elected: 2007/2014.
Term of office expires: 2018.

Special competencies:
Knowledge and experience within
Bioenergy & Thermal Power.

Present posts:
Ørsted, Key Business Project Manager,
Bioenergy & Thermal Power.

In addition to the positions mentioned above, Peter Korsholm also holds the following positions: Chairman of the Investment Committee at Zoscales Partners, member of the Board of
Directors in a subsidiary of Uni-tankers A/S, 5 wholly owned subsidiaries at DSVM Invest Group and 2 wholly owned subsidiaries of the Bones Group.

62 / 173

Ørsted Annual report 2017Management’s review 1 January 2017 - 31 December 2017

Financial statements

16
2017
18

Ørsted Annual report 2017Consolidated financial statements

Note summary

Contents

Income statement

1 January - 31 December

Note

DKK million

2.2

2.3

Revenue

Cost of sales

Other external expenses

2.6, 2.7

Employee costs

2.5

3.1

Share of profit (loss) in associates and joint ventures

Other operating income

Other operating expenses

Operating profit (loss) before depreciation,
amortisation and impairment losses (EBITDA)

Amortisation, depreciation and impairment losses on
intangible assets and property, plant and equipment

Operating profit (loss) (EBIT)

3.4

Gain on divestment of enterprises

Share of profit (loss) in associates and joint ventures

6.5

Financial income

Financial expenses

Profit (loss) before tax

5.2

Tax on profit (loss) for the year

Profit (loss) for the year from continuing operations

3.6

Profit (loss) for the year from discontinued
operations

Profit (loss) for the year

Profit (loss) for the year is attributable to:

Shareholders in Ørsted A/S

Interests and costs after tax,
hybrid capital owners of Ørsted A/S

Non-controlling interests

6.2

Profit (loss) per share, DKK:

From continuing operations

From discontinued operations

Total profit (loss) per share

2017

2016

Business
performance

Adjustments

59,504

(40,544)

(4,241)

(3,197)

(119)

11,665

(549)

22,519

(6,284)

16,235

(139)

(10)

4,253

(5,295)

15,044

(1,765)

13,279

6,920

20,199

205

(150)

(13)

(816)

(774)

IFRS

59,709

(40,694)

(4,241)

(3,197)

(119)

11,665

(549)

Business
performance

Adjustments

61,201

(39,260)

(4,078)

(3,088)

4,867

(558)

(3,808)

1,638

IFRS

57,393

(37,622)

(4,078)

(3,088)

4,867

(558)

22,574

19,109

(2,170)

16,939

(6,284)

16,290

(139)

(10)

4,253

(5,295)

15,099

(1,778)

13,321

6,104

19,425

(5,232)

13,877

1,250

(8)

8,489

(9,256)

14,352

(2,191)

12,161

1,052

13,213

(2,170)

476

(1,694)

(3,584)

(5,278)

(5,232)

11,707

1,250

(8)

8,489

(9,256)

12,182

(1,715)

10,467

(2,532)

7,935

19,493

(774)

18,719

12,825

(5,278)

7,547

716

(10)

29.9

16.5

46.4

716

(10)

30.0

14.5

44.5

499

(111)

28.1

2.5

30.6

499

(111)

24.1

(6.0)

18.1

Profit (loss) for the year
from our continuing
operations
In 2016, we decided
to divest our Oil & Gas
business. The divest-
ment was approved and
closed on 29 September
2017. The Oil & Gas
business was therefore
classified as discon-
tinued operations in
2016 and 2017.

Profit (loss) per share
Diluted profit (loss) per
share corresponds to
profit (loss) per share, as
the dilutive effect of the
share programme is less
than 0.1% of the share
capital

Accounting policies

Business performance
The business performance principle was introduced
by the Ørsted Group in 2011 as an alternative per-
formance measure. According to IFRS, market value
adjustments of energy contracts and related cur-
rency risks (including hedging) are recognised on an
ongoing basis in the profit (loss) for the year, whereas
under the business performance principle, they
are deferred and recognised in the period in which
the hedged exposure materialises. The difference
between IFRS and business performance is specified
in the 'Adjustments' column. Read more about the
business performance principle in note 1.1.

64 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements

Note summary

Contents

Statement of comprehensive income

1 January - 31 December

2017

2016

Note

DKK million

Profit (loss) for the year

Other comprehensive income:

Cash flow hedging:

Value adjustments for the year

6.2

Value adjustments transferred to income statement

Tax on cash flow hedging instruments

Exchange rate adjustments:

Exchange rate adjustments relating to net
investment in foreign enterprises

Value adjustment of net investment hedges

6.2

Value adjustments and hedges transferred to
income statement

Tax on exchange rate adjustments

Other comprehensive income

Total comprehensive income

Comprehensive income for the year is attributable
to:

Shareholders in Ørsted A/S

Interest payments and costs after tax,
hybrid capital owners of Ørsted A/S

Non-controlling interests

Total comprehensive income

Business
performance

Adjustments

20,199

(774)

652

(2,464)

410

(1,513)

565

892

(1,396)

18,803

138

853

(217)

774

IFRS

19,425

790

(1,611)

193

(1,513)

565

892

(622)

18,803

18,256

716

(169)

18,803

Business
performance

Adjustments

13,213

(5,278)

(878)

(4,846)

1,258

(5,326)

3,040

100

(6,652)

6,561

2,373

4,392

(1,487)

5,278

IFRS

7,935

1,495

(454)

(229)

(5,326)

3,040

100

(1,374)

6,561

6,910

499

(848)

6,561

Statement of
comprehensive income
All items in other
comprehensive income
may be recycled to the
income statement.

Foreign exchange
losses relating to net
investments in foreign
enterprises of DKK
1,513 million in 2017 are
primarily attributable
to a drop in the GBP
exchange rate of 4%.

In 2016, a foreign
exchange loss of
DKK 5,326 million was
posted, which was
primarily attributable
to a drop in the GBP
exchange rate of 14%.

65 / 173

Ørsted Annual report 2017Financial statementsBalance sheet

31 December

Note

Assets, DKK million

3.1

5.4

4.4

4.1

4.2

4.3

4.4

6.4

Intangible assets

Land and buildings

Production assets

Fixtures and fittings, tools and equipment

Property, plant and equipment under construction

Property, plant and equipment

Investments in associates and joint ventures

Receivables from associates and joint ventures

Other securities and equity investments

Deferred tax

Other receivables

Other non-current assets

Non-current assets

Inventories

Derivatives

Construction contracts

Trade receivables

Other receivables

Receivables from associates and joint ventures

Income tax

Securities

Cash

Current assets

3.5

Assets classified as held for sale

Consolidated financial statements

Note summary

Contents

2017

689

1,501

60,603

413

13,328

75,845

339

130

2,865

1,955

5,337

81,871

3,853

4,870

10,817

9,170

3,519

296

25,280

4,203

62,008

2,642

2016

Note

Equity and liabilities, DKK million

955

1,505

53,708

438

14,531

70,182

1,060

626

158

515

2,447

73,584

3,451

8,689

6,453

7,286

1,710

430

6.2

6.3

3.7

5.4

3.2

6.1

4.5

3.2

6.1

4.2

Share capital

Reserves

Retained earnings

Equity attributable to shareholders in Ørsted A/S

Hybrid capital

Non-controlling interests

Equity

Deferred tax

Provisions

Bond and bank debt

Other payables

Non-current liabilities

Provisions

Bond and bank debt

Derivatives

Construction contracts

Trade payables

4.5

Other payables

Income tax

Current liabilities

16,533

Liabilities

2,931

3.5

Liabilities relating to assets classified as held for sale

2017

4,204

(1,524)

52,111

54,791

13,239

3,807

71,837

2,128

10,840

25,715

5,714

44,397

680

3,921

4,374

1,317

11,499

6,368

1,498

29,657

74,054

630

2016

4,204

20,218

14,684

39,106

13,248

5,146

57,500

2,185

8,337

22,164

6,622

39,308

702

2,019

6,930

171

10,024

6,277

26,177

65,485

13,504

47,532

15,373

Equity and liabilities

146,521

136,489

Assets

146,521

136,489

Assets classified as held for sale
Until the divestment on 29 September 2017,
the Oil & Gas business was presented as
assets classified as held for sale.

66 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements

Note summary

Contents

Statement of changes in equity

1 January - 31 December

2017

2016

DKK million

capital Reserves*

Retained
earnings

Proposed
dividends

Share-
holders in
Ørsted A/S

Hybrid
capital

Non-con-
trolling
interests

Total
Group

capital Reserves*

Retained
earnings

Proposed
dividends

Equity at 1 January

4,204

20,218

12,162

2,522

39,106

13,248

5,146

57,500

4,177

20,855

7,058

18,719

716

(10)

19,425

(821)

103

255

(159)

(821)

(56)

255

18,256

716

(169)

18,803

7,547

1,041

(1,543)

(135)

(637)

7,547

Comprehensive income for the year:

Profit (loss) for the year

Other comprehensive income:

Cash flow hedging

Exchange rate adjustments

Tax on other comprehensive
income

Total comprehensive income

Transactions with owners:

Coupon payments, hybrid capital

Tax on coupon payments, hybrid
capital

Additions, hybrid capital

Disposals, hybrid capital

Share premium reserve transferred
to retained earnings

Proposed dividends

Dividends paid

Issuance of bonus shares

Purchases of treasury shares

Share-based payment

Tax on share-based payment

Disposals, non-controlling interests

Other changes

Total transactions with owners

18,719

(821)

103

255

(463)

18,719

(21,279)

21,279

(3,783)

3,783

(3)

(62)

1,261

3,783

Equity at 31 December

4,204

(1,524)

48,328

* See note 6.2 on 'Equity' for more information about reserves.

(21,279)

17,447

(2,522)

(2,521)

(3)

(62)

(640)

141

3,668

(3,894)

(640)

141

3,668

(3,894)

(376)

(2,897)

(3)

(794)

(62)

Share-
holders in
Ørsted A/S

Hybrid
capital

Non-con-
trolling
interests

Total
Group

32,090

13,248

6,398

51,736

7,547

499

(111)

7,935

1,041

(1,543)

(135)

6,910

1,041

(743)

(2,286)

(129)

499

(848)

6,561

(53)

(640)

141

(640)

141

(404)

(53)

(2,522)

2,522

(27)

(53)

(2,571)

(725)

(1,170)

(4,466)

(2,443)

54,791

13,239

3,807

71,837

4,204

20,218

12,162

2,522

106

(499)

(404)

(797)

39,106

13,248

5,146

57,500

67 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements

Note summary

Contents

Statement of cash flows

1 January - 31 December

Note

DKK million

2017

2016

Note

DKK million

2017

2016

Operating profit (loss) before depreciation, amortisation and
impairment losses (EBITDA), IFRS

Change in derivatives,
business performance adjustments

Change in derivatives,
other adjustments

Change in provisions

Reversal of gain on divestment of assets

Other items

4.6

Change in net working capital

Interest received and similar items

Interest paid and similar items

Income tax paid

Cash flows from operating activities

22,574

16,939

(55)

2,170

(528)

(10,835)

297

(7,904)

3,508

(3,472)

(2,660)

1,023

806

(366)

(2,939)

217

(1,512)

5,177

(6,038)

(3,182)

11,272

Our supplementary statements of gross and net
investments appear from note 3.3 and free cash
flows (FCF) from note 2.1.

Accounting policies

Cash flows from operating activities are determined
using the indirect method as operating profit (loss)
before depreciation, amortisation and impairment
losses adjusted for changes in operating items
without cash flow effect. Trade payables relating to
purchases of intangible assets and property, plant
and equipment are not recognised in change in net
working capital.

Other items primarily comprise reversal of share of
profit (loss) of and dividends in associates and joint
ventures as well as changes in bad debt provisions.

Cash flows from investing activities comprise pay-
ments in connection with the purchase and sale of
non-current assets and enterprises, and the purchase
and sale of securities that are not recognised as cash
and cash equivalents.

Cash flows from financing activities comprise
changes in the size or composition of equity and
loans. Proceeds from raising of short-term repo loans
are presented net.

Cash flows in currencies other than the functional
currency are translated at the average exchange
rates for the month in question, unless these differ
significantly from the rates at the transaction date.

Purchase of intangible assets and property, plant and
equipment

Sale of intangible assets and property, plant and equipment

Acquisition of enterprises

3.4

Divestment of enterprises

Divestment of other equity investments

Purchase of securities

Sale/maturation of securities

Change in other non-current assets

Transactions with associates and joint ventures

Dividends received and capital reduction

(17,592)

16,333

(83)

588

(21,162)

11,965

(5)

(139)

(14,980)

7,105

(16)

1,999

(8,278)

12,842

211

Cash flows from investing activities

(10,054)

(1,060)

Proceeds from raising of loans

Instalments on loans

Coupon payments on hybrid capital

Proceeds from issuance of hybrid capital

Dividends paid to shareholders in Ørsted A/S

Purchases of treasury shares

3.7

Transactions with non-controlling interests

Change in other non-current liabilities

Cash flows from financing activities

Cash flows from continuing operations

3.6

Cash flows from discontinued operations

Total net change in cash and cash equivalents

6.4

Cash and cash equivalents at 1 January

Total net change in cash and cash equivalents

Cash flows for the year from assets classified as held for sale

Exchange rate adjustments of cash and cash equivalents

6.4

Cash and cash equivalents at 31 December

5,468

(4,069)

(640)

3,668

(2,521)

(431)

(11)

1,464

(7,567)

9,025

1,458

2,628

1,458

(140)

(55)

3,891

(11,097)

(640)

(53)

(527)

(12,289)

(2,077)

1,466

(611)

3,677

(611)

(433)

(5)

2,628

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Ørsted Annual report 2017Financial statements

Consolidated financial statements

Note summary

Contents

Note summary

Consolidated financial statements

1.
Basis of reporting . . . . . . . . . . . . . . . . . . . . 70
1.1 Business performance . . . . . . . . . . . . . . . . . 75
1.2 Definitions of performance highlights . . 78

Return on capital employed. . . . . . . . . . 79
2.
Segment information . . . . . . . . . . . . . . . . . . 81
2.1
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
2.2
2.3
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . 85
2.4 Government grants. . . . . . . . . . . . . . . . . . . . 86
2.5

Other operating income
and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Employee costs . . . . . . . . . . . . . . . . . . . . . . . 88
Share-based payment . . . . . . . . . . . . . . . . . 89

Capital employed . . . . . . . . . . . . . . . . . . . . 91
Intangible assets and property,
plant and equipment . . . . . . . . . . . . . . . . . . 93
Provisions and contingent assets
and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Gross and net investments . . . . . . . . . . . . 98
Divestment of enterprises . . . . . . . . . . . . . 98
Assets classified as held for sale . . . . . . . 99
Discontinued operations . . . . . . . . . . . . 100
Non-controlling interests . . . . . . . . . . . . 103

Working capital. . . . . . . . . . . . . . . . . . . . 104
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Construction contracts . . . . . . . . . . . . . . 107
Trade receivables. . . . . . . . . . . . . . . . . . . . 108
Other receivables . . . . . . . . . . . . . . . . . . . 108
Other payables. . . . . . . . . . . . . . . . . . . . . . 109
Changes in net working capital. . . . . . 109

2.6
2.7

3.
3.1

3.2

3.3
3.4
3.5
3.6
3.7

4.
4.1
4.2
4.3
4.4
4.5
4.6

Consolidated ESG statements
(additional information)

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Social . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Basis of reporting . . . . . . . . . . . . . . . . . . . . . . . . . 154

5.
5.1
5.2
5.3
5.4

Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Tax policy and tax regimes . . . . . . . . . . 112
Tax on profit (loss) for the year . . . . . . 113
Taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . 116

Capital structure. . . . . . . . . . . . . . . . . . . 118
6.
Interest-bearing debt . . . . . . . . . . . . . . . . 120
6.1
6.2 Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
6.3 Hybrid capital . . . . . . . . . . . . . . . . . . . . . . . 124
6.4 Financial resources . . . . . . . . . . . . . . . . . . 125
6.5 Financial income and expenses . . . . . . 127
6.6

Funds from operations (FFO)/
adjusted interest-bearing net debt . . 128

7.
7.1
7.2

7.3
7.4

7.5
7.6
7.7

8.
8.1
8.2
8.3
8.4
8.5

Risk management. . . . . . . . . . . . . . . . . . 129
Market risks . . . . . . . . . . . . . . . . . . . . . . . . . 131
Hedge accounting and
economic hedging. . . . . . . . . . . . . . . . . . . 134
Trading portfolio . . . . . . . . . . . . . . . . . . . . 136
Sensitivity analysis of
financial instruments . . . . . . . . . . . . . . . . 137
Credit risks . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Categories of financial instruments . . 139
Fair value measurement. . . . . . . . . . . . . 139

Other notes . . . . . . . . . . . . . . . . . . . . . . . . 140
Related-party transactions . . . . . . . . . . 141
Operating lease obligations . . . . . . . . . 142
Auditor's fees . . . . . . . . . . . . . . . . . . . . . . . . 143
Contractual obligations . . . . . . . . . . . . . 143
Company overview. . . . . . . . . . . . . . . . . . 144

Parent company financial statements

Income statement . . . . . . . . . . . . . . . . . . . . . . . . 156
Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
Statement of changes in equity. . . . . . . . . . . 157

1.
2.
3.
4.

Basis of reporting. . . . . . . . . . . . . . . . . . . . 158
Employee costs . . . . . . . . . . . . . . . . . . . . . 159
Financial income and expenses . . . . . . 159
Tax on profit (loss) for the year
and deferred tax. . . . . . . . . . . . . . . . . . . . . 160
Distribution of net profit . . . . . . . . . . . . . 160
5.
Investments in subsidiaries . . . . . . . . . . 161
6.
7.
Receivables from subsidiaries . . . . . . . 161
8. Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
9.
Loans and borrowings . . . . . . . . . . . . . . . 162
10.
Other provisions . . . . . . . . . . . . . . . . . . . . . 163
11.
Contingent liabilities . . . . . . . . . . . . . . . . 163
12.
Related-party transactions . . . . . . . . . . 164
13.
14. Operating lease obligations . . . . . . . . . 164
Auditor's fees . . . . . . . . . . . . . . . . . . . . . . . . 164
15.
Ownership information . . . . . . . . . . . . . . 164
16.

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Ørsted Annual report 2017Financial statementsNote summary

Contents

1. Basis of reporting

Business performance

Definitions of performance highlights

Ørsted Annual report 2017Consolidated financial statements – 1. Basis of reporting

Note summary

Contents

1. Basis of reporting

This section provides an overview of our
principal accounting policies, key accounting
estimates and judgements as well as new and
amended IFRS standards and interpretations.

The following sections provide an overall
description of the accounting policies applied
to the consolidated financial statements as a
whole. We provide a more detailed description
of the accounting policies and key estimates
and judgements in the notes.

The descriptions of accounting policies in the
statements and notes form part of the overall
description of accounting policies.

In November 2016, the Board of Directors
decided to initiate a process with the ultimate
objective of divesting our Oil & Gas business.
The divestment of our Oil & Gas business was

closed on 29 September 2017. Consequently,
we have presented the external activities of
Oil & Gas, including revenue and other income
and expenses, as discontinued operations in
the annual reports for 2016 and 2017.

Accounting policies and key accounting
estimates and judgements
The financial statements for the period 1 Janu-
ary - 31 December 2017 comprise the consoli-
dated financial statements of Ørsted A/S and
its subsidiaries (the Group) as well as separate
financial statements for the parent company,
Ørsted A/S. See page 158 for the parent com-
pany's accounting policies. The consolidated
financial statements have been prepared
in accordance with International Financial
Reporting Standards (IFRS) as adopted by the
EU and further requirements in the Danish
Financial Statements Act (Årsregnskabsloven).

The financial statements are presented in
million Danish kroner (DKK), unless otherwise
stated.

All business units in the Ørsted Group apply
the Group's accounting policies.

Measurement basis
The consolidated financial statements have
been prepared on the historical cost basis
except for derivatives, financial instruments
in trading portfolio, financial instruments
classified as available for sale, and carbon
emissions allowances in trading portfolio that
are measured at market value.

The accounting policies have been applied
consistently to the financial year and for
the comparative figures except for the early
adoption of 'IFRS 9 – Financial Instruments'.

Note

Accounting policies

Key accounting estimates and judgements

Consolidated financial statements

Assessment of classification of partnerships

1.1

2.2

2.5

3.2

Revenue

Other operating income

Assessment of assumptions for recognition of revenue from the
construction of offshore wind farms

Assumptions for the accounting treatment of divestment gains
Assessment of classification of divestment

Estimate
Judgement

Provisions and contingent liabilities

Assumptions for decommissioning obligations
Estimate of onerous contracts
Estimate of litigation outcomes

4.2

Construction contracts

Assumptions for the determination of the expected selling price
and expected costs

Estimate
Estimate
Estimate

Estimate

Extent of accounting
estimates and judgements

Estimate/
judgement

Judgement

Key accounting estimates and judgements
When preparing the consolidated financial
statements, we make a number of accounting
estimates and judgements based on assump-
tions concerning future developments which
affect our assets and liabilities as well as our
income and costs. Actual amounts may differ
from the amounts estimated and judgements
made as more detailed information becomes
available.

We regularly reassess these estimates and
judgements, based among other things on
historical experience, the current situation in
the financial markets, the expected effects of
Brexit and a number of other relevant factors.

Accounting estimates, judgements and as-
sumptions which may entail a risk of material
adjustments in subsequent years are described
in the notes in the table below.

Extent of accounting estimates and judgements

relates to objectivity and business practice.

Very objective/market-conforming
Objective/partially conforming
Partially subjective/partially distinctive

Subjective/distinctive for Ørsted

71 / 173

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Consolidated financial statements – 1. Basis of reporting

Note summary

Contents

Consolidated financial statements
The consolidated financial statements in-
clude the parent company Ørsted A/S and
subsidiaries controlled by Ørsted A/S. See
more in the company overview in note 8.5.

The consolidated financial statements
have been prepared as a consolidation of
the parent company's and the individual
subsidiaries' financial statements prepared
in accordance with the Group's accounting
policies. Intra- group income and expenses,
shareholdings, balances and dividends as well
as realised and unrealised gains and losses
arising from intra-group transactions are
eliminated on consolidation.

Unrealised gains resulting from transactions
with associates and joint ventures are elimi-
nated to the extent of the Group's ownership
interest. Unrealised losses are eliminated
in the same way as unrealised gains to the
extent that there has been no impairment.

The Group's share in joint operations is
recognised in the consolidated balance sheet
through recognition of the Group's own assets
and liabilities and income and expenses. The
Group's share of joint income and expenses and
assets and liabilities is then recognised. The
proportionate share of realised and unrealised
gains and losses arising from intra-group trans-
actions between fully consolidated enterprises
and joint operations is eliminated.

Investments in associates and joint ventures
are measured using the equity method.

If we hold or have the ability to exercise,
directly or indirectly, 20%-50% of the voting

rights and do not exercise control, such
enterprises are accounted for as associates.
However, we carry out a specific assessment
of our ability to exercise influence, including
our ability to influence financial and opera-
tional decisions and thus our return.

Any such enterprises that satisfy the criteria
for joint control are instead accounted for as
investments in joint ventures.

We present the profit (loss) from investments
in associates and joint ventures before EBITDA
when deemed to pertain to our principal
activity. The profit (loss) from investments
in associates and joint ventures is presented
after EBITDA when not deemed to pertain to
the Group's principal activity.

Associates and joint ventures with negative
net assets are measured at nil.

If we have a legal or constructive obligation
to cover the negative equity of an associate
or joint venture, the obligation is recognised
as a liability.

Receivables from associates and joint ventures
are measured at amortised cost. On initial
recognition of our receivables, write-downs are
made for bad debts.

The proportionate share of associates' and
joint ventures' profit (loss) after tax and
non-controlling interests is recognised in profit
(loss) for the year. We eliminate the propor-
tionate share of internal gains (losses) in the
profit (loss) for the year.

On acquisition of investments in associates
and joint ventures, the purchase method is
applied.

Gains (losses) on the divestment of invest-
ments in associates and joint ventures are
determined as the difference between the
selling price and the carrying amount of net
assets, including goodwill at the date of
divestment and transaction costs.

Gains and losses are recognised in profit (loss)
for the year as gain or loss on the divestment
of enterprises. The profit (loss) for the year and
total comprehensive income from associates
and joint ventures are identical.

Key accounting judgements

Assessment of classification of partnerships
On initial recognition of investments and in connec-
tion with any restructuring of joint ventures and joint
operations, we assess whether an investment is a
joint venture or a joint operation.

In assessing joint operations, we look at:
– the corporate form of the operation, and
– whether we are only entitled to the net profit or

income and expenses resulting from the operation.

In addition, the fact that the parties buy all output,
for example the power generated, will lead to the
structure being considered to be a joint operation.

72 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 1. Basis of reporting

Note summary

Contents

Foreign currency translation
For each reporting enterprise in the Group,
items are determined in the currency of the
primary economic environment in which
the individual reporting enterprise operates
(functional currency). Transactions in curren-
cies other than the functional currency of
each enterprise are accounted for as trans-
actions in foreign currencies and translated on
initial recognition at the exchange rate at the
transaction date. Exchange differences arising
between the exchange rate at the transaction
date and at the date of payment are recog-
nised in profit (loss) for the year as financial
income or expenses.

Receivables, payables and other monetary
items in foreign currencies are translated at the
exchange rates at the balance sheet date. The
difference between the exchange rate at the
balance sheet date and at the date at which
the receivable or payable arose is recognised
in profit (loss) for the year as financial income
or expenses.

For foreign subsidiaries, joint operations,
associates and joint ventures, the statements
of comprehensive income are translated at
monthly average exchange rates in so far
as these do not deviate materially from the
actual exchange rates at the transaction
dates. Balance sheet items are translated at
the exchange rates at the balance sheet date.
All exchange differences are recognised in
profit (loss) for the year, except for exchange
differences arising on:
– translation of the opening equity of these

entities at the exchange rates at the balance
sheet date

– translation of the statements of compre-
hensive income of these enterprises from
the exchange rates at the transaction
date to the exchange rates at the balance
sheet date

– translation of balances accounted for as

part of the total net investment

– translation of the portion of loans and

derivatives that has been entered into to
hedge the net investment in these enter-
prises, and that provides an effective hedge
against corresponding foreign exchange
gains (losses) on the net investment in the
enterprise.

The above types of exchange differences are
recognised in other comprehensive income.
Such exchange rate adjustments are divided
between the equity of the parent company
and the equity of the non-controlling interests.
On full or partial divestment of the net
investment, the accumulated exchange rate
adjustments are recognised as follows:
– disposal results in loss of control:

The accumulated exchange rate adjust-
ments, including any associated hedges, are
recognised in the profit (loss) for the year if
a foreign exchange gain (loss) is realised by
the selling enterprise. Any foreign exchange
gain (loss) is transferred to the item in
which the gain (loss) from the disposal is
recognised. The part of the foreign currency
translation reserve that relates to non-con-
trolling interests is not transferred to profit
(loss) for the year.

– disposal does not result in loss of control: A
proportionate share of the foreign currency
translation reserve is transferred from the
parent company shareholders' share of equity
to the minority shareholders' share of equity.

Repayment of balances that are considered
part of the net investment does not constitute
a partial disposal of the subsidiary.

Comparative figures are not restated as the
effect is immaterial.

Implementation of new standards and
interpretations
We regularly assess the effect of new IFRS
accounting standards and interpretations and
implement new accounting standards and
interpretations from their mandatory effective
dates at the latest.

On 1 January 2017, we early adopted a new
accounting standard, IFRS 9 – Financial
Instruments, to be able to use the new hedge
accounting rules.

The most important changes resulting from
IFRS 9 compared to IAS 39 are:
– Simplification of the requirements for hedge
accounting. For instance, hedge accounting
will be facilitated for proxy hedging strate-
gies, which are often used to hedge risks in
the energy markets.

– The number of categories of financial
assets is reduced from four to three:
amortised cost, fair value through income
statement or fair value through other
comprehensive income.

– A loss allowance for expected credit losses
must be recognised at initial recognition of
a receivables. Previously a loss allowance
could only be recognised if there was objec-
tive evidence of impairment.

The adoption of IFRS 9 has not had any
significant impact on recognition and
measure ment of financial instruments in our
consolidated financial statements for 2017.

Effective from 1 January 2017, we have
implemented the following amendments to
other accounting standards (IAS and IFRS)
and interpretations:
– Amendment to IAS 7 – Statement of Cash
Flows: The amendment entails additional
disclosure requirements in respect of finan-
cing activities.

– Amendment to IAS 12 – Income Taxes:

The amendment is a clarification of the
accounting treatment of tax assets related
to unrealised losses on debt instruments
measured at fair value.

– Annual improvements to IFRS 2014-2016

concerning IFRS 12 – Disclosure of Interests
in Other Entities: The amendment is a clarifi-
cation of the disclosure requirements.

The implementation of other amended
standards has not affected our consolidated
financial statements for 2017.

New standards and interpretations
IASB has issued a number of new or amended
accounting standards and interpretations
which have not yet entered into force,
and which have consequently not been
incorporated into the consolidated financial
statements for 2017 (impact is expected).

On the next page, we have assessed how IFRS
15 – Revenue from Contracts with Customers
and IFRS 16 – Leases will be implemented and
the consequences thereof. The two standards
are deemed to be the most relevant for the
Ørsted Group.

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Ørsted Annual report 2017Financial statementsConsolidated financial statements – 1. Basis of reporting

Note summary

Contents

Standard

Expected effect

Commencement

Transitional provision

IFRS 15 –
Revenue from
Contracts with
Customers

We have completed our review of contracts and the analysis
of the cash flows in Ørsted. The analysis concluded that the
implementation only affects the recognition of income from
our transmission assets in connection with the construction of
offshore wind farms.

We recognise the remaining part of the transmission asset when
we find that control has passed to the OFTO.

IFRS 15 will be
implemented on
1 January 2018.

Transmission assets have so far been recognised in step with the
construction based on the completion degree of the asset.

We will implement the standard with
retrospective effect as if its requirements have
always been applied to our current contracts.
We use the option under IFRS 15 of not restating
comparative figures, and of reflecting the effect
in equity. The requirements of the standard
therefore only apply to agreements in progress
at 1 January 2018 as well as subsequently
concluded agreements.

The change has the consequence that revenue is recognised at a
later point in time than was the case under the former practice.
Similarly, the costs of construction do not affect operations until
the sale is recognised as income.

The change does not affect the Group's cash flows or results,
but only the time when income and costs are recognised in the
consolidated financial statements.

Historically we have not had, and we do not expect a significant
contribution margin in connection with the sale of transmission
assets to partners and OFTOs, and the Group's EBITDA, balance
sheet total and equity will therefore remain unchanged in all
material respects as a consequence of the changed accounting
policies.

As the effect of the implementation of IFRS 15 on EBITDA,
equity and the balance sheet total is immaterial, the expected
disaggregated effect has not been disclosed.

In the UK, we offer construction contracts for transmission assets,
which are subsequently sold to a new owner. When construction of
the assets is completed, they are sold to an Offshore Transmission
Owner (OFTO) through a regulated sales process. The UK energy
regulator 'Office of Gas and Electricity Markets' (Ofgem) manages
the sales process, determines the final transfer value and appoints
the buyer. Under the new standard, a customer relationship does
not exist between Ørsted and a final buyer. As a result, no mutual
legal rights and obligations exist between the parties when the
construction of transmission assets commences.

Following the implementation of IFRS 15, we will initially recognise
revenue from transmission assets when we have entered into a
contract with a customer which both parties (buyer and seller):
– have approved and
– intend to perform.

Thus, the recognition of income does not begin until we sell a
share of the transmission asset under construction to a partner,
which takes place upon such partner joining the project.

We are still analysing the effect of IFRS 16 on the consolidated
financial statements. The preliminary conclusion is that it will have
a limited impact on both the balance sheet, the income statement
and related credit key ratios except effects of classifications. The
impact at 1 January 2019 will deviate from the present value of
the future minimum lease payments stated in note 8.2 (DKK 6,095
million) for the following reasons:
– The scope of leases is expected to change up until 1 January

2019, partly as a result of the conclusion of new leases, partly
as a result of run-off on the existing leases.

IFRS 16
– Leases

– On recognition of lease obligations in the balance sheet at 1
January 2019, we will apply the implicit interest rates in the
determination of the present value of the lease obligations. At
31 December 2017, the present value of our lease obligations
was determined at an interest rate of 3.5%.

IFRS 16 will be
implemented on
1 January 2019.

As a general rule, IFRS 16 requires that service elements which
are incorporated into leases, and which do not entitle us to use
an underlying asset, must be dealt with separately and treated
as a current operating expense. This will not have an immediate
impact as our total obligation stated in note 8.2 does not include
payments relating to service elements. We intend to continue this
practice so that service elements are not included in the lease
obligation and the right-of-use asset in accordance with IFRS 16.

We expect to implement the standard based
on the simplified transition method, where
comparative figures will not be restated.
We expect to calculate and recognise the
cumulative effect for all ongoing leases at 1
January 2019. Furthermore, we expect to use
the other available reliefs to the widest possible
extent, including the exclusion of leases with a
term to maturity of less than 12 months and
low-value assets.

The new or amended standards and interpretations
are not mandatory in connection with the financial
reporting for 2017. We will implement the standards
and interpretations from their mandatory effective
dates at the latest.

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Note summary

Contents

1.1 Business performance

Description of business performance
In 2011, we introduced an alternative perfor-
mance measure, business performance, as
a supplement to the financial statements
prepared in accordance with IFRS. The busi-
ness performance results reflect our internal
risk management and show the results for the
period under review. Under the business per-
formance principle, the value of the hedging
transaction is deferred and recognised for the
period in which the hedged risk materialises.
This is illustrated in the example overleaf.

Our reason for introducing the business perfor-
mance principle in 2011 was:
– that we could not achieve the same timing
of recognition of our commercial exposure
and hedging contracts in accordance with
the IFRS rules, for example with respect to
option premiums and certain commercial
fixed-price contracts, and

– a high risk of hedging contracts not being

consistent with the IFRS hedge accounting
rules, requiring us to recognise the hedging
contracts at market value with value ad-
justment via the income statement, whereas
our commercial exposure is accrued.

Our risk management is described in note 7.1.

Business performance – background
We hedge market risks for up to five years
with the aim of stabilising our cash flows
and creating certainty about our finances.
With a view to ensuring transparency, we

want the financial impact of the hedging
transactions to be reflected in the financial
reporting simultaneously with the hedged
exposure (for example sales of power). We
can normally achieve this by applying the
IFRS rules on hedge accounting. For energy
companies, it is, however, sometimes difficult
to ensure simultaneity. This is due to the fact
that hedging instruments are not always
available which precisely match the exposure
which must be hedged, or that no sufficiently
liquid market is available. Consequently, some
hedging takes place in alternative markets
or subject to alternative time horizons. For
example, power generation in Denmark is to
some extent hedged by financial contracts for
nearby trading areas such as EEX (Germany)
and Nord Pool (Scandinavia). These areas
normally develop relatively uniformly over
time compared to Denmark.

This hedging method means that only some
of the financial hedging transactions comply

with the IFRS rules on hedge accounting even
though the financial risk has been reduced.
In case of non-compliance, under IFRS the
hedging transactions must be recognised in
the income statement on a regular basis. This
may give rise to considerable fluctuations in
the income statement, as the effects of the
hedging and for example the sale of power are
not recognised in the same period.

Consequently, we have decided not to apply
the IFRS rules on hedge accounting to trans-
actions hedging energy prices and associated
currency risks. Value adjustments of these
hedges are therefore recognised in the income
statement in accordance with IFRS.

Recognition
In the income statement, the business perfor-
mance results are shown alongside the IFRS
results. In the income statement, the difference
between the two performance measures is
shown in a separate column, 'Adjustments'.

Two types of contracts are included in the
business performance principle:
– hedging contracts concerning energy and

related currencies

– commercial contracts concerning energy

recognised at market value (typically fixed-
price physical gas and power contracts).

When we use hedging instruments which do
not fully correspond to the underlying risk, any
difference between the hedging instruments
and the underlying risk is recognised immedi-
ately in the income statement. See note 7.3.

The accounting treatment under business
performance is otherwise identical to the
accounting treatment under IFRS. Our balance
sheet, cash flows and equity are consequently
not affected. The accounting treatment of
our hedging contracts according to IFRS and
business performance is summarised in the
table below.

Type of hedging

IFRS

Business performance

Market value adjustment in the income statement Market value adjustments are deferred

Hedging of energy and associated
currency risks as well as fixed-price
physical gas and power contracts

Hedging of:
– proceeds from the divestment of newly

constructed offshore wind farms

Market value adjustments are deferred and
recognised in the period in which the exposure
materialises

– interest payments

and recognised in the period in which the
exposure materialises

Recognition the same as under IFRS

Hedging of currency risks associated
with investments in foreign entities

Market value adjustments are recognised in other
comprehensive income

Recognition the same as under IFRS

Trading portfolio

Market value adjustment in the income statement Recognition the same as under IFRS

Only the recognition of
the hedging of energy
and associated currency
risks as well as fixed-
price physical gas and
power contracts differs
under IFRS and the
business performance
principle.

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Note summary

Contents

Expected impact on business performance EBITDA from energy and currency hedging, DKK million

Oil

Gas

Power

Coal

Currency

Total

2018

174

(262)

(650)

545

(159)

Deferred for
subsequent
recognition at 31
December 2017

2019

after 2019

137

(266)

(385)

139

(369)

(97)

(519)

268

(284)

374

(625)

(1,554)

952

(812)

2017

(46)

104

(396)

1,043

737

Deferred for
subsequent
recognition at 31
December 2016

2018

after 2018

(48)

(314)

(290)

489

(159)

(418)

(329)

277

(452)

(76)

(628)

(1,015)

1,809

126

The table shows when
the deferred value ad-
justments are expected
to be recognised in the
business performance
EBITDA. The table
covers both hedging
classified as business
performance and IFRS.

Expected impact on business performance
EBITDA from energy and currency hedging
At 31 December 2017, a loss of DKK 812 million
has been deferred (2016: DKK 126 million gain),
which will affect business performance EBITDA
in subsequent years. Of the total deferred
loss, a loss of DKK 159 million is expected on
business performance EBITDA in 2018 (2016:
DKK 737 million gain in 2017).

The decrease in the deferred gain on currency
hedging is primarily attributable to the trans-
fer of gains to the income statement in 2017
as a consequence of the hedged transactions
having occurred. Power prices rose in 2017,
which means that the market value of the
hedges has fallen as we are selling power.

Explanation of the business perfor-
mance principle
In year 1, we enter into a contract hedg-
ing the price risk associated with Wind
Power's generation of 1,000GWh in year
5 at GBP 52,000 per GWh. This ensures a
total revenue of GBP 52 million. In year 5,
the cost of power has decreased to GBP
45,000 per GWh, which means that the
hedging contract has a positive market
value of GBP 7 million (a hedged price of
GBP 52,000 per GWh minus the spot price
of GBP 45,000 per GWh). This means that
we ensure that the total income, including
the hedging transaction, is still GBP 52
million. The amount of GBP 52 million con-
sists of a gain from the hedging contract
of GBP 7 million and GBP 45 million from
the sale of 1,000GWh at the spot price of

GBP 45,000 per GWh. The financial impact
of the hedging transaction in years 1-5 is
shown in the table. Under the business
performance principle, the hedging trans-
action is recognised in the income state-
ment in year 5, i.e. at the same time as the
hedged contract with a positive market
value of GBP 7 million. The value develop-
ment is, however, recognised continuously
in the income statement according to
IFRS. Upon the expiry of the contract in
year 5, the total effect on results over the
period is the same under the IFRS and the
business performance principle. Only the
timing differs. The business performance
principle ensures simultaneity of recogni-
tion of the underlying exposure and the
hedging contract.

Recognition in the income
statement, GBP million

Recognised in
the income statement as follows

Total financial impact

Power price
(GBP '000
per GWh)

Sales of
power,
GBP million

Market value

Business
performance

IFRS

Year 1

Year 2

Year 3

Year 4

Year 5

Total

(3)

(5)

IFRS

(5)

Example of recognition of the market value
of a hedging contract according to the
business performance and IFRS principles
in the income statement.

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Note summary

Contents

Difference between IFRS and business
performance for the year
The value adjustment in respect of future
periods totalled DKK -138 million (2016: DKK
-1,397 million) and reversal of deferred gains
(losses) recognised according to business
performance in 2017 totalled DKK 193 million
(2016: DKK -773 million).

Market value adjustments for the year of
hedging contracts
2017 was mainly affected by losses on the
hedging of power as a result of rising prices in
2017. This was partially offset by a gain on the
hedging of oil as a consequence of the rising
oil prices in 2017.

2016 was mainly affected by losses on the
hedging of gas and power as a result of
rising prices in 2016. This was partially offset
by gains on currency hedging due to the
weakened GBP in 2016.

Deferred gains (losses) from previous
periods
In 2017, a loss of DKK 193 million was recog-
nised in business performance EBITDA, but as
the loss was recognised in IFRS EBITDA in a
previous period, the gain was reversed in the
'Adjustments' column in the income statement.
The loss was primarily attributable to the
hedging of power.

In 2016, a gain of DKK 773 million was recog-
nised in business performance EBITDA, but as
the gain was recognised in IFRS EBITDA in a
previous period, the gain was reversed in the
'Adjustments' column in the income statement.
The gain, which was primarily attributable to
the hedging of gas, power and currency, was
offset by a loss on oil.

Specification of the difference between EBITDA according to
business performance and according to IFRS, DKK million

EBITDA – business performance

Business performance adjustments in respect of revenue for the year

Business performance adjustments in respect of cost of sales for the year

EBITDA – IFRS

Total business performance adjustments for the year comprise:

2017

22,519

205

(150)

22,574

2016

19,109

(3,808)

1,638

16,939

Value adjustments for the year of hedging contracts that relate to future
periods

(138)

(1,397)

Reversal of gains (losses) relating to hedges deferred from prior periods
where the hedged production or trading is recognised in business
performance EBITDA for this period

Total adjustments

193

(773)

(2,170)

Value adjustments for the year of financial
and physical hedging, DKK million

Currency

Power (commercial and hedge)

Gas (commercial and hedge)

Oil

Coal

2017

150

(836)

106

404

2016

1,156

(2,160)

(735)

267

Total value adjustments

(138)

(1,397)

The table shows value
adjustments by product.
The value adjustments
are recognised in IFRS
EBITDA, but not in
business performance
EBITDA, as the value
relates to future periods.

Reversal of deferred gains (losses) on hedges
from previous periods, DKK million

Currency

Power (commercial and hedge)

Gas (commercial and hedge)

Oil

Coal

Total deferred gains (losses) from previous
periods

2017

(12)

297

(106)

(32)

193

2016

(615)

(424)

(1,539)

1,654

151

(773)

The table shows reversal
of value adjustments
by product. These gains
(losses) are recognised
in business performance
EBITDA. The reversal
of value adjustment
was recognised in IFRS
EBITDA in a previous
period.

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Note summary

Contents

1.2 Definitions of performance highlights

Performance highlights are calculated in
accordance with the business performance
principle.

Gross investments

Net investments

Funds from operations
(FFO)

Cash flows from investing activities, excluding dividends received from
associates, joint ventures and equity investments, purchase and sale of
securities, loans to joint ventures and joint operations, and divestments of
assets and enterprises.

Proposed dividend
per share (DPS) of DKK 10

Dividend yield

Average number of shares

Gross investments less divestments of assets and enterprises. To/from this is
added/deducted acquired/transferred debt in connection with acquisitions
and divestments of enterprises, and deducted non-controlling interests' share
of investments in fully consolidated investment projects, and deducted the
selling price of non-controlling interests.

Supplementary concept for cash flows from operating activities determined
as business performance EBITDA less the effect of gains on the divestment
of ownership interests in offshore wind farms, interest expenses (net) on
interest-bearing net debt and hybrid capital (50%), interest element of
decommissioning obligations and current tax. In addition, operating lease
obligations have been recognised as if they were finance lease obligations,
where operating lease payments have been reversed, and calculated interest
expenses of the present value of lease payments have been deducted.

Total proposed dividend
Number of shares year-end

Dividend per share (proposed)

Stock price the last trading day of the year

Number of
days

= X1

Number of
days
∑
i=1

Net working capital

Inventories, trade receivables and other current operating assets less trade
payables, deferred income (net) and other current operating liabilities.

Net working capital,
excluding trade payables
relating to capital
expenditure

Net working capital excluding trade payables relating to purchases of
intangible assets and property, plant and equipment.

Adjusted interest-bearing
net debt

Interest-bearing net debt plus 50% of the hybrid capital, cash and securities
not available for use with the exception of repo transactions, present value
of lease payments (operating lease obligations calculated as if they were
finance lease obligations), and the present value of decommissioning
obligations less deferred tax.

Profit (loss) per share

Shareholders' share of the profit (loss) for the period

Average number of shares

Diluted profit (loss)
per share

Shareholders' share of the profit (loss) for the period

Average number of shares, including dilutive effect of free shares

FFO to adjusted interest-
bearing net debt

Free cash flow (FCF)

FFO

Adjusted interest-bearing net debt

Cash flows from operating activities less gross investments and plus
divestments.

Capital employed

Non-interest-bearing net assets corresponding to non-interest-bearing assets
less non-interest-bearing liabilities.

Average capital employed

Capital employed beginning of year + capital employed year-end

Return on capital employed
(ROCE)

EBIT

Average capital employed1

1 ROCE (continuing operations) is based on
average capital employed for the continuing
operations. Non-interest-bearing net assets
related to the oil and gas activities divested in
September 2017 are not included.

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Note summary

Contents

Segment information

Revenue

Cost of sales

Government grants

Other operating income and expenses

Employee costs

Share-based payment

Ørsted Annual report 2017Consolidated financial statements – 2. Return on capital employed

Note summary

Contents

2. Return on capital employed

EBIT by segment,
percentage of DKK 16,581 million in 2017

EBIT, business performance,
DKK million

Return on capital employed is a key ratio
that shows how profitable our business is.
The strategic target is for ROCE to
constitute an average of 12-14% in the
period 2018-2023.

Return on capital employed
Return on capital employed was 25.2%
against 24.4% in 2016. The improved
operating profit was partially offset by
more funds tied up in invested capital.
See more in note 2.1.

Wind Power
Bioenergy & Thermal Power
Distribution & Customer Solutions

96%

-3%

1.9

2015

2016

2017

22.5bn

16.2

13.9

EBITDA totalled DKK 22,519 million in 2017 against
DKK 19,109 million in 2016.

Return on capital employed (ROCE),
% 2017

Return on capital employed (ROCE),
%

Wind Power
Bioenergy & Thermal Power
Distribution & Customer Solutions

28.4%

-22.2%

13.1%

24.4

25.2

3.6

2015

2016

2017

EBIT and return on capital employed stated
according to the business performance principle.
EBIT of DKK 16,581 million is calculated as EBIT for
reportable segments.

Return on capital employed (ROCE) was 25% against
24% in 2016 (and 17% in 2016 adjusted for compen-
sation received in connection with renegotiations).
The increase was attributable to higher EBIT.

16.2bn

Operating profit totalled DKK 16,235 million
in 2017 against DKK 13,877 million in 2016.

25.2%

Return on capital employed (ROCE) totalled 25.2%
in 2017 against 24.4% in 2016.

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Note summary

Contents

2.1 Segment information

Wind Power,
DKK million

Revenue

EBITDA

Bioenergy & Thermal Power,
DKK million

Distribution & Customer Solutions,
DKK million

20,352

Revenue

20,595

EBITDA

5,864

Revenue

152

EBITDA

Gross investments

15,462

Gross investments

1,390

Gross investments

Number of employees

2,253

Number of employees

749

Number of employees

Geographical distribution of revenue as
well as intangible assets and property,
plant and equipment
Geographical revenue is broken down, as far
as possible, by the customer's geographical
location based on supply point.

40,195

2,082

857

1,263

Primary activity

Development, construction, ownership and operation
of offshore wind farms in the UK, Germany,
Denmark, the Netherlands, the USA and Taiwan.

Generation of heat and power from CHP plants
in Denmark and a gas-fired power station in the
Netherlands as well as a Renescience plant in the
UK.

The distribution of power and sales of power
and gas in the wholesale and retail markets in
Denmark, Sweden, Germany and the UK as well
as optimisation and hedging of the Group's total
energy portfolio.

A significant part of our sales takes place via
power exchanges and gas hubs in Europe,
the physical locations of which do not
reflect the geographical locations of our
customers. When breaking down these sales
by geographi cal location we use the physical
locations of the exchange or hub since we
do not in all cases know the physical location
of our customer.

Revenue,
DKK million 2017 1 (2016)

Denmark
UK

Germany
The Netherlands
Other

Intangible assets and property, plant and
equipment, DKK million 2017 (2016)

Denmark
UK

Germany
Other

NL 4,369
(5,283)

OTHER 506
(741)

DE 12,614
(12,490)

DK 19,563
(15,181)

OTHER 192
(170)

DK 23,062
(26,025)

DE 8,578
(11,007)

DKK 59,504
million

DKK 76,534
million

UK 26,488
(28,989)

UK 40,666
(32,452)

Revenue, intangible assets and property, plant and
equipment are presented based on the locations of
our customers and assets.

No single customer accounts for more than
10% of our consolidated revenue.

1 Revenue determined according to the business

performance principle.

Non-current assets are broken down geo-
graphically based on the physical locations
of the assets.

Accounting policies

Our operating segments are consistent with our
internal reporting to our top decision-making body,
Group Executive Management.

We apply the business performance principle, as
described in note 1.1, in connection with our internal
management.

The operating segments are managed primarily
on the basis of EBITDA and investments. Financial
income and expenses and tax are allocated to the
operating segments, while we manage them at
Group level.

Segment income and segment expenses are those
items that, in the internal management reporting,
are directly attributable to individual segments or
can be indirectly allocated to individual segments
on a reliable basis.

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Consolidated financial statements – 2. Return on capital employed

Note summary

Contents

2017
Income statement, DKK million

External revenue

Intra-group revenue

Revenue

Cost of sales

Employee costs and other external expenses

Gain (loss) on disposal of non-current assets

Additional other operating income and expenses

Share of profit (loss) in associates and joint ventures

EBITDA

Depreciation and amortisation

Impairment losses

Operating profit (loss) (EBIT)

Key ratios

Property, plant and equipment and intangible assets

Equity investments and non-current receivables

Net working capital, work in progress

Net working capital, capital expenditures

Net working capital, other items

Derivatives, net

Assets classified as held for sale, net

Decommissioning obligations

Other provisions

Tax, net

Other receivables and other payables, net

Capital employed at 31 December

Of which capital employed from discontinued operations

Of which capital employed from continuing operations

Return on capital employed (ROCE) %

Cash flows from operating activities

Gross investments

Divestments

Free cash flow (FCF)

Wind
Power

15,034

5,318

20,352

(6,565)

(4,122)

10,811

238

(119)

20,595

(4,080)

(545)

15,970

56,942

114

7,526

(2,901)

1,860

1,025

(3,546)

(2,074)

(296)

1,002

59,652

28.4

3,353

(15,462)

16,737

4,628

Bioenergy
& Thermal
Power

Distribution
& Customer
Solutions

Report-
able
segments

Other
activities/
eliminations

Business
performance

Adjustments

5,652

212

5,864

(4,400)

(1,357)

152

(690)

(538)

7,488

(138)

(3,228)

(192)

(733)

(764)

2,554

(22.2)

592

(1,390)

(796)

38,959

1,236

40,195

(36,232)

(1,887)

(21)

2,082

(933)

1,149

11,771

340

(1,356)

2,012

(472)

(2,952)

350

9,780

13.1

(628)

(857)

196

(1,289)

59,645

6,766

66,411

(47,197)

(7,366)

10,822

278

(119)

22,829

(5,703)

(545)

16,581

76,201

495

7,526

(3,039)

(2,724)

918

2,012

(4,751)

(5,790)

134

1,004

71,986

3,317

(17,709)

16,935

2,543

(141)

(6,766)1

(6,907)

6,653

(72)

(310)

(36)

(346)

333

692

143

(422)

(980)

(598)

(834)

(1,666)

(2,294)

(35)

(2,282)

59,504

(40,544)

(7,438)

10,835

281

(119)

22,519

(5,739)

(545)

16,235

76,534

1,187

7,526

(3,039)

(2,581)

496

2,012

(4,751)

(6,770)

(464)

170

70,320

(236)

70,556

25.2

1,023

(17,744)

16,982

261

205

(150)

IFRS

59,709

(40,694)

(7,438)

10,835

281

(119)

22,574

(5,739)

(545)

16,290

76,534

1,187

7,526

(3,039)

(2,581)

496

2,012

(4,751)

(6,770)

(464)

170

70,320

(236)

70,556

1,023

(17,744)

16,982

261

Profit (loss) and cash
flows are shown only for
continuing operations.

Up until the divestment,
the discontinued oper-
a tions in the divested
oil and gas business
were included in assets
classified as held for
sale and in discontinued
operations. Reference
is made to note 3.6 'Dis-
continued operations'.

The column for 'Other
activities/eliminations'
covers primarily the
elimination of inter-
segment transactions.
Also included are
income and costs, assets
and liabilities, invest-
ment activity, taxes, etc.,
handled at Group level.

1 Of which the elimin-
ation of intra-group
revenue accounts for
DKK -8,887 million.

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Note summary

Contents

2016
Income statement, DKK million

External revenue

Intra-group revenue

Revenue

Cost of sales

Employee costs and other external expenses

Gain (loss) on disposal of non-current assets

Additional other operating income and expenses

Share of profit (loss) in associates and joint ventures

EBITDA

Depreciation and amortisation

Operating profit (loss) (EBIT)

Key ratios

Property, plant and equipment and intangible assets

Equity investments and non-current receivables

Net working capital, work in progress

Net working capital, capital expenditures

Net working capital, other items

Derivatives, net

Assets classified as held for sale, net

Decommissioning obligations

Other provisions

Tax, net

Other receivables and other payables, net

Capital employed at 31 December

Of which capital employed from discontinued operations

Of which capital employed from continuing operations

Return on capital employed (ROCE) %

Cash flows from operating activities

Gross investments

Divestments

Free cash flow (FCF)

Wind
Power

18,831

3,597

22,428

(11,130)

(3,626)

2,961

1,210

11,867

(3,565)

8,302

52,202

865

3,944

(2,452)

166

1,723

(2,785)

(1,894)

980

52,825

16.5

4,347

(12,426)

6,874

(1,205)

Bioenergy
& Thermal
Power

Distribution
& Customer
Solutions

Report-
able
segments

Other
activities/
eliminations

4,965

184

5,149

(3,718)

(1,484)

100

(763)

(663)

6,959

(268)

(3,173)

(155)

(668)

(802)

352

2,283

(29.5)

1,285

(1,926)

(635)

36,860

1,149

38,009

(28,900)

(2,040)

(77)

116

7,108

(874)

6,234

11,651

367

(2,729)

(419)

1,930

(196)

(2,654)

(234)

7,798

75.8

4,302

(569)

2,238

5,971

60,656

4,930

65,586

(43,748)

(7,150)

2,940

1,422

19,075

(5,202)

13,873

70,812

1,240

3,944

(2,720)

(5,736)

1,149

1,930

(3,649)

(5,350)

1,098

188

62,906

9,934

(14,921)

9,118

4,131

545

(4,930)1

(4,385)

4,488

(16)

(53)

(30)

325

788

610

(250)

(40)

(2,819)

(559)

(1,945)

1,338

(39)

(63)

1,236

Business
performance

Adjustments

61,201

(3,808)

61,201

(39,260)

(7,166)

2,940

1,369

19,109

(5,232)

13,877

71,137

1,240

3,944

(2,720)

(4,948)

1,759

1,680

(3,649)

(5,390)

(1,721)

(371)

60,961

2,769

58,192

24.4

11,272

(14,960)

9,055

5,367

(3,808)

1,638

(2,170)

IFRS

57,393

(37,622)

(7,166)

2,940

1,368

16,939

(5,232)

11,707

71,137

1,240

3,944

(2,720)

(4,948)

1,759

1,680

(3,649)

(5,390)

(1,721)

(371)

60,961

2,769

58,192

11,272

(14,960)

9,055

5,367

Up until the divestment,
the discontinued oper-
a tions in the divested
Oil & Gas business
were included in assets
classified as held for
sale and in discontinued
operations. Reference
is made to note 3.6 'Dis-
continued operations'.

1 Of which the elimin-
ation of intra-group
revenue accounts for
DKK -6,939 million.

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Ørsted Annual report 2017Financial statementsConsolidated financial statements – 2. Return on capital employed

Note summary

Contents

2.2 Revenue

Revenue 2017, DKK million

Distribution and transmission

Sales of heat and steam

Sales of gas

Wind
Power

Bioenergy
& Thermal
Power

Distribution
& Customer
Solutions

Other
activities/
eliminations

2,520

2,607

Sales of power and power generation

10,052

3,097

Revenue from the construction of
offshore wind farms

Other revenue

Total, business performance

Adjustments

Total, IFRS

8,734

1,566

20,352

(7)

20,345

160

5,864

5,959

(32)

(1,556)

(5,722)

403

Total

2,488

2,607

17,641

25,170

8,734

2,864

Revenue 2016, DKK million

Distribution and transmission

Sales of heat and steam

Sales of gas

Revenue from the construction of
offshore wind farms

Other revenue

(6,907)

59,504

Total, business performance

226

205

Adjustments

(6,681)

59,709

Total, IFRS

19,197

17,743

735

40,195

(109)

40,086

Wind
Power

Bioenergy
& Thermal
Power

Distribution
& Customer
Solutions

Other
activities/
eliminations

2,318

2,255

18,111

17,309

271

38,009

(3,639)

34,370

(16)

(1,224)

(3,416)

271

(4,385)

236

(4,149)

Total

2,302

2,255

16,887

23,310

14,323

2,124

61,201

(3,808)

57,393

14,323

1,405

22,428

22,473

177

5,149

(450)

4,699

Sales of power and power generation

6,700

2,717

All forms of discounts granted are recognised in
revenue.

financial hedging transactions, etc., are also included
in other revenue.

Revenue for the year according to business
performance fell from DKK 61,201 million in
2016 to DKK 59,504 million in 2017, down
2.8%. The fall was mainly due to lower activity
from the construction of offshore wind farms
in Wind Power. This was partially offset by
higher gas prices as well as higher generation
from offshore wind farms in operation.

Revenue for the year from the construction of
offshore wind farms mainly related to trans-
mission assets in the UK and the construction
of the offshore wind farms Race Bank, Walney
Extension, Gode Wind 1 and 2 as well as Burbo
Bank Extension for partners.

and DKK 7,362 million was revenue from the
sale of services. In 2016, IFRS revenue totalled
DKK 57,393 million, of which DKK 53,874
million was related to revenue from the sale
of goods, while DKK 3,519 million was related
to revenue from the sale of services.

Accounting policies

Revenue from offshore wind farms comprises sales
of power at market prices and regulated prices
(fixed tariffs and guaranteed minimum prices for
green certificates).

Revenue from offshore wind farms is recognised at
the time of generation.

We recognise revenue from the distribution and
transmission of energy and the sale of heat and
steam, oil, gas and power when:
– delivery and transfer of risk to the buyer have

taken place,

– the income can be measured reliably and is

expected to be received, and

– costs incurred or which will be incurred in connec-

tion with the sale can be measured reliably.

We recognise construction contracts in revenue con-
currently with the construction of the offshore wind
farms and transmission assets. Revenue corresponds
to the selling price of work performed during the
year (percentage of completion method).

When the outcome of a construction contract cannot
be estimated reliably, revenue is recognised to the
extent of costs incurred. See also note 4.2.

In 2017, revenue totalled DKK 59,709 million
according to IFRS, of which DKK 52,347
million was revenue from the sale of goods,

Revenue is measured at the market value of the
agreed consideration excluding VAT and other
indirect taxes collected on behalf of third parties.

Other revenue is income from the installation of
offshore wind turbines using vessels in A2SEA, which
was divested in August 2017. Trading activities,

Adjustments consist of the reversal of business
performance adjustments. See more in note 1.1.

Key accounting judgements

Assumptions for the ongoing recognition of revenue
from the construction of offshore wind farms
We construct offshore wind farms in collaboration
with partners, where we construct the partner's
share. We assess each construction agreement at
the time of conclusion of the agreement.

In our view, the transfer of control, risks and rewards
takes place in step with the construction of offshore
wind farms. This is supported by the regular approval
of part deliveries and milestone payments from
partners. Revenue is therefore recognised in step with
the construction of the offshore wind farms.

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Ørsted Annual report 2017Financial statementsConsolidated financial statements – 2. Return on capital employed

Note summary

Contents

2.3 Cost of sales

Cost of sales 2017, DKK million

Wind
Power

Bioenergy
& Thermal
Power

Distribution
& Customer
Solutions

Other
activities/
eliminations

Total

Cost of sales 2016, DKK million

Wind
Power

Bioenergy
& Thermal
Power

Distribution
& Customer
Solutions

Other
activities/
eliminations

Gas

Power

Biomass

Coal

188

Distribution and transmission costs

625

Costs for construction of offshore wind
farms

Other cost of sales

5,720

976

2,091

829

138

276

16,237

16,520

(4,477)

(5,510)

12,736

Gas

11,288

Power

2,091

Biomass

829

Coal

2,496

(102)

3,157

Distribution and transmission costs

603

965

3,419

5,751

4,692

Costs for construction of offshore wind
farms

Other cost of sales

Total, business performance

6,565

4,400

36,232

(6,653)

40,544

Total, business performance

Adjustments

Total, IFRS

164

(18)

150

Adjustments

6,565

4,404

36,396

(6,671)

40,694

Total, IFRS

Cost of sales according to business perform-
ance increased from DKK 39,260 million in
2016 to DKK 40,544 million in 2017, up 3.3%.
The increase was mainly due to higher gas
prices and that 2016 was impacted by one-off
payments from completed renegotiations
that reduced cost of sales by DKK 4.3 billion.
The increase was partly offset by lower cost
in connection with construction of offshore
wind farms.

830

1,408

819

123

481

3,718

(295)

3,423

10,440

15,303

(5,601)

(3,077)

2,632

(147)

Total

5,669

12,283

1,408

819

3,211

503

28,900

(2,028)

26,872

(22)

10,360

4,359

(4,488)

685

(3,803)

5,510

39,260

(1,638)

37,622

10,360

167

11,130

Cost of sales relate partly to trading in gas and
power, partly to fuel used at CHP plants in
connection with heat and power generation and
partly to the construction of offshore wind farms.

85 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 2. Return on capital employed

Note summary

Contents

2.4 Government grants

Government grants, DKK million

Government grants recognised in profit (loss) for the year under revenue

Government grants recognised in profit (loss) for the year under other
operating income

Government grants recognised in the balance sheet

Government grants recognised for the year

2017

1,917

(4)

1,917

(5)

In Denmark, the Danish transmission system
operator Energinet administers subsidies
for eco-friendly power generation, including
for example offshore wind farms. Until 2017,
the grant was paid by consumers as a tariff
(public service obligation (PSO)) added to their
electricity bill. In 2016, a political agreement
was made to gradually phase out the PSO
tariff. From 2017, the PSO costs will gradually
be financed under the Danish Finance Act.

CfD-regime. 2017 is the first year where
we have received this subsidy. We treat
the payments from the CfD scheme as a
government grant.

Illustrative example of CfD

Market price of power
Government grants (difference between the

market price of power and the power price fixed
in the CfD contract)

Power price fixed in the CfD contract

Following the changed legislation, which
means that PSO funding will be provided
under the Danish Finance Act, we regard
the grant for eco-friendly power generation
as a government grant as it is paid by the
Danish State.

Price

In 2013, the UK introduced a new CfD
( Contracts-for-Difference) subsidy scheme
as a replacement for the RO (Renewable
Obligations) scheme for renewable energy
projects. The Burbo Bank Extension and
Walney Extension offshore wind farms are
our first offshore wind farms under the

Time

When participating in a CfD, we receive a feed-in
premium in connection with the generation of power
from an offshore wind turbine. The feed-in premium
is the difference between the market price of power
and the price fixed in the CfD (strike price).

2016

Accounting policies

Government grants comprise grants for eco-friendly
power generation, grants for the funding of develop-
ment projects as well as investment grants, etc.

As grants for power generation are intended as a
compensation for the price of power, we systemat-
ically recognise the grants under revenue in step with
the power generation and thus the related revenue.

Government grants are recognised when there is rea-
sonable assurance that the grants will be received.

Government grants, which are recognised under
revenue, are presented as the sale of power and
power generation. See note 2.2.

Grants for the acquisition of assets which we recognise
in the balance sheet are recognised under deferred
revenue and are transferred to other operating
income in step with the depreciation of the assets to
which the grants relate.

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Ørsted Annual report 2017Financial statementsConsolidated financial statements – 2. Return on capital employed

Note summary

Contents

2.5 Other operating income and expenses

Other operating income, DKK million

Gain on divestment of assets

Insurance compensation

Other compensation

Miscellaneous operating income

Total other operating income

Other operating expenses, DKK million

Loss on divestment of assets

Miscellaneous operating expenses

Total other operating expenses

2017

11,142

369

154

2016

3,356

137

877

497

11,665

4,867

2017

307

242

549

2016

416

142

558

Other operating income
Gains on the divestment of assets in 2017
primarily concerned the farm-downs of 50%
of our ownership interests in the offshore wind
farms Walney Extension (UK) and Borkum
Riffgrund 2 (Germany), contingent consider-
ation relating to the divestment of Race Bank
(UK) in 2016 (DKK 1.385 million), and to a lesser
extent an adjustment in respect of the divest-
ment of ownership interests in London Array.

In 2016, gains on the divestment of assets
consisted primarily of the farm-downs of 50%
of our ownership interests in the Burbo Bank
Extension and Race Bank offshore wind farms.

Insurance compensation received in 2016
related to the settlement of insurance claims
in Wind Power.

Compensation was mainly received from
the transmission system operators (TSOs)
and suppliers due to delayed deliveries for
the construction of offshore wind farms in
Wind Power.

Other operating expenses
Losses on the divestment of assets in 2017
consisted, among other things, of the
scrapping of components for a new type
of foundation in an offshore wind farm
under construction.

Losses on the divestment of assets in 2016
consisted, among other things, of the scrap-
ping of a vessel for installation of offshore
wind turbines.

Accounting policies

Key accounting estimates

Other operating income and other operating ex-
penses comprise items of a secondary nature to the
Group's primary activities.

In connection with the divestment of ownership
interests in offshore wind farms before or during the
construction phase, the gain is recognised on the
divestment date under other operating income/other
operating expenses in the income statement.

Assumptions for the accounting treatment of
divestment gains
Our accounting recognition of the gain in the divest-
ment contracts is based on the individual accounting
selling prices of the relevant contracts.

Our accounting treatment of the gains in the con-
tracts is therefore not necessarily identical with the
prices negotiated in the individual contracts.

Key accounting judgements

Assessment of classification of divestment
When we divest ownership interests in an offshore
wind farm under development, we carry out an
individual assessment of whether the divestment
qualifies as a divestment of an enterprise or a divest-
ment of assets. We have typically assessed that the
offshore wind farms do not constitute an enterprise,
as no employees are transferred, and processes are
transferred to a limited extent only.

The gain for the future construction of the partner's
share of the offshore wind farm is recognised on an
ongoing basis in the income statement in step with
the construction. See more in notes 2.2 and 4.2.

Divestment of ownership interests in our offshore
wind farms

When we divest an ownership interest in an offshore
wind farm to a partner, we typically also enter into
agreements on the future construction and operation
of the offshore wind farm.

Contracts in connection with divestment are
typically:
– Agreement on the sale of shares (divestment

of assets)

– Agreement on the future construction of the
offshore wind farm (construction contract)
– Agreement on the future operation of the off-

shore wind farm.

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Ørsted Annual report 2017Financial statementsConsolidated financial statements – 2. Return on capital employed

Note summary

Contents

2.6 Employee costs

Employee costs, DKK million

Wages, salaries and remuneration

Share-based payment

Pensions

Other social security costs

Other employee costs

Employee costs before transfers to assets

Transfers to assets

Total employee costs

Continuing operations

Discontinued operations

2017

3,650

310

117

2016

3,692

311

128

4,153

4,197

(956)

(1,109)

3,197

3,088

2017

365

408

(126)

282

2016

692

778

(325)

453

Employee costs
Employee costs before transfer to assets were
on a par with 2016. Employee costs transferred
to assets relate to investment projects, which
are capitalised in the balance sheet.

Pension plans and number of employees
Pension plans are defined-contribution plans
that do not commit Ørsted beyond the
amounts contributed.

In 2017, our average number of employees
was 5,738 (2016: 5,894).

Salaries and remuneration for
Group Executive Management and
the Board of Directors, DKK '000

Fixed salary

Remuneration

Variable salary

Retention bonus

Share-based payment

Pension

Termination payment

Social security

Total

Executive Board

Other members of Group
Executive Management1

Board of Directors

Total

2017

15,279

4,004

2,812

2,080

2016

14,487

3,374

937

2,316

2017

17,924

3,917

6,535

949

1,499

5,3302

2016

18,995

3,500

6,326

1,479

1,463

2017

4,934

2016

5,024

2017

33,203

4,934

7,921

9,347

3,029

1,499

5,330

2016

33,482

5,024

6,874

7,263

3,795

1,463

24,179

21,118

36,163

31,772

4,934

5,024

65,276

57,914

Remuneration of Group Executive
Management
The remuneration of the Executive Board is
based on a fixed salary, including personal
benefits, such as a company car, free tele-
phone, etc., a variable salary, a retention bonus
in connection with the IPO, and share-based
payment. The other members of Group Execu-
tive Management1 also receive a pension.

The members of the Board of Directors are
paid fixed remuneration only for their work
in Ørsted. In addition, Ørsted reimburses any
travel expenses.

For further details about the remuneration of
the Executive Board and the Board of Direc-
tors, reference is made to the remuneration
report on page 55.

Other members of Group Executive
Management in 2017 are: Samuel Leupold
(departing 28 February 2018), Thomas Dalsgaard,
Morten Hultberg Buch greitz and David Cook
(departed 29 September 2017).

2 The compensation relates primarily to the non-
competition clause in connection with Samuel
Leupold's notice of termination.

88 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 2. Return on capital employed

Note summary

Contents

2.7 Share-based payment

Participants

CEO

CFO and other members of Group Executive
Management

Senior Vice Presidents

Vice Presidents and Senior Directors

Number of locked-up shares
relative to fixed salary

75% of fixed salary

50% of fixed salary

25% of fixed salary

15% of fixed salary

The figure shows the
value of the Ørsted
share in per cent of the
participants' fixed salary
which, at the time of
granting, must be locked
up for the duration of
the share programme.

Key assumptions for valuation of PSUs

Share price

Average volatility, peers

Volatility, Ørsted

Risk-free interest rate

Time of
granting
2017

Time of
granting
2016

269

24.9%

20.3%

(0.3)%

275

25.6%

24.1%

(0.5)%

Expected term at time of granting

3 years

2.5 years

Share programme
Group Executive Management and a number
of other senior executives participate in our
share programme. Today, approximately 90
senior executives participate in the pro-
gramme. As a condition for the granting of
performance share units (PSUs), the partici-
pant must own a number of shares in Ørsted
corresponding to a portion of the individual
participant's annual fixed salary. The portion
depends on the employee category and, for
our CEO, makes up 75% of the fixed salary;
see the figure to the left for more information.
The participants in the programme must in-
vest in Ørsted shares prior to the first granting.

If the participants fulfil the shareholding
requirement at the time of granting, they
will be granted a number of PSUs each year,
representing a value of 15%-20% of the annual
fixed salary on the date of granting.

The granted PSUs have a vesting period of
approximately three years, after which each
PSU entitles the holder, without payment, to
receive a number of shares corresponding to
0-200% of the number of PSUs granted. The
final number of shares for each participant
will be determined on the basis of the total
shareholder return delivered by Ørsted, bench-
marked against ten comparable European
energy companies.

The highest rate will be triggered if Ørsted's
results, measured as the total return to
shareholders, outperform those of the com-
parable companies. For each lower ranking,
the number of shares granted will fall by 20
percentage points. If, for example, Ørsted
ranks third, the participants will be entitled
to 160% of the target.

If Ørsted ranks 11 in the comparison, no shares
will be granted to the participants. The right
to shares is conditional upon continued
employment.

Accounting policies

The share programme is classified as an equity-based
programme as the programme is settled in shares.
The market value of the PSUs and the estimated
number of PSUs granted are measured at the time of
granting and recognised:
– in the income statement under employee costs

over the vesting period and

– as a set-off in the balance sheet under equity over

the vesting period.

The valuation of the PSUs and the estimate of the
number of PSUs expected to be granted are carried
out as a probability simulation based on Ørsted's
expected total shareholder return relative to ten
comparable European energy companies. The expect-
ations are factored into the market value and are not
adjusted subsequently.

89 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 2. Return on capital employed

Note summary

Contents

Maximum number of outstanding shares at the time of granting, '000

Time of granting

1 September 2016

1 April 2017

Maximum number of outstanding shares at 31 December 2017

Development in maximum number of outstanding shares, '000

Maximum number of outstanding shares at 1 January 2017

Compensation for dividends paid (2016 programme)

Granted (2017 programme)

Cancelled (2016 programme)

Cancelled (2017 programme)

Maximum number of outstanding shares at 31 December 2017

(DKK million)

Market value of share programme at the time of granting

Maximum market value of share programme at 31 December 2017

Other mem-
bers of Group
Executive
Management

Executive
Board

Senior
executives

123

140

263

Other mem-
bers of Group
Executive
Management

Executive
Board

Senior
executives

128

146

(7)

(6)

263

Market value
(at time of
granting)
DKK million

% of share
capital

0.04%

0.08%

Years until
expiry

1.2

2.2

% of share
capital

0.04%

0.00%

0.04%

0.00%

0.08%

The maximum market value
of the share programme at
31 December 2017 is based
on the assumption that the
participants receive the
maximum number of shares.
This requires that Ørsted
delivers the highest share-
holder return benchmarked
against the ten comparable
companies.

Total

154

173

327

Total

158

179

(7)

(6)

327

111

90 / 173

Ørsted Annual report 2017Financial statementsNote summary

Contents

3. Capital employed

Intangible assets and property,
plant and equipment

Provisions and contingent assets
and liabilities

Gross and net investments

Divestment of enterprises

Assets classified as held for sale

Discontinued operations

Non-controlling interests

100

103

Ørsted Annual report 2017Consolidated financial statements – 3. Capital employed

Note summary

Contents

3. Capital employed

Our capital employed primarily relates
to production assets, some of which are
under construction. We monitor investment
projects closely, as a large part of the Group's
value is created in the development and
construction phases.

Investments and divestments in 2017
We made total investments of DKK 17,744
million in offshore wind farms, biomass con-
versions and power infrastructure in 2017 and
divestments of DKK 16,982 million. The most
significant assets under construction at the
end of 2017 consisted of our offshore wind
farms in the UK and Germany. See note 3.1.

Capital employed, DKK million

Intangible assets and property, plant and equipment

Equity investments and non-current receivables

Net working capital, work in progress

Net working capital, capital expenditures

Net working capital, other items

Derivatives, net

Assets classified as held for sale, net

Decommissioning obligations

Other provisions

Tax, net

Other receivables and other payables, net

Total capital employed

of which discontinued operations

of which continuing operations

Capital employed by segment, % 2017

Wind Power
Distribution & Customer Solutions

Bioenergy & Thermal Power

13%

DKK 70,320
million

83% of the capital
employed is tied up in
Wind Power.
Capital employed by
segment is based on
capital employed for
reportable segments
DKK 71,986.

83%

2017

76,534

1,187

7,526

(3,039)

(2,581)

496

2,012

(4,751)

(6,769)

(464)

169

70,320

(236)

70,556

2016

71,137

1,240

3,944

(2,720)

(4,948)

1,759

1,680

(3,649)

(5,390)

(1,721)

(371)

60,961

2,769

58,192

In 2016, the internal working capital and financial
instruments of Oil & Gas were included in the principal
items, while the rest of the capital employed was
included in the item 'Assets classified as held for sale'.
Following the divestment of the oil and gas business
on 29 September 2017, capital employed from
discontinued operations includes our receivables
and liabilities from the transaction.

70.3bn

Capital employed totalled DKK 70,320 million
at 31 December 2017 against DKK 60,961 million
in 2016.

17.7bn

Gross investments amounted to DKK 17,744 million
in 2017 against DKK 14,960 million in 2016.

16.9bn

Cash flows from divestments, exclusive of
Oil & Gas, totalled DKK 16,921 million in 2017
against DKK 9,055 million in 2016.

92 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 3. Capital employed

Note summary

Contents

3.1 Intangible assets and property,

plant and equipment

Intangible assets and property, plant and equipment,
DKK million

Intangible
assets

Cost at 1 January 2017

Exchange rate adjustments

Additions

Divestment of enterprises

Disposals

Adjustment of decommissioning obligations

Reclassified assets

Cost at 31 December 2017

Depreciation and amortisation at 1 January 2017

Exchange rate adjustments

Additions

Depreciation and amortisation

Divestment of enterprises

Disposals

Depreciation and amortisation at 31 December 2017

Impairment losses at 1 January 2017

Exchange rate adjustments

Impairment losses

Divestment of enterprises

Impairment losses at 31 December 2017

Carrying amount at 31 December 2017

4,996

133

(243)

(210)

4,775

(2,999)

(23)

(286)

(3,299)

(1,042)

232

(787)

689

Production
assets

Fixtures and
fittings, tools
and equipment

Property, plant
and equip-
ment under
construction

86,962

(1,172)

2,1721

(2,218)

(1,844)

753

12,433

97,086

(28,872)

356

(385)1

(5,298)

467

1,618

(32,114)

(4,382)

(15)

(4,369)

60,603

1,154

(43)

(11)

1,174

(716)

(75)

(761)

413

14,531

(393)

17,791

(5,871)

368

(12,536)

13,890

(17)

(545)

(562)

13,328

Land and
buildings

2,625

(5)

(64)

2,644

(1,056)

(80)

(1,079)

(64)

1,501

Property,
plant and
equipment

105,272

Production assets by segment, % 2017

Wind Power
Distribution & Customer Solutions

Bioenergy & Thermal Power

17%

(1,613)

20,022

(2,218)

(7,790)

1,121

114,794

(30,644)

381

(385)

(5,453)

467

1,680

(33,954)

(4,446)

(32)

(545)

(4,995)

75,845

DKK 60,603
million

74%

Property, plant and equipment
under construction by segment, % 2017

Wind Power
Distribution & Customer Solutions

Bioenergy & Thermal Power

1 An accounting change in the classification of our share of the Lincs offshore wind farm from an equity investment to a joint operation in 2017 resulted in additions of

DKK 2,024 million under cost and DKK -385 million under depreciation and amortisation.

Intangible assets
Intangible assets comprise goodwill of
DKK 125 million (2016: DKK 125 million),
carbon emissions allowances of DKK 180
million (2016: DKK 247 million), other rights

of DKK 33 million (2016: DKK 190 million),
completed projects of DKK 321 million (2016:
DKK 317 million) and development projects
in progress of DKK 30 million (2016: DKK 76
million).

90% of property, plant and equipment
under construction is ongoing construction
of offshore wind farms in Wind Power.

DKK 13,328
million

90%

93 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 3. Capital employed

Note summary

Contents

Intangible assets and property, plant and
equipment, DKK million

Intangible
assets

Land and
buildings

Production
assets

Exploration
assets

Fixtures and
fittings, tools
and equipment

Property, plant
and equip-
ment under
construction

Property,
plant and
equipment

Production assets by segment, % 2016

Wind Power
Distribution & Customer Solutions

Bioenergy & Thermal Power

Cost at 1 January 2016

Exchange rate adjustments

Addition on acquisition of enterprises

Additions

Divestment of enterprises

Disposals

Adjustment of decommissioning
obligations

Reclassified assets

Transferred to assets classified as held
for sale

Cost at 31 December 2016

Depreciation and amortisation at 1
January 2016

Exchange rate adjustments

Depreciation and amortisation

Disposal on divestment of enterprises

Disposals

Transferred to assets classified as held
for sale

Depreciation and amortisation at 31
December 2016

Impairment losses at 1 January 2016

Exchange rate adjustments

Impairment losses

Disposal on divestment of enterprises

Disposals

Reclassified assets

Transferred to assets classified as held
for sale

5,501

159

(645)

(46)

4,996

2,603

(18)

(90)

140

(12)

2,625

123,272

(4,324)

272

(8,882)

(1,286)

397

20,590

(43,077)

86,962

(3,334)

(1,049)

(49,874)

(1)

(293)

589

(2,999)

(1,033)

(9)

(97)

(1,056)

(64)

261

(6,932)

5,164

656

21,853

28,872

(12,291)

462

3,383

192

(5,339)

9,211

(4,382)

(2)

191

(4)

(250)

(6)

1,138

(28)

(8)

(25)

1,154

(664)

(85)

(716)

33,280

(1,376)

17,229

(3,255)

572

(20,751)

(11,168)

14,531

(16,136)

471

(953)

5,339

11,279

160,307

(5,748)

17,750

(8,886)

(4,889)

1,026

(54,292)

105,272

(51,587)

265

(7,114)

5,164

738

21,890

30,644

(28,491)

933

(953)1

3,383

192

20,490

(4,446)

438

14,531

70,182

18%

DKK 53,708
million

74%

Property, plant and equipment
under construction by segment, % 2016

Wind Power
Distribution & Customer Solutions

Bioenergy & Thermal Power

14%

DKK 14,531
million

83%

94 / 173

Impairment losses at 31 December 2016

(1,042)

(64)

Carrying amount
at 31 December 2016

955

1,505

53,708

1 Impairment losses on property, plant and equipment under construction concerned the construction of the Hejre field (Oil & Gas). Provisions had been made for this

in 2015, and the impairment loss thus had no effect on the profit for 2016.

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 3. Capital employed

Note summary

Contents

CGUs in Wind Power

The CGUs are made up of individual offshore wind
farms, each of which generates cash flows for the
segment independently of each other.

Most significant offshore wind farms: Anholt –
Borkum Riffgrund 1 – Borkum Riffgrund 2 – Burbo
Bank Extension – Gode Wind 1 – Gode Wind 2 –
Gunfleet Sands – Hornsea 1 – London Array –
Race Bank – Westermost Rough – Walney –
Walney Extention – West of Duddon Sands

CGUs in Bioenergy & Thermal Power

The Danish power stations constitute a single CGU
as overall production planning is for the entire
Danish portfolio of CHP plants. The Dutch power
station Enecogen is deemed to constitute a single
CGU, just as the not yet commissioned waste
power station Renescience Northwich is deemed to
constitute an independent CGU.

– Central CHP plants (including goodwill)
– Renescience Northwich
– Enecogen

CGUs in Distribution & Customer Solutions

The CGUs are constituted primarily by distribution
assets, each of which generates cash flows for the
segment independently of each other.

– Power distribution – Oil pipelines – Offshore gas
pipelines – Street lighting

Impairment losses
Impairment losses relating to goodwill
We have not impaired goodwill or other
intangible assets in 2017.

Impairment losses relating to property,
plant and equipment
In 2017, impairment losses of DKK 545 million
were recognised on projects in progress in
Wind Power due to uncertainty about the
carrying through of the project.

Useful lives

Buildings

Offshore wind farms

Production assets, power (thermal)
and district heating

Gas transportation system
(marine pipelines)

Oil transportation system
(marine pipeline)

Distribution grids, power

Fixtures and fittings, tools and
equipment

20-50 years

20-24 years

20-25 years

20-40 years

15 years

20-40 years

3-10 years

Accounting policies

Intangible assets
Rights are measured at cost less accumulated
amort isation and impairment losses. Rights are
amortised on a straight-line basis over their
estimated future useful lives, which are 5-20 years.

Property, plant and equipment
Property, plant and equipment is measured at cost
less accumulated depreciation and impairment
losses. Cost of property, plant and equipment
is depreciated on a straight-line basis, using the
diminishing-balance method or the reducing-fraction
method. The diminishing-balance method and the
reducing-fraction method result in decreasing depreci-
ation over the useful life of the offshore wind farm.

Cost comprises purchase price and any costs directly
attributable to the acquisition until the date the
asset is available for use. The cost of self-constructed
assets comprises direct and indirect costs of materials,
components, sub-suppliers and labour. Borrowing
costs relating to both specific and general borrowing
directly attributable to assets under construction
with a lengthy construction period are recognised in
cost during the construction period. Cost is increased
by the present value of the estimated obligations
for demolition and decommissioning of assets to the
extent that they are recognised as a provision.

Subsequent costs, for example in connection with
replacement of parts of an item of property, plant
and equipment, are recognised in the carrying
amount of the asset in question when it is probable
that future economic benefits will flow to the
Group from the expenses incurred. Other repair
and maintenance expenses are recognised in profit
(loss) for the year as incurred.

Assumptions for impairment test
Production assets are tested for impairment if there
is any indication of impairment. For production assets
with a limited lifetime, such as offshore wind farms
and CHP plants, cash flows are calculated based
on forecasts for the entire lifetime of the asset.
For power distribution, cash flows are based on 25-
year forecasts with the addition of a terminal value.
The determination of the recoverable amount of
production assets is based on a number of assump-
tions where estimates are made for the determin-
ation. These assumptions include future market
conditions, market prices of power, biofuel, gas, coal,
carbon, weighted average cost of capital (WACC),
exchange rates, etc. The market prices applied are
based on available forward prices for a period of
up to five years and our best estimate of long-term
prices for the remainder of the period.

When calculating the recoverable amount of
property, plant and equipment under construction,
the expected completion costs and the commis-
sioning dates are also assumptions which are based
on estimates.

95 / 173

Ørsted Annual report 2017Financial statements
Consolidated financial statements – 3. Capital employed

Note summary

Contents

3.2 Provisions and contingent assets and liabilities

Provisions
Decommissioning obligations mainly comprise
estimated expenses relating to demolition
and disposal of our offshore wind farms,
restoration of seabeds and the demolition of
our CHP plants.

As developers of offshore wind farms, we
are obliged to decommission offshore wind
farms and restore the surroundings at our own
expense. When we construct offshore wind
farms in cooperation with partners, they are
liable for their share of the decommissioning
costs. Therefore, we have included only the
decommissioning obligations associated
with our ownership interest in the offshore
wind farms.

Decommissioning obligations increased by
DKK 1,102 million from 2016 to 2017, due pri-
marily to a change in the discount rate applied
and to an adjustment of other assumptions
applied in the determination of our decommis-
sioning obligations.

2017

2016

Provisions, DKK million

Provisions at 1 January

Exchange rate adjustments

Used during the year

Provisions reversed during the year

Provisions made during the year

Change in estimates of other factors

Transferred to assets classified as held for
sale/disposal on divestment of enterprises

Interest element of provisions

Disposal on divestment of enterprises

Total provisions

Falling due as follows:

0-1 year

1-5 years

After 5 years

Decom-
missioning
obligations

Onerous
contracts

Other
liabilities

3,649

(58)

(134)

320

219

(11)

766

2,596

(436)

(22)

464

109

4,751

2,711

4,685

335

1,025

1,351

2,794

(8)

(235)

(28)

1,584

(49)

4,058

322

3,080

656

Decom-
missioning
obligations

11,144

(153)

(187)

746

215

(6,941)

534

(1,709)

3,649

3,527

Total

9,039

(66)

(805)

(50)

2,368

219

(11)

875

(49)

11,520

680

4,148

6,692

Onerous
contracts

Other
liabilities

Total

5,472

(17)

(1,413)

(774)

(883)

211

2,572

19,188

128

(505)

(350)

1,490

(42)

(2,105)

(1,124)

2,236

215

(532)

(8,356)

(9)

745

(1,718)

9,039

702

3,178

5,159

2,596

2,794

327

1,089

1,180

326

2,016

452

Onerous contracts comprise the following:
– contract for booked LNG terminal capacity

in the Netherlands, DKK 1,329 million.
(2016: DKK 1,033 million)

– contract for the lease of gas storage

capacity in Germany, DKK 1,075 million
(2016: DKK 1,179 million)

Other provisions comprise primarily:
– warranty obligations for offshore wind farms
– possible repayments to electricity

consumers in respect of previous years

– obligations in connection with divestments,
primarily in relation to the divestment of
our Oil & Gas business

– contract for the lease of gas storage

– obligations in respect of our own carbon

capacity in Denmark, DKK 290 million
(2016: DKK 384 million).

emissions

– other contractual obligations.

Contingent liabilities
This note primarily concerns our continuing
operations – see also note 3.6 regarding our
discontinued operations.

Liability to pay compensation
In case of any environmental accidents or
other types of damage caused by our oil and
gas transport, the companies Ørsted Salg &
Service A/S and Danish Oil Pipe A/S are liable

Provisions mainly consisted of decommissioning
obligations and onerous contracts.

to pay compensation according to legisla-
tion. This also applies if there is no proof of
negligence (strict liability). We have taken out
insurance to cover any such claims.

96 / 173

Ørsted Annual report 2017Financial statementsLitigation
We are party to actions relating to the Danish
competition authorities' claim that Elsam
A/S and Elsam Kraft A/S charged excessive
prices in the Danish wholesale power market
in some periods. Following a merger in 2008,
Elsam Kraft A/S is part of Ørsted Bioenergy &
Thermal Power A/S.

The Danish Competition Appeals Tribunal has
concluded that Elsam A/S and Elsam Kraft
A/S abused their dominant position in the
wholesale power market in Western Denmark
to some extent in the periods 1 July 2003 to
31 December 2004 and 1 January 2005 to
30 June 2006 by charging excessive prices.
We dispute the rulings, and appeals have been
lodged with the Copenhagen Maritime and
Commercial Court. In 2016, the Copenhagen
Maritime and Commercial Court found the
former Elsam guilty of violating the Danish
Competition Act in 2005 and the first half
of 2006 without, however, providing clear
grounds for its decision. We have appealed the
case to the High Court of Western Denmark,
where the case is pending.

In connection with the above-mentioned
cases, some energy companies, some of their
customers and others have raised claims for
damages. One group has chosen to commence
legal proceedings before the Copenhagen
Maritime and Commercial Court with a claim
for damages of approximately DKK 4.4 billion
with addition of interest, while suspension
agreements have been concluded with
others, meaning that the limitation period for
these alleged claims has been suspended. In
response to the claims for damages, we have
made a provision of DKK 298 million plus
interest. The provision has been calculated on
the basis of the Danish Competition Council's
determination of consumer losses.

In addition, we are party to a number of court
cases and legal disputes. In our assessment,
none of these will significantly impact the
company's financial position, neither individu-
ally nor collectively.

Change of control
Some of our activities are subject to con-
sents, permits and licences granted by public

Consolidated financial statements – 3. Capital employed

Note summary

Contents

authorities. We may be faced with a claim
for acceptance of any transfer, possibly with
additional terms and conditions, if the Danish
State holds less than 50% of the share capital
or voting rights in Ørsted A/S. Read more in
note 6.1

The timing of our decommissioning obligations
depends on the expected useful lives of the assets.
The expected useful life of our offshore wind farms
is 24 years.

We expect that our CHP plants in Denmark must
be removed within 12 years of decommissioning at
the latest.

Accounting policies

Provisions are recognised when the following
criteria are fulfilled:
– we have a legal or constructive obligation as a

result of an earlier event

– the settlement of the obligation is expected to

result in an outflow of resources

– the obligation can be measured reliably.

For onerous contracts, a provision is made when
the expected income to be derived from a contract
is lower than the unavoidable cost of meeting our
obligations under the contract.

Provisions concerning carbon emissions are recog-
nised when our actual emissions exceed our holding
of carbon emissions allowances.

Decommissioning obligations are measured at the
present value of the future liability in respect of
demolition and decommissioning as expected at
the balance sheet date. The present value of the
provision is recognised as part of the cost of prop-
erty, plant and equipment and depreciated together
with the associated asset. The addition of interest
on provisions is recognised in the income statement
under financial expenses.

Key accounting estimates

Timing, probabilities, amounts, etc. which have a
bearing on our provisions estimates are updated
quarterly based on our expectations.

In measuring provisions, the costs required to meet
the obligations are discounted. In determining
decommissioning obligations at 31 December 2017,
a discount rate of 3.5% is applied. The rate has been
reduced from 4.5% in 2016 due to the continued
low interest rate environment. The rate has been
estimated on the basis of expectations concerning
the future, long-term interest rate level, based on
historical interest rate levels.

Timing as well as special demolition and decommis-
sioning requirements are assessed based on current
legislation and standards in this area. Future cost
levels are based, among other things, on expect-
ations with regard to:
– general price development or development in

market prices

– demand
– development of existing technologies.

Estimates of onerous contracts
We have entered into a number of contracts with
fixed terms. Depending on market developments,
etc., and uncertainty about obligations incurred
under the contracts made, these contracts may
become onerous. Our estimates concerning these
complex contracts and their future effects are
subject to significant uncertainties.

Estimates of litigation outcomes
When exercising a judgement about a potential
liability in connection with litigation, we assess the
following factors:
– the nature of the litigation, claim or statement
– the development of the case
– the judgements and recommendations of legal

or other advisers

– experience from similar cases
– management's decision on how we are going to

react to the litigation, claim or statement.

97 / 173

Decommissioning
obligations by
segment, DKK million

0-5 years

5-10 years

10-20 years

After 20 years

2017

2016

Wind
Power

350

2,261

874

3,545

2,785

Bioenergy
& Thermal
Power

Distribution
& Customer
Solutions

119

190

420

733

668

471

473

196

Total

469

2,451

1,765

4,751

3,649

The table shows decom-
missioning obligations
by segment as well as a
maturity analysis.

Assumptions for decommissioning obligations
Estimates of decommissioning obligations are based
on our expectations of, for example:
– timing and scope
– future cost level
– adopted laws and regulations on remediation.

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 3. Capital employed

Note summary

Contents

3.3 Gross and net
investments

3.4 Divestment of
enterprises

2016

Selling price, DKK million

Gross and net investments, DKK million

Cash flows from investing activities

Dividends received and capital reduction, reversed

Purchase and sale of securities, reversed

Loans to associates and joint ventures, reversed

Sale of non-current assets, reversed

Total gross investments
Transactions with non-controlling interests in connection with
divestments

Sale of non-current assets

Total cash flows from divestments

Total net investments

2017

(10,054)

(13)

9,197

(16,921)

(17,744)

16,921

16,982

(762)

(1,060)

(22)

(4,564)

(210)

(9,104)

(14,960)

(49)

9,104

9,055

(5,905)

In 2017, gross investments totalled DKK 17,744
million (2016: DKK 14,960 million).

Wind Power also received contingent consid-
eration regarding the divestment of UK Race
Bank in 2016.

Gross investments in Wind Power primarily
consisted in the build-out of offshore wind
farms (DKK 15,462 million), including the
UK offshore wind farms Race Bank, Walney
Extension and Hornsea 1 as well as the German
offshore wind farm Borkum Riffgrund 2.

In 2016, Wind Power divested 50% of Burbo
Bank Extension to the Danish pension fund
PKA and the Danish investment company
KIRKBI as well as 50% of Race Bank to
Macquarie.

In 2017, cash flows from the divestment of
assets and enterprises totalled DKK 16,982
million (2016: DKK 9,055 million).

Distribution & Customer Solutions divested
Gas Distribution to the Danish transmission
asset owner Energinet in 2016.

In 2017, Wind Power farmed down 50% of
Walney Extension to the Danish pension funds
PKA and PFA, 50% of Borkum Riffgrund 2
to Global Infrastructure Partners as well as
divesting all ownership interests in A2SEA.

For more information, see the management's
review on page 28.

Payment

Addition/reduction for receivables/payables transferred

Working capital adjustment

Selling price on divestment of enterprises

Transaction costs

Of which selling price receivable

Cash selling price on divestment of enterprises

Gain (loss) on divestment of enterprises, DKK million

Selling price on divestment of enterprises

Net assets sold

Provisions as a result of the transaction

Transaction costs

Gain (loss) on divestment of enterprises

Gains on the divestment of enterprises in 2017
primarily concerned A2SEA. Transferred cash
and cash equivalents totalled DKK 278 million.

In 2016, gains on the divestment of enterprises
consisted primarily of a gain on the divest-
ment of Gas Distribution to Energinet (Distri-
bution & Customer Solutions). Transferred net
cash and cash equivalents in the form of bank
deposits and drawn bank overdrafts totalled
DKK -242 million.

2017

605

(1)

604

(20)

588

2017

604

(725)

(20)

(139)

2016

2,348

(113)

(117)

2,118

(38)

(81)

1,999

2016

2,118

(844)

(38)

1,250

Accounting policies

We recognise income from divested enterprises in the
income statement up until the date of divestment.

The date of divestment is the date on which we
relinquish control of the divested enterprise.

Gains or losses on the divestment or discontinuation
of subsidiaries and associates are determined as the
difference between the selling price and the carrying
amount of the net assets divested.

Moreover, the fees of advisers, etc., in connection
with the divestment or discontinuation of the
enterprise are deducted.

98 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 3. Capital employed

Note summary

Contents

3.5 Assets classified as held for sale

At 31 December 2017, assets classified as held
for sale comprised only our oil pipe system
in Denmark which is to be sold to the Danish
transmission asset owner Energinet.

we presented our Oil & Gas business as assets
classified as held for sale and as discontinued
operations. Read more in note 3.6.

At 31 December 2016, assets classified as held
for sale comprised our Oil & Gas business and
our oil pipe system.

The sales process for our oil pipeline is
expected to be completed within 12 months.
Consequently, these activities have been
classified as assets held for sale.

On 29 September 2017, we divested our Oil &
Gas business to INEOS. Until the divestment,

Assets classified as held for sale, DKK million

Intangible assets

Property, plant and equipment

Inventories

Trade receivables

Other receivables

Income tax

Cash

2017

2,119

368

2016

12,719

192

1,139

586

725

Accounting policies

Assets classified as held for sale comprise assets and
liabilities, the value of which is highly probable to
be recovered through a sale within 12 months rather
than through continued use.

Assets and liabilities classified as held for sale are
measured at the carrying amount at the time of
classification as 'held for sale' or at market value
less selling costs, whichever is lower. The carrying
amount is measured in accordance with the Group's
accounting policies.

No depreciation or amortisation is effected on prop-
er ty, plant and equipment and intangible assets from
the time of classification as 'held for sale'.

Total assets classified as held for sale

2,642

15,373

Deferred tax

Provisions

Trade payables

Other payables

Income tax

Total liabilities relating to assets classified as held for sale

Net assets classified as held for sale

359

630

2,012

1,057

8,356

825

1,479

1,787

13,504

1,869

The table shows assets
and liabilities which
have been put up for
sale, and which are
therefore not expected
to contribute to our
earnings in future.

99 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 3. Capital employed

Note summary

Contents

3.6 Discontinued operations

In November 2016, the Board of Directors
decided to initiate a process with the ultimate
objective of divesting Oil & Gas.

offset by one less quarter of operations in 2017
compared with 2016.

As a result of this decision, we have presented
our oil and gas business as assets classified
as held for sale and as discontinued oper-
ations from the end of 2016. The classification
means that assets and liabilities are presented
separately from other assets and liabilities.
Discontinued operations are also shown
separately in the income statement and the
statement of cash flows.

The divestment of Oil & Gas to INEOS was
closed on 29 September 2017.

Financial performance
The key figures for discontinued operations
in 2017 comprise only results for the first nine
months of the year up until the divestment.
In addition to the results from the first nine
months of 2017, net profit from discontinued
operations, cash flows from operating activ-
ities and cash flows from divestments include
adjustments after the closing of the transac-
tion. See more below.

EBITDA totalled DKK 6.4 billion, which is
unchanged relative to the first nine months
of 2017 and on a par with all of 2016. EBITDA
rose as a result of the recognition of inefficient
price hedges totalling DKK 1.4 billion as well
as a provision (without impact at EBIT level)
which contributed negatively in 2016. This was

Net profit from discontinued operations
amounted to DKK 6.9 billion in 2017 against
DKK 1.1 billion in 2016. The increase of DKK 5.8
billion was due partly to a gain on the divest-
ment of DKK 2.4 billion, partly to higher EBIT
and lower tax. The higher EBIT in 2017 relative
to 2016 was due to non-depreciation of the
Oil & Gas assets since the business was classi-
fied as assets held for sale at the end of 2016.
The lower tax in 2017 relative to 2016 primarily
reflected the impairment of the remaining tax
assets, which contributed negatively in 2016.

Cash flows from operating activities totalled
DKK 5.5 billion in 2017 against DKK 4.1 billion
in 2016. The increase was due primarily to the
recognition of price hedges mentioned above.
The increase was offset by one less quarter
of operations in 2017 than in 2016. Cash
flows from operating activities totalled DKK
0.3 billion in Q4 2017 and were due to a tax
receivable received relating to net losses on
hedging instruments in 2016 and 2017.

Cash flows from divestments totalled DKK 0.2
billion in 2017 compared with DKK 0.4 billion
in 2016. In both periods, they were impacted
by payments received concerning the Glenlivet
field. Moreover, the Norwegian fields Trym, Ula,
Tambar and Oselvar were divested in 2016.
There were no significant changes in cash
flows from divestments in Q4 2017.

Key figures

Business drivers (million boe)

Oil and gas production

Financial performance (DKK million)

Revenue

EBITDA

EBIT

Profit from discontinued operations

Gain (loss) on disposal of discontinued operations

Net profit from discontinued operations

Cash flows from operating activities

Gross investments

Divestments

Payment from the divestment of Oil & Gas

Free cash flow

Cash flows from discontinued operations,
DKK million

Cash flows from operating activities

Cash flows from investing activities

Cash flows from financing activities

Total cash flows from discontinued operations

2017

2016

21.4

36.6

7,999

6,436

7,149

4,488

2,432

6,920

5,545

(430)

233

3,677

9,025

2017

5,545

3,480

9,025

10,530

6,507

5,082

1,052

4,138

(3,436)

404

1,106

2016

4,138

(3,032)

360

1,466

Capital employed, discontinued operations,
DKK million

2017

2016

Property, plant and equipment and intangible assets

11,914

Equity investments and non-current receivables

691

Net working capital, other items

Derivatives, net

Decommissioning obligations

Other provisions

Tax, net

Other receivables and other payables, net

(935)

(3)

1,121

1,356

(6,971)

(2,415)

(2,238)

Total net assets

(236)

2,769

The remaining net
assets under dis-
continued operations
consist of the selling
price receivable and
provisions as a result
of the divestment of
Oil & Gas.

100 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 3. Capital employed

Note summary

Contents

Divestment of Oil & Gas
The payment from the divestment of Oil &
Gas consisted of:
– an unconditional payment of USD 1,050
million on a cash and debt-free basis

– a conditional payment of USD 150 million,
which relates to the stabilisation plant in
Fredericia, and

– a payment of up to USD 100 million, which
is conditional upon the development of the
Rosebank field.

'Payment' in the table includes the unconditional
payment and the fair value of the conditional
payment in respect of the Rosebank field.

Under the agreement with INEOS, all cash
flows from 1 July to 29 September 2017
accrued to the buyer. As control of Oil & Gas
remained with us until 29 September, we
have consolidated results and cash flows
for accounting purposes in this period. The
obtained net debt reduction of DKK 707 mil-
lion from the consolidation in this period has
therefore been deducted from the selling price
for discontinued operations. In addition, the
selling price from INEOS was reduced by the
outstanding tax payable and creditors regard-
ing assets at 30 June 2017. These payables
concern activities from before the financial
exposure and risks passed to INEOS.

The gain on the divestment was recognised
at DKK 2,179 million in net profit from dis-
continued operations in Q3 2017. In Q4 2017,
we reversed a proportion of the provision
for indemnification of INEOS concerning
tax matters prior to 30 June 2017 as well as
other minor adjustments. This resulted in an
increase in the gain of DKK 253 million and is
a consequence of the adoption of the bill con-
cerning extended right to deduct payroll costs
within a group. The profit statement includes
provisions of DKK 935 million which primarily
concern two factors:
– indemnification of INEOS concerning tax

matters prior to 30 June 2017

– difference between INEOS' conditional pay-
ment to Ørsted A/S concerning the stabilisa-
tion plant and our expected payment.

The payments from INEOS for the stabilisa-
tion plant are expected to be settled over
a 10-year period beginning in 2019-2021.
The remaining non-interest-bearing net assets
(capital employed) in our balance sheet
relating to Oil & Gas amounted to DKK -236
million at 31 December 2017. In addition to the
above- mentioned provision, this includes the
non- interest-bearing part of the outstanding
payment. The net assets will be recognised in
cash flows from discontinued operations as
they fall due.

Thus, the accounting selling price from the
transaction amounted to DKK 5,456 million,
of which DKK 3,652 million was received and
recognised in our free cash flow from discon-
tinued operations in Q3 2017. All in all, the
transaction reduced the Group's net debt by
DKK 4,588 million, as USD 150 million of the
outstanding selling price is interest-bearing.

Secondary liability
As part of the divestment of Oil & Gas, we
have assumed a secondary liability regarding
the decommissioning of offshore installations.
We consider the payment of the liability to be
very unlikely. The matter is described in further
detail in the interim financial report for the
first nine months of 2017.

Main elements of the divestment on 29 September 2017

Selling price, DKK million

Payment

Reduction for outstanding tax payable and creditors
concerning non-current assets at 30 June 2017

Accounting adjustment for reduction of net debt from 30 June
2017 to 29 September 2017

Working capital adjustment and interest

Selling price for discontinued operations

Transaction costs

Of which selling price receivable

Cash selling price for discontinued operations

Net debt, impact, DKK million

Cash selling price for discontinued operations

Interest-bearing receivable payment

Transaction costs

Net debt

Gain (loss) on divestment of discontinued operations,
DKK million

Selling price for discontinued operations

Net assets sold

Provisions as a result of the transaction

Foreign currency translation reserve and hedging of net
investment

Transaction costs

Gain (loss) on divestment of discontinued operations

Net profit from discontinued operations, DKK million

Profit from discontinued operations

Gain (loss) on divestment of discontinued operations

Net profit from discontinued operations

2017

7,209

(1,198)

(707)

152

5,456

(78)

(1,726)

3,652

2017

(3,652)

(1,014)

(4,588)

2017

5,456

(1,276)

(1,228)

(695)

(78)

2,179

2017

4,662

2,179

6,841

The table shows
the items included
in the determination
of the selling price
from the divestment
of Oil & Gas.

Transferred cash on
the divestment of
Oil & Gas amounted
to DKK 1,524 million.

The table shows the
effect of the divest-
ment of Oil & Gas on
our interest-bearing
net debt.

The table shows
the items in the
determination of
financial gain on the
divestment of Oil
& Gas.

The table shows profit
from discontinued
operations, including
gain on the divest-
ment of Oil & Gas.

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Note summary

Contents

2017

2016

Profit from discontinued operations, DKK million

Business
performance

Adjustments

External revenue

Intra-group revenue

Revenue

Cost of sales

Employee costs and other external expenses

Other operating income and expenses

Gain (loss) on disposal of non-current assets

Operating profit (loss) before depreciation, amortisation and
impairment losses (EBITDA)

Depreciation and amortisation

Impairment losses and reversals

Operating profit (loss) (EBIT)

Gain on divestment of enterprises

Financial income and expenses, net

Profit (loss) before tax

Tax on profit (loss) for the year

Profit from discontinued operations

Tax for the period, discontinued operations, DKK million

Oil and gas activities in Norway (hydrocarbon income)

Oil and gas exploration activities in the UK and the Faroe Islands

Gains (losses) from divestments as well as other non-taxable income
and non-deductible costs

Impairment losses and reversals

Other activities in Oil & Gas

Total, business performance

Total, IFRS

4,178

3,821

7,999

(957)

(920)

252

6,436

713

7,149

(393)

6,756

(2,267)

4,489

Profit (loss)
before tax

2,308

530

713

3,205

6,756

5,709

(1,047)

230

(817)

IFRS

3,131

3,821

6,952

(957)

(920)

252

5,389

713

6,102

(393)

5,709

(2,037)

3,672

Business
performance

Adjustments

5,912

4,618

10,530

(1,020)

(2,391)

(700)

6,507

(2,175)

750

5,082

151

(814)

4,419

(3,367)

1,052

(4,595)

1,011

(3,584)

2017

2016

Tax

(1,765)

210

(718)

(2,267)

(2,037)

Tax rate

Profit (loss)
before tax

76%

(1)%

n.a.

22%

34%

36%

1,860

269

(17)

750

1,557

4,419

(176)

Tax

(1,489)

(1,575)

(341)

(3,367)

(2,356)

IFRS

1,317

4,618

5,935

(1,020)

(2,391)

(700)

1,912

(2,175)

750

487

151

(814)

(176)

(2,356)

(2,532)

Tax rate

80%

n.a.

223%

210%

22%

76%

(1,339)%

The profit from
discontinued operations
relates to our divested
oil and gas business.

Impairment losses in
Oil & Gas consisted
of a reversal of
impairment losses
from previous years.

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Consolidated financial statements – 3. Capital employed

Note summary

Contents

3.7 Non-controlling interests

Transactions with non-controlling interests, DKK million

2017

2016

Transactions with non-controlling interests

Dividends paid to non-controlling interests

Divestment of equity investments to non-controlling interests

Other capital transactions with non-controlling interests

Total transactions, see statement of cash flows

Divestment of equity investments to non-controlling interests

Selling price

Of which changes in receivables relating to the acquisition and
divestment of non-controlling interests

Cash selling price, total

(376)

(108)

(431)

(116)

(108)

(404)

(100)

(23)

(527)

(119)

(100)

Subsidiaries with significant
non-controlling interests

Gunfleet Sands Holding Ltd.

Walney (UK) Offshore Windfarms Ltd.

Non-controlling
interest

49.9%

Registered
office

London, UK

A2SEA was a significant
non-controlling interest
until the divestment of
our ownership interest
on 31 August 2017.

Gunfleet Sands
Holding Ltd. group

Walney (UK) Offshore
Windfarms Ltd.

Accounting policies

DKK million

2017

2016

2017

2016

Transactions with non-controlling interests are
accounted for as transactions with the shareholder
base.

Gains and losses on the divestment of equity invest-
ments to non-controlling interests are recognised in
equity when the divestment does not result in a loss
of control.

Net assets acquired are not revalued on the acquisi-
tion of non-controlling interests. Any difference
between the carrying amount and the acquisition
or selling price is recognised in equity.

Statement of comprehensive income

Revenue

EBITDA

Profit (loss) for the year

Total comprehensive income

Profit (loss) for the year attributable to non-controlling interests

Balance sheet

Non-current assets

Current assets

Non-current liabilities

Current liabilities

466

276

(21)

430

233

(202)

1,087

545

(115)

1,126

569

(508)

2,638

2,637

6,159

6,813

305

334

166

304

225

776

217

231

700

195

In the table, we provide
financial information for
subsidiaries with signifi-
cant non-controlling
interests. The amounts
stated are the con-
solidated accounting
figures of the individual
enterprises/groups,
determined according to
our accounting policies.
Amounts are stated
before intra-group
eliminations.

Carrying amount of non-controlling interests

1,265

1,215

2,697

3,075

Statement of cash flows

Cash flows from operating activities

Cash flows from investing activities

Cash flows from financing activities

– of which dividends paid to non-controlling interests

245

(256)

(113)

225

(227)

(113)

562

(1)

(577)

(263)

650

(1)

(630)

(302)

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Contents

4. Working capital

Inventories

Construction contracts

Trade receivables

Other receivables

Other payables

Change in net working capital

106

107

108

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Note summary

Contents

4. Working capital

Working capital
Our key working capital items consist of
inventories, construction contracts, trade
receivables, trade payables and other
payables, including prepayments from heat
customers and connection charges from
power customers.

Working capital items vary across the year in
line with the seasonal variations in our pro-
duction and sales activities. Our construction
contracts in Wind Power, which are the con-
struction of offshore wind farms for partners

and the construction of transmission assets in
the UK, also vary over the year and from year
to year. This is due to the fact that payments
are received in the form of milestone pay-
ments from partners and upon divestment of
the transmission assets after construction.

Working capital, DKK million 2017

Wind Power
Bioenergy & Thermal Power
Distribution & Customer Solutions
Other

Trade payables relating to capital investments
are not included in this section as they are
presented as part of the cash flows from
investing activities.

-3,228

-1,356

9,385

144

Wind Power primarily has funds tied up in construc-
tion contracts and trade receivables, while Bioenergy
& Thermal Power and Distribution & Customer
Solutions have a negative working capital as a result
of prepayments from heat and power customers.

Working capital, DKK million

Inventories

Construction contracts, net

Trade receivables

Other receivables

Trade payables, excluding trade payables
relating to capital expenditure

Other payables

Net working capital, excluding trade
payables relating to capital expenditure
at 31 December

Of which work in progress and related trade
payables

Of which other working capital

2017

3,853

9,500

9,170

2,082

2016

3,451

6,282

7,286

1,402

(8,460)

(11,200)

(7,304)

(12,121)

4,945

(1,004)

7,526

(2,581)

3,944

(4,948)

Our net working capital
has changed substan-
tially relative to 2016.
The primary cause is the
development in con-
struction contracts, net
and trade receivables.

Work in progress
consists of construction
contracts and service
level agreements
in connection with
the construction of
transmission assets and
offshore wind farms for
partners as well as
related trade payables.

4.9bn

Our net working capital excluding trade payables
relating to capital expenditure in 2017 against
-1.0bn in 2016.

5.9bn

We have an additional amount of DKK 5,949 million
tied up in working capital relative to 2016, of which
DKK 3,581 million pertained to work in progress and
related trade payables in Wind Power.

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Note summary

Contents

4.1 Inventories

Inventories, DKK million

Biomass

Gas

Coal

Oil

Green certificates

Carbon emissions allowances

Other inventories

Total inventories

2017

258

1,526

396

124

1,441

2016

244

1,286

395

111

1,282

3,853

3,451

We use biomass, gas,
coal and, to a limited
extent, oil as fuel at
our CHP plants. Green
certificates are primarily
renewables obligation
certificates (ROCs)
which are issued to
generators of power
sourcing from renew-
able energy sources
under the Renewables
Obligation support
mechanism in the UK.

Accounting policies

The cost of gas is determined as a weighted average
of the previous month's acquisition prices, including
transportation costs.

Purchased carbon emissions allowances are meas-
ured at market value.

Green certificates, which we earn by generating
power using renewable energy sources, are recog-
nised in inventories in step with our generation.
We measure green certificates (earned and bought)
at cost using the FIFO principle.

Other inventories are measured at cost using the
FIFO principle or net realisable value.

Inventories are written down to the lower of net
realisable value and cost price.

The net realisable value is the sum (discounted)
which the inventories are expected to generate
through a normal sale.

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4.2 Construction contracts

Construction contracts, DKK million

Selling price of construction contracts

Invoicing on account

Construction contracts, total

Construction contracts (assets)

Construction contracts (liabilities)

Construction contracts, total

2017

11,679

(2,179)

9,500

10,817

(1,317)

9,500

2016

18,279

(11,997)

6,282

6,453

(171)

6,282

The table shows
the selling price less
invoicing on account as
well as the way in which
construction contracts
are presented in the
balance sheet under
assets and liabilities.

Accounting policies

Key accounting estimates

The construction contracts are recognised in
revenue when the outcome of the contracts can be
estimated reliably.

The construction contracts are measured at the
selling price of the work which we have performed
on the offshore wind farms less invoicing on account.
Our calculation of the selling price is based on the
total expected income from the individual contracts
and the completion degree of the offshore wind
farm or offshore transmission asset at the balance
sheet date.

Construction contracts
We construct offshore wind farms in co-
operation with partners, with each party
usually owning 50% of the offshore wind
farm. Construction contracts comprise our
partners' shares of the offshore wind farms
and our construction of offshore transmission
assets for Ofgem in the UK. The contracts
are negotiated individually in terms of their
design, construction and technology.

At the end of 2017, construction contracts
included our partners' share of the Walney
Extension and Borkum Riffgrund 2 offshore
wind farms. The offshore wind farms are under

construction, and we expect them to be
finished in 2018. Construction contracts also
included the construction of the transmission
assets for the Burbo Bank Extension, Race
Bank, Walney Extension and Hornsea 1 off-
shore wind farms in the UK. They are expected
to be finished in 2018-2020.

We estimate the degree of completion on the basis
of an assessment of the work performed, normally
calculated as the ratio between the costs incurred
and the total expected costs incidental to the
contract in question.

An expected loss is recognised when it is deemed
probable that the total construction costs will
exceed the total revenue from individual contracts.

At the end of 2016, construction contracts
included our partners' shares of the offshore
wind farms Burbo Bank Extension and Gode
Wind 1 and 2. Construction contracts also
included the construction of four transmission
assets in the UK.

We recognise construction contracts as receiv-
ables when the selling price of the work which we
have performed exceeds invoicing on account and
expected losses.

Construction contracts are recognised as liabilities
when invoicing on account and expected losses
exceed the selling price of the work which we have
performed. Prepayments from our investors are
recognised as liabilities.

Assumptions for the determination of the expected
selling price and expected costs
We make estimates when determining the expected
selling price of individual construction contracts.
These estimates are influenced by our assessment of:
– the completion degree of the individual offshore
wind farms and offshore transmission assets
– total expected costs for the individual contract
– the value of incentive agreements under which we
may be paid a bonus for early delivery or have to
pay compensation for late delivery
– guarantee commitments undertaken
– share of total costs associated with transmission
assets which are expected to be covered upon
handover etc.

Our determination of profit on payment received on
account and the recognition of receivables are there-
fore subject to significant uncertainty. We believe
that our estimates are the most likely outcomes of
future events.

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Note summary

Contents

4.3 Trade

receivables

4.4 Other

receivables

Trade receivables, DKK million

Trade receivables, not due

Trade receivables, 1-30 days overdue

Trade receivables, more than 30 days
overdue

Trade receivables, write-down

Total trade receivables

2017

8,644

303

305

(82)

9,170

2016

6,661

568

171

(114)

7,286

The table shows the
due dates of our trade
receivables.

Receivables from the divestment of equity
investments to non-controlling interests

Receivables from the divestment of assets
and investments

VAT and other indirect taxes receivable

Other receivables, DKK million

2017

2016

Collateral provided

Prepayments

Other accounts receivables

Other receivables

Of which working capital

Of which other capital employed

Of which interest-bearing net debt

The table shows our
other receivables broken
down into working
capital, interest-bearing
net debt and other
capital employed.

648

2,680

572

775

304

495

5,474

2,082

1,622

1,770

544

202

367

400

207

505

2,225

1,402

545

278

Trade receivables
Our trade receivables primarily concern resi-
dential customers in Distribution & Customer
Solutions where the general terms of payment
vary according to customer type and product
type down to payment terms of 10 days.

In 2017, the supply of services in the form of
construction management of the construction
of our partner's share of Race Bank resulted in
a receivable of DKK 1,344 million.

We perform credit ratings as described in note
7.5. For customers with a general credit risk,
a write-down of 0-1% is carried out on initial
recognition. In 2017, write-downs of receiv ables
amounted to DKK 6 million (2016: DKK 59
million). Losses for the year totalled DKK 25
million (2016: DKK 43 million).

Accounting policies

Receivables
We keep our receivables until maturity, and they are
therefore measured at amortised cost.

Write-down is carried out from initial recognition
of our receivables in accordance with IFRS 9. The
write-down is calculated as the difference between
the carrying amount of the receivable and the net
present value of expected future cash flows from
the receivable. The discount rate used is the effective
interest rate for the individual receivable or the
individual portfolio.

We apply the simplified approach to the write-down
of trade receivables, which permits calculating the
write-down as the full loss during the entire term of
the receivable.

Other receivables
Receivables from the divestment of equity
investments to non-controlling interests
in 2017 and 2016 related primarily to the
divestment of our ownership interests in the
Gunfleet Sands and Walney offshore wind
farms.

The collateral provided by the Group is
receivables from banks in connection with
trading on energy exchanges.

The short-term portion of other receivables
amounted to DKK 3,519 million (2016: DKK
1,710 million).

In 2017, receivables from the divestment of
assets and investments primarily included
receivables related to the divestment of our
Oil & Gas business as well as the divestment
of 50% of our ownership interests in the
Walney Extension offshore wind farm.

Other non-current receivables consist primarily
of receivables from the divestment of the Oil
& Gas business, where it is assessed that there
is no material credit risk.

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Contents

4.5 Other payables

4.6 Changes in net
working capital

Other payables, DKK million

Payables to associates and joint ventures

Prepaid VAT on exports

Carbon rights

VAT and other indirect taxes payable

Salary-related items payable

Accrued interest

Virtual gas storage

Advance payments from heat customers

Grid connection charges

Other deferred income

Collateral received

Other payables

Total other payables

Of which working capital

Of which other capital employed

Of which interest-bearing net debt

2017

1,500

1,312

762

882

3,286

1,893

1,114

119

1,089

12,082

11,200

882

2016

136

1,749

1,460

736

629

2,890

1,775

1,320

1,096

967

12,899

12,121

629

149

Other payables
In 2017, the short-term portion of other
payables amounted to DKK 6,369 million
(2016: DKK 6,277 million).

Export VAT was repaid in January 2018.

Change in net working capital, DKK million

The table shows our
other payables broken
down into working cap-
ital, interest-bearing net
debt and other capital
employed.

Change in inventories

Change in construction contracts

Change in trade receivables

Change in other receivables

Change in trade payables

Change in other payables

Total change in net working capital

Of which changes relating to work in
progress and related trade payables

Of which changes relating to other working
capital

2017

(423)

(3,318)

(3,705)

(563)

1,188

(1,083)

(7,904)

2016

(3,232)

616

(322)

874

520

(1,512)

Work in progress
consists of construc-
tion contracts and
service agreements
in connection with
the construction of
transmission assets and
offshore wind farms
for partners as well as
related trade payables.

(3,674)

(2,393)

(4,230)

881

Change in net working capital
Our funds tied up in work in progress and
related trade payables increased due to
high activity in 2017 related to construction
contracts for the construction of transmission
assets as well as from higher receivables from
the sale of services in the form of construction
management of the construction of the off-
shore wind farm Race Bank. The increase was
partly offset by receipt of milestone payments
in 2017 regarding construction contracts
for the construction of offshore wind farms
for partners.

Our funds tied up in other net working capital
increased due to higher trade receivables as
a consequence of high power generation at
the end of 2017 in Wind Power, lower prepay-
ments from heat customers in connection with
bioconversions in Bioenergy & Thermal Power
as well as more funds tied up in inventories
(mainly gas) at the end of 2017.

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Ørsted Annual report 2017Financial statementsNote summary

Contents

5. Tax

Tax policy and tax regimes

Tax on profit (loss) for the year

Taxes paid

Deferred tax

112

113

115

116

Ørsted Annual report 2017Consolidated financial statements – 5. Tax

Note summary

Contents

5. Tax

Tax on profit (loss) for the year
The effective tax rate was 12% for the
continuing operations. The effective tax rate
was particularly affected by a tax-exempt
gain on the farm-downs of 50% of the Walney
Extension and Borkum Riffgrund 2 offshore
wind farms and the remaining portion of the
tax-exempt gain on Race Bank, which was
divested in 2016.

Taxes paid
We have paid DKK 2,660 million in taxes for
2017, of which DKK 689 million related to
residual tax for 2016. The tax paid reflects
our activities and that we expect to exit the
international joint taxation scheme. We expect
to have a residual tax of DKK 570 million
regarding 2017 as earnings in the last part of
the year were higher than expected.

Development in current and deferred tax asset and liabilities (tax, net),

DKK million 2017

Tax, net liability
Tax on profit (loss) for the year
Tax on other comprehensive income
and hybrid capital

Retaxation, paid
Other paid corporate taxes
Other effects

1,765

-379

-1,730

4,000

3,000

2,000

1,721

1,000

2016

-930

464

2017

Income tax paid by segment, DKK million 2017

Business performance

Wind Power
Bioenergy & Thermal Power
Distribution & Customer Solutions
Ørsted A/S and other activities

370

801

-402

2017, DKK million

Profit (loss) before tax

Gain (loss) on divestments

Rest of the Group

Effective tax for the year

10,965

4,079

15,044

Tax

(714)

(1,051)

(1,765)

Tax in %

26%

12%

1,891

Tax on gain (loss) on divestments related to
taxable gains. See more in note 2.5.
The tax rate for 'Rest of the Group' is higher than
the weighted average tax rate in the countries
in which we generate income as a result of
adjustments relating to previous years as well as
non- deductible expenses and non-taxable income.

2.7bn

Income tax paid by the Group in 2017 totalled
DKK 2,660 million against DKK 3,182 million in 2016.

2.7bn

Current tax in 2017 totalled DKK 2,698 million
against DKK 3,541 million in 2016.

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Consolidated financial statements – 5. Tax

Note summary

Contents

5.1 Tax policy and tax regimes

Our tax policy
We acknowledge that tax plays a key role for
society. We also believe that a responsible
approach to tax is essential to the long-term
sustainability of our business in the countries
in which we operate.

We are subject to a number of different rules
on direct and indirect taxes as well as taxes
collected on behalf of the public authorities.
Also, many transactions involve different seg-
ments across national borders and between
different tax systems. This complexity demands
a strong focus on the management of our
tax affairs.

Read more about our tax policy at
https://orsted.com/taxpolicy

We comply with tax rules
We regularly assess our internal processes
and controls to ensure that we comply with
all local and international tax rules.

We only use structures that have commercial
substance and meet the spirit of the relevant
local or international tax law.

We use the incentives and tax reliefs applying
where we have commercial activities, and
where this is the legislator's intention.

As a proactive approach to handling any un-
certainties about the interpretation of tax rules,

we have an open dialogue with the national
tax authorities in Denmark and abroad.

Therefore, the retaxation liability has been
transferred to tax payable in 2017.

At the end of 2017, our major activities were
in Denmark, the UK and Germany.

In 2016, deferred tax payments were recognised
as a retaxation liability and amounted to
DKK 1,730 million. See note 5.4.

Local taxes
In terms of taxation, we were affected by com-
pleted construction contracts in connection
with the construction of offshore wind farms in
Denmark in 2017.

International joint taxation
In 2005, we chose Danish international joint
taxation. Under international joint taxation,
subsidiaries are included in joint taxation
from the date they are consolidated in the
consolidated financial statements and up to
the date on which they are no longer con-
solidated. International joint taxation means
that profit earned abroad is taxed in Denmark,
and that depreciation and amortisation for
tax purposes and expenses incurred abroad
can be deducted in the Danish statement of
taxable income.

The rules concerning Danish international joint
taxation merely result in changes to the timing
of the tax payments in Denmark. Thus, it leads
to increased Danish tax payments at a later
point in time, corresponding to the tax savings
realised in previous years.

We have continuously assessed when it will
be the most appropriate time to exit from
the international joint taxation scheme, and
we currently expect that this will be for the
income year 2017, which is reflected in the
annual report. We will make the final decision
in 2018 when preparing the tax returns for 2017.

We have made significant investments in
offshore wind farms in the UK and Germany,
resulting in the accumulation of large tax
assets in recent years. Accordingly, we have
not paid taxes in the UK and Germany. Going
forward, this will change as the offshore
wind farms are commissioned and generate
positive results.

We expect to start paying tax in the UK in
2018, and in 2019 in Germany.

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Note summary

Contents

5.2 Tax on profit (loss) for the year

Effective tax rate, DKK million/%

DKK million

Business performance

IFRS

Business performance

IFRS

2017

2016

Tax on profit (loss) for the year can be explained as follows:

Calculated 22% tax on profit (loss) before tax (2016: 22%)

Adjustments of calculated tax in foreign subsidiaries in relation
to 22% (2016: 22%)

Tax effect of:

Non-taxable income and non-deductible costs, net

Unrecognised tax assets and capitalisation of tax assets not previously
capitalised

Share of profit (loss) in associates and joint ventures

Adjustment of tax concerning previous years

Effect of change in tax rate

Effective tax for the year

(3,310)

1,323

(184)

(12)

332

(1,765)

(9)

(2)

(3,323)

1,323

(184)

(12)

332

(1,778)

(9)

(2)

(3,157)

229

709

(28)

(2)

(5)

(2,681)

229

709

(28)

(2,191)

(1,715)

(2)

(6)

Income tax
Tax on the business performance profit (loss)
was DKK 1,765 million in 2017 against DKK
2,191 million in 2016. The effective tax rate was
12% in 2017 against 15% in 2016.

In addition, our effective tax rate was affected
by the remaining portion of the tax-exempt
gain on Race Bank, which was divested in 2017,
and adjustments to prior years.

The effective tax rate in 2017 was particularly
affected by a tax-exempt gain on the farm-
down of 50% of our Walney Extension and
Borkum Riffgrund 2 offshore wind farms.

The effective tax rate in 2016 was particularly
affected by a tax-exempt gain on the divest-
ment of Gas Distribution and 50% of the
Burbo Bank Extension and Race Bank offshore
wind farms.

Accounting policies

Tax for the year consists of current tax, changes in
deferred tax and adjustment in respect of previous
years. Tax on profit (loss) for the year is recognised in
the income statement. Tax relating to other items is
recognised in other comprehensive income.

Adjustments of calculated
tax in foreign subsidiaries
were due to the differences
in tax rates between
Denmark and primarily
the UK and Germany.

Non-taxable income
and non-deductible
expenses primarily
concern the tax-exempt
gain on divestments.
See more in note 2.5.

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Ørsted Annual report 2017Financial statementsConsolidated financial statements – 5. Tax

Note summary

Contents

Income tax, DKK million

Tax on profit (loss) for the year

Tax on other comprehensive income

Tax on hybrid capital

Total tax for the year

Tax on profit (loss) for the year can
be broken down as follows:

Current tax

Deferred tax

Tax relating to assets classified as
held for sale

Adjustment of tax concerning
previous years

Tax on profit (loss) for the year

Tax on other comprehensive income
can be broken down as follows:

Current tax

Deferred tax

Tax on other comprehensive income

2017

2016

Business
performance

(1,765)

238

141

IFRS

(1,778)

251

141

Business
performance

(2,191)

345

141

(1,386)

(1,705)

(2,698)

586

(2,698)

573

332

(1,765)

332

(1,778)

(3,541)

1,385

(87)

(2,191)

(1,715)

255

(17)

238

255

(4)

251

(138)

483

345

(138)

(131)

IFRS

(1,715)

(131)

141

(1,705)

(3,541)

1,861

(87)

Income tax for the
year is calculated on
the basis of the profit
(loss) before tax from
continuing operations.

Tax on profit (loss) for the year and other
comprehensive income
In 2017, tax on the IFRS profit (loss) for the year
amounted to DKK 1,778 million, consisting
of current tax of DKK 2,698 million, changes
in deferred tax of DKK 573 million, tax on
assets classified as held for sale of DKK 15
million, and an adjustment of tax in respect
of previous years of DKK 332 million.

In 2016, tax on the IFRS profit (loss) for the
year amounted to DKK 1,715 million, consisting
of current tax of DKK 3,541 million, changes
in deferred tax of DKK 1,861 million, tax on
assets classified as held for sale of DKK 87
million, and an adjustment of tax in respect
of previous years of DKK 52 million.

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Ørsted Annual report 2017Financial statementsConsolidated financial statements – 5. Tax

Note summary

Contents

5.3 Taxes paid

Taxes paid for the year, 2017, DKK million

Taxes paid, DKK million

Denmark

2,660

Continuing operations
Discontinued operations

DKK 2,660
million

6,000

5,000

4,000

3,000

2,000

1,000

-1,000

5,091

4,888

1,115

3,976

3,182

2,373

1,706

2,660

-287*

2015

2016

2017

Tax on profit (loss) for the year, DKK million

Tax on profit (loss) for the year, 2017, DKK million

Continuing operations
Discontinued operations

Denmark

Other

expected, we expect to have a residual tax
of DKK 570 million regarding 2017, which has
been recognised as a payable tax.

933

DKK 1,765
million

832

In 2017, we paid DKK 2,660 million in taxes.
The tax paid mainly related to ordinary
operations and retaxation in connection
with the expected exit from the Danish
international joint taxation scheme.

We paid most of our Danish taxes in
November. Accordingly, the income tax paid
for the year was based on estimates and
preliminary tax positions. As our earnings
towards the end of the year were higher than

The tax payment included residual tax for
2016 of DKK 689 million in total for continuing
operations. DKK 236 million related to the
utilisation of losses for the Group's Danish
companies in the oil and gas business for the
period during which they were included in
the joint taxation.

The figures only shows our continuing operations.

and discontinued operations.

115 / 173

6,000

5,000

4,000

3,000

2,000

1,000

-1,000

5,557

3,366

4,032

2,717

2,267

3,172

-455

2,191

1,765

2015

2016

2017

The figures show the relationship between the tax
on profit (loss) for the year for accounting purposes
and the taxes paid for the year.
* Relates to internal transfers between continuing

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 5. Tax

Note summary

Contents

5.4 Deferred tax

Development in deferred tax
In 2017, deferred tax from continuing oper-
ations decreased as a result of deferred tax
liabilities materialising as tax payable. This
includes differences in the tax and accounting
treatment of profit received on account on
works in progress, differences in the tax and
accounting recognition of financial instru-
ments, retaxation due to the expected exit
from the international joint taxation scheme
and adjustments to prior years.

The adjustment concerning previous years
mainly comprised adjustments of work in
progress and recognition of tax assets relating
to offshore wind farms in Germany.

The most significant changes in 2016 con-
cerned the taxation of profit received on
account, affecting deferred tax on property,
plant and equipment, and a reduction of the
retaxation balance relating to the farm-downs
of 50% of the Burbo Bank Extension and Race
Bank offshore wind farms in the UK.

Deferred tax by segment
Deferred tax (liabilities) in our segments
primarily concerned the following:
– Wind Power: recognised profit received on
account and property, plant and equip-
ment, in respect of which depreciation
for tax purposes exceeds depreciation for
accounting purposes

– Bioenergy & Thermal Power: property, plant
and equipment for which impairment was
made in previous years

– Distribution & Customer Solutions: financial

instruments.

Other activities/eliminations comprised
intra-group eliminations in the joint taxation
across segments.

Deferred tax 2017, DKK million

Deferred tax, assets

Deferred tax, liabilities

Unrecognised tax assets

Deferred tax 2016, DKK million

Deferred tax, assets

Deferred tax, liabilities

Unrecognised tax assets

Wind
Power

1,407

1,227

123

548

1,065

209

Bioenergy
& Thermal
Power

Distribution
& Customer
Solutions

Other
activities/
eliminations

Deferred
tax at 31
December

444

352

420

231

972

617

584

308

(68)

(905)

305

2,865

2,128

184

2,185

528

The table shows the
reconciliation of de-
ferred tax to the balance
sheet by segment.

Accounting policies

Deferred tax is recognised in respect of all temporary
differences arising between the tax bases of assets
and liabilities and their carrying amounts.

However, deferred tax is not recognised in respect of
temporary differences relating to:
– The acquisition of joint operations, including

licence interests

– Other items, where differences arise at the time of
acquisition affecting neither the profit (loss) for the
year nor the taxable income. However, this does
not include differences arising in connection with
company acquisitions.

Deferred tax is measured depending on how we plan
to use the assets and settle the liabilities. We set off
tax assets and liabilities when the tax assets can be
offset against tax liabilities in the year in which the
deferred tax assets are expected to be used.

Deferred tax assets are recognised at the value at
which they are expected to be used. They may be
offset against future earnings or against deferred
tax. This is done within a joint taxation scheme.
Intra-group gains and losses are eliminated.

Deferred tax is measured based on the tax rules
and rates applying when the deferred tax becomes
current tax. Changes in deferred tax as a result of
changes in tax rates are recognised in profit (loss) for
the year.

Liabilities in respect of uncertain tax positions are
measured as follows:
– the most-likely-outcome method is applied in

cases where there are only two possible outcomes

– the weighted-average method is used in cases

with more than two possible outcomes.

The liability is recognised under income tax payable
or deferred tax, depending on how the realisation of
the tax position will affect the financial statements.

116 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 5. Tax

Note summary

Contents

Development in deferred tax assets and liabilities
2017, DKK million

Balance sheet
1 January

Transferred to
assets and
liabilities clas-
sified as assets
held for sale

Exchange rate
adjustments

Additions,
individual
assets and
activities, net

Recognised in
profit (loss)
for the year

Recognised
in other
comprehensive
income

Adjustments
to prior
years, etc.

Balance sheet
31 December

Intangible assets

Property, plant and equipment

Other non-current assets

Current assets

Decommissioning obligations

Other non-current liabilities

Current liabilities

Retaxation

Tax loss carryforwards

Deferred tax

Of which recognised in the balance sheet under assets

Of which recognised in the balance sheet under equity
and liabilities

Development in deferred tax assets and liabilities,
2016, DKK million

Intangible assets

Property, plant and equipment

Other non-current assets

Current assets

Decommissioning obligations

Other non-current liabilities

Current liabilities

Retaxation

Tax loss carryforwards

Deferred tax

Of which recognised in the balance sheet under assets

Of which recognised in the balance sheet under equity
and liabilities

109

2,395

(1)

(6)

(626)

(950)

644

1,730

(1,198)

2,097

2,185

151

4,807

(40)

(3,957)

(1,163)

1,362

2,903

(2,710)

1,372

274

1,646

(1,292)

(36)

3,292

165

2,129

(94)

(6)

(1)

(40)

(141)

(121)

(6)

133

(110)

(1)

329

385

(48)

1,450

174

(36)

(169)

(242)

(50)

(1,730)

(573)

(46)

(1,194)

147

222

(771)

(1,175)

954

(1,861)

(4)

(1,788)

(32)

(6)

(942)

(4)

(2,641)

(4)

(1)

154

(3)

258

481

2,018

140

(11)

(797)

(1,106)

(348)

(694)

(737)

2,865

2,128

109

2,395

(1)

(6)

(626)

(950)

644

1,730

(1,198)

2,097

2,185

The amounts transferred
to assets and liabilities
classified as assets held
for sale only concerned
Oil Pipe in 2017.

In 2016, the activities in
the oil and gas business
were transferred to
assets and liabilities
classified as assets held
for sale.

Adjustments to prior
years primarily relate
to movement between
deferred tax and tax
payable.

117 / 173

Ørsted Annual report 2017Financial statementsNote summary

Contents

6. Capital structure

Interest-bearing debt

Equity

Hybrid capital

Financial resources

Financial income and expenses

Funds from operations (FFO)/
adjusted interest-bearing net debt

120

122

124

125

127

128

Ørsted Annual report 2017Consolidated financial statements – 6. Capital structure

Note summary

Contents

6. Capital structure

During the year, we issued new senior bonds
of EUR 750 million, corresponding to DKK
5,584 million. We also redeemed bonds with
a notional amount of DKK 1,480 million early.

have defined credit rating and capital struc-
ture targets. The overarching capital structure
targets are a credit rating of Baa1/BBB+ and
an FFO/adjusted net debt credit metric of
around 30%.

Our borrowing activities are consolidated in
the parent company, where cash resources
are available to the Group's companies via an
internal bank.

50.3%

Also, in 2017, we issued a new hybrid bond
of EUR 500 million, corresponding to DKK
3,723 million. In addition, it was decided to
redeem the hybrid bond issued in 2013 with
a notional amount of EUR 500 million at the
first redemption date in 2018.

Capital structure
To ensure the financial strength to operate in
the international energy and capital markets
and secure financing on attractive terms, we

Financing policy
The aim of our financing policy is to ensure
the best possible loan arrangements, while
also minimising financing costs, liquidity and
refinancing risks.

The borrowing activities are diversified among
various funding sources and maturities. In
addition, we have robust financial resources.

Cash management
We have decided to maintain robust financial
resources to limit the company's sensitivity to
unrest in the financial markets.

The financial resources consist of bank deposits
and securities, as well as non- cancellable credit
facilities from a group of robust Nordic and
international banks. The financial resources
totalled DKK 39,158 million at 31 December
2017 (2016: DKK 31,511 million).

Equity and interest-bearing net debt, DKK billion

Interest-bearing assets
Interest-bearing debt
Hybrid capital
Equity attributable to shareholders in Ørsted A/S
Non-controlling interests

2017

DKK 70.3 billion

Assets
DKK 31.2 billion

2016

Equity and liabilities
DKK 101.5 billion

DKK 61.0 billion

Assets DKK
21.7 billion

Equity and liabilities
DKK 82.7 billion

Funds from operations (FFO) relative to
adjusted interest-bearing net debt amounted
to 50.3% at 31 December 2017 against 64.2%
at 31 December 2016.

-1.5bn

Our interest-bearing net debt totalled DKK
-1.517 million at 31 December 2017 against
DKK 3,461 million at 31 December 2016.

39,2bn

Our cash reserve totalled DKK 39,158 million
at 31 December 2017 against DKK 31,511 million
at 31 December 2016.

119 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 6. Capital structure

Note summary

Contents

6.1 Interest-bearing debt

Interest-bearing debt and interest-bearing assets, DKK million

2017

2016

Interest-bearing debt comprises:

Bank debt

Bond debt

Total bond and bank debt

Liabilities classified as held for sale

Other interest-bearing debt

Total interest-bearing debt

Interest-bearing assets comprise:

Securities

Cash

Receivables from associates and joint ventures

Other receivables

Receivables in connection with divestments

Assets classified as held for sale

Total interest-bearing assets

Total interest-bearing net debt

The tabel shows our interest-bearing net debt split
on interest-bearing debt and interest-bearing assets

Changes in bond and bank debt, DKK million

Bond and bank debt 1 January

Instalments on loans according to the statement of cash flows

Proceeds from raising of loans according to the statement of cash flows

Reclassification to bond and bank debt

Capital losses on early repayment of debt

Foreign exchange adjustments and amortisation

Bond and bank debt 31 December

2,069

27,567

29,636

4,064

20,119

24,183

803

150

29,636

25,136

16,533

2,931

674

544

993

21,675

3,461

25,280

4,203

647

975

31,153

(1,517)

2017

24,183

(4,069)

5,468

4,192

230

(368)

29,636

Interest-bearing net debt
Interest-bearing net debt totalled DKK
-1,517 million at the end of 2017, down DKK
4,978 million relative to 2016. The decline
was due to an increase in interest-bearing
assets of DKK 9,478 million, partially offset
by an increase in interest-bearing debt of
DKK 4,500 million.

In November 2017, we issued a new bond of
EUR 750 million, corresponding to DKK 5,584
million. We also redeemed bonds with a
notional amount of DKK 1,480 million early.
At the same time, it was decided to redeem
the hybrid bond issued in 2013 with a notional
amount of EUR 500 million at the first

redemption date in 2018. As a consequence
of this, we have reclassified the hybrid bond
from equity to interest-bearing debt with
a carrying amount of DKK 3,810 million at
31 December 2017.

Market value of bond and bank debt
The market value of our bond and bank debt
amounted to DKK 32,959 million and DKK
2,108 million, respectively, at 31 December
2017 (2016: DKK 26,010 million and DKK 4,110
million, respectively). The market value of our
bond and bank debt exceeds the carrying
amount due to the drop in interest levels since
the arrangement of the debt.

Maturity profile, DKK billion
Bank debt

Bond debt

2016

36,401

(11,097)

653

(1,774)

24,183

The tabel shows the
changes in bond and
bank debt.

The graph shows
the maturity profile
for our bank loans
and bond debt.

15.8

3.9

2.2

2.1

4.7

0.2

0.1

0.5

2018

2019

2020

2021

2022

2023

2024

2025

2026 2027+

120 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 6. Capital structure

Note summary

Contents

Loan arrangements
At 31 December 2017, we had loan obligations
totalling DKK 2,069 million (2016: DKK 4,064
million), primarily to the European Investment
Bank and the Nordic Investment Bank. The
loans are recognised in the balance sheet
under bank debt. The loans offered by these
multilateral financial institutions include loans
to co-fund infrastructure and energy projects
on favourable terms and with maturities
exceeding those normally available in the
commercial banking market. In connection
with these loans, the Group may be met with
demands for repayment or collateral in the
event of the Danish State holding less than
50% of the share capital or voting rights in
Ørsted A/S (change of control), or repayment
in the event of Moody's or Standard & Poor's
downgrading our rating to Baa3 or BBB- or
less, respectively.

Furthermore, at 31 December 2017, we had
non-cancellable credit facilities of DKK 10,424
million (2016: DKK 13,000 million) with a num-
ber of Scandinavian and international banks.

In connection with these credit facilities, we
may be met with demands for cancellation
and repayment of any used share in the event
of players other than a group consisting of the
Danish State and Danish power distribution
companies acquiring more than 50% of the
share capital or voting rights in Ørsted A/S,
or in the event of the Danish State ceasing to
hold at least 20% of the share capital. Our
financing agreements are not subject to any
other unusual terms or conditions.

Interest rate risk
Our interest rate risks relate to interest-bear-
ing debt, interest-bearing assets and financial
price hedges. We manage the interest rate risk
through the composition of assets and the
variability of the cash flows generated by the
assets. Fixed-interest financing over a longer
term is sought for assets with fixed, interest -
-insensitive cash flows over a longer term.
Conversely, more variable-interest financing is
sought for assets with more varying, interest -
sensitive cash flows.

We have fixed the interest rate on most of our
debt by issuing fixed-rate debt. At the end of
2017, 95% (2016: 89%) of the Group's debt was
fixed-rate debt. In addition, forward exchange
contracts have been concluded to hedge
the currency risk associated with interest
payments on loans in GBP over the next five
years at an average price of 9.3. See note 7.2
for further information.

At 31 December 2017, the loan portfolio had
an average time to maturity of 9.8 years (2016:
8.5 years). Interest-bearing assets consist
primarily of short-term bonds with limited risk.

Accounting policies

Bond debt, bank debt and other payables are
recognised at inception at market value (typically
proceeds received) net of transaction costs incurred.
In subsequent periods, the liabilities are measured at
amortised cost so that the difference between the
cost (proceeds) and the nominal value is recognised
in profit (loss) for the year as interest expenses over
the term of the loan, using the effective interest rate
method.

Financial liabilities are classified as current unless the
Group has an unconditional right to defer settlement
of the liability to at least one year after the balance
sheet date.

The market value of issued bonds has been deter-
mined as the market value at 31 December (Level
1 – quoted prices).

The market value of bank loans has been deter-
mined as the present value of expected future
instalments and interest payments using the Group's
current interest rate on loans as the discount rate
(Level 2 – observable inputs).

Bond issues at 31 December 2017

Currency

Senior bonds

EUR

GBP

Outstanding
amount
(million) Coupon (%)

Time of issue

Maturing

Quoted in

280

272

517

750

500

6.500

4.875

2.625

1.500

4.875

5.750

6 May 2009

7 May 2019

London

16 Dec 2009

16 Dec 2021

London

19 Sep 2012

19 Sep 2022

London

24 Nov 2017

26 Nov 2029

London

12 Jan 2012

12 Jan 2032

London

9 Apr 2010

9 Apr 2040

London

In addition to senior
bonds, we have also
issued a number of
hybrid bonds; see
note 6.3.

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Ørsted Annual report 2017Financial statementsConsolidated financial statements – 6. Capital structure

Note summary

Contents

6.2 Equity

Earnings per share, DKK million

Profit (loss) for the year from contin-
uing operations

Interest and costs after tax, hybrid
capital owners of Ørsted A/S

Non-controlling interests

Ørsted's share of profit (loss) for the
year from continuing operations

Profit (loss) for the year from discon-
tinued operations

Ørsted's share of profit (loss) for the
year from discontinued operations

('000)

Average number of outstanding
shares

2017

2016

Business
performance

IFRS

Business
performance

IFRS

13,279

13,321

12,161

10,467

(716)

(499)

111

(499)

111

12,573

12,615

11,773

10,079

6,920

6,104

1,052

(2,532)

6,920

6,104

1,052

(2,532)

Share capital
Ørsted's share capital is DKK 4,203,810,800,
divided into shares of DKK 10 (2016: DKK 4,204
million). No shares are subject to special rights
or restrictions on voting rights. The shares are
fully paid up.

Treasury shares
To secure our share programme, we acquired
a portfolio of treasury shares consisting of
225,904 shares at 31 December 2017 (2016:
225,904), corresponding to 0.1% of the share
capital.

420,155

419,010

Dilutive effect of share programme

271

1,296

Average number of outstanding
shares, diluted

420,426

420,306

(DKK)

Profit (loss) per share

From continuing operations

From discontinued operations

Total profit (loss) per share

29.9

16.5

46.4

30.0

14.5

44.5

Development in share capital (DKK million)

Share capital at 1 January

Capital injection

Share capital at 31 December

28.1

2.5

30.6

2017

4,204

24.1

(6.0)

18.1

2016

4,177

4,204

The table shows earnings per share distributed on
continuing and discontinued operations. Diluted
profit (loss) per share corresponds to profit (loss) per
share, as the dilutive effect of the share programme
is less than 0.1% of the share capital (2016: 0.3% of
the share capital).

Dividends
The Board of Directors recommends that
dividends of DKK 3,783 million (2016: DKK
2,522 million) be paid for the financial year,
corresponding to DKK 9 per share (2016: DKK
6 per share). The proposed dividends corre-
spond to a dividend yield of 2.7% (2016: 2.2%)
calculated on the basis of the closing price
for an Ørsted share on the last trading day of
the year.

Owners in Ørsted
The Danish State is the principal shareholder
with an ownership interest of 50.1%. In addition,
SEAS-NVE and The Capital Group also have
significant ownership interests. See also note 16
in the parent company's financial statements.

Dividend yield, %

2.8

2.6

2.4

2.2

2.0

2.7

2.2

2016

2017

The table shows a change in the share capital, which
is due to the issuance of bonus shares in connection
with the expiry of the 2014 share programme.

The graph shows the proposed dividends in relation
to the closing price for an Ørsted share on the last
trading day of the year.

122 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 6. Capital structure

Note summary

Contents

Reserves 2017, DKK million

Reserves at 1 January 2017

Transferred to retained earnings

Transition to IFRS 9 at 1 January

Foreign
currency
translation
reserve

(1,546)

Exchange rate adjustments

(1,354)

Hedging reserve

Deferred costs of hedging

Hedging
of net
investments

Hedging of
cash flows,
divestments

Hedging of
cash flows,
interest

Basic spread

Time value
of options

Value adjustments of hedging

Value adjustments transferred to:

Revenue

Other operating income

Profit (loss) from discontinued
operations

Financial income and expenses

Tax:

Tax on hedging and currency
adjustments

Movement in comprehensive
income for the year

Total reserves at 31 December

Reserves 2016, DKK million

Reserves at 1 January 2016

Exchange rate adjustments

Value adjustments of hedging

Value adjustments transferred to:

Revenue

Other operating income

Financial income and expenses

Tax:

Tax on hedging and currency
adjustments

Movements in comprehensive
income for the year

Total reserves at 31 December

(22)

625

(128)

133

(42)

(126)

440

450

(2,361)

3,040

973

(35)

984

(283)

(1,113)

(444)

195

(688)

285

(48)

2,005

(415)

(271)

325

562

188

(279)

(1,825)

2,274

(4,583)

763

(669)

(298)

(3,820)

(1,546)

2,371

1,021

973

(209)

(498)

(190)

(76)

229

(14)

(8)

(467)

(289)

(510)

232

n.a.

(22)

n.a.

Share
premium
reserve

Total
reserves

21,279

20,218

(21,279)

21,279

(1,354)

1,355

(283)

(916)

251

229

255

(463)

(1,524)

20,855

(4,583)

4,535

(415)

(271)

232

(135)

(637)

20,218

Accounting policies

Foreign currency translation reserve
The foreign currency translation reserve comprises:
– exchange rate adjustments arising on translation
of the financial statements of foreign entities
with a currency that is not the Group's functional
currency

– exchange rate adjustments relating to loans that
form part of our net investment in such entities
– exchange rate adjustments relating to hedging

transactions on our net investment in such entities.

On realisation or partial realisation of the net invest-
ment, the exchange rate adjustments are recognised
in profit (loss) for the year if a foreign exchange gain
(loss) is realised by the divested entity. The foreign
exchange gain (loss) is transferred to the item in
which the gain (loss) is recognised.

Hedging of net investments
Hedging of net investments comprises:
– exchange rate adjustments relating to hedging

transactions on our net investment in such entities.

Hedging reserve
The hedging reserve covers:
– the cash flow hedging of interest payments
– the currency risk associated with the construction

of offshore wind farms.

Deferred costs of hedging
Changes in the basic spread on currency swaps and
time value of options are included in deferred costs
of hedging.

Share premium reserve
Retained earnings include the share premium reserve
of DKK 21,279 million, representing the excess of
the amount of subscribed-for share capital over the
nominal value of these shares in connection with
capital injections.

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Consolidated financial statements – 6. Capital structure

Note summary

Contents

6.3 Hybrid capital

Hybrid bonds

Type

Carrying amount

Financial classification

Notional amount

Issued

Maturing

Due in 3013

Due in 3015

Due in 3017

Subordinate to other creditors

DKK 5,148 million

Equity

DKK 3,810 million

Loans and borrowings

DKK 4,423 million

Equity

DKK 3,668 million

Equity

EUR 700 million (DKK 5,212 million)

EUR 500 million (DKK 3,723 million)

EUR 600 million (DKK 4,467 million)

EUR 500 (DKK 3,723 million)

First redemption date at par

26 June 2023

June 2013

June 3013

July 2013

July 3013

8 July 2018

May 2015

November 3015

6 November 2020

November 2017

November 3017

24 November 2024

Interest

For the first ten years, the coupon is fixed
at 6.25% p.a., after which it is adjusted
every five years with the 5-year euro
swap + 4.75 percentage points from
2023-2043 and + 5.5 percentage points
after 2043.

Coupon for the first five years is fixed
at 4.875% p.a., after which it is adjusted
every five years with the 5-year euro
swap + 3.8 percentage points from 2018,
4.05 percentage points from 2023, and
4.80 percentage points from 2038.

Coupon for the first 5.5 years is fixed at
3.0% p.a., after which it is adjusted every
five years with the 5-year euro swap
+ 2.819 percentage points from 2020,
3.069 percentage points from 2025, and
3.819 percentage points from 2040.

Coupon for the first seven years is fixed at
2.25% p.a., after which it is adjusted every
five years with the five-year euro swap
+ 1.899 percentage points from 2024,
2.149 percentage points from 2029 and
2.899 percentage points from 2044.

Deferral of interest payment

Optional

We have issued hybrid capital which is sub-
ordinate to our other creditors. The purpose
of issuing hybrid capital is to strengthen our
capital base and fund our investments. In the
European capital markets, we have issued EUR
hybrid bonds with a total nominal value of
DKK 17,125 million (EUR 2,300 million).

In 2017, we issued a further hybrid bond at a
nominal value of EUR 500 million which is
classified as equity. In addition, in 2017, we
decided to redeem the hybrid bond maturing
in July 3013 at par at the first redemption date
on 8 July 2018. This hybrid bond is therefore
reclassified to loans and borrowings.

For hybrid bonds, we may defer coupon pay-
ments to bond holders and ultimately decide

not to pay them. Deferred coupon payments
become payable, however, if we decide to pay
dividends to our shareholders or pay coupon
payments on another hybrid bond.

As a consequence of the special terms attach-
ing to the hybrid bonds, these are classified as
equity, and coupon payments are therefore
recognised in equity.

Accounting policies

Hybrid capital comprises issued bonds that
qualify for treatment in accordance with the rules
on compound financial instruments due to the
special characteristics of the loan. The notional
amount, which constitutes a liability, is recognised
at present value, and equity has been increased by

the difference between the net proceeds received
and the present value of the discounted liability.
Accordingly, any coupon payments are accounted for
as dividends, which are recognised directly in equity
at the time the payment obligation arises. This is
because coupon is discretionary, and any deferred
coupon therefore lapses upon maturity of the hybrid
capital. Coupon payments consequently do not have
any effect on profit (loss) for the year.

On redemption of the hybrid capital, the payment
will be distributed between the liability and equity
applying the same principles as used when the
hybrid capital was issued. This means that the differ-
ence between the payment on redemption and the
net proceeds received on issue is recognised directly
in equity as the debt portion of the existing hybrid
issues will be nil during the first part of the life of the
hybrid capital.

The part of the hybrid capital that is accounted for
as a liability is measured at amortised cost. However,
as the carrying amount of this component amounted
to nil on initial recognition, and because of the 1,000-
year term of the hybrid capital, amortisation charges
will only impact on profit (loss) for the year towards
the end of the 1,000-year term of the hybrid capital.
Coupon payments are recognised in the statement
of cash flows in the same way as dividend payments
within financing activities.

On the date on which the Board of Directors decides
to exercise an option to redeem the hybrid capital,
the part of the hybrid capital that will be redeemed
will be reclassified to loans and borrowings. The
reclassification will be made at the market value of
the hybrid capital at the date the decision is made.
Coupon payments and exchange rate adjustments
following the reclassification to loans and borrow-
ings will be recognised in profit (loss) for the year as
financial income or expenses.

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Note summary

Contents

6.4 Financial resources

Our liquidity and financing risks are managed
centrally in accordance with the principles and
delegated authorities laid down by the Board
of Directors.

One of the most significant financial manage-
ment tasks is to secure sufficient and flexible
financial resources in relation to our day-to-
day operations, investment programme and
debt maturity profile.

We therefore define minimum financial
resources for the coming calendar year.

Cash and cash equivalents and securities
Cash not available for use which is not part of
the financial resources primarily comprises:
– cash and cash equivalents pledged as col-
lateral for insurance-related provisions and

– cash and cash equivalents pledged as
collateral for trading in derivatives.

Securities are a key element in our financial
resources, for which reason investments are
primarily made in liquid AAA-rated Danish
mortgage bonds and to a lesser extent in
other bonds. Most of the securities qualify for
repo transactions in the Danish central bank,
'Danmarks Nationalbank'.

Securities not available for use comprise:
– Securities pledged as collateral for insurance-
related provisions. These amounted to DKK
397 million at 31 December 2017 (2016: DKK
394 million)

– Securities pledged as collateral for trading

in financial instruments. These amounted to
DKK 40 million at 31 December 2017 (2016:
DKK 276 million).

At 31 December 2017, we had received
collateral in the amount of DKK 787 million
(2016: DKK 773 million) concerning the positive
market value of derivatives.

Financial resources, DKK million

Cash, available
Securities, available
Undrawn, non-cancellable credit facilities

2017

DKK 39,158 million

2016

DKK 31,511 million

Cash and cash equivalents and securities, DKK million

Cash, available

Bank overdrafts that are part of the ongoing cash management

Total cash and cash equivalents at 31 December, cf. statement of cash flows

Cash can be specified as follows:

Cash, available

Cash, not available for use

Total cash at 31 December, cf. balance sheet

Securities can be specified as follows:

Securities, available

Securities, not available for use

Total securities at 31 December

2017

3,891

312

4,203

2016

2,648

(20)

2,628

2,648

283

2,931

24,843

15,863

437

670

25,280

16,533

The table shows our
cash which is divided
into cash available
and cash not available
for use.

Overview of securities, DKK million

Maturities

0-2 years

2-5 years

After 5 years

Fixed-
rate

2,091

17,712

Floating-
rate

1,971

3,506

2017

4,062

21,218

Fixed-
rate

4,650

7,877

Floating-
rate

2,193

1,749

2016

6,843

9,626

Total carrying amount

19,803

5,477

25,280

12,563

3,970

16,533

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Note summary

Contents

Maturity analysis of loans and borrowings 2017, DKK million

2018

2019

2020-2021

After 2021

2017

Bank loans and issued bonds

Notional amount

Interest payments

Trade payables

Other payables

Derivatives

Liabilities relating to assets classified as held for sale

3,828*

1,152

11,499

5,644

2,912

119

2,192

973

216

736

2,345

1,690

471

21,457

8,772

29,822

12,587

11,499

5,860

4,125

119

Total payment obligations

25,154

4,117

4,506

30,235

64,012

Maturity analysis of loans and borrowings 2016, DKK million

2017

2018

2019-2020

After 2020

2016

Bank loans and issued bonds

Notional amount

Interest payments

Trade payables

Other payables

Derivatives

Liabilities relating to assets classified as held for sale

Total payment obligations

* The amount primarily relates to reclassified hybrid capital. See more in note 6.3.

1,994

970

10,024

5,287

4,551

2,291

25,117

105

969

1,674

2,832

2,592

1,790

884

19,684

9,209

1,669

24,375

12,938

10,024

7,078

7,176

2,291

5,304

30,629

63,882

Maturity analysis of loans and borrowings
The Group's cash needs in respect of its financial
loans and borrowings are shown in the table on
the left. The maturity analysis was determined on
31 December 2017.

The maturity analysis is based on undiscounted
cash flows, including estimated interest payments.
Interest payments are based on market condi-
tions and interest -rate hedging entered into on
31 December 2017.

The maturity analysis does not include hybrid capital
classified as equity. At 31 December 2017, we had is-
sued hybrid capital with a notional amount totalling
DKK 13,402 million due in 3013 (DKK 5,212 million),
3015 (DKK 4,467 million) and 3017 (DKK 3,723 million),
respectively.

Accounting policies

Securities comprise bonds that are monitored,
measured and reported at market value on an on-
going basis in conformity with the Group's investment
policy. Changes in market value are recognised in
profit (loss) for the year as financial income and
expenses. Purchase and sale of securities are recog-
nised at the settlement date.

For listed securities, market value equals the market
price, and for unlisted securities, market value is
estimated based on generally accepted valuation
methods and market data.

Divested securities where a repurchase agreement
(repo transactions) has been made at the time of
sale are recognised in the balance sheet at the
settlement date as if the securities were still held.
The amount received is recognised as a liability, and
the difference between the selling price and the pur-
chase price is recognised in profit (loss) for the year
over the term as interest. The return on the securities
is recognised in profit (loss) for the year.

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Note summary

Contents

6.5 Financial income and expenses

Net financial income and expenses, DKK million

Interest expenses, net

Interest element of provisions, etc.

Capital losses on early repayment of loans and interest rate swaps

Value adjustments of derivatives, net

Exchange rate adjustments, net

Value adjustments of securities, net

Net financial income and expenses

Financial income and expenses, DKK million

Interest income from cash, etc.

Interest income from securities at market value

Capital gains on securities at market value

Foreign exchange gains

Value adjustments of derivatives

Other financial income

Total financial income

Interest expenses relating to loans and borrowings, etc.

Interest expenses transferred to assets

Interest element of provisions

Capital losses on securities at market value

Foreign exchange losses

Value adjustments of derivatives

Other financial expenses

Total financial expenses

Net financial income and expenses

Accounting policies

Market value adjustments of interest rate and
currency derivatives that have not been entered
into for hedging purposes are presented as financial
income or expenses.

2017

(629)

(451)

(230)

(67)

391

(150)

(1,042)

2017

216

250

1,523

2,043

150

4,253

(1,670)

754

(303)

(419)

(1,568)

(1,887)

(202)

(5,295)

(1,042)

2016

(402)

(392)

(892)

(124)

1,035

(96)

104

(767)

2016

349

420

3,446

4,169

105

8,489

(1,744)

574

(296)

(111)

(2,821)

(3,919)

(939)

(9,256)

(767)

The table shows net
financial income and
expenses, corresponding
to our internal control.
Exchange rate adjust-
ments and hedging
contracts entered into
to hedge currency risks
are presented net under
the item 'Exchange rate
adjustments, net'.

Exchange rate adjust-
ments of currency
hedging are recognised
in revenue and cost of
sales with a gain of DKK
190 million (2016: a gain
of DKK 1,257 million).

Borrowing costs
transferred to property,
plant and equipment
under construction
are calculated at the
weighted average
effective interest rate
for general borrowing.
This amounted to 5.3%
in 2017 (2016: 4.4%).

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Note summary

Contents

6.6 Funds from operations (FFO)/

adjusted interest-bearing net debt

Our long-term target is for funds from opera-
tions (FFO) to be around 30% of adjusted
interest-bearing net debt.

In 2017, the calculation of FFO has been
updated to exclude gain (loss) on divestment

of assets. This brings our calculation of FFO
more in alignment with the principles used by
the rating agencies. Comparative figures have
been restated.

The figure shows the
development in our
credit rating since
2012 compared to our
objective.

Rating, category

S&P

Moody's

Fitch

Financial objective

A-/A3

BBB+/
Baa1

BBB/
Baa2

BBB-/
Baa3

2012

2013

2014

2015

2016

2017

2020

Credit rating

Standard & Poor's

Moody's

Fitch

Minimum BBB+

Minimum Baa1

Minimum BBB+

Funds from operations (FFO), DKK million

EBITDA – business performance

Interest expenses, net

Reversal of interest expenses transferred to
assets

Interest element of decommissioning
obligations

50% of coupon payments on hybrid capital

Calculated interest paid on operating lease
obligations

Adjusted interest expenses, net

Reversal of gain (loss) on divestment of assets

Reversal of recognised operating lease
payment in profit (loss) for the year

Total current tax

Funds from operations (FFO)

Adjusted interest-bearing net debt,
DKK million

Total interest-bearing net debt

50% of hybrid capital

Cash and securities not available for
distribution, excluding repo loans

Present value of operating lease payments

Decommissioning obligations

Deferred tax on decommissioning obligations

2017

22,519

(629)

(754)

(194)

(320)

(234)

(2,131)

(10,835)

885

(2,447)

7,991

2017

(1,517)

6,619

749

6,095

4,751

(797)

2016

19,109

(402)

(574)

(172)

(320)

(194)

(1,662)

(2,940)

746

(3,665)

11,588

2016

3,461

6,624

953

3,986

3,649

(627)

Total adjusted interest-bearing net debt

15,900

18,046

Funds from operations (FFO)/
adjusted interest-bearing net debt, %

Funds from operations (FFO)/
adjusted interest-bearing net debt

2017

2016

50.3%

64.2%

The table shows which
items are included in
funds from operations.
FFO is calculated for the
continuing operations.

The table shows which
items are included in
the adjusted interest-
bearing debt as well as
FFO relative to adjusted
interest-bearing debt.

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Contents

7. Risk management

131
Market risks
Hedge accounting and economic hedging 134
136
Trading portfolio

Sensitivity analysis of financial
instruments

Credit risks

Categories of financial instruments

Fair value measurement

137

138

139

Ørsted Annual report 2017Consolidated financial statements – 7. Risk management

Note summary

Contents

7. Risk management

Market and credit risks are a natural part of
our business activities and a precondition
for being able to create value. Through risk
management, risks are reduced to an accept-
able level.

Energy and currency exposures
At the end of 2017, our forward looking
energy and currency exposures from produc-
tion, sales, investments and divestments
had been reduced from DKK 89.1 billion to
DKK 22.3 billion via hedging.

Trading portfolio
We have a limited trading portfolio, the main
purpose of which is to optimise the execution
of hedging contracts and gain from short-term
energy price fluctuations. The trading activities
comply with the mandates approved by the
Board of Directors. Read more in note 7.3.

Currency exposure 2018-2022, DKK billion

Energy exposure 2018-2022, DKK billion

Before hedging
After hedging

67.4

14.0

GBP

1.0

0.0

USD

-5

12.5

6.7

2.6

-4.0 0.0

0.1

1.6

1.5

Oil

Gas

Power

Spread

Our currency exposure totalled DKK 68.4 billion
before hedging and DKK 14.0 billion after hedging at
the end of 2017. We do not deem EUR to constitute
a risk, as we expect that Denmark will maintain its
fixed-exchange-rate policy.

Our energy exposures totalled DKK 20.7 billion
before hedging and DKK 8.3 billion after hedging
at the end of 2017.

5 years

We hedge prices for up to five years to reduce
cash flow fluctuations.

+1.7bn

In 2017, business performance EBITDA was
positively impacted by DKK 1,665 million from
hedging instruments against DKK 1,459 million
in 2016.

-0.8bn

The value of our energy and currency hedging
instruments at 31 December 2017 was negative
at DKK 812 million, which will reduce business
performance EBITDA for a future period
against DKK +737 million at 31 December 2016.

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Note summary

Contents

7.1 Market risks

Market risks and market risk management
Our most significant market risks relate to:
– energy prices
– foreign exchange rates
– inflation rates and
– interest rates (see note 6.1).

Risk after hedging,
DKK billion

Effect of price change
-10%

+10%

Oil: 0.0 purchase position

Gas: 0.1 sales position

Power: 6.7 sales position

Spread: 1.5 sales position

+0.0

+0.7

+0.1

-0.0

-0.7

-0.1

The management of market risks is to ensure
stable and robust financial ratios that support
our growth strategy.

We hedge prices for up to five years to reduce
cash flow fluctuations. Prices are not hedged
in the long term, and our long-term market
risks are therefore determined by our strategic
decisions on investments in new assets, the
conclusion of long-term contracts as well as
any divestment of assets.

The Board of Directors determines the mini-
mum hedging levels in the five-year period. In
the first two years, a high degree of hedging is
wanted to ensure stable cash flows after tax.
The degree of hedging is lower in subsequent
years. This is due to:
– reduced certainty about long-term produc-

tion volumes and

– rising hedging costs in the medium to long

term.

Energy price risks
Our risks after hedging for the years 2018-2022
can be summarised as shown in the table.

A 10% increase in the power price in 2018-2022
will therefore result in a gain of DKK 0.7 billion
in the period, all else remaining unchanged.

Currency risks
Our risks after hedging for the years 2018-2022
can be summarised as shown in the table.

Risk after hedging,
DKK billion

Effect of price change
-10%

+10%

GBP: 14.0 sales position

USD: 0.0 sales position

+1.4

+0.0

-1.4

-0.0

Our largest currency risk relates to GBP due
to our investments in offshore wind farms in
the UK.

The exchange rate related to proceeds in
foreign currency from divestments is hedged
when we have a high degree of certainty
about the price and structure of the transac-
tion. The proceeds are estimated to be the
cost price of the divested asset added an
estimated markup that is increased as we gain
certainty of the markup. The expected cash
flows from divestments reflect the cash flows

Cash flows that relate to fixed tariffs and
guaranteed minimum prices from offshore
wind farms in the UK deviate from the main
principle. Hedging of these, less operating
expenses, is based on a declining level of
hedging over the five-year risk management
horizon. The target is to hedge 100% of the
risk in year 1, declining by 20 percentage
points each year, to 20% in year 5.

Our GBP exposure amounted to DKK 14.0
billion after hedging for the years 2018-2022.
Of these, unhedged prices of green certificates
amounted to DKK 14.3 billion, while other
unhedged prices represent a value of DKK
-0.3 billion.

we would otherwise have obtained from the
operation of the offshore wind farms had we
kept the share divested. As the payments are
concentrated on a few years, they represent
a relatively large share of our GBP exposure
the next two years. Any subsequent divest-
ments are not included, as we do not have
high certainty about the price and structure
of the transaction. Investments in GBP are
set off against the expected proceeds from
divestments before hedging.

The exchange rate related to energy prices
in foreign currency is not hedged until the
energy price is hedged. This means that the
GBP exchange rate associated with power
generation in the UK is not hedged until the
GBP power price is hedged.

GBP exposures, DKK billion

Before hedging
After hedging

-5

24.3

18.9

11.4

2.9

5.0 4.4

7.9

6.6

-0.4

0.5

2018

2019

2020

2021

2022

The graph shows our
GBP exposure from:
- divestment and
investment
- green certificates
- hedged energy

before and after hedges.

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Note summary

Contents

The GBP exchange rate for hedges impacting
EBITDA is in 2018 and 2019 hedged at an
average exchange rate of DKK/GBP 9.0 and
8.5. The average exchange rates are calculat-
ed excluding options that only account for a
smaller part of our GBP hedges.

Our EUR risk is subject to continuous assess-
ment, but is generally not hedged as we
believe that Denmark will maintain its fixed-
exchange-rate policy.

Our USD exposure after hedging amounts
to DKK 0.0 billion for the 2018-2022 period.
Our USD exposure relates to the purchase of
gas, LNG and coal.

Wind Power
Earnings from our generation of power from
offshore wind farms mainly comprise:
– fixed tariffs (Denmark, Germany, the

Netherlands and the UK) and

– guaranteed minimum prices for green

certificates (the UK).

At the end of 2017, such fixed tariffs and
guaranteed minimum prices cover 82% of the
expected income from offshore wind farms
over the next five years. The remaining price
exposure concerns sales of power at market
price in the UK and Denmark. See the graph
'Distribution of revenue from Wind Power's
power generation' for further information.

The annual adjustment of the fixed tariffs
varies from country to country:
– In the UK, the tariff is adjusted with inflation
– In Denmark, Germany and the Netherlands,

the tariff is not adjusted.

This results in an inflation risk for earnings
from tariff-based wind farms in Denmark,
Germany and the Netherlands. The share
of our debt which is fixed in nominal terms
partially offsets this inflation risk.

Bioenergy & Thermal Power
Our CHP plant portfolio consists of biomass
and coal-fired plants in Denmark and a
gas-fired power station in the Netherlands.
The plants in Denmark generate both heat
and power.

Concurrently with the biomass conversion of
our CHP plants, a larger share of our earnings
will be coming from our heat generation.
Heat generation does not give rise to price
risk as the associated costs are borne by the
heat customers. However, heat generation
often entails a price risk for power, as heat
and power are generated simultaneously.

The profitability of power generation is
determined by the difference between the
selling price of power and the purchase price
of fuel and carbon emissions allowances.
For our coal-based power generation, we
secure profitability by selling power and
buying fuel and carbon emissions allowances,
while for biomass-based power generation,
we secure profitability by buying biomass
at fixed prices and hedging the associated
power generation.

The risk management horizon is three years
due to low liquidity in the hedging markets.

with the power stations' power generation
for the 2018-2022 period is DKK 1.5 billion
after hedging.

may rise again, however, as we conclude more
and more LNG purchase agreements which
are typically oil-indexed.

Distribution & Customer Solutions
Our price risk in Distribution & Customer
Solutions arises from the purchase and sale of
power and gas. The price risks associated with
the purchase and sale of gas result from dif-
ferences in the indexing of sales and purchase
prices. Our largest gas purchase contracts in-
clude the option of renegotiating the contract
price if it no longer reflects market conditions.
We have completed most of these renegotia-
tions in recent years; as a result, the contract
prices have largely been indexed to pure gas
prices and not to oil prices, as was previously
the case. We are therefore less sensitive to dif-
ferences in the oil and gas price development
than before. Going forward, our oil price risk

The price risks associated with power
purchases and sales are constituted by the
difference between the purchase and sales
prices. The price risk relates primarily to timing
differences between purchases and sales and
is therefore considered to be limited.

Principles for estimating exposures

Exposure is calculated as the expected production
(or net purchase/sale) times the forward price for the
respective years. In addition, the exposure is deter-
mined on the basis of the expected exposure after
renegotiations of oil-indexed gas purchase contracts.

Wind Power's power price exposure, DKK billion

Expected value for recognition in
business performance EBITDA, DKK billion

Before hedging
After hedging

Oil

Gas

Power

Coal

Currency

3.8 3.7

2.7

2.4

2.1

2.9

2.1

0.2

0.1

0.5

2018

2019

2020

2021

2022

-1

-2

-0.3

-0.2

2018

2019

After 2019

At the end of 2017, 42% of the power genera-
tion expected in 2018 from our power stations
was hedged. The total net risk associated

The table shows the split of income from Wind
Power's generation of power divided into market
prices and other fixed elements.

The table shows the time of the transfer of the value
of hedging contracts in business performance EBITDA
for both business performance and IFRS hedges.

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Ørsted Annual report 2017Financial statements

Consolidated financial statements – 7. Risk management

Note summary

Contents

2017

2016

Energy hedging

Currency and interest
rate hedging

Energy hedging

Currency and interest
rate hedging

Note

Overview of the Group's
derivative positions, DKK million

Recognised with EBITDA impact

Contractu-
al principal
amount

Market
value

Contractu-
al principal
amount

Market
value

Contractu-
al principal
amount

Market
value

Contractu-
al principal
amount

1.1, 7.2

Economic hedging

21,396

(940)

25,303

Hedging of cash flows, currency

23,588

8,720

118

592

678

21,319

(1,068)

20,946

15,532

4,783

(375)

Market
value

512

1,476

7.2

7.3

6.4

7.2

Trading portfolio

Total

Recognised in financial income and expenses

Hedging of fair value, securities

Hedging of fair value, currency

Hedging of cash flows, interest

Hedging of cash flows, currency

Other interest derivatives

Other currency derivatives

Total

Recognised in other comprehensive income

7.2

Hedging of net investments

Total

30,116

(822)

48,891

1,270

26,102

(1,443)

36,478

1,988

18,178

(716)

2,739

550

3,923

25,390

29,686

(365)

605

(476)

476

794

18,334

677

2,846

550

851

24,052

24,421

(3)

(398)

(391)

(25)

344

(395)

253

Total continuing operations

30,116

(822)

103,967

1,270

26,102

(1,443)

84,951

1,846

Recognised in discontinued operations

Economic hedging

Hedging of fair value, currency

Total discontinued operations

2,480

Total

30,116

(822)

106,447

1,318

10,849

1,557

11,541

(201)

10,849

36,951

1,557

11,541

114

96,492

(201)

1,645

The table shows the Group's derivatives and
commercial contracts according to the type of
accounting treatment and the affected items. The
accounting treatment and classification of hedging
contracts depend on the purpose of the hedging:

– Economic hedging comprises hedging of ener-

gy-related risks and related currency risks. These
hedging contracts are treated as hedge accoun-
ting in accordance with the business performance
principle (see note 1.1 for a detailed description),
whereby the value adjustment (loss/gain) is
deferred and only recognised during the period in
which the hedged transaction materialises. Under
IFRS, the value adjustment of this type of hedging
is recognised directly in the income statement.

– Hedging of cash flows concerning interest rates

and currencies comprises hedging of future in terest
payments and currency risks on future income.
When hedging cash flows, the effective portion
of the market value is temporarily recognised in
equity until the hedged transaction materialises.

– Hedging of the market value of securities or

currency comprises hedging of recognised assets
or liabilities. By hedging the market value, the
effective portion of the market value is recognised
in profit (loss) for the year together with changes
in the market value of the hedged asset or the
hedged liability.

– Hedging of net investments comprises hedging of
the currency risk associated with investments in
assets located in foreign countries. By hedging of
net investments, the effective portion of the mar-
ket value is recognised in equity until the hedged
net investment is divested.

– The trading portfolio and other interest and cur-

rency derivatives are recognised at market value
in the income statement.

Note 1.1 provides further details on economic
hedging, including information about the underlying
products traded.

133 / 173

Ørsted Annual report 2017Financial statements
Consolidated financial statements – 7. Risk management

Note summary

Contents

7.2 Hedge accounting and economic hedging

Contractual
principal
amount

Maturity analysis

Market value

Expected transfers to income statement

Accounting policies

2018

2019

Asset

Liability

2018

2019 After 2019

Recognised in
comprehen-
sive income

Hedge accounting
2017, DKK million

Hedging of cash flows
Revenue etc. (USD)
Divestments (GBP)
Interest payments (fixed)
Interest payments (GBP)
Hedging of fair value
EUR
GBP
USD
Hedging of net investment
GBP
EUR
USD

Hedge accounting
2016, DKK million

Hedging of cash flows
Divestments (GBP)
Interest payments (fixed)
Interest payments (GBP)
Hedging of fair value
EUR
GBP

Hedging of net investment
EUR
GBP

After
2019

1,048
554
-
1,643

4,467
8,787
930

1,316
22,272
-
2,739

9,391
8,787
2,480

23,868
5,668
150

136
10,143
-
548

4,924
-
310

10,563
1,201
-

132
11,575
-
548

-
-
1,240

2,602
-
-

27
819
-
-

3
-
48

13
385
(234)
(365)

1
344
(41)
(105)

1
41
(41)
(102)

11
-
(152)
(158)

(14)
(154)
-
(365)

(1)
(718)
-

(906)
(2)
-

10,703
4,467
150

1,381
2
1

Contractual
principal
amount

Maturity analysis

Market value

2017

2018 After 2018

Asset

Liability

Recognised in
comprehen-
sive income

Expected transfers to income statement

2017

2018 After 2018

15,532
677
2,846

7,439
10,895

5,656
18,765

12,238
-
569

1,784
-

-
(2.817)

3,294
-
569

1,198
-

1.199
8.327

-
677
1,708

4,457
10,895

4,457
13,255

1,514
78
-

-
-

38
-
(391)

(21)
(377)

16
2,136

(4)
(1,895)

1,309
(247)
(391)

1,032
(84)
(93)

277
(35)
(90)

-
(128)
(208)

Cash flow hedging
Forward exchange contracts have been
concluded for the purpose of hedging the
currency risk associated with the construction
of offshore wind farms which are expected to
be divested.

Ineffectiveness of currency hedging totalled
DKK 0 million (2016: DKK 0 million). Forward
exchange contracts have also been concluded
for the purpose of hedging the currency risk
associated with interest payments on loans
in GBP.

All hedges take place using an instrument with
the same price risk as the exposure. The GBP
exposure, for example, is hedged using GBP
derivatives or GBP loans. Therefore, the hedging
ratio for all IFRS hedges is one-to-one.

We primarily use hedge accounting for currency
and interest where it is possible to use hedging
instruments which hedge the desired risk one-to-one.
The GBP exposure, for example, is hedged using
GBP forward exchange contracts, GBP swaps or
GBP loans. There are thus no significant sources of
ineffectiveness. For currency swaps, the basic spread
is accounted for according to the cost of the hedging
model.
To the extent that a risk needs to be hedged, and
if there is no fully effective instrument available in
the market, analyses are performed of the expected
effectiveness of the hedging instrument before the
hedging transaction is concluded. In this case, the
ratio between the hedged risk and the hedging
instrument may deviate from the one-to-one princi-
ple and will be determined as the ratio which most
effectively hedges the desired risk.

We recognise changes to the market value of
hedging instruments that qualify for recognition as
a hedge of future cash flows in other comprehensive
income in the hedging reserve. On realisation of
the hedged cash flow, the resulting gain or loss is
transferred from equity and recognised in the same
item as the hedged item. However, on hedging of
proceeds from future loans, the resulting gain or loss
is transferred from equity over the term of the loan.

When we conclude a hedging transaction, and each
time we present financial statements thereafter,
we assess whether the hedged exposure and the
hedging instrument are still financially correlated. If
the hedged cash flows are no longer expected to be
realised, the accumulated value change is trans-
ferred to profit (loss) for the year.

Changes in the market value of derivatives that are
classified as hedges of the fair value of a recognised
asset or liability are recognised in profit (loss) for
the year together with changes in the value of the
hedged asset or liability to the extent of the hedged
risk.

134 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 7. Risk management

Note summary

Contents

Economic hedging and commercial
contracts
The purpose of economic hedging is to reduce
our risk from generation and sale of energy.
Fluctuations in value are expected to be offset
by the underlying exposure.

Under the business performance principle, the
market value adjustment of contracts con-
cluded for the purpose of economic hedging
and commercial contracts is deferred to the
period during which the hedged transaction
affects results. See note 1.1.

At 31 December 2017, the accumulated
exchange rate adjustments totalled DKK
-1,606 million divided between the exchange
rate adjustment of the net investment of
DKK -2,189 million and the hedging thereof
of DKK 583 million.

Ineffectiveness relating to hedging of net
investments in foreign subsidiaries totalled
DKK 0 million (2016: DKK 1 million) and is
recognised in financial income and expenses.

When the market value of contracts classified
as economic hedging, commercial contracts
and partly cash flow hedging (currency) is
recognised in the income statement, we
present them in the hedging item which is
included in EBITDA.

We have entered into a number of commercial
contracts under which physical delivery is
made, and which are managed together with
the financial contracts, for which reason they
are recognised at market value in accordance
with IFRS.

Our hedging of energy prices and commer-
cial contracts recognised at market value is
specified in the table below.

The table shows an effect on EBITDA
from agreements with a contractual
principal amount of DKK 46,699 million
(2016: DKK 42,265 million).

Hedging of net investments in
foreign subsidiaries
Our foreign activities entail currency risk.
We hedge this currency risk by raising loans
in foreign currencies, entering into forward
exchange contracts and investing in currency
swaps and options.

Hedging of net investments in foreign subsidiaries, DKK million

Of which
non-
controlling
interests

Hedged
amount in
currency

Accumulated
exchange rate
adjustment in
equity

Net
position

Net
investment1

35,991

13,784

286

(3,777)

(23,868)

(5,668)

(150)

8,346

8,116

136

(1,527)

(15)

(64)

50,061

(3,777)

(29,686)

16,598

(1,606)

35,678

15,220

3,349

54,247

(4,291)

(18,765)

12,622

(1,309)

(5,656)

9,564

3,349

(38)

(363)

(4,291)

(24,421)

25,535

(1,710)

2017

Currency

GBP

EUR

Other

Total

2016

Currency

GBP

EUR

Other

Total

At 31 December 2017, net investments hedged by a derivative were hedged at
an average price of 8.61 for GBP and 7.43 for EUR.

The table shows our
hedging of investments
in foreign subsidiaries.
The table also shows
the exchange rate
adjustment of the
investment as well
as the associated
hedging value.

The net position
expresses the ac-
counting exposure. If,
for example, the GBP/
DKK exchange rate
had gone up by 10%
on 31 December 2017,
equity would have
increased by
DKK 835 million,
corresponding to 10%
of DKK 8,346 million.

Economic hedging
and commercial
contracts,
DKK million

Energy

Oil swaps

Gas swaps

Power swaps

Power options

Coal

Currency

Forward exchange
contracts

Total

2017

2016

Contractual
principal
amount

Market
value

Contractual
principal
amount

3,595

6,939

7,745

2,941

176

Market
value

374

(626)

(1,009)

280

3,985

7,522

8,014

1,497

301

(76)

(629)

(641)

242

512

(556)

25,303

46,699

592

(348)

20,946

42,265

Under the business
performance principle,
economic hedging is ac-
counted for as effective
hedging. The resulting
market value adjust-
ment is consequently
deferred to the period in
which the hedged trans-
action affects results.

Accounting policies

Economic hedging and commercial contracts
Market value adjustments of financial contracts of-
fered to customers with a view to price hedging and
financial instruments that have been entered into to
hedge the Group's principal operating activities are
recognised as revenue or cost of sales.

The contractual
principal amount has
been determined as
the net position per
derivative type.

Under the business performance principle, economic
hedging is accounted for as effective hedging. The
resulting market value adjustment is consequently
deferred to the period in which the hedged transac-
tion affects results. See note 1.1 for further information.

The contractual principal amount has been deter-
mined as net position per derivative type.

Hedging of net investments in foreign subsidiaries
Changes in the market value of derivatives and
loans that are used to hedge net investments in
foreign subsidiaries or associates are recognised in
the consolidated financial statements directly in
equity within a separate foreign currency translation
reserve.

135 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 7. Risk management

Note summary

Contents

7.3 Trading portfolio

Trading portfolio
The purpose of our trading portfolio is to:
– optimise hedging contracts
– contribute to increased market insight and
– profit from short-term fluctuations in

energy prices.

The trading portfolio consists primarily of
positions in oil, gas and power.

Coal

Total

Oil swaps

Gas swaps and options

Power swaps and options

Carbon emissions allowances

Overview of the Group's trading
portfolio, DKK million

Contractual principal
amount

Market value

Contractual principal
amount

Market value

2017

2016

287

2,772

5,566

8,720

(361)

170

363

(14)

(40)

118

848

2,199

1,647

4,783

(810)

440

(18)

(375)

The trading portfolio constitutes a smaller
part of our total portfolio of derivatives, and
the associated risk is limited. Also, earnings
from the trading portfolio constitute a limited
share of our total earnings.

When a hedging instrument does not fully
correspond to the hedged risk, any difference
between the hedging contract entered into
and the hedged exposure is recognised in the
income statement as part of the gain (loss)
from the trading portfolio.

Market trading mandates

VaR max. in 2017:
DKK 70 million

Stress max. in 2017:
DKK 400 million

Maximum open positions in trading portfolio

VaR indicates the largest loss in one
trading day to a probability of 95%. VaR
is based on data for the past 60 trading
days with the heaviest weighting being
assigned to the most recent trading days.

Stress indicates the largest daily loss we risk
sustaining with the given portfolio. Stress is
based on data from 1 January 2006 to the
present day.

– Max. 15TWh of gas
– Max. 4 million boe of oil
– Max. 8TWh of power
– Max. 3 million tonnes of CO2
– Max. 2 million tonnes of coal

Daily position in the trading portfolio, market trading mandates, DKK million

Annual contribution margin from the trading
portfolio, DKK million

Board of Directors mandate
VaR (value at risk) (DKK '000)

Group Executive Management mandate

120

100

Accounting policies

Market value adjustments of physical and financial
contracts relating to energy that are concluded with
a view to generating gains from short-term price
changes are recognised as revenue.

2016

2017

750

500

250

562

376

2016

2017

The contractual
principal amount has
been determined as
the net position per
derivative type. The
table shows the market
value of our derivatives
which are included in
the trading portfolio at
31 December 2017.

Trading activities are
carried out within
mandates approved by
the Board of Directors.
The mandates comprise
a value-at-risk (VaR)
mandate and a stress
mandate as well as a
limit for the maximum
positions measured in
energy units per product
(oil, gas, etc.).

136 / 173

Ørsted Annual report 2017Financial statements
Consolidated financial statements – 7. Risk management

Note summary

Contents

7.4 Sensitivity analysis of financial instruments

The sensitivity analysis in the table shows the
effect of market value changes assuming a
relative price change at 31 December 2017.

Sensitivity analysis of
financial instruments,
DKK million

31 December 2017

31 December 2016

Effect on profit (loss) before tax

Price change

Trading
portfolio

Other financial
instruments1

Effect on
equity before
tax

Effect on profit (loss) before tax

Trading
portfolio

Economic
hedging 1

Effect on
equity before
tax

10%

-10%

10%

-10%

10%

-10%

10%

-10%

10%

-10%

10%

-10%

10%

-10%

(10)

(81)

(6)

(91)

(31)

419

(419)

134

(134)

(607)

607

(952)

959

(43)

131

(131)

(2,312)

2,312

(1,304)

1,304

(132)

132

(1,534)

1,942

522

(522)

(10)

(107)

107

126

(135)

(1)

(38)

(57)

175

(175)

(255)

(86)

(2,773)

2,773

(885)

894

(43)

(243)

243

(2,112)

2,112

(468)

468

(1,165)

1,285

(4)

Interest

100 basis points

1 Other financial

instruments include
derivatives classified
as economic hedging
comprises derivatives
entered into to hedge
future financial risks.
The market value
changes of these con-
tracts will be offset,
in full or in part, by a
change in the hedged
risk. Also included are
commercial contracts
recognised at market
value.

Risk

Oil

Gas

Power

Coal

USD

GBP

EUR

Effect on profit (loss) before tax comprises
financial instruments that remained open at the
balance sheet date, and which have an effect
on profit (loss) in the current financial year. The
effect is broken down by:
– trading portfolio; these contracts will

affect profit

– Other financial instruments include eco-

nomic hedging and commercial contracts;
the market value changes of contracts
allocated as economic hedges will be offset,
in full or in part, by a change in the hedged
risk.

Effect on equity before tax comprises finan-
cial instruments that remained open at the
balance sheet date, and which are value-
adjusted directly in equity.

Financial instruments include derivatives as
well as receivables and payables in foreign
currencies.

The illustrated sensitivities only comprise our
financial instruments and therefore omit the
effect from contracts concluded under which
physical delivery of the underlying assets is
made, as these are not recognised as financial
instruments in accordance with IFRS 9.

If the hedged exposure had been included in
the sensitivity analysis, the effect of a price
change would have been reduced or offset
entirely.

Net investments and associated hedging of
net investments in foreign subsidiaries are
not included in the table, as the effect of the

sum of the investment and the hedging is
considered to be neutral to price changes.

the exchange rate would have had a corre-
sponding opposite effect.

A 10% increase in the currencies hedged in
connection with net investments would reduce
equity by DKK -2,969 million (2016: DKK -2,442
million) arising from the hedging instruments.
All other conditions being equal, a decrease in

137 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 7. Risk management

Note summary

Contents

7.5 Credit risks

The counterparties and credit limits granted
are monitored on an ongoing basis. The
monitoring is based on the framework
established by our Board of Directors and
Executive Board. For the most significant
counterparties, an internal credit rating is
required to determine the internal rating
and the granting of credit limits. The rating
is based on information from external credit
rating agencies, publicly available information
and own analyses.

We suffered no losses from any single major
counterparty in 2017 or 2016.

The credit risk from our financial assets prima-
rily concerns derivatives, cash and bond port-
folios as well as receivables. The assessment is
based on the individual counterparty's ratings
with Standard & Poor's, Moody's and Fitch.
The figures do not reflect our actual credit
exposure as the positions are calculated before
offsetting our debt to such counterparties.

The AAA/Aaa category covers our position in
Danish AAA-rated government and mortgage
bonds. The non-rated category primarily
consists of trade receivables from customers,
such as end-users and PSO customers.

Accounting policies

We only offset positive and negative values if we
are entitled to and intend to settle several financial
instruments net.

Offsetting of financial assets,
DKK million

Financial assets

Financial liabilities, offset

Financial assets in the balance sheet

Amounts not offset in the balance sheet:

2017

2016

Liabilities with right of set-off

23,329

14,047

Collateral received in the form of bonds

Derivatives

9,743

(5,000)

4,743

(1,611)

(787)

2,345

Trade
receivables

33,270

(29,480)

3,790

2017

Derivatives

43,013

(34,480)

8,533

(1,611)

(787)

6,135

21,734

(14,065)

7,669

(1,697)

(773)

5,199

Total credit exposure

46,279

37,523

The table shows the credit quality of our counter-
parties distributed by category. In addition, we have
receivables and construction contracts related to the
construction of offshore wind farms amounting to
DKK 13.349 million where we have collateral in the
offshore wind farm under construction.

Offsetting of financial liabilities,
DKK million

Derivatives

Financial liabilities

Financial assets, offset

Financial liabilities in the balance sheet

Amounts not offset in the balance sheet:

Assets with right of set-off

Collateral provided in the form of bonds

Net

8,700

(5,000)

3,700

(1,611)

(40)

2,049

Trade
payables

32,327

(29,480)

2,847

2017

Derivatives

41,027

(34,480)

6,547

(1,611)

(40)

4,896

19,683

(14,065)

5,618

(1,697)

(276)

3,645

Trade
receivables

30,349

(28,061)

2,288

Trade
payables

30,330

(28,061)

2,269

2016

52,083

(42,126)

9,957

(1,697)

(773)

7,487

2016

50,013

(42,126)

7,887

(1,697)

(276)

5,914

The table shows our
financial assets and
liabilities where a share
is offset and is therefore
presented net. We have
a number of counterpar-
ties in respect of which
we are both buyer and
seller of financial con-
tracts, etc. Consequent-
ly, our gross financial
assets and liabilities can
be significant before
offsetting. Offsetting is
typically limited within
specific products.

The decrease in the
amount offset regarding
derivatives is mainly
attributable to the
decrease in the market
value of oil derivatives.

138 / 173

We are exposed to credit risks from our
trading partners and customers. A large part
of our counterparty risks concerns major
international energy companies and banks.
Such trading is regulated under standard
agreements, such as EFET and ISDA agree-
ments, which feature, for instance, credit rating
and netting provisions. Our credit exposure
is mainly concentrated on counterparties in
Denmark, the UK, Germany and Sweden.

We limit our credit risks by:
– systematically rating significant

counterparties

– granting credit limits or
– demanding that collateral be furnished

or credit insurance.

Credit quality of the
Group's counterparties,
DKK million

AAA/Aaa

AA/Aa

A/A

BBB/Baa

Non-rated

Net

5,197

4,969

1,712

11,072

3,687

7,382

2,558

9,849

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 7. Risk management

Note summary

Contents

7.6 Categories of

7.7 Fair value

financial instruments

measurement

Categories of financial instruments
Financial instruments are used for various pur-
poses. The purpose determines the category,
and whether the value adjustment of the
instrument should be recognised in the profit
(loss) for the year or as part of the hedging
reserve in equity.

The fair value of financial instruments
measured at amortised cost is identical to
the carrying amount with the exception
of bank loans and issued bonds where the
market value is stated in note 6.1.

Categories of financial instruments,
DKK million

Energy and currency derivatives

Securities

Financial assets measured at fair value via
income statement

Interest derivatives

Currency derivatives

Derivatives (assets) used as hedging
instrument

Trade receivables

Other accounts receivable

Financial assets measured
at amortised cost

Energy and currency derivatives

Financial liabilities measured at fair value
via income statement

Interest derivatives

Currency derivatives

Derivatives (liabilities) used as hedging
instrument

Bank loans and issued bonds

Trade payables

Other accounts payable

Financial liabilities measured at
amortised cost

The table shows our
financial instruments
divided into categories.
The category indicates
how the financial instru-
ment is recognised in the
financial statements.

2017

2,589

25,280

27,869

2,281

9,170

8,812

17,982

2,214

2,160

29,636

11,499

2,767

2016

4,945

16,533

21,478

3,666

3,744

7,286

5,204

12,490

4,201

2,726

2,729

24,183

10,024

4,032

Fair value hierarchy,
DKK million

Assets

Equity and liabilities

Securities

Derivatives Other receivables

Derivatives

2017
Level 1

Level 2

Level 3

Total 2017

2016
Level 1

Level 2

Level 3

Total 2016

22,490

2,790

25,280

13,428

3,105

16,533

444

3,478

948

4,870

2,461

5,959

269

8,689

105

667

2,602

1,105

4,374

1,467

5,037

426

6,930

Valuation principles and key assumptions
In order to minimise the use of subjective
estimates or modifications of parameters and
calculation models, it is our policy to deter-
mine fair values based on external information
that most accurately reflects the fair values.

Fair values are determined continuously by
our Risk Management function, which reports
to the CFO.

Accounting policies

Level 1 comprises quoted securities and derivatives
that are traded in active markets.

Level 2 comprises derivatives, where valuation
models with observable inputs are used to measure
fair value.

The fair values are based on assumptions concerning
the long-term prices of, in particular, power, gas, coal,
USD, EUR, volatilities as well as risk premiums in re-
spect of liquidity and market risks. Since there are no
active markets for the long-term prices of power, oil
and gas, the fair value has been determined through
an estimate of the future prices. The most important
parameter resulting in commodity contracts being
classified as level 3 is the power price. Normally, the
price can be observed for a maximum of five years in
the power market, after which an active market no
longer exists. Beyond the five-year horizon, the energy
price is thus projected on the basis of the observable
forward price for years one to five. As the forward
price of power develops stably during the five-year
period, the projection over a small number of years is
not deemed to be associated with any material risk.

In connection with the divestment of our Oil & Gas
business, we will receive USD 100 million if the Rose-
bank field is developed. This payment is recognised at
fair value under other receivables.

43,902

38,239

Level 3 comprises primarily long-term contracts on
the purchase/sale of, in particular, power and gas.

All assets and liabilities measured at fair value are
measured on a recurring basis.

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Ørsted Annual report 2017Financial statementsNote summary

Contents

8. Other notes

Related-party transactions

Operating lease obligations

Auditor's fees

Contractual obligations

Company overview

141

142

143

144

Ørsted Annual report 2017Consolidated financial statements – 8. Other notes

Note summary

Contents

8.1 Related-party transactions

Related parties that have control over the
Group comprise the Danish State, represented
by the Danish Ministry of Finance.

The remuneration and share programme for
Group Executive Management and the Board
of Directors is described in notes 2.6 and 2.7.

Related parties with a significant influence
included Goldman Sachs until 2 March 2017,
when Martin Hintze from Goldman Sachs
stepped down from Ørsted A/S's Board
of Directors.

Board member Peter Korsholm has, through
a company indirectly owned by him, had
ordin ary transactions with Danish Oil Pipe
A/S, a wholly-owned subsidiary in the
Ørsted Group.

Joint ventures, DKK million

Dividends received and capital reductions

Capital transactions, net

Purchase of goods and services

Interest, net

Receivables

Payables

Other related parties are the Group's associ-
ates and joint ventures, members of the Board
of Directors and the Executive Board as well
as other senior executives.

In 2016, we divested Gas Distribution A/S to
the Danish transmission system operator
Energinet, which is owned by the Danish State.
The cash selling price was DKK 2,325 million.

Associates, DKK million

Dividends received and capital reductions

Sale of goods and services

Purchase of goods and services

See note 8.5 for an overview of our joint
ventures and associates.

Related-party transactions are made on
arm's length terms. Intra-group transactions
have been eliminated in the consolidated
financial statements.

We use the exemption set out in IAS 24.25
concerning entities in which the Danish State
is a related party, and transactions with
government-related companies are therefore
not disclosed. Transactions with owners
consist solely of transactions with Goldman
Sachs until 2 March 2017.

There were no other related-party transac-
tions during the period.

Interest, net

Receivables

Payables

Owners, DKK million

Sale of goods and services

Receivables

Board of Directors, DKK million

Purchase of goods and services

Payables

2017

(23)

(20)

110

2016

175

(143)

674

133

(20)

469

141 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 8. Other notes

Note summary

Contents

8.2 Operating lease obligations

Our total operating lease obligations in-
creased by DKK 3,106 million relative to last
year. The increase in the obligations is pri-
marily due to the fact that we have launched
the Hornsea 1 project and in this connection
entered into leases amounting to just over
DKK 2 billion.

Wind Power's assets held under operating
leases comprise mainly seabeds relating to the
offshore wind farms in the UK, service vessels
and a harbour area in Belfast, Northern Ireland.

Bioenergy & Thermal Power's most significant
leased assets are two plots of land. In the
Netherlands, we lease the land on which the
Enecogen Power Station is located, and in the
UK, we lease land in Northwich which will be
the site of our first Renescience plant.

Distribution & Customer Solutions mainly
lease gas storage facilities in Germany.

Leased assets recognised under 'Other activ i-
ties' mainly comprise our two office premises
in Gentofte and London. The premises are used
by employees in most of our segments.

Seabed leases include variable lease pay-
ments which depend on the number of MWh
generated. However, we have typically agreed
on minimum lease payments for the seabeds.

Lease payments recognised in profit (loss) for
the year amounted to DKK 885 million (2016:
DKK 746 million).

For the purpose of calculating the FFO/
adjusted interest-bearing net debt credit
metric, the present value and interest expenses
of the lease obligations are calculated. The
results and the discount rate are shown in
the table with supplementary information for
operating lease obligations. We reduced the
discount rate in 2017 due to the continued low
interest rate environment.

Accounting policies

We recognise operating lease payments in profit
(loss) for the year over the term of the lease on a
straight-line basis. When using assets held under
operating leases in respect of construction of off-
shore wind farms or other assets, we recognise lease
payments in the cost of the asset in step with the
construction of the asset.

Operating lease obligations by segment
2017, DKK million

Wind
Power

Bioenergy
& Thermal
Power

Distribution
& Customer
Solutions

Other
activities

0-1 year

1-2 years

2-3 years

3-4 years

4-5 years

After 5 years

Total

Present value

Operating lease obligations by segment
2016, DKK million

0-1 year

1-2 years

2-3 years

3-4 years

4-5 years

After 5 years

Total

Present value

Supplementary information to operating
lease obligations, continuing operations,
DKK million

Present value of lease payments

Lease payments recognised in profit (loss)
for the year

Calculated interest expenses on lease
obligations

Discount rate applied

462

731

417

203

230

3,330

5,373

3,638

166

133

100

1,661

2,259

1,449

144

184

117

145

181

108

145

159

101

643

453

146

159

101

645

563

171

198

206

203

200

1,529

2,507

1,887

182

196

202

199

1,538

2,516

1,866

Total

789

1,097

709

492

516

5,104

8,707

6,095

503

494

388

385

386

3,445

5,601

3,986

2017

6,095

885

234

3.5%

2016

3,986

746

194

4.5%

The present value
is calculated by
discounting the
individual obligations
each year using our
internal discount rate
of 3.5% (2016: 4.5%).

142 / 173

Ørsted Annual report 2017Financial statementsConsolidated financial statements – 8. Other notes

Note summary

Contents

8.3 Auditor's fees

8.4 Contractual
obligations

PwC is Ørsted's auditors appointed by the
annual general meeting. PwC audits the
consolidated financial statements of Ørsted
and our subsidiaries' financial statements in
all the countries where we are represented.

Other assurance engagements primarily in-
cluded reviews of the internal interim balance
sheet for Oil & Gas, reviews of non-financial
data and of regulatory financial statements.

Tax and VAT advice primarily included advice
in connection with the divestment of assets
and enterprises and advice in connection with
the preparation of tax returns and the calcu-
lation of the income subject to international
joint taxation.

Other services include other consultancy ser-
vices from PwC, including advice in connection
with due diligence and the divestment of assets
and enterprises.

Fees for services other than statutory audit
supplied by PwC Denmark to Ørsted amounted
to DKK 8 million and consisted of accounting
and tax advice in connection with the divest-
ment of assets and enterprises, review of non-
financial data and other general accounting
and tax advice.

In 2016, PwC provided consultancy services
in connection with the IPO. The fee for this
totalled DKK 18 million.

Auditor's fees, DKK million

Statutory audit

Other assurance engagements

Tax and VAT advice

Other services

Total fees to PwC

2017

2016

In 2017, PwC provided
advisory services
totalling DKK 1.8 million
concerning acquisi-
tion and divestment
activities, which are
not included in our limit
for the use of PwC for
non-audit services.

At 31 December 2017, contractual obligations
in Wind Power mainly related to offshore
wind turbines, foundations and cables, etc.,
for the construction of offshore wind farms.
The obligations of Bioenergy & Thermal Power
mainly related to the biomass conversion of

Asnæs Power Station, while the obligations of
Distribution & Customer Solutions related to
the roll-out of smart meters.

Contractual obligations by
segment, DKK million

0-1 year

1-5 years

2017

2016

Wind
Power

14,363

17,122

31,485

41,676

Bioenergy
& Thermal
Power

Distribution
& Customer
Solutions

Other
activities

605

285

890

569

590

531

1,121

1,300

869

Total

15,558

17,938

33,496

44,414

Overview of concluded
contracts where delivery
had not taken place at
31 December 2017.

143 / 173

Ørsted Annual report 2017Financial statements
Consolidated financial statements – 8. Other notes

Note summary

Contents

8.5 Company overview

Segment/company/registered office

Parent company

Ørsted A/S, Fredericia, Denmark

Wind Power

Anholt Havvindmøllepark I/S2, Fredericia, Denmark

Barrow Offshore Wind Limited, London, UK

Bay State HoldCo LLC., Delaware, USA

Bay State Wind LLC., Delaware, USA

Borkum Riffgrund I Holding A/S, Fredericia, Denmark

Borkum Riffgrund I Offshore Windpark A/S GmbH & Co. oHG, Norden, Germany

Borkum Riffgrund 2 Holding GmbH, Hamburg, Germany

Borkum Riffgrund 2 Offshore Wind Farm GmbH & Co. oHG, Norden, Germany

Breesea Limited, London, UK

BSW Holdco LLC, Delaware, USA

BSW Projectco LLC, Delaware, USA

Burbo Extension Holding Ltd, London, UK

Burbo Extension Ltd, London, UK

Celtic Array Limited, Berkshire, UK

CT Offshore A/S, Fredericia, Denmark

Cygnus Wind Transmission Limited, London, UK

Formosa 1 Investment Company Limited, Taipei City, Taiwan

Formosa I Wind Power Co., Ltd, Taipei City, Taiwan

Gode Wind 03 GmbH, Hamburg, Germany

Gode Wind 04 GmbH, Hamburg, Germany

Gode Wind 1 Offshore Wind Farm GmbH & Co. oHG, Norden, Germany

Gode Wind 2 Offshore Wind Farm P/S GmbH & Co. oHG, Norden, Germany

Gunfleet Sands Holding Ltd., London, UK

Gunfleet Sands II Limited, London, UK

Gunfleet Sands Limited, London, UK

Type1

Ownership
interest

Segment/company/registered office

Type1

Ownership
interest

Horns Rev I Offshore Wind Farm, Fredericia, Denmark

Hornsea 1 Holdings Limited, London, UK

Hornsea 1 Limited, London, UK

50%

Lincs Renewable Energy Holdings Limited, London, UK

100%

Lincs Wind Farm (Holding) Limited, London, UK

50%

Lincs Wind Farm Limited, Aberdeen, UK

100%

London Array Limited, Kent, UK

Morecambe Wind Limited, London, UK

50%

Njord Limited, London, UK

100%

Northern Energy OWP West GmbH, Hamburg, Germany

50%

Nysted Havmøllepark I, Fredericia, Denmark

100%

Nysted I A/S, Fredericia, Denmark

50%

67%

Nördlicher Grund GmbH, Hamburg, Germany

Ocean Wind LLC, Delaware, USA

OFTRAC Limited, London, UK

Optimus Wind Limited, London, UK

Optimus Wind Transmission Limited, London, UK

Orsted Borkum Riffgrund I GmbH, Hamburg, Germany

100%

Orsted Borkum Riffgrund I HoldCo GmbH, Hamburg, Germany

35%

100%

50%

100%

Orsted Borkum Riffgrund West I GmbH, Hamburg, Germany

Orsted Borkum Riffgrund West II GmbH, Hamburg, Germany

Orsted Borssele 1 B.V., 's-Gravenhage, Netherlands

Orsted Borssele Holding B.V., 's-Gravenhage, Netherlands

Orsted Burbo (UK) Limited, London, UK

Orsted Burbo Extension Holding Ltd, London, UK

Orsted Gode Wind 1 Holding GmbH, Hamburg, Germany

Orsted Gode Wind 2 GmbH, Hamburg, Germany

Orsted Gunfleet Sands Demo Ltd, London, UK

40%

100%

50%

25%

50%

100%

43%

86%

100%

144 / 173

Ørsted Annual report 2017Financial statementsSegment/company/registered office

Orsted Hornsea Project Four Limited, London, UK

Orsted Hornsea Project Three (UK) Limited, London, UK

Orsted InvestCo Limited, Taipei City, Taiwan

Orsted Isle of Man (UK) Limited, Isle of Man

Orsted Lincs (UK) Ltd., London, UK

Orsted London Array II Limited, London, UK

Orsted London Array Limited, London, UK

Orsted North America Inc., Delaware, USA

Orsted Power (Gunfleet Sands) Ltd, London, UK

Orsted Power (Participation) Ltd, London, UK

Orsted Power (UK) Limited, London, UK

Orsted Race Bank (Holding) Ltd., London, UK

Orsted Shell Flats (UK) Limited, London, UK

Orsted Speicher R GmbH, Hamburg, Germany

Orsted Taiwan Ltd., Taipei City, Taiwan

Orsted UK III Limited, London, UK

Orsted Walney Extension Holdings Limited, London, UK

Orsted West of Duddon Sands (UK) Limited, London, UK

Orsted Westermost Rough Limited, London, UK

Orsted Wind Power Germany GmbH, Hamburg, Germany

Orsted Wind Power Netherlands B.V., 's-Gravenhage, Netherlands

Orsted Wind Power Netherlands Holding B.V.,'s-Gravenhage, Netherlands

Orsted Wind Power North America LLC, USA

Race Bank Wind Farm (Holding) Limited, London, UK

Race Bank Wind Farm Limited, London, UK

Rhiannon Wind Farm Limited, Windsor, UK

Scarweather Sands Limited, Coventry, UK

SMart Wind Limite, London, UK

Smart Wind SPC8 Limited., London, UK

Sonningmay Wind Limited, London, UK

Soundmark Wind Limited, London, UK

UMBO GmbH, Hamburg, Germany

Consolidated financial statements – 8. Other notes

Note summary

Contents

Type1

Ownership
interest

Segment/company/registered office

VI Aura Limited, London, UK

VI Aura Transmission Limited, London, UK

Walney (UK) Offshore Windfarms Limited, London, UK

Walney Extension Holdings Limited, London, UK

Walney Extension Limited, London, UK

West of Duddon Sands, London, UK

Westermost Rough (Holding) Limited, London, UK

Westermost Rough Limited, London, UK

Ørsted - Anholt Offshore A/S, Fredericia, Denmark

Ørsted Horns Rev 2 A/S, Fredericia, Denmark

Ørsted Horns Rev I A/S, Fredericia, Denmark

Ørsted Hornsea 1 Holdings Limited, London, UK

Ørsted Nearshore Wind ApS, Fredericia, Denmark

Ørsted VE A/S, Fredericia, Denmark

Ørsted Vind A/S, Fredericia, Denmark

Ørsted Wind Power A/S, Fredericia, Denmark

Ørsted Wind Power Denmark A/S, Fredericia, Denmark

Ørsted Wind Power Holding A/S3, Fredericia, Denmark

Ørsted Wind Power TW Holding A/S, Fredericia, Denmark

Bioenergy & Thermal Power

Cure Renescience B.V., 's-Gravenhage, Netherlands

DE Thermal Power Nr. 1 A/S in voluntary liquidation, Fredericia, Denmark

DONG Energy Kraftwerke Greifswald Verwaltungs GmbH in liquidation, Stralsund, Germany

DONG Energy New Bio Solutions Co. Ltd., Beijing, China

Emineral A/S, Fredericia, Denmark

Enecogen V.O.F, Europoort Rotterdam, Netherlands

Haderslev Kraftvarmeværk A/S in voluntary liquidation, Fredericia, Denmark

Inbicon A/S, Fredericia, Denmark

Kalundborg Bioenergi A/S, Skanderborg, Denmark

Konsortiet for etablering af Maabjerg Energy Concept, Holstebro, Denmark

Maabjerg Energy Concept A/S, Fredericia, Denmark

100%

50%

100%

90%

Orsted Holding Ludwigsau I GmbH, Hamburg, Germany

Type1

Ownership
interest

100%

50%

100%

50%

100%

50%

100%

40%

50%

70%

100%

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Ørsted Annual report 2017Financial statementsConsolidated financial statements – 8. Other notes

Note summary

Contents

Segment/company/registered office

Orsted Kraftwerke Holding GmbH, Hamburg, Germany

Orsted Netherlands B.V., 's-Gravenhage, Netherlands

Orsted Power Rotterdam B.V., 's-Gravenhage, Netherlands

Orsted Renescience Northwich Limited, London, UK

Orsted Renescience Northwich O&M Limited, London, UK

Orsted SP (UK) Limited, London, UK

Orsted SP Holding (UK) Limited, London, UK

Pyroneer A/S, Fredericia, Denmark

Renescience A/S, Fredericia, Denmark

Severn Power Funding Ltd., London, UK

Type1

Ownership
interest

100%

Segment/company/registered office

Orsted Services B.V.'s, Gravenhage, Netherlands

Orsted Speicher E GmbH, Hamburg, Germany

Radius Elnet A/S, Fredericia, Denmark

Ørsted Pipelines A/S, Fredericia, Denmark

Ørsted Real Estate A/S, Fredericia, Denmark

Ørsted Sales & Distribution A/S3, Fredericia, Denmark

Ørsted Salg & Service A/S3, Fredericia, Denmark

Other

EM El Holding A/S, Fredericia, Denmark

EnergiGruppen Jylland El A/S, Fredericia, Denmark

Stigsnæs Vandindvinding I/S, Slagelse, Denmark

64%

EnergiGruppen Jylland El Holding A/S, Fredericia, Denmark

Vejen Kraftvarmeværk A/S in voluntary liquidation, Fredericia, Denmark

Ørsted Bioenergy & Thermal Power A/S3, Fredericia, Denmark

Ørsted Energy Storage Holding A/S, Fredericia, Denmark

Ørsted New Bio Solutions China A/S, Fredericia, Denmark

Ørsted New Bio Solutions Holding A/S, Fredericia, Denmark

Distribution & Customer Solutions

Danish Offshore Gas Systems A/S, Fredericia, Denmark

Danish Oil Pipe A/S3, Fredericia, Denmark

Etzel-Kavernenbetriebsgesellschaft mbH & Co. KG, Bremen, Germany

Etzel-Kavernenbetriebs-Verwaltungsgesellschaft mbH, Bremen, Germany

GNG ApS, Copenhagen, Denmark

Obviux A/S, Fredericia, Denmark

Orsted AB, Malmö, Sweden

Orsted Energy Solutions (UK) Limited, London, UK

Orsted Infrastructure GmbH3, Hamburg, Germany

Orsted Leitung E GmbH, Hamburg, Germany

Orsted Markets GmbH, Hamburg, Germany

Orsted Power Sales (UK) Limited, London, UK

Orsted S&D (UK) Limited, London, UK

Orsted Sales (UK) Limited, London, UK

Orsted Sales GmbH, Hamburg, Germany

100%

33%

31%

100%

Lithium Balance A/S, Egedal, Denmark

Orsted (UK) Ltd., London, UK

Orsted Services Malaysia Sdn. Bhd., Kuala Lumpur, Malaysia

Orsted Polska Sp. z o. o., Warszawa, Poland

Ørsted EGJ A/S, Fredericia, Denmark

Ørsted El A/S3, Fredericia, Denmark

Ørsted Insurance A/S3, Fredericia, Denmark

Ørsted nr. 1 2008 A/S2, 3, Fredericia, Denmark

Ørsted Nr. 1 2014 A/S2, 3, Fredericia, Denmark

Ørsted Nr. 2 2014 A/S2, 3, Fredericia, Denmark

Ørsted Nr. 3 2014 A/S2, 3, Fredericia, Denmark

Ørsted Nr. 4 2014 A/S2, 3, Fredericia, Denmark

Ørsted Services A/S3, Fredericia, Denmark

1 S = subsidiary
A = associate
JO = joint operation
JV = joint venture
NC = non-consolidated entity

2 The company applies the provision in sec-
tion 5 or section 6 of the Danish Financial
Statements Act to omit presenting a
separate annual report.

3 Subsidiaries owned directly by Ørsted A/S

Type1

Ownership
interest

100%

15%

100%

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Ørsted Annual report 2017Financial statementsNote summary

Contents

Consolidated ESG statements
(additional information)

Introduction

Environment

Social

Governance

Basis of reporting

148

149

151

153

154

Ørsted Annual report 2017Consolidated ESG statements (additional information)

Note summary

Contents

Introduction

Consolidated ESG statements
In the consolidated ESG statements, we give
an account of our results, objectives and
accounting policies in accordance with our
strategic targets, business drivers and selected
environmental, social and governance data.

Consolidation
Unless otherwise stated, ESG data are con-
solidated according to the same principles as
the financial statements.

Data for accident statistics are calculated
according to operational scope, which means
that data are included for operations where
Ørsted is responsible for safety, including the
safety of external suppliers.

For further ESG data
Our full ESG data set can be seen in the inde-
pendent publication 'ESG performance report
2017', which includes:
– a description of Ørsted's work for greater
gender diversity at management level in
accordance with section 99b of the Danish
Financial Statements Act

– the distribution of selected ESG indicators

by business unit and country.

In addition, we report on our sustainability
efforts in the publication 'Sustainability
report 2017'.

Greenhouse gas intensity,
CO2e/kWh

Total power and heat generation 2017
by energy source

500

462

400

300

200

100

406

341

282 280

224

151

100

Wind
Biomass
Coal

17%

Natural gas
Oil

0.3%

2006

2023

20
target

19%

TRIR
of 6.4

33%

Total Recordable Injury Rate (TRIR) has been reduced
from 6.8 in 2016 to 6.4 in 2017. The target is a TRIR of
5.7 or less by the end of 2020.

In 2017, our CO2e/kWh target was approved as a
science-based target. Through this target, we are
contributing to keeping the temperature increase
below 2°C, which is the objective of the Paris
Agreement from 2015.

Our goal is to reduce greenhouse gas emissions
from heat and power generation by 96% by 2023
relative to 2006.

31%

The green share of the generation increased from
50% in 2016 to 64% in 2017.

The increase was due to higher generation from off-
shore wind combined with increased use of biomass
and reduced use of coal for thermal generation.

LTIF
of 1.6

The Lost-Time Injury Frequency (LTIF) has been
reduced from 1.8 in 2016 to 1.6 in 2017.

0 fatal
accidents

Our last fatal accident was in 2012.

148 / 173

Ørsted Annual report 2017Financial statementsConsolidated ESG statements (additional information)

Note summary

Contents

Target

2017

2016

11-12 (ambition in 2025)

Environment

Strategic
target

Business
driver

Title

Capacity

Decided (FID) capacity, offshore wind

Installed capacity, offshore wind

Generation capacity, offshore wind

Wind speed

Wind energy content

Load factor

Availability

Generation

Power generation

– Power generation, wind

– Power generation, thermal

Heat generation

Degree days

Unit

m/s

TWh

Number

Coal and biomass in thermal heat and power generation

Coal share of fuels used for thermal heat and power generation %

0 (2023)

Biomass share of thermal heat and power generation

Sourcing of certified biomass

Greenhouse gases

Greenhouse gas intensity

Renewable energy

g CO2e/kWh

100% (2020)

≤ 100 (2020)
≤ 20 (2023)

Green share of heat and power generation

≥ 95 (2023)

8.9

3.9

2.5

9.3

16.7

8.5

8.2

9.0

7.4

3.6

2.0

8.9

14.4

6.0

8.4

9.2

2,705

2,715

151

224

Decided offshore wind capacity rose by 1.5GW from
2016 to 2017. The increase was mainly due to the
investment decision on Hornsea 2, which contributed
1.4GW.

Installed offshore wind capacity increased by
0.3GW to a total of 3.9GW after the opening of
Burbo Bank Extension in 2017. Our 2025 ambition is
to construct 11-12GW of offshore wind capacity.

The generation capacity of offshore wind increased
by 0.5GW from 2016 to 2017. The increase can be
attributed to Burbo Bank Extension as well as gen-
eration from the first offshore wind turbines at Race
Bank and Walney Extension.

The combination of higher offshore wind capacity
and better wind conditions contributed to 42%
higher wind-based generation in 2017 than in 2016.

In 2017, thermal heat and power generation was
2% lower than in 2016. In 2017, we inaugurated the
converted Skærbæk Power Station, which can now
use biomass instead of natural gas. We will continue
the transition from fossil fuels to biomass, and we
will stop the use of coal by 2023.

As a result of the above, the green share of our
generation increased from 50% in 2016 to 64%
in 2017.

At the same time, we reduced our greenhouse gas
intensity (mainly CO2) by 33% from 2016 to 2017.

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Ørsted Annual report 2017Financial statementsConsolidated ESG statements (additional information)

Note summary

Contents

Accounting policies

Decided (FID) capacity, offshore wind
Decided (FID) capacity is the cumulative installed off-
shore wind capacity, including capacity for offshore
wind farms where a final investment decision (FID)
has been made.

Installed capacity, offshore wind
Installed offshore wind capacity is calculated as
the cumulative offshore wind capacity installed by
Ørsted. The capacity is calculated as installed gross
capacity before divestments.

Generation capacity, offshore wind
Generation capacity is calculated as the power
generation capacity which Ørsted produces and
reports. The same scope and consolidation as for
power generation are used.

Generation capacity is calculated and included from
the time when individual offshore wind turbines pass
the 240-hour test. Generation capacity, offshore
wind has been calculated at 31 December. The
Gunfleet Sands and Walney 1 and 2 offshore wind
farms have been consolidated according to owner-
ship interest. The other wind farms are financially
consolidated.

Availability, load factor, wind speed and
wind energy content for offshore wind
Availability, load factor, wind speed and wind energy
content are calculated only for offshore wind farms.
The time-based availability factor (availability)
is calculated as the ratio of the number of hours
the offshore wind farms are available for power
generation to the total number of hours in a given
period. Total availability is determined by weighting
the individual offshore wind farms' availability by
the capacity of the offshore wind farm. Availability
is commercially adjusted.

The load factor is calculated as the ratio between
actual generation over a period relative to poten-
tial generation which is possible by continuously
exploiting the maximum capacity over the same
period. The load factor is commercially adjusted.

Commercially adjusted means that, for Danish and
German offshore wind farms, availability and load
factor, respectively, are adjusted if the offshore

wind farm has been financially compensated by the
transmission system operators in situations where
the offshore wind farm is available for generation,
but the output cannot be supplied to the grid due
to maintenance or grid interruptions. Offshore wind
farms in the UK are not compensated for non-access
to the grid.

New offshore wind turbines are included in the
calculation of availability and load factor once they
have passed the 240-hour test.

Wind speed shows the wind speeds of Ørsted's
offshore wind farms. The wind speed is delivered
for a number of areas where the individual offshore
wind farms are located. Wind speed measurements
are weighted on the basis of the capacity of the
individual offshore wind farms and consolidated
into an Ørsted total in the same way as generation.
The wind speed of the period can be compared to
a historical average. The wind speed measurements
are provided by an external supplier.

Wind energy content is calculated as the ratio be-
tween actual gross generation in a given period and
generation in a 'normal wind year'. Actual generation
is calculated as actual net generation adjusted
for availability. The wind energy content for new
offshore wind farms is included from the beginning
of the first calendar year in which the entire offshore
wind farm is in operation.

Generation
Power generation from wind is calculated as sold
generation. The Gunfleet Sands and Walney 1 and 2
offshore wind farms have been consolidated accord-
ing to ownership interest. The other wind farms are
financially consolidated.

Thermal power generation is determined as net gen-
eration sold based on settlements from the official
Danish production database. Data for generation
from foreign facilities are provided by the operators.

Thermal heat and steam generation is measured as
net output sold to heat customers.

Degree days are a measure of how cold it has been
and thus indicate the amount of energy needed to
heat a building. The number of degree days helps
to compare the heat demand for a given year with

a normal year. A degree day is an expression of a
difference of 1°C between the inside daily mean
temperature of 17°C and the outside daily mean
temperature over a period of 24 hours. The number
of degree days in a day is therefore calculated as the
difference between 17°C and the outside daily mean
temperature. The source of degree days is the Danish
Technological Institute, Energy and Climate.

Coal share of fuels used for thermal heat and power
generation
The fuel consumption for heat and power generation
at the individual power plants is stated in GJ. The
coal share is calculated as the coal consumption in
GJ relative to the total fuel volume in GJ.

Biomass share of thermal heat and power
generation
This is calculated as the green share of heat and
power generation, but is only shown for thermal
generation, i.e. for the business unit Bioenergy &
Thermal Power.

Sourcing of certified biomass
Certified biomass is defined as wood-based biomass;
wood pellets and wood chips.

In practice, waste is considered a partially carbon-
neutral fuel, as it consists of both fossil fuels and
biomass-based fuels. We use a conversion factor to
calculate the carbon emissions from the incineration
of waste. The conversion factor (37kg CO2/GJ waste)
has been used by the Danish Centre for Environment
and Energy since 1990 and until today.

Green share of heat and power generation
The green (renewable energy) share of our heat
and power generation and the distribution of the
generation on the individual energy sources and
fuels are calculated on the basis of the generation
from the plants.

Wind-based generation is calculated as a total, as
there is only one source of power.

For the CHP plants which can use several different
fuels the calculation is as follows:
For the individual CHP plant unit in the given period,
the share of the specific fired fuel (e.g. biomass) is
calculated relative to the total fired fuel quantity.
The fired fuel share is then multiplied by the total
heat and power generation (including steam) for the
specific unit in the specific period.

Certified biomass must be certified within at least
one of the categories defined in the Danish industry
agreement on sustainable biomass.

This results in the fuel-based generation for the
individual unit – for example the biomass-based
generation of heat and power in the CHP plant unit.

Certified biomass is calculated as the share of sourced
certified wooden biomass out of the total sourcing of
wooden biomass delivered to the CHP plants.

All the calculated fuel-based generation and the
wind power generation are then added up to a total,
which tallies with the total generation.

The reporting of certified biomass began in August
2016 on the start date of the Danish industry
agreement on certification and reporting of certified
biomass.

The percentage share of the individual energy
sources is calculated by dividing the generation from
the individual energy source by the total generation.

Greenhouse gas emissions
Greenhouse gas intensity is defined as the green-
house gas emissions divided by the total heat, power
and steam generation.

Greenhouse gases comprise greenhouse gas emis-
sions in accordance with the GHG Protocol from the
combustion of fuels in thermal heat and power gen-
eration. Greenhouse gases thus comprise CO2 (carbon
dioxide), N2O (dinitrogen oxide) and CH4 (methane).

In practice, waste consists of a mixture of biomass
and fossil fuel-based parts. When calculating the
renewable energy share, waste fuel is therefore
divided into a biodegradable and a non-biodegrad-
able part. Key figures from the Danish Centre for
Environment and Energy are used for this purpose.

The following energy sources and fuels are con-
sidered renewable energy: wind, biomass, waste
(biodegradable). The following energy sources are
considered fossil energy sources: coal, natural gas,
oil and waste (non-biodegradable).

150 / 173

Ørsted Annual report 2017Financial statementsConsolidated ESG statements (additional information)

Note summary

Contents

Social

Strategic
target

Business
driver

Title

Employees

Unit

Target

2017

2016

Total number of employees at 31 December

Number of FTEs

Average number of employees for the year

Number of FTEs

Loyalty

Employee satisfaction

Safety

Fatal accidents

Scale 0-100

≥ 77 (2020)

Number

LTIF (lost-time injury frequency)

Per million working hours

TRIR (total recordable injury rate)

Per million working hours

≤ 5,7 (2020)

Sales and distribution

Gas sales

Power sales

Power distribution

Reliability of supply

TWh

5,638

5,738

1.6

6.4

129.0

37.5

8.4

5,775

5,894

1.8

6.8

143.4

36.5

8.5

Reliability of supply (power cuts per customer, SAIFI)

Number

≤ DK average

0.42

0.39

Customer satisfaction

Customer satisfaction, B2C in Denmark

Customer satisfaction, B2B

Scale 1-100

Customer satisfaction, distribution customers in Denmark

Scale 1-100

≥ 80 (2020)

The number of employees fell by 2% from 2016 to
2017. The decrease was due to the divestment of the
company A2SEA and staff reductions in the business
units Bioenergy & Thermal Power and Distribution &
Customer Solutions. On the other hand, the number
of employees increased in Wind Power.

Loyalty and satisfaction are both high. With an em-
ployee satisfaction score of 76 in this year's employee
satisfaction survey, we are close to achieving our
target of 77 in 2020.

Safety KPIs showed good progress again in 2017.

In 2017, we introduced a new safety target, TRIR.
TRIR decreased from 6.8 in 2016 to 6.4 in 2017. The
aim is for a TRIR of less than 5.7 in 2020.

LTIF decreased from 1.8 in 2016 to 1.6 in 2017.

There were no fatal accidents in 2017.

We have increased our satisfaction target for
business customers (B2B) to at least 80 in 2020
(previously 75).

151 / 173

Ørsted Annual report 2017Financial statements
Consolidated ESG statements (additional information)

Note summary

Contents

Accounting policies

Employees
The reporting covers contractually employed
employees in Danish and foreign Ørsted companies
in which Ørsted holds an ownership interest of more
than 50%. Employees in associates are not included.

Employee data are recognised based on records
from the Group's ordinary registration systems. The
number of employees is determined as the number
of employees at the end of each month converted
to full-time equivalents (FTEs).

Employees who have been made redundant are
recognised until the expiry of their notice period,
regardless of whether they have been released from
all or some of their duties during their notice period.

Employee satisfaction and loyalty
Ørsted conducts a comprehensive employee
satisfaction survey once a year. All Ørsted employees
are invited to participate in the survey. In the survey,
a number of questions are asked, for example, about
employee satisfaction and loyalty. The answers are
given on a scale from 1 to 10 and are subsequently
converted to index figures on a scale from 0 to 100.

Safety
Occupational injuries are calculated according to
operational scope. Data from companies wholly
or partly owned by Ørsted and where Ørsted is
responsible for safety are included. Occupational
injuries and lost-time injuries are calculated for both
our own employees and suppliers. Data from Danish
and foreign locations are recognised.

The lost-time injury frequency (LTIF) is calculated as
the number of lost-time injuries per one million hours
worked. The number of hours worked is based on
1,667 working hours annually per full-time employee
and monthly records of the number of employees
converted into full-time employees. For suppliers, the
actual number of hours worked is recognised on the
basis of data provided by the supplier, access control
systems at locations or estimates.

LTIF includes lost-time injuries defined as injuries that
result in incapacity for work for one or more calendar
days in addition to the day of the incident.

In addition to lost-time injuries, TRIR also includes
injuries where the injured person is able to perform
restricted work the day after the accident as well
as accidents where the injured person has received
medical treatment.

Power and gas sales
Sales of power and natural gas are calculated as
physical sales to retail and wholesale customers and
exchanges. Sales of power and gas are based on
readings from Ørsted's trading systems. Internal sales
to Bioenergy & Thermal Power are not included in
the statement.

Power distribution
Power distribution is determined on the basis of data
from the official system in Denmark, which measures
and calculates total area consumption.

Reliability of supply
The frequency of announced and unannounced
power cuts for customers is expressed in terms of
SAIFI (system average interruption frequency index),
which is calculated as the average number of power
cuts per customer per year.

In 2017, we adjusted SAIFI to only include the distri-
bution networks for which Radius is responsible. This
means that SAIFI is shown exclusive of transmission
grids. Comparative figures are adjusted accordingly.
In the ESG performance report 2017, SAIFI is shown
both with and without transmission grids.

Customer satisfaction
Customer satisfaction for residential customers (B2C)
in Denmark is measured according to interaction
between the customer and Ørsted. The score is
therefore not an expression of customers' overall
satisfaction with Ørsted, but is rather related to a
given situation. The score is calculated as a weighted
score based on a number of different types of touch
points. The current touch points are customer service
for gas and power, outbound sales and web. An
external supplier conducts interviews.

Customer satisfaction for business customers (B2B)
is determined on the basis of customer satisfaction
surveys among Ørsted's business customers in
Denmark, the UK and Sweden. Customer satisfaction
is determined on the basis of interviews about
customers' satisfaction with Ørsted as a whole.
The survey only comprises active customers with
whom Ørsted has been in touch in connection with
contracts for the supply of power or gas in the
previous or next month. So-called sleeping customers
are therefore not included in the statement. The
method follows the ACSI model based on the EPSI
scale. External agencies conduct the interviews and
report absolute and weighted results. As of 2017, B2B
customer satisfaction is extended from comprising
Danish customers only to also include customers
from other markets.

Customer satisfaction for distribution customers
in Denmark is determined on the basis of different
types of interactions with distribution customers:
Disruption of supply, replacement of meters as well
as customer and market support. Customer satisfac-
tion is measured as the customer's satisfaction in a
specific context. Respondents are randomly selected,
and the survey is carried out by an external supplier.

Customer satisfaction for residential and distribution
customers thus relates to a specific situation, where-
as customer satisfaction for business customers is an
expression of customers' satisfaction with Ørsted as
a whole. We have a number of very large business
customers. In respect of these, it is important for us to
assess the customer relationship in general and not
just the experience of a specific situation.

152 / 173

Ørsted Annual report 2017Financial statementsGovernance

Strategic
target

Business
driver

Title

Board members

Women on the Board of Directors of Ørsted A/S

Good business conduct

Substantiated whistleblower cases

– Cases transferred to the police

Number

Accounting policies

Women on the Board of Directors of Ørsted A/S
The employee representatives on the Board of
Directors are not included in the data and the targets
for women on the Board of Directors.

Substantiated whistleblower cases
Ørsted's whistleblower hotline is available to
both internal and external business partners so
that they can report suspected or actual cases of
inappropriate or illegal business conduct.

Whistleblower cases are received and handled by
Internal Audit, which also receives similar reports
through the management system and from
compliance officers.

All cases are handled in accordance with the
guidelines for the handling of whistleblower reports
approved by the Audit and Risk Committee which is
ultimately responsible for the whistleblower scheme.

Only cases which are closed during the financial year,
and which have been reported to the Audit and Risk
Committee as fully or partially substantiated, are
included.

Cases transferred to the police
Cases transferred to the police are the number of
whistleblower cases reported in accordance with
the accounting policies mentioned above which are
transferred to the police.

Consolidated ESG statements (additional information)

Note summary

Contents

Unit

Target

2017

2016

In 2017, there was equal gender representation
on the Board of Directors, as the share of women
was 50%.

In 2017, three substantiated cases of inappropriate
or unlawful behaviour were reported through
our whistleblower scheme. Two cases concerned
violation of employement policies, and one case
concerned a conflict of interest.

The cases have had consequences for the
employees involved.

None of the cases reported were critical to the
business or affected Ørsted's financial results.

We take all cases seriously and do what we can
to prevent recurrences.

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Note summary

Contents

Basis of reporting

Accounting policies
This section describes the accounting policies
applied to the ESG statements for the Group
as a whole, while the specific accounting
policies for the individual items are described
in the previous sections.

Requirements, standards and guidelines
Pursuant to section 99a of the Danish
Financial Statements Act, Ørsted is obliged to
account for the company's CSR activities and
report on business strategies and activities
with regard to human rights, labour rights,
anti-corruption as well as the environment
and the climate.

Ørsted is a signatory to the UN Global
Compact. The UN Global Compact provides
enterprises with a strategic framework for
incorporating ten principles on human rights,
labour rights, anti-corruption measures as
well as the environment and the climate into
their strategy and business processes. The ten
principles form the basis of Ørsted's sustain-
ability efforts. Ørsted is consistently working
to promote the principles.

Companies which are signatories to the UN
Global Compact are under an obligation to
submit and publish their annual communica-
tion on progress (COP) report, in which they
must detail the progress made in implement-
ing the ten UN Global Compact principles.

By publishing its COP report, Ørsted complies
with section 99a of the Danish Financial State-
ments Act, provided that the annual report
includes a reference to where the information
is publicly available.

Ørsted's Sustainability Report (Orsted.com/
baeredygtighed2017) is the Group's COP
report and is available on the Global Compact
website at https://www.unglobalcompact.org/
what-is-gc/participants/2968#cop.

In 2017, we divested our Oil & Gas business
unit. Data for Oil & Gas are therefore not
included in the consolidated ESG statements,
neither for 2017 nor for previous years, as it is
a discontinued activity.

Materiality assessment
In 2017, we focused the contents of the ESG
statements on areas which are strategic
focus areas for Group Executive Management.
These are areas which are either included
in the Group's strategic targets, or which
are categorised as business drivers. We also
include the other ESG data described in the
Group's annual report.

In 2017, this has resulted in a number of –
primarily supplementary sustainability indica-
tors – being omitted from the consoli dated
ESG statements compared to 2016.

Under section 99b of the Danish Financial
Statements Act, Ørsted must account for the
company's objectives and policies which over
time will ensure greater diversity in relation to
gender representation at management level.
This account can be found in our report 'ESG
performance report 2017', but information
about gender distribution is also included in
Ørsted's COP report and consolidated ESG
statements.

Consolidation of ESG data
Unless otherwise stated, ESG data are consoli-
dated according to the same principles as the
financial statements – financial scope.

Thus, the consolidated ESG statements
include the parent company Ørsted A/S and
subsidiaries controlled by Ørsted A/S. Data
from associates and joint ventures are not
included in the consolidated ESG statements.

In 2017, the following indicators are not
included compared to 2016
– Biomass share of Danish CHP generation

capacity

– EU ETS carbon emissions
– Gas distribution
– Customer complaints
– Reputation
– Employee turnover rate
– Gender diversity in management

( organisational levels)

– Lost-time injuries (number)
– Environmental accidents
– Share of employees who have completed

a course in good business conduct

– Business partner screenings

In 2017, the following indicators were
added compared to 2016
– Wind speed
– TRIR

154 / 173

Ørsted Annual report 2017Financial statements
Note summary

Contents

Parent company
financial statements

Income statement

Balance sheet

Statement of changes in equity

Notes
– Basis of reporting

– Employee costs

– Financial income and expenses

– Tax on profit (loss) for the year and deferred tax

156

157

158

– Distribution of net profit

– Investments in subsidiaries

– Receivables from subsidiaries

– Derivatives

– Securities

– Loans and borrowings

– Other provisions

– Contingent liabilities

– Related-party transactions

– Operating lease obligations

– Auditor's fees

– Ownership information

Ørsted Annual report 2017Parent company financial statements

Note summary

Contents

Income statement

Balance sheet

1 January - 31 December

31 December

Note Income statement, DKK million

Revenue

Other operating income

Employee costs

External expenses

Operating profit (loss) (EBIT)

2017

232

(31)

(315)

(114)

Gain on divestment of enterprises

(4,210)

2016

Note Assets, DKK million

2017

2016

Note Equity and liabilities, DKK million

229

(28)

(453)

(251)

1,527

Investments in subsidiaries

41,762

54,755

Share capital

Receivables from subsidiaries

48,706

50,402

Reserves

Other receivables

Financial assets

1,325

Retained earnings

91,793

105,157

Proposed dividends

Non-current assets

91,793

105,157

Receivables from subsidiaries

15,664

7,628

Equity attributable to
shareholders in Ørsted A/S

Financial income

Financial expenses

13,667

20,221

Derivatives

(10,486)

(21,645)

Other receivables

Profit (loss) before tax

(1,143)

(148)

Receivables

Tax on profit (loss) for the year

Profit (loss) for the year

(76)

(1,219)

623

475

Securities

Cash

Current assets

Assets

3,596

19,980

524

209

19,784

27,817

24,806

16,061

862

438

45,452

44,316

137,245

149,473

Hybrid capital

Equity

Deferred tax

Other provisions

2017

4,204

(467)

2016

4,204

20,782

27,522

11,958

3,783

2,522

35,042

39,466

13,239

13,248

48,281

52,714

775

1,744

Bank loans and issued bonds

25,715

22,164

Other payables

1,516

Non-current liabilities

26,598

25,424

Bank loans and issued bonds

Derivatives

Trade payables

6,509

4,020

159

2,015

19,171

173

Payables to subsidiaries

48,638

48,461

Other payables

Income tax

Current liabilities

Liabilities

2,433

607

886

629

62,366

71,335

88,964

96,759

Equity and liabilities

137,245

149,473

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Ørsted Annual report 2017Financial statementsParent company financial statements

Note summary

Contents

Statement of changes in equity

1 January - 31 December

Retained
earnings

Proposed
dividends

Shareholders
in Ørsted A/S Hybrid capital

2,522

39,466

13,248

Statement of changes in equity, DKK million

Share capital

Hedging
reserve

Equity at 1 January 2017

Transferred to retained earnings

Profit (loss) for the year

Ordinary dividends distributed

Proposed dividends for the financial year

Value adjustments of hedging instruments

Value adjustment transferred to gain on divestment of
enterprises

Value adjustments transferred to financial income and expenses

Tax on changes in equity

Coupon payments, hybrid capital

Tax on coupon payments and costs, hybrid capital

Additions of issued hybrid capital

Hybrid capital transferred to payables

Share-based payment

Changes in equity in 2017

Equity at 31 December 2017

Equity at 1 January 2016

Issuance of bonus shares

Profit (loss) for the year

Proposed dividends for the financial year

Value adjustments of hedging instruments

Value adjustments transferred to financial income and expenses

Tax on changes in equity

Coupon payments, hybrid capital

Tax on coupon payments and costs, hybrid capital

Purchases of treasury shares

Share-based payment

Changes in equity in 2016

Equity at 31 December 2016

4,204

(497)

4,204

4,177

254

(444)

229

(9)

(467)

(399)

(358)

232

4,204

(98)

(497)

Share
premium
reserve

21,279

(21,279)

21,279

11,958

21,279

(1,935)

(3,783)

(53)

(2,633)

11,958

(2,522)

3,783

(1,935)

(2,521)

254

(444)

229

(9)

(4,424)

35,042

39,638

(24)

(358)

232

(53)

2,522

(172)

39,466

15,564

27,522

14,581

(27)

(24)

1,261

3,783

(2,522)

2,522

Share capital com-
position and dividends
are disclosed in note
6.2 to the consolidated
financial statements.
You can also find
information on
treasury shares.

Total

52,714

(1,219)

(2,521)

254

(444)

229

(9)

(640)

141

3,668

716

(640)

141

3,668

(3,894)

(9)

13,239

13,248

499

(640)

141

13,248

(4,433)

48,281

52,886

475

(358)

232

(640)

141

(53)

(172)

52,714

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Ørsted Annual report 2017Financial statementsParent company financial statements

Note summary

Contents

1. Basis of reporting

Accounting policies
The parent company financial statements
have been prepared in accordance with the
provisions of the Danish Financial Statements
Act (reporting class D).

Revenue
Rental income comprises income from com-
mercial leases and is recognised over the term
of the lease. Income from services is recog-
nised when delivery has taken place.

The accounting policies remain unchanged
from the previous year.

Unless otherwise stated, the financial state-
ments are presented in Danish kroner (DKK)
rounded to the nearest million.

The parent company accounting policies
are consistent with the accounting policies
described for the consolidated financial state-
ments, with the following exceptions:

Foreign currency translation
We recognise exchange rate adjustments
of receivables from and payables to subsid-
iaries as financial income and expenses in
the income statement when the balances
are accounted for as part of the total net
investment in foreign enterprises. Likewise, we
recognise foreign exchange gains and losses
on loans and derivatives in the income state-
ment as financial income and expenses when
they have been entered into to hedge the net
investment in the foreign enterprises.

Dividends from investments
Dividends from subsidiaries and associates are
recognised in the income statement for the
financial year in which the dividends are ap-
proved at the annual general meeting. If the
dividends exceed the total income after the
time of takeover, the dividends are recognised
as a reduction of the cost of the investment
under assets.

Investments
We measure our investments in subsidiaries
and associates at cost. If there is any indication
that the value of a company is lower than our
future earnings in the company, impairment
testing of the company is carried out as
described in the consolidated financial state-
ments. The carrying amount is written down
to the recoverable amount whenever the
carrying amount exceeds the future earnings
in the company (recoverable amount).

If we have a legal or constructive obligation
to cover a deficit in subsidiaries and associ-
ates, we recognise a provision for this.

Tax
In 2005, we chose Danish international joint
taxation. We have continuously assessed
when it will be the most appropriate time to
withdraw from the international joint tax-
ation scheme, and we currently expect that
this will be for the 2017 income year, which is
reflected in the annual report. We will make
the final decision in 2018 when preparing the
tax returns for 2017. Therefore, the retaxation
liability has been transferred to tax payable
in 2017.

Ørsted A/S is taxed jointly with its Danish sub-
sidiaries. The jointly taxed companies are part
of joint taxation with the parent company as
the management company.

Subsidiaries are included in the joint taxation
from the date they are consolidated in the
consolidated financial statements and up
to the date on which they are no longer
consolidated.

Current tax for 2017 is recognised by the
individual jointly taxed companies.

Statement of cash flows
We do not prepare a separate statement of
cash flows for the parent company. Reference
is made to the consolidated statement of cash
flows on page 68.

Key accounting estimates

In connection with the preparation of the financial
statements, a number of accounting estimates
have been made that affect the profit (loss) and
balance sheet. Estimates are regularly reassessed by
management on the basis of historical experience
and other relevant factors.

Impairment test
If there is any indication that the carrying amount
is lower than our future earnings in a company, we
test for impairment as described in the consolidated
financial statements. The future earnings of the
company (recoverable amount) are calculated based
on assumptions concerning significant estimates.

158 / 173

Ørsted Annual report 2017Financial statementsParent company financial statements

Note summary

Contents

2. Employee costs

3. Financial income

and expenses

Employee costs,
DKK million

Wages and salaries

Share-based payment

Remuneration for the Board of Directors

Total employee costs

2017

2016

Remuneration
for the Executive
Board, DKK '000

Henrik Poulsen

Marianne Wiinholt

Executive Board,
total

2017

2016

2017

2016

2017

2016

Fixed salary

10,024

9,425

5,255

5,062

15,279

14,487

Variable salary

4,504

2,751

2,312

1,560

6,816

4,311

Share-based
payment

1,367

1,427

713

889

2,080

2,316

Social security

Total

15,897

13,605

8,282

7,513

24,179

21,118

The remuneration report in the management's
review and notes 2.6 and 2.7 to the consoli-
dated financial statements describe the
remuneration of the Executive Board and the
Board of Directors, share-based payment, ter-
mination and bonus scheme for the Executive
Board and details on the remuneration of the
Board of Directors.

The parent company had an average of five
employees in 2017 (2016: five employees).

Financial income and expenses,
DKK million

Interest income from cash, etc.

Interest income from subsidiaries

Interest income from securities at
market value

Capital gains on securities at market value

Foreign exchange gains

Value adjustments of derivatives

Dividends received

Other financial income

Total financial income

Interest expenses relating to loans and
borrowings

Interest expenses to subsidiaries

Capital losses on securities at market value

Foreign exchange losses

Value adjustments of derivatives

Other financial expenses

Total financial expenses

2017

1,432

211

664

8,751

2,513

2016

1,842

417

141

1,715

14,363

1,630

13,667

20,221

(1,584)

(1,685)

(9)

(217)

(1,549)

(7,106)

(21)

(50)

(252)

(4,282)

(15,349)

(27)

(10,486)

(21,645)

Net financial income and expenses

3,181

(1,424)

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Ørsted Annual report 2017Financial statementsParent company financial statements

Note summary

Contents

4. Tax on profit (loss)

for the year
and deferred tax

5. Distribution
of net profit

Distribution of net profit, DKK million

2017

2016

Profit (loss) for the year is attributable to:

Shareholders of Ørsted A/S, proposed
dividends for the financial year

Shareholders of Ørsted A/S,
retained earnings

Coupon and bond discount after tax, hybrid
capital owners of Ørsted A/S

Profit (loss) for the year

3,783

2,522

(5,718)

(2,546)

716

(1,219)

499

475

Income tax, DKK million

Tax on profit (loss) for the year

Tax on changes in equity

Total tax for the year

Tax on profit (loss) for the year can be
broken down as follows:

Current tax

Adjustments to deferred tax

Adjustments to current tax in respect of
prior years

Adjustments to deferred tax in respect of
prior years

Tax on profit (loss) for the year

Development in deferred tax, DKK million

Deferred tax at 1 January

Adjustment for the year recognised in profit
(loss) for the year

Adjustments to deferred tax in respect of
prior years

Deferred tax at 31 December

Specification of deferred tax, DKK million

Non-current liabilities

Current liabilities

Retaxation

Deferred tax

2017

(76)

132

(1,379)

1,298

(360)

365

(76)

2017

1,744

2016

623

169

792

(231)

803

670

(619)

623

2016

1,928

(1,298)

(803)

(365)

2017

619

1,744

2016

(3)

1,730

1,744

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Note summary

Contents

6. Investments in
subsidiaries

7. Receivables from

subsidiaries

Investments in subsidiaries,
DKK million

Cost at 1 January

Additions

Disposals

Cost at 31 December

Value adjustments at 1 January

Impairment losses

Disposals

Value adjustments at 31 December

Carrying amount at 31 December

2017

70,436

2,333

(31,007)

41,762

(15,681)

15,681

41,762

2016

54,291

16,500

(355)

70,436

(12,175)

(3,506)

(15,681)

54,755

Non-current receivables from subsidiaries,
DKK million

Note 8.5 of the
consolidated financial
statements contains a
complete overview of
subsidiaries, etc.

Cost at 1 January

Additions

Disposals

Cost at 31 December

2017

50,402

18,552

(20,248)

48,706

2016

64,435

21,667

(35,700)

50,402

We have tested investments in subsidiaries for
impairment by comparing the expected future
income from the individual subsidiaries with
their carrying amounts.

The sale resulted in a gain of DKK 2,179
million in the consolidated financial state-
ments. The difference occur due to different
accounting policies.

Disposal for the year concern primarily the
divestment of our Oil & Gas business, which
was closed on 29 September 2017. The divest-
ment resulted in a loss of DKK 4,179 million in
the parent company financial statements. See
also the description in note 3.6 to the consoli-
dated financial statements.

Our impairment test in 2017 did not give rise to
any impairment of investments in subsidiaries.

In 2016, we impaired the carrying amount of
our subsidiaries by DKK 3,506 million. At the
same time, a write-down of receivables from
subsidiaries from 2015 of DKK 3,506 million
was reversed.

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Note summary

Contents

8. Derivatives

9. Securities

Ørsted A/S has assumed the subsidiaries'
currency risks via forward exchange contracts,
which have subsequently been hedged in the
market. Furthermore, hedging contracts have
been concluded to hedge the currency risk
associated with investments in subsidiaries in
foreign currencies.

We have also entered into a number of
interest rate swaps to manage our interest
rate risk.

The company has fair value hedged loans
in GBP and EUR. The value of the fair value
hedge offset in the income statement
amounted to DKK 289 million (2016: DKK
1,793 million).

Derivatives at the end of December 2017
mature as follows: 2018: DKK -24 million, 2019:
DKK -76 million, after 2019: DKK -324 million
(2016: 2017: DKK 1,344 million, 2018: DKK -379
million, after 2018: DKK -156 million).

Securities are primarily liquid AAA-rated
Danish mortgage bonds that qualify for
repo transactions in the Danish central bank
'Danmarks Nationalbank'. Repo transactions

are transactions where securities are provided
as collateral for a loan.

Securities, DKK million

Securities, available

Securities, not available for use

2017

24,766

2016

15,864

197

Total securities

24,806

16,061

Securities not available
for use are used as
collateral for repo loans
and trading in financial
instruments.

2017

2016

Contractual
principal amount

Market value

Contractual
principal amount

Market value

550

4,817

5,367

(424)

3,596

(4,020)

6,016

4,834

2,022

26,364

39,236

1,300

257

(798)

809

19,980

(19,171)

Overview of
derivative positions,
DKK million

Oil derivatives

Gas derivatives

Interest derivatives

Currency derivatives

Total

Assets

Equity and liabilities

See note 7.1 to the
consolidated financial
statements and the
management's review
on pages 47-50 for more
details on risk and risk
management.

10. Loans and borrowings

At 31 December 2017, we had issued hybrid
capital with a total notional amount of DKK
17,125 million (2016: DKK 13,371 million). In 2018,
one hybrid bond with a notional amount of
DKK 3,723 million is expected to be redeemed
early and is therefore included in current liabil-
ities. The other hybrid bonds have a 1,000-year
term and expire as follows: DKK 5,212 million in
3013, DKK 4,467 million in 3015 and DKK 3,723
million in 3017, respectively.

The long-term portion of bank loans and
issued bonds amounted to DKK 25,715 million
at 31 December 2017 (2016: DKK 22,164 million),
of which DKK 16,528 million (2016: DKK 16,901
million) falls due in more than five years.

The long-term portion of other payables
amounted to DKK 27 million at 31 December
2017 (2016: DKK 1,516 million) and falls due in
1-5 years.

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Note summary

Contents

11. Other provisions

12. Contingent liabilities

We have made provisions for non-current
liabilities totalling DKK 775 million of which
DKK 0 million falls due in more than five
years. The liabilities concern the divestment
of our Oil & Gas business, which was closed on
29 September 2017.

Ørsted A/S is taxed jointly with other com-
panies in the Ørsted Group. As management
company, the company has unlimited and
joint and several liability together with the
other jointly taxed companies for Danish
income taxes and withholding taxes on
dividends, interest and royalties within the
jointly taxed companies.

Litigation
Ørsted A/S is not a party to any litigation
proceedings or legal disputes that could have
an effect on the company's financial position,
either individually or collectively.

Contingent liabilities
Guarantees
Ørsted A/S has provided guarantees in connec-
tion with participation by subsidiaries and
subsidiaries' joint operations and joint ventures
in the construction and operation of offshore
wind farms and natural gas installations, and
has provided guarantees in respect of leases,
decommissioning obligations, and purchase,
sale and supply agreements, etc.

Ørsted A/S also acts as guarantor with
primary liability for bank balances in certain
subsidiaries.

Indemnities
Ørsted is a member of the reinsurance com-
pany Oil Insurance Ltd. In the event of exit, an
exit premium will be payable, which has been
calculated at USD 6.8 million at 31 December
2017 (2016: USD 19.8 million).

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Note summary

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13. Related-party
transactions

15. Auditor's fees

Related parties are the Board of Directors,
the Executive Board, Ørsted A/S's subsidiaries
and the Danish State.

Our related-party transactions are made
on arm's length terms.

Remuneration of the Board of Directors and
the Executive Board is disclosed in notes
2.6 and 2.7 and the remuneration report
in the review in the consolidated financial
statements.

Auditor's fees, DKK million

2017

2016

Statutory audit

Other assurance engagements

Tax and VAT advice

Other services

Total fees to PwC

14. Operating lease

obligations

16. Ownership
information

We have entered into leases for office
premises, primarily in Gentofte (expiring in
2028), Virum (expiring in 2027) and Esbjerg
(expiring in 2035). In 2017, an amount of DKK
153 million was recognised (2016: DKK 173
million) in profit (loss) for the year in respect
of operating lease payments.

We have entered into leases with subsidiaries
for subleasing of office premises.

In 2017, an amount of DKK 123 million was
recognised (2016: DKK 146 million) in profit
(loss) for the year in respect of rental income.

We have minimum payments of DKK 1,816
million (2016: DKK 2,196 million), most of
which concerns subleasing via subleasing
agreements.

Ownership information

Registered office

Ownership
interests

Voting
share

The Danish State represented by
the Danish Ministry of Finance

Copenhagen K,
Denmark

50.12%

EuroPacific Growth Fund

Los Angeles, USA

5.83%

SEAS-NVE A.M.B.A.

Svinninge,
Denmark

The Capital Group Companies, Inc.

Los Angeles, USA

9.54%

<5%

9.54%

9.77%

The table shows the
shareholders with
ownership interests
and voting shares of
at least 5%. Difference
between ownership
interests and voting
share occur when issuing
power of attorney.

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Statement by the Executive Board
and the Board of Directors
Independent auditor's report
Limited assurance report of the
independent auditor
Glossary

166

167

171

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Ørsted Annual report 2017Management statement, auditor's reports and glossary

Contents

Statement by the Executive Board
and the Board of Directors

The Board of Directors and the Executive
Board have today considered and approved
the annual report of Ørsted A/S for the finan-
cial year 1 January - 31 December 2017.

The consolidated financial statements have
been prepared in accordance with Internation-
al Financial Reporting Standards as adopted
by the EU and additional requirements in the
Danish Financial Statements Act. The financial
statements of the parent company, Ørsted
A/S, have been prepared in accordance with
the provisions of the Danish Financial State-
ments Act.

In our opinion, the consolidated financial
statements and the parent company financial
statements provide a fair presentation of the
Group's and the parent company's assets, lia-
bilities and financial position at 31 December
2017 and of the results of the Group's and the
parent company's operations and the Group's
cash flows for the financial year 1 January -
31 December 2017.

In our opinion, the management's review
provides a fair presentation of the develop-
ment in the Group's and the parent company's
operations and financial circumstances, of the
results for the year and of the overall financial
position of the Group and the parent company
as well as a description of the most significant

risks and elements of uncertainty facing the
Group and the parent company.

Skærbæk, 1 February 2018

Executive Board:

In our opinion, the consolidated ESG state-
ments ('Additional information') represent a
reasonable, fair and balanced representa-
tion of the Group's social responsibility and
sustainability performance and are presented
in accordance with the stated accounting
policies.

Henrik Poulsen
President and CEO

Marianne Wiinholt
CFO

We recommend that the annual report be
adopted at the annual general meeting.

Board of Directors:

Thomas Thune Andersen
Chairman

Lene Skole
Deputy chairman

Lynda Armstrong

Pia Gjellerup

Peter Korsholm

Benny D. Loft

Hanne Sten Andersen*

Poul Dreyer*

Benny Gøbel*

* Employee representative

Jens Nybo Sørensen*

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Independent Auditors’ Report

and the notes to the consolidated financial
statements, including summary of significant
accounting policies.

the additional ethical requirements applicable
in Denmark. We have also fulfilled our other
ethical responsibilities in accordance with the
IESBA Code.

by shareholder resolution for a total period
of uninterrupted engagement of 8 years
including the financial year 2017.

To the shareholders of Ørsted A/S

Our opinion
In our opinion, the Consolidated Financial
Statements give a true and fair view of the
Group’s financial position at 31 December 2017
and of the results of the Group’s operations
and cash flows for the financial year 1 January
to 31 December 2017 in accordance with
International Financial Reporting Standards as
adopted by the EU (‘IFRS’) and further require-
ments in the Danish Financial Statements Act.

Moreover, in our opinion, the Parent Company
Financial Statements give a true and fair view
of the Parent Company’s financial position
at 31 December 2017 and of the results of
the Parent Company’s operations for the
financial year 1 January to 31 December 2017
in accordance with the Danish Financial
Statements Act.

Our opinion is consistent with our Auditor’s
Long-form Report to the Audit and Risk
Committee and the Board of Directors.

The Parent Company Financial Statements
of Ørsted A/S for the financial year 1 January
to 31 December 2017, pp 155-166, comprise
the income statement, the balance sheet, the
statement of changes in equity and the notes
to the parent company financial statements,
including summary of significant accounting
policies.

Collectively referred to as the “Financial
Statements”.

Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (ISAs)
and the additional requirements applicable
in Denmark. Our responsibilities under those
standards and requirements are further
described in the Auditor’s Responsibilities for
the Audit of the Financial Statements section
of our report.

What we have audited
The Consolidated Financial Statements of
Ørsted A/S for the financial year 1 January to
31 December 2017, pp 63-146 and 166, com-
prise the consolidated income statement, the
consolidated statement of comprehensive
income, the consolidated balance sheet,
the consolidated statement of changes in
equity, the consolidated cash flow statement

We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.

Independence
We are independent of the Group in accord-
ance with the International Ethics Standards
Board for Accountants’ Code of Ethics for
Professional Accountants (IESBA Code) and

To the best of our knowledge and belief,
prohibited non-audit services referred to in
Article 5(1) of Regulation (EU) No 537/2014
were not provided.

Appointment
We were first appointed auditors of Ørsted
A/S on 19 April 2010 for the financial year
2010. We have been reappointed annually

Key audit matters
Key audit matters are those matters that,
in our professional judgement, were of most
significance in our audit of the Financial
Statements for 2017. These matters were
addressed in the context of our audit of the
Financial Statements as a whole, and in
forming our opinion thereon, and we do not
provide a separate opinion on these matters.

Key Audit Matter

How our audit addressed the Key Audit Matter

Divestment of the Oil & Gas-business
In 2016, the Board of Directors initiated a process
with the aim of ultimately exiting from the Group’s
Oil & gas-business. The divestment was completed
0n 29 September 2017.

We evaluated whether Management had appro-
priately determined the divestment gain by for
example:

– Reading the share purchase agreement.

We focused on this area because the divestment
is considered a non-routine transaction, with esti-
mates and judgements in respect of the identifica-
tion and measurement of guarantees, indemnities
etc. given to the purchaser.

Refer to note 3.6 in the Consolidated Financial
Statements and note 11 in the Parent Company
Financial Statements.

– Testing the gain statement including the provi-
sions recognised to cover guarantees, indemni-
ties etc. in the share purchase agreement.

– Consider whether the disclosures of the discon-

tinued Oil & gas-business and divestment thereof
was in compliance with IFRS.

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Key Audit Matter

How our audit addressed the Key Audit Matter

Key Audit Matter

How our audit addressed the Key Audit Matter

Transactions with energy financial
derivative contracts
The Group enters into a number of energy contracts.
Certain of these arrangements are accounted for as
derivative financial instruments and are recorded at
fair value.

Judgement is required in valuing these derivative
contracts, particularly where the life of the contract
is beyond the liquid market period.

In addition, Ørsted uses business performance as
an alternative to profit (loss) for the year stated
in accordance with IFRS. Business performance
represents the underlying financial performance
of the Group in the reporting period adjusted for
temporary fluctuations in the market value of
contracts (including hedging transactions) relating
to other periods.

We focused on this area because the valuation of
financial instruments are dependent on complex
and subjective judgements by Management and
because the business performance reporting is
dependent on consistent use and documentation
of hedging rules.

Refer to note 1.1 and 7.2 in the Consolidated
Financial Statements.

We assessed the overall trading process for energy
contracts, including internal risk management
procedures and the system and controls around
origination and maintenance of complete and ac-
curate information relating to derivative contracts.

We tested the valuation of derivative contracts at
the year-end date. Our audit procedures focused
on the integrity of these valuation models and the
incorporation of the contract terms and the key
assumptions, including future price assumptions
and discount rates.

We tested the prices in the models and recalcu-
lated valuations for a sample of derivatives, as
well as performing sensitivity analyses for level
3 energy derivatives.

We considered Management’s use of business per-
formance and tested the adjustments between IFRS
and business performance. In this connection, we as-
sessed the hedging rules applied under the business
performance accounting policies and whether these
are used consistently from period to period.

Divestments of partnership interests
In connection with divestments of partnership inter-
ests (often 50%) in offshore wind farms under con-
struction, estimates and judgement are required in
respect of the sales price for accounting purpose for
the divestment and the subsequent construction
contract, respectively, and in calculating the divest-
ment gain. Furthermore, judgement is required in
respect of classifying the divested interest as either
divestment of assets (gain recognised as part of
Other income) or divestment of an enterprise (gain
recognised as part of Gain/loss from divestment
of enterprises). Finally, judgement is required in
respect of whether the Group’s retained share in the
partnership is a joint operation or a joint venture.

We focused on this area because the calculation
of the divestment gain is dependent on complex
and subjective judgements by Management and
because the presentation in the Income statement
is dependent on judgement about the partnership
interest disposed and whether the partnership
inter est retained is a joint operation or a joint
venture.

Refer to note 2.5 in the Consolidated Financial
Statements.

Construction contracts
The accuracy of the revenue recognition related
to work in progress of large construction contracts
and its presentation in the consolidated income
statement is dependent on complex estimation
methodologies, including estimates such as the
forecasted costs related to the constructions
and the degree of completion for construction
contracts.

We focused on this area because the revenue
recognised with reference to degree of completion
both requires complex and subjective judgements
by Management.

Refer to note 2.2 and 4.2 in the Consolidated
Financial Statements.

We evaluated whether Management had appropri-
ately determined the divestment gain, the presenta-
tion hereof and the subsequent treatment of the
partnership interest by for example:

– Reading the share purchase agreements.

– Reading the shareholders agreements.

– Reading the construction and other related

agreements.

– Consider the sales price for accounting purpose
for the divestment and the construction con-
tract, respectively.

– Testing the gain statement on the divestment of
the partnership interest including the provisions
recognised to cover guarantees, indemnities etc.
in the share purchase agreement.

– Consider whether the disclosures of the divest-
ment gain and the subsequent recognition and
presentation of the partnership was in compli-
ance with IFRS.

On a sample basis, we tested whether revenue is
accurately recorded and challenged the forecasted
costs related to the constructions, including the
assumptions used, and by evaluating the outturn
of previous estimates by agreeing the actual costs
incurred post-year end to the forecasted costs for
the period.

We also assessed how the project managers deter-
mined that the degree of completion was correctly
determined through obtaining their calculations
and agreeing the inputs to documentary evidence
or our independently formed expectation as
appropriate.

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Key Audit Matter

How our audit addressed the Key Audit Matter

Onerous contracts and other contractual
claims and obligations
The Group’s operations include exposures to the
risk of litigation, contractual claims from and
against third parties and contracts being onerous,
particularly in relation to long-term contracts.

We focused on this area because of the range of
potential outcomes and the considerable uncer-
tainty around (a) the resolution of various litigations,
claims and contractual disputes, and (b) the deter-
mination of the amount, if any, to be recognised
in the financial statements as a provision, and the
related disclosures are inherently subjective.

Refer to note 3.2 in the Consolidated Financial
Statements.

We considered the provisions recognised to cover
contractual obligations and claims raised against
the Group by third parties, inspected relevant
legal advice received by the Group in connection
with such claims and obtained formal confirm-
ations from the Group’s lawyers on the status and
potential outcomes of any legal claims with which
the Group is dealing. Moreover, we considered
the assets related to claims raised by the Group
against third parties.

We challenged the valuation of the onerous con-
tract provisions by evaluating whether appropriate
judgements and assumptions had been applied
in determining the unavoidable costs of meeting
the obligation and the estimate of the expected
benefits to be received under the contract.

Finally, we also considered the Group’s disclosures
relating to provisions and/or contingent liabilities
and assets for legal and other contractual obliga-
tions and claims.

Statement on Management’s Review
Management is responsible for the Manage-
ment’s Review, pp 4-62.

Our opinion on the Financial Statements does
not cover Management’s Review, and we do
not express any form of assurance conclusion
thereon.

In connection with our audit of the Financial
Statements, our responsibility is to read Man-
agement’s Review and, in doing so, consider
whether Management’s Review is materially
inconsistent with the Financial Statements or
our knowledge obtained in the audit, or other-
wise appears to be materially misstated.

Moreover, we considered whether Manage-
ment’s Review includes the disclosures required
by the Danish Financial Statements Act.

Based on the work we have performed, in our
view, Management’s Review is in accordance
with the Consolidated Financial Statements
and the Parent Company Financial State-
ments and has been prepared in accordance
with the requirements of the Danish Financial
Statement Act. We did not identify any materi-
al misstatement in Management’s Review.

Management’s responsibilities for the
Financial Statements
Management is responsible for the prepar-
ation of consolidated financial statements that
give a true and fair view in accordance with
International Financial Reporting Standards
as adopted by the EU and further require-
ments in the Danish Financial Statements Act

and for the preparation of parent company
financial statements that give a true and fair
view in accordance with the Danish Financial
Statements Act, and for such internal control
as Management determines is necessary to
enable the preparation of financial state-
ments that are free from material misstate-
ment, whether due to fraud or error.

In preparing the Financial Statements,
Management is responsible for assessing the
Group’s and the Parent Company’s ability to
continue as a going concern, disclosing, as
applicable, matters related to going concern
and using the going concern basis of account-
ing unless Management either intends to
liquidate the Group or the Parent Company
or to cease operations, or has no realistic
alternative but to do so.

Auditor’s responsibilities for the audit of
the Financial Statements
Our objectives are to obtain reasonable
assurance about whether the Financial
Statements as a whole are free from material
misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs
and the additional requirements applicable in
Denmark will always detect a material mis-
statement when it exists. Misstatements can
arise from fraud or error and are considered
material if, individually or in the aggregate,
they could reasonably be expected to influ-
ence the economic decisions of users taken
on the basis of these Financial Statements.

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As part of an audit in accordance with ISAs
and additional requirements applicable in
Denmark, we exercise professional judgement
and maintain professional scepticism through-
out the audit. We also:

– Identify and assess the risks of material

misstatement of the Financial Statements,
whether due to fraud or error, design and
perform audit procedures responsive to
those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a
material misstatement resulting from fraud
is higher than for one resulting from error,
as fraud may involve collusion, forgery,
intentional omissions, misrepresentations,
or the override of internal control.

– Obtain an understanding of internal control

– Conclude on the appropriateness of

Management’s use of the going concern
basis of accounting and based on the audit
evidence obtained, whether a material
uncertainty exists related to events or
conditions that may cast significant doubt
on the Group’s and the Parent Company’s
ability to continue as a going concern. If
we conclude that a material uncertainty
exists, we are required to draw attention in
our auditor’s report to the related disclos-
ures in the Financial Statements or, if such
disclosures are inadequate, to modify our
opinion. Our conclusions are based on the
audit evidence obtained up to the date of
our auditor’s report. However, future events
or conditions may cause the Group or the
Parent Company to cease to continue as a
going concern.

relevant to the audit in order to design
audit procedures that are appropriate in
the circumstances, but not for the purpose
of expressing an opinion on the effective-
ness of the Group’s and the Company’s
internal control.

– Evaluate the overall presentation, structure
and content of the Financial Statements,
including the disclosures, and whether the
Financial Statements represent the under-
lying transactions and events in a manner
that achieves fair presentation.

– Evaluate the appropriateness of accounting
policies used and the reasonableness of ac-
counting estimates and related disclosures
made by Management.

– Obtain sufficient appropriate audit evi-

dence regarding the financial information
of the entities or business activities within
the Group to express an opinion on the
Consolidated Financial Statements. We are
responsible for the direction, supervision and
performance of the group audit. We remain
solely responsible for our audit opinion.

We communicate with those charged with
governance regarding, among other matters,
the planned scope and timing of the audit
and significant audit findings, including any
significant deficiencies in internal control that
we identify during our audit.

Hellerup, 1 February 2018

PricewaterhouseCoopers
Statsautoriseret Revisionspartnerselskab
CVR-nr. 33 77 12 31

Lars Baungaard
State Authorised Public Accountant
mne23331

Rasmus Friis Jørgensen
State Authorised Public Accountant
mne28705

We also provide those charged with govern-
ance with a statement that we have complied
with relevant ethical requirements regarding
independence, and to communicate with
them all relationships and other matters
that may reasonably be thought to bear on
our independence, and where applicable,
related safeguards.
From the matters communicated with those
charged with governance, we determine
those matters that were of most significance
in the audit of the Financial Statements of
the current period and are therefore the key
audit matters. We describe these matters in
our auditor’s report unless law or regulation
precludes public disclosure about the matter
or when, in extremely rare circumstances, we
determine that a matter should not be com-
municated in our report because the adverse
consequences of doing so would reasonably
be expected to outweigh the public interest
benefits of such communication.

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Limited assurance report of the independent auditor

To the Stakeholders of Ørsted A/S
Ørsted A/S engaged us to provide limited assur-
ance on the data described below and set out in
the Environment, Social and Governance (ESG)
Statement of the Annual Report of Ørsted A/S
for the year ended 31 December 2017.

Our conclusion
Based on the procedures we have performed
and the evidence we have obtained, nothing has
come to our attention that causes us to believe
that data in the 2017 ESG Statement on pages
147-154 of the Annual Report for the year ended
31 December 2017 has not been prepared, in
all material respects, in accordance with the
accounting policies.

This conclusion is to be read in the context of
what we say in the remainder of our report.

What we are assuring
The scope of our work was limited to assurance
over data in the ESG Statement on pages 147-
154 of the Ørsted A/S Annual Report for the year
ended 31 December 2017.

Professional standards applied and level of
assurance
We performed a limited assurance engagement
in accordance with International Standard
on Assurance Engagements 3000 (Revised)
‘Assurance Engagements other than Audits and
Reviews of Historical Financial Information’. A
limited assurance engagement is substantially
less in scope than a reasonable assurance
engagement in relation to both the risk assess-
ment procedures, including an understanding of

internal control, and the procedures performed
in response to the assessed risks; consequently,
the level of assurance obtained in a limited
assurance engagement is substantially lower
than the assurance that would have been ob-
tained had a reasonable assurance engagement
been performed.

Our independence and quality control
We have complied with the Code of Ethics for
Professional Accountants issued by the Intern-
a tional Ethics Standards Board for Accountants,
which includes independence and other
ethical requirements founded on fundamental
principles of integrity, objectivity, professional
competence and due care, confidentiality
and professional behaviour. The firm applies
International Standard on Quality Control 1 and
accordingly maintains a comprehensive system
of quality control including documented policies
and procedures regarding compliance with
ethical requirements, professional standards and
applicable legal and regulatory requirements.
Our work was carried out by an independent
multidisciplinary team with experience in
sustainability reporting and assurance.

Understanding reporting and measurement
methodologies
Data and information need to be read and
understood together with the accounting
prin ciples (pages 147-154 of the 2017 Ørsted A/S
Annual Report), which Management are solely
responsible for selecting and applying. The ab-
sence of a significant body of established prac-
tice on which to draw to evaluate and measure
non-financial information allows for different,

but acceptable, measurement techniques and
can affect comparability between entities and
over time.

Work performed
We are required to plan and perform our work
in order to consider the risk of material misstate-
ment of the data. In doing so and based on our
professional judgement, we:
– Conducted interviews with Group functions
to assess consolidation processes, use of
company-wide systems and controls per-
formed at Group level;

– The content of the 2017 ESG Statement.

Our responsibility
We are responsible for:
– Planning and performing the engagement
to obtain limited assurance about whether
data in the 2017 Ørsted A/S ESG Statement
on pages 147-154 of the 2017 Annual Report
are free from material misstatement, whether
due to fraud or error;

– Forming an independent conclusion, based on
the procedures we have performed and the
evidence we have obtained; and

– Performed an assessment of materiality and

– Reporting our conclusion to the Stakeholders

the selection of topics for the 2017 Ørsted A/S
ESG Statement;

– Conducted analytical review of the data and
trend explanations submitted by all business
units for consolidation at Group level;

– Evaluated internal and external documenta-
tion to determine whether information in the
2017 Ørsted A/S ESG Statement is supported
by sufficient evidence.

Management’s responsibilities
Management of Ørsted A/S is responsible for:
– Designing, implementing and maintaining
internal control over information relevant
to the preparation of data in the 2017 ESG
Statement on pages 147-154 in the Annual
Report that are free from material misstate-
ment, whether due to fraud or error;

– Establishing objective accounting principles

for preparing data;

– Measuring and reporting data in the 2017
ESG Statement based on the accounting
principles; and

of Ørsted A/S.

Hellerup, 1 February 2018

PricewaterhouseCoopers
Statsautoriseret Revisionspartnerselskab
CVR-no. 33 77 12 31

Lars Baungaard
State Authorised Public Accountant
mne23331

Rasmus Friis Jørgensen
State Authorised Public Accountant
mne28705

171 / 173

Ørsted Annual report 2017Financial statementsManagement statement, auditor's reports and glossary

Contents

Glossary

Availability: Time-based availability is the ratio of the
number of hours in a given period the offshore wind
farms are available for power generation to the total
number of hours in the same period. Total availability
is weighted on the basis of the size of the individual
wind farms. Availability is adjusted for breakdowns
if compensation is received from the transmission
owner.

Biomass conversion: When a CHP plant is converted
from using fossil fuels to using biomass such as wood
pellets, wood chips and straw. After the conversion,
the CHP plant will typically be able to use biomass
along with the original fuel types.

EPC: Engineering, Procurement and Construction. The
part of our business which handles the construction
and installation of our offshore wind farms.

LTIF: Lost-Time Injury Frequency. Ørsted defines lost-
time injuries as occupational injuries resulting in at
least one day's absence from work in addition to the
day of the injury.

FTE: Employees (Full-Time Equivalent). The number of
full-time employees during a fixed time period.

NBP: National Balancing Points, UK gas hub.

Generation capacity: Ørsted's ownership of the wind
turbines. The wind turbines are included when each
wind turbine has passed the 240-hour test.

Nord Pool: The Norwegian-based Nordic power
exchange, which facilitates power trading in Norway,
Sweden, Finland and Denmark.

Offshore transmission assets: Offshore transmission
assets connect offshore generation to the onshore
grid, and typically include the offshore power trans-
mission infrastructure, an onshore substation and the
electrical equipment relating to the operation of the
substation.

O&M: Operation and Maintenance. The part of our
business that operates and maintains our offshore
wind farms after installation.

Partnership income: Income originating from our
partners' purchase of ownership interests in the
offshore wind farms. Includes both the gain in
connection with the farm-down and the subsequent
construction of the wind farm.

Power station: A power station generates power only.

Green certificates: Certificate awarded to producers
of environment-friendly power as a supplement to the
market price of power in the given price area.

Carbon emissions allowances: Carbon dioxide
emissions allowances subject to the European Union
Emissions Trading Scheme (EU ETS).

CfD: A Contract for Difference is a subsidy that guar-
antees the difference between the market reference
price and the exercise price won.

Green dark spread (GDS): Green dark spread
represents the contribution margin per MWh of
power generated at a coal-fired CHP plant of a given
efficiency. It is determined as the difference between
the market price of power and the cost of the coal (in-
cluding associated freight costs) and carbon emissions
allowances used to generate the power.

CHP plant: A Combined Heat and Power (CHP) plant
generates both heat and power in the same process.

Commissioning/COD: When our assets are in oper-
ation, and the legal liability has been transferred from
the supplier to us.

Cost of electricity: Average cost measured as present
value per megawatt hour (MWh) generated from
offshore wind power covering costs for development
and construction as well as subsequent operation and
maintenance of the offshore wind farm.

Decided (FID) capacity: Installed offshore wind
capacity plus capacity for wind farms where a final
investment decision has been made.

Degree days: Number of degrees in absolute figures
in difference between the average temperature and
the official Danish indoor temperature of 17 degrees
Celsius.

EEX: European Energy Exchange, German power
exchange.

Green spark spread (GSS): Green spark spread rep-
resents the contribution margin per MWh generated
at a gas-fired power station of a given efficiency. It
is determined as the difference between the market
price of power and the costs of the gas and carbon
emissions allowances used to generate the power.

Hedging instruments: Financial and physical instru-
ments that can be used to guarantee a specific price
for the purchase or sale of, for example, commodities
and currency.

PSO: Indirect taxes regarding the public service obli-
gation (PSO) which are used to finance research and
green energy and are charged to power customers
along with other tariff elements.

Installed capacity: Installed capacity where the
offshore wind farm has been completed and has
passed the 200-hour test.

LNG: Liquefied Natural Gas. Gas that has been
liquefied by cooling to minus 161 degrees Celsius. LNG
takes up 600 times less space than conventional gas.

Load factor: The ratio between the actual power
generation in a given period relative to the potential
generation which is possible by continuously exploit-
ing the maximum capacity over the same period.

Public obligation: A company with a public obligation
is bound by law to deliver power or natural gas to a
certain geographic area at prices approved by the
Danish Energy Regulatory Authority.

QHSE: Quality, Health, Safety and Environment.

Ramp-up: Generation until an offshore wind farm has
been completed and commissioned.

ROCs: Renewable Obligation Certificates issued
by Ofgem in the UK to operators of accredited
generating stations for the eligible renewable energy
they generate. Operators can trade ROCs with other
parties.

Stress: Method of measuring the market trading risk
of loss on a portfolio from day to day, calculated on a
fair-value basis.

Thermal generation: Power and heat generated
through the combustion of fossil fuels, biomass or
waste.

TRIR: In addition to lost-time injuries, TRIR also
includes injuries where the injured person is able to
perform restricted work the day after the accident
as well as accidents where the injured person has
received medical treatment.

TTF: Title Transfer Facility, Dutch gas hub.

TWh: Terawatt hour. The amount of energy generated
in one hour with the effect of 1TW. 1TWh is equivalent
to 1,000GWh or 1,000,000MWh.

Value at Risk (VaR): A financial term used for measur-
ing the loss that may occur in connection with a risk
position, assuming a certain volatility and that the
position is held for a certain period of time

Wind energy content: The ratio between the actual
reported generation in a given period, adjusted for
availability losses, and the generation in a 'normal wind
year', based on historical wind data for the individual
areas where the offshore wind farms are located.

Wind speed: Shows the wind speed for Ørsted's
offshore wind farms. The wind measurements are
weighted on the basis of our generation capacity and
can be compared to a normal wind period, based on 20
years' historical wind observations.

172 / 173

Ørsted Annual report 2017Financial statements
Ørsted A/S
Kraftværksvej 53
DK-7000 Fredericia
Tel.: +45 99 55 11 11
CVR No. 36213728

https://orsted.com/en

Group Communication
Martin Barlebo
Tel.: +45 99 55 95 52

Investor Relations
Henrik Brünniche Lund
Tel.: +45 99 55 97 22

Design and layout
e–Types

Publication:
1 February 2018

Front page photo:
Borkum Riffgrund 1 offshore wind farm
off the coast of Germany

This report has been prepared in
Danish and English.
In case of discrepancies,
the Danish version applies.