Ørsted
Annual report
2018
Contents
Our vision
Let’s create
a world that
runs entirely
on green
energy
Ørsted Annual report 2018
Content
Management’s review
Financial statements
Overview
Chairman’s statement
CEO’s review
Performance highlights
Outlook 2019
Financial estimates and policies
Our business
The green transformation
Our strategic playing field
Our markets
Our strategy
Our business model
Strategic targets
Our geographic footprints
Results
Results
Five-year summary
Fourth quarter
Quarterly summary, 2017-18
Business units
Our business units
Offshore
Onshore
Bioenergy
Customer Solutions
Governance
Board of Directors
Group Executive Management
Corporate governance
Remuneration report
Risk and risk management
Shareholder information
4
Consolidated financial statements
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)
Basis of reporting
Environment
Social
Governance
Parent company financial statements
Income statement
Balance sheet
Statement of changes in equity
Notes
Management statement,
auditor’s reports and glossary
Statement by the Executive Board
and the Board of Directors
Independent Auditors’ report
Limited assurance report of the independent auditor
Glossary
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Contents
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Ørsted Annual report 2018
Ørsted Annual report 2018
Contents
Overview
Chairman’s statement
CEO’s review
Performance highlights
Outlook 2019
Financial estimates and policies
5
6
10
12
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Ørsted Annual report 2018
Overview
Contents
Chairman’s statement
Green light ahead
The UN’s 2030 Agenda for Sustainable Devel-
opment calls for making significant progress on
some of the world’s greatest challenges. Global
climate change caused by man-made carbon
emissions is one of the key threats to human
societies and the planet, and urgent action is
needed. Human activity has already caused
an increase of approx 1.1°C above pre-industrial
levels. If emissions continue at the current rate,
global warming is likely to reach 1.5°C above
pre-industrial levels at the earliest in 2030,
crossing a key threshold set by climate science
to avoid irreversible climate change.
The challenge of global warming requires a
profound transformation of our global energy
systems – from black to green energy. At
Ørsted, our vision is a world that runs entirely
on green energy. As one of the global leaders
in green energy, we are committed to providing
tangible and scalable solutions to transform
global energy systems from black to green.
In 2018, we continued our successful deploy-
ment of green energy, reaching 8.3GW of re-
newable energy capacity built by Ørsted. Over
the past decade, Ørsted and our partners
have invested approx DKK 165 billion in de-
ploying green energy. For the next seven years,
we plan to further accelerate our build-out. By
2025, more than 99% of our energy genera-
tion will come from renewable sources, and
by 2030, our ambition is to reach more than
30GW of green energy deployed, allowing
more than 50 million people to be powered
by green energy built by Ørsted. The ambi-
tious decarbonisation of our power and heat
generation puts the carbon reduction from our
own operations 27 years ahead of the decar-
bonisation trajectory for the energy industry
“As one of the global leaders in
green energy, we are committed
to providing tangible and scalable
solutions to transform global energy
systems from black to green.
that is recommended by climate scientists to
stay below the 2°C-threshold defined in the
Paris Agreement. We further commit ourselves
to reduce our carbon emissions in line with
the recent scientific recommendation to limit
global temperature increases to no more than
1.5°C above pre-industrial levels.
In 2018, we took important steps in shaping
our portfolio towards becoming one of the
world’s leading renewable energy companies.
We announced our intention to exit our power
distribution and residential customer busi-
nesses, which will allow us to focus entirely
on renewable energy generation and market
access. We also announced the acquisition of
Lincoln Clean Energy, which will serve as our
platform for creating a leading North Amer-
ican onshore renewables business, spanning
onshore wind, solar energy and storage.
Finally, we announced the acquisition of Deep-
water Wind, creating a leading offshore wind
platform in the US together with our existing
US organisation.
Our commitment to people remain strong.
Particularly, safety is a focus area for us, and in
2018, we once again improved workplace safe-
ty with a total recordable injury rate per million
working hours (TRIR) at a record low level of 4.7.
Furthermore, we reaffirmed our commitment
to being an inclusive workplace for all employ-
ees regardless of personal characteristics by
joining the UN LGBTI Standards of Conduct for
Business. To further support gender diversity
in management, we implemented the ‘Female
Spotlight’ programme that prepares talented
women for senior leadership positions.
Profit for the year amounted to DKK 19.5
billion, Ørsted’s best result ever. The Board of
Directors recommends paying a dividend of
DKK 9.75 per share.
On behalf of the Board of Directors, I would
like to thank the employees and management
of Ørsted for their spirited commitment to
turning the vision of green energy into reality,
and for bringing green solutions to existing
and new markets that share our vision of a
world that runs entirely on green energy.
Thomas Thune Andersen
Chairman
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Ørsted Annual report 2018Management’s review Overview
Contents
CEO’s review
Strong operational and financial
results and strategic acquisitions
have strengthened our position as
a world leader in green energy:
Financial results
In 2018, we achieved a strong operating profit
(EBITDA) which significantly exceeded our
expectations at the beginning of the year.
— Operating profit (EBITDA) increased by 33%
and totalled DKK 30.0 billion.
— Operating profit from offshore wind farms
in operation increased by 29% to DKK 11.0
billion.
— Farm-down of 50% of Hornsea 1 was one
of the largest renewable energy M&A
transactions ever and contributed DKK 15.1
billion to EBITDA.
— Green share of generation increased from
64% to 75%.
EBITDA (excluding new partnerships) increased
by 18% to DKK 15.0 billion. The good results were
driven by an increase in generation from our
offshore wind farms in operation, which led to an
increase of 29% in EBITDA from these activities.
Including new partnerships, EBITDA increased by
33% to DKK 30.0 billion, of which DKK 15.1 billion
came from the 50% farm-down of Hornsea 1.
Return on capital employed (ROCE) was 32%
compared to 25% in 2017.
— Strong progress in the construction of our
new wind projects.
Net profit amounted to DKK 19.5 billion, which
was DKK 6.2 billion higher than last year.
— New offshore wind projects awarded in the
US, Germany and Taiwan.
— Acquisition of the US-based onshore wind
developer Lincoln Clean Energy.
— Acquisition of the leading US-based off-
shore wind developer Deepwater Wind.
— Decision to exit our Danish power distribu-
tion and residential customer businesses.
— New ambitious targets for the Group’s long-
term strategic and financial development.
Following the bioconversions of our CHP
plants and the continued ramp-up of our
offshore wind capacity, the green share of our
heat and power generation increased from
64% to 75% in 2018.
Strategic development
Our vision is to create a world that runs entirely
on green energy. We expect the global mar-
ket for renewable energy to more than triple
towards 2030. As one of the leading companies
within renewable energy, Ørsted has a strong
platform to take part in this build-out. In Novem-
ber, we launched new, ambitious targets for our
long-term strategic and financial development.
“Towards 2030, it is our strategic ambition
to reach an installed capacity of more
than 30GW renewable energy, provided
that the build-out creates value for our
shareholders.
By the end of 2018, our portfolio consisted of
12GW of offshore and onshore wind farms and
biomass-fired combined heat and power plants
that are either in production, under construc-
tion or have obtained final investment decision
(FID). We also have projects with a capacity
of 4.8GW for which we have been awarded
the construction concessions or entered into
offtake agreements, but are yet to make FID. In
addition, we have a strong pipeline of projects
under development. Towards 2030, it is our
strategic ambition to reach an installed ca-
pacity of more than 30GW renewable energy,
provided that the build-out creates value for
our shareholders. Contributing to this ambition,
we raised our 2025 ambition for offshore wind
from 11-12GW to 15GW.
Our strategic ambition will be supported by an
extensive investment programme. From 2019 to
2025, we currently expect total gross invest-
ments of approx DKK 200 billion. Investments
in offshore wind farms are expected to consti-
tute 75-85% of this programme. Onshore invest-
ments are expected to constitute 15-20%, while
our investments in Bioenergy and Customer
Solutions combined are expected to constitute
0-5%. The allocation reflects the changes we
made to our asset portfolio in 2018, including
the two acquisitions in the US and the decision
to exit our power distribution and residential
customer businesses.
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Ørsted Annual report 2018Management’s review Overview
Contents
The strategic plan is subject to our four capital
allocation priorities. Firstly, we maintain our
strong commitment to our credit rating target
(BBB+/Baa1). Secondly, we intend to increase
our annual dividends by a high single-digit per-
centage. The horizon of this dividend commit-
ment is extended from 2020 to 2025. Thirdly,
we will invest in value-creating growth. Finally,
potential excess capital will be returned to
our shareholders in the form of additional
dividends and/or share buy-backs.
Offshore
In 2018, we reached significant milestones in
our ambitious green strategy. In the UK, we
commissioned Race Bank in January and Wal-
ney Extension, the world’s largest wind farm,
in May, and in Germany, we commissioned
Borkum Riffgrund 2 in December. All were
commissioned ahead of schedule, underpin-
ning our experience and efficiency within the
construction of offshore wind farms. Together
with the rest of the portfolio, the three com-
missioned offshore wind farms contributed to
the continued growth in earnings.
In addition, our current offshore wind construc-
tion projects continue to progress according
to plan. We have installed most of the founda-
tions at Hornsea 1 in the UK, which will be the
world’s largest wind farm when completed,
expectedly in the second half of this year.
The build-out of our portfolio also includes
Borssele 1 & 2 in the Netherlands and Hornsea
2 in the UK. In February, we selected Siemens
Gamesa Renewable Energy’s 8MW wind tur-
bines with a 167-metre rotor for Hornsea 2.
Portfolio changes support focus on renewable generation
Entering Ørsted portfolio
Ørsted
Exiting Ørsted portfolio
Lincoln Clean
Energy
Deepwater
Wind
– Transaction
– Transaction
Offshore
Onshore
closed
closed
Power distribution,
residential customer
(B2C) and city light
businesses
– Expected in 2019
Bioenergy Customer
Solutions
We continued our partnership model in 2018
with the 50% farm-down of Hornsea 1 to
Global Infrastructure Partners. As part of the
agreement, we will provide long-term opera-
tions and maintenance services (O&M) as well
as a route to market for the power generated
through our Customer Solutions business. The
farm-down was one of the largest renewable
energy M&A transactions ever and included the
largest single-project renewable energy financ-
ing scheme to date. The valuation underpins
the attractiveness of our offshore wind assets.
In April, we were awarded 900MW capacity in
the first Taiwanese grid allocation as Greater
Changhua 1 & 2a were awarded 605MW and
295MW, respectively. In the price auction in
June, we were awarded an additional 920MW.
With a total capacity of 1,820MW, we are as
such able to fully utilise our Greater
Changhua 1, 2 and 4 sites.
On 30 January 2019, the 2019 feed-in tariff
was announced. We take note of the 6% tariff
reduction compared to the 2018 tariff as
well as the introduction of a cap on annual
full-load hours, and we will now collaborate
closely with the supply chain to mitigate the
adverse impact of these PPA changes with the
objective of making the projects investable.
Greater Changhua 1 & 2a are facing extraor-
dinarily high costs related to creating a local
supply chain at scale, reinforcing the onshore
grid infrastructure and building, operating and
maintaining offshore wind farms in challenging
site and weather conditions.
We continue to work with the Taiwanese
authorities and local stakeholders to reach
key outstanding project milestones, such as
obtaining the establishment permit, com-
pleting the supply chain plan and signing the
power purchase agreement.
Once we have clarity on the outcome of
supply contract renegotiations and have
achieved all key project milestones, Ørsted’s
Board of Directors will review and decide on
the final investment case.
In Germany, we were awarded the right to
build Borkum Riffgrund West 1 and Gode
Wind 4 with a capacity of 420MW and 132MW,
respectively. Combined with the awards from
the auction in 2017, we have secured the full
capacity of 900MW in the Borkum Riffgrund
cluster (Cluster 1) without subsidies. In addition,
we have secured a total capacity of 242MW
for Gode Wind 3 and 4 at a weighted average
feed-in tariff of EUR 81 per MWh. Subject to
FID, the wind farms are expected to be opera-
tional in 2024/25, respectively.
In October, The Crown Estate in the UK con-
firmed that we have satisfied the application
criteria for the development of our Race Bank
Extension offshore wind farm, which expected-
ly will now be subject to a plan-level Habitats
Regulations Assessment (HRA). Subject to all
necessary consents being granted, Race Bank
Extension will be able to participate in future
auctions under the contracts for difference
(CfD) scheme.
Early October, we entered into an agreement
to acquire Deepwater Wind. The acquisition
was completed in November at an enterprise
value of DKK 4.7 billion. Deepwater Wind is
the leading US-based offshore wind developer
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Ørsted Annual report 2018Management’s review Overview
Contents
with an attractive and geographically diverse
portfolio of projects along the US East Coast.
In the US, we were awarded an additional
104MW in December in the clean energy
auction in Connecticut. Our Revolution Wind
project has now secured a total capacity
of 704MW connecting into New England,
including previously awarded capacity in
Rhode Island and Connecticut, which we will
construct as one joint project, and thus unlock
significant procurement, construction and
operational synergies.
By end 2018, the Deepwater Wind portfolio to-
tals a capacity of approx 2.6GW, consisting of
30MW in operation, 954MW of development
projects with long-term revenue contracts in
place or under negotiation and approx 1.6GW
which potentially may be developed in three
awarded lease areas.
In October, we bid into Rhode Island’s auction
for up to 400MW of renewable energy. Further,
in December 2018, we bid into the 1,100MW
New Jersey auction with our Ocean Wind pro-
ject, and we expect to bid into the announced
800MW auction in New York in February 2019.
In January 2019, we furthermore announced
that we have signed a memorandum of
understanding to work jointly with Tokyo Elec-
tric Power Company (TEPCO) on the Choshi
offshore wind project near Tokyo, and towards
a broader strategic partnership.
We look forward to expanding our footprint
in both Europe, the US and Asia-Pacific and
working together with our new partners.
Onshore
In August, we entered into an agreement to
acquire Lincoln Clean Energy (LCE), a US-based
developer, owner and operator of onshore
wind farms. The acquisition was completed on
1 October 2018 at an enterprise value of DKK
5.6 billion. Through LCE, our onshore business
will be a growth platform and provide strate-
gic diversification to Ørsted’s portfolio.
Our aim is to create a leading North American
company within renewable energy, includ-
ing onshore wind, solar energy and energy
storage.
Lincoln Clean Energy has an operating
portfolio of 813MW and a near-term portfolio
of 714MW of onshore capacity in advanced
stages of development.
In December, we commissioned the 300MW
onshore wind farm Tahoka in Texas. Further-
more, we took FID on the onshore wind farm
Lockett. The wind farm is under construction
and is expected to be commissioned in Q3
2019.
In addition, we announced a 500MW wind
and solar power purchase agreement (PPA)
with ExxonMobil, distributed evenly between
the Sage Draw onshore wind farm and the
Permian solar PV project.
From our Capital Markets Day in
Gentofte on 28 November.
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Ørsted Annual report 2018Management’s review Overview
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“2018 was a year with many changes,
and with the acquisitions of Lincoln
Clean Energy and Deepwater Wind,
we welcome more highly skilled
employees to our company.
Utility business
In June, we announced our plans to divest our
Danish power distribution, residential custom-
er and city light businesses. The process came
to a stop in January when our majority share-
holder, the Danish State, informed us that
there was no longer the necessary political
support. It is still the Board of Directors assess-
ment that Ørsted is not the best long-term
owner of these businesses. Consequently, we
have classified the businesses as assets held
for sale and continue to investigate the differ-
ent options for exiting them. We expect an exit
from all of these businesses during 2019.
In June, we divested our 50% ownership share
in the gas-fired power plant Enecogen in the
Netherlands. The divestment reinforces our
focus on green energy.
In June, we commissioned our new biogas
plant in Kalundborg, Denmark, together with
our partner Bigadan. The plant will recycle
waste from the local production facilities of
our corporate customers Novozymes and
Novo Nordisk and convert it into biogas. We
are looking to expand our portfolio of biogas
plants in the future.
The development of our first Renescience
plant in the UK is still in progress. By means of
enzymes, the technology efficiently converts
household waste into biogas and recyclable
materials. While the enzymatic process is
working satisfactory, we have experienced
mechanical challenges in the sorting process
and have had to undertake a programme
to enhance flexibility and redundancy in the
sorting hall. We are currently finalising this
optimisation. Final commissioning is expected
during the first half of this year.
In May, the High Court of Western Denmark
ruled that Elsam, one of the six companies
that merged into DONG Energy, now Ørsted,
back in 2006, had not abused its dominant
market position in 2005 and the first half of
2006. In October, the Danish Appeals Per-
mission Board ruled in favour of Ørsted and
decided that the Danish competition author-
ities would not be given permission to try the
ruling before the Supreme Court. Consequent-
ly, the ruling of the High Court stands. We
are pleased that we can put this court case
behind us and move forward. However, we are
still awaiting the development in the Elsam
competition case for the period 2003 to 2004
and the related compensation case.
At the end of December, 679,000 smart meters
installed by Radius and Kamstrup had been
taken into use by our power distribution cus-
tomers. This is a significant milestone, marking
that we are well on our way to replacing
meters for all our 1 million customers by the
end of this year.
Finally, our Customer Solutions business has
signed a 15-year agreement with Innogy to
balance the power generation from their
860MW offshore wind farm Triton Knoll in
the UK. Under the agreement, Ørsted will sell
the expected generation from the wind farm
on the power market on a day-ahead basis,
thus handling deviations from the expected
generation the following day.
Employees
We have a strong focus on the safety and
well-being of our employees. In 2018, we
achieved a positive development in the total
recordable injury rate (TRIR) and saw yet
another year with no life-changing accidents.
The 2018 employee survey showed a contin-
ued high score on satisfaction and motivation
– in line with the 2017 results. It positions
Ørsted in the top 10% compared to external
benchmarks in all major markets.
Once again, 2018 was a year with many
changes, and with the acquisitions of Lincoln
Clean Energy and Deepwater Wind, we
welcome more highly skilled employees to our
company. The integration of the organisations
is already well under way. All our employees
deserve credit and acknowledgement for their
dedicated performance during the past year.
Their strong competences and entrepreneurial
spirit – fuelled by the passion for what Ørsted
stands for and the work we do – constitute
the very foundation of our company.
Henrik Poulsen
CEO and President
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Ørsted Annual report 2018Management’s review
Overview
Contents
Performance highlights
Profits and returns
Operating profit (EBITDA)
DKKbn
30.0
22.5
19.1
30.0
2016
2017
2018
19.5
Net profit (continuing operations)
DKKbn
Return on capital employed (ROCE)
%
32.1
Green share of generation
%
75
64
24.4
25.2
50
Sustainability
19.5
12.2
13.3
2016
2017
2018
32.1
2016
2017
2018
75
2016
2017
2018
In 2018, we achieved a strong EBITDA which significant-
ly exceeded our expectations at the beginning of the
year. It was the highest to date and was driven by an
increase in generation from our offshore wind farms
and profit from the 50% farm-down of Hornsea 1.
The amount above the dotted lines represent profits
from new partnerships.
Cash flow and balance sheet
Profit for the year amounted to DKK 19.5 billion,
Ørsted’s best result ever driven by the strong
operating profit.
ROCE was also significantly impacted by the
Hornsea 1 farm-down gain in 2018. Our target is an
average ROCE of around 10% for the Group in the
2019-2025 period.
The green share of heat and power generation
continued to increase to a new high of 75%,
following continued ramp-up of our offshore wind
capacity, and full-year effect from our most recent
biomass-converted CHP plants.
Gross investments
DKKbn
Interest-bearing net debt
DKKbn
Credit metric (FFO/adjusted net debt1)
%
Safety
TRIR
24.5
17.7
15.0
3.5
69
64
50
6.8
6.4
4.7
24.5
2016
2017
2018
-2.2
-1.5
-2.2
2016
2017
2018
69
2016
2017
2018
4.7
2016
2017
2018
The gross investment level was high in 2018 due
to the acquisitions of Deepwater Wind (DKK 4.0
billion) and Lincoln Clean Energy (DKK 5.6 billion) in
addition to high construction activity in our project
portfolio.
We had a net cash position of DKK 2.2 billion at
the end of 2018.
The credit metric ‘funds from operations’ (FFO)
relative to adjusted net debt amounted to 69% in
2018, positively affected by our strong operating
profit and low adjusted net debt.
We have a strong focus on the safety and
well-being of our employees. In 2018, we achieved
a record- low total recordable injury rate (TRIR).
1) Interest-bearing net debt, including 50% of hybrid capital and securities not availabile for use (with the exception of repo transactions),
present value of lease obligations, and decommissioning obligations less deferred tax.
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Ørsted Annual report 2018Management’s review Overview
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Follow-up on outlook
announced for 2018
In the outlook announced in our annual report
for 2017, we expected EBITDA without new
partnerships of DKK 12-13 billion and gross
investments of DKK 16-18 billion for 2018.
With EBITDA, excluding new partnerships, of
DKK 15.0 billion, our expectations were ex-
ceeded. The main reasons were good progress
on the construction of our new offshore wind
farms Walney Extension and Borkum
Riffgrund 2 during the year, including higher
earnings from construction agreements,
as well as faster ramp-up than expected.
Furthermore, we had a positive outcome of an
arbitration related to a gas purchase contract,
positive effect in our gas portfolio business
from increasing gas prices in 2018 (which all
other things equal will have a reverting nega-
tive effect in 2019) and better than expected
performance in our LNG business from strong
market fundamentals.
EBITDA, including the profit from the
Hornsea 1 partnership, amounted to DKK 30.0
billion, which was significantly higher than the
2017 EBITDA level of DKK 22.5 billion, in line
with our guidance.
Gross investments amounted to DKK 24.5
billion. The main reasons for the increase were
the acquisitions of Lincoln Clean Energy and
Deepwater Wind and early investments in the
US offshore and onshore portfolio in Q4 2018
to qualify for future tax credits. In addition,
gross investments related to construction of
offshore wind farms were lower than expected
due to shifts in spending across years and the
Race Bank and Walney Extension construc-
tion projects being finalised at a lower capex
spend than expected.
In Bioenergy, the focus has been on realising
positive free cash flows from 2018. The free
cash flows was positive and amounted to
DKK 518 million of which the divestment of
Enecogen contributed with DKK 383 million.
EBITDA excl. new partnerships, realised vs guidance
DKKbn
Investments, realised vs guidance, DKKbn
1 February
9 August
12-13
12.5-13.5
1 February
16-18
1 November
8 October
2018 realised
13-14
15.0
2018 realised
23-25
24.5
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Ørsted Annual report 2018Management’s review Overview
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Outlook 2019
EBITDA guidance method
As in 2018, our guidance is based on our exist-
ing activities and thus only include the effect
of existing partnership agreements. Earnings
from new partnerships in 2018 concerned
Hornsea 1 and amounted to DKK 15.1 billion.
We do not expect new partnerships in 2019.
to drive global expansions. Other, including
project development costs, are expected to
make up approx DKK 2.4 billion.
Outlook 2019, DKKbn
EBITDA (without new partnerships)
Offshore (without new partnerships)
Onshore – significantly higher
— As we acquired Lincoln Clean Energy on
1 October 2018, 2019 will be the first full
year of operation from this business unit.
Onshore
Bioenergy
Customer Solutions
Gross investments
2018 realised
2019 guidance
15.0
12.7
0.0
0.4
2.0
24.5
15.5-16.5
Higher
Significantly higher
Higher
Significantly lower
21-23
EBITDA
EBITDA (business performance), excluding
new partnership agreements, is expected to
be DKK 15.5-16.5 billion in 2019, corresponding
to an increase of 4-10%. The outlook is based
on the expected development in the business
units (compared to 2018), as described below.
Offshore – higher
— Earnings from offshore wind farms in
operation are expected to increase as a
result of the full commissioning of Hornsea
1 in H2 2019 as well as higher earnings from
Borkum Riffgrund 2 and Walney Extension,
which were fully commissioned during 2018.
— Earnings from existing partnership agree-
ments, which amounted to DKK 3.7 billion
in 2018, are expected to decline. In 2019,
earnings from existing partnerships will
primarily come from the remaining part of
the Hornsea 1 farm-down (approx 15%).
— Expensed project development costs are
expected to increase as a result of efforts
— Earnings from onshore wind farms in oper-
ation are expected to increase as a result
of ramp-up from our new wind farms. In
December 2018, we commissioned Tahoka,
and we expect to commission Lockett in
Q3 2019.
Bioenergy – higher
— Total EBITDA from our heat and power
generation activities is expected to
increase, primarily as a result of expected
increased generation on biomass and
expected increase in Danish wood pellet
spreads and green dark spreads.
— Earnings from our ancillary services were
high in 2018, driven by higher demand
during the summer and increased demand
from Germany (DK/DE connection). We
expect 2019 earnings from our ancillary
services to be in line with 2017.
Our EBITDA guidance for the Group is the prevailing guidance, whereas the directional earnings
development per business unit serve as a means to support this. Higher/lower indicates the
direction of the business unit’s earnings relative to the results for 2018.
— Earnings from the gas portfolio were further-
more positively affected by a positive out-
come of an arbitration case in 2018, which is
not expected to be repeated in 2019.
implementation of IFRS 16, compared to a
continued expensing of operational lease costs.
The majority of the impact is in Offshore.
— In 2018, earnings from our LNG business
was positively affected by strong market
fundamentals. We expect lower earnings
from these activities in 2019.
— We plan to exit our Danish power distribu-
tion and residential customer businesses
during 2019, but have included them
throughout the year in our outlook. We
do not expect any significant changes in
earnings from these compared to 2018.
Gross investments
Gross investments for 2019 are expected to
amount to DKK 21-23 billion. The outlook
reflects a high level of activity in Offshore
(Hornsea 1, Borssele 1 & 2, Hornsea 2 and
Greater Changhua 1 & 2a (assuming FID)),
Onshore (Lockett, Sage Draw and Plum Creek),
biomass conversion of Asnæs Power Station
and installation of smart meters.
In addition to gross investments, significant
funds are temporarily tied up in connection
with the construction of transmission assets
for offshore wind farms in the UK and for our
partners. These funds are a part of our operat-
ing cash flows.
12 / 193
Customer Solutions – significantly lower
— We expect a significant decline in Markets
due to gains from increasing gas prices in
2018 reverting with negative impact in 2019.
IFRS 16 impact
EBITDA in 2019 is expected to be positively
affected by DKK 0.6 billion from the
Ørsted Annual report 2018Management’s review
Overview
Contents
At the end of 2018, funds tied up in work in
progress totalled DKK 9.7 billion. During 2019,
we expect to divest the Walney Extension
and Race Bank offshore transmission assets,
but we still expect to see high level of funds
tied up in work in progress in 2019 as a result
of the construction of transmission assets at
Hornsea 1 and 2. The construction of
Hornsea 1 for partners is expected to be
operating cash flow neutral, as we will receive
milestone payments continously from our
partner during the construction phase.
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 2019, the ROCs are expected to account
for 62% of the total income from these wind
farms. In 2019, 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 2019. The same applies to our
currency risks. The market value of financial
hedging instruments and US power purchase
agreements relating to our operations and
divestment of assets deferred for recognition
in business performance EBITDA in 2019
amounted to DKK -1.5 billion at the end of
2018. This effect is included in the outlook for
2019 (see note 1.6).
The most significant uncertainty surrounding
the operating profit from existing activities in
2019 relates to the size of our power genera-
tion, which depends on wind conditions, the
ramp-up of new wind farms and potential
break-downs, and to a lesser extent our earn-
ings from existing partnership agreements,
timing in value adjustments related to gas at
storages, heat and market trading activities.
In addition, we are subject to litigation cases
that potentially are concluded in 2019.
If a financially viable way forward is not found
for our Greater Changhua projects, and we
consequently decide not to progress with the
projects during 2019, we have made certain
commitments, which we will need to provide for.
Forward-looking statements
The annual report contains forward-looking state-
ments which include projections of our short and
long-term financial performance and targets as well as
our financial policies. These statements are by nature
uncertain and associated with risk. Many factors may
cause the actual development to differ materially from
our expectations.
These factors include, but are not limited to, changes in
temperature, wind conditions and precipitation levels,
the development in power, coal, carbon, gas, oil, cur-
rency and interest rate markets, changes in legislation,
regulation or standards, the renegotiation of contracts,
changes in the competitive environment in our markets
and reliability of supply. Read more about the risks in
the chapter ‘Risk and risk management’ and in note 7.
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Ørsted Annual report 2018Management’s review Overview
Contents
Financial estimates and policies
Clean Energy and Deepwater Wind, which will
increase the capital expenditure in these years,
but contribute to earnings with some delay.
Financial policies
The Board of Directors recommends to the
annual general meeting that dividends of
DKK 9.75 per share be paid for 2018, equating
an increase of 8% and a total of DKK 4.1
billion.
Supported by the expected increased cash
flows from future offshore and onshore wind
farms, we still intend to increase annual
dividends by a high single-digit percentage
compared to the previous year’s dividends.
This policy has been extended to cover the
period until 2025 (previously 2020).
Our dividend policy and other expected capi-
tal allocations are subject to our commitment
to our BBB+/Baa1 rating profile.
Financial estimates
Total CAPEX spend
Target
Year
DKK 200bn
2019-2025
Average return on capital employed (ROCE)
~10%
2019-2025
Average share of EBITDA from regulated and
contracted activities
Average yearly increase in EBITDA from offshore
and onshore wind farms in operation
~90%
2019-2025
~20%
2017-2023
We have a ROCE target
of 10% on average for
the period 2019-2025.
Read more about our
key metrics, financial
targets and policies in
the presentation from
our Capital Markets
Day in November 2018
on orsted.com/en/
capital-markets-day
Financial policies
Rating
Capital structure
Dividend policy
Min. Baa1/BBB+/BBB+ (Moody’s/S&P/Fitch)
~30% (FFO/adjusted net debt)
Our current rating is in
accordance with the
policy.
Ambition to increase the dividend paid by
a high single-digit rate compared to the
dividends for the previous year up until 2025
Financial estimates
In connection with our Capital Markets Day in
November 2018, we introduced new strategic
estimates towards 2025.
From 2019-2025, we expect total gross invest-
ments of approx DKK 200 billion. Investments
in offshore wind farms are expected to con-
stitute 75-85% of the investment programme.
Onshore investments are expected to consti-
tute 15-20%, while our combined investments
in Bioenergy and Customer Solutions are
expected to constitute 0-5%.
Towards 2023, we expect an average increase
in operating profit (EBITDA) from offshore and
onshore wind farms in operation (including
O&M agreements and power purchase con-
tracts) of 20% a year, reaching an estimated
level of DKK 25-26 billion in 2023.
The largest share of Ørsted’s operating
profit (EBITDA) will still be generated by
contract-based or regulated activities. We
expect an average of around 90% of EBITDA
in 2019-2025 to come from contract-based or
regulated activities.
Our target is an average return on capital em-
ployed (ROCE) of around 10% for the Group in
the 2019-2025 period. The reduction compared
to our earlier target of 12-14% for 2018-2023
is a result of earnings from the partial divest-
ment of Hornsea 1 in 2018 being outside the
new period and the acquisitions of Lincoln
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Ørsted Annual report 2018Management’s review Contents
Our business
The green transformation
Our strategic playing field
Our markets
Our strategy and capital allocation
Our business model
Strategic targets
Our geographic footprints
16
18
19
22
25
26
28
Ørsted Annual report 2018 Our business
Contents
The green transformation
One third of all global carbon emissions come
from the production of energy. To avoid an
irreversible change in the global climate and
ensure a habitable planet for future genera-
tions, we need to transform the world’s energy
systems from black to green.
The Sustainable Development Goals (SDGs)
were adopted by all United Nations’ member
states in 2015. The goals cover the world’s
greatest challenges that must be addressed
towards 2030 to improve conditions for
people and the planet. The defining challenge
of our generation, impacting all other SDGs, is
to decelerate climate change – addressed in
SDG 13.
The latest report by the UN’s IPCC confirms
that human activity has already caused tem-
peratures on our planet to increase by approx
1.1°C above pre-industrial levels. Staying below
1.5°C warming necessitates a 45% reduction
of emissions by 2030 (from 2010-levels) and
‘net-zero’ emissions by 2050. This requires
an almost completely decarbonised power
sector.
Carbon emissions originate from a range of
sectors that all need to be decarbonised
to effectively avoid severe climate change:
electricity and heat generation (25%),
other energy generation (10%), industry (21%),
transportation (14%), land use (24%) and
buildings (6%).
So far, global decarbonisation has mainly
taken place in power generation, driven by
the deployment of renewable energy at
scale, reducing cost to a level which is now
competitive to fossil fuels and nuclear power
in many markets. This is good news for the
continued decarbonisation of global energy
production and for other sectors benefitting
from increased electrification.
The continued deployment of renewable
energy systems will create significant business
opportunities for green energy solutions.
From 2018 to 2030, Bloomberg New Energy
Finance (BNEF) expects global investments
in renewable energy to amount to approx
USD 3.5 trillion.
Living up to the Paris Agreement
The Paris Agreement, signed by 195 countries
in 2016, is the most ambitious and compre-
hensive global political framework advancing
SDG 13 on climate action. The agreement
demonstrates the global commitment among
a vast majority of the world’s countries to
combat climate change. According to the
Paris Agreement, the countries commit to
keeping the global temperature increase well
below 2°C and to pursue efforts to limit the
temperature increase even further to 1.5°C.
However, actions and decisions taken so far
by the countries under the Paris Agreement
currently put the world on a path towards
a global warming of more than 3°C. Hence,
there is a need for more ambitious national
action plans to channel investments towards
a greener and more climate-resilient economy.
Climate-related financial disclosures
Capital allocation decisions are one of the key
levers for decarbonising the global econo-
my. In 2017, the industry-led Task Force on
Climate-Related Financial Disclosures (TCFD)
launched its recommendations on how to
improve the way climate-related risks and
opportunities are factored into investment
decisions. The initiative was launched by the
G20 and illustrates how political and private
sector leaders can unite in facilitating progress
towards the climate-related SDGs.
The TCFD recommendations aim to improve
understanding and disclosure of companies’
climate-related risks and opportunities. These
include physical factors, such as the sea level
rising or storms that can affect assets, and
transitional factors, such as carbon prices or
technology shifts that can affect business
strategies. By adopting the recommendations,
companies signal that they are considering
and acting on the impacts of climate change
on their business. Ultimately, this will help
fight climate change and drive the transition
towards a sustainable, low-carbon economy.
Top three SDGs
that we help
promote
Adopted by all United Nations member states
in 2015, the 17 Sustainable Development Goals
(SDGs) constitute the most pressing economic,
social and environmental challenges that
the world needs to solve. In Ørsted, we focus
particularly on advancing two of the SDGs,
namely 7 (clean and affordable energy) and 13
(fighting climate change), and by consequence
we also contribute significantly to SDG 8
(economic growth).
SDG 7 aims to ensure access to
clean and affordable energy for
all. Today, 81% of global energy
consumption is based on fossil
fuels. To achieve the goal, soci-
eties need to accelerate the transformation
of our energy systems from black to green.
SDG 8 aims to promote sus-
tainable economic growth and
decent work for all. Converting
the world’s energy systems
from black to green requires
significant investments that create economic
growth and employment.
SDG 13 calls for urgent action
to fight climate change and
its impacts. Approx 75% of
global carbon emissions come
from the use of fossil-based
energy. This energy is used for power, heat,
industrial processes and for transportation.
The remaining 25% of global emissions come
from agriculture, forestry and other land use.
Creating a world on green energy will be
necessary to limit climate change.
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Ørsted Annual report 2018Management’s review Our business
Contents
Ørsted’s response to
the global climate challenge
Society’s need to phase out fossil fuels
and deploy renewable energy at scale has
been the key driver in Ørsted’s decade-long
strategic transformation from black to green
energy. From being one of the most coal-inten-
sive utilities in Europe a decade ago, we are
today among the global leaders in renewable
energy, driven by a vision of creating a world
that runs entirely on green energy.
We are keenly committed to being among the
leading companies that help make societies
progress towards the SDGs.
We contribute to the achievement of SDG 7
by deploying renewable energy at scale. Our
strategic target is to increase the green energy
share of our heat and power generation to
99% by 2025. By 2025, our installed offshore
wind capacity alone will be able to power
more than 30 million people.
Through our green energy investments, we
also contribute to SDG 8. We have invested
DKK 120 billion in deploying green energy
in the past 10 years. Including our partners’
share of Ørsted-led offshore wind build-outs,
investments amount to DKK 165 billion in
this period. In a lifecycle perspective, our and
our partners’ investments in deploying green
offshore energy have created approx 180,000
jobs from the installed capacity and FID
projects. Towards 2025, we plan to invest DKK
200 billion within renewables, adding signifi-
cantly to further local economic growth and
job creation, not least in our new markets.
The decarbonisation of our heat and power
generation also helps contribute significantly
to SDG 13. So far, we have reduced our carbon
intensity by 72% from 462g CO2e/kWh in 2006
to 131g CO2e/kWh in 2018. In absolute terms,
we have reduced our carbon emissions from
18 million tonnes in 2006 to 3.4 million tonnes
in 2018. This has been realised by reducing our
coal consumption by 81%, replacing it with
sustainable biomass. Adding to this, we have
contributed to avoiding more than 31 million
tonnes of carbon emissions by deploying
offshore wind farms.
As we deploy green energy and plan to phase
out coal entirely by 2023, our carbon intensity
will be reduced by 96% in 2023 compared to
2006. Our target puts us 27 years ahead of
the 2°C trajectory projected by the Interna-
tional Energy Agency. This places our strategy
well ahead of the Paris Agreement.
By pursuing our green vision and strategy, we
are aligned with the TCFD recommendations
to a large extent, and we decided to endorse
the recommendations in 2018. The Board of
Directors is directly or indirectly addressing
climate-related risks and opportunities when
assessing and deciding on new investments
in assets or activities or on discontinuation
of activities. In addition, climate-related risks
are assessed as an integral part of our risk
management processes. Still, however, the
TCFD recommendations help us improve our
understanding of climate-related financial
risks and opportunities and disclose it in a use-
ful way to our investors and other stakehold-
ers. Our vision is aligned with investors who
are still more observant of climate-related
risks as well as business opportunities offered
to companies positioned to benefit from the
important transformation from black to green.
Ørsted’s response to the global climate
challenge and our full range of sustainability
programmes and SDG contributions are docu-
mented in our sustainability report.
Corporate social responsibility reporting
Our sustainability strategy and results are
reported on in our sustainability and ESG perfor-
mance reports which constitute our annual Commu-
nication 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 these reports, 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/sustainability2018
orsted.com/ESGperformance2018
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Ørsted Annual report 2018Management’s review Our business
Contents
Our strategic playing field
The renewable energy value chain is made
up of various components. These range from
generation of green power, through storage,
transmission and distribution to the consump-
tion side. Within this energy system, we have
taken the following strategic positions.
Besides existing market positions, we explore
the strategic and financial potential of addi-
tional green growth opportunities. Both solar
PV, bioenergy and storage offer significant
growth opportunities on the back of signifi-
cant cost reductions.
Considering our rapidly growing global portfo-
lio of renewable energy assets, we decided to
initiate a structured divestment process of our
Danish power distribution, residential custom-
er and city light businesses in June 2018. Al-
though the political support for continuing this
structured process ceased on 13 January this
year, we are continuing to investigate different
options for exiting the businesses during 2019.
In addition, following the political agreement
in support of our IPO, we are conducting a
structured divestment process of our offshore
gas pipeline (including the Nybro Gas Treat-
ment Plant) and oil pipeline (including the
Frederica stabilisation plant). The transactions
are expected to be signed in 2019.
Although we acknowledge electric heating
and electric vehicles as key components in
the renewable energy value chain, we have no
actual plans to enter these markets.
Offshore wind is our core focus and has been
since we decided to transform Ørsted to a
green energy company. It is a rapidly growing
market in the global energy system with at-
tractive value-creating opportunities. We have
been successful in leveraging our capabilities
to become the leading global player in the
offshore wind market, representing a 30%
share of the total capacity in operation or
under construction.
Onshore wind is our second growth platform
where we now have a strong regional position,
with the acquisition of Lincoln Clean Energy in
the US. The US onshore market offers attrac-
tive value-creating opportunities and has
significant long-term growth potential. The
transaction provides technology and market di-
versification and enables us to serve the future
energy demand through a multi-technology
business platform. In addition, the US market
will add to our scale and critical mass.
To secure market access, our strategic focus
is on wholesale and corporate customers
which account for the largest share of energy
consumption. This position enables a route to
market for our green energy generation.
Renewables generation
Storage
T&D
Consumption
Offshore wind
Onshore wind
Solar PV
Bioenergy
Electricity
storage
Electricity
transmission
and
distribution
Power to gas
Wholesale
Corporate customers
Residential customers
Electric heating
Electric vehicles
Invest to grow
Explore potential
Exit
No presence
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Ørsted Annual report 2018Management’s review
Our business
Contents
Our markets
The market share of renewables
is increasing
The renewable energy share of global power
generation is increasing. Excluding hydro, it
grew from less than 2% in 2000 to 12% in 2018.
This share is expected to continue to grow and
to reach 26% by 2030. With renewable energy
representing 27% of Europe’s total power
generation in 2018 (excl. hydro), Europe is lead-
ing the transformation. By 2030, renewable
energy is expected to account for more than
half of the European power generation (55%).
The global installed capacity of renewables
(excluding Middle East, Africa and hydro) was
1,153GW in 2018 and is forecast to more than
triple by 2030, reaching 3,678GW according to
Bloomberg New Energy Finance (BNEF).
In 2018, China and Europe were the regions
with most renewable capacity installed,
each accounting for approx 30%. The global
installed capacity is expected to continue to
grow 10% annually, with China and Europe
remaining the major regions followed by North
America.
capacity. However, offshore wind is expected
to grow the fastest towards 2030 at an annu-
al rate of 16%.
A key driver behind the growth in renewable
energy is the rapidly declining costs. Onshore
wind has become the most cost-competitive
energy technology due to its rapidly expand-
ing global capacity, which has contributed
to economies of scale, higher learning effects
and more technological innovation. On the
other hand, conventional non-renewable tech-
nologies, such as coal, are facing increased
costs due to reduced capacity factors, as they
face increasing competition from renewable
technologies.
Offshore wind
Installed global offshore wind capacity
reached 21GW in 2018. In just three years, it
has almost doubled, with an annual growth
rate of 22%. According to BNEF, the offshore
wind market is expected to continue this
strong growth trajectory.
The technologies that constituted the largest
share of installed renewable capacity in the
world in 2018 were onshore wind and solar
photovoltaics (PV). Onshore wind accounted
for almost half of the renewable capacity,
46%, while solar PV accounted for 41%. Both
technologies will remain the primary sources,
accounting for 88% of the total renewable
With an annual addition of more than 6GW,
the capacity is expected to reach 34GW by
2020. Thereafter, it is expected to grow by
15% on average, bringing the global installed
capacity to 132GW in 2030.
Currently, most offshore wind farms are lo-
cated in Europe, which makes up approx 80%
Global1 renewable capacity by geography,
GW installed
Global1 renewable capacity by technology2,
GW installed
China
Europe
North America
India
Rest of Asia Pacific
Latin America
Onshore wind
Large-scale PV
Small-scale PV
Storage
Biomass
Offshore wind
+10%/year
3,678
+210GW/year
3,678
147
389
468
567
936
1,170
132
144
158
829
1,076
1,339
1,153
21
121
7
157
311
536
1,153
44
110
74
205
342
378
2018
2030
2018
2030
Source: Bloomberg New Energy Finance (BNEF), H1 2018 offshore wind market outlook. US includes the latest
BNEF US offshore wind forecast from September 2018 (3GW higher than H1 2018 offshore wind market outlook
from July 2018).
1) Excludes Middle East and North Africa
2) Excludes ‘Other’ (solar, thermal and geothermal), accounting for less than 2%
19 / 193
Ørsted Annual report 2018Management’s review
Our business
Contents
of the total market. Europe is expected to
continue growing at strong double-digit rates
towards 2030, thus upholding the position as
the largest offshore wind market in the world
with an expected share of the global installed
capacity of 50% in 2030.
Installed offshore wind capacity, GW
Europe
China
Rest of Asia Pacific
North America
CAGR
+(16.4%/9.3GW)/year1
132
10
18
36
68
77
4
9
21
43
12
1
11
21
4
17
33
1
8
24
2015
2018
2020
2025
2030
Source: Bloomberg New Energy Finance (BNEF),
1H 2018 offshore wind market outlook. US includes
the latest BNEF US offshore wind forecast from Sep-
tember 2018 (3GW higher than the H1 2018 offshore
wind market outlook from July 2018
1) Global CAGR
However, new markets in Asia Pacific (APAC)
and North America are expected to follow
with booming growth. Asia Pacific, excluding
China, is expected to grow at an average an-
nual growth rate of 58% towards 2030. North
America is also expected to grow significantly
after 2020, with installed capacity expected
to increase from 30MW in 2018 to 10GW by
2030 according to BNEF. This expectation
does not fully take the recent 9GW by 2035
ambition from the New York Governour into
account.
The strong growth in offshore wind can be
attributed to the significant reduction in costs.
In 2018, the levelised cost of electricity for
newly commissioned generation capacity in
North-western Europe was reduced by approx
45% compared to the level four years earlier,
and it is expected to decrease further.
Newly built offshore wind has become more
competitive than conventional generation
technologies using gas and coal. The contin-
uous reductions in offshore wind costs are
evident in recent auctions in Germany and the
Netherlands where some developers bid for
zero subsidy projects.
Onshore renewables
Onshore wind
The global onshore wind market, excluding
Middle East and Africa, shows strong growth
as the installed capacity reached 536GW in
2018, up from 395GW in 2015, growing at 11%
annually. The global market is forecasted to
almost triple by 2030.
Among key markets, Asia Pacific represents
43% of the global onshore capacity, driven
by China. Europe reached 164GW installed
capacity in 2018, representing 31% of the
market. Another key market is North America
with 121GW, representing 23% of the global
capacity.
Onshore wind is the most cost-competitive
renewable energy resource, with the lowest lev-
elised cost of electricity in the US in 2018. North
America is expected to continue installing
onshore wind with an annual average growth
rate of 11% towards 2020 and to double its
capacity by 2030. In the short term, the market
will continue to be driven by projects that have
secured production tax credits (PTCs), but once
all PTC-backed projects have been built in
2024, the low cost of onshore wind will be the
main driver for further capacity build-outs.
Solar photovoltaic (PV)
Among the new renewable technologies,
solar PV witnessed the fastest growth, as the
global capacity grew by 31% from 2015 to
2018. The global capacity, excluding Middle
East and Africa, reached 468GW in 2018. This
strong growth is expected to continue towards
2030, reaching 1,905GW installed capacity
at an annual growth rate of 12%. Large-scale
PV, with a power capacity greater than 1MW,
represented 66% of the total capacity in 2018,
while small-scale PV, typically for residential
use with a 5kW power capacity, is expected
to catch up towards 2030, reaching a share of
43% of cumulative solar PV installations.
North America reached 65GW in 2018 and was
one of the fastest growing regions. It is expect-
ed to continue this growth trajectory with an
Installed onshore wind capacity, GW
North America
CAGR
+(6.1%/10.5GW)/year
247
208
148
121
93
2015
2018
2020
2025
2030
Source: Bloomberg New Energy Finance (BNEF),
New Energy outlook 2018
annual growth rate of 23% towards 2020 and
is to quadruple its installed capacity, reaching
261GW by 2030.
Towards 2023, the levelised cost of electricity
for solar PV is expected to be cheapest in
North America, barely overtaking onshore
wind. Key drivers supporting cost reduc-
tions are scale, material savings due to less
waste, and more incentives for technological
innovations.
Energy storage
As the share of intermittent renewable sources
is increasing in the global energy mix, the
need for more dynamic dispatchable units to
store energy and support rapid load-shifting
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Ørsted Annual report 2018Management’s review Our business
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With subsidies for renewable power genera-
tion trending lower and eventually reaching
zero, it becomes increasingly important to
find ways to manage the increasing merchant
power price exposure. This entails develop-
ment of new products and solutions for the
wholesale and retail markets.
In the business segment, many corporate cus-
tomers demand greener and more innovative
energy solutions that are also sustainable
and cost efficient. To address this demand,
the market for corporate power purchase
agreements (cPPA) has experienced considera-
ble growth. Despite remaining a smaller share
of the total downstream power market, the
global market size for cPPAs is expected to
reach 28GW in 2018, up from only 9GW in 2015.
As customers pursue sustainable and greener
solutions, 74% of the cPPAs are sourced from
wind and 24% from solar energy.
is also growing. Battery storage solutions can
balance electricity supply and demand and
may also provide ancillary services.
increase the recycling share of MSW to 65% by
2030 and reduce landfilling to less than 10%.
Global energy storage, excluding Middle East
and Africa, is expected to rise significantly over
the next decade. In 2018, it had grown by 58%
from 2015, reaching 6GW, and it is expected
to continue this strong growth path to reach
158GW by 2030.
Today, most of the capacity (73%) is devel-
oped for large-scale and only 27% for small-
scale storage. Large-scale storage systems
(+1MW) primarily provide services directly to
the grid, while small-scale storage systems
typically provide end-customer services.
A key driver for the strong outlook is the
decreasing cost of lithium-ion battery packs.
Between 2010 and 2017, prices fell by 80%
and going forward, BNEF forecasts further
cost reductions, supported by economies of
scale from increasing battery manufacturing
capacity.
Bioenergy
Global waste volumes are rapidly increasing.
In 2004, the municipal solid waste (MSW)
generated globally amounted to 680 million
tonnes per year. By 2016, volume had tripled
to 2.0 billion tonnes per year, and it is expect-
ed to continue growing. In 2016, only 17% of
MSW was recycled, while the majority was
sent to landfilling, which can potentially have
significant negative effects on the environ-
ment. Regulation is attempting to boost the
recycling share. The EU has set targets to
Alternatives to landfilling, such as incineration
and full-source separation, contribute to high
carbon emission levels and only marginally to
recycling. Hence, it is increasingly important to
find alternative solutions.
In addition to MSW, industries produce waste
from their production activities, e.g. organic
residues and by-products, that need to be han-
dled. In 2014, bio-based waste from industrial
processes and agriculture, forestry, fishing and
water treatment in the EU accounted for 157
million tonnes per year. For companies that
depend on natural gas and are looking for
greener processes, the conversion of organic
waste into bio-methane is an appealing
solution.
Customer Solutions
In 2018, the downstream electricity market
size in Europe was 3.3PWh. Of this, the busi-
ness segment accounted for the largest share
with 60-70%, while residential customers
accounted for 30-40%.
In 2018, 42% of the European power demand
was met by renewable energy (incl. hydro),
and the share is forecasted to reach 69% by
2030. Considering the growth in renewables,
the consequent increase in intermittent power
generation will lead to continuous discrepan-
cies between forecasted and actual produc-
tion. There is value in efficiently managing
this gap for wholesale customers by providing
balancing services.
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Ørsted Annual report 2018Management’s review Our business
Contents
Our strategy and capital allocation
Strategic direction and growth
Our strategic shift from black to green energy
is reflected in our capital base. In 2007, only
16% of our total capital employed was
invested in renewables. In 2018, the share of
renewables had increased to 87%.
In addition, our strategic transformation to
become a green energy company has posi-
tioned Ørsted as one of the largest commercial
renewable energy companies in the world,
measured by the capacity of renewable energy
that is installed and under construction. By the
end of 2018, we had 12GW of renewable energy
capacity installed, under construction, or where
a FID has been taken, with the vast majority
being in offshore wind. In addition, we have
been awarded or contracted projects with a
capacity of 4.8GW where investment decisions
are yet to be taken. Furthermore, we have a
strong pipeline of projects under development.
Towards 2030, we expect that the global
market for renewable energy will more than
triple to 3,600GW. As one of the leading com-
panies in renewable energy, Ørsted is strongly
positioned to take part in this growth.
We have increased our ambition for offshore
wind from a capacity of 11-12GW to a capaci-
ty of 15GW by 2025. By 2030, our strategic
ambition is to achieve an installed renewa-
ble capacity of more than 30GW, provided
that the development creates value for our
shareholders.
Strategic growth platform
Europe
Americas
Asia
Offshore
— Wind
— Transmission
— Storage
Onshore
— Wind
— Solar PV
— Storage
Bioenergy
— Biomass
— Renescience
— Biogas
Customer
Solutions
Global leader in offshore wind
— Strategic core
— Growth and value creation
— Scale
— Keep pioneering and innovating
— Explore growth and value creation
potential of Bioenergy
— Route to market for Ørsted’s
product portfolio
— Risk management
— Incremental value creation
Leading US renewable company
— Strategic diversification
— Scale
— Technology integration
— New value-creating growth platform
We have a strong growth platform to support
our strategic ambition, comprising our four
business units: Offshore, Onshore, Bioenergy
and Customer Solutions.
in Europe, North America, and Asia. We will
keep pioneering and innovating the industry.
Offshore wind will remain the strategic core of
our company.
Our Offshore business unit includes offshore
wind, transmission and storage. We strive
to maintain our global market leadership in
offshore wind and will continue to expand
The second growth avenue is our Onshore
business unit, where the aim is to create a
leading North American company within
renewable energy, with a main emphasis on
onshore wind, but also including solar energy
and energy storage.
Bioenergy includes our biomass-converted
combined heat and power plants in Denmark
and our waste-to-energy and biogas technolo-
gies. We will continue to explore the growth
and value creation potential within bioenergy.
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Ørsted Annual report 2018Management’s review Our business
Contents
Key milestones for 2019 for our four business units
Offshore
Onshore
Bioenergy
Customer Solutions
— Commissioning of Hornsea 1
— Commissioning of Lockett
— Completion of Renescience
(1,218MW).
(184MW).
plant in Northwich.
— FID on Changhua 1 & 2a
projects in Taiwan (900MW).
— FID on Sage Draw (300MW)
and Plum Creek (230MW).
— Bioconversion of Asnæs Power
Station.
— Outcome of NJ, NY, RI and MA
solicitations in the US.
— First utility-scale storage
solution in operation (UK).
— FID on new biogas plant.
— Exit of our power distribution,
residential customer and city
light businesses.
— Signing of oil and gas pipeline
divestments.
— First offshore corporate PPAs
signed.
— Full consent for Hornsea 3
— Solar PV project (Permian).
project.
— Successful integration of
Deepwater Wind.
— Successful integration of
Lincoln Clean Energy.
CAPEX
2019-2025
CAPEX
2019-2025
CAPEX
2019-2025
75-85%
15-20%
0-5%
Customer Solutions provides route-to-market
services for our product portfolio as it brings
our power, gas and green certificates to
market, while also managing the risk profile of
our portfolio.
Our key milestones for 2019 are shown in the
figure to the right.
Towards 2025, we plan to invest substantially
in green energy, thereby contributing to the
conversion of the global energy system and
creating value for our shareholders and the
communities within our footprint.
Capital allocation
Subject to continued value creation, we
expect to invest DKK 200 billion in the period
2019-2025 to continue our growth towards
an installed renewables capacity of +30GW
by 2030. Our capital will be allocated to the
best risk-return project opportunities in our
portfolio. We have already committed gross
investments of DKK 40-45 billion in the period,
assuming no further partial divestments of
offshore wind farms in Europe after the recent
Hornsea 1 farm-down. Additional investments
will primarily be allocated to our awarded
3.9GW offshore wind projects, our offshore
pipeline as well as our contracted 0.9GW on-
shore wind and solar projects and our onshore
pipeline.
In the period discussed, we expect to allocate
75-85% of our gross investments to Offshore,
15-20% to Onshore, and 0-5% to Bioenergy
and Customer Solutions together.
Based on the above anticipated build-out
of offshore and onshore wind, including the
acquisitions of Lincoln Clean Energy and
Deepwater Wind, we expect our current
financial headroom, relative to our rating
commitment, to be deployed within a few
years. Thus, our leverage, based on market
value, is expected to increase from 8% at the
end of 2018 to 25% in the early 2020´s.
We expect our average return on capital
employed (ROCE) for the years 2019-2025 to
be around 10%.
In addition to our ambitious investment plan,
we aim at maintaining a high single-digit
annual growth in dividends until 2025.
Enablers of the strategy
To support our ambitious strategy and enable
our businesses to perform effectively and
profitably, we continue to invest significantly
in talent, digitalisation, operational excellence
and innovation.
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Ørsted Annual report 2018Management’s review
Our business
Contents
Talent
As one of the global leaders in renewable
energy, Ørsted offers a strong environment for
professional growth and career development.
With our global growth ambition, we will
need gifted, ambitious and world-class talent
to drive our business forward. Our aim is to
hire the best people and to offer unparalleled
opportunities for professional development
through attractive learning opportunities
for all employees and through dynamic and
mobile careers. To support our ambition, we
are strengthening our employer branding
and talent acquisition efforts, our people
development and performance management
approaches and our talent development
activities. As we expand our global business,
we will also increase workforce diversity to
create a truly international culture. To drive
more structured talent acquisition, develop-
ment and deployment of high potentials, we
are establishing cross-business ‘talent pipeline
forums’ led by senior business executives.
Digitalisation
Our digital strategy focuses on keeping us at
the forefront of our industry. The key focus
areas lie within offshore wind power opera-
tions, customer solutions, market trading
and risk management, combined heat and
power plant operations and shared services.
Across these areas, we have defined financial
targets and established rigorous processes
for delivering and tracking value. The key
drivers for increased digital value creation are
increasing deployment of advanced analyt-
ics and artificial intelligence, strengthening
interfaces and mobility by augmenting our
employees´ or customers´ experiences through
human-machine interfaces, as well as a raised
level of automation. In 2018, we significantly
scaled up our digitalisation efforts, increasing
external recruitment and further leveraging
our in-house capabilities.
Operational effectiveness
We continuously drive asset productivity, cost
efficiency and quality across all major opera-
tional areas. In particular, we run operational
excellence programmes within O&M and
EPC in offshore wind, our CHP plants, shared
services and our sales operations. Across
our businesses, all operational excellence
programmes are driven rigorously, based on
clear target setting, well-defined initiatives
and clear follow-up processes for delivering
and tracking value creation.
Innovation
To maintain our competitive edge and stay at
the forefront of a rapidly evolving renewable
energy industry, innovation is a key priority.
Across our business units, we invest significantly
in innovating and strengthening our existing
product offerings and in bringing new solutions
into our portfolio. To reinforce our strategic
radar for emerging technologies and business
models, we established Ørsted Ventures in
Silicon Valley, California, in 2017. In 2018, we
expanded our venture engagements to also in-
clude our European markets. To nurture internal
innovation, we run cross-organisational Innova-
tion Games, where internal teams from across
the company present innovative business ideas
aimed at promoting growth and strengthening
our competitive edge.
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Ørsted Annual report 2018Management’s review Our business
Contents
Our business model
Key resources
Core activities
Value created
Financial capital
We finance our investments
through cash flows from opera-
tions, debt and divestment of
ownership interests.
Energy assets
We invest in scalable, innovative
green technologies and solutions.
Natural resources
We rely on natural resources,
such as construction materials,
biomass, as well as locations
with attractive wind speeds and
seabed conditions.
Human resources
We rely on a highly skilled work-
force to operate our business.
Innovative culture
We continuously innovate
our energy solutions to drive
competitiveness.
Stakeholder engagement
We depend on constructive rela-
tions with our key stakeholders
to ensure supportive framework
conditions for our business.
Capital employed 79%
Capital employed 6%
Capital employed 2%
Offshore
— Develop, build, own and operate
offshore wind farms (three wind farms
are under construction).
— Own 26 offshore wind farms of which
we operate 22.
— Development projects in progress in
the UK, Germany, Taiwan and the US.
— Additional new markets being devel-
oped in Asia and Europe.
Onshore
— Develop, build, own and operate
onshore wind farms.
— Three wind farms are in operation,
one wind farm is under construc-
tion, and two wind farms are under
development.
— Explore opportunities within solar
PV and storage.
Bioenergy
— Convert our CHP plants to
biomass.
— Own and operate ten CHP plants
in Denmark.
— Enter into long-term contracts
with our heat customers and sell
power to the market.
— Explore opportunities within
biogas and waste recycling.
Customer
Solutions
— Route-to-market
services for our own
and partners’ power,
gas and certificates.
— Manage the Group’s
energy portfolio risks.
Capital employed 13% of
which assets we plan to exit 10%
Society
We address profound societal
challenges by developing green,
independent and economically
viable energy systems that
reduce greenhouse gas emissions
and stimulate local growth and
job creation.
Customers
We fulfil our customers’ energy
needs through green, innovative
and efficient energy solutions.
Employees
We are committed to a sustain-
able working life and keep a
constant focus on being a great
and safe place to work with moti-
vated and satisfied employees.
Shareholder return
We create value for
our shareholders in the form of
competitive total returns.
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Ørsted Annual report 2018Management’s review
Our business
Contents
Strategic targets
1. EBITDA from operating wind farms, %
3. Green share of generation, %
EBITDA from our wind farms in operation is on average expected to increase
by 20% per year from 2017 to 2023.
In 2018, we increased the green share of generation by 11%-points
compared to the previous year. We are on track to meet our objective
of exceeding 95% by 2023 and reaching 99% by 2025.
CAGR +20%/year
~25-26
8.5
10.5
>95
99
75
64
50
17
2017
2018
2023
2006
2016
2017
2018
2023
2025
2. ROCE, %
Our target is an average return on capital employed (ROCE) of around 10% for the
Group in the 2019-2025 period. EBITDA in 2016-2018 has been positively impacted by
significant profits from new partnership agreements, particularly divestment gains,
which are not expected to be repeated going forward.
ROCE
EBITDA
of which EBITDA from new partnerships
32%
30.0bn
24%
25%
22.5bn
19.1bn
10%
4. Carbon emissions, g CO2e/kWh
The conversion of our heat and power stations to sustainable biomass, together
with our build-out of offshore wind, has reduced our carbon emissions intensity
by 72% since 2006. We are well on track to meet our target of an emission
intensity of no more than 20g CO2e per kWh in 2023 and 10g CO2e in 2025.
462
151
131
100
20
10
2016
2017
2018
2019-2025
2006
2017
2018
2020
2023
2025
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Ørsted Annual report 2018Management’s review
Our business
Contents
5. Installed renewable capacity, GW
7. Employee satisfaction, scale 1-100
In 2018, we defined an ambition of installing more than 30GW of green capacity by 2030 through
offshore wind, onshore wind, bioenergy and solar PV technologies. In addition, our ambition is to have
installed 15GW of offshore wind by 2025, up from our previous target of 11-12GW. The upward revision is
based on strong progress since we set the ambition in 2016, with 5.6GW installed by 2018, 3.4GW under
construction towards 2022 and 3.9GW of capacity awarded.
We believe that well-being and positive results go hand in hand. Therefore,
we are continuously working to maintain and increase employee satisfaction.
The employee satisfaction in Ørsted is above comparable companies.
Ørsted
Ennova benchmark
Offshore wind
Onshore wind
Bioenergy
Other renewables
Total renewables
30
8.3
10
15
2
76
69
76
67
76
70
77
2010
2018
2020
2025
2030
2016
2017
2018
2020
6. Customer satisfaction, scale 1-100
8. Safety, TRIR
Our ambition is to deliver a market-leading customer experience for our corporate
customers, which we continuously strive to do. Our target is a customer satisfaction
of at least 80 by 2020.
B2C
B2B
Distribution
Target 2020
From 2018, we introduced a new safety target – total recordable injury rate (TRIR). In
2018, TRIR significantly improved and outperformed the target of 5.7 we had set for
2020. We have therefore raised our ambition and set a target of reducing TRIR to 3.3 by
2025. In 2019, we expect a TRIR of 5.2. The increase compared to 2018 is due to future
activities in new markets with immature offshore wind supply chains.
83
76
75
82
77
76
80
81
75
74
6.8
6.4
4.7
3.3
2016
2017
2018
2016
2017
2018
2025
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Ørsted Annual report 2018Management’s review Our business
Contents
Our global
footprint
Symbols
In operation
Under construction
Awarded
Under development
(MW)
Total gross wind farm capacity
Sale of power and/or gas
Sweden
USA
Amazon (253MW)
Tahoka (300MW)
Willow Springs (250MW)
Lockett (184MW)
Plum Creek (230MW)
Sage Draw (300MW)
Block Island (30MW)
Coastal Virginia Offshore Wind
(12MW) (EPC contract)
UK
South Fork (130MW)
Skipjack (120MW)
Revolution Wind (704MW)
Bay State Wind (up to 2,000MW)
Garden State (up to 800MW)
Ocean Wind (up to 3,500MW)
Revolution Wind (up to 1,200MW)
Oak solar
Permian solar
Barrow (90MW)
Burbo Bank (90MW)
Burbo Bank Extension (258MW)
Gunfleet Sands 1 & 2 (173MW)
Lincs (270MW)
London Array 1 (630MW)
Race Bank (573MW)
Walney 1 & 2 (367MW)
Walney Extension (659MW)
Westermost Rough (210MW)
West of Duddon Sands (389MW)
Hornsea 1 (1,218MW)
Hornsea 2 (1,386MW)
Hornsea 3 (up to 2,400MW)
Hornsea 4 (up to 1,200MW)
Race Bank Extension (573MW)
Renescience Northwich
Denmark
Anholt (400MW)
Horns Rev 1 (160MW)
Horns Rev 2 (209MW)
Nysted (166MW)
Asnæs
Avedøre 1 & 2
Esbjerg
H.C. Ørsted
Herning
Kalundborg Bioenergi
Kyndby
Skærbæk
Studstrup
Svanemølle
Germany and
the Netherlands
Gode Wind 1 (345MW)
Gode Wind 2 (263MW)
Borkum Riffgrund 1 (312MW)
Borkum Riffgrund 2 (465MW)
Borssele 1 & 2 (752MW)
Borkum Riffgrund West 1 (420MW)
Borkum Riffgrund West 2 (240MW)
Gode Wind 3 (110MW)
Gode Wind 4 (132MW)
OWP West (240MW)
Taiwan
Formosa 1 (128MW)
Greater Changhua Projects (1,820MW)
28 / 193
Ørsted Annual report 2018Management’s review Our business
Our Northern European
footprint
Contents
Sweden
Denmark
Anholt (400MW)
Herning
Studstrup
Kyndby
Kalundborg
Bioenergi
Asnæs
Skærbæk
Esbjerg
Svanemøllen
H.C. Ørsted
Avedøre 1 & 2
Horns Rev 1 (160MW)
Horns Rev 2 (209MW)
Walney Extension (659MW)
Walney 1 & 2 (367MW)
West of Duddon Sands (389MW)
Barrow (90MW)
Westermost Rough (210MW)
OWP West (240MW)
Borkum Riffgrund West 1 (420MW)
Borkum Riffgrund West 2 (240MW)
Nysted (166MW)
Gode Wind 1 (345MW)
Gode Wind 2 (263MW)
Gode Wind 3 (110MW)
Gode Wind 4 (132MW)
Burbo Bank Extension (258MW)
Burbo Bank (90MW)
Renescience Northwich
UK
Symbols
In operation
Under construction
Awarded
Under development
(MW)
Total gross wind farm capacity
Sale of power and/or gas
Hornsea 1 (1,218MW)
Hornsea 2 (1,386MW)
Hornsea 3 (up to 2,400MW)
Hornsea 4 (up to 1,200MW)
Lincs (270MW)
Race Bank (573MW)
Race Bank Extension (573MW)
Borkum Riffgrund 1 (312MW)
Borkum Riffgrund 2 (465MW)
Germany
The Netherlands
Borssele
1 & 2 (752MW)
Gunfleet
Sands 1 & 2 (173MW)
London
Array 1 (630MW)
29 / 193
Ørsted Annual report 2018Management’s review Contents
Results
Results
Five-year summary
Fourth quarter
Quarterly summary, 2017-18
31
35
36
38
Ørsted Annual report 2018 Results
Contents
Results
Assets held for sale
Financial results
Business performance vs. IFRS
We have classified our power distribution,
residential customer and city light businesses
as assets held for sale at the end of 2018, as
we expect to exit these activities within the
next 12 months. Contrary to the classification
of our upstream oil and gas activities as
assets held for sale in 2016, these activities
are not presented as discontinued operations
due to their more limited relative size for the
Group. This means that the results and cash
flows are still presented together with the
rest of the Group. EBITDA from the power
distribution, residential customer and city light
businesses amounted to DKK 1.1 billion in 2018
(4% of total EBITDA), while capital employed
amounted to DKK 8.3 billion (10% of total
capital employed).
Revenue
Power generation from offshore wind farms
increased by 18% to 10.0TWh in 2018 due to
the ramp-up of generation from Race Bank,
Walney Extension and Borkum Riffgrund 2.
Power generation from onshore wind farms
amounted to 0.6TWh in 2018. Thermal power
generation was 18% lower than in 2017, driven
by the divestment of our Dutch power plant
in June, and amounted to 6.7TWh. Power gen-
eration from our Danish CHP plants increased
by 4%, while heat generation decreased by 2%
to 8.8TWh in 2018. Offshore and onshore wind
farms accounted for 62% of our total power
generation, an increase of 11 percentage points
compared to last year. The renewable energy
share of our total heat and power generation
accounted for 75% of total generation in 2018
compared with 64% in 2017.
Revenue amounted to DKK 76.9 billion. The
increase of 29% relative to 2017 was primarily
due to higher revenue from construction agree-
ments due to high activity on construction of
offshore wind farms for partners and divest-
ment of transmission assets, higher revenue
from wind farms in operation and higher gas
and power prices in 2018.
EBITDA
Operating profit (EBITDA) totalled DKK 30.0
billion compared with DKK 22.5 billion in 2017.
Earnings from Offshore increased by 35% to
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 28.5 billion in
2018 against DKK 22.6 billion in 2017. Calculated in accordance with the business
performance principle, EBITDA was DKK 30.0 billion and DKK 22.5 billion, respec-
tively. The difference between the two principles was thus DKK 1.5 billion in 2018
compared with DKK 0.1 billion in 2017 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 man-
agement’s review, comments are based on the business performance principles
only, unless otherwise specified. Reference is also made to note 1.6.
Business performance vs. IFRS, DKKm
EBITDA – business performance
2018
2017
30,029
22,519
Market value adjustments for the year of financial and
physical hedging contracts relating to a future period
(1,734)
(138)
Reversal of deferred gains (losses) relating to
hedging contracts from previous periods, where the
hedged production or trade is recognised in business
performance EBITDA in this period
EBITDA – IFRS
196
193
28,491
22,574
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Ørsted Annual report 2018Management’s review
Results
Contents
EBIT
EBIT increased by DKK 8.4 billion to
DKK 24.7 billion in 2018, primarily as a result of
the higher EBITDA.
Gain (loss) on divestment of enterprises
Gain (loss) on divestment of enterprises
primarily concerned the divestment of our
50% share of the Dutch gas-fired power plant
Enecogen in 2018.
EBITDA
Offshore
Onshore
Bioenergy
Customer Solutions
DKK 27.8 billion, of which the farm-down of
Hornsea 1 represented more than half
(DKK 15.1 billion). Higher power generation
due to ramp-up and commissioning of new
offshore wind farms contributed to a 29%
increase in earnings from offshore wind farms
in operation.
Earnings from Onshore contributed marginally,
while Bioenergy earnings more than doubled
and amounted to DKK 0.4 billion due to higher
spreads as well as full-year impact from the
bioconversion of Skærbæk Power Station,
which was inaugurated in Q4 2017.
Earnings from Customer Solutions were
almost flat year-on-year and amounted to
DKK 2.0 billion.
Depreciation increased by DKK 0.2 billion to
DKK 6.0 billion in 2018. The increase was due
to a higher number of wind farms in operation.
In connection with the classification of the
power distribution activities as assets held for
sale, we have reversed a previous impairment
loss of DKK 0.6 billion.
Financial results, DKKm
Revenue
EBITDA
Depreciation
2018
2017
76,946
59,504
30,029
22,519
(5,978)
(5,739)
Impairment reversals (losses)
603
(545)
Operating profit (loss) (EBIT)
24,654
16,235
Gain (loss) on divestment of enterprises
Profit (loss) from associates and JVs
Net financial income and expenses
Tax
Tax rate
127
1
(1,278)
(4,018)
17%
(139)
(10)
(1,042)
(1,765)
12%
%
29%
33%
4%
n.a.
52%
n.a.
n.a.
23%
128%
5%p
Profit for the year from continuing
operations
Profit for the year from discontinued
operations
19,486
13,279
47%
10
6,920
(100%)
Profit (loss) for the year
19,496
20,199
(3%)
In 2018, regulated
and quasi-regulated
activities and contract-
ed activities accounted
for 31% and 64% of
our EBITDA, respec-
tively, whereas market
exposed activities
accounted for 5%.
Read more about
profit for the year from
discontinued operations
in note 3.7.
Financial income and expenses
Net financial income and expenses amounted
to DKK -1.3 billion and were DKK 0.2 billion
higher than last year. The increase was mainly
due to a lower level of capitalised interests,
mainly related to Walney Extension and Race
Bank, due to the progress of the projects.
Tax and tax rate
Tax on profit for the year amounted to
DKK 4.0 billion, which was DKK 2.3 billion
higher than in 2017. The effective tax rate was
17% against 12% in 2017. In both years, the tax
rate was affected by non-taxable divestment
gains. Gain on the 50% farm-down of
Hornsea 1 impacted the effective tax rate in
2018, while gains on the farm-downs of Wal-
ney Extension, Borkum Riffgrund 2 and Race
Bank impacted the tax rate in 2017.
Profit for the year from
continuing operations
Profit for the year from continuing operations
totalled DKK 19.5 billion, DKK 6.2 billion higher
than in 2017. The increase was primarily due
to the higher EBIT, partly offset by higher net
finance costs and higher taxes.
7%
1%
>1%
DKK 30.0bn
92%
EBITDA, DKKbn
EBITDA, excl. new partnerships
EBITDA, new partnerships
22.5
9.8
12.7
30.0
15.1
15.0
2017
2018
EBITDA, excluding new partnerships increased by
18%.
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Ørsted Annual report 2018Management’s review Results
Contents
Investments and divestments
Gross investments amounted to DKK 24.5
billion against DKK 17.7 billion in 2017. The
main investments in 2018 were:
— offshore wind farms (DKK 11.1 billion),
including Hornsea 1 and Walney Extension
in the UK, Borkum Riffgrund 2 in Germany,
Borssele 1 & 2 in the Netherlands and early
investments in the US to qualify for future
tax credits
— onshore wind farms (DKK 1.1 billion), includ-
ing Lockett and Tahoka in the US
— the acquisitions of Deepwater Wind
(DKK 4.0 billion) and Lincoln Clean Energy
(DKK 5.6 billion)
— power stations (DKK 1.4 billion), mainly the
bioconversion of Asnæs Power Station.
Cash flow from divestments in 2018 related to
the 50% farm-down of Hornsea 1, receipt of
deferred proceeds from the farm-down of 50%
of Walney Extension in 2017 and proceeds
from the divestment of our 50% ownership
share in Enecogen.
Interest-bearing net debt
Interest-bearing net debt totalled DKK -2.2
billion (net cash position) at the end of 2018.
The free cash flow of DKK 5.8 billion more than
offset the payment of dividends to share-
holders (DKK 3.8 billion) and non-controlling
interests (DKK 0.4 billion) and interests on
hybrid capital (DKK 0.5 billion).
Cash flows and net debt, DKKm
Cash flows from operating activities
EBITDA
Financial instruments
Change in provisions
Reversal of gain (loss) on sale of
assets
Other items
Interest paid and similar items, net
Paid tax
Change in work in progress
Change in tax equity liabilities
Change in other working capital
Gross investments
Divestments
Free cash flow
Net debt at 1 January
Free cash flow from continuing
operations
Free cash flow from discontinued
operations
2018
10,343
30,029
369
(278)
2017
1,023
22,519
(528)
98
(14,995)
(10,835)
203
(700)
(3,367)
(2,326)
1,835
(427)
297
36
(2,660)
(3,674)
-
(4,230)
(24,481)
(17,744)
19,950
5,812
(1,517)
16,982
261
3,461
%
911%
33%
n.a.
n.a.
38%
(32%)
n.a.
27%
(37%)
n.a.
(90%)
38%
17%
n.a.
n.a.
(5,812)
(261)
n.a.
(209)
(9,025)
(98%)
Interest-bearing receivables re Oil & Gas
divestment
Dividends and hybrid coupons paid
Exchange rate adjustments, etc.
292
4,700
327
(1,014)
3,523
1,799
Net debt at 31 December
(2,219)
(1,517)
Key ratios, DKKm, %
ROCE
Adjusted net debt
FFO/adjusted net debt
2018
32.1%
15,516
69.0%
2017
25.2%
15,900
50.3%
n.a.
33%
(82%)
46%
%
6.9%p
(2%)
18.7%p
Cash flows and net debt
Cash flows from operating activities
Cash flows from operating activities totalled
DKK 10.3 billion in 2018 compared with
DKK 1.0 billion in 2017. The increase of DKK 9.3
billion was due to the higher EBITDA (ex-
cluding gains from divestments which are
not recognised in cash flows from operating
activities), settlement of intra-group hedges
related to the now divested oil and gas busi-
ness having a negative effect in 2017, a lower
increase of funds tied up in work in progress
and other working capital as well as a positive
contribution from tax equity partners related
to the Tahoka onshore wind farm.
This was partly offset by higher net interest,
etc., due to a lower level of capitalised inter-
ests, lower accrued interest and exchange rate
losses as well as higher paid taxes.
In 2018, funds tied up in work in progress
increased by DKK 2.3 billion and primarily
related to the construction of Borkum
Riffgrund 2 and Walney Extension as well as
offshore transmission assets at Hornsea 1 and
Hornsea 2 in the UK. This was partly offset by
milestone payments from partners related
to the construction of Race Bank, Borkum
Riffgrund 2, Walney Extension and Hornsea 1
as well as the divestment of the Burbo Bank
Extension transmission assets.
Less funds were tied up in other working
capital due to funds being tied up in clearing
accounts in 2017 and less funds tied up in
receivables in 2018. This was partly offset by
the repayment of a VAT export credit loan to
the Danish tax authorities in 2018.
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
flows from operating
activities.
ROCE and FFO/adjusted
net debt is specified in
notes 2.1 and 6.6.
33 / 193
Ørsted Annual report 2018Management’s review
Results
Contents
Equity and capital employed
Non-financial results
Capital employed, %
Offshore
Onshore
Bioenergy
Customer Solutions
13%
2%
6%
79%
Green share of heat and power generation
The green share of our heat and power gener-
ation amounted to 75% in 2018, up 11 per-
centage points relative to 2017. The increase
was due to higher generation from offshore
wind farms, a larger share of biomass-based
generation as a result of the bioconversion of
Skærbæk Power Station as well as a decrease
in the use of gas following the divestment of
the Enecogen power plant.
Carbon emissions
Carbon emissions from our heat and power
generation decreased by 13% to 131g CO2e/
kWh in 2018 against 151g CO2e/kWh in 2017.
Carbon emissions per kWh decreased for the
same reasons as mentioned above.
Safety
In 2018, we registered 98 total recordable
injuries (TRIs), 61 of which involved employees
working for our suppliers. Over the past 12
months, our total recordable injury rate (TRIR)
has declined from 6.4 in 2017 to 4.7 in 2018.
Equity
Equity was DKK 85.1 billion at the end of 2018
against DKK 71.8 billion at the end of 2017.
The increase was primarily due to the positive
result for the year less dividends paid.
Capital employed
Capital employed was DKK 82.9 billion at
the end of 2018 against DKK 70.3 billion at
the end of 2017. Offshore’s share of capital
employed was 79% at the end of 2018.
Financial ratios
Return on capital employed (ROCE)
Return on capital employed was 32% in 2018,
up 7 percentage points compared to 2017. The
increase was mainly attributable to the higher
EBIT. Both years were significantly positively
impacted by farm-downs – Hornsea 1 in 2018
and Walney Extension and Borkum
Riffgrund 2 in 2017.
Credit metric (FFO/adjusted net debt)
The credit metric ‘funds from operations’ (FFO)
relative to adjusted net debt was 69% in 2018
relative to 50% in 2017. The increase was due
to a higher FFO together with lower adjusted
net debt in 2018.
34 / 193
Ørsted Annual report 2018Management’s review Results
Contents
Five-year summary
Income statement (business performance), DKKm
Revenue
EBITDA
Offshore
Onshore
Bioenergy
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 flows
Cash flows 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, DKKbn
Earnings per share (EPS) (BP), DKK
Dividend yield, %
Income statement (IFRS)
Revenue
EBITDA
Profit (loss) for the year from continuing operations
2018
76,946
30,029
27,809
44
367
1,970
(161)
(5,978)
603
24,654
127
(1,278)
1
23,504
(4,018)
19,486
10
19,496
174,575
85,115
68,488
3,388
13,239
(2,219)
82,896
14,436
10,343
(24,481)
19,950
5,812
32.1
69.0
420,045
435.7
183.0
45.3
2.2
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)
-
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)
-
75,520
28,491
18,266
59,709
22,574
13,321
57,393
16,939
10,467
66,708
9,888
1,854
61,866
7,546
1,708
Business drivers
2018
2017
2016
2015
2014
Offshore
Decided (FID) and installed capacity3, offshore wind, GW
Installed capacity, offshore wind3, GW
Generation capacity, offshore wind3, GW
Wind speed3, m/s
Load factor3, %
Availability3, %
Power generation, TWh
Onshore
Installed capacity, GW
Wind speed, m/s
Load factor, %
Availability3, %
Power generation, TWh
Bioenergy
Degree days3, number
Heat generation, TWh
Power generation, TWh
Customer Solutions
Regulatory value of power distribution assets4
Power distribution, TWh
Power sales, TWh
Gas sales, TWh
People and environment
Employees (FTE), end of year, number
Total recordable injury rate (TRIR)
Fatalities, number
Green share of heat and power generation, %
Carbon emissions, g CO2e/kWh
9.0
5.6
3.0
9.1
42
93
10.0
0.8
7.3
41
92
0.6
2,526
8.8
6.7
10,957
8.4
35.3
134.1
6,080
4.7
0
75
131
8.9
3.9
2.5
9.3
44
93
8.5
-
-
-
-
-
2,705
9.0
8.2
10,623
8.4
37.7
136.1
5,638
6.4
0
64
151
7.4
3.6
2.0
8.9
41
92
6.0
-
-
-
-
-
2,715
9.2
8.4
10,648
8.5
36.7
150.4
5,775
6.8
0
50
224
5.1
3.0
1.7
9.7
45
93
5.8
-
-
-
-
-
2,621
9.3
7.1
10,778
8.4
35.5
159.1
5,947
9.7
0
49
220
3.8
2.5
1.4
9.2
44
94
5.0
-
-
-
-
-
2,462
8.7
8.7
10,373
8.4
34.5
151.3
5,751
10.9
0
44
280
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 1.6.
ROCE is calculated for continuing operations.
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.
3) See definition on page 192 and in the ESG statements.
4) The figures indicate values from the latest regulatory
financial statements (updated in June).
35 / 193
Ørsted Annual report 2018Management’s review
Results
Contents
Fourth quarter
Financial performance – Group
Revenue
Revenue in Q4 2018 increased by 51% relative
to Q4 2017 and amounted to DKK 23.5 billion.
The increase was mainly driven by construc-
tion agreements where revenue increased by
DKK 4.6 billion to DKK 6.3 billion due to the
partial divestment of the Hornsea 1 transmis-
sion assets as part of the 50% farm-down of
Hornsea 1. In addition, revenue increased due
to higher gas and UK power prices and higher
generation from offshore wind farms.
EBITDA
Operating profit (EBITDA) totalled DKK 19.2
billion in Q4 2018 compared with DKK 13.0
billion in Q4 2017. The 47% increase was mainly
due to the 50% farm-down of Hornsea 1 in Q4
2018, which was only partly offset by the 50%
farm down gains from Walney Extension and
Borkum Riffgrund 2 in Q4 2017. Earnings from
offshore wind farms in operation increased by
26% as a result of ramp-up at Walney
Extension, Race Bank and Borkum Riffgrund 2.
Earnings from our Bioenergy and Customer
Solutions businesses were in line with Q4 2017.
Earnings from Onshore had a limited impact.
Profit from continuing operations
Profit for the period from continuing opera-
tions increased by DKK 5.8 billion to DKK 15.2
billion. The increase was mainly due to the
higher EBITDA.
Cash flows from operating activities
Cash flows from operating activities totalled
DKK 7.6 billion in Q4 2018 compared with
DKK 3.1 billion in Q4 2017.
The increase of DKK 4.5 billion was due to
lower paid Danish taxes (taxes were paid on
account in March in 2018 and in November in
2017), a tax equity contribution received from
our partner at the Tahoka onshore wind farm
and lower receivables.
This was partly offset by a lower release of
funds tied up in work in progress, mainly due
to prepayments and milestone payments
received from partners in Q4 2017 at Walney
Extension and Borkum Riffgrund 2 and high
construction activity at Hornsea 1 in Q4 2018.
Gross investments and divestments
Gross investments amounted to DKK 14.9
billion in Q4 2018, of which DKK 9.6 billion
related to the acquisitions of Deepwater Wind
and Lincoln Clean Energy. The other main
investments related to Hornsea 1, Borssele 1 &
2, Lockett and early investments in the US to
qualify for future tax credits.
Divestments amounted to DKK 18.7 billion in
Q4 2018 and related mainly to the 50% farm-
down of Hornsea 1.
Financial performance, DKKm
Q4 2018
Q4 2017
Revenue
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 flows 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 tax equity liabilities
Change in other working capital
Gross investments
Divestments
Free cash flow
Net debt, beginning of period
23,527
19,206
18,112
18,038
(2,878)
15,160
34
15,194
15,598
13,032
10,970
10,349
(999)
9,350
79
9,429
Q4 2018
Q4 2017
7,565
19,206
(658)
(122)
(15,085)
209
244
(264)
723
1,835
1,477
(14,916)
18,749
11,398
8,957
3,078
13,032
470
461
(9,468)
333
(136)
(2,652)
2,262
-
(1,224)
(5,805)
14,875
12,148
10,260
Free cash flow from continuing operations
(11,398)
(12,148)
Free cash flow from discontinued operations
Interest-bearing receivables re Oil & Gas divestment
Dividends and hybrid coupon paid
Exchange rate adjustments, etc.
Net debt, end of period
(337)
316
238
5
(2,219)
(289)
(1,014)
211
1,463
(1,517)
%
51%
47%
65%
74%
188%
62%
(57%)
61%
%
146%
47%
n.a.
n.a.
59%
(37%)
n.a.
(90%)
(68%)
n.a.
n.a.
157%
26%
(6%)
(13%)
(6%)
17%
n.a.
13%
(100%)
46%
36 / 193
Ørsted Annual report 2018Management’s review Results
Contents
Financial performance
– business units
Offshore
Power generation was up 14% in Q4 2017 due
to ramp-up of generation at Walney Extension
and Borkum Riffgrund 2.
Revenue totalled DKK 10.7 billion in Q4 2018
against DKK 5.6 billion in Q4 2017. The increase
was driven by revenue from wind farms in opera-
tion, which was up 15% as a result of increased
power generation, and an increase in revenue
from construction agreements due to the partial
divestment of the Hornsea 1 transmission assets.
EBITDA was up 49%, totalling DKK 18.8 billion
in Q4 2018 compared with DKK 12.6 billion in
Q4 2017.
Earnings from offshore wind farms in operation
increased by 26% as a result of the commis-
sioning of new offshore wind farms. Earnings
from partnership agreements increased by
DKK 5.4 billion and related primarily to the
farm-down of Hornsea 1 in Q4 2018 compared
to the farm-downs of 50% of Walney Extension
and Borkum Riffgrund 2 in Q4 2017.
EBITDA from other activities totalled DKK -0.7
billion in Q4 2018, which was in line with the
same period last year, and related primarily to
project development costs.
Cash flows from operating activities totalled
DKK 3.6 billion in Q4 2018 in line with Q4 2017.
Release of funds tied up in work in progress
contributed more positively in Q4 2017, where
prepayments and milestone payments were
received from partners at Walney Extension
and Borkum Riffgrund 2. This was partially
offset by lower paid taxes in Q4 2018.
Onshore
For Onshore, the quarterly and full-year results
are identical. See page 46.
Bioenergy
Revenue was DKK 1.9 billion in Q4 2018 against
DKK 1.8 billion in Q4 2017. The increase was
due to higher power prices which led to higher
income despite lower power generation in Q4
2018. Revenue from heat generation remained
unchanged.
EBITDA was at the same level as the year
before and amounted to DKK 0.2 billion.
Customer Solutions
Revenue amounted to DKK 12.9 billion in Q4
2018 compared with 10.4 billion in Q4 2017. The
increase was mainly due to higher gas and UK
power prices.
EBITDA was at the same level as Q4 2017 and
amounted to DKK 0.2 billion.
EBITDA from Markets decreased by DKK 0.5
billion, primarily due to an increase in the value
of gas at storages in Q4 2017 compared to a
loss in Q4 2018, where the gas prices decreased
during December.
EBITDA from our LNG activities increased by
DKK 0.5 billion, mainly as a result of 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 0.7 billion in Q4 2018, DKK 0.5 billion
higher than in Q4 2017. The positive effect was
mainly due to lower receivables in Q4 2018
and lower paid taxes.
Offshore’s results, DKKm
Q4 2018
Q4 2017
For more details on
quarterly figures for our
business units, please
go to orsted.com/
financial-reports
Revenue
Sites, O&M and PPA
Construction agreements
Other
EBITDA
Sites, O&M and PPA
Construction agreements and
divestment gains
Other, incl. project development
Cash flows from operating
activities
Free cash flow
10,716
4,415
6,271
30
18,791
4,053
15,413
(675)
3,572
15,253
5,558
3,848
1,678
32
12,591
3,226
10,033
(668)
3,590
13,417
Bioenergy’s results, DKKm
Q4 2018
Q4 2017
Revenue
Heat
Power incl. ancillary services
EBITDA
Heat
Ancillary services
Power
Cash flows from operating
activities
Free cash flow
1,926
892
1,034
203
245
133
(175)
982
579
1,788
850
938
240
235
122
(117)
600
147
Customer Solutions’ results, DKKm
Q4 2018
Q4 2017
Revenue
EBITDA
Distribution
Sales
Markets
LNG
Cash flows from operating
activities
Free cash flow
12,917
10,396
156
299
(72)
57
179
172
21
575
(128)
(589)
745
146
214
(71)
%
93%
15%
274%
(6%)
49%
26%
54%
1%
(1%)
14%
%
8%
5%
10%
(15%)
4%
9%
50%
64%
294%
%
24%
(13%)
74%
n.a.
(90%)
(78%)
248%
n.a.
37 / 193
Ørsted Annual report 2018Management’s review Results
Contents
Quarterly summary, 2017-2018
Income statement
(business performance), DKKm
Revenue
EBITDA
Offshore
Onshore
Bioenergy
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 flows 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 2018 Q3 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017
Business drivers
Q4 2018 Q3 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017
23,527
19,206
18,791
44
203
156
12
(1,697)
603
18,112
(28)
(43)
(3)
18,038
(2,878)
15,160
34
15,194
15,018
2,225
1,972
-
(204)
478
(21)
(1,437)
-
788
181
(436)
2
535
(117)
418
(13)
405
18,593
3,079
3,090
-
(71)
122
(62)
(1,462)
-
1,617
(16)
(504)
4
1,101
(225)
19,808
5,519
3,956
-
439
1,214
(90)
(1,382)
-
4,137
(10)
(295)
(2)
3,830
(798)
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)
876
3,032
9,350
209
2,506
1,214
(19)
857
8
3,040
79
9,429
2,931
3,140
2,484
4,990
1,426
2,640
174,575 150,909 149,149 147,739 146,521 126,190 133,550 132,030
58,112
39,828
5,036
13,248
6,523
64,635
68,701
52,029
3,433
13,239
8,957
77,658
85,115
68,488
3,388
13,239
(2,219)
82,896
69,744
52,884
3,621
13,239
4,603
74,347
62,160
43,990
4,922
13,248
10,332
72,491
71,837
54,791
3,807
13,239
(1,517)
70,320
64,203
47,050
3,905
13,248
10,260
74,462
70,823
53,861
3,723
13,239
4,331
75,154
4,575
2,942
3,137
3,782
7,137
4,795
5,475
2,615
7,565
(14,916)
18,749
11,398
(117)
(4,385)
380
(4,122)
3,293
(3,109)
(14)
170
(398)
(2,071)
835
(1,634)
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)
32.1
69.0
23.0
41.7
23.5
44.3
26.7
45.6
25.2
50.3
15.0
26.5
18.4
32.0
17.4
34.2
420,045 420,155 420,155 420,155 420,155 420,155 420,155 420,155
268.9
436.3
435.7
386.0
392.0
338.7
360.4
293.9
Offshore
Decided (FID) and installed capacity3, GW
Installed capacity3, GW
Generation capacity3, GW
Wind speed3, m/s
Load factor3, %
Availibility3, %
Power generation, TWh
Onshore
Installed capacity, onshore wind, GW
Wind speed3, m/s
Load factor3, %
Availibility3, %
Power generation, TWh
Bioenergy
Degree days3, number
Heat generation, TWh
Power generation, TWh
Customer Solutions
Regulatory value of power distribution
assets4
Power distribution, TWh
Power sales, TWh
Gas sales, TWh
People and environment
Employees, end of period, number
Total recordable injury rate (TRIR)5
Fatalities, number
Green share of heat and power
generation, %
Carbon emissions, g CO2e/kWh
9.0
5.6
3.0
10.3
53
93
3.3
0.8
7.3
41
92
0.6
884
2.8
1.8
8.9
5.1
2.9
7.7
32
92
1.9
-
-
-
-
-
76
0.3
0.7
8.9
5.1
2.8
7.9
31
93
1.8
-
-
-
-
-
8.9
4.4
2.7
10.3
55
94
3.0
-
-
-
-
-
8.9
3.9
2.5
11.0
54
92
2.9
-
-
-
-
-
149
0.9
0.9
1,417
4.8
3.3
895
2.8
2.3
8.9
3.8
2.3
7.9
34
92
1.7
-
-
-
-
-
115
0.7
1.2
7.5
3.8
2.2
8.5
38
93
1.8
-
-
-
-
-
7.4
3.6
2.1
9.9
50
93
2.1
-
-
-
-
-
451
1.3
1.5
1,244
4.2
3.2
10,957
2.3
10.4
26.0
10,957
1.8
6.6
31.5
10,957
1.9
6.8
34.1
10,623
2.4
11.5
42.5
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
6,080
4.7
0
83
87
5,882
5.0
0
71
212
5,741
6.2
0
80
123
5,662
6.7
0
68
147
5,638
6.4
0
76
106
5,641
6.7
0
60
203
5,802
6.5
0
64
150
5,787
6.4
0
56
170
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 1.6.
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.
3) See definition on page 192 and in the ESG statements.
4) The figures indicate values from the latest regulatory
financial statements (updated in June).
183.0
35.6
183.3
1.1
162.3
1.4
164.7
7.2
142.3
21.7
151.5
7.1
123.5
11.2
113.0
6.4
ROCE is calculated for continuing operations.
5) Last 12 months.
26,165
20,914
12,798
567
16,859
1,725
19,698
5,285
14,711
12,311
11,647
1,643
15,925
4,777
17,426
3,843
16,472
(875)
(180)
2,849
8,787
120
2,765
1,649
38 / 193
Ørsted Annual report 2018Management’s review Contents
Business units
Our business units
Offshore
Onshore
Bioenergy
Customer Solutions
40
41
46
49
52
Ørsted Annual report 2018 Business units
Contents
Our business units
Ørsted
Offshore
Onshore
Bioenergy
Customer
Solutions
EBITDA 2017-20181
EBITDA 2017-20181
EBITDA 2017-20181
EBITDA 2017-20181
EBITDA 2017-20181
2017
2018
DKK 22.5bn
2017
2018
DKK 20.6bn
2018
DKK 30.0bn
DKK 27.8bn
DKK 0.0bn
2017
DKK 0.2bn
2018
DKK 0.4bn
2017
DKK 2.1bn
2018
DKK 2.0bn
Key figures 2018
Revenue
Gross investments
Capital employed
ROCE
TRIR
Number of employees
DKK 76.9bn
DKK 24.5bn
DKK 82.9bn
32.1%
4.7
6,080
Key figures 2018
Revenue
Gross investments
Capital employed
ROCE
TRIR
Number of employees
DKK 30.6bn
DKK 15.1bn
DKK 65.8bn
37.2%
3.8
2,431
Key figures 2018
Revenue
Gross investments
Capital employed
ROCE
TRIR
Number of employees
DKK 0.1bn
DKK 6.8bn
DKK 4.8bn
(0.3)%
10.8
40
Key figures 2018
Revenue
Gross investments
Capital employed
Free cash flow (FCF)
TRIR
Number of employees
DKK 6.4bn
DKK 1.4bn
DKK 1.9bn
DKK 0.5bn
6.4
731
Key figures 2018
Revenue
Gross investments
Capital employed
ROCE
TRIR
Number of employees
DKK 48.0bn
DKK 1.2bn
DKK 10.7bn
17.6%
9.3
1,254
Financial target
ROCE
10% (avg. 2019-2025)
1) The sum of the business units’ key figures for 2018 does not equal the consolidated key figures due to other activities and eliminations. Read more in note 2.1.
40 / 193
Ørsted Annual report 2018Management’s review Business units
Contents
Offshore
Highlights 2018
— We inaugurated the Race Bank and
Walney Extension offshore wind farms.
— Borkum Riffgrund 2 was commissioned by
the end of 2018, ahead of schedule.
— We divested 50% of the 1,218MW
Hornsea 1 offshore wind farm in the UK to
Global Infrastructure Partners.
— We were awarded two offshore wind farm
projects in Germany with a total capacity
of 552MW, one of which was won with a
zero-subsidy bid.
— We were awarded 900MW grid capacity
in Taiwan’s first offshore wind grid alloca-
tion process and an additional 920MW in
the country’s first offshore wind auction,
resulting in a total build-out pipeline in
Changhua of 1,820MW.
— We acquired Deepwater Wind and created
a leading US offshore wind platform.
— In the US, we were awarded an additional
104MW in December in the clean energy
auction in Connecticut.
— Application criteria were fulfilled for further
development of the Race Bank Extension
offshore wind farm.
Financial performance
Power generation increased by 20% relative
to 2017, primarily due to the ramp-up of gener-
ation from Race Bank, Walney Extension and
Borkum Riffgrund 2. We commissioned Race
Bank in January, Walney Extension in May and
Borkum Riffgrund 2 in December 2018.
Wind speeds were 2% lower than in 2017
and amounted to a portfolio average of
9.1m/s,which was in line with a normal wind
year. The availability of 93% was at the same
level as the year before.
Revenue increased by 50% to DKK 30.6 billion.
Revenue from offshore wind farms in opera-
tion increased by 23% due to the above-
mentioned ramp-up from new offshore wind
farms. Revenue from construction agreements
increased by DKK 7.8 billion due to high
activity on construction of the Borkum Riff-
grund 2 and Walney Extension offshore wind
farms for partners as well as the divestment
of the Burbo Bank Extension transmission
asset and a partial divestment of the Hornsea
1 transmission assets as part of the 50% farm-
down of Hornsea 1. Following the implemen-
tation of IFRS 15, revenue from construction of
transmission assets are recognised at the time
of divestment.
EBITDA increased
by 35%.
Performance highlights
Business drivers
Decided (FID) and installed capacity
Installed capacity
Generation capacity
Wind speed
Load factor
Availability
Power generation
Denmark
United Kingdom
Germany
Power price, LEBA UK
British pounds
Financial performance
Revenue
Sites, O&M and PPA
Construction agreements
Other
EBITDA
Sites, O&M and PPA
Construction agreements and
divestment gains
Other, incl. project development
Depreciation
Impairment losses
EBIT
Gross investments
Divestments
Free cash flow
Capital employed
ROCE
2018
2017
%
GW
GW
GW
m/s
%
%
9.0
5.6
3.0
9.1
42
93
TWh
10.0
2.2
6.1
1.7
57.9
8.4
GBP/MWh
DKK/GBP
8.9
3.9
2.5
9.3
44
93
8.5
2.5
4.5
1.5
46.0
8.5
DKKm 30,566
20,352
13,918
11,319
16,560
8,734
1%
44%
20%
(2%)
(2%p)
0%p
18%
(12%)
36%
13%
26%
(1%)
50%
23%
90%
88
299
(71%)
DKKm 27,809
20,595
11,042
8,529
18,765
13,667
(1,998)
(1,601)
DKKm (4,456)
(4,080)
DKKm
0
(545)
DKKm 23,353
15,970
35%
29%
37%
25%
9%
n.a.
46%
73%
(2%)
18%
DKKm (15,081)
(15,462)
DKKm 19,676
16,737
DKKm 10,409
4,628
125%
DKKm 65,846
59,652
10%
%
37.2
28.4
8.8%p
41 / 193
Cash flows from operating activities
DKKm
5,814
3,353
Ørsted Annual report 2018Management’s review Business units
Contents
EBITDA increased by 35% relative to 2017.
EBITDA from sites, O&Ms and PPAs amounted
to DKK 11.0 billion, up DKK 2.5 billion com-
pared to 2017. The increase was driven by the
factors mentioned above.
EBITDA from construction agreements was
DKK 5.1 billion higher than in 2017, amounting
to DKK 18.8 billion in 2018. The total gain from
the farm-down of Hornsea 1 (DKK 15.1 billion)
as well as a high level of activity related to the
construction of Walney Extension and Borkum
Riffgrund 2 for partners contributed positively
in 2018. In 2017, EBITDA was positively affected
by the farm-down of Walney Extension (DKK
7.5 billion) and Borkum Riff grund 2 (DKK 2.2
billion), construction progress on Race Bank
and completion of Burbo Bank Extension and
Gode Wind 1 & 2 as well as the recognition of a
deferred farm-down gain on Race Bank.
EBITDA from other activities amounted to
DKK -2.0 billion against DKK -1.6 billion in 2017.
The decrease of DKK 0.4 billion was mainly
due to higher project development costs.
Depreciation increased by 9% due to the
commissioning of new offshore wind farms in
the UK and Germany.
Cash flows from operating activities amount-
ed to DKK 5.8 billion in 2018 compared to
DKK 3.4 billion in 2017. The increase was due
to the higher EBITDA (adjusted for farm-
down gains), a lower increase in funds tied
up in construction of offshore wind farms for
partners and a VAT refund. This was partly
offset by higher paid taxes. Paid taxes in 2018
were significantly higher than in 2017, mainly
due to taxation of construction agreement
gains in the year of commissioning (Race Bank,
Walney Extension and Borkum Riffgrund 2 in
2018 compared to Burbo Bank Extension in
2017) as well as higher earnings from offshore
wind farms in operation.
In 2018, funds tied up in work in progress
increased by DKK 2.3 billion and primarily
related to the construction of Borkum
Riffgrund 2 and Walney Extension as well as
the offshore transmission assets at Hornsea
1 and Hornsea 2. This was partly offset by
milestone payments from partners related to
the construction of Race Bank, Walney
Extension, Borkum Riffgrund 2 and Hornsea 1
and the divestment of the Burbo Bank
Extension transmission asset.
Introduction to Offshore
— We are active in all parts of the value chain
and develop, construct, own and operate
offshore wind farms in Denmark, the UK,
Germany, the Netherlands, the US and Taiwan.
— We have been pioneers in the industry since
we built the world’s first offshore wind farm
in 1991, and we have established ourselves as
the market leader within global offshore wind
power generation with 25+ years of experi-
ence, 26 offshore wind farms in operation and
presently three offshore wind farms under
construction.
— Worldwide, we are the company that has
constructed most offshore wind farms with a
total installed capacity of 5.6GW, which has
provided us with an unparalleled experience.
Our integrated EPC organisation has a strong
track record of delivering projects on time and
on budget and can construct multiple large-
scale wind farms in parallel across regions.
— With 3.4GW currently under construction, we
have the largest market share with approx
30% of the total global capacity.
— Our total installed capacity of 5.6GW covers
more than 12 million people’s annual power
consumption with carbon-free electricity.
— By 2020, we will have expanded our installed
offshore wind capacity to 7.6GW, and we aim
for a capacity of 15GW in 2025.
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.
Quarterly and annual wind speed for our offshore wind farms, m/s
2015
2016
2017
2018
Normal wind year
10.3
9.9
8.5
7.9
7.9
7.7
11.0
10.3
9.7
8.9
9.3
9.1
Q1
Q2
Q3
Q4
FY
42 / 193
Ørsted Annual report 2018Management’s review Gross investments amounted to DKK 15.1
billion in 2018, of which the acquisition of
Deepwater Wind amounted to DKK 4.0 billion
(including acquired debt and excluding
DKK 0.7 to be paid in 2019). The largest invest-
ments related to the construction of Hornsea
1, Borkum Riffgrund 2, Borssele 1 & 2, Walney
Extension and early investments in the US to
qualify for future tax credits.
Cash flows from divestments in 2018 related
to the 50% farm-down of Hornsea 1 and
receipt of deferred proceeds from the farm-
down of 50% of Walney Extension in 2017.
ROCE increased by 9 percentage points to
37% and was in both periods impacted by
gains from farm-downs – Hornsea 1 in 2018
and Walney Extension and Borkum Riffgrund
2 in 2017.
Business units
Contents
Strategy follow-up
Offshore wind is our core business, and we
will continue pioneering and innovating the
industry. It is a rapidly growing market in the
global energy system with attractive value
creation opportunities, and we will maintain
our global market leadership in offshore wind
and continue the expansion in Europe, North
America and Asia Pacific.
Offshore’s strategic focus is to:
— maintain our market leadership in
offshore wind with a targeted capacity
of 15GW in 2025
— continue to pioneer new markets and
develop a global business
— continue to reduce the cost of electricity
— implement operational excellence and
innovation and digitalisation initiatives
across the business
— leverage our market-leading partnership
model.
Maintain our market leadership in offshore
wind with a targeted capacity of 15GW in
2025
In 2018, we commissioned Race Bank and
Walney Extension in the UK and Borkum Riff-
grund 2 in Germany. Walney Extension is cur-
rently the world’s largest offshore wind farm
and was delivered well ahead of schedule and
below budget before summer. Together, the
three wind farms added approx 1.7GW to our
installed capacity, and we have now installed
5.6GW of offshore wind capacity.
All of our current construction projects are
progressing according to plan. In January 2018,
offshore construction began at Hornsea 1, and
we expect commissioning in late 2019. At
Borssele 1 & 2, the procurement phase is com-
pleted with main contracts well within budget,
and construction work for the O&M building
started in December 2018. For the Hornsea 2
project, we have selected Siemens Gamesa
Renewable Energy as exclusive supplier of
wind turbines, and recently we passed the first
12-month milestone delivery requirement un-
der the contracts for difference (CfD) scheme.
When Hornsea 2 is commissioned in 2022, we
will have 9.0GW of capacity installed.
In addition to these three wind farms, we are
also constructing the 12MW Coastal Virginia
demonstration project in the US on behalf
of our partner Dominion Energy. Further, a
final investment decision has been taken on
phase 2 of the Formosa 1 project in Taiwan, in
which we have a 35% ownership share. After
receiving the construction permit in Septem-
ber, manufacturing and preparation for the
construction phase of the 120MW wind farm
have commenced.
In April, the results of the second German
transitional auction for offshore wind were
announced, and we were awarded the right to
build Borkum Riffgrund West 1 and Gode
Wind 4 in the German North Sea. Borkum
Riffgrund West 1 was won with a zero-subsidy
bid, while Gode Wind 4 was won at a price
of EUR 98.3 per MWh. The two offshore wind
farms have a total capacity of 552MW, which,
together with the three projects awarded in
April 2017, gives us an option of 1,142MW new
offshore wind capacity in Germany for com-
missioning in 2024/2025, subject to us taking
final investment decision, expectedly in 2021.
Also in April, following a thorough and com-
prehensive grid allocation process, Taiwan’s
Ministry of Economic Affairs awarded us
900MW grid capacity for our Greater
Changhua offshore wind farms. In June,
following Taiwan’s first and highly competitive
auction process, we were awarded an addi-
tional 920MW of grid capacity for our Greater
Changhua projects. Overall, we now have a
total offshore wind pipeline in Changhua of
1,820MW.
On 30 January 2019, the 2019 feed-in tariff
was announced. We take note of the 6% tariff
reduction compared to the 2018 tariff as
well as the introduction of a cap on annual
full-load hours, and we will now collaborate
closely with the supply chain to mitigate the
adverse impact of these PPA changes with the
objective of making the projects investable.
Greater Changhua 1 & 2a are facing extraor-
dinarily high costs related to creating a local
supply chain at scale, reinforcing the onshore
grid infrastructure and building, operating and
maintaining offshore wind farms in challenging
site and weather conditions.
We continue to work with the Taiwanese
authorities and local stakeholders to reach
key outstanding project milestones, such as
obtaining the establishment permit, com-
pleting the supply chain plan and signing the
power purchase agreement.
Once we have clarity on the outcome of
supply contract renegotiations and have
achieved all key project milestones, Ørsted’s
Board of Directors will review and decide on
the final investment case.
43 / 193
Ørsted Annual report 2018Management’s review Business units
Contents
In 2018, we continued to establish ourselves
in the US market. The merger of our existing
US organisation with Deepwater Wind at the
end of 2018 added an attractive and geo-
graphically diverse US East Coast portfolio of
projects at varying degrees of development
with significant synergy potential, both in
terms of geography and project timing. As
part of the Deepwater Wind portfolio, we
have secured offshore wind development
projects with a combined capacity of 954MW
with long-term revenue contracts in place or
under negotiation with expected completion
of the projects in 2022/2023, subject to final
investment decisions in the early 2020s. Of
the awarded 954MW capacity, 104MW was
won in Connecticut’s clean energy auction in
December.
Our ambition, as set out in 2016, was to drive
profitable growth and have 11-12GW installed
offshore wind capacity worldwide by 2025.
With the awarded capacity in Germany and
Taiwan and the addition of Deepwater Wind’s
954MW secured capacity in the US, our total
secured capacity has increased to 12.9GW.
Having reached our 2025 ambition well ahead
of time, we have increased our ambition to
approx 15GW by 2025.
Continue to pioneer new markets and devel-
op a global business
The US is a key market to us. With favourable
wind and seabed conditions off the East
Coast, and the federal states’ growing interest
in developing clean energy, we continue to
see the US as a significant, long-term growth
opportunity. With New York Governor Cuomo’s
recent commitment to 9GW offshore wind by
2035, the states along the US East Coast have
set out accumulated targets of close to 20GW
of offshore wind capacity towards 2035. With
the integration of Deepwater Wind, we now
have the largest project pipeline in the US with
a gross capacity of 7.5GW to bid in future auc-
tions in the North East and Mid-Atlantic regions.
In October 2018, we bid in Rhode Island’s
auction for up to 400MW of renewable energy.
Further, in December 2018, we bid in the New
Jersey Board of Public Utilities’ auction to build
our Ocean Wind project. Outcomes of both
auctions are expected in Q2 2019.
In the UK, The Crown Estate has confirmed that
we have satisfied the application criteria for
the development of our Race Bank Extension
offshore wind farm with a capacity of 573MW.
Together with Hornsea 3’s 2,400MW capacity
and Hornsea 4’s 1,200MW capacity, we have a
total pipeline of opportunities of up to 4.2GW,
which underlines our continued commitment to
the UK’s energy transition. Subject to all neces-
sary consents being granted, the three projects
will be able to participate in future auctions
under the contracts for difference (CfD) scheme.
Further, we announced that we have signed
a memorandum of understanding to work
jointly with Tokyo Electric Power Company
(TEPCO) on the Choshi offshore wind project
near Tokyo and towards a strategic partner-
ship for broader collaborations in Japan. In
addition, we see potential in selected next-
horizon markets for offshore wind in the APAC
region, such as South Korea.
In addition to the opportunities in the US, the
UK and Japan, 2019 will see two 760MW ten-
ders in the Netherlands. They will be followed
Build-out towards 2025, installed GW
2018
Hornsea 1 (H2 2019)
5.6
1.2
Borssele 1 & 2 (Q4 2020/Q1 2021)
0.8
+3.4GW
Hornsea 2 (H1 2022)
2022 build-out
German development projects
Greater Changhua
Revolution Wind and South Fork
Skipjack
Awarded projects
Additional capacity
2025 ambition
1.4
9.0
1.1
1.8
0.8
0.1
12.9
+3.9GW
~+2
~15.0
The figure shows our
current build-out plan
towards 2025.
44 / 193
Ørsted Annual report 2018Management’s review Business units
Contents
Leverage our market-leading
partnership model
In 2018, our market-leading partnership model
yet again proved its value through the 50%
farm-down of the 1,218MW offshore wind farm
Hornsea 1 to Global Infrastructure Partners
(GIP). This is our third partnership with GIP,
which also owns 50% of our German offshore
wind farms Gode Wind 1 and Borkum Riff-
grund 2. Hornsea 1 is under construction and
will by far be the world’s largest offshore wind
farm when commissioned by the end of 2019.
In the Taiwanese market, which is still new to
the offshore wind industry, we see an advan-
tage in establishing partnerships, particularly
with local investor involvement, to combine
our international experience with local
expertise. Subject to a FID, we will look into
the possibility of farming down a 50% interest
in the 605MW Greater Changhua 1 project to
local and international partners.
In the US, we will also consider diversifying
risks by either partnering with domestic utili-
ties or potentially farming down on projects to
reduce single-asset exposure.
by additional 760MW tenders in 2020 and
2021, respectively. In 2020-2021, we will see
the first of three 800MW tenders in Denmark,
and in 2021, we expect a tender of approx
700MW in Belgium and the first central tender
in Germany.
Continue to reduce the cost of electricity
Levelised cost of electricity (LCoE) has de-
creased substantially since the first large-scale
wind farms were constructed, and costs are
continuously being reduced across the indus-
try by means of increasing levels of industri-
alisation, economies of scale and innovation.
At Ørsted, we strive to deliver continuous
reductions in LCoE through a systematic,
institutionalised approach.
Implement operational excellence and
innovation and digitalisation initiatives
across the business
Since its infancy, we have played a key role in
developing offshore wind energy into a fully
matured industry and globally, we are the
company that has constructed most offshore
wind farms. Our integrated EPC organisation
possesses a complete set of strong inhouse
engineering, procurement and construction
capabilities which set us apart from our peers.
An example of our approach to innovation is
how we continue to work with turbine suppliers
to be first movers in bringing new technology
to the offshore wind market. Another example
is foundations, where we continue to optimise
steel design and design tools. At Borkum
Riffgrund 2 and Hornsea 1, grouted connections
between the monopile and the transition piece
were replaced by bolted connections, leading
to large cost reductions on supply and the
possibility for all-year installation.
We are the largest offshore wind operator
globally with approx 1,100 wind turbines in op-
eration. Our operational portfolio is growing
which provides substantial scale benefits, but
at the same time fleet complexity remains
low, currently with five different turbine plat-
forms from two original equipment manufac-
turers only, which allows for deep technical
insights.
The share of turbines we operate ourselves is
increasing, improving our ability to drive stan-
dardisation and performance improvements
as well as implement digital solutions, reduce
service hours and increase power generation
from turbines. An example of our approach to
innovation and digitalisation is how we utilise
the vast amounts of data captured from
each turbine we have in operation. Through
state-of-the-art data analytics, we are able
to continuously improve processes leading
to an uplift in power generation and reduced
lifetime maintenance costs.
In terms of operational excellence, we have
implemented regional hub structures across
the portfolio to reap full-scale and synergy
benefits from clusters. Today, we operate two
hubs in the UK and one hub in Germany, each
with a capacity of 1-2GW. An example of hub
benefits includes having a regional support
organisation, allowing for standardisation of
processes and activities leading to perfor-
mance optimisation across a region instead of
a single-site focus.
Also, a growing cluster capacity allows for
investment in better logistics, e.g. in the form
of joint facilities and vessel operations.
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Ørsted Annual report 2018Management’s review Business units
Contents
Onshore
Highlights 2018
— We acquired Lincoln Clean Energy (LCE)
in October.
— We commissioned the 300MW Tahoka
wind farm in Texas in December.
— We took FID on the 184MW Lockett
wind farm.
— We secured PPAs for our near-term onshore
portfolio projects Sage Draw (250MW)
and Plum Creek (additional 104MW)
and our first large-scale solar PV project
Permian Solar (250MW).
— Our first 20MW battery storage project,
Carnegie Road, in the UK is now in
operation.
Financial performance
This sections covers Q4 2018, as we acquired
LCE and established the Onshore business unit
on 1 October.
Power generation amounted to 552GWh
in 2018, of which our Amazon and Willow
Springs wind farms accounted for most of
the generation. Power generation from newly
commissioned Tahoka had a limited impact in
2018. Wind speed averaged 7.3m/s, which was
slightly lower than in a normal wind year in
Texas.
Revenue from wind farms in operation
amounted to DKK 80 million, of which the ma-
jority came from Amazon and Willow Springs.
There are no compa-
rable figures as the
Onshore business unit
was established in 2018.
Introduction to Onshore
— The acquisition of Lincoln Clean Energy has
— Our total installed capacity of 813MW com-
provided a strong onshore renewables growth
platform in the US, which is one of our strate-
gic growth markets.
— We are active in the value chain as a develop-
er, owner and operator, with a lean execution
and asset management business model.
— We are able to deliver wind, solar PV and
battery solutions and thereby shape the
generation profile to customer demand.
prises three operating wind farms in Texas and
a small solar project in New Jersey. In addition,
our near-term portfolio includes three onshore
wind farms with a total capacity of 714MW to
be constructed by 2020.
— It is our ambition to realise an additional 1GW
through 2022 in the US onshore renewable
market. We are pursuing a portfolio of region-
ally diversified projects across the ERCOT, SPP
and MISO markets.
Performance highlights
Business drivers
Decided (FID) and installed capacity
Installed capacity
Wind speed
Load factor
Availability
Power generation
Net realised price
US dollars
Financial performance
Revenue
EBITDA
Sites
Production tax credits and tax attributes
Other, including project development
Depreciation
EBIT
Cash flows from operating activities
Gross investments
Acquisitions
Divestments
Free cash flow
Capital employed
ROCE
2018
997
813
7.3
41
92
552
17.4
6.5
80
44
40
85
(81)
(51)
(7)
MW
MW
m/s
%
%
GWh
USD/MWh
DKK/USD
DKKm
DKKm
DKKm
DKKm
DKKm
1,868
DKKm
(1,143)
DKKm
(5,636)
DKKm
1
DKKm
(4,910)
DKKm
4,779
%
(0.3)
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Ørsted Annual report 2018Management’s review Business units
Contents
EBITDA from onshore wind farms in operation
amounted to DKK 40 million, and production
tax credits (PTCs) contributed with DKK 85
million.
Project development and other costs amount-
ed to DKK -81 million.
Cash flows from operating activities
amounted to DKK 1.9 billion, which primarily
comprised a tax equity contribution from our
partner at the Tahoka wind farm in Texas in
December.
Gross investments amounted to DKK 6.8
billion, of which DKK 5.6 billion was the
acquisition price paid for Lincoln Clean Energy
(including acquired debt). The largest invest-
ments related to the Tahoka and Lockett
wind farms.
Strategy follow-up
By acquiring Lincoln Clean Energy (LCE) in
October 2018, we established a strong and
scalable platform for the US onshore market,
which is expected to grow significantly in the
coming years. Our aim is to create a leading
North American company within renewable
energy, including onshore wind, solar energy,
and energy storage. Onshore wind is expected
to be the key growth platform and provide
strategic diversification to Ørsted’s portfolio.
As Onshore is a new business unit, an overall
introduction is provided in the following
sections:
— onshore wind farms, from development to
owning and operating
— operational and near-term portfolio
— pipeline, ambition and strategy
— tax credits and tax equity partnerships.
Onshore wind farms, from development
to owning and operating
Large-scale onshore wind projects have
certain similarities with the offshore wind
development business, especially within EPC
(e.g. turbine supply agreements and park lay-
out) and O&M (e.g. performance analytics and
predictive maintenance), however, the project
risk profile is different. The development of an
onshore wind farm takes two to three years
and construction another 9 to 12 months
compared to offshore wind projects which
typically have significantly longer develop-
ment and construction cycles.
We are present in the value chain as a devel-
oper, owner and operator. As the US onshore
Onshore wind overview
NORTHWEST
MISO
ISO-NE
NYISO
CAISO
SOUTHWEST
Tahoka
SPP
Plum Creek
PJM
ERCOT
SOUTHEAST
Lockett
FRCC
Sage Draw Willow Springs
Amazon
In operation
Under construction
Under development
market has matured, industry standardisation
has developed. We act as facilitator between
project functions and select experienced
industry partners with proven track records
to perform construction activities. This model
provides the ability to scale quickly and
efficiently.
Typical development activities include
preliminary site selection, assessment of wind
resources and environmental impact, secur-
ing real estate, transmission and congestion
analyses, securing interconnection rights as
well as local, state and federal permissions,
offtake, etc.
Turbine selection is based on project-specific
levelised cost of electricity (LCoE) analysis,
taking into account installation cost, power
generation and long-term O&M costs.
We seek to capitalise on continued technolog-
ical advancement and increasing size of swept
wind area.
Operational and near-term portfolio
The geographic focus has been Texas, where
all of our onshore wind farms in operation are
situated. A small operational solar project is
located in New Jersey.
Our current portfolio comprises three operat-
ing wind farms, Willow Springs (250MW),
Amazon (253MW) and Tahoka (300MW) as
well as a solar PV asset (Oak, 10MW) with a to-
tal capacity of 813MW. The operational wind
portfolio is recently commissioned, supported
by power offtake agreements for more than
650MW through long-term contracts with
solid corporate and blue-chip partners.
Our near-term pipeline (2020 projects)
includes three onshore wind farms (Lockett,
Sage Draw and Plum Creek) with a total
capacity of 714MW. We made final investment
decision (FID) on Lockett in late 2018, and we
expect it to reach commercial operation date
(COD) in Q3 2019. At Plum Creek, we have
secured more than 70% offtake and expect
COD in 2020.
In November, we announced 500MW of wind
and solar PPAs with ExxonMobil, equally
divided between Sage Draw and the solar PV
project Permian Solar, with expected COD
dates of 2020 and 2021, respectively.
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Ørsted Annual report 2018Management’s review
Business units
Contents
Build-out plan, installed MW
Willow Springs (2017)
250
Amazon Wind Farm (2017)
253
Tahoka (2018)
Oak (2011)
Operational by 2018
Lockett (2019)
Sage Draw (2020)
Plum Creek (2020)
Total by 2020
Pipeline
Total by 2022
300
10
813
184
300
230
1,527
Pipeline, ambition and strategy
We expect to build on our solid operational
and near-term portfolio and add up to 1GW of
additional capacity by 2022, taking our total
US capacity to 2.5GW. We are pursuing a port-
folio of regionally diversified projects across
the ERCOT, SPP and MISO markets, including:
— Greenfield onshore wind projects with an
average size of 250-300MW and eligible for
at least 60% PTC
— Greenfield solar PV opportunities (including
Permian Solar), where opportunities arise
via corporate and utility PPA partnerships.
Beyond the production tax credit (PTC) era,
we are in a favourable position to meet
demands for onshore wind power in the US
by leveraging our value chain experience. Our
growth will thus be driven by our ability to
remain a significant market developer, pro-
viding competitive LCoE levels. Our onshore
development activities are focused on areas
where large-scale opportunities with a high
likelihood of success have been available, and
where onshore wind LCoE is competitive with
the alternatives on a pure LCoE basis.
Tax credits and tax equity partnerships
Federal support for renewable energy is
provided in the form of tax incentives, of which
production tax credits (PTCs) dominate within
onshore wind. PTCs are inflation-adjusted
per kilowatt-hour (kWh) tax credits for power
generated by eligible energy resources for the
first ten years of operation. Projects eligible
for 100% PTCs must have started construction
by the end of 2016 and must be completed
before the end of 2020, four years from
qualifying.
Federal tax attributes constitute a significant
component of overall project economics and
have led to projects being able to offer long-
term offtake prices to customers (e.g. PPAs
with utilities or C&I customers) at a discount
to merchant power price projections.
PTCs are currently being phased out with a
linear decline by 20% per year until 2019, after
which it expires. However, competitive LCoE
projections of new built onshore wind and
consumer demand drive significant growth
expectations from the mid-2020s onward.
Our three operational wind farms and three
near-term development projects are all eligi-
ble for 100% PTCs, and they are expected to
be commissioned before the end of 2019 and
2020, respectively. In addition, our pipeline of
1GW by 2022 is eligible for 60% PTCs.
Solar investment tax credits (ITCs) provide a
direct credit based on a percentage of the
eligible capital expenditures. Projects start-
ing construction in 2019 receive the full ITC
of 30%. During the next few years, the ITC
percentage will gradually decline and end at
10% from 2021.
The tax attributes can only be utilised by a
tax-paying entity. Since we are currently not in
a tax-paying position in the US due to sig-
nificant investments, we partner with investors
who contribute capital to efficiently monetise
the tax attributes. Upon achievement of com-
mercial operations, these tax equity investors
contribute a substantial portion of the total
project investment.
~1,000
~2,500
48 / 193
Ørsted Annual report 2018Management’s review Business units
Contents
Bioenergy
Highlights 2018
— The High Court of Western Denmark and
the Danish Appeals Permission Board ruled
in favour of Ørsted in the case concerning
the former Elsam.
— We commissioned the green gas facility
‘Kalundborg Bioenergi’, which transforms
the organic waste of long-time corporate
customers Novo Nordisk and Novozymes
into green gas that is utilised in Novo
Nordisk’s production.
— We divested our 50% ownership share in
the Dutch gas-fired power plant Enecogen.
Introduction to Bioenergy
Bioenergy consists of our combined heat and
power generation business (CHP) in Denmark
and our growth platform within green biogas
and waste, Green Waste Solutions (GWS).
— Our CHP business is a leading generator
of district heating in Denmark through our
large combined heat and power plants
and dedicated heat plants. We provide
around one quarter of Denmark’s district
heating and around one third of Denmark’s
thermal power.
— GWS offers innovative green waste solu-
tions in Denmark and the UK through our
patented enzyme technology,
Renescience, and our biogas production
and upgrading facilities.
Financial performance
Revenue increased by DKK 0.5 billion to
DKK 6.4 billion in 2018.
Power generation was 18% lower than in 2017,
driven by the divestment of our Dutch power
plant, and amounted to 6.7TWh. Power gener-
ation from our Danish plants increased by 4%
driven by higher spreads, while heat gener-
ation decreased slightly by 2% to 8.8TWh in
2018 due to warmer weather.
Revenue from heat sales increased by 11%
despite a decrease in heat generation. This
was due to the bioconversion of the Skærbæk
Power Station as well as higher revenue from
the Avedøre Power Station due to ramp-up in
Q1 2017 following the bioconversion in
December 2016. Revenue from power and
ancillary services increased by 6% to DKK 3.5
billion, driven by an increase of 45% in power
prices compared to last year. This more than
offset the 18% decrease in generation due to
the divestment of the Enecogen power plant.
EBITDA increased by DKK 0.2 billion and
amounted to DKK 0.4 billion in 2018. The
increase was due to higher spreads in 2018 as
well as the bioconversion of Skærbæk Power
Station, partly offset by higher project devel-
opment costs related to new activities.
Performance highlights
2018
2017
%
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
number
2,526
2,705
TWh
TWh
EUR/MWh
EUR/MWh
EUR/MWh
8.8
6.7
45.1
2.5
(6.3)
9.0
8.2
31.0
(1.6)
(6.2)
DKKm
6,353
5,864
2,903
2,607
3,450
3,257
DKKm
DKKm
DKKm
367
765
404
(802)
(657)
(290)
152
695
321
(864)
(690)
(538)
(7%)
(2%)
(18%)
45%
n.a.
2%
8%
11%
6%
141%
10%
26%
(7%)
(5%)
(46%)
Cash flows from operating
activities
DKKm
1,491
592
152%
Gross investments
DKKm
(1,356)
(1,390)
(2%)
Divestments
Free cash flow
DKKm
DKKm
383
518
2
(796)
n.a.
n.a.
Capital employed
DKKm
1,943
2,554
(24%)
ROCE
%
(12.9)
(22.2)
9.3%p
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Ørsted Annual report 2018Management’s review EBITDA from ancillary services was DKK 0.1
billion higher than in 2017 driven by higher
demand during the summer and increased
demand from Germany (DK1/DE connection).
Cash flows from operating activities amount-
ed to DKK 1.5 billion and was thus DKK 0.9
billion higher than in 2017. The increase was
due to the higher EBITDA, prepayments
related to the bioconversion of Asnæs Power
Station, and lower receivables.
Gross investments amounted to DKK 1.4 billion
in 2018. The largest investments related to the
bioconversion of Asnæs Power Station.
Bioenergy achieved positive free cash flows
of DKK 0.5 billion, of which the divestment of
Enecogen contributed with DKK 0.4 billion.
Business units
Contents
Strategy follow-up
In Bioenergy, we are completing the conver-
sions of our Danish combined heat and power
(CHP) plants to sustainable biomass, and we
continue to explore the potential for growth
and value creation within waste-to-energy
and biogas technologies.
Bioenergy’s strategic focus is to:
— complete the conversion of our Danish CHP
plants to sustainable biomass and phase
out coal by 2023
— operate our plants smartly and safely and
prepare for a transition towards a more
electrified green district heating system
— establish a leading growth platform within
biogas and waste recycling.
Complete the conversion to sustainable
biomass and phase out coal by 2023
For several years, we have been committed to
converting our heat and power plants to using
sustainable wood pellets and wood chips
instead of fossil fuels. We will phase out coal
entirely towards 2023, thereby reducing our
annual carbon emissions in Denmark signif-
icantly. In just over ten years, we will have
gone from being one of the most coal-inten-
sive utilities in Europe to having a completely
coal-free generation by 2023.
Along with other European energy companies,
we remain committed to the Sustainable
Biomass Programme (SBP) which promotes
a robust and independent system for the
certification of sustainable biomass. In 2018,
all our biomass came from sustainable
sources, mostly in the form of residues from
timber production such as sawdust, branches
and thinnings, and 83% was certified by third
parties. We expect that 100% of our biomass
will be third party certified by 2020.
In 2018, we experienced an increase in the use
of coal, reflecting improved power market
conditions and a demand for our power
stations to supplement the intermittent gen-
eration from wind and solar PV, also at times
when no heat generation was required.
In collaboration with our heat customers, we
have reached important milestones in 2018.
Our conversion of the Asnæs Power Station
is progressing on schedule, implying that we
will be supplying green district heating to the
general Kalundborg area from 2020 onwards,
while providing green steam to Novo Nordisk’s
and Novozymes’ production facilities. We are
also progressing our flue gas condensation
project in Herning, enabling us to substantially
increase the heat and power output of the
biomass used from mid-2019 onwards.
The Esbjerg Power Station is our last remaining
unconverted CHP plant. The heat customers in
the Esbjerg and Varde areas have been granted
an exemption from the regulatory requirement
to apply CHP solutions for providing district
heating. This means that there is no longer a
viable business case for Ørsted for a new CHP
plant. We have consequently informed the
heat customers that we will cease providing
districting heat to the area by the end of 2022.
As part of our green transition, we divested
our 50% share in Enecogen, a gas-fired power
plant in the Netherlands, to Castleton
Commodities International LLC in July 2018.
Share of fuels in the thermal heat and power
generation, %
Coal
Oil
Natural gas
Biomass
Waste
3%
7%
18%
6%
66%
27%
26%
1%
46%
42%
49%
27%
1%
30%
12%
1%
38%
~95%
~5%
2006
2016
2017
2018
2023
Biomass conversions
will support a continued
reduction in the usage
of coal in the coming
years.
Certified biomass, %
Uncertified biomass
Certified biomass
39%
28%
61%
72%
17%
83%
100%
2016
2017
2018
2020
50 / 193
Ørsted Annual report 2018Management’s review Business units
Contents
also when applied in large scale. We are cur-
rently finalising the optimisation of the plant’s
mechanical operations, which has been more
challenging and taken longer than expected.
Final commissioning is expected during the
first half of 2019.
In April 2018, we commissioned our first
industrial Danish biogas plant together with
Bigadan – Kalundborg Bioenergi. The facility
transforms 300,000 tonnes of organic waste
from Novo Nordisk and Novozymes in
Kalundborg into biogas for approx 5,000
Danish homes and utilises the remaining prod-
ucts as fertiliser for farmland. In addition, we
finalised the construction of the extension of
the Danish Linkogas biogas-upgrading facility
in December. We are now operating four major
biogas-upgrading facilities in Denmark. We are
investigating similar opportunities in collab-
oration with industrial partners, collectively
promoting conversion of organic industrial
waste into green energy.
Further, we have entered into a conditional
agreement to transfer our Svanemølle Power
Station to CPH City & Port Development by
2023. The transfer is made to allow for an
extensive assessment of the feasibility of
transforming the iconic buildings into a state-
of-the-art Science & Technology Museum. The
power station currently provides district heat-
ing during peak hours to two utility companies
in Copenhagen.
Operate our plants smartly and safely and
prepare for a transition towards a more
electrified green district heating system
Our portfolio of large bio-converted CHP
plants in Denmark will continue to be a key
component in the green transition of the heat
and power sector in Denmark, while also
supporting the power grid during times of low
wind and solar generation.
To operate them efficiently, we are rolling out
a comprehensive digitalisation programme
at our power stations, allowing us to further
optimise generation and reduce costs. In paral-
lel, we are taking initial steps to investigate
opportunities in electrified district heating, for
instance in the form of large-scale heat pumps
and heat storage.
Establishing a leading growth platform
within biogas and waste recycling
During 2018, we continued to test and improve
our Renescience facility in Northwich in the
UK. The Renescience technology efficiently
converts household waste into biogas and
recyclable materials through enzymes
and mechanical sorting technologies. The
Northwich plant has confirmed that the core
enzymatic sorting process works as expected,
51 / 193
Ørsted Annual report 2018Management’s review Business units
Contents
Customer Solutions
Highlights 2018
— We signed a 15-year route-to-market
agreement for the 860MW UK wind farm
Triton Knoll.
— We decided to exit the Danish power
distribution, residential customer, and city
light businesses.
— At the end of December, the customers in
our power distribution company, Radius,
had taken 679,000 smart meters in use.
Financial performance
Revenue was up 19% at DKK 48.0 billion in
2018, driven primarily by an average increase
in gas and UK power prices of 32% and 26%,
respectively, relative to 2017. This was only
partly offset by a 1% decline in gas and a 6%
decline in power volumes sold.
EBITDA amounted to DKK 2.0 billion com-
pared to DKK 2.1 billion in 2017.
EBITDA from Distribution amounted to
DKK 1.2 billion, which was in line with 2017.
EBITDA from Sales decreased compared to
2017 and amounted to DKK -0.1 billion. The
decrease was primarily due to higher business
development costs in the B2B energy solu-
tions business and implementation of a new
billing system in our residential customer (B2C)
business.
EBITDA from Markets decreased by DKK 0.5
billion and amounted to DKK 0.9 billion. The
decrease was mainly due to high earnings
related to trading of our financial energy
exposures in 2017, and a negative impact from
changes in the value of our gas at storages
due to a decline in gas prices in December
2018 (versus a positive effect in 2017). This was
partially offset by a one-off compensation
awarded following the completion of an
arbitration relating to a gas purchase contract
in 2018.
EBITDA from LNG increased by DKK 0.5 billion
to a marginal loss. The increase was mainly
due to provisions in 2017 related to an onerous
contract for the Gate terminal in Rotterdam
and purchase contracts. Furthermore, 2018
was positively affected by increased gas
prices and utilisation of location spreads
between Asia and Europe, and optimisation of
physical positions.
Previous impairment losses of DKK 0.6 billion
regarding the power distribution grid were
reversed in connection with the classification
as assets held for sale at the end of the year.
Cash flows from operating activities amount-
ed to DKK 2.3 billion in 2018. The increase of
DKK 2.9 billion was primarily due to settle-
ment of intra-group hedges related to the
negative effect in 2017 of the now divested oil
and gas business, less funds tied up in clearing
accounts toward trading partners, and less
Performance highlights
Business drivers
2018
2017
%
Regulatory asset base (power)
DKKm 10,957
10,623
Gas sales
Sales
Markets (excl. volumes to Sales)
Power sales
Sales
Markets (excl. volumes to Sales)
Power distribution
Gas price, TTF
Oil price, Brent
UK power, LEBA, UK
US dollar
British pound
Financial results
Revenue
EBITDA
Distribution
Sales
Markets
LNG
Depreciation
Impairment losses, reversed
EBIT
Cash flows from operating
activities
Gross investments
Divestments
Free cash flow
Capital employed
ROCE
TWh
134.1
136.1
39.6
94.5
35.3
15.3
20.0
8.4
22.8
71.0
57.9
6.3
8.4
40.8
95.3
37.7
11.8
26.0
8.4
17.3
54.3
46.0
6.6
8.5
TWh
TWh
EUR/MWh
USD/boe
GBP/MWh
DKK/USD
DKK/GBP
DKKm 47,999
40,195
DKKm
DKKm
DKKm
DKKm
DKKm
DKKm
DKKm
DKKm
1,970
1,198
(113)
925
(40)
(773)
603
2,082
1,199
32
1,422
(571)
(933)
-
1,800
1,149
2,279
(1,166)
(63)
(628)
(857)
196
1,050
(1,289)
DKKm 10,699
9,780
3%
(1%)
(3%)
(1%)
(6%)
30%
(23%)
0%
32%
31%
26%
(5%)
(1%)
19%
(5%)
(0%)
n.a.
(35%)
(93%)
(17%)
n.a.
57%
n.a.
36%
n.a.
n.a.
9%
%
17.6
13.1
4.5%p
52 / 193
Ørsted Annual report 2018Management’s review Business units
Contents
funds tied up in receivables due to lower gas
sales at the end of 2018 compared to 2017.
This was partly offset by more funds tied up in
ROC inventories due to higher offshore wind
power generation.
Gross investments totalled DKK 1.2 billion in
2018, relating mainly to maintenance of the
power distribution grid and the installation of
new smart meters.
ROCE increased by 5 percentage points to
18%, mainly due to the higher EBIT.
Strategy follow-up
Customer Solutions has assumed a more
integrated role in Ørsted as the front-end of
the value chain, providing efficient route-to-
market services. To develop market access to
wholesale, corporate and traded markets, we
increasingly focus on developing customer
relationships to go beyond commodities and
revolve around renewable power generation,
waste to energy, and energy efficiency.
Introduction to Customer Solutions
Customer Solutions provides the Group with ac-
cess to wholesale, corporate and traded markets.
— We create incremental value by providing
route-to-market services for the Group and
our partners by selling power, gas and green
certificates to the market. In doing so, we own
and operate portfolios of contracts within gas
and power, which we optimise by leveraging
our origination and trading capabilities and
utilising the size of the portfolios.
— We generate access to wholesale and corpo-
rate customers to whom we seek to develop
strong partnerships beyond conventional
commodity supply, including offering corpo-
rate power purchase agreements (cPPAs),
green waste solutions as well as energy effi-
ciency and energy portfolio risk management
services.
— We proactively manage the merchant risks
arising from our generation assets and
contracts by trading commodities, and we
mitigate risks and create value through
time-to-market decisions, proxy hedging and
netting.
We plan to exit our power distribution, residen-
tial customer and city light businesses which
comprise:
— Radius, which owns and operates Denmark’s
largest power distribution grid measured by
number of connection points with approx one
million customers.
— Our residential customer business with sale of
power to approx 725,000 customers and gas
to approx 102,000 customers.
— Our city light business which is the largest
Danish street light operator, covering 17
municipalities across Zealand.
We will investigate different options for exiting
our power distribution, residential customer
and city light businesses.
regime will continue until 2037, when the
20-year ROC subsidies will expire for the last
renewable assets that were entitled to ROCs.
Customer Solutions’ strategic focus is to:
— add further scale to our green power and
gas and green certificates business
— mitigate merchant risk through trading and
green energy corporate PPAs
— optimise our portfolio of legacy gas-
sourcing contracts and LNG positions.
Add further scale to our green power and
gas and green certificates business
During 2018, the power portfolio grew by
1.4GW to more than 4.5GW, as we added long-
term route-to-market contracts for the newly
commissioned Walney Extension and Borkum
Riffgrund 2 offshore wind farms and extended
contracts for existing offshore wind farms.
Furthermore, we entered into a contract to
balance the British offshore wind farm Triton
Knoll (860MW) for a 15-year period, starting
from the planned commissioning in 2021.
These additions add to the diversification and
flexibility of our portfolio of power and green
certificates.
Ørsted was granted approx 13% of all renewa-
ble obligation certificates (ROCs) presented to
the UK’s Office of Gas and Electricity Markets
(Ofgem) for the April 2017-March 2018 ROC
period. When selling power to UK corporate
customers, we present the required number of
ROCs to Ofgem. However, our offshore wind
generation in the UK significantly outweighs
our UK power sales, and once a year, we there-
fore auction out parts of our excess ROCs from
the latest and the three upcoming ROC periods
to UK utilities with ROC imbalances. This ROC
Mitigate merchant risk through trading and
green energy corporate PPAs
In 2018, we increased our focus on offering
corporate power purchase agreements (cPPAs)
with fixed power prices and long tenures to
our wholesale and corporate customers. The
aim of this is twofold. Our customers achieve
certainty about their power price for a long
period of time and add to their green profile.
For Ørsted, these cPPAs reduce the expo-
sure to merchant risk by limiting the power
volumes that we will have to sell at prevailing
market prices. Today, we have merchant pow-
er exposure from our UK wind farms under the
ROC regime. Going forward, merchant risk mit-
igation will also be needed for existing wind
farms as subsidies expire and for potential new
wind farms without subsidies.
Within our market trading activities, we bene-
fitted from proactive trading e.g. by reducing
our exposure to the event risk from the UK
Government’s changes in the carbon price
support scheme, and by successfully manag-
ing the price volatility during the cold spell in
early spring.
In 2018, our energy efficiency advisory services
helped our Danish corporate customers achieve
aggregated energy savings of approx 133GWh.
Customer satisfaction among our corporate
customers remained high at 75, although
down from 77 in 2017 (on a scale from 1-100).
53 / 193
Ørsted Annual report 2018Management’s review
Business units
Contents
Our residential customer business is pioneer-
ing the transition to time-of-day based power
prices which have been offered where possible
since late 2017. By the end of 2018, 94% of our
customers with this option had transitioned.
Customer satisfaction among residential
customers who had been in contact with us
was 74 in 2018, down from 76 in 2017 (on a
scale from 1-100). Contrary to this decrease,
our loyalty increased to 72 from 71 and our net
promotor score turned 0 (on a scale from -100
to +100), following negative scores ranging
from -22 to -2 from 2013 to 2017.
Optimise our portfolio of legacy gas-
sourcing contracts and LNG positions
During 2018, we settled additional price re-
views of our long-term gas-sourcing contracts,
with an outcome that ensures profitability of
our portfolio of conventional gas contracts.
However, we expect our LNG activities to
continue to be loss-making going forward,
although losses in 2018 were limited by our
increased global trading activities.
Key focus areas within the businesses
held for sale (power distribution,
B2C and city light)
During 2018, our power distribution customers
experienced a decrease in the security of
supply as on average they had 0.65 discon-
nections, excluding faults in the primary
transmission grid owned by the Danish trans-
mission system owner, Energinet. This was an
increase of 0.23 disconnections compared to
2017 and worse than our target of 0.50. The
increase was influenced by a combination of
two unintentional incidents on the 50kV grid in
early 2018 as well as damage to the 30kV grid
during third-party construction works, which
led to repeated disconnections of a large
number of customers in Central Copenhagen.
The roll-out of smart meters to all customers
by 2020 is progressing according to plan and
reached a significant milestone in September,
where the project was half-way through
instalment. By the end of 2018, 679,000 smart
meters had been taken into use.
Radius’ customer satisfaction remained high
at 81, down from 82 in 2017 (on a scale from
1-100) despite the increase in grid disconnec-
tions and the replacement of smart meters.
54 / 193
Ørsted Annual report 2018Management’s review Contents
Governance
Board of Directors
Group Executive Management
Corporate governance
Remuneration report
Risk and risk management
Shareholder information
56
58
59
63
66
70
Ørsted Annual report 2018 Governance
Contents
Board of Directors
Thomas Thune Andersen
Lene Skole
Hanne Sten Andersen
Lynda Armstrong
Poul Dreyer
Pia Gjellerup
Chairman since 2014.
Born 1955.
Independent.
Joined/re-elected: 2014/2018.
Term of office expires: 2019.
Deputy Chairman since 2015.
Born 1959.
Independent.
Joined/re-elected: 2015/2018.
Term of office expires: 2019.
Employee representative.
Born 1960.
Not independent.
Joined/re-elected: 2007/2018.
Term of office expires: 2022.
Born 1950.
Independent.
Joined/re-elected: 2015/2018.
Term of office expires: 2019.
Extensive Danish managerial
experience from leading positions
in A.P. Møller-Mærsk and global
managerial experience from
non-executive directorships in
listed and privately held compa-
nies within the energy and other
sectors.
Highly experienced with
managing listed companies from
her previous position as CFO of
Coloplast and current position as
CEO of Lundbeckfonden where
she serves as a non-executive
director of the portfolio compa-
nies of Lundbeckfonden.
Other positions1:
Chairman: Lloyds Register Group
and Foundation
Deputy Chairman: VKR Holding
A/S
Member: Arcon-Sunmark A/S,
BW Offshore ltd, IMI plc., the
Danish Committee on Corporate
Governance.
Other positions2:
CEO: Lundbeckfonden, Lundbeck-
fond Invest A/S
Chairman: LFI Equity A/S
Deputy Chairman: ALK-Abelló A/S,
H. Lundbeck A/S, Falck A/S.
Member: Tryg A/S, Tryg Forsikring
A/S.
Hanne Sten Andersen has worked
in Ørsted as an HR partner in
Customer Solutions since 2003.
Position:
Lead HR Business Partner,
Customer Solutions.
Strong global managerial experi-
ence from more than
30 years in leading positions in
Shell, including as VP in Shell
International, and from non-ex-
ecutive directorships in inter-
national companies and large
organisations.
Other positions3:
Chairman: The Engineering
Construction Industry Training
Board (ECITB)
Member: KAZ Minerals plc,
Central Europe Oil Company.
Employee representative.
Born 1964.
Not independent.
Joined/re-elected: 2014/2018.
Term of office expires: 2022.
Poul Dreyer has worked in Ørsted
as a technician in Customer
Solutions since 1987.
Born 1959.
Independent.
Joined/re-elected: 2012/2018.
Term of office expires: 2019.
Extensive experience from a
comprehensive political career
in Denmark, including as Minister
of Finance, Minister of Trade and
Industry and Minister of Justice.
Position:
Technician,
Customer Solutions.
Other positions:
Centerdirector: National Centre
for Public Innovation.
Chairman: Vanførefonden, Fondet
Dansk-Norsk Samarbejde.
1)
Board Committees: Remuneration Committee of Lloyds Register Group, Nomination Committee of Lloyds Register Foundation, Nomination Committee and
Remuneration Committee of IMI plc, Audit Committee of BW Offshore Ltd., Nomination Committee of VKR Holding A/S.
2) Member of the Audit, Nomination and Scientific Committee of ALK-Abelló A/S, member of the Remuneration and Scientific Committee of H. Lundbeck A/S,
member of the Audit and Risk Committee of Tryg A/S, member of the Remuneration Committee of Falck A/S.
3) Chairman of the Remuneration Committee, member of the HSE Committee and member of the Project Assurance Committee of KAZ Minerals plc.
Resigned as non-executive director of Central Europe Oil Company as of 31 December 2018.
56 / 193
Ørsted Annual report 2018Management’s review Governance
Contents
Board of Directors
Benny Gøbel
Jørgen Kildahl
Peter Korsholm
Benny D. Loft
Dieter Wemmer
Employee representative.
Born 1967.
Not independent.
Joined/re-elected: 2011/2018.
Term of office expires: 2022.
Benny Gøbel has worked in
Ørsted as an engineer in Bioener-
gy since 2005.
Position:
Engineer, Bioenergy.
Born 1963.
Independent.
Joined: 2018.
Term of office expires: 2019.
Born 1971.
Independent.
Joined/re-elected: 2017/2018.
Term of office expires: 2019.
Born 1965.
Independent.
Joined/re-elected: 2012/2018.
Term of office expires: 2019.
Born 1957.
Independent.
Joined: 2018.
Term of office expires: 2019.
Strong international background
in renewable energy and a
profound knowledge of how the
energy ecosystems work from po-
sitions as Executive Vice President
of Statkraft and member of the
board of management of E.ON.
Extensive M&A experience from
his time as Partner and Head of
EQT Partners Denmark and from
private investments. Also experi-
ence with financial reporting, risk
management and capital markets
from CFO position at AAK AB.
Highly experienced within finan-
cial reporting, risk management
and capital markets from more
than 20 years of operational
experience with listed companies,
including as CFO and Executive
Vice President of Novozymes.
Highly experienced within capital
markets, investments and risk
management from leading
positions within the finance
sector. Before focusing solely on
non-executive directorships, he
was the CFO of Allianz.
Other positions1:
Chairman: eSmart Systems,
Nysäter Wind AB.
Deputy Chairman: Telenor ASA.
Member: Hoegh LNG Holding Ltd¹.
Other: Senior advisor, Credit Su-
isse Energy Infrastructure Partners
Other positions2:
CEO: DSVM Invest A/S, DSV Miljø
Group A/S, Day et Invest ApS,
Togu ApS.
Chairman: ForwardTopCo A/S
(FitnessWorld), Nymølle Stenindus-
trier A/S, GDL Transport Holding
AB, Lion Danmark I ApS.
Member: DSVM Invest A/S, A/S
United Shipping and Trading
Company, DANX Holding I ApS,
Day et A/S.
Other positions3:
Chairman: EFD Investment A/S
and its subsidiaries European
Freeze Dry ApS and European
Freeze Dry Ltd.
Member: New Xellia Group A/S.
Other positions4:
Member: UBS Group AG, UBS AG.
1) Member of the Audit Committee and the Sustainability and Compliance Committee of Telenor ASA, member of Audit Committee of Hoegh LNG Holding Ltd.
2) Chairman of the Investment Committee of Zoscales Partners, Chairman of the Board of Directors of two wholly-owned subsidiaries of Lion Danmark I ApS (Lomax Group). He is also a member of the Board of
Directors of three wholly-owned subsidiaries of A/S United Shipping and Trading Company, three wholly-owned subsidiaries of DANX Holding I ApS, and four wholly-owned subsidiaries of DSVM Invest A/S.
3) CEO of Poelhoi Holding ApS, Chairman of the Finance and Audit Committee of New Xellia Group A/S.
4) Member of the Audit and Risk Committee of UBS Group AG.
57 / 193
Ørsted Annual report 2018Management’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 in Finance and Accounting,
Aarhus School of Business 1994
Born 1967
Remuneration: DKK 17,344 thousand
Read more in the remuneration report.
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 9,653 thousand
Read more in the remuneration report.
Group Executive Management consists of seven members.
From the left (bottom): Morten Hultberg Buchgreitz (Customer Solutions),
Marianne Wiinholt (CFO), Anders Lindberg (Offshore) and
Thomas Dalsgaard (Bioenergy)
From the left (top): Ole Kjems Sørensen (Onshore), Henrik Poulsen (CEO and President) and
Martin Neubert (Offshore)
Career and posts
2012-
2008-2012
2006-2008
1999-2006
1996-1999
1995-1996
1994-1995
Ørsted A/S, CEO and President
TDC A/S, CEO and President
Capstone/KKR. Operating Executive
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)
McKinsey & Co., Senior Engagement
Manager
Aarsø Nielsen & Partners, Senior
Consultant
Novo Nordisk A/S, Controller
Career and posts
2004-
Ørsted A/S, VP, Group Finance and
Accounting & Tax (2004-2005), SVP,
Group Finance (2005-2013), SVP, CFO
Customers & Markets (2013), EVP,
Chief Financial Officer (CFO) 2013-
Borealis A/S, Head of Group
Accounting and Tax (1997-2001),
Head of Group Finance and Auditing
(2001-2003)
Arthur Andersen, Auditor
1997-2003
1987-1997
Other 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: Adviser
Other positions:
Hempel A/S: Member of the Board of Directors and
Chairman of the Audit Committee
Norsk Hydro ASA: Member of the Board of Directors
and Audit Committee
58 / 193
Ørsted Annual report 2018Management’s review
Governance
Contents
Corporate governance
Our governance model has its offspring in
our Scandinavian roots and our listing on the
Nasdaq Copenhagen Stock Exchange.
The overall and strategic management of the
company is anchored in a board of non-exec-
utive directors appointed by the shareholders.
The Board of Directors has appointed an
Executive Board for handling the day-to-day
management. None of the members of the
Executive Board are members of the Board of
Directors.
Our governance model is illustrated in the
figure to the right and explained below.
Shareholders and
general meeting
Our shareholders exercise their rights at the
general meeting. The general meeting adopts
decisions, such as the appointment of the
Board of Directors and the auditor, in accor-
dance with the standard Danish rules. Howev-
er, the approval of a proposal to amend the
Articles of Association or dissolve the compa-
ny requires that the Danish State as majority
shareholder participate in the general meeting
and vote in favour of the proposal.
Board of Directors
Our governance model
Members and duties
Each year at the annual general meeting, the
shareholders elect six to eight board mem-
bers. In addition, our employees may elect
members corresponding to half of the board
members elected by the general meeting pur-
suant to Danish mandatory rules. Employee
elections are typically held every four years.
Our Board of Directors currently comprises
eleven members, eight members elected
by the general meeting and three members
elected by the employees.
In 2018, Dieter Wemmer and Jørgen Kildahl
joined the Board of Directors as new members
elected by the general meeting.
The Board of Directors has prepared an
overview of the competences required on the
board. The list of required competences can
be found on orsted.com/competences-over-
view. In the table on the next page, we have
illustrated how the current board members
compare against the required competences.
The Board of Directors is responsible for the
overall management of the company and
appoints the Executive Board. The Board of
Directors lays down the company’s strategy
Nomination and
Remuneration Committee
Consists of 3 members from
the Board of Directors.
Number of meetings in
2018: 3
Shareholders and
general meeting
Our shareholders exercise
their rights at the general
meeting, which for example
appoints the Board of Direc-
tors and the auditors.
Board of Directors
Consists of 11 members.
The Board of Directors is
responsible for the overall
management of the com-
pany and for appointing a
competent Executive Board.
Numbers of meetings in
2018: 11
Group Executive
Management
The Executive Board and
Group Executive Manage-
ment are responsible for the
day-to-day management of
the company.
Audit and Risk Committee
Consists of 3 members from
the Board of Directors.
Number of meetings in
2018: 7
59 / 193
Ørsted Annual report 2018Management’s review Governance
Contents
Energy
sector
General
manage-
ment
Safety
manage-
ment
Financial
manage-
ment
Risk
manage-
ment
Project
manage-
ment
Stake-
holder
manag-
ement
Human
resources
manage-
ment
IT,
technology
and
digitalisation
Investor and
capital markets
relationships
Board of
Directors
Audit
and Risk
Committee
Nomination
and
Remuneration
Committee
Meeting attendance
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
Competences
Member of the board
Thomas Thune Andersen
Lene Skole
Lynda Armstrong
Pia Gjellerup
Jørgen Kildahl
Peter Korsholm
Benny D. Loft
Dieter Wemmer
Hanne Sten Andersen1
Poul Dreyer1
Benny Gøbel1
Jens Nybo Stilling Sørensen1, 2
1) Employee representative
2) Resigned in March 2018
and makes decisions concerning major invest-
ments and divestments, the capital base, key
policies, control and audit matters, risk man-
agement and significant operational issues.
Information about the members of the Board
of Directors, their other supervisory and execu-
tive positions and independence can be found
on pages 56-57.
investments, acquisitions and divestments. The
Board of Directors monitors and oversees pro-
gress related to Ørsted’s strategic ambitions and
targets for addressing climate-related issues.
The Board of Directors has appointed two
committees from among its members: an
Audit and Risk Committee and a Nomination
and Remuneration Committee.
The rules of procedure of the Board of
Directors describe the work and duties of the
Board of Directors. Terms of reference are also
in place for the two committees.
The green transformation
is on the board agenda
Since climate change is fundamental to Ørsted’s
business strategy and all our investments,
climate-related issues are directly or indirectly
an agenda item at all board meetings. As
such, climate-related issues are integrated in
reviewing and guiding our strategy, in setting
performance objectives, and in overseeing major
Special tasks in 2018
Key tasks for the Board of Directors have been
the build-out of our offshore wind project
portfolio after 2020, the establishment of a
new onshore wind platform in the US through
the acquisition of Lincoln Clean Energy, the ac-
quisition of the US wind developer Deepwater
Wind, the farm-down of Hornsea 1 in the UK
and the initiation of a structured divestment
3/0
3/0
3/0
2/0
0/1
5/1
6/0
5/0
1/0
1/0
0/0
7/0
7/0
7/0
6/1
6/0
7/0
7/0
5/1
7/0
7/0
7/0
1/0
4/0
4/0
3/1
4/0
2/2
2/2
4/0
4/0
4/0
4/0
4/0
n.a.
Ordinary
Extraordinary
The numbers indicate how many meetings in 2018
the members have attended and not attended,
respectively, during the year.
process for our Danish power distribution,
residential customer and city light businesses.
The Board of Directors conducted its annual
board effectiveness assessment in December
2018. The assessment was conducted with as-
sistance from an external adviser, who conduct-
ed a survey and interviewed all board mem-
bers. The input from the survey and interviews
was processed and analysed with international
benchmarking. The external adviser also acted
as an observer during a board meeting.
60 / 193
Ørsted Annual report 2018Management’s review
Important tasks for the Board of Directors in 2018
Investments, acquisitions and divestments
— Acquisition of the US onshore wind developer
Lincoln Clean Energy.
— Acquisition of the US offshore wind developer
Deepwater Wind.
— Farm-down of the offshore wind farm Hornsea 1
in the UK.
— Initiation of divestment of our Danish power
distribution and residential customer and city
light businesses.
Other tasks
— Preparation of new ambitious targets for
our long-term strategic and financial devel-
opment with an ambition to lead the green
transformation.
— Appointment of new CEO for Offshore.
— Establishment and appointment of CEO
for Onshore.
— Development of our offshore wind project
portfolio in the UK, Germany, the Netherlands,
Taiwan and the US.
— Development of our onshore wind project
portfolio in the US.
— Review of overall IT security.
— Preparation of a Global Diversity & Inclusion
Policy.
Governance
Contents
The external adviser concluded that the
Board of Directors has evolved in many dimen-
sions and was in good shape for the challeng-
es ahead. The Board of Directors has a strong
and relevant composition with a breadth of
skills, competences and perspectives and solid
financial knowledge. Although many board
members are relatively new, the Board of
Directors is well aligned in relation to strategic
priorities and its modus operandi, which is
steered effectively by the Chairmanship.
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 65, you can read
more about the remuneration of the Board of
Directors.
Special tasks in 2018
In 2018, the committee discussed, among
other matters, payment of retention bonus-
es granted in connection with the planned
divestment of our Danish power distribution,
residential customer and city light businesses
as well as retention bonuses to individual busi-
ness-critical employees in companies acquired
during the year.
Additionally, the committee discussed a share-
based retention tool which was introduced
in 2018 and targeted at a limited number of
employees responsible for critical long-term
projects.
The committee also reviewed an update of
the compensation model and governance for
our top 100 employees.
Nomination and
Remuneration Committee
Members and duties
Thomas Thune Andersen (Chairman), Lene
Skole and Pia Gjellerup are the members
of the Nomination and Remuneration
Committee.
The committee assists the Board of Directors
in matters regarding the composition, remu-
neration and performance of the Board of
Directors and Group Executive Management.
You can read more about the Nomination and
Remuneration Committee and the terms of
reference for the committee at orsted.com/
nomination-remuneration-committee.
Audit and Risk Committee
Members and duties
Benny D. Loft (Chairman), Dieter Wemmer and
Peter Korsholm are the members of the Audit
and Risk Committee.
The committee assists the Board of Directors
in overseeing the financial and ESG reporting
process, the capital structure development,
financial and business-related risks, compli-
ance with statutory and other requirements
from public authorities as well as 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 monitors the company’s whistleblower
scheme.
Our Internal Audit function reports to the
Audit and Risk Committee and is independent
of our administrative management structures.
Internal Audit enhances and protects the
organisational value by providing risk-based
and objective assurance, advice and insight.
Further, Internal Audit is primarily involved in
auditing and advising on our core processes,
governance, risk management, control pro-
cesses and IT security.
The Chairman of the Audit and Risk Commit-
tee is responsible for managing our whistle-
blower scheme. Internal Audit receives and
handles reports submitted. Our employees
and other associates may report serious
offences, such as cases of bribery, fraud and
other inappropriate or illegal conduct, to our
whistleblower scheme or through our man-
agement system. In 2018, two substantiated
cases of inappropriate or unlawful behaviour
were reported through our whistleblower
scheme. One case concerned violation of pro-
cure-to-pay policies, and one case concerned
misappropriation of assets. The cases had
consequences for the individuals involved.
None of the reported cases were critical to
our business or impacted our financial results.
Whistleblower cases are taken very seriously,
and an awareness campaign was conducted
to avoid similar cases.
You can read more about the Audit and
Risk Committee and the terms of refer-
ence for the committee at orsted.com/
audit-risk-committee.
61 / 193
Ørsted Annual report 2018Management’s review Governance
Contents
Our statutory report on corporate governance
can be found at orsted.com/statutory-reports.
The report describes in more detail whether
and how we comply with or deviate from the
recommendations.
Important tasks for the Audit and Risk Committee
in 2018
Audit and accounting
— Review of the accounting policy applied for US
subsidies and tax attributes.
— Review of the principles and disclosures related to
the two acquisitions (business combinations) and
divestments.
Special tasks in 2018
In 2018, the Audit and Risk Committee focused
on the two acquisitions of Lincoln Clean
Energy and Deepwater Wind in the US, IT/
cybersecurity together with the implemen-
tation of the new General Data Protection
Regulation (GDPR) and the inflation exposure
management policy adopted in 2018.
— Review of the implementation of IFRS 15 as well
as supervising the preparation for IFRS 16 imple-
mentation in 2019.
— Review of expectations for market prices, ex-
change rates, discount rates and risk-free interest
rates.
— Review of significant provisions and warranties in
the Group.
— Monitoring of capital structure development.
— Monitoring of the voluntary limit for non-audit
services as well as preliminary approval thereof.
Risk
— Monitoring of business and emerging risks.
— Review and assessment of the principles applied
for the adopted inflation exposure management
policy.
— Review of IT security in operational and adminis-
trative areas as well as cybersecurity.
— Assessment of liquidity reserve and capital
structure.
— Monitoring of currency and energy hedging
mandates.
— Supervision of the work involved in ensuring
compliance with the requirements of the General
Data Protection Regulation.
Internal Audit undertook special audit and
consultancy tasks within the following areas:
prevention of cybercrime, GDPR, compliance,
internationalisation, asset management,
commodity and currency hedging, compliance
monitoring and business conduct.
Executive Board and Group
Executive Management
Members and duties
Henrik Poulsen (CEO) and Marianne Wiinholt
(CFO) are members of the Executive Board of
Ørsted A/S.
The Executive Board undertakes the day-
to-day management through Group Execu-
tive Management, which consists of seven
members. In addition to Henrik Poulsen and
Marianne Wiinholt, Group Executive Manage-
ment comprises the executive vice presidents
of our four business units: Martin Neubert
(Offshore), Ole Kjems Sørensen (Onshore),
Thomas Dalsgaard (Bioenergy) and Morten H.
Buchgreitz (Customer Solutions) together with
Anders Lindberg, Executive Vice President of
Offshore EPC and QHSE.
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.
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.
You can find information about the members
of the Executive Board, including their previous
employment and other executive functions, on
page 58. We describe the remuneration of the
Executive Board in the section on remunera-
tion on pages 63-65.
Our corporate governance
positions
We comply or partly comply with all 47
recommendations prepared by the Danish
Committee on Corporate Governance as last
updated in November 2017 (please see
corporategovernance.dk).
Our only deviation is that the first grant under
the share programme for the Executive Board
has a slightly shorter vesting period than the
recommended three years. Upon vesting of
the first grant in May 2019, we will comply
with all 47 recommendations.
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Ørsted Annual report 2018Management’s review Governance
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Remuneration report
Remuneration policy
Remuneration structure and remuneration for the Executive Board
Element
2018
2017
2016
2018
2017
2016 Objective
Remuneration level
Performance measure
Henrik Poulsen
Marianne Wiinholt
Fixed salary
10,500
9,700
9,238
5,900
5,061
4,820 Attract and retain
qualified managers.
Cash-based
incentive schemes
(STI)
2,993
2,656
2,135
1,637
1,348
1,239 Ensure shared
The overall objective of our remuneration pol-
icy is to attract, motivate and retain qualified
members of our Board of Directors and our
Executive Board.
In addition, the policy aims to strike the right
balance between the Executive Board’s fixed
and incentive-based remuneration with the
target of remunerating the members in rela-
tion to the results achieved at company and
individual levels. This ensures a tightly aligned
interest between the Executive Board and the
shareholders.
The remuneration policy is available at
orsted.com/Remuneration-policy-2018.
Remuneration of
the Executive Board
Remuneration structure
In February 2018, the Board of Directors
decided to keep the remuneration structure
unchanged for 2018 compared to 2017. The
remuneration structure and the remuneration
for the Executive Board are shown in the table
to the right. 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 salary
and may not exceed 30%. The Nomination
and Remuneration Committee sets the targets
ownership of the
entire company’s
performance and a
clear link between
value creation and
pay-out.
889 Reward long-term
value creation and
align the Executive
Board’s interests
with those of the
shareholders.
321 Retain the Executive
Board after the IPO.
Phasing into a share
based long-term
incentive scheme.
The performance
reward agreement con-
sists of three targets:
– specific individual
business targets and
leadership (60%)
– financial target (30%)
– safety target (10%).
The final number of
shares will be determi-
ned on the basis of Ør-
sted’s total shareholder
return benchmarked
against ten peers.
Employment at
1 September 2017 and
1 September 2018,
respectively.
Competitive, but not market leading,
compared to the level in similar
major listed Danish companies with
international activities.
Target of 15% of the fixed
salary. The maximum bonus
amounts to 30% and will be paid-
out in case of full achievement of all
performance targets.
Target of 20% of the annual fixed
salary at the date of grant. After
three years, shares will be allocated
at 0-200% of the number of PSUs
granted, depending on Ørsted’s
total shareholder return compared
to peers.
20% of the fixed annual
salary at 1 July 2016.
The members of the Executive Board
are not entitled to pension contribu-
tions, only social security.
If a member of the Executive Board
is terminated by the company, the
person is entitled to 24 months’ sa-
lary, composed of full remuneration
during the 12 month notice period
and 12 months of severance pay
(fixed salary only).
63 / 193
Share-based
incentive scheme
(LTI)
2,306
1,367
1,427
1,231
713
IPO Executive
Retention Bonus
1,232
1,848
616
643
964
313
326
187
242
196
244
Pension, incl.
social security and
benefits
Severance pay
Total, DKK ’000
17,344 15,897 13,605
9,653
8,282
7,513
STI in % of
maximum bonus
95%
91%
91%
93%
88%
94%
Ørsted Annual report 2018Management’s review Governance
Contents
for each participant will be determined on the
basis of the total shareholder return delivered
by Ørsted, benchmarked against ten compa-
rable European energy companies, i.e. 200% if
Ørsted ranks first, 100% if sixth, and no shares if
we rank last. At the end of 2018, Ørsted ranked
first, second and fourth, respectively, in the
three outstanding share-programmes against
the ten peers.
If a member of the Executive Board leaves
Ørsted as a result of his or her own resignation
or due to breach of his or her employment, the
entitlement to shares vesting after the notice
period is lost.
The IPO Executive Retention Programme,
which purpose was to phase into a long-term
share based incentive scheme, expired in 2018,
as the LTI programme will start to vest from
2019.
for and assesses the performance of the CEO.
The Chairman of the Board of Directors and
the CEO set the targets for and assess the
performance of the CFO.
The Executive Board’s specific individual
business targets are tied directly to Ørsted’s
green growth strategy to build out renewable
energy. The specific individual business targets
comprise a number of items which are defined
at the beginning of the year and updated dur-
ing the year if new targets become relevant to
ensure continuous alignment with shareholder
interests. See table to the right for a more
detailed description of the targets.
Share-based incentive scheme (LTI)
The Executive Board is covered by a share
programme. It is a condition for being grant-
ed performance share units (PSUs) that the
participant holds a number of Ørsted shares,
representing a value equal to a share
of each participant’s fixed salary. For the CEO,
this share is 75% of the fixed salary, and for the
CFO it is 50%.
If the participants fulfil the shareholding re-
quirement at the time of the annual grant, they
will receive a number of PSUs, representing a
value equal to 20% of their fixed salary on the
date of granting.
The PSUs granted 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 PSUs granted. Assuming no share
price development since the grant, this would
correspond to 0-40% of the fixed salary on
the date of grant. The final number of shares
The table is a non-exhaustive summary of the
individual business targets for our CEO and CFO as
well as shared Group targets. They must deliver fully
on all their individual targets in order to achieve the
maximum cash bonus (STI).
The other members of the Group Executive Manage-
ment have their own individual business targets and
are remunerated according to the same model as
described to the right.
Number of PSUs and shares owned by the Executive Board
Henrik Poulsen Marianne Wiinholt
Share-programme
Maximum number of PSUs
at 31 December 2018
Maximum fair value of PSUs
at 31 December 2018
Current holding of Ørsted shares
41,368
22,062
DKK 18 million
DKK 10 million
Number of Ørsted shares owned
130,500
83,916
Fair value of Ørsted shares at 31 December
2018 in percentage of fixed salary for 2018
542%
620%
The table shows that
both members of
the Executive Board
meet the share capital
requirement.
Overview of targets and performance in the cash bonus (STI)
Objectives and
performance 2018
Henrik Poulsen
Marianne Wiinholt
Objectives
Score
Objectives
Safety target (10%) – TRIR compared to target
100% – TRIR compared to target
Score
100%
Financial target
(30%)
Specific individual
business targets
and leadership
(60%)
– EBITDA compared to guidance
100% – EBITDA compared to guidance
100%
– First-class safety culture and
92%
– First-class safety culture and
88%
standards
– ROCE in line with plan
– Deliver major construction
projects on budget and time
standards
– ROCE in line with plan
– Manage capital structure within
current rating commitments
– Winning auctions and/or securing
– Support green growth by
key access rights/permits in
Offshore’s existing and new
strategic markets, e.g. the US and
Taiwan, with a sustained focus on
value creation
– Investigate and pursue
additional value-creating
growth opportunities within
renewable energy, incl. potential
acquisitions
providing high-quality decision
input related to financial
analysis, tax, risk management,
funding, etc.
– Proactively manage risks related
to currencies, interest rates and
inflation
– Increase quality and cost
effectiveness in IT and exploit
digital opportunities
– Continue to reduce the cost of
– Develop plan and implement
electricity in offshore wind
– Farm-down of Hornsea 1
– Develop potential new markets
for offshore wind
initiatives to raise IT security level
– Lead the implementation of the
GDPR project
– Update the tax strategy
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Clawback clause
The Executive Board’s incentive schemes are
subject to a clawback clause whereby any
paid-out bonus must be repaid if:
— the circumstances and data that the bonus
was based on are erroneous
— the Executive Board member knew or
should have known about this circumstance.
The Executive Board member must repay any
amount of the incentive pay received in excess
of the incentive pay calculated, applying the
correct data.
Remuneration 2018
The remuneration paid to our CEO totalled
DKK 17.3 million in 2018, representing an
increase of 9.1% compared to 2017. The cash
bonus (STI) made up DKK 3.0 million, corre-
sponding to 92% of the maximum bonus. The
bonus percentage reflects a performance
exceeding the targets for the Group’s financial
and safety results. The score for the CEO’s spe-
cific individual business targets and leadership
is also at the high end of the range. See table
on page 64 for an overview of the specific
individual business targets.
In 2018, 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 Sep-
tember 2016, April 2017 and April 2018. The IPO
retention bonuses for 2017 and 2018 constitute
the phase-in to the vesting of the first share
programme in May 2019. The decreases in the
IPO retention bonuses in 2018 are attributable
to the fact that the scheme covered only eight
months of 2018 after which it expired.
Comparison to development
in the Group’s average salary
In 2018, the fixed salary for the CEO and CFO
increased by 8.2% and 16.6%, respectively,
which was more than the average salary in-
crease in the Group of 2.9%1 (2.8% in Denmark).
The higher increases for the CEO and CFO were
given to narrow the gap in total remuneration
compared to the market median levels for
similar roles in large Danish peer companies.
Remuneration of
the Board of Directors
The remuneration paid to our CFO totalled
DKK 9.7 million, representing an increase of
16.6% compared to 2017. The cash bonus (STI)
made up DKK 1.6 million, corresponding to 88%
of the maximum bonus. The bonus percentage
reflects a performance exceeding the targets
for the Group’s financial and safety results. The
score for the CFO’s specific individual business
targets and leadership is also at the high end of
the range.
Remuneration structure
The members of the Board of Directors receive
a fixed fee each year. The Chairmanship and
the members of the committees also receive
a multiple of the fixed fee for their extra work.
None of the members receive separate fees for
consultancy work for Ørsted. The members’
travel costs are covered by the company.
The members are not entitled to severance
payments.
Remuneration multiple 2018, Board of Directors and committees
Board of
Directors
Audit and Risk
Committee
Nomination and
Remuneration Committee
Chairman
Deputy Chairman
Member
3.0
2.0
1.0
0.6
n.a.
0.3
0.4
n.a.
0.25
The remuneration
multiples are unchanged
from 2017.
Remuneration of the Board of Directors
DKK ’000
Annual fee
Audit
and Risk
Committee
Nomination
and
Remuneration
Committee
Thomas Thune Andersen1
Lene Skole1
Hanne Steen Andersen1
Lynda Armstrong
Poul Dreyer1
Pia Gjellerup
Benny Gøbel1
Benny D. Loft
Peter Korsholm (joined in March 2017)1
Dieter Wemmer (joined in March 2018)
Jørgen Kildahl (joined in March 2018)
Jens Nybo Stilling Sørensen (resigned in
March 2018)
Poul Arne Nielsen (resigned in March
2017)
Claus Wiinblad (resigned in March 2017)
960
640
320
320
320
320
320
320
320
267
267
80
-
-
-
24
-
-
-
-
-
192
96
80
-
-
-
-
128
80
-
-
-
80
-
-
-
-
-
-
-
-
2018
2017
1,088
1,088
744
320
320
320
400
320
512
416
347
267
80
-
-
803
320
320
320
400
320
512
347
-
-
320
80
104
Total
4,454
392
288
5,134
4,934
The table shows the remuneration paid to the mem-
bers of the Board of Directors and committees. The
remuneration of the Board of Directors comprises
a fixed fee only, and the fee remains unchanged at
DKK 320,000 as last year.
1)
At 31 December 2018, the board members own
the following number of shares in Ørsted A/S:
Thomas Thune Andersen 550 (2017: 0), Lene Skole
1,160 (2017: 0), Peter Korsholm 4,500 (2017: 4,500),
Hanne Steen Andersen 2,394 (2017: 3,187), Poul
Dreyer 837 (2017: 837), Benny Gøbel 1,087 (2017: 837).
No other board members own shares in Ørsted A/S.
1)
Calculated based on the salary after the yearly salary adjustment for all employees who remained employed at the time of the yearly salary adjustment.
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Risk and risk management
Risks are a natural and integral
part of our business activities.
Our aim is to mitigate our risks
and reduce them to an acceptable
level through risk management.
We are exposed to several risks. In addition to
operational, business and environmental risks,
we are exposed to fluctuations in exchange
rates, interest rates, inflation and commodity
prices, as well as credit and insurance risks.
The purpose of our risk management is to
identify all risks we are exposed to and decide
how best to manage and mitigate 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.
To a large extent, our earnings are centred
within offshore wind and other green energy
technologies. Although, Denmark and the UK
are key contributors to our current earnings,
our future earnings will increasingly be spread
across different geographical regions and
technologies. Therefore, political and other
macroeconomic factors play an important
role in our risk management. When we invest
in new assets and activities or divest assets,
the risk associated with our portfolio 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 business risks. An
assessment is made of the potential financial
impact of individual risks, and whether they
are of a short-term (0-2 years), medium-term
(2-5 years), long-term (5+ years) or recurring
nature. All of our risks are then consolidated
and evaluated at Group level. The ultimate
responsibility for all the individual risks rests
with a member of the Group Executive Com-
mittee. As for business risks, similar processes
are in place for identifying and prioritising risks
related to sustainability, cybersecurity and
legal compliance.
The top five business risks identified during
2018 are shown to the right, where they are
illustrated based on their potential impact
(post-risk mitigation) on our value and credit
metrics over the next years. You can read
more about these risks on the following pages.
Brexit is not in itself part of our top five busi-
ness risks, as the UK’s decision to leave the EU
will not, in our opinion, result in fundamental
changes in the UK’s energy policy. Recent
announcements by the UK Government show
that the UK is committed to a clean, green
energy future, and offshore wind can be the
backbone of this green vision. We have ana-
lysed a number of Brexit scenarios and believe
that even if a deal is not reached between the
UK and the EU, and there is a disruption to the
flow of goods between the UK and the EU,
trade and customs facilities will still function
in the medium term. Our most significant risk
related to Brexit is assessed to be a long-term
depreciation of the GBP, which is a part of our
top 1 business risks.
The risks related to sustainability, cyberse-
curity and legal compliance are assessed
using different parameters, which is why we
are unable to show a consolidated picture of
our combined risks. A description of the most
significant sustainability risks can be found in
our sustainability report and for each of the
other two areas on page 69.
We are also exposed to risks which have a
very small probability of occurring, but which
could potentially impact our finances and/or
reputation substantially. These risks include,
but are not limited to:
— 1,000-year storms, hurricanes, typhoons or
earthquakes, which may lead to the loss of
offshore and onshore wind farms
— broken pipes at the Nybro Gas Treat-
ment Plant in Denmark, which may lead
to personal injury and damage to the
environment
— breakdowns at power stations that may
lead to personal injury and loss of assets.
After risk-reducing measures are implemented,
the Group Executive Management assesses
whether the level of each risk is appropriate or
Top 5 business risks
Effect on our value and credit metric
High
e
u
l
a
v
n
o
t
c
a
p
m
I
Low
High
Impact on FFO/adjusted net debt
Quantification of risks is based on a scenario where
the risk occurs with 10% probability (P90). Our Internal
Audit function has examined the process for identify-
ing and measuring the accompanying portfolio risks.
(#1 2017)
Currency, inflation
and interest rates
(#1 2017)
Commodity prices
(#2 2017)
Development and
construction of
production assets
(#3 2017)
Operation of
offshore wind farms
(#4 2017)
Regulatory risks within
offshore wind
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Ørsted Annual report 2018Management’s review
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Contents
slightly or significantly higher than the desired
level. If the risk level is still too high, further
risk-reducing measures are initiated to the
extent possible.
Climate-related risks
We address climate-related risks and opportu-
nities as an integral part of our daily business,
as these are directly linked to our green vision
and strategy. We seek to exploit climate-
related opportunities through our develop-
ment and construction of renewable heat and
power generation capacity and adjacent sus-
tainable activities. At the same time, we seek
to reduce both our transitional and physical
climate-related risks in the short, medium and
long term. We do that by, among other things:
— influencing regulators and other public
authorities toward ambitious targets for
the build-out of renewable capacity and
regulatory frameworks that support this
— continuously working to improve the future
competitiveness of green technologies, i.e.
lowering the levelised cost of electricity
— assessing acute and chronic weather
development; in particular wind speeds
and patterns, but also the temperature and
precipitation levels in general
— taking extreme weather conditions and
other relevant factors into account when
we design and construct our assets.
In that way, we seek to avoid ending up with
stranded assets or assets and activities with
a significantly lower value than originally
expected, which we potentially need to write
down or provide for.
When we prepare business cases for invest-
ments in new assets or activities, we take
climate-related risks and opportunities into
account by assessing the expected changes
in the technology mix that will be delivering
heat and power in the future. On this basis,
we assess the expected derived impact on
input and output prices of energy, including
the price development of components and
services to be used for the construction of
these assets as part of our LCoE analysis.
Our planning scenario until 2040 for the
power systems in North Western Europe is in
accordance with a carbon emission reduction
trajectory for these countries leading to a
2-degree temperature increase.
We track the impact of undertaking these
new investments on our carbon footprint to
enable us to disclose our own direct green-
house gas emissions from heat and power
generation and the derived avoided emissions
from displacing fossil-based generation. We
have also recently started to track and assess
the total impact on greenhouse gas emissions
across our entire business portfolio as well as
across the full value chain from our procure-
ment through to the final consumption at our
end-users.
Development in risks in 2018
The acquisitions of US-based Deepwater
Wind and Lincoln Clean Energy in 2018 have
significantly increased our exposure to the US
market, and the allocation of grid capacity in
Taiwan will significantly increase our exposure
to this market if we continue with our projects.
These developments have had an impact on
the ranking of our top five business risks.
Due to our increased international activities,
we have divided our market risks into currency,
inflation and interest rate risks, and commod-
ity price risks. Our exposure to exchange rate
fluctuations, primarily GBP, USD and poten-
tially New Taiwan dollar (NTD), has increased
due to significant investments in offshore
wind in these areas. Currency and interest rate
risks are deemed to be our most significant
business risk, whereas commodity prices are
rated our second largest risk.
Our third largest risk now includes the devel-
opment and construction of production assets
in new markets, where there are higher risks
associated with construction, among other
things, due to the need for developing the
value chain in these immature markets.
Risks associated with the operation of off-
shore wind farms is our fourth largest risk.
Regulatory risks within offshore wind is our
fifth largest risk and has renewed focus due to
the expansion into new markets.
A continued reduction of the levelised cost of
electricity (LCoE) remains a key focus area, but
has moved out of our top five risks.
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1
Currency, inflation and
interest rates
2
Commodity prices
3
Development and construc-
tion of production assets
4
Operation of
offshore wind farms
Description
Our main currency exposure relates to GBP
due to our substantial investments in offshore
wind farms in the UK. However, our recent ex-
pansion has increased our USD exposure and
will increase our NTD exposure if we continue
with the projects.
To a large extent, our medium- to long-term
earnings can be expected to follow the
development in consumer and market prices,
thereby protecting the real value of our assets
and equity. Fixed nominal subsidies from wind
assets in Denmark, Germany and the Nether-
lands, fixed-price power purchase agreements
(PPAs) from assets in the US and potentially
Taiwan, as well as fixed nominal cash flows re-
lated to debt are exceptions. We are exposed
to inflation risk in these markets, where an
increase in inflation will adversely impact the
expected real value of the revenue.
Potential impact
Fluctuations in exchange rates, interest rates and
inflation may adversely impact our earnings.
Mitigation initiatives
Currency risks are generally hedged for up to
five years when cash flows in foreign currency
are deemed relatively certain. However, for
cash flows related to fixed tariffs and guaran-
teed minimum prices from offshore wind farms
in the UK, we apply a decreasing degree of
hedging over the risk management horizon.
Consequently, we are well protected against
exchange rate fluctuations in the short-term,
but only partly hedged in the medium-term.
Our inflation and interest rate exposure is
managed by matching assets and liabilities in
the same currency and with similar payment
structure. Hence, our European fixed nominal
subsidies are offset by EUR-denominated
fixed-rate debt. The close relationship
between inflation and interest rates also
protects the equity value of Ørsted against
changes in interest rates to some extent.
Description
We are primarily exposed to power price
risks from the sale of our wind-based power
generation. In addition, we typically enter
into agreements to buy our partners’ share
of the power from our jointly owned offshore
wind farms. These investor power purchase
agreements (iPPAs) entail further exposure
as they include floors and caps related to a
pre-determined power price level.
To a lesser extent, we are exposed to oil and
gas price risks related to sourcing contracts for
gas and LNG on oil-indexed prices as well as
the sale of gas at fixed prices. Finally, power
generation from our CHP plants entails a
spread exposure between the difference in the
power price and the fuel price (i.e. biomass,
coal, gas and carbon quotas).
Potential impact
Fluctuations in commodity prices may
adversely impact our earnings.
Mitigation initiatives
We hedge commodity prices for up to five
years, and in some cases longer, to reduce
cash flow fluctuations. We hedge based on
minimum hedging requirements for each of
the business units, with a high hedge level in
the first two years. The degree of hedging is
lower in the subsequent years. This is due to
declining certainty about generated volumes
and increasing costs due to the declining
liquidity of the hedge instruments.
As an alternative to hedging, we seek to enter
into long-term corporate power purchase
agreements (cPPAs), under which we sell
power from our renewable assets. Corporate
PPAs or hedges with a duration of 12-15 years
are often a prerequisite for obtaining tax
equity partnerships in the US. In addition,
cPPAs will be a means to reducing business
case uncertainty for offshore wind farms to be
built without subsidies.
Description
Our strategy includes the construction of large-
scale investment projects. Value creation from
new projects heavily depends on choosing the
right technical and commercial solutions, on
the design and construction phase progressing
as planned, on our suppliers living up to their
obligations, on maturing the value chain in
new markets, on avoiding investment budget
overruns and on timely start-up of generation.
The majority of our new investments are made
in offshore assets, which naturally increases the
risks in the construction phase. Some of these
are the nature of sea beds, weather conditions
and dependence on installation and transit
vessels.
Our entry into the US and potentially Taiwan
entails some further risks due to the immaturity
of offshore wind in these markets. These risks
include, local legislation, such as the Jones Act
in the US, and the inability to fulfil local content
requirements without unappropriated costs
and delays due to limited experience among
local manufacturers.
Potential impact
If we fail to take any of the conditions men-
tioned above into account, we may experi-
ence delays and budget overruns. Delays can
lead to failure to meet deadlines and possibly
partial loss of subsidies, grid connection and/
or project rights.
Mitigation initiatives
We are continuously working on standardising
processes based on our vast experience from
previous complex investment projects. This has
led to, and will continue to lead to, industrial-
isation of the installation activities. In recent
years, this has led to successful completion
of several large investment projects, many
of which have been completed ahead of
schedule and below budget.
Description
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.
Faults like this may result in breakdowns and
loss of generation from parts of or an entire
offshore wind farm over an extended period of
time. Such losses are not compensated in the
UK, whereas they are fully compensated in
Denmark and partly compensated in Germany
and Holland.
Potential impact
Our forecasts for availability and operating
expenses are based on several assumptions
received from suppliers and on historical data.
There is a risk that these assumptions do not
hold, and that fault rates and costs are higher
than expected. This may lead to deviations
between actual generation and forecasts.
Faults in transmission assets and substations
may have a negative effect on our earnings in
case of a lack of compensation thereof.
Mitigation initiatives
We are implementing an operational excel-
lence programme on all wind farms with the
aim of increasing the availability and power
generation and reducing operational costs.
We have put in place various contingency
plans to cater for unforeseeable events,
including critical repair services to handle
cable faults, monitoring signs of damage and
initiating repair campaigns where deemed
necessary. In addition, we are working
continuously to reduce the risk of faults in
the operation of offshore wind farms, e.g. by
monitoring and applying advanced analytics
to operational data collected and by carrying
out preventive remedial work on emerging
damage.
68 / 193
Ørsted Annual report 2018Management’s review Governance
Contents
5
Regulatory risks within
offshore wind
Description
The risk associated with regulatory regimes
is twofold. First, it is associated with the
possibilities for obtaining subsidies or in other
ways support for offshore build-out. Secondly, it
is associated with the possibilities for obtaining
the needed consents, grid connections and
relevant approvals from local authorities,
including permits or other agreements needed
to secure a viable project.
Although the EU countries have increased their
2030 renewable energy targets, the implemen-
tation rests with the member states, which
means that some uncertainty still prevails.
In the US, several East Coast states have
committed themselves to offshore build-out,
and Taiwan is also expected to continue the
build-out of offshore wind towards 2030.
Most markets have tender or auction-based
subsidy regimes, where the only or most
important factor is the bid price. However, in
some countries, a certain level of local content
is required.
Potential impact
We do not expect changes to be made to the
subsidy schemes with retrospective effect for
existing offshore wind projects. The greatest
risks are associated with the need to obtain
relevant consents and approvals from local
authorities and to be connected to the grid.
Delays in these areas may lead to 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.
Mitigation initiatives
We mitigate the risk by monitoring political
and regulatory developments in all relevant
countries and by engaging in an active dia-
logue with relevant authorities about environ-
mental approvals, regulatory milestones and
the economic regimes. We also engage in the
development of local capabilities to increase
local content in the projects.
Cybersecurity
Legal compliance
Description
In recent years, several major cyberattacks
have been launched against companies
around the world, and according to the Danish
Centre for Cybersecurity, the risk of cyberat-
tacks 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 industrial
espionage.
Potential impact
Minor digital risk events like viruses and
attempted break-ins are everyday risks
without significant impact. However, major
cyberattacks or events may impact all or part
of our shared infrastructure for administrative
systems or industrial control systems. For the
latter, the impact could range from a single
asset to potentially all assets and activities
in the company. Cyberattacks of a certain
size can be costly if it forces us to shut down
operations for a period of time.
Mitigation initiatives
We have launched a significant resourced
programme with the aim to improve resilience
against cyberattacks and other threats across
Ørsted. In addition, we are running cyber
risk awareness campaigns throughout the
organisation in order to decrease threats from
phishing campaigns, etc.
Furthermore, we are participating in relevant
forums across the energy sector to harvest
and contribute with information and experi-
ence. One example is the Systems & Cyber
Resilience working group organised by the
World Economic Forum. We are also part of
the Danish Network Security Service under
the Danish Ministry of Defence to enhance
resilience.
Description
Risks associated with legal compliance are
assessed based on financial and reputation-
al significance and probability. Our most
significant risks are financial regulation, the EU
General Data Protection Regulation (GDPR)
and tender law.
We are subject to several financial regulations,
such as REMIT, MAR, EMIR, Dodd Frank, MiFID,
SFTR and AML. The financial regulations are
relevant for a large part of our activities. In
relation to GDPR, we are primarily processing
personal data regarding our Danish residential
customers and our employees. Most of our
contracts for goods, services and works are
subject to EU and local tender law rules.
Potential impact
Failure to comply with the above-mentioned
rules and regulations may result in severe
legal sanctions, such as imprisonment, fines
and damage claims.
Mitigation initiatives
We have implemented comprehensive
policies, procedures, training and controls
for relevant parts of our business to ensure
compliance with financial regulations.
To ensure that we process personal data in
compliance with GDPR, we have mapped
and analysed our personal data processing
and developed a Group-wide compliance pro-
gramme. The compliance programme includes
various organisational and technical measures
and mandatory training of employees in
risk-exposed positions.
To counter the tender law risk, our procure-
ment department is involved in almost all pro-
curement activities, and our legal department
carries out courses on tender law and review
of documents for larger tenders.
69 / 193
Ørsted Annual report 2018Management’s review Governance
Contents
Shareholder information
The Ørsted share yielded a total
return of 32% in 2018, an increase
in the share price of 29%, and
dividends of DKK 9 per share.
of Ørsted was DKK 183 billion at the end of
the year. Since the IPO in June 2016, the Ørsted
share has generated an aggregate return from
share price appreciation and dividends of 92%.
Price development for
the Ørsted share in 2018
The Ørsted share started the year at a price
of DKK 339 and closed the year at DKK 436.
Prices of comparable European utility compa-
nies decreased by 1%, and the OMX C25 cap
decreased by 13% in 2018. The market value
The year’s highest traded price of 474 was on
28 November. The year’s lowest traded price
of 332 was on 3 January.
The average daily turnover on Nasdaq
Copenhagen was 447,000 shares. The trading
volume showed a decrease of 38% compared
to 2017. This was particularly due to several of
Share price development in 2018
Ørsted share price compared to peers.
DKK
500
400
300
200
Jan
Feb Mar Apr May June July Aug Sep Oct Nov Dec
Ørsted
MSCI Europe Utilities
OMX C25
the original shareholders opting to sell all or
some of their shareholdings in 2017 at a total
trading value of DKK 17 billion.
Selected company announcements in 2018
27 Apr. Ørsted wins 552MW in German offshore
wind auction
Share capital
Ørsted’s share capital is divided into
420 million shares, enjoying the same voting
and dividend rights. The company’s share capi-
tal remained unchanged in 2018. At the end of
2018, the company held a total of
335 thousand 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 5,175 to 29,727.
Although the geographical spread of the
share capital was greater, most of it (66%) is
still with Danish owners. The figure on the next
page shows the composition of our sharehold-
ers by country, specifying the three share-
holders each holding more than 5% of the
share capital. Around 1% of the share capital is
owned by private investors.
Annual general meeting and dividends
The annual general meeting will be held on
5 March 2019 in Copenhagen. Dividends for
the year are expected to amount to DKK 9.75
per share, corresponding to DKK 4.1 billion. In
2018, dividends of DKK 9.00 per share were
paid for the 2017 financial year, corresponding
to a return of 2.2% relative to a share price of
DKK 436 at 31 December 2018.
30 Apr. Taiwan awards Ørsted 900MW grid
capacity for offshore wind
24 May The High Court of Western Denmark rules
in favour of Ørsted in case concerning the
former Elsam
22 June Ørsted wins 920MW offshore wind
projects in Taiwan
26 June Ørsted initiates a structured divestment
process for its Danish power distribution
and residential customer businesses
9 Aug. Ørsted agrees to acquire Lincoln Clean
Energy, a US onshore wind developer
18 Sep. Ørsted agrees to divest 50% of
Hornsea 1 Offshore Wind Farm
8 Oct. Ørsted agrees to acquire Deepwater
Wind and creates leading US offshore
wind platform
2 Jan.
2019
Establishment permit and power pur-
chase agreement delayed on Taiwanese
offshore wind projects
Financial calendar 2019
31 Jan.
Annual report 2018
5 Mar.
Annual general meeting
1 May
Interim report for the first quarter of 2019
8 Aug.
Interim report for the first half-year of
2019
30 Oct.
Interim report for the first nine months
of 2019
70 / 193
Ørsted Annual report 2018Management’s review
Governance
Contents
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
conference calls, roadshows, conferences, cap-
ital markets 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.
On 28 November 2018, Ørsted hosted a
Capital Markets Day in Gentofte with more
than 150 participants, mainly equity and
institutional investors. CEO Henrik Poulsen
presented Ørsted’s new ambitious targets for
the Group’s long-term strategy and financial
development, followed by breakout sessions
hosted by the management team. The full
Capital Market Day material is available at
orsted.com/en/capital-markets-day.
The Group is covered by 22 equity analysts
and 12 bond analysts. Their recommendations
and consensus estimates for Ørsted’s future
financial performance are available at orsted.
com/en/investors. On this site, you can also
download our financial reports, investor pre-
sentations and a wide range of other data.
Shareholders at 31 December 2018,
voting share %*
Danish State (majority shareholder)
SEAS-NVE, Denmark
The Capital Group
North America
The UK
Danish institutional investors
Private investors
Others
12%
1%
5%
6%
7%
5-10%
50%
10%
* See note 16 in the parent company
financial statements.
Share information
ISIN
Share classes
Nominal value
DK 0060094928220
1
DKK 10 per share
Average daily volume
447,103
Exchange
Ticker
Year high
Year low
Nasdaq OMX
Copenhagen
ORSTED
DKK 474 (28 Nov.)
DKK 332 (3 Jan.)
Registered share
99.6%
Number of shares
420,381,080 shares
Number of treasury shares 335,904 shares
71 / 193
Ørsted Annual report 2018Management’s review Financial
statements
2018
1 January – 31 December
Ørsted Annual report 2018 Consolidated financial statements
Note summary
Contents
Income statement
1 January - 31 December
2018
2017
Note
DKKm
2.2, 2.4
Revenue
2.3
Cost of sales
Other external expenses
2.6, 2.7
Employee costs
2.5
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
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
3.7
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
Business
performance
Adjustments
Business
performance
Adjustments
76,946
(53,906)
(5,865)
(3,126)
(6)
16,275
(289)
(1,426)
(112)
-
-
-
-
-
IFRS
75,520
(54,018)
(5,865)
(3,126)
(6)
16,275
(289)
59,504
(40,544)
(4,241)
(3,197)
(119)
11,665
(549)
30,029
(1,538)
28,491
22,519
(5,375)
24,654
127
1
3,179
(4,457)
23,504
(4,018)
19,486
-
(1,538)
-
-
-
-
(1,538)
318
(1,220)
(5,375)
23,116
127
1
3,179
(4,457)
21,966
(3,700)
18,266
10
-
10
19,496
(1,220)
18,276
(6,284)
16,235
(139)
(10)
4,253
(5,295)
15,044
(1,765)
13,279
6,920
20,199
205
(150)
-
-
-
-
-
55
-
55
-
-
-
-
55
(13)
42
(816)
(774)
IFRS
59,709
(40,694)
(4,241)
(3,197)
(119)
11,665
(549)
22,574
(6,284)
16,290
(139)
(10)
4,253
(5,295)
15,099
(1,778)
13,321
6,104
19,425
19,046
(1,220)
17,826
19,493
(774)
18,719
425
25
45.3
0.0
45.3
425
25
42.4
0.0
42.4
716
(10)
29.9
16.5
46.4
716
(10)
30.0
14.5
44.5
Profit (loss) for the year from our continuing
operations
Our former Oil & Gas business, which was divested
on 29 September 2017, is presented as discontinued
operations.
Profit (loss) per share
Diluted profit (loss) per share corresponds to profit
(loss) per share, as the dilutive effect of the share
incentive programme is less than 0.1% of the share
capital.
Accounting policies
Business performance
The business performance principle is our alternative
performance measure. According to IFRS, market
value adjustments of energy contracts and related
currency 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
1.6 'Business performance'.
73 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements
Note summary
Contents
Statement of comprehensive income
1 January - 31 December
Note
DKKm
Profit (loss) for the year
Other comprehensive income:
Cash flow hedging:
2018
2017
Business
performance
Adjustments
19,496
(1,220)
IFRS
18,276
Business
performance
Adjustments
20,199
(774)
1.6, 7.2
Value adjustments for the year
6.2
Value adjustments transferred to income statement
(2,841)
961
1,734
(196)
(1,107)
765
Exchange rate adjustments:
Exchange rate adjustments relating to net
investment in foreign enterprises
Value adjustment of net investment hedges
Value adjustments and hedges transferred to
income statement
7.2
6.2
Tax:
Tax on hedging instruments
Tax on exchange rate adjustments
Other:
Share of other comprehensive income of associated
companies, after tax
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
(417)
401
(67)
380
31
(28)
(1,580)
17,916
-
-
-
-
-
-
-
(318)
-
-
1,220
-
-
-
-
-
(417)
401
(67)
62
31
(28)
(360)
17,916
17,495
425
(4)
17,916
652
(2,464)
(1,513)
565
892
410
62
(1,396)
18,803
-
-
-
-
138
853
-
-
-
(217)
-
774
-
-
-
-
-
IFRS
19,425
790
(1,611)
(1,513)
565
892
193
62
(622)
18,803
18,256
716
(169)
18,803
Statement of comprehensive income
All items in other comprehensive income may be
recycled to the income statement.
Value adjustments for the year for cash flow hedging
according to IFRS of DKK -1,107 million mainly consist
of losses related to the divestments of Hornsea 1.
The loss is transferred to the income statement.
Value adjustments for the year for cash flow hedging
according to the adjustment column af DKK 1,734
million mainly consist of losses on power hedges
that are recognised in the income statement under
IFRS, but under business performance, the losses are
deferred to the period where the hedged exposure
relates.
Foreign exchange losses relating to net investments
in foreign enterprises of DKK 417 million were in 2018
primarily attributable to a drop of 1% in the GBP
exchange rate. 2017, foreign exchange losses relating
to net investments in foreign enterprises amounted to
DKK 1,513 million and were primarily attributable to a
drop of 4% in the GBP exchange rate.
74 / 193
Ørsted Annual report 2018Financial statements Balance sheet
31 December
Note
Assets, DKKm
3.1
3.1
3.1
3.1
3.1
5.4
4.4
4.1
7
4.2
4.3
4.4
6.4
6.4
3.6
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
Contract assets
Trade receivables
Other receivables
Income tax
Securities
Cash
Current assets
Assets classified as held for sale
Assets
Consolidated financial statements
Note summary
Contents
2018
777
969
66,310
342
16,434
84,055
457
60
211
4,588
2,670
7,986
92,818
13,943
5,468
1,451
10,741
4,390
1,525
25,501
3,515
66,534
15,223
2017
Note
Equity and liabilities, DKKm
6.2
6.2
6.3
3.8
5.4
3.2
6.1
4.2
4.5
4.6
3.2
6.1
7
4.2
4.5
4.6
689
1,501
60,603
413
13,328
75,845
339
48
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
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
Contract liabilities
Tax equity liabilities
Other payables
Non-current liabilities
Provisions
Bond and bank debt
Derivatives
Contract liabilities
Trade payables
Tax equity liabilities
Other payables
Income tax
Current liabilities
174,575
146,521
Liabilities
3.6
Liabilities relating to assets classified as held for sale
2018
4,204
(1,827)
66,111
68,488
13,239
3,388
85,115
4,025
12,774
25,095
3,642
3,728
409
49,673
680
2,201
8,094
924
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
13,082
11,499
445
4,793
4,717
34,936
84,609
4,851
-
6,368
1,498
29,657
74,054
630
Equity and liabilities
174,575
146,521
Contract assets and contract liabilities
The adoption of IFRS 15 has changed our presenta-
tion, as we have introduced contract assets and
contract liabilities. As we have implemented IFRS 15
after the modified retrospective method, we have
not restated comparative figures. The comparative
figures we have shown for 'Contract assets' and
' Contract liabilities' were presented as 'Construction
contracts' in the 2017 annual report.
The effects of change in accounting policy are
identical for business performance profit
(loss). Read more about the impact in note 1.4
' Implementation of new or changed accounting
standards and interpretations'.
75 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements
Note summary
Contents
Statement of changes in equity
1 January - 31 December
DKKm
Share
capital Reserves*
Retained
earnings
Proposed
dividends
Share-
holders in
Ørsted A/S
Hybrid
capital
Non-con-
trolling
interests
Total
Group
Share
capital Reserves*
Retained
earnings
Proposed
dividends
Share-
holders in
Ørsted A/S
Hybrid
capital
Non-con-
trolling
interests
Total
Group
Equity at 1 January
4,204
(1,524)
48,328
3,783
54,791
13,239
3,807
71,837
4,204
20,218
12,162
2,522
39,106
13,248
5,146
57,500
2018
2017
Comprehensive income for the year:
Profit (loss) for the year
Other comprehensive income:
Cash flow hedging
Exchange rate adjustments
Tax on other comprehensive income
Share of other comprehensive
income of associated companies,
after tax
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
Purchases of treasury shares
Share-based payment
Tax on share-based payment
Disposals, non-controlling interests
Other changes
Total transactions with owners
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17,826
(342)
(54)
93
-
-
-
-
(28)
(303)
17,798
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17,826
425
25
18,276
(342)
(54)
93
(28)
-
-
-
-
-
(29)
-
-
(342)
(83)
93
(28)
17,495
425
(4)
17,916
-
-
-
-
-
-
(545)
120
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(545)
120
-
-
-
-
(400)
(4,181)
-
-
-
-
(15)
(48)
24
(5)
-
(3)
(4,099)
4,099
2
(3,783)
(3,781)
(48)
24
(5)
-
12
(48)
24
(5)
-
12
-
-
-
-
Equity at 31 December
4,204
(1,827)
62,012
4,099
68,488
13,239
3,388
85,115
4,204
(1,524)
48,328
* See note 6.2 'Equity' for more information about reserves.
(4,114)
316
(3,798)
(425)
(415)
(4,638)
(21,279)
17,447
-
18,719
(821)
103
255
-
-
-
-
-
(463)
18,719
-
-
-
-
-
-
-
-
(21,279)
21,279
-
-
-
-
-
-
-
-
-
-
-
(3,783)
3,783
-
-
-
-
-
-
-
1
-
15
(3)
-
(62)
(2,522)
(2,521)
-
-
-
-
-
-
15
(3)
-
(62)
18,719
716
(10)
19,425
(821)
103
255
-
-
-
-
-
-
(821)
(159)
-
-
(56)
255
-
18,256
716
(169)
18,803
-
-
-
-
-
-
(640)
141
3,668
(3,894)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(640)
141
3,668
(3,894)
-
-
(376)
(2,897)
-
-
-
(794)
-
-
15
(3)
(794)
(62)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,261
3,783
(2,571)
(725)
(1,170)
(4,466)
54,791
13,239
3,807
71,837
76 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements
Note summary
Contents
Statement of cash flows
1 January - 31 December
Note
DKKm
2018
2017
Note
DKKm
Operating profit (loss) before depreciation, amortisation and
impairment losses (EBITDA), IFRS
1.6
Change in derivatives, business performance adjustments
Change in derivatives, other adjustments
Change in provisions
28,491
22,574
1,538
369
(278)
(55)
(528)
98
Reversal of gain (loss) on sale of assets
(14,995)
(10,835)
4.7
4.7
4.7
Other items
Change in work in progress
Change in tax equity partner liabilities
Change in other working capital
Interest received and similar items
Interest paid and similar items
5.3
Income tax paid
Cash flows from operating activities
203
(2,326)
1,835
(427)
6,648
(7,348)
(3,367)
10,343
297
(3,674)
-
(4,230)
3,508
(3,472)
(2,660)
1,023
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.
Change in work in progress consists of elements in
contract assets, contract liabilities, construction
management agreements related to construction
of offshore wind farms, construction of offshore
transmission assets (inventory) and related trade
payables.
Change in tax equity partner liabilities relates to cash
contributions from tax equity partners and distribu-
tions of PTCs and other tax attributes to tax equity
partners. See also note 4.5 'Tax equity liabilities'.
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
payments in connection with the purchase and sale
of non-current assets and enterprises as well as 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, including net proceeds from and to tax equity
partners. 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
3.3
3.4
Acquisition of enterprises
Divestment of enterprises
Purchase of other equity investments
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
Cash flows from investing activities
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
Purchase of own shares
3.8
Transactions with non-controlling interests
Net proceeds from tax equity partners
Change in other liabilities
Cash flows from financing activities
Cash flows from continuing operations
3.7
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
2018
(14,655)
19,639
(5,602)
363
(78)
-
(40,444)
39,849
(1)
(122)
25
2017
(17,592)
16,333
(83)
588
-
28
(21,162)
11,965
(5)
(139)
13
(1,026)
(10,054)
-
(6,429)
(545)
-
(3,781)
(48)
(391)
78
422
(10,694)
(1,377)
209
(1,168)
3,891
(1,168)
(27)
(33)
2,663
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
Our supplementary statements of gross and net investments appear from note
3.5 'Gross and net investments' and free cash flows (FCF) from note 2.1 'Segment information'.
77 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements
Note summary
Contents
Note summary
Consolidated financial statements
1.
1.1
Basis of reporting . . . . . . . . . . . . . . . . . . . . 79
Significant changes in the current
reporting period . . . . . . . . . . . . . . . . . . . . . . 80
1.2 Basis of preparation . . . . . . . . . . . . . . . . . . 81
1.3
Key accounting estimates
and judgements . . . . . . . . . . . . . . . . . . . . . . . 83
Implementation of new or changed
accounting standards and
interpretations . . . . . . . . . . . . . . . . . . . . . . . . 84
1.5 Alternative performance measures . . . 87
1.6 Business performance . . . . . . . . . . . . . . . . . 88
1.4
Return on capital employed. . . . . . . . . . 91
2.
Segment information . . . . . . . . . . . . . . . . . . 93
2.1
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
2.2
2.3
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . 99
2.4 Government grants. . . . . . . . . . . . . . . . . . 100
2.5
Other operating income
and expenses . . . . . . . . . . . . . . . . . . . . . . . . .101
Employee costs . . . . . . . . . . . . . . . . . . . . . 102
Share-based payment . . . . . . . . . . . . . . . 103
2.6
2.7
3.2
3.
3.1
Capital employed . . . . . . . . . . . . . . . . . . 105
Intangible assets and property,
plant and equipment . . . . . . . . . . . . . . . . 107
Provisions and contingent assets
and liabilities . . . . . . . . . . . . . . . . . . . . . . . . 110
3.3 Acquisition of enterprises . . . . . . . . . . . . .112
3.4
Divestment of enterprises . . . . . . . . . . . 113
3.5 Gross and net investments . . . . . . . . . . 113
Assets classified as held for sale . . . . . 114
3.6
Discontinued operations . . . . . . . . . . . . 115
3.7
Non-controlling interests . . . . . . . . . . . . 117
3.8
8.
8.1
8.2
8.3
8.4
8.5
Other notes . . . . . . . . . . . . . . . . . . . . . . . . 158
Related-party transactions . . . . . . . . . . 159
Operating lease obligations . . . . . . . . . 160
Auditor's fees . . . . . . . . . . . . . . . . . . . . . . . . 161
Contractual obligations . . . . . . . . . . . . . 161
Company overview. . . . . . . . . . . . . . . . . . 162
Parent company financial statements . . . . 175
Income statement . . . . . . . . . . . . . . . . . . . . . . . . 176
Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
Statement of changes in equity. . . . . . . . . . . 177
Consolidated ESG statements
(additional information) . . . . . . . . . . . . . . . . . . 167
Basis of reporting . . . . . . . . . . . . . . . . . . . . . . . . . 168
Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
Social . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
1.
2.
3.
4.
Basis of reporting. . . . . . . . . . . . . . . . . . . . 178
Employee costs . . . . . . . . . . . . . . . . . . . . . 179
Financial income and expenses . . . . . . 179
Tax on profit (loss) for the year
and deferred tax. . . . . . . . . . . . . . . . . . . . . 180
Distribution of net profit . . . . . . . . . . . . . 180
5.
Investments in subsidiaries . . . . . . . . . . 181
6.
7.
Receivables from subsidiaries . . . . . . . 181
8. Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . 182
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
9.
Loans and borrowings . . . . . . . . . . . . . . . 182
10.
Other provisions . . . . . . . . . . . . . . . . . . . . . 183
11.
Contingent liabilities . . . . . . . . . . . . . . . . 183
12.
Related-party transactions . . . . . . . . . . 184
13.
14. Operating lease obligations . . . . . . . . . 184
Auditor's fees . . . . . . . . . . . . . . . . . . . . . . . . 184
15.
Ownership information . . . . . . . . . . . . . . 184
16.
Working capital. . . . . . . . . . . . . . . . . . . . 118
4.
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 120
4.1
Contract assets and liabilities . . . . . . . 121
4.2
Trade receivables. . . . . . . . . . . . . . . . . . . . 122
4.3
Other receivables . . . . . . . . . . . . . . . . . . . 122
4.4
4.5
Tax equity liabilities . . . . . . . . . . . . . . . . . 123
4.6 Other payables. . . . . . . . . . . . . . . . . . . . . . 124
4.7 Changes in net working capital. . . . . . 124
5.
5.1
5.2
5.3
5.4
5.5
Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Tax policy and tax regimes . . . . . . . . . . 127
Tax on profit (loss) for the year . . . . . . 128
Taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . 131
Total tax contribution . . . . . . . . . . . . . . . 133
Capital structure. . . . . . . . . . . . . . . . . . . 134
6.
6.1
Interest-bearing debt . . . . . . . . . . . . . . . . 136
6.2 Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
6.3 Hybrid capital . . . . . . . . . . . . . . . . . . . . . . . 140
6.4 Financial resources . . . . . . . . . . . . . . . . . . 141
6.5 Financial income and expenses . . . . . . 143
6.6
Funds from operations (FFO)/
adjusted interest-bearing net debt . . 144
7.
7.1
7.2
7.3
7.4
7.5
7.6
7.7
Risk management. . . . . . . . . . . . . . . . . . 145
Market risks . . . . . . . . . . . . . . . . . . . . . . . . . 147
Hedge accounting and
economic hedging. . . . . . . . . . . . . . . . . . . 150
Energy trading portfolio . . . . . . . . . . . . . 152
Sensitivity analysis of
financial instruments . . . . . . . . . . . . . . . . 153
Credit risks . . . . . . . . . . . . . . . . . . . . . . . . . . 154
Categories of financial instruments . . 155
Fair value measurement. . . . . . . . . . . . . 156
78 / 193
Ørsted Annual report 2018Financial statements Note summary
Contents
1.
Basis of reporting
Significant changes in the current
reporting period
Basis of preparation
80
81
Key accounting estimates and judgements 83
Implementation of new or changed
accounting standards and interpretations 84
Alternative performance measures
Business performance
87
88
Ørsted Annual report 2018 Consolidated financial statements – 1. Basis of reporting
Note summary
Contents
1.1 Significant changes in the current reporting period
The financial position and performance of the
Ørsted Group was particularly affected by the
following events and transactions during 2018.
For a detailed discussion about the Ørsted
Group's performance and financial position,
please refer to our management's review on
pages 4 to 54.
IFRS
18
IFRS
IFRS
2018
18
IFRS
IFRS
IFRS
2018
18
18
IFRS
IFRS
2018
2018
Acqusitions
Lincoln Clean Energy
In October 2018, we acquired Lincoln Clean Energy, which forms the basis of our new Onshore business
unit, see note 3.3 'Acquisition of enterprises'. The transaction has been recognised using the acquisition
method whereby all identifiable assets and liabilities have been measured at fair value. The acquisition
introduced new accounting concepts, such as tax equity liability, see note 4.5 'Tax equity liabilities',
and power purchase agreements (PPAs) (derivatives), classified as financial products with significant
elements of non-observable data, see note 7.7 'Fair value measurement'.
With the aquisition, we established a strong and scalable platform for the US onshore market, which
will be a key growth platform and provide strategic diversification to our portfolio.
Deepwater Wind
In November 2018, we acquired Deepwater Wind, which will be part of our existing Offshore business
unit, se note 3.3 'Acquisition of enterprises'. The transaction has been recognised using the acquisition
method whereby all identifiable assets and liabilities have been measured at fair value. Similar to
Lincoln Clean Energy, the acquisition includes a tax equity liability, see note 4.5 'Tax equity liabilities'.
With this acquisition, we created a leading US offshore wind platform with a geographically diverse
US East Coast portfolio of projects at varying degrees of development and with significant synergy
potential both in terms of geography and project timing.
Divestments/
assets held for sale
Hornsea 1 offshore wind farm
In November 2018, we farmed-down 50%
of Hornsea 1. The transaction is classified as
a divestment of assets, see note 2.5 'Other
operating income and expenses' and
3.1 'Intangible assets and property, plant
and equipment'.
Danish power distribution, residential
customer and city light businesses
We plan to exit our Danish power distribu-
tion, residential customers and city light
businesses during 2019 and have therefore
classified them as assets held for sale, see
note 3.6 'Assets classified as held for sale'.
Enecogen gas-fired power plant
In July 2018, we divested our 50% ownership
share in the Dutch gas-fired power plant
Enecogen. The transaction is classified
as a divestment of enterprises, see note
3.4 ' Divestment of enterprises'.
Accounting policy
Adoption of IFRS 15
We have adopted the new IFRS standard
on revenue from contracts with customers.
The standard has an insignificant impact on
profit (loss) for the year and diluted profit
(loss) per share. The equity and the con-
solidated statement of cash flows are not
affected. The impact on our consolidated
financial statements is described in note
1.4 'Implementation of new or changed
accounting standards and interpretations'.
The disclosure requirements in IFRS 15 is
included in note 2.2 'Revenue'.
New operating segment
The Onshore business unit was established
in connection with the acquisition of
Lincoln Clean Energy, see note 2.1 'Segment
information' and management's review on
pages 46 to 48.
80 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 1. Basis of reporting
Note summary
Contents
1.2 Basis of preparation
This section provides an overall description of
the accounting policies applied in our consoli-
dated financial statements. We provide a more
detailed description of the accounting policies
applied in the specific notes. Key estimates
and judgements and new and amended IFRS
standards and interpretations are discussed
in detail in note 1.3 'Key accounting estimates
and judgements' and 1.4 'Implementation of
new or changed accounting standards and
interpretations', respectively.
Basis of preparation
The financial statements for the period
1 January - 31 December 2018 comprise the
consolidated 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 178 for the
parent company's accounting policies.
The consolidated financial statements have
been prepared in accordance with the Inter-
national Financial Reporting Standards (IFRS)
as adopted by the EU and further require-
ments 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, and carbon emissions allow-
ances 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 adoption of 'IFRS 15 – Revenue from
Contracts with Customers'
– the adoption of IAS 20 ‘Accounting for
Government Grants and Disclosure of
Government Assistance' with respect to
subsidies received under the Renewable
Obligation scheme in the UK and feed-in
tariffs in Germany
– the adoption of IFRIC 22 'Foreign Currency
Transactions and Advance Consideration'
– the adoption of IFRIC 23 'Uncertainty over
Income Tax Treatments' (early adoption).
accounting policies. Intra- group income and
expenses, shareholdings, balances and divi-
dends as well as realised and unrealised gains
and losses arising from intra-group transac-
tions 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,
liabilities, income and expenses. The Group's
share of joint income, expense, assets and
liabilities is recognised afterwards. The propor-
tionate share of realised and unrealised gains
and losses arising from intra-group transac-
tions between fully consolidated enterprises
and joint operations is eliminated.
Principles for consolidation
The consolidated financial statements include
the parent company Ørsted A/S and subsidiaries
controlled by Ørsted A/S. See more in note
8.5 'Company overview'.
The consolidated financial statements
have been prepared as a consolidation of
the parent company's and the individual
subsidiaries' financial statements which have
been prepared in accordance with the Group's
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 enter-
prises are accounted for as associates. How-
ever, we carry out a specific assessment of
our ability to exercise influence, including our
ability to influence financial and operational
decisions and thus our return. Enterprises
that satisfy the criteria for joint control are
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
activities. The profit (loss) from investments
in associates and joint ventures is presented
after EBITDA when not deemed to pertain to
the Group's principal activities.
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.
81 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 1. Basis of reporting
Note summary
Contents
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
– 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 or are
assigned all output, for example the power generated,
will lead to the structure being considered a joint
operation.
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 on the
transaction date. Exchange differences arising
between the exchange rate on the transaction
date and on 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 on the balance sheet date. The
difference between the exchange rate on the
balance sheet date and on 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 on 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 on 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 on 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 curren-
cy 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.
82 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 1. Basis of reporting
Note summary
Contents
1.3 Key accounting estimates and judgements
The use of resonable estimates and judge-
ments is an essential part of the preparation
of the consolidated financial statements.
Given the uncertainties inherent in our business
activities, we make a number of estimates
regarding valuation and judgements. The esti-
mates and judgements are based on assump-
tions concerning future developments which
affect our application of accounting policies
and reported amounts of our assets, liabilities,
sales, costs, cash flows and related disclosures.
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 and a number of
other relevant factors, ie. the expected effects
of Brexit.
Accounting estimates, judgements and
assumptions which may entail a risk of mate-
rial adjustments in subsequent years are listed
in the table below.
In addition, we make judgements when we
apply the accounting policies.
Reference is made to the specific notes for
further information on the key accounting
estimates and judgements as well as
the assumptions applied.
Note
1.2
2.2
Revenue
Basis of preparation
Assessment of classification of partnerships
Key accounting estimates and judgements
Assessment of assumptions for recognition of revenue from the
construction of offshore wind farms over time
Assumptions for the determination of the expected selling price and
expected costs
Assessment of classification of divestment
Assumptions for the accounting treatment of divestment gains related
to the share purchase agreements and construction agreements
2.5
Other operating income
3.2
3.3
4.5
5.2
Provisions and contingent assets
and liabilities
Assumptions for decommissioning obligations
Estimate of onerous contracts
Estimate of litigation outcomes
Acquisition of enterprises
Purchase price allocation in business combinations
Tax equity liabilities
Assesment of recognition of tax equity partners
Extent of accounting
estimates and judgements
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
Estimate/
judgement
Judgement
Judgement
Estimate
Judgement
Estimate
Estimate
Estimate
Estimate
Estimate
Judgement
Tax on profit (loss) for the year
Estimate regarding the recognition of income tax assets and provisions
for uncertain tax positions
Estimate
83 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 1. Basis of reporting
Note summary
Contents
1.4 Implementation of new or changed accounting
standards and interpretations
We regularly assess the impact of new IFRS
standards and interpretations. We implement
new IFRS standards and interpretations from
their mandatory effective dates at the latest.
Effective from 1 January 2018, we have
implemented the following new or changed
standards (IAS and IFRS) and interpretations:
– IFRS 15 'Revenue from Contracts with
Customers' including amendments and
clarifications. See separate section below.
– IFRIC 22 'Foreign Currency Transactions and
Advance Consideration'.
– IFRIC 23 'Uncertainty over Income Tax
Treatments' (early adoption).
Besides the impact from IFRS 15, the adoption
of the new and changed standards has not
impacted the consolidated financial state-
ments for 2018.
In the following section, you can read
more about the impact on recognition and
measurement from IFRS 15 'Revenue from
Contracts with Customers'. The standard
has an insignificant impact on profit (loss) for
the year and diluted profit (loss) per share.
The equity and the consolidated statement
of cash flows are not affected.
Implementation of IFRS 15
On 1 January 2018, we implemented IFRS 15,
'Revenue from Contracts with Customers',
which replaces IAS 11, IAS 18 and associated
interpretations.
We have implemented IFRS 15 with retro-
spective effect. However, we use the relief
from restating comparative figures (modified
retrospective method).
The most important changes resulting from
our implementation can be summarised as
follows:
– The model for recognition of revenue is
changed from having been based on the
transfer of the risks and rewards of owner-
ship of a product or service to being based
on the transfer of control of the goods or
services transferred to the customer.
– More detailed guidelines for how elements
in a contract of sale are identified, and how
the individual components will be recog-
nised and measured.
– More detailed guidance for recognition of
revenue over time.
Changes in our accounting policies
resulting from IFRS 15
In the UK, we offer construction agreements
for offshore transmission assets. When con-
struction of the offshore transmission assets
is completed, they are sold to an offshore
transmission owner (OFTO) through a regu-
lated 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 IFRS 15, a customer relationship does
not exist between Ørsted and the final
buyer when the construction of the offshore
transmission assets commences. Therefore, we
have deferred revenue recognition on offshore
transmission assets from commencement of
construction to the date of entering into a
contract with a customer.
In other words, the recognition of revenue
begins when we sell a share of the offshore
transmission asset under construction to a
partner and takes place upon such partner
joining the project. We recognise the remain-
ing part of the offshore transmission asset
when we find that control has passed to
the OFTO.
Impact on our consolidated financial
statements from IFRS 15
In previous reporting periods, offshore trans-
mission assets were recognised in step with
the construction based on the completion
degree of the asset (over time). Under IFRS 15,
revenue from offshore transmission assets are
recognised at a later point in time.
The change in policy does not affect the
Group's cash flows or results, but only the tim-
ing of when income and costs are recognised
in the consolidated financial statements.
Historically, we have not had, and we do
not expect to have, a significant contribu-
tion margin relating to the sale of offshore
transmission assets to partners and OFTOs.
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.
The implementation of the terminology
in IFRS 15 had the following effects on the
presentation of the construction contracts,
receivables and other payables in the
balance sheet:
84 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 1. Basis of reporting
Note summary
Contents
1 January 2018
Effect of
change in
accounting
policy
Previous
accounting
policy
New
accounting
policy
Previous
accounting
policy
Effect of
change in
accounting
policy
New
accounting
policy
31 December 2018
– Construction of offshore transmission
assets is classified as inventory.
– Construction agreements other than
offshore transmission assets are presented
as contract assets and liabilities.
– Construction agreements related to off-
shore transmission assets are presented as
contract assets and liabilities.
– Receivables related to ongoing services
or in other ways where the receivables
are not unconditional are presented as
contract assets.
– Other payables related to prepayments
from heat customers are presented as
contract liabilities.
– Other payables related to prepayments and
deferred revenue as such are presented as
contract liabilities.
In summary, the adjustments made to the
amounts recognised in the balance sheet on
he date of initial application (1 January 2018)
are illustrated in the table to the left.
3,853
10,817
-
9,170
146,521
4,204
(1,524)
52,111
54,791
-
5,714
1,317
-
6,368
10,468 1
14,321
(10,817) 1,2
1,693 2
(1,344) 2
-
-
-
-
-
5,327 2
(5,327) 2
(1,317) 2
1,455 2
(138) 2
-
1,693
7,826
146,521
4,204
(1,524)
52,111
54,791
5,327
387
-
1,455
6,230
4,058
11,336
-
10,741
174,575
4,204
(1,827)
66,111
68,488
-
4,051
460
-
5,257
9,885
(11,336)
1,451
-
-
-
-
-
-
3,642
(3,642)
(460)
924
(464)
13,943
-
1,451
10,741
174,575
4,204
(1,827)
66,111
68,488
3,642
409
-
924
4,793
146,521
-
146,521
174,575
-
174,575
Extract
Impact of adoption, DKKm
Assets
Current assets
Inventories
Construction contracts
Contract assets
Trade receivables
Assets
Equity and liabilities
Share capital
Reserves
Retained earnings
Equity attributable to shareholders in Ørsted A/S
Liabilities
Non-current liabilities
Contract liabilities
Other payables
Current liabilities
Construction contracts
Contract liabilities
Other payables
Equity and liabilities
Income statement, IFRS
Revenue
Cost of sales
Operating profit (loss) before depreciation,
amortisation and impairment losses (EBITDA)
Profit (loss) for the year
1
2
Effect of change to timing of revenue recognition from transmission assets in profit (loss).
Effect of changed presentation of certain amounts in the balance sheet to reflect the terminology of IFRS 15.
80,554
(59,052)
28,491
18,276
(5,034)
5,034
-
-
75,520
(54,018)
28,491
18,276
Comparatives for the 2017 financial year are not
restated as we have applied the modified retrospec-
tive method. The effects of change in accounting
policy are identical for business per formance profit
(loss).
85 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 1. Basis of reporting
Note summary
Contents
Change in accounting policy
On 1 January 2018, we changed our account-
ing policy with respect to subsidies received
under the Renewable Obligation Scheme in
the UK, known as green certificates or
renewable obligation certificates (ROCs), and
feed-in tariffs in Germany under the German
Renewable Energy Sources Act (EEG2014).
We apply IAS 20 'Accounting for Government
Grants and Disclosure of Government Assis-
tance', under which subsidies are recognised
when there is a reasonable assurance that the
grant will be received.
Prior to this change in policy, we applied
IAS 18 'Revenue' to ROCs and feed-in tariffs in
Germany, while we applied IAS 20 to feed-in
tariffs in Denmark and contracts for difference
(CfDs) in the UK.
This voluntary change in accounting policy did
not result in any impact on the current year or
any years included within these consolidated
financial statements. The recognition, meas-
urement, timing and presentation of ROCs and
feed-in tariffs are unchanged.
New standards and interpretations
IASB has issued a number of new or amended
standards and interpretations which have
not yet entered into force, and which have
consequently not been incorporated into the
consolidated financial statements for 2018.
We believe the new policy is preferable as
it provides more relevant information about
the received subsidies, aligns our accounting
of all subsidies received for our renewable
power generation and allows comparability
between years.
The change in accounting policy only impacts
the presentation of ROCs and feed-in tariffs in
Germany.
Profit (loss), equity and the consolidated state-
ment of cash flows are therefore not affected
by the change in accounting policy.
In the tabel below, we have assessed how
IFRS 16 'Leases' will be implemented and the
consequences thereof. IFRS 16 is deemed to
be the most relevant of the new or amended
standards and interpretations for Ørsted.
Standard Expected effect
Commencement
Transitional provision
IFRS 16 requires that service elements which
are incorporated into leases, and which do
not entitle us to use an underlying asset, are
dealt with separately and treated as current
operating expenses. This requirement does not
have an effect on our lease obligations as our
current accounting policy is to separate the
service elements in the leases from the leasing
elements. In Ørsted, this matter is partically
relevant to leases of office premisses.
IFRS 16
'Leases'
We have completed our analysis of the
impact of implementing IFRS 16 in Ørsted.
The conclusion is that the implementation
will have limited effect on our balance sheet,
income statement and key credit ratios.
When applying IFRS 16, our lease obligations
amount to DKK 5,224 million on 1 January
2019, which is slightly higher than our
operating lease obligations on 31 December
2018. This amounts to DKK 4,819 million at
net present value. The difference between the
obligations are primarily due to the fact that
the weigthed average incremental borrowing
rates applied under IFRS 16 are lower than the
3.5%, which we apply for calculation of the net
current value of our operating lease obligations
in accordance with our present accounting
policy for key credit metrics.
IFRS 16 will be implemented
on 1 January 2019.
The standard will be implemented with retrospective effect, and the
comparative figures will not be restated. The requirements of the
standard therefore only apply to ongoing and/or leases commencing on
1 January 2019.
For all leases, we will measure the lease asset at the same amount as the
lease debt, adjusted by the amount of prepayments and accrued lease
payments on 1 January 2019.
We apply the practical expedient regarding reassessment of whether a
contract is, or contains, a lease on 1 January 2019. This means that we
do not reassess whether a contract is, or contains, a lease when applying
IFRS 16.
We do also make use of the possibility to apply a single rate to a portfolio
of leases with reasonable similar charateristics. In accordance with this, we
apply incremental borrowing rates per class of underlying asset (nature) in
similar economic environments (currency) and remaining lease term.
86 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 1. Basis of reporting
Note summary
Contents
1.5 Alternative performance measures
Performance measures are calculated in accordance with the business performance principle.
Business performance
Business performance is a supplement to our financial statements prepared in
accordance with IFRS. Under the business performance principle, the value of the
hedging transaction is deferred and recognised for the period in which the hedged
risk materialises. Reference is made to note 1.6 'Business performance'.
Gross investments
Net investments
Funds from operations
(FFO)
Gross investments reflect our total investments in assets and enterprises. It
comprises 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. To this is added acquired debt and restricted cash in connection with
acquisitions.
Gross investments less divestments of assets and enterprises, the selling price for
non-controlling interests and subsequent capital injections from non-controlling
interests. Furthermore, interest-bearing debt transferred in connection with a
divestment is deducted.
Supplementary statement for cash flows from operating activities determined
as business performance EBITDA less the effect of gains on the divestments 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.
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.
FFO to adjusted interest-
bearing net debt
FFO
Adjusted interest-bearing net debt
Free cash flow (FCF)
Cash flows from operating activities less gross investments and plus divestments.
Capital employed
All assets and liabilities except for equity and interest-bearing net debt.
Average capital
employed
Return on capital
employed (ROCE)
Proposed dividend per
share (DPS) of DKK 10
Dividend yield
Average number of
shares
Capital employed beginning of year + capital employed year-end
2
EBIT
Average capital employed1
Total proposed dividend
Number of shares year-end
Dividend per share (proposed)
Share price on the last trading day of the year
1
×
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), other current operating liabilities and working
capital element of tax equity balances.
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.
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
1
ROCE (continuing operations) is based on average capital employed for the continuing operations.
Capital employed related to the oil and gas activities divested on 29 September 2017 are not included.
87 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 1. Basis of reporting
Note summary
Contents
1.6 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 per-
formance 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
– that there was a high risk that the hedging
contracts were not consistent with the
IFRS hedge accounting rules, requiring us to
recognise the hedging contracts at market
value with value adjustments via the
income statement, whereas our commercial
exposure is accrued.
Our risk management is described in note
7.1 'Market risks'.
Business performance – background
We hedge market risks for up to five years
with the aim of stabilising our cash flows and
create 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 there is no suffi-
ciently liquid market available. Consequently,
some hedging takes place in alternative mar-
kets or subject to alternative time horizons.
For example, power generation in Denmark is
to some extent hedged by financial con-
tracts for nearby trading areas, such as the
European Energy Exchange (EEX) in Germany
and Nord Pool in 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 imme-
diately in the income statement. See note 7.3
' Energy trading portfolio'. The accounting treat-
ment under business performance is other wise
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 summa-
rised 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 is 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 is the same as under IFRS
Trading portfolio
Market value adjustments in the income statement Recognition is 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.
88 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 1. Basis of reporting
Note summary
Contents
Expected impact on business performance
EBITDA from energy and currency hedging
At 31 December 2018, a loss of DKK 1,849 mil-
lion has been deferred (2017: loss of DKK 812
million), which will affect business performance
EBITDA in subsequent years. Of the total
deferred loss, a loss of DKK 1,470 million is
expected on business performance EBITDA in
2019 (2017: DKK 159 million loss in 2018).
Power prices rose in 2018, which means that
the market value of the hedges has fallen
as we are selling power. The decrease in the
deferred gain on currency hedging is primarily
attributable to the transfer of gains to the
income statement in 2018 as a consequence
of the hedged transactions having occurred.
Expected impact on business performance EBITDA from energy and currency hedging, DKKm
Power
Gas
Oil
Coal
Currency
Inflation
Deferred for subsequent recognition
at 31 December 2018
Deferred for subsequent recognition
at 31 December 2017
2019
2020 After 2020
Total
(1,324)
(1,190)
(353)
(2,867)
(294)
(65)
6
(2)
-
(118)
(81)
1
254
-
-
(36)
-
239
(69)
(412)
(182)
7
491
(69)
2018
(650)
(262)
174
34
545
-
2019
After 2019
(385)
(266)
137
6
139
-
(519)
(97)
63
1
268
-
Total
(1,554)
(625)
374
41
952
-
Total hedges
(1,679)
(1,134)
(219)
(3,032)
(159)
(369)
(284)
(812)
Deferred revenue from US
power purchase agreements
Total
209
(1,470)
183
(951)
791
572
1,183
(1,849)
-
-
-
-
(159)
(369)
(284)
(812)
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.
Gains are shown as '+'
and losses are shown
as '-'. Deferred reve-
nue from US power
purchase agreements is
explained in more detail
in note 7.7 'Fair value
measurement'.
Explanation of the business
performance principle
In year 1, we enter into a contract
hedging the price risk associated with
Offshore'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 mil-
lion. The income of GBP 52 million consists
of a gain from the hedging contract of
GBP 7 million and GBP 45 million from
the sale of 1,000GWh at a 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)
Sale of
power,
GBP million
Market value
Business
performance
Business
performance
IFRS
Year 1
Year 2
Year 3
Year 4
Year 5
Total
52
50
55
46
45
-
-
-
-
45
45
-
2
(3)
6
7
-
-
-
-
7
7
-
2
(5)
9
1
7
-
-
-
-
52
52
IFRS
-
2
(5)
9
46
52
Example of recognition of the market value
of a hedging contract according to the
business performance and IFRS principles
in the income statement.
89 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 1. Basis of reporting
Note summary
Contents
Specification of the difference between EBITDA according to
business performance and according to IFRS, DKKm
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:
2018
30,029
(1,426)
(112)
28,491
2017
22,519
205
(150)
22,574
Market value adjustments for the year of financial and physical hedging
contracts relating to a furture period
(1,734)
(138)
Reversal of deferred gains (losses) relating to hedging contracts from
previous periods, where the hedged production or trade is recognised in
business performance EBITDA in this period
Total adjustments
196
(1,538)
193
55
Difference between IFRS and business
performance for the year
The value adjustment in respect of future
periods totalled DKK -1,734 million (2017:
DKK -138 million) and reversal of deferred
gains (losses) recognised according to business
performance in 2018 totalled DKK 196 million
(2017: DKK 193 million).
Market value adjustments for the year of
hedging contracts
2018 was mainly affected by losses on the
hedging of power as a result of rising prices,
due to a selling position and hedging of oil
as a result of lower prices due to a purchase
position.
Deferred gains (losses) from previous
periods
In 2018, a loss of DKK 196 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 and gas, partly reduced by
gains on hedging of oil and currency.
Market value adjustments for the year of financial and physical hedging
contracts relating to a future period, DKKm
Currency
Power (commercial and hedge)
Gas (commercial and hedge)
Oil
Coal
Total value adjustments
Reversal of deferred gains (losses) relating to hedging contracts from
previous periods, where the hedged prodution or trade is recognised in
business performance EBITDA in this period, DKKm
Currency
Power (commercial and hedge)
Gas (commercial and hedge)
Oil
Coal
Total deferred gains (losses) from previous periods
2018
313
(1,617)
(48)
(382)
-
(1,734)
2018
(165)
307
262
(174)
(34)
196
2017
150
(836)
106
404
38
(138)
2017
(12)
297
(106)
46
(32)
193
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.
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.
90 / 193
Ørsted Annual report 2018Financial statements Note summary
Contents
2.
Return on capital
employed
Return on capital employed
Segment information
Revenue
Cost of sales
Government grants
Other operating income and expenses
Employee costs
Share-based payment
92
93
96
99
100
101
102
103
Ørsted Annual report 2018 Consolidated financial statements – 2. Return on capital employed
Note summary
Contents
2. Return on capital employed
EBIT by segment,
percentage of DKK 24,856 million in 2018
EBIT, business performance
DKKm
Return on capital employed is a key ratio
showing how profitable our business
activities are. Our target is an average
ROCE of around 10% for the Group for
the 2019-2025 period.
Offshore
Onshore
Bioenergy
Customer Solutions
Return on capital employed
Return on capital employed was 32.1% in
2018 compared to 25.2% in 2017. The increase
was mainly due to higher EBIT, which in both
years was significantly positively affected by
farm-down gains. Reference is made to note
2.1 'Segment information'.
0%
-1%
7%
0
94%
24.7
16.2
13.9
2.3
1.9
2014
2015
2016
2017
2018
30.0bn
EBITDA totalled DKK 30,029 million in 2018
against DKK 22,519 million in 2017.
24.7bn
Operating profit totalled DKK 24,654 million
in 2018 against DKK 16,235 million in 2017.
Return on capital employed (ROCE)
% 2018
Return on capital employed (ROCE)
%
Offshore
Onshore
Bioenergy
Customer Solutions
-0.3%
-12.9%
37.2%
24.4
25.2
32.1%
32.1
Return on capital employed (ROCE) totalled
32.1% in 2018 against 25.2% in 2017.
17.6%
0
4.3
3.6
2014
2015
2016
2017
2018
EBIT and return on capital employed are stated
according to the business performance principle.
EBIT of DKK 24,856 million is calculated as EBIT
for reportable segments.
Return on capital employed (ROCE) was
32.1% against 25.2% in 2017. The increase was
attributable to a higher EBIT.
92 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 2. Return on capital employed
Note summary
Contents
2.1 Segment information
Offshore, DKKm
Onshore, DKKm
Bioenergy, DKKm
Customer Solutions, DKKm
Revenue
EBITDA
Gross investments
Number of employees
Primary activity
30,566
27,809
15,081
Revenue
EBITDA
80
44
Revenue
EBITDA
6,353
Revenue
367
EBITDA
Gross investments
6,779
Gross investments
1,356
Gross investments
2,431
Number of employees
40
Number of employees
731
Number of employees
47,999
1,970
1,166
1,254
Primary activity
Primary activity
Primary activity
Development, construction, ownership and operation
of offshore wind farms in the UK, Germany,
Denmark, the Netherlands, the US and Taiwan.
Development, ownership and operation of onshore
wind and solar farms in the US and a minor storage
solution in the UK.
Generation of heat and power from CHP plants in
Denmark, operation of a Renescience plant in the
UK, a few biogas upgrade facilities, and a biogas
plant.
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.
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.
Revenue,
DKKm 2018 1 (2017)
Denmark (DK)
UK
Germany (DE)
The Netherlands (NL)
Other
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 know the
physical location of our customers in all cases.
DE 14,374
(8,578)
No single customer accounts for more than
10% of our consolidated revenue.
Non-current assets are broken down geo-
graphically based on the physical locations
of the assets.
UK 37,962
(26,488)
NL 6,083
(4,369)
OTHER 814
(506)
DK 17,713
(19,563)
DE 14,057
(12,614)
OTHER 1,283
(192)
DK 12,139
(23,062)
DKK 76,946
million
DKK 84,832
million
US 17,726
(0)
Intangible assets and property, plant and
equipment, DKKm 2018 (2017)
Accounting policies
Denmark (DK)
UK
The US
Germany (DE)
Other
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 1.6 'Business performance', in
connection with our internal management.
The operating segments are managed primarily on the
basis of EBITDA and investments. Financial income and
expenses as well as tax are allocated to the operating
segments, while we manage them at Group level.
Segment income and segment expenses are those
items that, in our internal management reporting, are
directly attributable to individual segments or can
be indirectly allocated to individual segments on a
reliable basis.
Revenue, intangible assets as well as property, plant
and equipment are presented based on the locations
of our customers and assets.
1
Revenue determined according to the business
performance principle.
UK 39,627
(40,666)
93 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 2. Return on capital employed
Note summary
Contents
Offshore
Onshore
Bioenergy
Intangible assets and property, plant and equipment
64,444
10,913
8,253
2018
Income statement, DKKm
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
Impairment losses, reversed
Operating profit (loss) (EBIT)
Key ratios
Equity investments and non-current receivables
Net working capital, work in progress
Net working capital, tax equity
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)
23,585
6,981
30,566
(13,370)
(5,309)
15,076
851
(5)
27,809
(4,456)
-
-
23,353
80
-
80
-
(121)
-
85
-
44
(51)
-
-
(7)
269
9,654
5
-
-
(3,719)
(167)
(125)
(722)
-
(217)
(130)
(1,059)
-
(2,612)
3,471
(1,251)
-
(4,010)
(3,106)
(2,123)
1,110
65,846
37.2
5,814
(15,081)
19,676
10,409
7,117
(764)
6,353
(4,527)
(1,480)
-
22
(1)
367
(657)
-
-
41
-
-
(199)
(4,144)
(238)
-
(710)
(906)
(154)
-
Customer
Solutions
Reportable
segments
46,298
1,701
47,999
77,080
7,918
84,998
(43,859)
(61,756)
(2,125)
(81)
36
-
1,970
(773)
-
603
(9,035)
14,995
994
(6)
30,190
(5,937)
-
603
Other
activities/
eliminations
Business
performance Adjustments
IFRS
(134)
76,946
(1,426)
75,520
(7,918)1
(8,052)
7,850
44
-
(3)
-
(161)
(41)
-
-
-
76,946
(53,906)
(8,991)
14,995
991
(6)
30,029
(5,978)
-
603
-
-
(1,426)
75,520
(112)
(54,018)
-
-
-
-
(1,538)
-
-
-
(8,991)
14,995
991
(6)
28,491
(5,978)
-
603
(290)
1,800
24,856
(202)
24,654
(1,538)
23,116
917
295
-
-
-
1,918
(196)
10,372
(535)
(2,982)
909
1
84,527
610
9,654
(3,719)
(2,978)
1,120
(2,407)
10,372
(5,472)
(7,124)
(2,427)
1,111
83,267
305
835
-
-
-
369
(219)
-
-
(858)
(202)
(601)
(371)
4,779
1,943
10,699
(0.3)
1,868
(6,779)
1
(4,910)
(12.9)
1,491
(1,356)
383
518
17.6
2,279
-
-
11,452
(1,109)
(1,166)
(24,382)
(63)
1,050
19,997
7,067
(99)
(47)
(1,255)
84,832
1,445
9,654
(3,719)
(2,978)
1,489
(2,626)
10,372
(5,472)
(7,982)
(2,629)
510
82,896
(143)
83,039
32.1
10,343
(24,481)
19,950
5,812
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
84,832
1,445
9,654
(3,719)
(2,978)
1,489
(2,626)
10,372
(5,472)
(7,982)
(2,629)
510
82,896
(143)
83,039
-
10,343
(24,481)
19,950
5,812
Profit (loss) and cash
flows are shown only for
continuing operations.
The column 'Other
activities/eliminations'
primarily covers the
elimination of inter-
segment transactions.
Also included are
income and costs,
assets and liabilities,
investment activity,
taxes, etc., handled at
Group level.
1
Including the
elimin ation of other
activities, the
total elimination of
intra-group revenue
amounts to
DKK -10,254 million.
94 / 193
Ørsted Annual report 2018Financial statements 2017
Income statement, DKKm
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
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
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)
Consolidated financial statements – 2. Return on capital employed
Note summary
Contents
Offshore
Bioenergy
Other
activities/
eliminations
Business
performance Adjustments
(141)
59,504
Customer
Solutions
Reportable
segments
38,959
1,236
40,195
59,645
6,766
66,411
(36,232)
(47,197)
(1,887)
(21)
27
-
2,082
(933)
-
1,149
(7,366)
10,822
278
(119)
22,829
(5,703)
(545)
16,581
5,652
212
5,864
(4,400)
(1,357)
32
13
-
152
(690)
-
(538)
7,488
11,771
76,201
41
-
(138)
(3,228)
(192)
-
(733)
(764)
80
-
340
-
-
(1,356)
85
2,012
(472)
(2,952)
350
2
495
7,526
(3,039)
(2,724)
918
2,012
(4,751)
(5,790)
134
1,004
(6,766)1
(6,907)
6,653
(72)
13
3
-
(310)
(36)
-
(346)
333
692
-
-
143
(422)
-
-
(980)
(598)
(834)
2,554
9,780
71,986
(1,666)
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
(22.2)
592
(15,462)
(1,390)
16,737
4,628
2
(796)
(1,289)
13.1
(628)
(857)
196
-
-
3,317
(2,294)
(17,709)
16,935
2,543
(35)
47
(2,282)
(17,744)
16,982
261
-
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
205
-
205
(150)
-
-
-
-
55
-
-
55
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
IFRS
59,709
-
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
Up until the divestment
on 29 September 2017,
the Oil & Gas business
was included in assets
classified as held for
sale and in discontinued
operations. Reference
is made to note 3.7 'Dis-
continued operations'.
Our new reportable
segment 'Onshore' is not
included in 2017 figures
as Lincoln Clean Energy
was acquired in October
2018.
We have implement-
ed IFRS 15 after the
modified retrospective
method. See note
1.4 'Implementation
of new or changed
accounting standards
and interpretations' and
note 2.2 'Revenue'.
1
Including the
elimination of
other activities, the
total elimination of
intra-group revenue
amounts to
DKK -8,887 million.
95 / 193
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Note summary
Contents
2.2 Revenue
Revenue 2018, DKKm
Offshore
Onshore Bioenergy
Other
activities/
elimina-
tions
Customer
Solutions
Total
Revenue 2017, DKKm
Offshore Bioenergy
Other
activities/
elimina-
tions
Customer
Solutions
Total
Sale of gas
Generation and sale of power
-
4,969
Revenue from construction of offshore
wind farms
16,560
Generation and sale of heat and steam
Distribution and transmission
Other revenue
-
-
1,529
Total revenue from customers, IFRS
23,058
Government grants
Economic hedging
Other revenue
Total revenue, IFRS
Adjustments
7,917
(2,149)
-
28,826
-
64
-
-
-
-
64
5
465
11
545
48
23,300
(904)
22,444
Sale of gas
-
-
19,540
(1,556)
17,984
3,113
20,743
(7,010)
21,879
Generation and sale of power
10,052
3,223
17,492
(5,722)
25,045
-
2,903
-
-
-
2,777
209
584
-
-
(32)
66
16,560
2,903
2,745
2,388
Revenue from construction of
offshore wind farms
Generation and sale of heat and steam
Distribution and transmission
Other revenue
8,773
-
-
-
2,607
-
-
-
2,520
1,520
129
534
-
-
(32)
629
8,773
2,607
2,488
2,812
6,273
47,404
(7,880)
68,919
Total revenue, IFRS
20,345
5,959
40,086
(6,681)
59,709
560
(633)
272
-
728
(805)
(21)
8,461
Adjustments
7
(95)
109
(226)
(205)
2
(1,587)
Total revenue, business performance
20,352
5,864
40,195
(6,907)
59,504
249
(273)
6,472
47,327
(7,650)
75,520
1,740
(465)
(119)
672
(402)
1,426
Total revenue, business performance
30,566
80
6,353
47,999
(8,052)
76,946
Timing of revenue recognition from
customers, IFRS
At a point in time
Over time
6,282
16,776
Total revenue from customers, IFRS
23,058
64
-
64
3,216
30,201
(452)
39,311
3,057
17,203
(7,428)
29,608
6,273
47,404
(7,880)
68,919
1
The elimination column includes elimination of the
internal sale of ROCs between Offshore (included
as government grants, see note 2.4 'Government
grants') and Customer Solutions. The ROCs are
recognised as inventory in Customer Solutions
before being sold to external customers, which
creates a mismatch in the timing of the internal
purchase and the external sale of the ROCs in
Customer Solutions. The amount to be eliminated
may exceed the amount of ROCs recognised in
Offshore for the period.
The timing of transfer of goods or services to
customers is categorised as follows:
'At a point in time' mainly comprises:
– sale of gas or power in the market, e.g.
North Pool, TTF, NBP
– transmission assets for offshore wind farms.
'Over time' mainly comprises:
– construction agreements of offshore wind farms
and transmission assets
– long-term contracts with customers to deliver
gas, power or heat.
We have implemented IFRS 15 after the modified
retro spective method. Therefore, we have not restated
comparative figures.
In 2017, we presented revenue from green certificates,
mainly ROCs, as generation and sale of power. In
2018, revenue from green certificates is presented as
government grants.
Revenue for the year (business performance)
increased by 29% to DKK 76,946 million in 2018.
The increase was mainly due to a high activity on
construction of offshore wind farms for partners,
higher revenue from wind farms in operation as
well as higher gas and power prices.
Revenue for the year from the construction of
offshore wind farms mainly related to the con-
struction of the offshore wind farms Walney
Extension, Borkum Riffgrund 2 and Hornsea 1
as well as the divestment of the Burbo Bank
transmission asset and a partial divestment of
the Hornsea 1 transmission asset as part of the
50% farm-down of Hornsea 1. Following the
implementation of IFRS 15, revenue from con-
struction of transmission assets are recognised
at the time of divestment.
In 2018, revenue totalled DKK 75,520 million
according to IFRS, of which DKK 70,736 million
was revenue from the sale of goods, and
DKK 4,784 million was revenue from the sale
of services.
In 2017, revenue totalled DKK 59,709 million
according to IFRS, of which DKK 52,347 million
was revenue from the sale of goods, and
DKK 7,362 million was revenue from the sale
of services.
96 / 193
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Consolidated financial statements – 2. Return on capital employed
Note summary
Contents
Unsatisfied long-term contracts
Our remaining performance obligations
expected to be recognised in more than one
year relate to the construction of wind farms
and offshore transmission assets. The con-
structions are expected to be finalised within
two years.
Unsatisfied long-term contracts
with customers, DKKm
Aggregate amount of the transaction
price allocated to long-term contracts
Expected to be recognised in
31 December 2018
2019
2020
2020+
11,473
91%
9%
0%
The transaction price allocated to the remaining
performance obligation (unsatisfied or partially
satisfied) as at 31 December 2018.
In accordance with IFRS 15, the overview does not
include revenue from contracts with customers
to deliver power, gas and heat or our operation
and maintenance agreements. For these types of
goods and services, we recognise the revenue that
correspond directly to the value transferred to
the customer.
Key accounting estimates
Assumptions for the determination of the expected
selling price and expected costs
We make estimates when determining the expected
selling price of individual construction agreements.
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.
Therefore, our determination of profit and the
recognition of revenue and related contract assets
are subject to significant uncertainty. We believe
that our estimates are the most likely outcomes of
future events.
Key accounting judgements
Assumptions for the recognition of revenue from the
construction of offshore wind farms over time
We construct offshore wind farms with partners,
where we construct our partner's share of the wind
farm. We assess each construction agreement at the
time of conclusion of the agreement.
In our view, our partner assumes control of the
offshore wind farm in step with the construction. This
is supported by:
– the regular approval of part deliveries
– approval or rejection of significant variations to
Sales agreements are divided into individually identi-
fiable performance obligations. If a sales agreement
includes several performance obligations, the sales
agreement's transaction price is allocated to each
performance obligation's stand-alone selling price.
performance obligation with multiple deliveries to be
satisfied over time. For such contracts, we recognise
revenue in the amount up to which we have a right
to invoice.
the construction
– the partner's take-over of work from subcontrac-
tors, both concerning risk and legal title to the
wind farm on an on-going basis
– milestone payments from the partner.
Revenue is therefore recognised over time during the
construction of the offshore wind farms.
Accounting policies
Revenue is measured based on the consideration
specified in a contract with a customer (transaction
price) and excludes amounts collected on behalf of
third parties, i.e. VAT. We recognise revenue when
we transfer control over a product or service to
a customer.
If a part of the transaction price is variable, i.e. bonus
payments, incentive payments for unmissed dead-
lines, etc., the variable consideration is recognised in
revenue when it is highly probable that the revenue
will not be reversed in subsequent periods.
We adjust the transaction price for the time value of
money if the payments exceed twelve months.
In the comparative period, revenue was measured at
the fair value of the consideration received or receiv-
able. Revenue from the sale of goods was recognised
when the significant risks and rewards of ownership
had been transferred to the customer, recovery of
the consideration was probable, the associated costs
and possible return of goods could be estimated
reliably, there was no continuing management
involvement with the goods, and the amount of
revenue could be measured reliably. Revenue from
rendering of services was recognised in proportion to
the stage of completion of the work performed at
the reporting date.
Sale of gas
Timing of satisfaction of delivery obligations
and significant estimates
Revenue is recognised when control of the gas is
transferred to the buyer. Transfer of control occurs
either when the gas is injected into the distribution
system or physically delivered to the customer.
Significant terms of payment and associated
estimates and judgements
Sales contracts for a fixed amount of gas at a
variable price, or where we are exclusive suppliers to
the customer at a variable price, are considered one
Some long-term gas sales contracts include clauses
which give the right to renegotiate the fixed sales
prices. Expectations for the outcomes of renegotia-
tions are not included in revenue before we know the
outcome of the individual renegotiations.
In most cases, the consideration for the gas is due
when the gas is injected into the distribution system
or delivered to the customer. The delivery of gas is
invoiced on a monthly basis, and the payment is due
within 10-30 days.
Generation and sale of power
Types of goods and services
Revenue from generation and sale of power includes
the sale of power produced at own wind farms and
power plants, the sale of power sourced from other
producers, and the sale of ancillary services.
Timing of satisfaction of delivery obligations,
and significant estimates
Revenue is recognised when control of the goods is
transferred to the buyer. Transfer of control occurs
when the actual power is delivered to the customer,
which for power generated by us occurs when it
is produced.
97 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 2. Return on capital employed
Note summary
Contents
Significant terms of payment and associated
estimates and assessments
Revenue from ancillary services consist of fees for
having power plants on standby in periods with a
demand for power generation. Ancillary services are
considered one performance obligation which is ful-
filled over time when the power plants are on standby.
Sales contracts for a fixed amount of power at a
variable price, or where we are exclusive suppliers to
the customer at a variable price, are considered one
performance obligation with multiple deliveries to be
satisfied over time. For such contracts and for long-
term agreements on selling power at a fixed price,
we recognise revenue in the amount up to which we
have a right to invoice.
In most cases, the consideration for the power is due
when the actual power is delivered to the customer.
The delivery of power is invoiced on a monthly basis,
and the payment is due within 10-30 days.
Ancillary services are invoiced on a monthly basis,
and consideration is payable when invoiced.
Revenue from construction of offshore wind farms
Types of goods and services
Revenue from construction of offshore wind farms
includes development and construction.
The construction agreements cover the construction
from design to delivery of an operational asset. The
agreement consists of two performance obligations:
– Offshore wind farms.
– Offshore transmission assets, if applicable.
The construction agreements cover our partners’
shares of the construction of the wind farm and
offshore transmission asset, if applicable.
If the contracts include multiple performance obliga-
tions, the transaction price will be allocated to each
performance obligation based on the stand-alone
selling prices. Where these are not directly observ-
able, they are estimated based on the expected
cost-plus margin.
Timing of satisfaction of delivery obligations,
and significant estimates
We recognise revenue from the construction
agreements over time, using an input method to
measure progress towards complete satisfaction of
the performance obligation because the customer
gains control of the offshore wind farm during the
construction process. The input method reflects our
ongoing transfer of control to the customer.
At each balance sheet date, an assessment is made
of the size of the variable payment which can be
included in the transaction price. Revenue is adjusted
accordingly.
When the outcome of the performance obligation in
the contract can be measured reasonably, the con-
struction agreement is measured at the transaction
price of the work performed less progress billings,
based on the percentage of completion of the con-
tract at balance sheet date and the total expected
revenues from the individual contracts.
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 costs expected related to the contract
in question.
The transaction price is based on the total expected
income from individual contracts. Estimates of
revenues are based on the transaction price and the
completion degree of the offshore wind farm or off-
shore transmission asset at the balance sheet date.
Estimates of revenues, costs and percentage of
completion are revised if circumstances change. Any
resulting increases or decreases in estimated revenue
or costs are reflected in profit or loss in the period in
which the circumstances that give rise to the revision
come to our knowledge.
An expected loss is recognised when it is deemed
probable that the total construction costs will ex-
ceed the total revenue from the individual contracts.
Significant terms of payment and associated
estimates and assessments
The consideration for the construction of an offshore
wind farm consists of a fixed fee and a relatively
minor variable fee, depending on when the wind farm
can be put into operation.
The consideration for an offshore transmission asset
is a fixed fee.
After signing of the construction agreement, we
carry out an assessment determining when the wind
farm is expected to be completed and calculate the
size of the variable payment on this basis. We only
recognise the variable fee when it is highly probable
that a subsequent reversal will not take place.
The customer pays the fixed consideration based on
a payment schedule . The payment schedule is deter-
mined and based on the expected progress of the
construction and transfer of control to the customer.
If the work which we have performed exceeds
invoicing on account, a contract asset is recognised.
If the payments exceed the work we have
performed, a contract liability is recognised.
Generation and sale of heat
Timing of satisfaction of delivery obligations and
significant estimates
Heat is sold under long-term heat contracts.
Revenue is recognised when control is transferred to
the customer. Transfer of control occurs when the
heat is physically delivered to the customer.
In connection with a biomass conversion of a CHP
plant, the heat customer makes a prepayment to
finance the majority of our CAPEX associated with
the conversion. The prepayment is recognised as a
contract liability. The contract liability is recognised
as revenue in step with the transfer of heat to the
customer.
Significant terms of payment and associated
estimates and assessments
Payment for the sale of heat consists of fixed costs
associated with operation and maintenance of a
CHP plant plus fuel costs for the generation of heat
and a financial return.
The delivery of heat is invoiced on a monthly basis,
and the payment is due within 10-30 days.
Distribution and transmission
Timing of satisfaction of delivery obligations, and
significant estimates
Revenue from the distribution and transmission of
gas and power is recognised when the gas or power
is delivered to the buyer, or when the capacity is
made available.
Significant terms of payment and associated
estimates and assessments
Revenue is calculated as the amount we are entitled
to when the service is delivered to the customer and
invoiced on a monthly basis, and consideration is
payable when invoiced.
Other revenue
Types of goods and services
Other revenue primarily includes operations and
maintenance agreements and other services.
Timing of satisfaction of delivery obligations and
significant estimates
Revenue from providing services is recognised in the
accounting period in which the services are rendered.
For fixed-priced contracts, revenue is recognised
based on the actual service rendered at the end
of the reporting period as a proportion of the total
services to be rendered because the customer
receives and uses the benefits simultaneously. This is
determined based on the actual labour hours spent
relative to the total labour hours expected.
Significant terms of payment and associated
estimates and assessments
The consideration for operations and maintenance
agreements consists of a fixed fee and a minor
variable fee, e.g. bonuses or compensation for wind
farm availability.
Availability bonuses will be recognised on an ongoing
basis when it is highly probable that a subsequent
reversal will not take place.
Fixed-price contracts are invoiced on a monthly basis,
and consideration is payable when invoiced. Variable
fee services are generally due after the services are
rendered.
Warranty obligations
We typically have a five-year responsibility to remedy
defects that exists at the relevant taking-over date
when we construct offshore wind farms. These
types of warranties are accounted for under IAS 37
'Provisions, Contingent Liabilities and Contingent
Assets'. Reference is made to the accounting policy
on warranty provisions in note 3.2 'Provisions and
contingent assets and liabilities'.
98 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 2. Return on capital employed
Note summary
Contents
2.3 Cost of sales
Cost of sales, DKKm
Offshore
Onshore
Bioenergy
Gas
Power
Biomass
Coal
Distribution and transmission costs
-
27
-
-
754
Costs for construction of offshore wind farms
12,590
Other cost of sales
Total, IFRS
Adjustments
Total, business performance
(1)
13,370
-
13,370
-
-
-
-
-
-
-
-
-
-
529
76
2,468
960
191
-
334
4,558
(31)
4,527
Customer
Solutions
20,428
19,580
Other
activities/
eliminations
(558)
(7,159)
-
2
2,711
38
1,013
43,772
87
43,859
-
-
(88)
-
123
(7,682)
(168)
(7,850)
2018
total
20,399
12,524
2,468
962
3,568
12,628
1,469
54,018
(112)
53,906
Offshore
Bioenergy
-
188
-
-
625
5,720
32
6,565
-
6,565
976
90
2,091
829
138
-
280
4,404
(4)
4,400
Customer
Solutions
16,391
16,520
-
-
2,496
14
975
36,396
(164)
36,232
Other
activities/
eliminations
(4,477)
(5,510)
-
-
(102)
17
3,401
(6,671)
18
(6,653)
2017
total
12,890
11,288
2,091
829
3,157
5,751
4,688
40,694
(150)
40,544
Cost of sales according to business perform-
ance increased from DKK 40,544 million in
2017 to DKK 53,906 million in 2018, up 33%.
The increase was mainly due to higher gas
prices, higher sale of ROCs due to higher
power generation from offshore wind farms
and higher costs in connection with construc-
tion of offshore wind farms, including the
divestment of the Burbo Bank transmission
asset and a partial divestment of the
Hornsea 1 transmission asset as part of the
50% farm-down of the Hornsea 1.
Following the implementation of IFRS 15, cost of
sales from construction of transmission assets
are recognised at the time of divestment.
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
and offshore transmission assets.
99 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 2. Return on capital employed
Note summary
Contents
2.4 Government grants
On 1 January 2018, we changed our accounting
policy with respect to subsidies under the
Renewable Obligation scheme in the UK,
known as green certificates or ROCs, and
feed-in tariffs in Germany under the German
Renewable Energy Sources Act (EEG2014).
Consequently, we treat the payments from
ROCs and feed-in tariffs as government grants.
Reference is made to note 1.4 'Implementation
of new or changed accounting standards and
interpretations'.
In Denmark, the Danish transmission system
operator, Energinet, administers subsidies for
environmentally sustainable power generation,
including offshore wind farms. We regard the
grant for environmentally sustainable power
generation as a government grant as it is paid
by the Danish State.
In 2013, the UK introduced a new contracts
for difference (CfD) subsidy scheme as a
replacement for the Renewable Obligations
scheme for renewable energy projects. The
Burbo Bank Extension and Walney Extension
offshore wind farms were our first offshore
wind farms under the CfD regime. In 2017, we
received this subsidy for the first time. We
treat the payments from the CfD scheme as
a government grant.
Illustrative example of CfD
Accounting policies
Market price of power
Government grants (difference between the
market price of power and the power price fixed
in the CfD contracts)
Power price fixed in the CfD contract
Price
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).
Government grants comprise grants for environ-
mentally sustainable power generation, grants for
the funding of development projects as well as
investment grants, etc.
Government grants are recognised when there
is reasonable assurance that the grants will be
received.
Grants for the purchase 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.
As grants for power generation are intended as a
compensation for the price of power, we system-
atically recognise the grants under revenue in step
with the power generation and thus the related
revenue.
Government grants, DKKm
2018
2017
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
8,461
4,527
4
(4)
4
(4)
Following the changed
accounting policy with
respect to subsidies,
ROCs and feed-in tariffs,
we have restated com-
paratives for the 2017
financial year.
Government grants recognised for the year
8,461
4,527
100 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 2. Return on capital employed
Note summary
Contents
2.5 Other operating income and expenses
Other operating income, DKKm
Gain on divestment of assets
Other compensation
US tax credits and tax equity income
Miscellaneous operating income
2018
15,086
594
85
510
2017
11,142
369
-
154
2018 is the first year
of recognising US tax
credits and tax equity
income originating from
our acquisitions and
entry in the US market.
Total other operating income
16,275
11,665
Other operating expenses, DKKm
Loss on divestment of assets
Miscellaneous operating expenses
Total other operating expenses
2018
91
198
289
2017
307
242
549
US tax credit and tax equity income are earned
from the time of commissioning and only in Ørsted's
ownership period.
Amazon
July
2017
Willow Springs
November
2017
Tahoka
December
2018
01/01/18
01/10/18
31/12/18
Other operating income
In 2018, other operating income amounted
to DKK 16,275 million, which was 40% higher
than in 2017. In 2018, gain on divestment of
assets related to the divestment of 50% of
the Hornsea 1 offshore wind farm, whereas
the 50% farm down of Walney Extension and
Borkum Riffgrund 2 and a contingent consider-
ation relating to the divestment of Race Bank
in 2016 contributed positively in 2017.
US tax credits and tax equity income originate
from our acquisition of Lincoln Clean Energy
in October 2018 and correspond to the tax
credits and other tax attributes provided to
tax equity partners for three months of
generated power, as well as our own share.
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/
expenses in the income statement.
The gain for the future construction of the partner's
share of the offshore wind farm is recognised over
time in the income statement in step with the con-
struction. See notes 2.2 'Revenue' and 4.2 'Contract
assets and liabilities'.
The accounting policies for US tax credits and tax
equity income is described in note 4.5 'Tax equity
liabilities'.
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:
– Agreements on the sale of shares (divestment
of assets) (SPA).
– Agreements on the future construction of the
offshore wind farm (construction agreements).
– Agreements on the future operation of the
offshore wind farm (O&M agreements).
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.
Key accounting estimates
Assumptions for the accounting treatment of
divestment gains related to share purchase
agreements and construction agreements
Our accounting recognition of the gains in the divest-
ment contracts is based on the individual accounting
transaction prices of the relevant contracts.
Our accounting treatment of the gains in the
contracts is therefore not necessarily identical with
the prices negotiated in the individual contracts.
101 / 193
Impact
on Ørsted
Accounting policies
Ørsted Annual report 2018Financial statements Consolidated financial statements – 2. Return on capital employed
Note summary
Contents
2.6 Employee costs
Employee costs, DKKm
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
2018
3,768
24
317
124
24
4,257
(1,131)
3,126
2017
3,650
15
310
117
61
4,153
(956)
3,197
Employee costs
Employee costs before transfer to assets
were 2.5% higher in 2018 compared with 2017,
mainly reflecting salary increases and a higher
average number of employees. Employee
costs transferred to assets relate to invest-
ment 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 2018, our average number of employees
was 5,796 (2017: 5,738).
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
Group Executive Management was expanded
by one member in 2018.
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
Directors, reference is made to the remunera-
tion report on page 63.
Salaries and remuneration for
Group Executive Management and
the Board of Directors, DKK '000
Fixed salary
Cash-based incentive scheme
Retention bonus etc.
Share-based payment
Pension incl. social security and
benefits
Termination payment
Total
Executive Board
Other members of Group
Executive Management1
Board of Directors
Total
2018
16,400
4,630
1,875
3,537
555
-
2017
14,761
4,004
2,812
2,080
522
-
2018
19,611
5,329
2,860
3,142
5,060
-
2017
16,509
3,917
6,535
949
2,923
5,3302
2018
5,133
2017
4,934
-
-
-
-
-
-
-
-
-
-
2018
41,144
9,959
4,735
6,679
5,615
-
2017
36,204
7,921
9,347
3,029
3,445
5,330
26,997
24,179
36,002
36,163
5,133
4,934
68,132
65,276
1
2
Other members of Group Executive
Management in 2018 are: Thomas Dalsgaard,
Morten Hultberg Buch greitz, Martin Neubert,
Ole Kjems Sørensen and Anders Lindberg.
The compensation relates primarily to the
non-competition clause in connection with
Samuel Leupold's notice of termination.
102 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 2. Return on capital employed
Note summary
Contents
2.7 Share-based payment
Required number of locked-up shares relative to fixed salary
CEO
CFO and other members of Group Executive
Management
Senior vice presidents
Vice presidents and senior directors
Key assumptions in executive share programme for
valuation of PSUs
Share price
Average volatility, peers
Volatility, Ørsted
Risk-free interest rate
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 percent of the partici-
pants' fixed salary which,
at the time of granting,
must be locked up for the
duration of the executive
share programme.
Time of
granting
2018
392
24.5%
19.7%
(0.3)%
Time of
granting
2017
269
24.9%
20.3%
(0.3)%
Time of
granting
2016
275
25.6%
24.1%
(0.5)%
Expected term at time of granting
3 years
3 years
2.5 years
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.
Executive share programme
Group Executive Management and a number
of other senior executives participate in
our share programme. 94 senior executives
participate in the programme. As a condition
for the granting of performance share units
(PSUs), the participant 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 above for
more information. The participants in the
programme must invest 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.
Retention share programme
In 2018 we introduced share-based retention
agreements as a replacement for cash-
based settlement by using restricted share
units (RSUs) when granting new retention
agreements.
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.
Assuming no share price development since
the grant, this would correspond to 0-40%
of the fixed salary on the date of grant. The
final number of shares for each participant
The target group for the share-based reten-
tion agreements will typically be employees
responsible for vital, long-term projects.
The use of these share-based retention
agreements will be limited to 25 concurrent
agreements with an individual time frame of
up to five years. Members of the Executive
Board (CEO and CFO) cannot be granted such
retention agreements.
The number of RSUs to be granted will
be determined on the basis of the price of
Ørsted's shares at the time of the grant and
will be limited to an amount corresponding
to a maximum of six months' base pay for the
employee in question. At vesting, each RSU
will entitle the employee to one Ørsted share
free of charge. However, the total value of
the shares to be received at vesting will be
capped at a maximum of twelve months' base
pay for the employee in question.
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/RSUs 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/RSUs and the estimate
of the number of PSUs/RSUs 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. The participants
are compensated for any dividend payments by
receiving additional PSUs.
103 / 193
Ørsted Annual report 2018Financial statements Consolidated 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
1 April 2018
Share retention programme
Maximum number of outstanding shares at 31 December 2018
Development in maximum number of outstanding shares, '000
Maximum number of outstanding shares at 1 January
Compensation for dividends paid (2016 and 2017 programme)
Granted (2018 programme)
Granted (2017 programme)
Cancelled (2017 programme)
Cancelled (2016 programme)
Share retention program
Maximum number of outstanding shares at 31 December
(DKKm)
Market value of share programme at the time of granting
Maximum market value of share programme on 31 December
Other mem-
bers of Group
Executive
Management
Executive
Board
Senior
executives
Other
employees
21
24
19
-
64
17
18
22
-
57
113
131
83
-
327
Other mem-
bers of Group
Executive
Management
Executive
Board
Senior
executives
Other
employees
44
1
19
-
-
-
-
64
12
28
34
1
22
-
-
-
-
57
11
25
249
5
83
-
(4)
(6)
-
327
58
142
-
-
-
-
-
-
18
18
4
8
-
-
-
18
18
2018
327
7
124
-
(4)
(6)
18
466
85
203
Market value
(at time of
granting)
DKK million
% of share
capital
Years until
expiry
0.04%
0.04%
0.03%
0.00%
0.11%
24
28
29
4
85
0.3
1.3
2.3
-
2018 in % of
share capital
0.08%
0.00%
0.03%
0.00%
0.00%
0.00%
0.11%
The maximum market value
of the share programme at
31 December is based on the
assumption that the partici-
pants receive the maximum
number of shares. This requires
that Ørsted delivers the
highest shareholder return
benchmarked against the ten
comparable companies.
Total
151
173
124
18
466
2017
158
3
-
179
(6)
(7)
-
327
52
111
104 / 193
Ørsted Annual report 2018Financial statements Note summary
Contents
3.
Capital employed
Capital employed
Intangible assets and property,
plant and equipment
Provisions and contingent assets
and liabilities
Acquisition of enterprises
Divestment of enterprises
Gross and net investments
Assets classified as held for sale
Discontinued operations
Non-controlling interests
106
107
110
112
113
113
114
115
117
Ørsted Annual report 2018 Consolidated financial statements – 3. Capital employed
Note summary
Contents
3. Capital employed
Our capital employed primarily relates to
production assets, including assets under
construction. We monitor investment projects
closely, as a large part of our value is created
in the development and construction phases.
Investments and divestments in 2018
Our gross investments amounted to
DKK 24.5 billion in 2018, of which Offshore
accounted for 62%. In addition to offshore
wind farms, our gross investments were
related to the acquisitions of the onshore
wind company Lincoln Clean Energy and the
offshore wind company Deepwater Wind in
the US, bioconversion of Asnæs Power Station
and the replacement of smart meters at our
residential power customers in Radius.
Divestments amounted to DKK 20.0 billion
and was primarily related to the 50%
farm-down of Hornsea 1, receipt of deferred
proceeds from the farm-down of 50% of
Walney Extension in 2017 and proceeds from
the divestment of our 50% ownership share
of Enecogen.
The most significant asset under construction
at the end of 2018 was the offshore wind farm
Hornsea 1 in the UK.
Capital employed, DKKm
Intangible assets and property, plant and equipment
Equity investments and non-current receivables
Net working capital, work in progress
Net working capital, tax equity
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
2018
84,832
1,445
9,654
(3,719)
(2,978)
1,489
(2,626)
10,372
(5,472)
(7,982)
(2,629)
510
82,896
(143)
83,039
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
Capital employed by segment, % 2018
Offshore
Onshore
Bioenergy
Customer Solutions
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.
82.9bn
Capital employed totalled DKK 82,896 million
on 31 December 2018 against DKK 70,320 million
in 2017.
24.5bn
Gross investments amounted to DKK 24,481 million
in 2018 against DKK 17,744 million in 2017.
20.0bn
Cash flows from divestments totalled DKK 19,950
million in 2018 against DKK 16,982 million in 2017.
13%
2%
6%
DKK 82,896
million
79% of the capital
employed is tied up in
Offshore.
Capital employed by
segment is based on
capital employed for
reportable segments
of DKK 83,267 million.
79%
106 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 3. Capital employed
Note summary
Contents
3.1 Intangible assets and property,
plant and equipment
Intangible assets and property, plant and equipment
DKKm
Cost at 1 January 2018
Exchange rate adjustments
Addition on acquisition of enterprises
Additions
Divestment of enterprises
Disposals
Adjustment of decommissioning obligations
Reclassified assets
Reclassified to assets classified as held for sale
Cost at 31 December 2018
Depreciation and amortisation at 1 January 2018
Exchange rate adjustments
Depreciation and amortisation
Divestment of enterprises
Disposals
Reclassified to assets classified as held for sale
Depreciation and amortisation at 31 December 2018
Impairment losses at 1 January 2018
Exchange rate adjustments
Impairment losses and reversals
Divestment of enterprises
Disposals
Reclassified to assets classified as held for sale
Impairment losses at 31 December 2018
Carrying amount at 31 December 2018
Intangible
assets
4,775
Land and
buildings
2,644
-
-
422
-
(171)
-
53
(915)
4,164
(3,299)
-
(158)
-
-
712
(2,745)
(787)
-
-
-
-
145
(642)
777
-
11
9
(30)
-
-
76
(628)
2,082
(1,079)
-
(76)
5
-
76
(1,074)
(64)
-
-
25
-
-
(39)
969
Production
assets
Fixtures and
fittings, tools
and equipment
Property, plant and
equipment under
construction
97,086
(395)
7,672
5
(2,772)
(1,242)
101
14,358
(15,990)
98,823
(32,114)
103
(5,653)
391
1,125
4,727
(31,421)
(4,369)
5
603
2,379
-
290
(1,092)
66,310
1,174
(1)
-
16
(12)
(2)
-
11
(1)
1,185
(761)
1
(91)
7
1
-
(843)
-
-
-
-
-
-
-
342
13,890
(277)
7,805
14,406
(125)
(4,809)
512
(14,498)
(299)
16,605
-
-
-
-
-
-
-
(562)
8
-
-
383
-
(171)
16,434
Intangible assets
Intangible assets comprise goodwill of
DKK 125 million (2017: DKK 125 million),
carbon emissions allowances of DKK 330
million (2017: DKK 180 million), other rights
of DKK 46 million (2017 DKK 33 million),
completed projects of DKK 142 million
(2017: DKK 321 million) and development
projects in progress of DKK 134 million
(2017: DKK 30 million).
Addition on acquisition
of enterprises comprises
property, plant and
equipment related to
the acquired entreprises
Lincoln Clean Energy and
Deepwater Wind.
Intangible assets and
property, plant and equip-
ment related to our Danish
power distribution, residen-
tial customer and city light
businesses are reclassified
to assets held for sale.
Property,
plant and
equipment
114,794
Production assets by segment, % 2018
Offshore
Onshore
Bioenergy
Customer Solutions
(673)
15,488
14,436
(2,939)
(6,053)
613
(53)
(16,918)
118,695
(33,954)
104
(5,820)
403
1,126
4,803
(33,338)
(4,995)
13
603
2,404
383
290
(1,302)
84,055
8%
1%
13%
DKK 66,310
million
78%
Property, plant and equipment
under construction by segment, % 2018
Offshore
Onshore
Bioenergy
Customer Solutions
1%
11%
13%
DKK 16,434
million
75%
107 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 3. Capital employed
Note summary
Contents
Intangible assets and property, plant and equipment
DKKm
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 and reversals
Divestment of enterprises
Impairment losses at 31 December 2017
Carrying amount at 31 December 2017
4,996
99
133
(243)
(210)
-
-
4,775
(2,999)
(23)
-
(286)
9
-
(3,299)
(1,042)
23
-
232
(787)
689
Land and
buildings
2,625
(5)
-
-
(64)
-
88
2,644
(1,056)
6
-
(80)
-
51
(1,079)
(64)
-
-
-
(64)
1,501
Production
assets
Fixtures and
fittings, tools
and equipment
Property, plant and
equipment 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)
-
28
(4,369)
60,603
1,154
(43)
59
-
(11)
-
15
1,174
(716)
19
-
(75)
-
11
(761)
-
-
-
-
-
413
14,531
(393)
17,791
-
(5,871)
368
(12,536)
13,890
-
-
-
-
-
-
-
-
(17)
(545)
-
(562)
13,328
Property,
plant and
equipment
105,272
(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)
28
(4,995)
75,845
Production assets by segment, % 2017
Offshore
Bioenergy
17%
Customer Solutions
9%
DKK 60,603
million
74%
Property, plant and equipment
under construction by segment, % 2017
Offshore
Bioenergy
Customer Solutions
2%
8%
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 costs and DKK -385 million under depreciation and amortisation.
DKK 13,328
million
90%
108 / 193
Ørsted Annual report 2018Financial statements CGUs in Offshore
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
– Borssele 1&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 Onshore
The CGUs are made up of individual onshore wind
farms, each of which generates cash flows for the
segment independently of each other.
– Amazon – Lockett – Tahoka – Willow Springs
CGUs in Bioenergy
The Danish power stations constitute a single
CGU as overall production planning is for the
entire Danish portfolio of CHP plants. The not yet
commissioned waste-to-energy plant Renescience
in Northwich in the UK is deemed to constitute an
independent CGU.
– Central CHP plants (including goodwill)
– Renescience Northwich
CGUs in Customer Solutions
The CGUs are constituted primarily by distribution
assets, each of which generates cash flows for the
segment independently of each other.
Consolidated financial statements – 3. Capital employed
Note summary
Contents
Impairment losses
Impairment losses relating to goodwill
We have not impaired goodwill or other
intangible assets in 2018.
Impairment losses relating to property,
plant and equipment
We have not impaired any property, plant
and equipment in 2018.
In connection with reclassification of our power
distribution business to assets classified as held
for sale, we have reversed an impairment loss
from previous years of DKK 603 million as we
expect to recover a higher amount than the
carrying amounts of the assets after reversal
of the impairment loss in previous years.
Certain development projects, which were
impaired in previous years, were disposed of
in 2018.
In 2017, impairment losses of DKK 545 million
were recognised on projects in progress in
Offshore.
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 the obligations 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, 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.
Useful lives
Buildings
Offshore wind farms
Onshore wind farms
Production assets, power (thermal)
and district heating
Gas transportation system
(marine pipelines)
Oil transportation system
(marine pipeline)
Distribution grids, power
20-50 years
20-24 years
24-30 years
20-25 years
20-40 years
15 years
20-40 years
3-10 years
109 / 193
– Power distribution – Oil pipelines – Offshore gas
pipelines – City light
Fixtures and fittings, tools and
equipment
Ørsted Annual report 2018Financial 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 decommission-
ing and disposal of our offshore and onshore
wind farms, restoration of seabeds and the
decommissioning 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 ex-
pense. When we construct offshore wind farms
in cooperation with partners, they are liable for
their share of the decommissioning costs. There-
fore, we have included only the decommission-
ing obligations associated with our ownership
interest in the offshore wind farms.
Decommissioning obligations increased by
DKK 721 million from 2017 to 2018, primarily
due to the construction of new offshore wind
farms and the acquisition of Lincoln Clean
Energy. The increase in other provisions com-
pared to 2017 primarily relates to Hornsea 1.
Onerous contracts comprise:
– a contract for booked liquified natural gas
(LNG) terminal capacity in the Netherlands
amounting to DKK 1,235 million
(2017: DKK 1,329 million)
– a contract for the lease of gas storage
capacity in Germany amounting to
DKK 949 million (2017: DKK 1,075 million)
– a contract for the lease of gas storage
capacity in Denmark amounting to
DKK 229 million (2017: DKK 290 million).
Provisions, DKKm
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
Interest element of provisions
Additions on acquisition of enterprises
Disposal on divestment of enterprises
Disposal on sale of assets
Total provisions
Falling due as follows:
0-1 year
1-5 years
After 5 years
2018
2017
Decom-
missioning
obligations
Onerous
contracts
Other
provisions
4,751
(26)
(117)
(1)
547
86
(12)
192
259
(12)
(195)
5,472
-
193
5,279
2,711
-
(373)
(8)
-
-
-
88
-
-
-
4,058
(1)
(636)
(484)
2,459
-
-
-
168
-
-
2,418
5,564
271
967
1,180
409
4,508
647
Decom-
missioning
obligations
Onerous
contracts
Other
provisions
3,649
(58)
(134)
-
320
219
(11)
766
-
-
-
2,596
-
(436)
(22)
464
-
-
109
-
-
-
2,794
(8)
(235)
(28)
1,584
-
-
-
-
(49)
-
Total
9,039
(66)
(805)
(50)
2,368
219
(11)
875
-
(49)
-
4,751
2,711
4,058
11,520
23
43
4,685
335
1,025
1,351
322
3,080
656
680
4,148
6,692
Total
11,520
(27)
(1,126)
(493)
3,006
86
(12)
280
427
(12)
(195)
13,454
680
5,668
7,106
Other provisions comprise primarily:
– warranty obligations for offshore wind farms
– possible repayments to power consumers in
respect of previous years
– obligations in connection with divestments,
primarily in relation to the divestment of
our Oil & Gas business and wind farms
– obligations in respect of our own carbon
emissions
– other contractual obligations.
Decommissioning obligations
by segment, DKKm
Offshore
Onshore
Bioenergy
Customer
Solutions
0-5 years
5-10 years
10-20 years
After 20 years
2018
2017
159
630
1,938
1,283
4,010
3,545
-
-
-
217
217
-
34
92
443
141
710
733
-
-
-
535
535
473
Total
193
722
2,381
2,176
5,472
4,751
110 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 3. Capital employed
Note summary
Contents
Contingent liabilities
This note primarily concerns our continuing
operations – see also note 3.7 '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
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.
Litigation
We are party to actions relating to the
Danish competition authorities' claim that
the former Elsam A/S and Elsam Kraft
A/S (' Elsam'), now part of Ørsted, charged
excessive prices in the Danish wholesale
power market in some periods.
In 2006 and 2008, respectively, the Danish
Competition Appeals Tribunal concluded that
Elsam abused its 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
disputed the rulings and appealed both rulings
to the Copenhagen Maritime and Commercial
Court, where the parties agreed to stay the
case concerning the period 1 July 2003 to
31 December 2004 on the outcome of the
case concerning the period 1 January 2005
to 30 June 2006. In the latter case, the
Copenhagen Maritime and Commercial Court
found Elsam guilty of violating the Danish
Competition Act in 2016. Following an appeal,
this judgement was, however, overturned by
the High Court of Western Denmark in 2018,
and after an unsuccessful attempt from
the Danish competition authorities to get
permission to appeal the judgement, it also
became final in 2018.
In connection with the above-mentioned
cases, some energy companies, some of their
customers and others have raised claims
for damages. In 2007, one group chose to
commence legal proceedings before the
Copenhagen Maritime and Commercial Court
with a claim for damages of approx. DKK 4.4
billion with addition of interest, while suspen-
sion 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
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 'Interest-bearing debt'.
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
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.
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.
The timing of our decommissioning obligations
depends on the expected useful lives of the assets.
We expect that our CHP plants in Denmark must
be removed within 12 years of decommissioning at
the latest.
In measuring provisions, the costs required to meet
the obligations are discounted. In determining
decommissioning obligations at 31 December 2018,
a discount rate of 3.5% is applied. 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 decommissioning 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 developments or developments 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
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 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
– our decision on how we are going to react to the
litigation, claim or statement.
111 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 3. Capital employed
Note summary
Contents
3.3 Acquisition of enterprises
Cash flows used for acquisitions in 2018, DKKm Lincoln Clean Energy Deepwater Wind
Total
Fair value at time of acquisition:
Property, plant and equipment
Other assets
Cash
Interest-bearing debt
Tax equity liabilities
Provisions
Derivatives
Deferred tax, net
Other liabilities
Net assets acquired
Goodwill
Purchase price
Cash, available acquired
Contingent consideration
Cash flow used for acquisition of enterprises
Purchase price
Adjustments for cash
Adjustments for interest-bearing tax equity liability
Adjustments for interest-bearing debt
Enterprise value
9,707
28
77
(2,337)
(2,126)
(384)
(1,185)
(486)
(198)
3,096
-
3,096
(28)
-
3,068
3,096
(77)
280
2,337
5,636
5,781
158
363
(1,702)
(90)
(43)
57
(1,239)
(57)
3,228
-
3,228
(37)
(657)
2,534
3,228
(363)
90
1,702
4,657
15,488
186
440
(4,039)
(2,216)
(427)
(1,128)
(1,725)
(255)
6,324
-
6,324
(65)
(657)
5,602
6,324
(440)
370
4,039
10,293
In 2018, we have completed acquisitions of
enterprises as detailed above. We made no
acquisitions in 2017.
which will be incorporated in our offshore
business unit.
On 1 October 2018, we acquired all of the
membership interests in Lincoln Clean
Energy LLC, effectively gaining control of the
company. The acquisition represents the first
step into our new business area, Onshore.
Part of the purchase price of Deepwater Wind
is a contingent consideration of DKK 657
million that we will pay upon the relevant
regulator's approval of two specific power
purchase agreements. The maximum payable
consideration is DKK 657 million.
On 8 November 2018, we acquired all of the
membership interests in Deepwater Wind LLC,
effectively gaining control of the company,
Since the date of the acquisition, Lincoln
Clean Energy has contributed with a
revenue according to business performance
principles of DKK 80 million and loss before
tax of DKK 14 million. This revenue and profit
corresponds to three months of operations
for Lincoln Clean Energy and is scalable for
what an estimated full-year effect would have
been if the acquisition had been made on
1 January 2018. Since the date of the acquisi-
tion, Deepwater Wind has contributed with a
revenue of DKK 38 million and a loss before tax
of DKK 120 million. If the acquisition had been
made on 1 January 2018, the full year revenue
would have been DKK 187 million, and loss be-
fore tax would have been DKK 250 million. The
loss was due to project development costs.
As part of the acquisition processes, we have
incurred costs amounting to DKK 63 million
which have been expensed in our income
statement.
The fair values of the assets and liabilities
acquired are not considered final until
12 months after acquisition.
Accounting policies
Acquisition of enterprises are recognised using the
acquisition method whereby assets and liabilities as
well as contingent liabilities of the acquired enterprise
are measured at fair value on the date of acquisition.
The fair value of production assets and assets under
construction are normally determined using an
income approach where they are valued at present
value based on the expected cash flows they
can generate, including any non-separable power
purchase agreements, as well as income, such as
production tax credits.
The fair value of derivatives is determined using our
normal approach for such items, based on market
prices or expectations for prices over the term of
the derivatives, as described in note 7.7 'Fair value
measurement'.
The fair values of other assets and liabilities are
valued using the approach we find most relevant
for the individual item, which can be either a market
approach, an income approach or a cost approach.
An acquired enterprise is included in the consolidated
financial statements from the date of acquisition,
which is the date when we obtain control of the
acquired enterprise.
When an acquired enterprise has entered into a
power purchase agreement classified as a derivative,
the fair value of the agreement will be included in
the opening balance. Post-acquisition, this fair value
is recognised as an adjustment to revenue over the
duration of the contract, based on the fair value
calculation at the time of the acquisition.
Key accounting estimates
Purchase price allocations in business combinations
When we apply the acquisition method for business
combinations, by nature this involves judgement in as-
sessing the fair value of identifiable assets and liabilities.
Property, plant and equipment
Our assessment of fair value is based on a number of
estimates regarding WACC and expected cash flows,
which both have a large impact on the fair value.
Derivatives
Our assessment of fair value is dependent on expected
future prices. See note 7.7 ' Fair value measurement' for
our valuation principles.
Deferred tax
Our expectation to the timing of repayment of tax
equity liabilities, and thereby the expected 'flip' of the
tax equity structure, impacts the fair value of deferred
tax on the assets and liabilities that are part of wind
farms with tax equity partners. The expected tax rate
also significantly impacts deferred tax.
112 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 3. Capital employed
Note summary
Contents
3.4 Divestment of
enterprises
3.5 Gross and net
investments
Selling price, DKKm
Payment
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
DKKm
Selling price on divestment of enterprises
Net assets sold
Provisions as a result of the transaction
Transaction costs
Gain (loss) on divestment of enterprises
2018
2017
497
(68)
429
(66)
-
363
2018
429
(240)
4
(66)
127
605
(1)
604
(20)
4
588
2017
604
(725)
2
(20)
(139)
The divestment of our
Oil & Gas business in
2017 is not included
in the figures as it is
presented as discon-
tinued activities. See
note 3.7 'Discontinued
operations'.
Gross and net investments, DKKm
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
Interest-bearing debt in acquired enterprises
Restricted cash in acquired enterprises
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
2018
(1,026)
(25)
595
12
(20,002)
(4,409)
374
(24,481)
(52)
20,002
19,950
(4,531)
2017
(10,054)
(13)
9,197
47
(16,921)
-
-
(17,744)
61
16,921
16,982
(762)
Gain on divestment of enterprises amounted
to DKK 127 million compared to DKK -139
million in 2017. In 2018, gain on divestment
of enterprises related to the sale of our 50%
ownership interest in Enecogen (Bioenergy).
Transferred cash and cash equivalents totalled
DKK 6 million. In 2017, gain on divestment
of enterprises related to the sale of A2SEA.
Transferred cash and cash equivalents totalled
DKK 278 million.
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, we deduct the fees of advisers, etc., in
connection with the divestment, or discontinuation
of the enterprise.
Gross investments amounted to DKK 24,481
million in 2018, which was 38% higher than
in 2017.
Gross investments in Offshore amounted to
DKK 15,081 million and was related to the con-
struction of Hornsea 1 and Walney Extension
in the UK, Borkum Riffgrund 2 in Germany,
Borssele 1 & 2 in the Netherlands, early invest-
ments in the US to qualify for future tax credits
as well as the acquisition of Deepwater Wind
in the US. In 2017, gross investments primarily
related to the construction of Walney Exten-
sion, Borkum Riffgrund 2 and Race Bank.
In Onshore, gross investments amounted to
DKK 6,779 million and related to the acquisi-
tion of Lincoln Clean Energy and construction
of the Tahoka and Lockett onshore wind farms
in the US.
Divestments amounted to DKK 19,950 million
in 2018 and related to the 50% farm-down of
Hornsea 1, receipt of deferred proceeds from
the farm-down of 50% of Walney Extension in
2017 and proceeds related to the divestment
of our 50% ownership share in Enecogen.
In 2017, divestments amounted to DKK 16,982
million and were primarily related to the
50% farm-downs of the offshore wind farms
Walney Extension and Borkum Riffgrund 2.
113 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 3. Capital employed
Note summary
Contents
3.6 Assets classified as
held for sale
At 31 December 2018, assets classified as
held for sale comprised our Danish power
distribution, residental customer and city light
businesses as well as our oil pipe system in
Denmark.
We are currently investigating the different op-
tions for exiting our Danish power distribution,
residental customer and city light businesses.
The oil pipe system is to be sold to the Danish
transmission system operator, Energinet.
At 31 December 2017, assets classified as held
for sale only comprised our oil pipe system in
Denmark.
Accounting policies
Assets classified as held for sale comprise assets and
liabilities, the values of which are 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
intangible assets and prop er ty, plant and equipment
from the time of classification as 'held for sale'.
Assets classified as held for sale, DKKm
Intangible assets
Property, plant and equipment
Inventories
Trade receivables
Other receivables
Income tax
Total assets classified as held for sale
Deferred tax
Provisions
Contract liabilities
Trade payables
Other payables
Income tax
Total liabilities relating to assets classified
as held for sale
Net assets classified as held for sale
2018
80
13,951
16
701
430
45
15,223
823
372
2,737
92
826
1
4,851
10,372
2017
20
2,119
16
73
368
46
2,642
99
359
-
80
92
-
630
2,012
The table shows assets
and liabilities which
have been put up for
sale, and which are
therefore not expected
to contribute to our
future earnings.
114 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 3. Capital employed
Note summary
Contents
3.7 Discontinued operations
Discontinued operations comprise our Oil &
Gas business, which was sold to INEOS on
29 September 2017.
Financial results
Profit (loss) in 2018 amounted to DKK 10
million (2017: DKK 6,920 million, including gain
(loss) on disposal of discontinued operations).
Total cash flows in 2018 amounted to
DKK 209 million (2017: DKK 9,025 million), of
which DKK -53 million was from operating
activities and mainly concerned the pay-
ment of fees for existing Oil & Gas insurance
activities. The insurance fee was provided for
at the time of the divestment in 2017. Cash
flows from investing activities amounted to
DKK 262 million and concerned primarily the
receipt of a selling price receivable of USD 50
million. The receivable was interest-bearing
and therefore had no impact on our interest -
bearing net debt.
Capital employed
Our capital employed in discontinued opera-
tions at 31 December 2018 mainly consisted of
provisions relating to the sale (tax indemnifica-
tions and payments related to the Fredericia
stabilisation plant) as well as a conditional
payment (receivable selling price) which does
not carry interest.
In addition, we have interest-bearing receiv-
ables of USD 100 million (not part of capital
employed), which we expect to receive in the
period 2019-2020.
Divestment of Oil & Gas in 2017
The selling price from the transaction
amounted to DKK 5,456 million, of which
DKK 3,652 million was received and recog-
nised in our free cash flow from discontinued
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 was
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.
Employee costs, DKKm
2018
Wages, salaries and remuneration
Pensions
Other social security costs
Other employee costs
Employee costs before transfers to assets
Transfers to assets
Total employee costs
Cash flows, DKKm
Cash flows from operating activities
Proceeds from the divestment of Oil & Gas
Cash flows from other investing activities
Cash flows from financing activities
Total cash flows
Capital employed, DKKm
Equity investments and non-current receivables
Derivatives, net
Other provisions
Tax, net
Other receivables and other payables, net
-
-
-
-
-
-
-
2018
(53)
-
262
-
209
2018
746
(106)
(820)
29
8
2017
365
27
11
5
408
(126)
282
2017
5,545
3,677
(197)
-
9,025
2017
691
-
(935)
(3)
11
Total net assets
(143)
(236)
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.
115 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 3. Capital employed
Note summary
Contents
Profit from discontinued operations, DKKm
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)
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
2018
2017
Business
performance
Adjustments
IFRS
Business
performance
Adjustments
-
-
-
-
-
-
-
-
-
-
(44)
(53)
(97)
107
10
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(44)
(53)
(97)
107
10
4,178
3,821
7,999
(957)
(920)
252
62
6,436
713
7,149
2,432
(393)
9,188
(2,268)
6,920
(1,047)
-
(1,047)
-
-
-
-
(1,047)
-
(1,047)
-
-
(1,047)
231
(816)
Tax for the period, discontinued operations, DKKm
Adjustment related to prior years
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
Profit (loss)
before tax
-
-
-
(44)
-
(53)
(97)
(97)
2018
2017
Tax
79
-
-
16
-
12
107
107
Tax rate
Profit (loss)
before tax
-
-
-
36%
-
22%
110%
110%
-
2,308
530
2,432
713
3,205
9,188
8,141
Tax
-
(1,765)
6
210
-
(719)
(2,268)
(2,037)
IFRS
3,131
3,821
6,952
(957)
(920)
252
62
5,389
713
6,102
2,432
(393)
8,141
(2,037)
6,104
Tax rate
-
76%
(1)%
(9)%
n.a.
22%
25%
33%
The profit from
discontinued operations
relates to our divested
Oil & Gas business.
Effective tax rate devi-
ates from the statutory
rate as a result of adjust-
ments related to prior
years of DKK 79 million
and non-taxable income
of DKK 33 million (tax
value DKK 7 million).
116 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 3. Capital employed
Note summary
Contents
3.8 Non-controlling interests
Transactions with non-controlling interests, DKKm
2018
2017
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
(400)
13
(4)
(391)
-
13
13
(376)
(108)
53
(431)
8
(116)
(108)
Subsidiaries with significant
non-controlling interests
Gunfleet Sands Holding Ltd.
Walney (UK) Offshore Windfarms Ltd.
Non-controlling
interest
49.9%
49.9%
Registered
office
London, UK
London, UK
DKKm
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
Carrying amount of non-controlling interests
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
Gunfleet Sands
Holding Ltd. group
Walney (UK) Offshore
Windfarms Ltd.
2018
2017
2018
2017
Accounting policies
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.
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.
431
237
26
5
13
419
263
48
(21)
24
1,079
554
66
12
33
1,087
545
46
(90)
23
2,153
2,371
5,656
6,159
139
311
88
944
264
0
(283)
(144)
164
318
50
1,081
246
0
(227)
(113)
213
795
223
225
776
217
2,433
2,697
563
(16)
(566)
(256)
562
(1)
(577)
(263)
117 / 193
Ørsted Annual report 2018Financial statements Note summary
Contents
4.
Working capital
Working capital
Inventories
Contract assets and liabilities
Trade receivables
Other receivables
Tax equity liabilities
Other payables
Changes in net working capital
119
120
121
122
122
123
124
124
Ørsted Annual report 2018 Consolidated financial statements – 4. Working capital
Note summary
Contents
4. Working capital
Our key working capital items consist of inven-
tories, net contract assets, trade receivables
and payables, tax equity liabilities and other
payables, including prepayments from heat
customers. Connection charges in our power
distribution business has been classified as
assets held for sale at 31 December 2018.
Working capital items vary with the seasonal
variations in our generation and sales activities
during the year. Our net contract assets relate
primarily to construction of offshore wind
farms for partners and vary within and across
years, depending on the portfolio of offshore
construction assets. They also depend on
when we reach certain milestones and trigger
payments from our partners.
Contract assets, net also include prepayment
from heat customers in connection with our
bioconversions and therefore vary depending
on the progress of these projects. Construction
of offshore transmission assets in the UK, which
are recognised as inventories, will continue to
tie up cash until they are divested. Tax equity
liabilities also vary within and across years.
This is due to the fact that we receive cash
contributions from tax equity partners at the
point in time when a US onshore wind farm
enters into operation.
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.
Working capital, DKKm
Inventories
Contract assets, net
Trade receivables
Other receivables
2018
13,943
(3,115)
10,741
2,968
2017
3,853
9,500
9,170
2,082
Trade payables, excluding trade payables relating to capital expenditure
(10,099)
(8,460)
Tax equity liabilities
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 tax equity partner liabilities and other working capital
(3,719)
(3,295)
7,424
9,654
(2,230)
-
(11,200)
4,945
7,526
(2,581)
Working capital, DKKm 2018
Offshore
Onshore
Bioenergy
Customer Solutions
Other
-3,844
-4,144
1,918
369
0
Offshore primarily has funds tied up in inventories,
construction agreements and trade receivables.
The most significant working capital item in Onshore
consists of liabilities regarding tax equity contribu-
tions from our partners. Bioenergy has a negative
working capital, mainly as a result of prepayments
from heat customers. Customer Solutions has funds
tied up mainly in inventories, receivables and clearing
counterparties in connection with exchange trading.
The composition of our net working capital has
changed relative to last year. In 2017, we recognised
offshore transmission assets as construction agree-
ments. Following the implementation of IFRS 15, we
recognise offshore transmission assets as inventory.
Furthermore, the introduction of tax equity elements
in our Onshore business has impacted our working
capital. Work in progress consists of inventories
related to transmission assets, construction agree-
ments and construction management agreements
in connection with the construction of transmission
assets and offshore wind farms for partners as well
as related trade payables.
7.4bn
Our net working capital, excluding trade payables
relating to capital expenditure amounted to
DKK 7,424 million in 2018 against DKK 4,945 million
in 2017.
13,125
2.5bn
We had an additional amount of DKK 2,479 million
tied up in working capital relative to 2017, of which
DKK 2,128 million pertained to work in progress and
related trade payables in Offshore.
119 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 4. Working capital
Note summary
Contents
4.1 Inventories
Inventories, DKKm
Offshore transmission assets
Biomass
Gas
Coal
Oil
Green certificates
Carbon emissions allowances
Other inventories
Total inventories
Inventories recognised as an expense in 'Cost of sales' during the year
2018
9,885
253
1,620
261
119
1,555
172
78
13,943
25,262
2017
-
258
1,526
396
124
1,441
52
56
3,853
13,180
Following the implementation of IFRS 15, we
recognise offshore transmission assets as inventory.
In 2017, we recognised offshore transmission assets
as construction contracts.
We use biomass, coal, gas and, to a limited extent, oil
as fuel at our CHP plants. In 2019, the use of gas will
be very limited as a result of the biomass conversion
of the Skærbæk Power Station in Denmark and the
divestment of the Enecogen Power Station in the
Netherlands. Green certificates are primarily
renewable obligation certificates (ROCs) which are
issued to power generators sourcing from renewable
energy sources in the UK.
Accounting policies
Offshore transmission assets are measured at
cost. The cost comprises costs of materials used
in construction, site labour costs, costs of renting
equipment as well as indirect production costs, such
as employee costs.
The cost of gas is determined as a weighted average
of the previous month's purchase prices, including
transportation costs.
Purchased carbon emissions allowances are
measured 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 first in, first out (FIFO) principle.
Other inventories are measured at cost determined
on a first in, first out basis or a net realisable value,
where this is lower.
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.
120 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 4. Working capital
Note summary
Contents
4.2 Contract assets and liabilities
Contract balances, DKKm
2018 1 January 2018
Contract assets
Current contract assets
Total contract assets
Contract liabilities
Non-current contract liabilities
Current contract liabilities
Total contract liabilities
1,451
1,451
3,642
924
4,566
1,693
1,693
5,327
1,455
6,782
As we have implement-
ed IFRS 15 in accordance
with the modified
retrospective method,
we have not restated
comparative figures.
Read more about the
adoption of IFRS 15
and the effect on the
changed presentation in
note 1.4 'Implementation
of new or changed
accounting standards
and interpretations'.
Revenue from contracts with customers DKKm
2018
Revenue recognised included in contract liabilities
at the beginning of the year
Revenue recognised from perfomance obligations
satisfied in previous years
228
95
The tabel shows how much of our
revenue recognised in 2018 that relates
to contract liabilities carried forward (as
prepayments and deferred revenue), and
how much that relates to performance
obligatons satisfied in a prior year (e.g.
renegotiations or constraints on variable
considerations that are not recognised
until they are highly probable).
Contract asset and contract liabilities are
primarily related to:
– the construction of offshore wind farms with
partners, with each party usually owning
50% of the offshore wind farm
– prepayments from heat customers.
At the end of 2018, contracts assets and liabili-
ties included our construction of our partners'
share of the Hornsea 1, Walney Extension and
Borkum Riffgrund 2 offshore wind farms.
Non-current contract liabilities amounted
to DKK 3,642 million compared to
DKK 5,327 million as of 1 January 2018. The
decrease was primarily related to a reclas-
sification of grid connection charges and
prepayments in our Danish power distribution,
residential customer and city light businesses
to assets held for sale at the end of 2018.
Reference is made to note 3.6 'Assets classified
as held for sale'.
Accounting policies
We recognise a contract asset when we perform
a service or transfer goods in advance of receiving
consideration, and the consideration is conditional.
When the consideration is unconditional, and the
goods or services are delivered, we recognise a
receivable. A right to consideration is unconditional
if only the passage of time is required before the
payment is due.
Contract assets are measured at the transaction
price of the good or services which we have per-
formed less invoicing on account.
We recognise a contract liability when the invoicing
on account and expected losses exceed the transac-
tion price of the goods or services transferred to our
customer.
121 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 4. Working capital
Note summary
Contents
4.3 Trade
receivables
4.4 Other
receivables
Trade receivables, DKKm
Trade receivables, not due
Trade receivables, 1-30 days overdue
Trade receivables, more than 30 days overdue
Trade receivables, write-down
Total trade receivables
2018
10,186
293
326
(64)
2017
8,644
303
305
(82)
10,741
9,170
Trade receivables primarily relates to customers
in Customer Solutions. The general terms of
payment vary according to customer type
and product.
We continuously perform credit ratings of
our customers, as described in note 7.5 'Credit
risks'. For customers with a general credit risk,
a write-down of 0-1% is carried out on initial
recognition. In 2018, write-downs of receivables
amounted to DKK 35 million (2017: DKK 6
million). Losses for the year totalled DKK 36
million (2017: DKK 25 million).
Accounting policies
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. 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, DKKm
2018
2017
Receivables from the divestment of assets
and investments
Receivables from the divestment of equity
investments to non-controlling interests
VAT and other indirect taxes receivable
Collateral provided
Prepayments
Other account receivables
Other receivables
Of which working capital
Of which other capital employed
Of which interest-bearing net debt
3,218
2,680
634
427
710
330
1,741
7,060
2,968
2,628
1,464
648
572
775
304
495
5,474
2,082
1,770
1,622
The table shows our
other receivables broken
down into working
capital, interest-bearing
net debt and other
capital employed.
In 2018, receivables from the divestment of
assets and investments primarily relate to
receivables in connection with the divestment
of 50% of our ownership interests in the
Hornsea 1 wind farm and receivables related
to the divestment of our Oil & Gas business.
In 2017, receivables from divestment of assets
and investments related to the divestment of
our Oil & Gas business as well as the divest-
ment of 50% of our ownership interests in the
Walney Extension wind farm.
Receivables from the divestment of equity
investments to non-controlling interests pri-
marily relate to the divestment in 2011 of our
ownership interests in Gunfleet Sands.
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 4,390 million (2017:
DKK 3,519 million).
Other accounts receivables consist primarily
of receivables from adjustments in connection
with prior year divestments, including the Oil
& Gas business, where it is assessed that there
is no material credit risk.
122 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 4. Working capital
Note summary
Contents
4.5 Tax equity liabilities
2017
Accounting policies
Tax equity liabilities, DKKm
Balance at 1 January
Contribution received from tax equity
partner
Tax equity balances from business
acquisitions
Tax attributes and PTCs recognised in other
operating income
Cash paid to tax equity partner
Tax equity partners' contractual return
Balance at 31 December
Of which working capital
Of which interest-bearing debt
2018
-
1,995
2,216
(79)
(3)
44
4,173
3,719
454
2018 is the first year
of recognising US tax
liabilities originating
from our acquisitions
and entry into the US
market.
-
-
-
-
-
-
-
-
-
We have entered into several tax equity
partner agreements in the US. These agree-
ments are characterised by a tax equity
partner who contributes an upfront payment
of a part of the initial project investment. The
partner does not have an operational role in
the project. The partner receives a contrac-
tually agreed return on the contribution. The
initial contribution and the return is 'repaid'
by receiving almost all of the production tax
credits (PTCs) the project generates as well as
the majority of other tax attributes (accelerat-
ed tax depreciation and other taxable results)
from the project in the first part of the pro-
ject's lifetime as well as some cash payments.
Once the contribution has been repaid, the
agreement 'flips', and the partner is typically
entitled to a minor part of the cash distribu-
tions from the project unless we purchase this
right from them, which is highly likely.
We have three onshore wind farms with tax
equity partners. The first two are Amazon
(253MW) and Willow Springs (250MW),
which were operational at the time of the
acquisition of Lincoln Clean Energy. The third
is Tahoka (300MW) where we signed a tax
equity agreement in Q4 2018, and which was
commissioned in December 2018. In addition
we have one offshore wind farm with a tax
equity partner. This is Block Island (30MW),
which was operational at the time of the
acquisition of Deepwater Wind.
When a tax equity partner contributes to a US
company, we evaluate our right to variable returns
as well as our ability to exercise influence, including
our ability to influence financial and operational
decisions influencing these returns, to determine if
the company should be fully consolidated. Due to
the operational and financial nature of the projects,
and the influence normally given to tax equity part-
ners in such agreements, it is normally possible for us
to have the influence to fully consolidate companies
that have tax equity partners.
The terms of the tax equity partner's contribution are
evaluated to determine the accounting treatment.
As the initial contribution of the tax equity partner
is repaid, including an agreed return, and as they do
not share in the risks of the project in the same way
as a shareholder, the contribution has the charac-
teristics of a liability, is accounted for as such and is
measured at amortised cost. The liability is based on
the expected method of repayment and is divided
into:
– a net working-capital element to be repaid
through PTCs and other tax attributes
– an interest-bearing debt element expected to be
repaid through cash distributions.
The partner's agreed return is expensed as a financial
expense and is recognised as an increase of the
tax equity liability. PTCs and other tax attributes
transferred to the tax equity partner are recognised
as other operating income. Tax attributes allocated
to the tax equity partner are deferred and recog-
nised on a straight-line basis over the estimated
contractual length of the partner structure, while
PTCs are recognised in the periods earned, similary to
recognition of our own PTCs.
In addition to the above, we recognise a liability for
the expected purchase price for the partners post-
flip rights to return. This is recgonised at fair value
and adjustments are expensed as a financial item.
This recognition reflects the intention and high
likelihood that we will purchase the right, and that
this is part of the financial cost of the arrangement.
If we choose not to buy the partner's right to post-
flip returns, the tax equity partner will be entitled to
part of the company returns in the post-flip period,
and they will share in the risks and rewards in the
company as a shareholder. This interest will be
considered a non-controlling interest.
Key accounting judgements
Assessment of recognition of tax equity partner
On recognition of a tax equity partner, we assess the
appropriate recognition of their contribution as well
as the method of recognition for the elements used
to repay the partner, such as PTCs and tax attributes.
In assessing recognition of tax equity partners, we
look at:
– the expected flows of PTCs, tax attributes and
cash payments expected to the partner
– the rights and obligations of both us and the tax
equity partner.
The deferral of the income related to tax attributes
and the recognition of the contribution as working
capital or interest-bearing debt, are affected by
our expectation to the size, method and timing of
repayments.
123 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 4. Working capital
Note summary
Contents
4.6 Other
payables
4.7 Changes in net
working capital
Other payables, DKKm
Prepaid VAT on exports
Carbon rights
VAT and other indirect taxes payable
Salary-related items payable
Accrued interest
Virtual gas storage
Prepayments from heat customers
Grid connection charges
Other deferred income
Collateral received
Purchase price, acquisition of enterprises
Other
Total other payables
Of which working capital
Of which other capital employed
Of which interest-bearing net debt
2018
-
62
780
809
687
107
-
-
84
34
653
1,986
5,202
3,295
1,337
570
2017
1,500
42
1,312
762
882
83
3,286
1,893
1,114
119
-
1,089
12,082
11,200
882
-
The table shows our
other payables broken
down into working
capital, interest-bearing
net debt and other
capital employed.
Change in net working capital, DKKm
Change in inventories
Change in contract assets and liabilities
Change in trade receivables
Change in other receivables
Change in trade payables
Change in tax equity liabilities
Change in other payables
Total change in net working capital
Of which changes relating to work in
progress
Of which changes relating to tax equity
liabilities and other working capital
2018
243
(1,478)
(2,261)
(31)
1,601
1,835
(827)
(918)
2017
(423)
(3,318)
(3,705)
(563)
1,188
-
(1,083)
(7,904)
Work in progress
consists of elements
in contract assets and
liabilities, construc-
tion manage ment
agreements related to
construction of offshore
wind farms, construction
of offshore transmission
assets (inventory) and
related trade payables.
(2,326)
(3,674)
1,408
(4,230)
In 2018, other payables were reduced by
DKK 6,880 million. Prepayments from heat
customers and the majority of deferred
income have been classified as contract liabil-
ities from 2018 due to the implementation of
IFRS 15. Grid connection charges in the power
distribution business have been classified as
'Assets classified as held for sale', due to the
expected exit during 2019. In addition, the
export VAT was repaid in January 2018.
In 2018, the short-term portion of other
payables amounted to DKK 4,793 million
(2017: DKK 6,368 million).
The change in funds tied up in work in progress
and related trade payables was DKK 2,326
million in 2018 due to high activity related to
the construction of offshore wind farms for
partners (Walney Extension and Borkum
Riffgrund 2) as well as offshore transmission
assets in the UK (Hornsea 1 and Hornsea 2),
partly offset by receipt of milestone payments
from partners and the divestment of the
Burbo Bank Extension transmission asset.
DKK 3,674 million due to the construction of
offshore wind farms for partners (mainly Race
Bank) as well as offshore transmission assets
in the UK (mainly Hornsea 1), partly offset by
receipt of milestone payments from partners.
The change in funds tied up in other working
capital was a cash inflow of DKK 1,408 million
in 2018 and primarily concerned the tax equity
contribution from the partner on Tahoka.
In 2017, the change in funds tied up in work in
progress and related trade payables was
124 / 193
Ørsted Annual report 2018Financial statements Note summary
Contents
5.
Tax
Tax
Tax policy and tax regimes
Tax on profit (loss) for the year
Taxes paid
Deferred tax
Total tax contribution
126
127
128
130
131
133
Ørsted Annual report 2018
Consolidated financial statements – 5. Tax
Note summary
Contents
5. Tax
Tax on profit (loss) for the year
The effective tax rate was 17% for the
continuing operations. The effective tax rate
was primarily affected by the tax-exempt
gain on the farm-down of 50% of Hornsea 1.
Corporate income taxes paid
We have paid DKK 3,367 million in taxes in
2018, of which DKK 711 million related to
residual tax for 2017. We expect to have a
residual receivable tax of DKK 245 million
regarding 2018 as a higher portion of income
related to non-taxable income in 2018 than we
expected at the time we paid taxes on account.
Corporate income tax paid by segment, 2018
DKKm
Offshore
Onshore
Bioenergy
Customer Solutions
Ørsted A/S and other activities
2,994
-168
0
94
447
0
Development in current and deferred tax asset and liabilities (tax, net), 2018
DKKm
Tax, net liability
Tax on profit (loss) for the year
Tax on other comprehensive income
and hybrid capital
Corporate taxes paid
Addition US investment
Other effects
The net tax is highly
impacted by the US
investments.
3.4bn
Corporate income tax paid by the Group in 2018
totalled DKK 3,367 million against DKK 2,660 million
in 2017.
4,018
-411
-3,367
1,725
200
2,629
464
2017
2018
Business performance
2018, DKKm
Profit (loss) before tax
Gain (loss) on divestments
Tax equity, deferred tax liability, Tahoka
Rest of the Group
Effective tax for the year
14,886
-
8,618
23,504
Tax
(1,155)
(444)
(2,419)
(4,018)
Tax in %
8%
n.a.
28%
17%
Tax on gain (loss) on divestments related to taxable
gains. See more in note 2.5 'Other operating income
and expenses'. 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.
3.2bn
Current corporate income tax in 2018 totalled
DKK 3,161 million against DKK 2,698 million in 2017.
126 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 5. Tax
Note summary
Contents
5.1 Tax policy and tax regimes
Our tax policy
We recognise the key role that tax plays in
society and the development of the countries
where we operate. We also believe that a
responsible approach to tax is essential to the
long-term sustainability of the societies where
we have activities and of our business across
the globe.
The world's governments have defined
the greatest challenges for our societies
towards 2030 through the UN Sustainable
Development Goals (SDGs). At Ørsted, we are
committed to running our business in a way
that contributes to the SDGs. Tax payments
contribute both directly and indirectly to most
of the SDGs, in particular target #16.6 on the
development of effective, accountable and
transparent institutions.
Tax is a core part of our corporate responsi-
bility and governance and is overseen by the
Board of Directors. The Board of Directors
is accountable for the tax policy, and the
responsibility for tax risk management lies
with the CFO and overseen by the Audit
and Risk Committee.
Compliance
Our ambition is to apply best practices at
all times and act in accordance with appli-
cable legislation on tax computation and
tax reporting to ensure that we pay the
right amount of tax at the right time in the
countries where we operate. We continuously
evaluate our processes and controls to ensure
that we are compliant with local and interna-
tional standards relevant to our business.
Our attitude to tax planning
We only use business structures that are
driven by commercial considerations, aligned
with business activity and which have genuine
substance.
We make use of incentives and tax reliefs
where they apply in areas where we have
commercial substance.
We seek, wherever possible, to develop
cooperative relationships with tax authorities,
based on mutual respect, transparency and
trust.
Transparency
In line with our belief in transparency, we pro-
vide regular information to our stakeholders –
including investors, policy makers, employees,
civil society and the general public – about
our approach to tax and taxes paid.
Read more about our tax policy at
https://orsted.com/taxpolicy
Tax regimes
At the end of 2018, our major activities were in
Denmark, the UK, Germany, the Netherlands
and the US.
US tax equity partnerships
We have entered into several tax equity
partnership agreements in the US. For more
information on our tax equity partnership
structure, see note 4.5 'Tax equity liabilities'.
The expected value of the deferred tax
liability related to property, plant and
equipment at the 'flip date' in the tax equity
partnership agreement is included in our
accounts when the tax equity partnership is
established.
International joint taxation
For the income year 2017 and going forward,
we opted to exit the international joint
taxation scheme. The retaxation liability was
transferred to tax payable and has been
settled.
Local taxes paid
In terms of taxation, we were affected in
Denmark by completed construction agree-
ments in connection with the construction of
offshore wind farms in the UK and Germany
in 2018.
We have made significant investments in
offshore wind farms in the UK, Germany and
the Netherlands, resulting in the accumulation
of large tax assets in recent years. Accordingly,
we have not paid significant taxes in these
countries. Going forward, this will change as
the offshore wind farms are commissioned
and will be generating positive results.
We expect to start paying more significant
corporate tax in the UK in 2019, in Germany in
2019 and in the Netherlands in 2021.
We are currently making significant invest-
ments in the US, and we do therefore not
expect to pay any material corporate income
tax in the foreseeable future.
127 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 5. Tax
Note summary
Contents
5.2 Tax on profit (loss) for the year
Effective tax rate, DKKm/%
DKK million
%
DKK million
%
DKK million
%
DKK million
Business performance
IFRS
Business performance
IFRS
2018
2017
Tax on profit (loss) for the year can be explained as follows:
Calculated 22% tax on profit (loss) before tax (2017: 22%)
(5,172)
Adjustments of calculated tax in foreign subsidiaries in
relation to 22% (2017: 22%)
Tax effect of:
Non-taxable income and non-deductible costs, etc., 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
Effective tax for the year
94
1,912
(50)
-
(802)
(4,018)
22
-
(8)
-
-
3
17
(4,834)
74
1,912
(50)
-
(802)
(3,700)
22
-
(9)
-
-
4
17
(3,310)
86
1,323
(184)
(12)
332
(1,765)
22
-
(9)
1
-
(2)
12
(3,323)
86
1,323
(184)
(12)
332
(1,778)
Non-taxable income and
non-deductible expenses
primarily concern the
tax-exempt gain on
divestments and US
investment matters.
See more in note
2.5 'Other operating
income and expenses'.
%
22
-
(9)
1
-
(2)
12
Income tax
Tax on business performance profit (loss)
was DKK 4,018 million in 2018 against
DKK 1,765 million in 2017. The effective tax
rate was 17% in 2018 against 12% in 2017.
The effective tax rate in 2018 was particu-
larly affected by a tax-exempt gain on the
farm-down of 50% of Hornsea 1. In addition,
the effective tax rate was affected by the
recognition of a deferred tax liability related
to a tax equity partner (see more in notes
4.5 'Tax equity liabilities' and 5.4 'Deferred
tax'). The deferred tax liability will be reduced
gradually once we have repaid the contribu-
tion to the tax equity partners.
The difference in tax rates from 22% to the
statutory tax rates across our jurisdiction
impacts the effective tax rate.
The effective tax rate in 2017 was primarily
affected by tax-exempt gains on the farm-
downs of 50% of the Walney Extension and
Borkum Riffgrund 2 offshore wind farms. 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.
Accounting policies
Tax for the year consists of current tax, changes in
deferred tax and adjustments 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.
Key accounting judgements
Estimates regarding recognition of income tax
assets and provisions for uncertain tax positions
Ørsted is subject to income taxes in all the coun-
tries where we operate. Significant judgement and
estimates are required in determining the worldwide
accrual for income taxes, income tax assets and
liabilities and provisions for uncertain tax positions.
In the course of conducting business around the
world, tax and transfer pricing disputes with tax
authorities may occur. Judgement is applied to
assess the possible outcome of such disputes. We
apply the methods prescribed in IFRIC 23 'Uncer-
tainty over Income Tax Treatments' when making
provisions for uncertain tax positions, and we
consider the provisions made to be adequate.
However, the actual obligation may deviate and
depends on the result of litigations and settlements
with the relevant tax authorities.
Ongoing tax disputes, primarily related to transfer
pricing cases, are included as part of 'Tax payables',
'Tax receivables' and 'Deferred tax'.
128 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 5. Tax
Note summary
Contents
Tax on profit (loss) for the year and other
comprehensive income
In 2018, tax on IFRS profit (loss) for the year
amounted to DKK 3,700 million, consisting
of current tax of DKK 3,161 million, changes in
deferred tax of DKK 266 million, tax on assets
classified as held for sale of DKK 3 million, and
an adjustment of tax in respect of previous
years of DKK 802 million. The adjustment
primarily relates to amendments of asset
values in UK and Germany and reclassification
of Danish liabilities.
Current tax
Current tax is the tax incurred in Ørsted which
is payable within the same year as the profit.
This deviates from taxes paid as a result of
payments regarding prior years and residual
payments regarding the current year.
Included in the current tax for 2018 is DKK 2,135
million which relate to gains from construction
agreements regarding Walney Extension and
Borkum Riffgrund 2 and the construction man-
agement agreement regarding Race Bank.
Due to the high level of investments and the
subsequent deferrals of payable tax as a
consequence of tax depreciation, our current
tax is generally lower than the statutory
corporate tax rates during construction and
the initial years after first power.
Income tax, DKKm
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
2018
2017
Business
performance
(4,018)
411
120
IFRS
(3,700)
93
120
Business
performance
(1,765)
238
141
IFRS
(1,778)
251
141
(3,487)
(3,487)
(1,386)
(1,386)
(3,161)
(52)
(3,161)
266
(2,698)
586
(2,698)
573
(3)
(3)
15
15
(802)
(4,018)
(802)
(3,700)
332
(1,765)
332
(1,778)
93
318
411
93
-
93
255
(17)
238
255
(4)
251
Income tax for the
year is calculated on
the basis of the profit
(loss) before tax from
continuing operations.
Current tax (business performance), 2018, DKKbn
Profit before tax
Current tax
20.3
2.9
3.0
0.7
0.2
0.0
0.4
0.0
0.0
0.1
Denmark
The UK
Germany
The
Netherlands
-0.7
-0.2
The US
Other
The figure shows the relationship between profit before tax and current tax in the
main countries where we do business.
Current tax rate (business performance), 2018, %
14.1
7.8
1.2
Denmark
The UK
Germany
0.0
0.0
The
Netherlands
The US
The figure shows the tax rates based on business performance in the main
countries where we do business.
129 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 5. Tax
Note summary
Contents
5.3 Taxes paid
In 2018, we paid DKK 3,367 million in taxes.
The tax payment included residual tax for
2017, amounting to DKK 711 million in total
for continuing operations for Denmark.
We paid most of our Danish taxes in March.
Accordingly, the income tax paid for the year
was based on estimates and preliminary
tax positions. As our non-taxable income
was higher than expected when we paid
our Danish taxes on account, we expect to
have a receivable tax of DKK 245 million in
Denmark regarding 2018.
Taxes paid for the year, 2018, DKKm
Tax on profit (loss) for the year
(business performance), 2018, DKKm
Denmark
Sweden
Germany
Poland
The UK
The US
Denmark
Other
The figures only
show our continuing
operations.
23 7 3 2 2
DKK 3,367
million
2,709
DKK 4,018
million
1,309
3,330
Taxes paid, DKKm
Continuing operations
Discontinued operations
3,292
2,373
3,367
2,660
-75
-287*
4,888
3,182
1,706
Tax on profit (loss) for the year, DKKm
Continuing operations
Discontinued operations
5,557
3,911
4,032
2,191
1,765
4,018
-107
2,267
3,366
The figures show the
relationship between
the tax on business per-
formance profit (loss) for
the year for accounting
purposes and the taxes
paid for the year.
* Relates to internal
transfers between
continuing and
discontinued
operations.
2018
2017
2016
2018
2017
2016
130 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 5. Tax
Note summary
Contents
5.4 Deferred tax
Development in deferred tax
In 2018, deferred tax from continuing
operations decreased due to the completion
of the construction of Borkum Riffgrund 2 and
Walney Extension as these taxes were paid
and increased due to the ongoing construc-
tion of Hornsea 1. Also, our tax equity partner
agreements in the US (see note 4.5 'Tax equity
liabilities') have resulted in the recognition of
the expected deferred tax liability that we
will take over once the contribution from the
tax equity partner has been repaid.
The adjustment regarding previous years
comprised recognition of tax assets relating
to offshore wind farms.
In 2017, deferred tax from continuing oper-
ations decreased as a result of deferred tax
liabilities materialising as tax payable. This
included differences in the tax and accounting
treatment of profit received on account on
work 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.
Deferred tax by segment
Deferred tax (liabilities) in our segments
primarily concerned the following:
– Offshore: recognised profit received on
account and property, plant and equip-
ment, in respect of which depreciation
for tax purposes exceeds depreciation for
accounting purposes.
– Onshore: recognised deferred tax liability
regarding wind farm assets in tax equity
structures.
– Bioenergy: property, plant and equip-
ment in respect of which depreciation for
tax purposes exceeds depreciation for
accounting purposes.
– Customer Solutions: financial instruments.
– Other activities/eliminations comprised
intra-group eliminations in the joint taxation
across segments.
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.
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.
Deferred tax (net liability) related to the tax equity
structures is recognised as tax income in the income
statement when we take over the agreements. The
liability recognised is the amount that we expect
to take over once the contribution from the equity
partner is repaid, and the tax equity structure 'flips.'
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 probable
tax losses carried forward. This is done within a joint
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
where there are 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 statement.
Deferred tax 2018, DKKm
Offshore
Onshore
Bioenergy
Deferred tax, assets
Deferred tax, liabilities
Unrecognised tax assets
Deferred tax 2017, DKKm
Deferred tax, assets
Deferred tax, liabilities
Unrecognised tax assets
3,565
2,838
53
1,407
1,227
123
235
1,293
19
-
-
-
40
177
-
444
352
-
Customer
Solutions
1,112
72
64
972
617
61
Other
activities/
eliminations
Deferred
tax at 31
December
(364)
(355)
-
42
(68)
-
4,588
4,025
136
2,865
2,128
184
The table shows
the reconciliation of
deferred tax to the
balance sheet by
segment. The non-
recognised deferred
tax assets are not
expected to give rise to
any material income
tax consequence in
the event of dividends
received.
131 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 5. Tax
Note summary
Contents
Development in deferred tax
assets and liabilities, 2018, DKKm
Balance sheet
1 January
Transferred to
assets and liabilities
classified as assets
held for sale
Exchange rate
adjustments
Addition of
enterprises,
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
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, 2017, DKKm
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
61
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
88
2,185
(13)
(1,263)
-
-
3
436
14
-
(823)
-
2
-
37
-
-
-
-
-
39
-
(18)
(1)
-
2
(2)
(1)
6
(14)
-
(94)
-
-
(6)
(1)
-
-
61
(40)
-
2,252
9
-
(11)
(312)
(67)
(146)
1,725
-
57
(1)
-
-
-
-
-
329
385
(28)
150
132
(13)
(8)
88
(163)
(424)
(266)
(48)
1,450
174
(36)
(169)
(242)
(50)
(1,730)
78
(573)
-
-
-
-
-
-
-
-
-
-
(4)
-
-
-
-
-
-
-
16
(108)
125
(1)
54
(490)
(49)
5
(448)
-
(1,788)
(32)
(6)
4
87
(942)
-
36
(4)
(2,641)
36
3,031
405
(25)
(757)
(1,386)
(614)
(1,253)
(563)
4,588
4,025
61
2,018
140
(11)
(797)
(1,106)
(348)
-
(694)
(737)
2,865
2,128
The amounts transferred
to assets and liabilities
classified as assets held
for sale concern our
Danish power distribu-
tion, residental customer
and city light businesses.
Addition of enterprises
includes the deferred
tax liability recognised
in relation to our US
investments.
Adjustments to prior
years primarily relate
to movements between
deferred tax and tax
payable. Also, asset
value reassesment in
Germany and the UK.
The increase of tax
losses carried forward
during 2018 is primarily
a result of the accel-
erated depreciation
on fixed assets for tax
purposes. The tax loss
carryforwards will be set
off against realisation
of either deferred tax
liabilities on the same
wind farm or jurisdiction
or set off against future
profits on that wind
farm or jurisdiction.
132 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 5. Tax
Note summary
Contents
5.5 Total tax contribution
According to the OECD classification, tax is a
compulsory unrequited payment to general
government. This means a payment by Ørsted
paid to the government, including amounts
paid through an agent. Tax does not result in
a return of value to Ørsted for a right or asset
used in the business.
Taxes collected are those which are generated
by Ørsted' operations, but not a tax liability
for Ørsted. Ørsted generates the commercial
activity that gives rise to the taxes and then
collects and administers them on behalf of
the tax authorities in the countries in which
we operate.
Total tax contribution, 2018, %
Total tax contribution, 2018, DKKm
Profit taxes
People taxes
Product taxes
Property taxes
Profit taxes
People taxes
Product taxes
Property taxes
0%
20%
15,311
18,817
Taxes borne by Ørsted are those that represent
a direct cost and are reflected in the financial
result. Tax borne is charged to the profit and
loss account or capitalised as part of an
asset's cost.
DKK 18,817
million
8%
72%
13.515
13.515
3,506
134
5
3,367
1.442
354
5
1.576
3,721
Borne
taxes
Collected
taxes
Total
Total global taxes that we paid in 2018
Total tax contribution, 2018, %
Profit taxes
These include taxes on company profits that are borne (such as corporate income
tax) and collected (such as withholding tax on payments to third parties). In
2018, Ørsted paid DKK 3,367 million in borne profit taxes and DKK 354 million
in collected profit taxes. The collected profit taxes relate to withholding tax on
dividends paid to Ørsted's shareholders.
People taxes
Taxes on employment, both borne and collected (including income tax and social
security tax payments). In 2018, Ørsted paid DKK 134 million in borne people taxes
and DKK 1,442 million in collected people taxes.
Product taxes
Indirect taxes on the production and consumption of goods and services, including
VAT and sales tax, custom duties and insurance premium tax. In 2018, Ørsted
paid DKK 13,515 million in collected product taxes. Borne product taxes were
insignificant in 2018 for this summary.
Property taxes
Taxes on the ownership, sale, transfer or occupancy of property. In 2018, Ørsted paid
DKK 5 million in borne property taxes. Collected property taxes were insignificant in
2018 for this summary.
Borne taxes
Collected taxes
Total tax contribution
is highly impacted by
collection of VAT, sales
tax, duties as well as
profit taxes.
19%
DKK 18,817
million
81%
The chart shows the
distribution between
borne and collected
taxes in 2018.
133 / 193
Ørsted Annual report 2018Financial statements Note summary
Contents
6.
Capital structure
Capital structure
Interest-bearing debt
Equity
Hybrid capital
Financial resources
Financial income and expenses
Funds from operations (FFO)/
adjusted interest-bearing net debt
135
136
138
140
141
143
144
Ørsted Annual report 2018 Consolidated financial statements – 6. Capital structure
Note summary
Contents
6. Capital structure
In 2018, we acquired Lincoln Clean Energy
and Deepwater Wind in the US and thereby
entered into tax equity partnerships with
associated liabilities. The interest-bearing
part of our tax equity liability amounts to
DKK 454 million as of 31 December 2018.
We have not issued new bonds or raised new
loans in 2018. However, we have taken over
bank loans in the amount of DKK 4,039 mil-
lion in connection with the two acqusitions.
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%.
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.
Capital structure
To ensure the financial strength to operate in
the international energy and capital markets
and secure financing on attractive terms, we
The borrowing activities are diversified
among various funding sources and
maturities. In addition, we have robust
financial resources.
Our borrowing activities are consolidated in
the parent company, where cash resources
are available to the Group's companies via an
internal bank.
69.0%
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 37,879 million at 31 December
2018 (2017: DKK 39,158 million).
Funds from operations (FFO) relative to
adjusted interest-bearing net debt amounted
to 69% at 31 December 2018 against 50.3%
at 31 December 2017.
-2.2bn
Our interest-bearing net debt totalled
DKK -2,219 million at 31 December 2018 against
DKK -1.517 million at 31 December 2017.
Equity and interest-bearing net debt, DKKbn
Interest-bearing assets
Interest-bearing debt
Hybrid capital
Equity attributable to shareholders in Ørsted A/S
Non-controlling interests
2018
Assets
DKK 30.5 billion
2017
DKK 82.9 billion
Equity and liabilities
DKK 113.4 billion
DKK 70.3 billion
Assets
DKK 31.2 billion
Equity and liabilities
DKK 101.5 billion
37.9bn
Our financial resources totalled DKK 37,879 million
at 31 December 2018 against DKK 39,158 million
at 31 December 2017.
135 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 6. Capital structure
Note summary
Contents
6.1 Interest-bearing debt
Interest-bearing debt and interest-bearing
assets, DKKm
Interest-bearing debt comprises:
Bank debt
Bond debt
Total bond and bank debt
Tax equity liability
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
Total interest-bearing assets
Total interest-bearing net debt
Changes in interest-bearing debt, DKKm
Interest-bearing 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
Debt from acquisition of enterprises
Change in other interest-bearing debt
Reclassification to bond and bank debt
Capital losses on early repayment of debt
Foreign exchange adjustments and
amortisation
Interest-bearing debt 31 December
The tabel shows our
interest-bearing
net debt split into
interest-bearing debt
and interest-bearing
assets.
2018
2017
3,582
23,714
27,296
454
570
2,069
27,567
29,636
-
-
28,320
29,636
25,501
3,515
60
779
684
30,539
(2,219)
25,280
4,203
48
647
975
31,153
(1,517)
Interest-bearing net debt
Interest-bearing net debt totalled
DKK -2,219 million at the end of 2018, up
DKK 702 million relative to 2017. The in-
crease in the net cash position comprise
of a decrease in interest-bearing assets of
DKK 614 million and a decrease in interest -
bearing debt of DKK 1,316 million.
In 2018, we have entered the US market where
we have entered into tax equity liabilities. The
part of the tax equity liability we expect to
repay with tax credits (PTCs) and other tax
attributes is not considered part of interest-
bearing debt. This amounts to DKK 3,719
million (2017: DKK 0 million). The part of the
tax equity liability we expect to repay with
cash is included in interest-bearing debt.
This amounts to DKK 454 million (2017:
DKK 0 million). For more information, see note
4.5 'Tax equity liabilities'.
In July 2018, we redeemed a hybrid bond
classified as debt with a notional amount of
EUR 500 million, corresponding to
DKK 4,208 million.
In October and November 2018, we acquired
Lincoln Clean Energy and Deepwater Wind.
We took over a bank debt of DKK 4,039 mil-
lion and interest-bearing tax equity liabilities
of DKK 370 million in connection with the
transactions.
In October and December, bank debt in
Lincoln Clean Energy of DKK 2,406 million
was repaid.
2018
29,636
2017
24,183
(6,429)
(4,069)
The tabel shows the
changes in interest-
bearing debt.
Maturity profile, DKKbn
Bond debt
Bank debt
The graph shows
the maturity profile
for our bank loans
and bond debt.
16.0
-
4,409
570
-
-
134
28,320
5,468
-
-
4,192
230
(368)
29,636
4.8
2.2
2.1
0.2
0.1
0.1
1.5
0.5
0.0
2019
2020
2021
2022
2023
2024
2025
2026
2027 2028+
136 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 6. Capital structure
Note summary
Contents
Market value of bond and bank debt
The market value of our bond and bank
debt amounted to DKK 28,048 million and
DKK 3,622 million, respectively, at 31 Decem-
ber 2018 (2017: DKK 32,959 million and
DKK 2,108 million, respectively). The market
value of our bond and bank debt exceeds the
carrying amount due to the drop in interest
levels since the establishment of the debt.
Loan arrangements
At 31 December 2018, we had loan obligations
totalling DKK 1,964 million (2017: DKK 2,069
million) 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 favour-
able 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 for repayment in
the event of Moody's or Standard & Poor's
downgrading our rating to Baa3 or BBB- or
below, respectively.
Furthermore, we had non-cancellable credit
facilities of DKK 10,447 million at 31 December
2018 (2017: DKK 10,424 million) with a number
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
We have fixed the interest rate on most of
our debt by issuing fixed-rate debt. At the end
of 2018, 95% (2017: 95%) of the Group's debt
was fixed-rate debt. Interest payments on
loans in GBP have been covered with forward
exchange contracts over the next five years at
an average exchange rate of 8.9. See note 7.2
'Hedge accounting and economic hedging' for
further information.
At 31 December 2018, the loan portfolio had
an average time to maturity of 9.9 years
(2017: 9.8 years). Interest-bearing assets consist
primarily of short-term bonds with limited risk.
Our interest rate risk is described further in
note 7.1 'Market risks'.
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 settle-
ment of the liability to at least one year after the
balance sheet date.
The market value of issued bonds has been
determined as the market value at 31 December
(level 1 – quoted prices).
The market value of bank loans has been determined
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).
Senior bond issued at 31 December 2018
Million
Currency
EUR
EUR
EUR
EUR
GBP
GBP
Outstanding amount
EUR /GBP
DKK
Coupon (%)
Time of issue
Maturing
Quoted in
280
272
517
750
750
500
2,091
2,033
3,860
5,597
6,235
4,157
6.500
4.875
2.625
1.500
4.875
5.750
6 May 2009
7 May 2019
16 Dec. 2009
16 Dec. 2021
19 Sep. 2012
19 Sep. 2022
24 Nov. 2017
26 Nov. 2029
12 Jan. 2012
12 Jan. 2032
9 Apr. 2010
9 Apr. 2040
London
London
London
London
London
London
In addition to senior
bonds, we have issued a
number of hybrid bonds;
see note 6.3 'Hybrid
capital'.
137 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 6. Capital structure
Note summary
Contents
Dividends
The Board of Directors recommends that
dividends of DKK 4,099 million (2017:
DKK 3,783 million) be paid for the financial
year, corresponding to DKK 9.75 per share
(2017: DKK 9 per share). The proposed divi-
dends correspond to a dividend yield of 2.2%
(2017: 2.7%) 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 note
16 'Ownership information' in the parent
company's financial statements.
Earnings per share, DKKm
Profit (loss) for the year from
continuing 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
discontinued operations
Ørsted's share of profit (loss) for the
year from discontinued operations
('000)
Average number of outstanding
shares
2018
2017
Business
performance
IFRS
Business
performance
IFRS
19,486
18,266
13,279
13,321
(425)
(25)
(425)
(25)
(716)
10
(716)
10
19,036
17,816
12,573
12,615
10
10
10
10
6,920
6,104
6,920
6,104
420,139
420,139
420,155
420,155
Dilutive effect of share programme
466
466
271
271
Average number of outstanding
shares, diluted
420,605
420,605
420,426
420,426
(DKK)
Profit (loss) per share
From continuing operations
From discontinued operations
Total profit (loss) per share
45.3
0.0
45.3
42.4
0.0
42.4
6.2 Equity
Share capital
Ørsted's share capital is DKK 4,203,810,800,
divided into shares of DKK 10. The share
capital is unchanged from last year. 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
additional treasury shares in November 2018.
The total portfolio of treasury shares consist
of 335,904 shares at 31 December 2018
(2017: 225,904), corresponding to 0.1% of the
share capital.
Dividend yield, %
2.7
2.2
2.2
2016
2017
2018
The graph shows the proposed dividends in relation
to the closing price for an Ørsted share on the last
trading day of the year.
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 0.1%
of the share capital (2017: 0.1% of the share capital).
Development in share capital, DKKm
Share capital at 1 January
Share capital at 31 December
29.9
16.5
46.4
2018
4,204
4,204
30.0
14.5
44.5
2017
4,204
4,204
138 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 6. Capital structure
Note summary
Contents
Hedging reserve1
Hedging of net
investments
Hedging of
revenue
Hedging of
divestments
Hedging of
interest
Share premium
reserve
Reserves 2018, DKKm
Reserves at 1 January 2018
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
Movement in comprehensive
income for the year
Total reserves at 31 December
Foreign currency
translation
reserve
(1,825)
(388)
-
-
259
-
48
(81)
(1,906)
454
-
401
-
(326)
-
(17)
58
512
10
304
-
(137)
(1,054)
-
-
-
30
(107)
(97)
(301)
931
-
80
(344)
(40)
(467)
-
84
-
-
135
(48)
171
(296)
1 Cost of hedging related to basis spread on currency swaps included in hedging reserve amounts to DKK 183 million (2017: 33 million).
Reserves 2017, DKKm
Reserves at 1 January 2017
Transferred to retained earnings
Exchange rate adjustments
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
Movements in comprehensive
income for the year
Total reserves at 31 December
(1,546)
(1,354)
-
-
325
562
-
10
-
565
-
(128)
133
-
188
(126)
(279)
(1,825)
444
454
-
-
13
-
-
-
-
(3)
10
10
973
-
967
(283)
(1,113)
(444)
-
204
(669)
304
(498)
-
(190)
-
-
-
229
(8)
31
(467)
-
-
-
-
-
-
-
-
-
21,279
(21,279)
-
-
-
-
-
-
-
-
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
investment, 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 reserve
The hedging reserve covers:
– hedging of net investments in foreign operations
– cash-flow hedging of currency risks and inflation
risks accociated with revenue
– cash-flow hedging of the currency risk associated
with the construction of offshore wind farms and
interest expenses.
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.
Total
reserves
(1,524)
(388)
(706)
(301)
864
135
93
(303)
(1,827)
20,218
(21,279)
(1,354)
1,355
(283)
(916)
251
229
255
(463)
(1,524)
139 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 6. Capital structure
Note summary
Contents
6.3 Hybrid capital
Hybrid bonds
Type
Carrying amount
Financial classification
Notional amount
Issued
Maturing
First redemption date at par
Interest
Due in 3013
Due in 3015
Due in 3017
Subordinate to other creditors
Subordinate to other creditors
Subordinate to other creditors
DKK 5,148 million
Equity
DKK 4,423 million
Equity
DKK 3,668 million
Equity
EUR 700 million (DKK 5,224 million)
EUR 600 million (DKK 4,477 million)
EUR 500 (DKK 3,731 million)
June 2013
June 3013
26 June 2023
May 2015
November 3015
6 November 2020
November 2017
November 3017
24 November 2024
For the first ten years, the coupon is fixed at 6.25%
p.a., after which it is adjusted every five years with
the five-year euro swap + 4.75 percentage points
from 2023-2043 and + 5.5 percentage points after
2043
Coupon for the first 5.5 years is fixed at 3.0% p.a.,
after which it is adjusted every five years with the
five-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
Optional
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 13,432 million (EUR 1,800 million).
On 8 July 2018, we redeemed the hybrid
bond maturing in July 3013 at par at the first
redemption date.
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 other hybrid bonds.
As a consequence of the special terms regard-
ing 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 bonds. 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 dis-
counted 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 the 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.
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 due to the 1,000-year
term of the hybrid capital, amortisation charges
will only have an 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 redemption of the hybrid capital, the payment
will be distributed between liability and equity,
applying the same principles as used when the
hybrid capital was issued. This means that the
difference 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.
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 borrowings
will be recognised in profit (loss) for the year as
financial income or expenses.
140 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 6. Capital structure
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.
At 31 December 2018, we had received
collateral in the amount of DKK 852 million
(2017: DKK 787 million) concerning the positive
market value of derivatives.
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.
Cash not available for use comprise:
– collateral for insurance-related provisions;
DKK 264 million (2017: DKK 312 million)
– collateral for US power purchase agree-
ments; DKK 246 million (2017: DKK 0 million)
– collateral for other transactions;
DKK 342 million (2017: DKK 0 million).
We therefore define minimum financial
resources for the coming calendar year.
Cash, cash equivalents and securities
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;
DKK 399 million at 31 December 2018
(2017: DKK 397 million)
– trading in financial instruments;
DKK 333 million at 31 December 2018
(2017: DKK 40 million).
2018
DKK 37,879 million
2017
DKK 39,158 million
Financial resources, DKK million
Overview of securities, DKKm
Cash, available
Securities, available
Undrawn, non-cancellable credit facilities
Cash and cash equivalents, securities, DKKm
Cash, available
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
2018
2,663
2,663
2,663
852
3,515
2017
3,891
3,891
3,891
312
4,203
24,769
24,843
732
437
25,501
25,280
The table shows our cash and securities which are
divided into available and not available for use.
Maturities
0-2 years
2-5 years
After 5 years
Fixed
rate
3,178
15,073
2,671
Floating
rate
1,086
3,460
2018
4,264
Fixed
rate
2,091
18,533
17,712
33
2,704
-
Floating
rate
1,971
3,506
-
2017
4,062
21,218
-
Total carrying amount
20,922
4,579
25,501
19,803
5,477
25,280
The tabel shows our securities split into maturities
and fixed or floating interest rate.
141 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 6. Capital structure
Note summary
Contents
Maturity analysis of loans and borrowings 2018, DKKm
2019
2020
2021-2022
After 2022
2018
Bank loans and issued bonds
Notional amount
Interest payments
Trade payables
Derivatives
Tax equity debt
Other payables
Liabilities relating to assets classified as held for sale
2,213
1,003
13,093
6,066
66
5,327
812
235
873
-
1,626
59
-
-
6,917
1,654
-
133
143
-
-
18,179
8,074
-
414
334
-
-
27,544
11,604
13,093
8,239
602
5,327
812
Total payment obligations
28,580
2,793
8,847
27,001
67,221
Maturity analysis of loans and borrowings 2017, DKKm
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
-
-
6
-
29,822
12,587
11,499
5,860
4,125
119
Total payment obligations
25,154
4,117
4,506
30,235
64,012
* The amount primarily relates to reclassified hybrid capital. See more in note 6.3 'Hybrid capital'.
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.
The maturity analysis is based on undiscounted cash
flows, including estimated interest payments. Interest
payments are based on market conditions and
interest -rate hedging entered into on 31 December.
The maturity analysis does not include hybrid capital
classified as equity. At 31 December 2018, we had is-
sued hybrid capital with a notional amount totalling
DKK 13,432 million due in 3013 (DKK 5,224 million),
3015 (DKK 4,477 million) and 3017 (DKK 3,731 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 repurchase agreements
(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.
142 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 6. Capital structure
Note summary
Contents
6.5 Financial income and expenses
Net financial income and expenses, DKKm
Interest expenses, net
Interest element of provisions, etc.
Tax equity partner's contractual return
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
Other financial income and expenses
Net financial income and expenses
2018
(877)
(408)
(44)
-
(64)
285
(176)
6
2017
(629)
(451)
-
(230)
(67)
391
(150)
94
(1,278)
(1,042)
The table shows net financial income and expenses,
corresponding to our internal control.
Exchange rate adjustments and hedging contracts
entered into to hedge currency risks are presented
net under the item 'Exchange rate adjustments, net'.
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.
The accounting policy for the tax equity partner's
contractual return is described in note 4.5 'Tax equity
liabilities'.
Financial income and expenses, DKKm
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
Tax equity partner's contractual return
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
2018
62
264
119
2,033
670
31
3,179
(1,710)
506
(280)
(44)
(304)
(1,978)
(466)
(181)
(4,457)
(1,278)
2017
71
216
250
1,523
2,043
150
4,253
(1,670)
754
(303)
-
(419)
(1,568)
(1,887)
(202)
(5,295)
(1,042)
Exchange rate adjust ments of currency hedging are
recognised in revenue and cost of sales with a gain of
DKK 268 million (2017: a gain of DKK 190 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 4.1% in 2018 (2017: 5.3%).
143 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 6. Capital structure
Note summary
Contents
6.6 Funds from operations (FFO)/
adjusted interest-bearing net debt
Funds from operations (FFO), DKKm
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, DKKm
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
2018
30,029
(877)
(506)
(192)
(272)
(196)
(2,043)
(14,995)
778
(3,068)
10,701
2018
(2,219)
6,619
1,583
4,819
5,471
(757)
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)
Total adjusted interest-bearing net debt
15,516
15,900
Funds from operations (FFO)/
adjusted interest-bearing net debt, %
Funds from operations (FFO)/
adjusted interest-bearing net debt
2018
2017
69.0%
50.3%
Our long-term target is for funds from opera-
tions (FFO) to be around 30% of adjusted
interest-bearing net debt.
FFO/adjusted interest-bearing net debt was
69% in 2018, exceeding the target.
The table shows which
items are included in
FFO. FFO is calculated
for the continuing
operations.
Rating, category
S&P
Moody's
Fitch
Financial objective
A-/A3
BBB+/
Baa1
BBB/
Baa2
BBB-/
Baa3
The table shows which
items are included in
the adjusted interest-
bearing debt as well as
FFO relative to adjusted
interest-bearing debt.
2014
2015
2016
2017
2018
2020
The figure shows the
development in our
credit rating since
2014 compared to our
objective.
144 / 193
Ørsted Annual report 2018Financial statements Note summary
Contents
7.
Risk management
Risk management
Market risks
146
147
Hedge accounting and economic hedging
150
Energy trading portfolio
Sensitivity analysis of financial
instruments
Credit risks
Categories of financial instruments
Fair value measurement
152
153
154
155
156
Ørsted Annual report 2018
Consolidated 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
acceptable level.
Aquisitions in 2018
We have aquired Lincoln Clearn Energy
in October 2018 and Deepwater Wind in
November 2018. The two aquisitions have
increased our power and USD exposure.
Currency and energy exposures
At the end of 2018, our forward-looking energy
and currency exposures from produc tion, sales,
investments and divestments for 2019-2023
had been reduced from DKK 24.0 billion and
DKK 64.7 billon to DKK 9.1 billion and DKK 19.1
billion respectively 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 'Energy Trading portfolio'.
Currency exposure 2019-2023, DKKbn
Energy exposure 2019-2023, DKKbn
Before hedging
After hedging
62.2
16.6
Before hedging
After hedging
19.3
7.1
-2.5
-2.5
2.2 1.6
0.3
-0.1
-0.1
-2.4
GBP
USD
Power
Gas
Oil
Spread
Our currency exposure for 2019-2023 totalled
DKK 64.7 billion before hedging and DKK 19.1 billion
after hedging at the end of 2018. We do not deem
EUR to constitute a risk, as we expect that Denmark
will maintain its fixed exchange-rate policy.
Our energy exposures for 2019-2023 totalled
DKK 24.0 billion before hedging and DKK 9.1 billion
after hedging at the end of 2018.
5 years
We hedge prices for up to five years to reduce
cash flow fluctuations.
+0.4bn
In 2018, business performance EBITDA was
positively impacted by DKK 368 million from
hedging instruments against a positiv impact
by DKK 1,665 million in 2017.
-3.0bn
The value of our energy and currency hedging
instruments at 31 December 2018 was negative
at DKK 3,032 million, which will reduce business
performance EBITDA in a future period, against
DKK -812 million at 31 December 2017.
146 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 7. Risk management
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.
We manage market risks to protect Ørsted
against market price volatility and ensure
stable and robust financial ratios that support
our growth strategy.
In the first five years, we primarily hedge
future prices using derivatives to reduce cash
flow fluctuations. We are almost fully hedged
in the first two years. At longer durations,
we also manage our market risks; our power
exposure is partly mitigated through long
term power purchasing agreements (PPA), and
debt is used to manage currency, interest rate
and inflation risk. Our long-term risk picture is
determined by our strategic asset portfolio.
Minimum hedging levels are determined by
the Board of Directors. In the first two years,
a high degree of hedging is wanted to ensure
stable cash flows after tax. The degree of
hedging is declining in subsequent years.
This is due to:
– reduced certainty about long-term
production volumes and
– increasing hedging costs in the medium to
long term; both spread costs and cost of
collateral.
Energy price risks
Our consolidated energy exposure after
hedging for the years 2019-2023 can be sum-
marised as shown in the table.
Risk after hedging
DKKbn
Effect of price change
-10%
+10%
Power: 7.1 sales position
Gas: 0.1 sales position
Oil: 0.1 purchase position
Spread: 1.6 sales position
+0.7
+0.0
-0.0
+0.2
-0.7
-0.0
+0.0
-0.2
A 10% increase in the power price in 2019-2023
will therefore result in a gain of DKK 0.7 billion
in the period, all else remaining unchanged.
Currency risks
Our consolidated currency exposure after
hedging for the years 2019-2023 can be sum-
marised as shown in the table.
take final investment decision for the awarded
offshore capacity in Taiwan.
In general, highly certain cash flows in foreign
currencies are hedged within the first five
years.
This means that exchange rates related to
energy prices in foreign currency are not
hedged until the energy price is hedged.
Hence, GBP exchange rates associated with
power generation in the UK is not hedged
until the GBP power price is hedged.
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 16.6
billion after hedging for the years 2019-2023.
This unhedged GBP exposure stems from
subsidised GBP income less operational
expenditures.
The GBP exchange rate for hedges impacting
EBITDA in 2019 and 2020 is hedged at an aver-
age exchange rate of DKK/GBP 8.4 and 8.4.
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.
GBP exposures, DKKbn
Risk after hedging
DKKbn
Effect of price change
-10%
+10%
Before hedging
After hedging
GBP: 16.6 sales position
USD: 2.5 purchase position
+1.7
-0.3
-1.7
+0.3
21.7
Our largest currency exposure relates to GBP
due to our investments in offshore wind farms
in the UK. During 2018, we have experienced
a substantial increase in long-term USD expo-
sure, due to acquisition of both onshore and
offshore companies in the US. Our exposure
towards New Taiwan Dollar will increase if we
11.7
5.5
2.7
1.3
13.9
9.4
7.7
5.4
-0.5
2019
2020
2021
2022
2023
The graph shows our
GBP exposure before
and after hedges from:
– divestment and
investment
– green certificates
– hedged energy.
147 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 7. Risk management
Note summary
Contents
Interest rate and inflation risk
We manage interest rate and inflation risk by
matching the sensitivity of our assets with the
sensitivity of our debt.
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.
The majority of our inflation risk relates to reve-
nue from offshore wind farms. Subsidy regimes
for offshore wind varies from country to country:
– In the UK, the fixed tariff is adjusted with
inflation
– In Denmark, Germany and the Netherlands,
the fixed 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. We have fixed the inflation
for part of the future revenue from our UK
offshore wind farms at an average of 3.5%
for the period 2024-2037 to create a better
match with our fixed rate UK debt.
Onshore
Earnings from the generation of power from
our onshore wind farms in the US comprise tax
incentives, such as PTCs or ITCs and power. The
tax incentives have a fixed value. But there is
a price risk associated with the power which is
reduced by entering into PPAs. The current PPAs
cover approx. 78% of the expected generation,
spanning 12-15 years from the commissioning of
the wind farm. The PPAs are entered into with
large corporates or financial institutions.
Bioenergy
Our CHP plant portfolio consists of biomass-
and coal-fired plants in Denmark and a
Renescience plant in the UK. The CHP plants
generate both heat and power.
Fixed tariffs for future projects in the US and
potentially Taiwan will also not be adjusted
with inflation.
Offshore
Earnings from offshore wind farms mainly
comprise:
– fixed tariffs in Denmark, Germany, the
Netherlands, UK (CfD farms) and in the future
also US and Taiwan
– guaranteed minimum prices for green
certificates in the UK (ROC farms)
– sale of power at market prices from our
out-of-subsidy farms or ROC farms in the UK.
At the end of 2018, such fixed tariffs and
guaranteed minimum prices cover 81% of the
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 covered by the heat
customers. However, heat generation often
entails a price risk for power, as heat and power
to a large extend are generated simultaneously.
The profitability of power generation is deter-
mined 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. At the end of
2018, 52% of the power generation expected
in 2019 from our power stations was hedged.
The total net risk associated with the power
stations' power generation for the 2019-2023
period is DKK 1.6 billion after hedging.
Customer Solutions
Our price risk in 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 differences in the
indexing of sales and purchase prices. Our
largest gas purchase contracts include 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
differences in the oil and gas price develop-
ment than before. Going forward, our oil price
risk may rise again, as we conclude new LNG
purchase agreements, which are typically
oil-indexed. The price risks associated with
power purchases and sales are given by the
difference between the purchase and sales
prices. The price risk relates primarily to timing
differences between purchases and sales and
the related hedges and is therefore considered
to be limited.
Offshore's power price exposure, DKKbn
Before hedging
After hedging
3.6
3.2
3.2
4.0
2.7
2.4
2.3
0.3
0.2
0.7
2019
2020
2021
2022
2023
The table shows the exposure from Offshore's gener-
ation of power before and after hedges.
Expected value for recognition in
business performance EBITDA, DKKbn
Power
Gas
Inflation
Oil
Currency
US PPA
0.6
-1.5
2019
-1.0
2020
After 2020
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.
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 together with deferred revenue from US
power purchase agreements; see note 1.6 'Business
performance'.
148 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 7. Risk management
Note summary
Contents
Note
Overview of the Group's
derivative positions, DKKm
Recognised with EBITDA impact
2018
2017
Energy hedging
Currency and interest
rate hedging
Energy hedging
Currency and interest
rate hedging
Contractu-
al principal
amount
Market
value
Contractu-
al principal
amount
Market
value
Contractu-
al principal
amount
Market
value
Contractu-
al principal
amount
Market
value
1.6, 7.2
Economic hedging
27,927
(3,806)
29,684
Hedging of cash flows, currency
-
-
12,434
Trading portfolio
Total
6,509
313
-
34,436
(3,493)
42,118
Recognised in financial income and expenses
7.2
7.3
7.2
7.2
7.2
7.2
Hedging of fair value, currency
Hedging of cash flows, inflation
Hedging of cash flows, interest
Hedging of cash flows, currency
Other interest derivatives
Other currency derivatives
Total
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,388
15,547
1,602
2,721
6,588
3,798
40,644
27,839
27,839
Recognised in other comprehensive income
7.2
Hedging of net investments
Total
Total continuing operations
34,436
(3,493)
110,601
Recognised in discontinued operations
7.2
Hedging of fair value, currency
Total discontinued operations
-
-
-
-
2,285
2,285
Total
34,436
(3,493)
112,886
712
22
-
734
(761)
(69)
56
(272)
(39)
436
(649)
888
888
973
(106)
(106)
867
21,396
(940)
25,303
-
-
23,588
8,720
118
-
592
678
-
30,116
(822)
48,891
1,270
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18,178
(716)
-
-
2,739
550
3,923
25,390
29,686
29,686
-
-
(365)
-
605
(476)
476
476
30,116
(822)
103,967
1,270
-
-
-
-
2,480
2,480
48
48
30,116
(822)
106,447
1,318
The table shows the Group's derivatives and
commercial contracts according to the type of
accounting treatment and the items affected. The
accounting treatment and classification of hedging
contracts depend on the purpose of the hedging:
– Economic hedging comprises hedging of
energy-related risks and related currency risks.
These hedging contracts are treated as hedge
accoun ting in accordance with the business
performance principle (see note 1.6 'Business
performance' 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,
inflation and currencies comprises hedging of
future in terest payments and currency risks on
future income. When hedging cash flows, the effec-
tive portion of the market value is temporarily
recognised in equity until the hedged transaction
materialises.
– Hedging of the market value of securities or
currencies 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 net
investments, the effective portion of the market
value is recognised in equity until the hedged net
investment is divested.
– The trading portfolio and other interest and
currency derivatives are recognised at market
value in the income statement.
Note 1.1 'Significant changes in the current
reporting period' provides further details on
economic hedging, including information about
the underlying products traded.
149 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 7. Risk management
Note summary
Contents
7.2 Hedge accounting and economic hedging
Contractual
principal
amount
Maturity analysis
Market value
2019
2020 After 2020
Asset
Liability
Recognised in
comprehen-
sive income
2019
2020 After 2020
Expected transfers to income statement
Accounting policies
Hedge accounting
2018, DKKm
Hedging of cash flows
Revenue (USD)
Divestments (GBP)
Interest payments (GBP)
Interest payments (fixed)
Revenue (UK inflation)
Hedging of fair value
GBP (sell position)
EUR (sell position)
USD (buy position)
Hedging of net investment
GBP
EUR
USD
2017, DKKm
Hedging of cash flows
Revenue (USD)
Divestments (GBP)
Interest payments (fixed)
Interest payments (GBP)
Hedging of fair value
EUR
GBP
USD
Hedging of net investment
GBP
EUR
USD
1,152
11,282
2,721
1,602
15,547
5,911
4,477
2,285
23,281
4,477
81
1,316
22,272
-
2,739
9,391
8,787
2,480
23,868
5,668
150
214
10,733
543
18
-
(4,481)
-
1,306
2,879
-
-
935
549
543
24
-
-
-
979
428
-
-
3
-
1,635
1,560
15,547
10,392
4,477
-
19,974
4,477
81
2018
2019 After 2019
136
10,143
-
548
4,924
-
310
10,563
1,201
-
132
11,575
-
548
-
-
1,240
2,602
-
-
1,048
554
-
1,643
4,467
8,787
930
10,703
4,467
150
-
113
-
56
34
60
11
-
1,075
2
21
27
819
-
-
3
-
48
1,381
2
1
(55)
(36)
(272)
-
(103)
(832)
-
(106)
(178)
(13)
(19)
(14)
(154)
-
(365)
(1)
(718)
-
(906)
(2)
-
(55)
(51)
(187)
(193)
(69)
(11)
(49)
(99)
(41)
-
(42)
(2)
(65)
(38)
-
(2)
-
(23)
(114)
(69)
2018
2019 After 2019
13
385
(234)
(365)
1
344
(41)
(105)
1
41
(41)
(102)
11
-
(152)
(158)
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 ineffective-
ness. For currency swaps, the basic spread is account-
ed 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 prin-
ciple 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 gains or losses are
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.
Cash flow hedging
We have entered into forward exchange con-
tracts 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 (2017: DKK 0 million). Forward
exchange contracts have also been concluded
for the purpose of hedging the currency risk as-
sociated 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.
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.
150 / 193
Ørsted Annual report 2018Financial statements Consolidated 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.
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.
Under the business performance principle,
the market value adjustment of contracts
concluded for the purpose of economic
hedging and commercial contracts is deferred
to the period during which the hedged trans-
action affects results. See note 1.6 'Business
performance'.
Our hedging of energy prices and commer-
cial contracts recognised at market value is
specified in the table below.
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.
On 31 December 2018, the accumulated
exchange rate adjustments totalled
DKK -1,660 million divided between the
exchange rate adjustment of the net invest-
ment of DKK -2,329 million and the hedging
thereof of DKK 669 million.
Ineffectiveness relating to hedging of net
investments in foreign subsidiaries totalled
DKK 0 million (2017: DKK 0 million).
Accounting policies
Economic hedging and commercial contracts
Market value adjustments of financial contracts
offered 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.
Under the business performance principle, economic
hedging is accounted for as effective hedging.
The resulting market value adjustment is conse-
quently deferred to the period in which the hedged
transaction affects results. See note 1.6 'Business
performance' for further information.
The contractual principal amount has been
determined 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.
2018
2017
Economic hedging
and commercial
contracts, DKKm
Contractual
principal
amount
Market
value
Contractual
principal
amount
Energy
Oil swaps
Gas swaps
Power swaps
Power options
Coal
Currency
Forward exchange
contracts
Total
2,442
5,717
(182)
(412)
16,543
(3,267)
2,900
325
48
7
3,595
6,939
7,745
2,941
176
Market
value
374
(626)
(1,009)
280
41
29,684
57,611
712
(3,094)
25,303
46,699
592
(348)
Hedging of net investments in foreign subsidiaries, DKKm
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.
The contractual
principal amount has
been determined as
the net position per
derivative type.
2018
Currency
GBP
EUR
USD
Other
Total
2017
Currency
GBP
EUR
USD
Other
Total
Of which
non-
controlling
interests
Hedged
amount in
currency
Accumulated
exchange rate
adjustment in
equity
Net
position
Net
investment1
46,468
23,871
9,060
237
(3,377)
(23,281)
-
-
-
(4,477)
(81)
-
19,810
19,394
8,979
237
(1,583)
14
(48)
(43)
79,636
(3,377)
(27,839)
48,420
(1,660)
35,991
13,784
152
134
(3,777)
(23,868)
-
-
-
(5,668)
(150)
-
8,346
8,116
2
134
(1,527)
(15)
(18)
(46)
50,061
(3,777)
(29,686)
16,598
(1,606)
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
accounting exposure.
If, for example, the
GBP/DKK exchange
rate increased with 10%
on 31 December 2018,
equity would have
increased by
DKK 1,981 million,
corresponding to 10%
of DKK 19,810 million.
151 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 7. Risk management
Note summary
Contents
7.3 Energy 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 power and gas.
Coal
Total
Oil swaps
Gas swaps and options
Power swaps and options
Carbon emissions allowances
Overview of the Group's trading
portfolio, DKKm
Contractual principal
amount
Market value
Contractual principal
amount
Market value
2018
2017
184
1,126
5,142
7
50
6,509
182
308
(127)
(43)
(7)
313
287
2,772
5,566
44
51
8,720
(361)
170
363
(14)
(40)
118
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 an economic hedging instrument
(business performance hedge) 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 limit in 2018:
DKK 70 million
Stress limit in 2018:
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, DKKm
Accounting policies
Board of Directors mandate
VaR (value at risk) (DKK '000)
Group Executive Management mandate
Market value adjustments of physical and financial
contracts relating to energy that are entered into
with the purpose of generating gains from short-term
price changes are recognised as revenue.
80
60
40
20
0
2017
2018
The graph shows the daily value at risk position for
the period 2017-2018. The mandates from the Board
of Directors and Group Executive Management have
not been breached during the period.
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.
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.).
152 / 193
Ørsted Annual report 2018Financial 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 2018.
Sensitivity analysis of
financial instruments
DKKm
31 December 2018
31 December 2017
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
Other financial
instruments1
Effect on
equity before
tax
Risk
Oil
Gas
Power
Coal
USD
GBP
EUR
The effect on profit (loss) before tax com-
prises 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, including
economic 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.
10%
-10%
10%
-10%
10%
-10%
10%
-10%
10%
-10%
10%
-10%
10%
-10%
(220)
220
12
(12)
73
(53)
(33)
33
(16)
16
51
(51)
(228)
228
(454)
-
230
(230)
(511)
511
(2,385)
2,365
(5)
5
(301)
301
(2,905)
2,905
(1,353)
1,353
-
-
-
-
-
-
-
-
-
-
(115)
115
(856)
856
420
(420)
161
(1,770)
10
(10)
(81)
75
86
(81)
(6)
6
91
(91)
31
(31)
419
(419)
(565)
-
134
(134)
(607)
607
(952)
959
(43)
43
131
(131)
(2,312)
2,312
(1,304)
1,304
-
-
-
-
-
-
-
-
-
-
(132)
132
(1,534)
1,942
522
(522)
-
-
Interest
100 basis points
Inflation
100 basis points
1
Other financial
instruments, including
derivatives classified
as economic hedging,
comprise 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.
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 are
considered to be neutral to price changes.
million), arising from the hedging instruments.
All other conditions being equal, a decrease in
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 -2,784 million (2017: DKK -2,969
153 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 7. Risk management
Note summary
Contents
7.5 Credit risks
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 put in place.
Credit quality of the Group's
counterparties, DKKm
AAA/Aaa
AA/Aa
A/A
BBB/Baa
Non-rated
20,949
23,329
3,078
6,428
3,817
5,197
4,969
1,712
11,638
11,072
Total credit exposure
45,910
46,279
The table shows the credit quality of our counter-
parties, distributed by category. In addition, we have
receivables and construction agreements related to
the construction of offshore wind farms amounting
to DKK 6,951 million (2017: DKK 13.349 million) where
we have collateral in the offshore wind farm under
construction.
2018
2017
Net
Offsetting of financial assets, DKKm
Derivatives
Financial assets
Financial liabilities, offset
Financial assets in the balance sheet
Amounts not offset in the balance sheet:
Liabilities with set-off rights
Collateral received in the form of bonds
Net
12,173
(7,435)
4,738
(1,485)
(614)
2,639
Offsetting of financial liabilities, DKKm
Derivatives
Financial liabilities
Financial assets, offset
Financial liabilities in the balance sheet
Amounts not offset in the balance sheet:
Assets with set-off rights
Collateral provided in the form of bonds
13,410
(7,435)
5,975
(1,485)
(713)
3,777
The table shows our
financial assets and
liabilities where a share
is offset and is therefore
presented net. Offset-
ting is typically limited
within specific products.
Trade
receivables
23,173
(20,060)
3,113
-
-
3,113
Trade
payables
23,085
(20,060)
3,025
-
-
3,025
2018
Derivatives
35,346
(27,495)
7,851
(1,485)
(614)
5,752
9,743
(5,000)
4,743
(1,611)
(787)
2,345
2018
Derivatives
36,495
(27,495)
9,000
(1,485)
(713)
6,802
8,700
(5,000)
3,700
(1,611)
(40)
2,049
Trade
receivables
33,270
(29,480)
3,790
-
-
3,790
Trade
payables
32,327
(29,480)
2,847
-
-
2,847
2017
43,013
(34,480)
8,533
(1,611)
(787)
6,135
2017
41,027
(34,480)
6,547
(1,611)
(40)
4,896
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
Group Executive Management. 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 2018 or 2017.
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.
Accounting policies
We only offset positive and negative values if we
are entitled to and intend to settle several financial
instruments net.
154 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 7. Risk management
Note summary
Contents
7.6 Categories of financial instruments
Financial instruments are used for various
purposes. 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 excep-
tion of bank loans and issued bonds
where the market value is stated in note
6.1 ' Interest-bearing debt'.
Categories of financial instruments, DKKm
Energy and currency derivatives
Securities
Financial assets measured at fair value via the income statement
Interest and inflation derivatives
Currency derivatives
Derivatives (assets) used as hedging instruments
Trade receivables
Other accounts receivable
Financial assets measured at amortised cost
Energy and currency derivatives
Financial liabilities measured at fair value via the income statement
Interest and inflation derivatives
Currency derivatives
Derivatives (liabilities) used as hedging instruments
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 categories indicate
how the financial instru-
ments are recognised in
the financial statement.
2018
4,096
25,501
29,597
90
1,282
1,372
10,741
8,896
19,637
6,480
6,480
103
1,511
1,614
27,296
13,082
3,207
43,585
2017
2,589
25,280
27,869
-
2,281
2,281
9,170
8,812
17,982
2,214
2,214
-
2,160
2,160
29,636
11,499
2,767
43,902
155 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 7. Risk management
Note summary
Contents
7.7 Fair value measurement
During 2018 we have entered into a number
of power purchase agreements (PPAs) in the
US accounted for at fair value. The duration
of these PPAs are 13-15 year. Since power
prices are only available in five to sixth years
we have classified these agreements as based
on non-observable input.
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
determine fair values based on the external
information that most accurately reflects
the market values. We use pricing services
and benchmark services to increase the data
quality. Market values are determined by the
Treasury & Risk Management function, which
reports to the CFO. The development in
market values is monitored on a continuing
basis and reported to the Group Executive
Management.
a period of 13 to 15 years. These contracts are
accounted for at fair value. Due to the long
duration of these PPAs, power prices are not
observable for a large part of the duration,
whereby the estimated fair value is catego-
rised as based on non-observable input.
Deferred revenue from US power purchase
agreements
The deferred revenue from US PPAs consist
of losses not recognised at initial recognition
since the market value is based on non-
observable inputs. The US PPAs were taken
over as part of the purchase of Lincoln Clean
Energy in the US. The PPAs lock in the power
price of the expected power generation over
The deferred revenue is recognised in profit
or loss in the future period where the market
value relate. In 2018, we have recognised
an income of DKK 12 million related to the
deferred fair value of PPAs not recognised in
profit or loss at initial recognition. The total
amount of deferred revenue as of 31 Decem-
ber 2018 amounts to DKK 1,183 million (2017:
DKK 0 million).
Fair value hierarchy
DKKm
2018
Quoted prices
Observable input
Non-observable input
Total 2018
2017
Quoted prices
Observable input
Non-observable input
Total 2017
Assets
Liabilities
Securities
Derivatives Other receivables
Derivatives
Other payables
-
25,501
-
25,501
22,490
2,790
-
25,280
3
5,206
259
5,468
444
3,478
948
4,870
-
-
109
109
-
-
105
105
9
7,179
906
8,094
667
2,602
1,105
4,374
-
-
657
657
-
-
-
-
Significant non-observable inputs
Market values based on non-observable input
comprise primarily long-term contracts on
the purchase/sale of, in particular power and
to a less extent gas, coal, USD, EUR. Since
there are no active markets for the long-term
prices of power and gas, the market values
have been determined through an estimate
of the future prices. Normally, the price can be
observed for a maximum of four to sixth years
in the power market, after which an active
market no longer exists. When market prices
are no longer available, the price is projected
by extending the observable forward curve,
only adjusted for the expected development
in inflation.
Part of the purchase price of Deepwater
Wind is a contingent consideration of
DKK 657 million that we will pay upon
Deepwater Wind succesfully entering into two
specific PPAs. The maximum payable consider-
ation is DKK 657 million which we have also
estimated to be the fair value, due to our
strong expectation of succesfully signing
the agreements. In connection with the
divestment of our Oil & Gas business, we will
receive USD 100 million if the Rosebank field
is developed. This payment is recognised at
market value under other receivables.
156 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 7. Risk management
Note summary
Contents
2018
(157)
61
580
(1,184)
(344)
400
(2,458)
1,811
(647)
2017
(157)
Derivatives valued on the basis of non-observable input, DKKm
Market value at 1 January
Value adjustments through profit or loss
Sales/redemptions
Purchases/issues
Additions due to acquisitions of enterprises
Transferred from quoted prices and observable input
Transferred to quoted prices and observable input
Market value at 31 December before deferred gain/loss
Deferred loss at initial recognition
Market value at 31 December
Market value at 1 January
Net changes in market value
Market value at 31 December
The table shows the movements during the year in the
total market value (assets and liabilities) of derivatives
valued on the basis of non-observable inputs.
Non-observable inputs, US power prices
SPP North RT
Ercot North RT
Ercot West DA
Ercot West RT
Ercot North DA
100
90
80
70
60
50
40
30
20
10
Non-observable inputs per commodity price input, DKKm
2018
2017
US power prices
Other power prices
Gas prices
(1,814)
Total
Sensitivity of non-observable inputs, DKKm
Sensitivity
Non-observable inputs
Market value
ERCOT North real time, 2024-2033
ERCOT North day ahead, 2024-2033
ERCOT West day ahead, 2023-2033
ERCOT West real time, 2025-2033
-
SPP North real time, 2023-2033
(157)
Total
The table shows the market value related to the
non-observable input for the stated period and
sensitivity per power price index. The sensitivity
illustrates the impact on the market value as of
31 December 2018 if the non-observable price
increases/decreases by 10%. The most critical
non-observable input is US power prices in the period
2023-2033. If power prices as of 31 December 2018
increased/decreased by 10%, the market value
would decrease/increase by DKK 515 million.
The sensitivity analysis is presented on the different
US power price areas in the tabel above.
(2,533)
(52)
127
-
(157)
-
(2,458)
(157)
US power prices are
the most significant
non-observable input.
The non-observable US
power prices used as
basis for the market
values as of 31 Decem-
ber 2018 are illustrated
in the graph below.
(194)
(388)
(90)
(132)
(288)
(1,092)
+10%
(105)
(275)
(33)
(34)
(68)
(515)
-10%
105
275
33
34
68
515
Accounting policies
Market values based on quoted prices comprise
quoted securities and derivatives that are traded in
active markets. The market value of derivatives
traded in an active market are often settled on a
daily basis, thereby minimising the market value
presented on the balance sheet.
Market values based on observable inputs comprise
derivatives where valuation models with observable
inputs are used to measure fair value.
All assets and liabilities measured at market value
are measured on a recurring basis.
In business combinations, gain (loss) at initial
recognition on derivatives whose values are based
on non-observable inputs are deferred and recog-
nised in the period to which the value relate.
157 / 193
3
2
/
1
0
/
1
0
4
2
/
1
0
/
1
0
5
2
/
1
0
/
1
0
6
2
/
1
0
/
1
0
7
2
/
1
0
/
1
0
8
2
/
1
0
/
1
0
9
2
/
1
0
/
1
0
0
3
/
1
0
/
1
0
1
3
/
1
0
/
1
0
2
3
/
1
0
/
1
0
3
3
/
1
0
/
1
0
The graph shows the US power prices in the period
where prices are not observable, and which we have
used as basis for calculating market value as of
31 December 2018.
Ørsted Annual report 2018Financial statements
Note summary
Contents
8.
Other notes
Related-party transactions
Operating lease obligations
Auditor's fees
Contractual obligations
Company overview
159
160
161
161
162
Ørsted Annual report 2018 Consolidated 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.
Related parties with a significant influence
included Goldman Sachs until 2 March 2017,
when Martin Hintze from Goldman Sachs
stepped down from the Ørsted A/S Board
of Directors.
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.
See note 8.5 'Company overview' for an over-
view 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.
The remuneration and share programme
for Group Executive Management and the
Board of Directors are described in notes
2.6 ' Employee costs' and 2.7 'Share-based
payment'.
Joint ventures, DKKm
Capital transactions, net
Sale of goods and services
Purchase of goods and services
Through a directly owned company, Peter
Korsholm, board member, has had ordin ary
transactions with Danish Oil Pipe A/S, a
wholly owned subsidiary in the Ørsted Group.
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.
Associates, DKKm
Dividends received and capital reductions
Capital transactions, net
Sale of goods and services
Purchase of goods and services
Interest, net
Receivables
Owners, DKKm
Sale of goods and services
Board of Directors, DKKm
Purchase of goods and services
There were no other related-party transac-
tions during the period.
Payables
2018
129
16
(9)
15
(20)
-
(169)
3
60
2017
91
-
(23)
14
-
7
(20)
1
48
-
58
(139)
-
(110)
11
159 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 8. Other notes
Note summary
Contents
8.2 Operating lease obligations
Lease payments recognised in profit (loss) for
the year amounted to DKK 778 million (2017:
DKK 885 million).
Operating lease
obligations by segment
2018, DKKm
Offshore
Onshore
Bioenergy
Customer
Solutions
Other
activities
Our total operating lease obligations decreased
by DKK 1,300 million relative to last year. The
decrease in the obligations is primarily due to
the farm-down of the Hornsea 1 and run-off
of existing leases. The acquisition of Lincoln
Clean Energy (Onshore) and Deepwater Wind
(Offshore) added DKK 635 milllion to the
obligations (per 31 December 2018), which
partly off-sets the first mentioned effects on
the operating lease obligations.
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.
Offshore's assets held under operating leases
mainly comprise seabeds relating to the off-
shore wind farms in the UK and service vessels.
We reduced the discount rate in 2017 due to
the continued low interest rate environment.
Onshore's leases comprise plots of land
relating to onshore wind farms.
Accounting policies
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 mega-
watt hours generated. However, we have
typically agreed on minimum lease payments
for the seabeds.
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.
We will implement the new lease accounting
rules in IFRS 16 'Leases' on 1 January 2019. See note
1.4 ' Implementation of new or changed accounting
standards and interpretations'.
0-1 year
1-3 years
3-5 years
5-10 years
10-15 years
After 15 years
Total
Present value
Operating lease
obligations by segment
2017, DKKm
0-1 year
1-3 years
3-5 years
5-10 years
10-15 years
After 15 years
Total
Present value
737
584
363
731
726
748
3,889
2,336
462
1,148
433
1,032
1,022
1,276
5,373
3,638
15
31
31
75
79
284
515
308
-
-
-
-
-
-
-
-
9
13
14
36
39
62
173
112
11
16
13
35
38
71
184
117
159
159
161
20
0
0
499
310
145
238
159
101
0
0
643
453
198
409
399
1,007
280
38
2,331
1,753
171
404
403
1,024
454
51
2,507
1,887
Total
1,118
1,196
968
1,869
1,124
1,132
7,407
4,819
789
1,806
1,008
2,192
1,514
1,398
8,707
6,095
Supplementary information to operating lease
obligations, continuing operations, DKKm
Present value of lease payments
Lease payments recognised in profit (loss)
for the year
Calculated interest expenses on lease
obligations
Discount rate applied
2018
4,819
778
196
3.5%
2017
6,095
885
234
3.5%
The present value
is calculated by
discounting the
individual obligations
each year using our
internal discount rate
of 3.5% (2017: 3.5%).
160 / 193
Ørsted Annual report 2018Financial statements
Consolidated financial statements – 8. Other notes
Note summary
Contents
8.3 Auditor's fees
8.4 Contractual
obligations
PwC is Ørsted's auditor 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.
It is our policy that the annual fee for non-
audit services provided by our statutory
auditor cannot exceed the annual fee for
statutory audit services measured at Group
level. The cap may be exceeded subject to
approval by the Audit and Risk Committee.
Other assurance engagements primarily
included reviews of ESG data and reviews of
regulatory financial statements.
Auditor's fees, DKKm
Audit and audit-related fees
Statutory audit
Other assurance engagements
Non-audit services
Tax and VAT advice
Other services
Total fees to PwC
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
calculation of the income subject to Danish
joint taxation.
At 31 December 2018, contractual obliga-
tions in Offshore mainly related to offshore
wind turbines, foundations and cables,
etc., for the construction of offshore wind
farms. The obligations in Onshore mainly
related to purchases of onshore wind
turbines. In Bioenergy, the obligations mainly
related to the biomass conversion of Asnæs
Power Station, while the obligations of
Customer Solutions related to the roll-out of
smart meters.
Other services include other consultancy
services from PwC, including advice in connec-
tion 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 9 million (2017: DKK 8 million) and con-
sisted of accounting and tax advice in connec-
tion with both acquisition and divest ment of
assets and enterprises, review of ESG data and
other general accounting and tax advice.
2018
2017
11
2
3
7
23
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.
11
2
4
7
24
Contractual
obligations by
segment, DKKm
0-1 year
1-5 years
2018
2017
Offshore
Onshore
Bioenergy
13,258
5,555
18,813
31,485
1,957
854
2,811
-
417
18
435
890
Customer
Solutions
546
-
546
1,121
Total
16,178
6,427
22,605
33,496
Overview of concluded
contracts where delivery
had not taken place at
31 December 2018.
161 / 193
Fee for non-audit services in percent of
statutory audit fee
94%
100%
Ørsted Annual report 2018Financial 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
Offshore
Anholt Havvindmøllepark I/S2,3, Fredericia, Denmark
Barrow Offshore Wind Limited, London, UK
Bay State HoldCo LLC., Delaware, USA
Bay State Wind LLC2., Delaware, USA
Boreas B.V., Gravenhage, Netherlands
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
Borssele Wind Farm C.V., Gravenhage, Netherlands
Breesea Limited, London, UK
BSW Holdco LLC, Delaware, USA
BSW Projectco LLC2, Delaware, USA
Burbo Extension Holding Ltd, London, UK
Burbo Extension Ltd 2, London, UK
Celtic Array Limited, Berkshire, UK
Cerulea Limited, London, UK
CT Offshore A/S under frivillig likvidation, Fredericia, Denmark
Cygnus Wind Transmission Limited, London, UK
CH-SP Series 7-05 (C), LLC, Delaware, USA
CH-SP Series 13-05 (C), LLC, Delaware, USA
CH-SP Series 15-01 (C), LLC, Delaware, USA
CH-SP Series 17-01 (C), LLC, Delaware, USA
Deepwater Wind, LLC, Delaware, USA
Deepwater Wind Block Island Transmission, LLC, Delaware, USA
Type1
Ownership
interest
Segment/company/registered office
Type1
Ownership
interest
Deepwater Wind Block Island, LLC, Delaware, USA
-
Deepwater Wind Block Island Holdings, LLC5, Delaware, USA
Deepwater Wind Hudson Canyon, LLC, Delaware, USA
50%
Deepwater Wind New England, LLC, Delaware, USA
100%
Deepwater Wind New Jersey, LLC, Delaware, USA
50%
50%
Deepwater Wind New York, LLC, Delaware, USA
Deepwater Wind Operating, LLC, Delaware, USA
100%
Deepwater Wind Rhode Island, LLC (taxed as corporation), Delaware, USA
100%
Deepwater Wind South Fork, LLC, Delaware, USA
50%
DWBI Class B member, LLC, Delaware, USA
100%
DWW MARI Holdings, LLC, Delaware, USA
50%
DWW Rev 1, LLC, Delaware, USA
100%
Euros B.V., Gravenhage, Netherlands
100%
Formosa I International Investment Co., Limited, Taipei City, Taiwan
50%
50%
50%
50%
50%
Formosa I Wind Power Co2., Ltd, Taipei City, Taiwan
Garden State Offshore Energy, LLC, Delaware, USA
Gode Wind 03 GmbH, Hamburg, Germany
Gode Wind 04 GmbH, Hamburg, Germany
Gode Wind 1 Offshore Wind Farm GmbH & Co. oHG, Norden, Germany
100%
Gode Wind 2 Offshore Wind Farm P/S GmbH & Co. oHG, Norden, Germany
100%
Gunfleet Sands Holding Ltd., London, UK
100%
100%
Gunfleet Sands II Limited2, London, UK
Gunfleet Sands Limited2, London, UK
100%
GSOE I, LLC, Delaware, USA
100%
Horns Rev I Offshore Wind Farm, Fredericia, Denmark
100%
Hornsea 1 Holdings Limited, London, UK
100%
Hornsea 1 Limited2, London, UK
100%
Lincs Renewable Energy Holdings Limited, London, UK
-
JO
S
JO
JO
S
S
S
S
JO
S
S
JO
JO
JO
S
JV
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
JV
JV
JV
S
S
JO
JO
S
S
S
JV
JO
JO
JO
JO
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
35%
35%
50%
100%
100%
50%
50%
50%
50%
50%
50%
40%
50%
50%
50%
162 / 193
Ørsted Annual report 2018Financial statements Segment/company/registered office
Lincs Wind Farm (Holding) Limited, London, UK
Lincs Wind Farm Limited2, Aberdeen, UK
London Array Limited, Kent, UK
Morecambe Wind Limited, London, UK
Njord Limited2, London, UK
Northeast Wind Energy LLC, Delaware , USA
Northern Energy OWP West GmbH, Hamburg, Germany
Notos B.V., Gravenhage, Netherlands
Nysted Havmøllepark I, Fredericia, Denmark
Nysted I A/S, Fredericia, Denmark
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
Orsted Borkum Riffgrund I HoldCo GmbH, Hamburg, Germany
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
Orsted Hornsea 1 Holdings Limited
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
Consolidated financial statements – 8. Other notes
Note summary
Contents
Type1
Ownership
interest
Segment/company/registered office
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
25%
25%
25%
50%
50%
50%
100%
Orsted Race Bank (Holding) Ltd., London, UK
100%
Orsted Shell Flats (UK) Limited, London, UK
43%
86%
Orsted Speicher R GmbH, Hamburg, Germany
Orsted Taiwan Ltd., Taipei City, Taiwan
100%
Orsted UK III Limited, London, UK
100%
Orsted US East Coast Offshore Wind Holdco, LLC, Delaware, USA
100%
Orsted US East Coast Offshore Wind, LLC, Delaware, USA
100%
Orsted Walney Extension Holdings Limited, London, UK
100%
Orsted West of Duddon Sands (UK) Limited, London, UK
100%
Orsted Westermost Rough Limited, London, UK
100%
Orsted Wind Power A/S (branch)
100%
Orsted Wind Power Germany GmbH, Hamburg, Germany
100%
Orsted Wind Power Netherlands B.V., 's-Gravenhage, Netherlands
100%
Orsted Wind Power Netherlands Holding B.V.,'s-Gravenhage, Netherlands
100%
Orsted Wind Power North America LLC, USA, Delaware, USA
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Preparatory Office of Greater Changhua Offshore Wind Farm NE Ltd., Changhua
County, Taiwan
Preparatory Office of Greater Changhua Offshore Wind Farm NW Ltd., Changhua
County, Taiwan
Preparatory Office of Greater Changhua Offshore Wind Farm SE Ltd., Changhua County,
Taiwan
Preparatory Office of Greater Changhua Offshore Wind Farm SW Ltd., Changhua
County, Taiwan
Race Bank Wind Farm (Holding) Limited, London, UK
Race Bank Wind Farm Limited2, London, UK
Rhiannon Wind Farm Limited2, Windsor, UK
Scarweather Sands Limited, Coventry, UK
JO
JO
JO
JO
S
S
S
S
JO
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
Type1
Ownership
interest
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
JO
JO
JV
JV
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
50%
50%
50%
163 / 193
Ørsted Annual report 2018Financial statements Segment/company/registered office
Skipjack Offshore Energy, LLC, Delaware, USA
SMart Wind Limited, London, UK
SMRT Line, LLC, Delaware, USA
Sonningmay Wind Limited, London, UK
Soundmark Wind Limited, London, UK
UMBO GmbH, Hamburg, Germany
VI Aura Limited2, London, UK
VI Aura Transmission Limited, London, UK
Walney (UK) Offshore Windfarms Limited, London, UK
Walney Extension Holdings Limited, London, UK
Walney Extension Limited2, London, UK
West of Duddon Sands, London, UK
Westermost Rough (Holding) Limited, London, UK
Westermost Rough Limited2, London, UK
Zephyrus B.V. Gravenhage, Netherlands
Ørsted - Anholt Offshore A/S, Fredericia, Denmark
Ørsted Horns Rev 2 A/S, Fredericia, Denmark
Ørsted Horns Rev I A/S, Fredericia, Denmark
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 A/S, Taiwan Branch
Ørsted Wind Power Denmark A/S, Fredericia, Denmark
Ørsted Wind Power Holding A/S, Fredericia, Denmark
Ørsted Wind Power TW Holding A/S, Fredericia, Denmark
Onshore
2w Permian Solar, LLC, Delaware, USA
Antelope Flats Wind, LLC, Delaware, USA
Badger Wind, LLC, Delaware, USA
Dermott Wind Class B Holdco, LLC, Delaware, USA
Dermott Wind Class B Member, LLC, Delaware, USA
Consolidated financial statements – 8. Other notes
Note summary
Contents
Type1
Ownership
interest
Segment/company/registered office
Type1
Ownership
interest
S
S
S
S
S
JV
JO
S
S
JO
JO
JO
JO
JO
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
100%
Dermott Wind, LLC5, Delaware, USA
100%
Emerick Wind, LLC, Delaware, USA
100%
Helena Wnd, LLC, Delaware, USA
100%
LCE Asset Management Services, LLC, Delaware, USA
100%
LCE Dermott Holdings, Inc., Delaware, USA
90%
50%
LCE Services, LLC, Delaware, USA
LCE Turbine Holdings, Inc., Delaware, USA
100%
LCE Wind Turbine Company, LLC, Delaware, USA
50%
50%
50%
50%
50%
50%
LCE WS Holdings, Inc., Delaware, USA
Lincoln Clean Energy Development, LLC, Delaware, USA
Lincoln Clean Energy, LLC, Delaware, USA
Lockett Windfarm Class B Member, LLC, Delaware, USA
Lockett Windfarm Project Holdings, LLC, Delaware, USA
Lockett Windfarm, LLC, Delaware, USA
100%
Napoleon Wind, LLC, Delaware, USA
100%
NJ Oak Solar Finco, LLC, Delaware, USA
100%
NJ Oak Solar Holdco, LLC, Delaware, USA
100%
NJ Oak Solar, LLC, Delaware, USA
100%
Pactolus Solar, LLC, Delaware, USA
100%
Orsted Renewables N.A. LLC, Delaware, USA
100%
Plum Creek Wind, LLC, Delaware, USA
100%
Rockwood Energy Center, LLC, Delaware, USA
100%
Sage Draw Wind, LLC, Delaware, USA
100%
Shawnee Energy Center, LLC, Delaware, USA
100%
SP Energy 1, LLC, Delaware, USA
100%
SP Energy DM, LLC, Delaware, USA
SP Energy ET, LLC, Delaware, USA
100%
SP Energy GL, LLC, Delaware, USA
100%
SP Energy PV, LLC, Delaware, USA
100%
SP Energy TL, LLC, Delaware, USA
100%
St Lawrence Solar, LLC, Delaware, USA
100%
Staked plains Energy, LLC, Delaware, USA
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
164 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 8. Other notes
Note summary
Contents
Segment/company/registered office
Tahoka Wind Class B Holdco, LLC, Delaware, USA
Tahoka Wind Class B Member, LLC, Delaware, USA
Tahoka Wind Project Holdings, LLC5, Delaware, USA
Tahoka Wind, LLC, Delaware, USA
Western Trail Wind, LLC, Delaware, USA
Willow Springs Class B Holdco, LLC, Delaware, USA
Willow Springs Class B Member, LLC, Delaware, USA
Willow Springs Project Holdings, LLC5, Delaware, USA
Willow Springs Windfarm, LLC, Delaware, USA
Bioenergy
Cure Renescience B.V., 's-Gravenhage, Netherlands
DE Thermal Power Nr. 1 A/S in voluntary liquidation, Fredericia, Denmark
DONG Energy New Bio Solutions Co. Ltd.,China
Emineral A/S, Fredericia, Denmark
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 Concept2, Holstebro, Denmark
Maabjerg Energy Concept A/S, Fredericia, Denmark
Orsted Bioenergy & Thermal Power A/S (UK branch)
Orsted Energy Storage & Solar N.A. LLC, Delaware, USA
Orsted ESS Mersey Limited, London, UK
Orsted Holding Ludwigsau I GmbH, Hamburg, Germany
Orsted Kraftwerke Holding GmbH, Hamburg, Germany
Orsted Netherlands 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 Limited., London, UK
Type1
Ownership
interest
Segment/company/registered office
S
S
S
S
S
S
S
S
S
JV
S
S
JO
S
S
JV
NC
S
S
S
S
S
S
S
S
S
S
S
S
S
S
100%
Stigsnæs Vandindvinding I/S, Slagelse, Denmark
100%
Vejen Kraftvarmeværk A/S in voluntary liquidation, Fredericia, Denmark
100%
Wilson Battery Storage LLC, Delaware, USA
100%
Ørsted Bioenergy & Thermal Power A/S4, Fredericia, Denmark
100%
Ørsted Energy Storage Solution Holding A/S, Fredericia, Denmark
100%
Ørsted GWS Avedøre Biogas A/S, Fredericia, Danmark
100%
Ørsted New Bio Solutions China A/S, Fredericia, Denmark
100%
Ørsted New Bio Solutions Holding A/S, Fredericia, Denmark
100%
Customer Solutions
Danish Offshore Gas Systems A/S, Fredericia, Denmark
50%
Danish Oil Pipe A/S, Fredericia, Denmark
100%
Etzel-Kavernenbetriebsgesellschaft mbH & Co. KG, Bremen, Germany
100%
Etzel-Kavernenbetriebs-Verwaltungsgesellschaft mbH, Bremen, Germany
50%
Obviux A/S, Fredericia, Denmark
100%
Orsted AB, Malmö, Sweden
100%
Orsted Energy Solutions (UK) Limited, London, UK
40%
50%
70%
Orsted Infrastructure GmbH3, Hamburg, Germany
Orsted Leitung E GmbH, Hamburg, Germany
Orsted Markets GmbH, Hamburg, Germany
100%
Orsted Power Sales (UK) Limited, London, UK
100%
Orsted S&D (UK) Limited, London, UK
100%
Orsted Sales (UK) Limited, London, UK
100%
Orsted Sales GmbH, Hamburg, Germany
100%
Orsted Salg & Service A/S (UK branch)
100%
Orsted Services B.V.'s, Gravenhage, Netherlands
100%
Orsted Speicher E GmbH, Hamburg, Germany
100%
Radius Elnet A/S, Fredericia, Denmark
100%
Valified ApS, Copenhagen, Denmark
100%
Ørsted Pipelines A/S, Fredericia, Denmark
100%
Ørsted Real Estate A/S, Fredericia, Denmark
100%
Ørsted Sales & Distribution A/S, Fredericia, Denmark
100%
Ørsted Salg & Service A/S, Fredericia, Denmark
Type1
NC
S
S
S
S
S
S
S
S
S
A
A
S
S
S
S
S
S
S
S
S
S
S
S
S
S
A
S
S
S
S
Ownership
interest
64%
100%
100%
100%
100%
100%
100%
100%
100%
100%
33%
33%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
31%
100%
100%
100%
100%
165 / 193
Ørsted Annual report 2018Financial statements Consolidated financial statements – 8. Other notes
Note summary
Contents
Segment/company/registered office
Other
EM El Holding A/S, Fredericia, Denmark
EnergiGruppen Jylland El A/S, Fredericia, Denmark
EnergiGruppen Jylland El Holding A/S, Fredericia, Denmark
Lithium Balance A/S, Egedal, Denmark
Orsted (UK) Limited., London, UK
Orsted Holdings N.A. Inc, Delaware, USA
Orsted Services Malaysia Sdn. Bhd., Kuala Lumpur, Malaysia
Orsted Venture N.A. LLC, Delaware, USA
Orsted Polska Sp. z o. o., Warszawa, Poland
Ørsted EGJ A/S, Fredericia, Denmark
Ørsted El A/S4, Fredericia, Denmark
Ørsted Insurance A/S4, Fredericia, Denmark
Ørsted North America Holding A/S, Fredericia, Denmark
Ørsted nr. 1 2008 A/S3 4, Fredericia, Denmark
Ørsted Nr. 1 2014 A/S3 4, Fredericia, Denmark
Ørsted Nr. 2 2014 A/S3 4, Fredericia, Denmark
Ørsted Nr. 3 2014 A/S3 4, Fredericia, Denmark
Ørsted Nr. 4 2014 A/S3 4, Fredericia, Denmark
Ørsted Services A/S 4, Fredericia, Denmark
Type1
Ownership
interest
S
S
S
A
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
100%
100%
100%
15%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
1 S = subsidiary
A = associate
JO = joint operation
JV = joint venture
NC = non-consolidated entity
2 The company is owned through a company which
is not owned 100% by Ørsted. The disclosed owner-
ship interest is Ørsted's ultimate ownership interest
in the company.
3 The company applies the provision in section 5
or section 6 of the Danish Financial Statements Act
to omit presenting a separate annual report.
4 Subsidiaries owned directly by Ørsted A/S.
5 One or more tax equity partners own an
insignificant share of the company. See note
4.5 'Tax equity liabilities'. The company is fully
consolidated.
166 / 193
Ørsted Annual report 2018Financial statements Note summary
Contents
Consolidated
ESG statements
(additional
information)
Basis of reporting
Environment
Social
Governance
168
169
171
172
Ørsted Annual report 2018 Consolidated ESG statements (additional information)
Note summary
Contents
Basis of reporting
Consolidated environmental, social and
governance (ESG) statements
In the consolidated ESG statements, we give
an account of our results, objectives and
accounting policies for the ESG data included
in the management's review in this report.
Our full ESG data set can be seen in the
independent publication 'ESG performance
report 2018'. The ESG performance report
also includes additional information, such
as selected ESG indicators by country and
all ESG accounting policies, including a list
of references for conversion factors used in
calculations.
Scope and consolidation
Unless otherwise stated, ESG data is reported
on the basis of the same principles as the
financial statements. Thus, the consolidated
ESG statements include consolidated data
from the parent company, Ørsted A/S, and
subsidiaries controlled by Ørsted A/S. Data
from associates and joint ventures are not
included.
The consolidation of safety data deviates
from the above described principles. Safety
data is collected using an operational scope.
This means that we, irrespective of our owner-
ship share, include 100% of injuries and hours
worked etc., from all operations where Ørsted
is responsible for safety, including safety for
external suppliers.
Data from acquisitions and divestments
are included/excluded from the date of
acquisition/divestment.
Danish Financial Statements Act,
sections 99a and 99b
Pursuant to section 99a of the Danish
Financial Statements Act, Ørsted is obliged
to account for the company's CSR activi-
ties and report on business strategies and
activities with regard to human rights, labour
rights, anti-corruption, the environment and
the climate. By publishing our sustainability
report (orsted.com/sustainability2018), Ørsted
complies with section 99a of the Danish
Financial Statements Act.
Ørsted's work for greater gender diversity at
management level is reported in accordance
with section 99b of the Danish Financial
Statements Act. The reporting of gender
diversity can be seen in our ESG performance
report 2018.
Bussiness changes in 2018 affecting
ESG data
Acquisition of:
– Lincoln Clean Energy (onshore wind power)
– Deepwater Wind (offshore wind power).
Divestment of:
– 50% of Hornsea 1 (offshore wind farm)
– Enecogen (thermal power plant, fossil).
Commissioning of:
– Race Bank (offshore wind farm)
– Walney Extension (offshore wind farm)
– Borkum Riffgrund 2 (offshore wind farm)
– Tahoka (onshore wind farm).
New ESG indicators in 2018
– Installed renewable capacity.
– Awarded and contracted capacity.
– Onshore wind generation indicators.
– Solar power generation.
– Avoided carbon emissions (was reported
in the 2017 ESG performance report).
– Job creation from offshore wind.
– People powered from offshore wind.
– Additional Board of Directors and Group
Executive Management information.
Discontinued ESG indicators
– Wind energy content (replaced by
wind speed).
– Employee loyalty (refer to the
ESG performance report 2018).
Ørsted
ESG performance report
2018
Our full ESG data set can be seen in the
ESG performance report 2018.
(orsted.com/ESGperformance2018)
8.3GW
Our installed renewable capacity increased
by 44% from 2017 to 2018. We have a target of
30GW installed renewable capacity in 2030.
75%
The green share of our heat and power
generation increased from 64% in 2017 to 75%
in 2018. We have a target of 99% in 2025.
131g
Our greenhouse gas intensity was reduced by
13% to 131g CO2/kWh in 2018. Our target is to
reach 10g CO2/kWh in 2025.
4.7
Total recordable injury rate (TRIR) has been
reduced from 6.4 in 2017 to 4.7 in 2018.
Our target is to reach 3.3 or below in 2025..
168 / 193
Ørsted Annual report 2018Financial statements Consolidated ESG statements (additional information)
Note summary
Contents
Environment
Strategic
target
Business
driver
Indicator
Green share of heat and power generation
Greenhouse gas intensity
Installed renewable capacity
– Offshore wind
– Onshore wind
– Onshore, solar
– Thermal heat, biomass
Decided (FID) renewable capacity (not yet installed)
– Offshore wind
– Onshore wind
– Thermal heat, biomass
Awarded and contracted renewable capacity
(no FID yet)
– Offshore wind
– Onshore wind
– Onshore, solar
Sum of installed and FID renewable capacity
Sum of installed, FID, awarded and contracted
renewable capacity
Unit
%
g CO2e/kWh
MW
MW
MW
MW
MW
MW
MW
MW
MW
MW
MW
MW
MW
MW
MW
Target
99 (2025) 1
≤ 10 (2025)2
30GW (2030)
15GW (2025)
2018
75
131
8,303
5,602
803
10
1,888
3,665
3,356
184
125
4,796
3,916
530
350
2017
64
151
5,763
3,875
-
-
1,888
5,178
5,053
-
125
590
590
-
-
11,968
10,941
16,764
11,531
1 additional target is >95% (2023)
2 additional target is ≤ 100 (2020) and ≤ 20 (2023)
In 2018, we defined an ambition of installing
more than 30GW of green capacity by 2030
across offshore wind, onshore wind, bioenergy
and solar PV technologies. In addition, our
ambition is to have installed 15GW of offshore
wind capacity by 2025, up from our previous
target of 11-12GW.
The installed renewable capacity increased
by 44% in 2018 due to the new offshore wind
farms Race Bank, Walney Extension and
Borkum Riffgrund 2. In addition, we acquired a
small offshore wind farm Block Island, two on-
shore wind farms Williow Springs and Amazon
and commisioned Tahoka.
Our greenhouse gas intensity was reduced by 13% for
the same reasons as for the renewable energy share
(described to the right). We are well on track to meet
our target of a greenhouse gas emission intensity of
no more than 20g CO2e/ kWh in 2023 and 10g CO2e/
kWh in 2025.
Total heat and power generation 2018
(2017) by energy source
Offshore wind
Onshore wind
Biomass
Solar
Coal
Natural gas
Oil
0.4%
(0.3%)
8% (17%)
17%
(19%)
0.01%
(0%)
39%
(33%)
34% (31%)
2% (0%)
The green (renewable) share of our heat and power
generation amounted to 75% in 2018, up 11 percent-
age points relative to 2017. The increase was due
to higher generation from offshore wind farms, new
onshore wind farms, a larger share of biomass-based
generation as a result of the conversion of Skærbæk
Power Station as well as lower use of gas following
the divestment of the Enecogen power plant.
Our target is 99% green energy generation in 2025.
169 / 193
Ørsted Annual report 2018Financial statements Consolidated ESG statements (additional information)
Note summary
Contents
Strategic
target
Business
driver
Indicator
Generation, power and heat total
Power generation
– Offshore wind
– Onshore wind
– Solar
– Thermal
Heat generation, thermal
Offshore wind indicators
Generation capacity
Wind speed
Load factor
Availability
Onshore wind indicators
Generation capacity
Wind speed
Load factor
Availability
Thermal heat and power generation indicators
Power generation capacity
Heat generation capacity
Degree days, Denmark
Coal share of fuels
Sourcing of certified biomass
Biomass share of thermal heat and power generation
Avoided carbon emissions
– Offshore wind
– Onshore wind
– Biomass-converted generation
Unit
TWh
TWh
TWh
TWh
TWh
TWh
TWh
GW
m/s
%
%
GW
m/s
%
%
GW
GW
Target
2018
26.0
17.2
10.0
0.5
0.003
6.7
8.8
3.0
9.1
42
93
0.8
7.3
41
92
2.8
3.4
2017
25.7
16.7
8.5
-
-
8.2
9.0
2.5
9.3
44
93
-
-
-
-
3.4
3.4
Number
%
%
%
Million tonnes CO2e
Million tonnes CO2e
Million tonnes CO2e
Million tonnes CO2e
0 (2023)
100% (2020)
2,526
2,705
38
83
58
8.1
6.3
0.4
1.4
30
72
47
6.7
5.3
-
1.4
Offshore generation capacity increased by 20%
to 3.0GW in 2018 following commisioning of Race
Bank, Walney Extension and Borkum Riffgrund 2 and
acquisition of Deepwater Wind.
The acquisition of Lincoln Clean Energy added
0.8GW onshore capacity in 2018.
The higher wind capacity contributed to a 24%
increase in wind-based generation in 2018.
Thermal power generation decreased by 18% in 2018,
mainly due to the divestment of the Dutch power
plant Enecogen. Power generation from Danish
power plants increased by 4%, while thermal heat
generation decreased by 2%.
The coal share of fuels increased in 2018 as we
experienced a higher demand for power in periods
where we were not generating heat. In these periods,
fossil fuels are normally used. This was offset by a
reduction in the use of natural gas and an increase
in the use of biomass, resulting in an 11 percentage
points higher biomass share of our thermal energy
generation.
The certified share of renewable woody biomass
increased from 72% in 2017 to 83% in 2018. The
suppliers are still in the process of introducing
certifications in their production and supply chains,
and only a few suppliers have certified their entire
production. We expect the suppliers to continually
increase their share of certification. Our target is to
source all woody forest-based biomass as certified
sustainable biomass by 2020.
Due to the increase in renewable energy generation,
the amount of avoided carbon emissions increased
by 21% from 2017 to 2018. In 2018, our renewable
energy generation avoided 8.1 million tonnes carbon
dioxide.
170 / 193
Ørsted Annual report 2018Financial statements Consolidated ESG statements (additional information)
Note summary
Contents
Social
Strategic
target
Business
driver
Indicator
Employees
Unit
Target
2018
2017
Total number of employees at 31 December
Number of FTEs
Average number of employees for the year
Number of FTEs
Employee satisfaction
Scale 0-100
≥ 77 (2020)
Safety
Fatalities
Number
0
LTIF (lost-time injury frequency)
Per million working hours
TRIR (total recordable injury rate)
Per million working hours
≤ 3.3 (2025)
Sales and distribution
Gas sales
Power sales
Power distribution
Reliability of supply
TWh
TWh
TWh
6,080
5,796
76
0
1.5
4.7
131.1
35.2
8.4
5,638
5,738
76
0
1.6
6.4
129.0
37.5
8.4
Reliability of supply (power cuts per customer, SAIFI)
Number
0.65
0.42
Customer satisfaction
Customer satisfaction, B2B
Customer satisfaction, B2C in Denmark
Scale 1-100
Scale 1-100
Customer satisfaction, distribution customers in Denmark
Scale 1-100
Job year creation from offshore wind power value chain
Total job years over asset lifespans (based on installed
and FID capacity)
– Based on installed capacity
1,000 FTE years
1,000 FTE years
– Based on decided capacity (FID), not yet installed
1,000 FTE years
People powered from offshore wind farms
Based on installed capacity
Million people
≥ 80 (2020)
≥ 80 (2020)
≥ 80 (2020)
75
74
81
179
112
67
12.5
77
76
82
179
78
101
8.6
The number of employees increased by 8% from
2017 to 2018.
Employee satisfaction continued to be high. With
an employee 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 2018.
Our total recordable injury rate (TRIR) declined
from 6.4 in 2017 to 4.7 in 2018. We registered 98
total recordable injuries (TRIs), 61 of which involved
employees working for our suppliers. LTIF decreased
from 1.6 in 2017 to 1.5 in 2018. There were no fatal
accidents in 2018. We have set a new ambitious
target for TRIR of 3.3 or lower by 2025.
The increase in power cuts per customer (SAIFI) was
a result of more interruptions from cable cuts from
excavation activities and a higher fault rate on our
high voltage grids.
In a lifecycle perspective, our and our parters'
investments in deploying green offshore energy
have created 179,000 job years.
Our 2025 target of 15GW offshore wind capacity
corresponds to more than 30 million people
powered. Our 2030 target of 30GW renewable
energy corresponds to more than 50 million people
powered.
171 / 193
Ørsted Annual report 2018Financial statements
Consolidated ESG statements (additional information)
Note summary
Contents
Governance
Strategic
target
Business
driver
Indicator
Board of Directors, Ørsted A/S
Independent board members
Gender diversity
Members, female
Members, male
Gender with lowest representation
Nationality diversity
Members, Danish
Members, non-Danish
Group Executive Management
Gender diversity
Members, female
Members, male
Gender with lowest representation
Nationality diversity
Members, Danish
Members, non-Danish
Good business conduct
Substantiated whistleblower cases
– Cases transferred to the police
Unit
%
Number
Number
%
Number
Number
Number
Number
%
Number
Number
Number
Number
Target
2018
2017
100
3
5
38
5
3
1
6
83
3
3
50
5
1
1
4
14
20
4
3
2
1
3
2
3
0
The Board of Directors is responsible for the overall
management of the company and appoints the
Executive Board. The Board of Directors lays down
the company's strategy and makes decisions
concerning major investments and divestments, the
capital base, key policies, controls and audit matters,
risk management and significant operational issues.
Since climate change is fundamental to Ørsted's
business strategy and all our investments, climate-
related issues are directly or indirectly an agenda
item at all board meetings. As such, climate-
related issues are integrated in reviewing and
guiding strategy, performance and in all aspects of
decision-making.
The Board of Directors monitors progress against
Ørsted's strategic goals and targets for adressing
climate-related issues.
Our employees and other associates may report
serious offences, such as cases of bribery, fraud and
other criminal offences, through our whistleblower
scheme or through our management system. In 2018,
two substantiated cases of inappropriate or unlawful
behavior were reported through our whistleblower
scheme. One case concerned violation of procure-
to-pay policies, and one case concerned misap-
propriation of assets. The cases had consequences
for the individuals involved. None of the reported
cases were critical to our business or impacted our
financial results.
Whistleblower cases are taken very seriously, and
we conducted an awareness campaign to avoid
similar cases.
172 / 193
Ørsted Annual report 2018Financial statements Consolidated ESG statements (additional information)
Note summary
Contents
Accounting policies – Environment
Green share of heat and power generation
The green (renewable energy) share of our heat and
power generation and the distribution of the genera-
tion on the individual energy sources and fuels are
calculated on the basis of the energy sources used
and the energy generated at the different energy
plants.
Wind and solar-based generation is computed as the
input from the individual plant (wind and solar),
as there is only one source of power for each plant.
For CHP plants, the share of the specific fuel (e.g.
biomass) is calculated relative to the total fuel
consumption for a given plant/unit within a given
time period. The specific fuel share is then multiplied
with the total heat and power generation for the
specific plant/unit in the specific period. The result
is the fuel-based generation for the individual unit –
for example the biomass-based generation of heat
and power in the CHP plant unit within a given
time period.
Energy generation based on fuel, wind and solar is
added up to a total which tallies with total genera-
tion. The percentage share of the individual energy
sources is calculated by dividing generation from
individual energy source with the total generation.
The following energy sources and fuels are consid-
ered renewable energy: wind, solar and biomass. The
following energy sources are considered fossil energy
sources: coal, natural gas and oil.
For installed renewable thermal capacity, we use the
heat capacity, as heat is the primary thermal energy
generation, and as bioconversions of the thermal
power stations are driven by heat contracts.
Decided (FID) capacity
Decided (FID) capacity is the renewable capacity
for which a final investment decision (FID) has been
made.
Awarded and contracted renewable capacity
The awarded renewable capacity is based on the
capacities which have been awarded to Ørsted in
auctions and tenders. The contracted capacity is the
capacity for which Ørsted has signed a contract or
power purchase agreement (PPA) concerning a new
renewable energy plant. Typically, offshore wind
farms are awarded, whereas onshore wind farms are
contracted. We include the full capacity if more than
50% of PPAs/offtake is secured.
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 (including steam) generation is meas-
ured as net output sold to heat customers.
Greenhouse gas intensity
Greenhouse gas intensity is defined as the green-
house gas emissions from the CHP plants divided by
the total heat and power generation.
Heat and power generation capacity
Power generation capacity from wind farms is calcu-
lated and included from the time when the individual
wind turbine has passed a 240-hour test.
Greenhouse gases comprise greenhouse gas emis-
sions in accordance with the GHG Protocol from the
combustion of fuels in thermal heat and power
generation. Greenhouse gases thus comprise carbon
dioxide (CO2), nitrous oxide (N2O) and methane (CH4).
The Gunfleet Sands and Walney 1 and 2 offshore
wind farms have been consolidated according to
ownership interest. Other wind farms and CHP
plants are financially consolidated.
Installed renewable energy capacity
The installed renewable energy capacity is calcu-
lated as the cumulative renewable gross capacity
installed by Ørsted before divestments.
The thermal heat and power generation capacity is
a measure of the maximum capability to generate
heat and power. The capacity can change over time
with plant modifications. For each power station, the
capacity is given for generation with the primary fuel
mix. Overload is not included.
Availability and load factor
The time-based availability factor (availability)
is calculated as the ratio of the number of hours
the 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
wind farm's availability against 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 potential
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. Wind farms in
other countries are not compensated for non-access
to the grid. New wind turbines are included in the
calculation of availability and load factor once they
have passed a 240-hour test.
Wind speed
Offshore wind speed shows the wind speeds of the
areas for Ørsted's offshore wind farms. The wind
speeds where the individual offshore wind
farms are located are provided to Ørsted by an
external supplier. Wind speeds are weighted on the
basis of the capacity of the individual offshore wind
farms and consolidated to an Ørsted total.
Onshore wind speed is based on wind speed
measurements from anemometers on the wind
turbines.
Degree days
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. The number of degree days expresses
the difference between an average indoor tempera-
ture of 17°C and the outside mean temperature for
a given period. The need for heat increases with the
number of degree days.
Coal share of fuels used for thermal heat and power
generation
The coal share is calculated as the coal consumption
in GJ relative to the total fuel volume in GJ.
Sourcing of certified biomass
Certified biomass is defined as forest-based woody
biomass, i.e. wood pellets and wood chips. Biomass
is measured as sourced woody biomass delivered
to the individual combined heat and power plants
within the reporting period.
Certified sustainable woody biomass sourced must
be certified within at least one of the claim cate-
gories accepted by the Danish industry agreement
on certified biomass. Accepted claim categories are:
FSC 100%, FSC Mix, PEFC 100%, SBP compliant.
Certified biomass is calculated as the amount of
sourced woody biomass compared to the total
amount of sourced woody biomass delivered to
individual power stations within the reporting period.
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.
Avoided carbon emissions
The avoided carbon emissions due to generation
from offshore and onshore wind farms are calculat-
ed assuming that the generation from wind farms
replace an equal quantity of electricity generated
using fossil fuels.
The avoided carbon emission due to conversion of
combined heat and power plants and subsequent
switch of fuel from fossil to biomass (i.e. biomass
from dedicated plantations or biomass residues) is
calculated from the energy content of the fuel used
at power plants. It is assumed that the use of 1GJ of
biomass fuel avoids the use of 1GJ of fossil fuels. The
upstream emissions from biomass fuel production
and transportation are included.
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Ørsted Annual report 2018Financial statements Consolidated ESG statements (additional information)
Note summary
Contents
Accounting policies – Social
Employees
Our reporting covers contractually employed
employees in all 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
Ørsted conducts a comprehensive employee
satisfaction survey once a year. All Ørsted employees
with a few exceptions are invited to participate in the
survey.
The following employees are not invited to
participate: Employees who joined the company
shortly before the employee satisfaction survey,
employees who resigned shortly after the employee
satisfaction survey, interns, consultants/advisers and
external temporary workers who do not have an
employment contract with Ørsted.
In the survey, a number of questions are asked. 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, is included. Occupational
injuries and lost-time injuries are calculated for both
our own employees and suppliers. Data from all
Ørsted locations is 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 to 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.
Fatalities are the number of employees who lost
their lives as a result of a work-related incident.
Sales and distribution
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 are not included in the statement.
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
System average interruption frequency index
(SAIFI) covers the frequency of announced and
unannounced power outages for the customer.
SAIFI is calculated as the average number of
power outages per customer per year. SAIFI is pre-
sented here without the transmission grids, as these
grids are operated by Energinet and therefore do not
lie within the responsibility of Radius.
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 the
countries where we have B2B customers. 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 month. So-called sleeping customers
are therefore not included in the statement. The
method follows the ACSI model based on the Europe-
an customer satisfaction index (EPSI) scale. External
agencies conduct the interviews and report absolute
and weighted results.
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 the customer 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.
Job creation
The number of job years is calculated based on
a factor for job years per MW installed from the
International Renewable Energy Agency, IRENA. The
job year creation factor is based on a 500MW off-
shore wind farm. The factor is not adjusted for other
details, such as when the wind farm was constructed
(wind turbine size and other parameters), wind farm
size-specific parameters beyond a simple scaling of
capacity size, geographical position (i.e. water depths
and distance to shore).
This means that job years related to for example
mining and manufacturing of steel and concrete
as well as local jobs, such as hotels and dining for
people working on local sites, are not included. A
lifetime of 25 years for all wind farms is used.
The number of job years relates to the installed
capacity and not Ørsted's ownership share of the
wind farm. The number of job years varies during
the lifespan, and most of the jobs are created in the
beginning during construction and installation.
People powered
The number of people powered is calculated on
the basis of capacity, a fixed industrial load factor
for offshore wind farms and country-specific power
consumption per person. The indicator is calculated
based on the full capacities of the wind farms and
not Ørsted's ownership share.
Accounting policies – Governance
Board of Directors of Ørsted A/S
The employee representatives on the Board of
Directors are not included in the data for the Board
of Directors.
Substantiated whistleblower cases
Ørsted's whistleblower hotline is available for
internal and external reporting of suspected cases
of inappropriate or illegal behaviour. Whistleblower
cases are received and handled by the Internal Audit
function, which also receives similar reports through
the management system and from compliance
officers.
All reports are managed 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 reported in the ESG statement.
The number of job years created relates only to the
value chain from procurement and manufacturing,
over installation, operation and maintenance, to
decommissioning.
Cases transferred to the police
Cases transferred to the police are defined as the
number of cases reported in accordance with the
above which are transferred to the police.
174 / 193
Ørsted Annual report 2018Financial statements Note summary
Contents
Parent company
financial
statements
Income statement
Balance sheet
Statement of changes in equity
Notes
1. Basis of reporting
2. Employee costs
3. Financial income and expenses
4. Tax on profit (loss) for the year and deferred tax
176
176
177
178
5. Distribution of net profit
6. Investments in subsidiaries
7. Receivables from subsidiaries
8. Derivatives
9. Securities
10. Loans and borrowings
11. Other provisions
12. Contingent liabilities
13. Related-party transactions
14. Operating lease obligations
15. Auditor's fees
16. Ownership information
Ørsted Annual report 2018 Parent company financial statements
Note summary
Contents
Income statement
Balance sheet
1 January - 31 December
31 December
Note Income statement, DKKm
Revenue
2
Employee costs
External expenses
Operating profit (loss) (EBIT)
Gain on divestment of enterprises
Financial income
Financial expenses
Profit (loss) before tax
3
3
4
5
2018
198
(33)
(356)
(191)
(10)
2017
Note Assets, DKKm
2018
2017
Note Equity and liabilities, DKKm
6
7
232
(31)
(315)
(114)
Investments in subsidiaries
40,425
41,762
Share capital
Receivables from subsidiaries
55,131
48,706
Reserves
Other receivables
Financial assets
1,082
1,325
Retained earnings
96,638
91,793
Proposed dividends
(4,210)
Non-current assets
96,638
91,793
10,014
13,667
Receivables from subsidiaries
32,933
15,664
(6,732)
(10,486)
8
Derivatives
3,081
(1,143)
Other receivables
Equity attributable to
shareholders in Ørsted A/S
10
Hybrid capital
Equity
Deferred tax
Other provisions
3,102
604
3,596
524
36,639
19,784
24,740
24,806
1,105
862
62,484
45,452
159,122
137,245
4
11
10
10
2018
4,204
(296)
2017
4,204
(467)
25,968
27,522
4,099
3,783
33,975
35,042
13,239
13,239
47,214
48,281
97
794
81
775
Tax on profit (loss) for the year
(69)
(76)
Receivables
Profit (loss) for the year
3,012
(1,219)
9
Securities
Cash
Current assets
Assets
Bank loans and issued bonds
23,482
25,715
Other payables
0
27
Non-current liabilities
24,373
26,598
Bank loans and issued bonds
8
Derivatives
Trade payables
3,448
3,322
34
6,509
4,020
159
Payables to subsidiaries
79,364
48,638
Other payables
Income tax
1,242
125
2,433
607
Current liabilities
87,535
62,366
Liabilities
111,908
88,964
Equity and liabilities
159,122
137,245
176 / 193
Ørsted Annual report 2018Financial statements Parent company financial statements
Note summary
Contents
Statement of changes in equity
1 January - 31 December
Statement of changes in equity, DKKm
Share capital
Hedging
reserve
Share
premium
reserve
Retained
earnings
Proposed
dividends
Shareholders
in Ørsted A/S Hybrid capital
4,204
(467)
Equity at 1 January 2018
Profit (loss) for the year
Dividends paid
Proposed dividends
Purchase of treasury shares
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
Share-based payment
Changes in equity in 2018
Equity at 31 December 2018
Equity at 1 January 2017
Transferred to retained earnings
Profit (loss) for the year
Dividends paid
Proposed dividends
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
-
-
-
-
-
-
-
-
-
-
-
4,204
4,204
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,204
-
-
-
-
84
135
(48)
-
-
-
171
(296)
(497)
-
-
-
-
254
(444)
229
(9)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21,279
(21,279)
-
-
-
-
-
-
-
-
-
-
-
-
27,522
2,587
2
(4,099)
(48)
-
-
-
-
-
4
(1,554)
25,968
11,958
21,279
(1,935)
1
(3,783)
-
-
-
-
-
-
-
-
2
3,783
-
(3,783)
4,099
-
-
-
-
-
-
-
316
4,099
2,522
-
-
(2,522)
3,783
-
-
-
-
-
-
-
-
-
35,042
2,587
(3,781)
-
(48)
84
135
(48)
-
-
4
(1,067)
33,975
39,466
-
(1,935)
(2,521)
-
254
(444)
229
(9)
-
-
-
-
2
30
(467)
(21,279)
-
15,564
27,522
1,261
3,783
(4,424)
35,042
13,239
425
-
-
-
-
-
-
(545)
120
-
-
13,239
13,248
-
716
-
-
-
-
-
-
(640)
141
3,668
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
48,281
3,012
(3,781)
-
(48)
84
135
(48)
(545)
120
4
(1,067)
47,214
52,714
-
(1,219)
(2,521)
-
254
(444)
229
(9)
(640)
141
3,668
(3,894)
(3,894)
-
(9)
13,239
2
(4,433)
48,281
177 / 193
Ørsted Annual report 2018Financial statements Parent 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 recognised
when delivery has taken place.
Tax
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.
The accounting policies remain unchanged
from the previous year.
Unless otherwise stated, the financial
statements 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
statements, with the following exceptions.
Foreign currency translation
We recognise exchange rate adjustments
of receivables from and payables to sub-
sidiaries 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
statement 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
approved 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.
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 2018 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 77.
New legislation
The Danish Financial Statements Act
has been changed, and it is now possible
to use certain IFRS standards to interpret
the act. For Ørsted A/S, it will be relevant
to use IFRS 16 'Leases', and we expect to
implement it from 1 January 2019.
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.
178 / 193
Ørsted Annual report 2018Financial statements Parent company financial statements
Note summary
Contents
2. Employee costs
3. Financial income
and expenses
Employee costs, DKKm
Wages and salaries
Share-based payment
Remuneration for the Board of Directors
Total employee costs
2018
2017
Financial income and expenses, DKKm
24
4
5
33
24
Interest income from cash, etc.
2
5
31
Interest income from subsidiaries
Interest income from securities at
market value
Remuneration for the Executive Board,
DKK '000
Henrik Poulsen
Marianne Wiinholt
Executive Board,
total
2018
2017
2018
2017
2018
2017
Fixed salary
10,500
9,700
5,900
5,061
16,400
14,761
Cash-based incentive schemes
2,993
2,656
1,637
1,348
4,630
4,004
Share-based incentive scheme
2,306
1,367
1,231
IPO Executive Retention Bonus
1,232
1,848
Pension, incl. social security and benefits
313
326
643
242
713
964
196
3,537
2,080
1,875
2,812
555
522
Total
17,344
15,897
9,653
8,282
26,997
24,179
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 pay-
ment, termination and bonus scheme for the
Executive Board and details on the remunera-
tion of the Board of Directors.
The parent company had an average of five
employees in 2018 (2017: five employees).
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
Impairment of investments in subsidiaries
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
2018
56
1,803
258
119
1,243
2,511
4,024
-
10,014
(1,502)
(9)
(1,400)
(292)
(1,169)
(2,330)
(30)
(6,732)
3,282
2017
14
1,432
211
55
664
8,751
2,513
27
13,667
(1,584)
(9)
-
(217)
(1,549)
(7,106)
(21)
(10,486)
3,181
179 / 193
Ørsted Annual report 2018Financial statements Parent company financial statements
Note summary
Contents
4. Tax on profit (loss)
for the year
and deferred tax
5. Distribution
of net profit
Income tax, DKKm
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, DKKm
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
2018
(69)
(86)
(155)
(88)
(18)
35
2
(69)
2018
81
18
(2)
97
2017
Distribution of net profit, DKKm
2018
2017
(76)
132
56
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
(1,379)
Profit (loss) for the year
4,099
(1,512)
425
3,012
3,783
(5,718)
716
(1,219)
1,298
(360)
365
(76)
2017
1,744
(1,298)
(365)
81
Specification of deferred tax, DKKm
Non-current liabilities
Deferred tax
2018
2017
97
97
81
81
180 / 193
Ørsted Annual report 2018Financial statements Parent company financial statements
Note summary
Contents
6. Investments in
subsidiaries
7. Receivables from
subsidiaries
Investments in subsidiaries, DKKm
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
Note 8.5 of the consolidated financial statements
contains a complete overview of subsidiaries, etc.
We have tested investments in subsidiaries for
impairment by comparing the expected future
income from the individual subsidiaries with
their carrying amounts.
The impairment test in 2018 gave rise to
an impairment of DKK 1,400 million which is
mainly attributable to the shortening of the
green power subsidy time period in Denmark
announced in 2018. Also, we no longer see a
viable business case for a new CHP plant in
the Esbjerg and Varde areas when the current
district heating agreement ends in 2022. Both
elements relate to our Bioenergy business.
2018
41,762
63
-
2017
Non-current receivables from subsidiaries, DKKm
70,436
Cost at 1 January
2,333
Additions
(31,007)
Disposals
41,825
41,762
Cost at 31 December
2018
48,706
17,641
2017
50,402
18,552
(11,216)
(20,248)
55,131
48,706
-
(15,681)
(1,400)
-
-
15,681
(1,400)
40,425
-
41,762
The 2017 disposal for the year primarily con-
cern the divestment of our Oil & Gas business,
which was closed on 29 September 2017. The
divestment resulted in a loss of DKK 4,179
million in the parent company financial state-
ments. The sale resulted in a gain of DKK 2,179
million in the consolidated financial state-
ments. The difference occurs due to different
accounting policies.
181 / 193
Ørsted Annual report 2018Financial statements Parent company financial statements
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 and
receivables in GBP, USD and EUR. The value
of the fair value hedge offset in the income
statement amounted to DKK 263 million
(2017: DKK 289 million).
Derivatives at the end of December 2018
mature as follows: 2019: DKK -99 million, 2020:
DKK -268 million, after 2020: DKK 147 million
(2017: 2018: DKK -24 million, 2019: DKK -76
million, after 2019: DKK -324 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, DKKm
Securities, available
Securities, not available for use
2018
24,407
333
2017
24,766
40
Total securities
24,740
24,806
Securities not available
for use are used as
collateral for repo loans
and trading in financial
instruments.
2018
2017
Overview of
derivative positions,
DKKm
Interest derivatives
Currency derivatives
Total
Assets
Equity and liabilities
Contractual
principal amount
Market value
Contractual
principal amount
Market value
6,588
17,623
24,211
(39)
(181)
(220)
3,102
(3,322)
550
36,665
37,215
-
(424)
(424)
3,596
(4,020)
See note 7.1 to the consolidated financial statements
and the management's review on pages 66-69 for
more details on risk and risk management.
10. Loans and borrowings
At 31 December 2018, we had issued hybrid
capital with a total notional amount of
DKK 13,432 million (2017: DKK 17,125 million).
The hybrid bonds have a 1,000-year term
and expires as follows: DKK 5,224 million in
3013, DKK 4,477 million in 3015 and DKK 3,731
million in 3017, respectively.
The long-term portion of bank loans and
issued bonds amounted to DKK 23,482 million
at 31 December 2018 (2017: DKK 25,715 million),
of which DKK 16,376 million (2017: DKK 16,528
million) fall due in more than five years.
The long-term portion of other payables
amounted to DKK 0 million at 31 December
2018 (2017: DKK 27 million) falls due in
1-5 years.
182 / 193
Ørsted Annual report 2018Financial statements Parent company financial statements
Note summary
Contents
11. Other provisions
12. Contingent liabilities
We have made provisions for non-current
liabilities totalling DKK 794 million (2017:
DKK 775) which fall due in 1-5 years. The liabil-
ities concern the divestment of our Oil & Gas
business, which was closed in 2017.
Ørsted A/S is taxed jointly with other com-
panies in the Ørsted Group. As management
company, the company has unlimited as well
as joint and several liability together with
the other jointly taxed companies for Dan-
ish income taxes and withholding taxes on
dividends, interest and royalties related to 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
as well as 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
company Oil Insurance Ltd. In the event of an
exit, an exit premium will be payable, which
has been calculated at USD 10.3 million at
31 December 2018 (2017: USD 6.8 million).
183 / 193
Ørsted Annual report 2018Financial statements Parent company financial statements
Note summary
Contents
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.
payment' and the remuneration report in the
management's review in the consolidated
financial statements.
Remuneration of the Board of Directors and
the Executive Board is disclosed in notes
2.6 'Employee costs' and 2.7 'Share-based
Our related-party transactions are made
on arm's length terms.
Auditor's fees, DKKm
Statutory audit
Other assurance engagements
Tax and VAT advice
Other services
Total fees to PwC
2018
2017
2
-
1
-
3
2
1
-
1
4
14. Operating lease
obligations
16. Ownership
information
We have entered into leases for office
premises, primarily in Gentofte (expiring in
2028) and Virum (expiring in 2027). In 2018, an
amount of DKK 148 million was recognised
(2017: DKK 153 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 2018, an amount of DKK 97 million was
recognised (2017: DKK 123 million) in profit
(loss) for the year in respect of rental income.
We have minimum payments of DKK 1,688
million (2017: DKK 1,816 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%
50.12%
SEAS-NVE A.M.B.A.
Svinninge,
Denmark
9.54%
9.54%
The Capital Group Companies, Inc.
Los Angeles, USA
<5%
5-10%1
1
Interval shown as precise voting share is not publicly available.
The table shows the
shareholders with
ownership interests
and voting shares of
at least 5%. Difference
between ownership
interests and voting
shares occurs when
power of attorney is
issued.
184 / 193
Ørsted Annual report 2018Financial statements Contents
Management
statement,
auditor's reports
and glossary
Statement by the Executive Board
and the Board of Directors
Independent auditor's report
Limited assurance report of the
independent auditor
Glossary
186
187
191
192
Ørsted Annual report 2018 Management 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 2018.
The consolidated financial statements
have been prepared in accordance with
International Financial Reporting Standards
as adopted by the EU and additional require-
ments 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 Statements Act.
In our opinion, the consolidated financial
statements and the parent company finan-
cial statements provide a fair presentation
of the Group's and the parent company's
assets, liabilities and financial position at
31 December 2018 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 2018.
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, 31 January 2019
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
Jørgen Kildahl
Peter Korsholm
Benny D. Loft
Dieter Wemmer
Hanne Sten Andersen*
* Employee representative
Poul Dreyer*
Benny Gøbel*
186 / 193
Ørsted Annual report 2018Financial statements Management statement, auditor's reports and glossary
Contents
Independent auditors' report
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 2018
and of the results of the Group's operations
and cash flows for the financial year 1 January
to 31 December 2018 in accordance with Inter-
national 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 2018 and of the results of the
parent company's operations for the financial
year 1 January to 31 December 2018 in accord-
ance 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.
What we have audited
The Consolidated Financial Statements of
Ørsted A/S for the financial year 1 January
to 31 December 2018, pp. 72-166 and 186,
comprise 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
and the notes to the consolidated financial
statements, including summary of significant
accounting policies.
The parent company financial statements of
Ørsted A/S for the financial year 1 January to
31 December 2018, pp. 175-184, comprise the
income statement, the balance sheet, the
statement of changes in equity and the notes
to the parent 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.
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 accordance
with the International Ethics Standards Board
for Accountants' Code of Ethics for Professional
Accountants (IESBA Code) and the additional
ethical requirements applicable in Denmark.
We have also fulfilled our other ethical respon-
sibilities in accordance with the IESBA Code.
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 by
shareholder resolution for a total period of un-
interrupted engagement of 9 years, including
the financial year 2018.
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 2018. 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.
187 / 193
Ørsted Annual report 2018Financial statements Management statement, auditor's reports and glossary
Contents
Key audit matter
How our audit addressed the key audit matter
Key audit matter
How our audit addressed the key audit matter
Divestments of partnership interests
In connection with divestments of partnership
interests (often 50%) in offshore wind farms under
construction, estimates and judgement are required
in respect of the sales price for accounting purpose
for the divestment and the subsequent construc-
tion agreement, respectively, and in calculating the
divestment gain, including any provisions recog-
nised to cover guarantees, indemnities, etc. Further-
more, 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 and estimates by manage-
ment and because the presentation in the income
statement is dependent on judgement about the
partnership interest disposed, and whether the
partnership interest retained is a joint operation or
a joint venture.
Refer to note 2.5 in the consolidated financial
statements.
We evaluated whether management had
appropriately determined the divestment gain, the
presentation 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 agree-
ment, 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
divestment gain and the subsequent recognition
and presentation of the partnership were in
compliance with IFRS.
Construction contracts
The Group has adopted the accounting standard
IFRS 15 'Revenue from Contracts with Customers'
from 1 January 2018, using the modified retro-
spective method. The adoption has affected the
timing of when income and costs are recognised
in respect of offshore transmission assets and the
presentation of construction agreements in the
balance sheet.
The accuracy of the revenue recognition related to
work in progress of large construction agreements
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
agreements.
We focused on this area because the revenue
recognised with reference to the degree of
completion both requires complex and subjective
judgements and estimates by management.
Refer to notes 1.4, 2.2 and 4.2 in the consolidated
financial statements.
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 outcome
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
determined 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.
We evaluated management's assessment of the
transition from IAS 11 and IAS 18 to IFRS 15 applying
the modified retrospective method, including
the impact on the on-going construction of the
offshore transmission assets as well as the changed
presentation made by management in respect of
the transition.
188 / 193
Ørsted Annual report 2018Financial statements Management statement, auditor's reports and glossary
Contents
Key audit matter
How our audit addressed the key audit matter
Business combinations
When acquiring businesses, the Group performed
a purchase price allocation ('PPA') exercise for each
acquisition separately, resulting in various assets
and liabilities being separately valued. The Group
used projected financial information in the PPA
exercise.
Management uses their best knowledge to make
estimates when utilising the Group's valuation
methodologies. In order to determine the fair value
of the separately identified assets and liabilities in
a business combination, the valuation methodolo-
gies require input based on assumptions about the
future and use discounted cash flow forecasts. The
significant judgements and estimates involved in
the PPA exercise mainly relate to assessing the fair
value of production assets, assets under construc-
tion, tax equity partner balances and derivatives.
We focused on this area because the PPA exercises,
which involves the identification of the acquired
assets and liabilities and their respective fair values,
require complex and subjective judgements and
estimates by management.
Refer to note 3.3 in the consolidated financial
statements.
We assessed whether the acquisitions during the
period met the criteria of a business combination.
We verified the assets and liabilities recorded in
the opening balance, by performing procedures,
including, amongst others, obtaining statements
of cash and bank balances acquired, agreeing
the opening balance to the trial balance and the
tax equity liabilities to underlying contracts and
specifications.
We involved our internal specialists in assessing the
valuation methodologies used by management
and the fair valuation of the acquired assets and
liabilities. We challenged the key assumptions used
to determine the fair value of production assets,
assets under construction, tax equity partner
balances, derivatives, etc.
Finally, we assessed the adequacy of disclosures
relating to the business combinations.
Statement on management's review
Management is responsible for the manage-
ment's review, pp. 4-71.
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
management's review and, in doing so, consid-
er 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 statements
and has been prepared in accordance with the
requirements of the Danish Financial State-
ment Act. We did not identify any material
misstatement in management's review.
Management's responsibilities for the
financial statements
Management is responsible for the prepara-
tion 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, man-
agement 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.
As part of an audit in accordance with ISAs
and additional requirements applicable in
189 / 193
Ørsted Annual report 2018Financial statements Management statement, auditor's reports and glossary
Contents
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
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 appropriateness of accounting
policies used and the reasonableness of
accounting estimates and related disclosures
made by Management.
– Conclude on the appropriateness of man-
agement'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 contin-
ue 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 state-
ments 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.
– 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.
– 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
Hellerup, 31 January 2019
PricewaterhouseCoopers
Statsautoriseret Revisionspartnerselskab
CVR-nr. 33 77 12 31
Lars Baungaard
State Authorised Public Accountant
mne23331
Rasmus Friis Jørgensen
State Authorised Public Accountant
mne28705
and significant audit findings, including any
significant deficiencies in internal control that
we identify during our audit.
We also provide those charged with gover-
nance 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.
190 / 193
Ørsted Annual report 2018Financial statements Management statement, auditor's reports and glossary
Contents
Limited assurance report of the independent auditor
To the stakeholders of Ørsted A/S
Ørsted A/S engaged us to provide limited
assurance on the data described below and
set out in the consolidated environment,
social and governance (ESG) statements of the
Ørsted A/S annual report for the year ended
31 December 2018.
Our conclusion
Based on the procedures we have performed
and the evidence we have obtained, nothing
has come to our attention that causes us not
to believe that data in the 2018 Consolidated
ESG Statements on pages 167-174 of the Annual
Report for the year ended 31 December 2018 are
free of material misstatements and has been
prepared, in all material respects, in accordance
with the accounting policies as stated on pages
167-174 of the 2018 Ørsted A/S Annual Report.
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 Consolidated ESG Statements
on pages 167-174 of the Ørsted A/S Annual
Report for the year ended 31 December 2018.
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
obtained had a reasonable assurance engage-
ment been performed.
Our independence and quality control
We have complied with the Code of Ethics for
Professional Accountants issued by the Inter-
national Ethics Standards Board for Account-
ants, 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 poli-
cies 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.
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
Understanding reporting and measurement
methodologies
Data and information need to be read and un-
derstood together with the accounting policies
(pages 167-174 of the 2018 Ørsted A/S Annual
Report), which management are solely respon-
sible for selecting and applying. The absence
of a significant body of established practice
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;
– Performed an assessment of materiality and
the selection of topics for the 2018 Ørsted A/S
consolidated ESG statements;
– 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
2018 Ørsted A/S consolidated ESG statements
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 2018 consol-
idated ESG statements on pages 167-174 in
the annual report that are free from material
misstatement, whether due to fraud or error;
– Establishing objective accounting policies for
preparing data;
– Measuring and reporting data in the 2018
consolidated ESG statements based on the
accounting policies; and
– The content of the 2018 consolidated ESG
statements.
Our responsibility
We are responsible for:
– Planning and performing the engagement
to obtain limited assurance about whether
data in the 2018 Ørsted A/S sonsolidated
ESG statements on pages 167-174 of the 2018
Annual Report are free of material misstate-
ments and has been prepared, in all material
respects, in accordance with the accounting
policies;
– Forming an independent conclusion, based on
the procedures we have performed and the
evidence we have obtained; and
– Reporting our conclusion to the stakeholders
of Ørsted A/S.
Hellerup, 31 January 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
191 / 193
Ørsted Annual report 2018Financial statements Management statement, auditor's reports and glossary
Contents
Carbon emissions allowances: Carbon emissions
allowances subject to the European Union Emissions
Trading Scheme (EU ETS).
Green certificates: Certificate awarded to producers
of environment-friendly power as a supplement to the
market price of power in the given price area.
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.
Awarded capacity: Offshore capacity that we have
been awarded in auctions and tenders, but where we
need to sign a PPA and take final investment decision.
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.
CfD: A contract for difference is a subsidy that guar-
antees the difference between the market reference
price and the exercise price won.
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.
Contracted capacity: Onshore capacity where we
have signed a PPA, but where we need to take final
investment decision.
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) and installed capacity: Installed
offshore wind capacity plus capacity for wind farms
where a final investment decision has been made.
Investment tax credits (ITCs): Federal tax credit based
on qualifying renewable investment costs.
QHSE: Quality, health, safety and environment.
FTE: Employees (full-time equivalent). The number of
full-time employees during a fixed time period.
NBP: National Balancing Points, UK gas hub.
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.
EPC: Engineering, procurement and construction. The
part of our business which handles the construction
and installation of our offshore wind farms.
Generation capacity: Ørsted's ownership of the wind
turbines. The wind turbines are included when each
wind turbine has passed the 240-hour test.
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.
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.
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.
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.
Production tax credit (PTC): Federal tax credit based
on eligible power generation in the US.
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.
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.
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.
Tax equity: An arrangement where an investor obtains
rights to federal tax credits and other tax attributes in
exchange for a cash contribution.
Thermal generation: Power and heat generated
through the combustion of fossil fuels, biomass or
waste.
TRIR: In addition to lost-time injuries, total recordable
injury rate (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 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.
192 / 193
Ørsted Annual report 2018Financial 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
Daniel Lerup
Tel.: +45 99 55 97 22
Design and layout
e-Types
Publication:
31 January 2019
Front page photo:
Burbo Bank Offshore Wind Farm
in the Irish Sea of the UK