http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/RSS.ashxDONG ENERGY PagesFri, 11 Feb 2011 00:21:42 +0100http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=1http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=1ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=2http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=2RE AD M O RE CONTENTS MANAGEMENT’S REVIEW Preface Selected highlights in 2009 Financial key performance indicators Non- nancial key performance indicators Market and strategy Corporate responsibility Financial performance and outlook: Consolidated results Review of business areas’ performance Financial outlook for 2010 Risk management Business areas: Exploration & Production Generation Energy Markets Sales & Distribution Management and employee information: Employees Corporate governance Supervisory Board Executive Board CONSOLIDATED FINANCIAL STATEMENTS Consolidated income statement Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of changes in equity Consolidated cash ow statement Notes 58 60 63 66 OTHER PUBLICATIONS 16 22 26 28 Investor Relations 34 40 46 52 Morten Hultberg Buchgreitz +45 99 55 97 50 www.dongenergy.com FINANCIAL CALENDAR 1 2 4 5 6 14 11 March 2010 19 April 2010 20 May 2010 19 August 2010 Annual Report 2009 Annual General Meeting Interim nancial report Q1 2010 Interim nancial report H1 2010 11 November 2010 Interim nancial report 9M 2010 FURTHER INFORMATION Media Relations Louise Münter +45 99 55 96 62 68 69 70 72 73 74 CONSOLIDATED NON-FINANCIAL STATEMENTS 162 PARENT COMPANY FINANCIAL STATEMENTS MANAGEMENT STATEMENT AND INDEPENDENT AUDITORS’ REPORT Statement by the Executive and Supervisory Boards Independent auditors’ report, nancial Assurance Statement, non- nancial ADDITIONAL INFORMATION Company announcements in 2009 Glossary GRI overview DONG Energy at a glance Company information 199 200 201 Language The annual report has been prepared in Danish and in English. In the event of any discrepancies between the Danish and the English annual reports, the Danish version shall prevail. 167 Responsible Energy 2009 can be ordered online or downloaded at dongenergy.com Cover photo 3.6 MW wind turbines near Avedøre Power Station, Copenhagen 202 203 204 Cover Cover2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=3http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=3PREFACE FAST TRANSITION TO GREEN FUTURE DONG Energy’s activities and nancial performance in 2009 were affected by the nancial crisis. Extraordinarily low demand for energy led to low prices for our core products: power and natural gas. However, taking a longer-term view, 2009 was also a year of vital strategic decision-making that will ensure that DONG Energy will lead the transition to a greener future. We aim to reduce CO2 emissions signi cantly while at the same time maintaining a high level of security of supply. Wind power, biomass and natural gas are key elements of this strategy. In 2009, we inaugurated the Horns Rev 2 offshore wind farm, the world’s largest. It joins a whole host of new wind farms in Denmark, the UK, Sweden and Poland. They add considerably to our capacity while at the same time contributing to our results already from this year. In 2009, DONG Energy secured the possibility of accelerating and rationalising the construction of wind farms through an extensive supply agreement with Siemens Wind Power and the acquisition of the specialist shipping company A2SEA. Natural gas is the second key element in our transition to a greener future. Natural gas- red power stations only emit around half the CO2 of coal- red plants. This year and next year, we will be inaugurating three new natural gas- red power stations in Norway, the UK and the Netherlands respectively. Production from the Alve natural gas eld commenced in 2009, and development of the Ormen Lange eld continued as planned. At the same time, discoveries were made in the West of Shetland area, and the number of new licences was expanded. Coupled with a signi cant reduction in costs, the many activities are intended to ensure that we can achieve our ambitious target of reducing our carbon intensity as well as our equally ambitious growth target. 11 March 2010 In 2009, we inaugurated one of the world’s rst demonstration plants for production of second-generation bioethanol based on straw and similar residual products. In parallel with this, we have made a decision to suspend operations at four coal- red power station units, which means that our capacity at coal- red power stations will have been reduced by a quarter in just under two years. In addition, we have shelved all new coal power development projects and have begun to explore interesting opportunities for converting power station units from coal to biomass. Anders Eldrup, CEO Fritz H. Schur, Chairman of the Supervisory Board MANAGEMENT’S REVIEW 12011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=4http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=4DONG Energy is one of the leading energy groups in Northern Europe. We are headquartered in Denmark. Our business is based on procuring, producing, distributing and trading in energy and related products in Northern Europe. We have approximately 6,000 employees and generated just under DKK 50 billion (EUR 6.6 billion) in revenue in 2009. OIL AND GAS PRODUCTION LOST TIME INJURY FREQUENCY (LTIF) $%#"! #" #(%&*#% 15 (DKK million) 20 15 9 10 9 9 10 "(%&'#' "(%&#*"!$ #+& %' "(%&&($$ %& 5 2 0 2007 Oil production 2008 2009 Gas production POWER GENERATION Power generation (GWh) 20 20 19 19 14% 18 13% 17 13 18 Proportion wind/hydro (%) 16% 16 CO2 EMISSIONS, SUBJECT TO ALLOWANCES (million tonnes) 14 14 15 13 14 12 13 12 16 2007 2008 2009 12 11 2007 2008 2009 Power generation, total Power generation, wind/hydro GAS SALES CO2 EMISSIONS PER ENERGY UNIT GENERATED (g/kWh) 620 99 95 613 610 600 590 580 590 (GWh) 120 100 79 80 60 40 20 0 2007 2008 2009 570 560 550 2007 2008 574 2009 Note: The figure reflects the 85/15 plan, which stakes out the way to secure energy without CO . The method used to determine the figure is explained on page 163.2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=5http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=5DONG ENERGY AT A GLANCE Given the tough market conditions, EBITDA is considered to be satisfactory. Furthermore, DONG Energy succeeded in maintaining strong cash ows from operating activities. REVENUE AND RESULTS Revenue (DKK billion) 70 60 50 40 30 20 10 0 2007 Revenue EBITDA and Profit after tax (DKK billion) 16 14 14 12 10 42 3 1 2008 EBITDA REVENUE DKK billion Revenue was down 19% as a result of lower prices, partly offset by higher natural gas production. 9 61 5 49 10 8 6 4 2 0 49.3 EBITDA DKK billion 2009 Profit after tax GROSS INVESTMENTS AND CASH FLOW FROM OPERATING ACTIVITIES (DKK billion) 20 17 15 11 10 9 5 10 9 18 8.8 CASH FLOWS FROM OPERATING ACTIVITIES DKK billion EBITDA was down DKK 4.8 billion, re ecting lower natural gas and oil prices as well as timing differences relating to natural gas and coal. 0 2007 2008 2009 Gross investments Cash flow from operating activities CAPITAL STRUCTURE 9.5 4.2 The decrease in operating cash in ow was smaller than the decrease in EBITDA, primarily re ecting less funds tied up in working capital. (X) 5 4 3 2 1 0 2.4 1.8 GROSS INVESTMENTS DKK billion 2009 Investments consisted predominantly of offshore wind farms, development of natural gas and oil elds and natural gas- red power stations. 2007 2008 Net interest-bearing debt + hybrid capital / EBITDA adjusted for special hydrocarbon tax Long-term target 17.92011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=6http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=6SELECTED HIGHLIGHTS IN 2009 !3$)3#/6%29). ,%.,)6%4,)#%.#% Read more on page 39. )'.).'/&7/2,$3 ,!2'%34/&&3(/2%7).$ 452").%!'2%%-%.4 7)4()%-%.3 '2%%-%.4%80!.$%$ ,!4%2).4(%9%!2 Read more on page 44. )./2)4934!+%). !,.%97).$02/*%#4 3/,$4/ #15)3)4)/./& 34!+%).).#3 /&&3(/2%7).$02/*%#4 Read more on page 44. Read more on page 44. #15)3)4)/./& '!3&)2%$0/7%234!4)/. 02/*%#4%6%2. 335).'/&"/.$3 4/4!,).' "),)/. Read more on page 31. Read more on page 43. #15)3) '!3&)2% 02/*%#4 4!.$!2$//2;3 50'2!$%32!4).'/. .%2'9 Read more on page 32. .!5' /2.3 &!2- /2%/&&3(/2% 7).$&!2-3!,.%9 !.$/.$/.22!9 Read more on page 44. 2 MANAGEMENT’S REVIEW2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=7http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=7%6%,/0-%.40,!. !.$).#2%!3%$34!+% ).3%,6!2&)%,$ Read more on page 38. #15)3)4)/./&4(% #/-0!.9 7()#().34!,3/&&3(/2% 7).$452").%3 Read more on page 44. )"2%/04)#.%47/2+ 3/,$ Read more on page 57. .!5'52!4)/./& 3%#/.$'%.%2!4)/. ")/%4(!./,$%-/.342! 4)/.0,!.4.")#/. Read more on page 42. !,%/&4(%3(!2%3).4(% 7%$)3(42!.3-)33)/. #/-0!.97%$%'!3 Read more on page 50. 54).#/!,"!3%$ 0/7%234!4)/. #!0!#)49 Read more on page 42. #15)3)4)/./&34!+%). '!3&)2%$0/7%234!4)/. 02/*%#4.%#/'%. Read more on page 43. .%2'97)4($2!73&2/- 02/*%#4%80,/2).'/00/245.) 4)%3/&"5),$).'#/!,&)2%$ 0/7%234!4)/..%!22%)&37!,$ Read more on page 43. 5452%'!33500,)%3 &2/-!:02/- $/5",%$ Read more on page 50. #15)3)4)/./& 7(/,%3!,%#/-0!.9 Read more on page 49. .!5'52!4)/./& /2.3%67).$ &!2- Read more on page 44. $$)4)/.3/&!#4)6)4)%3 )30/3!,3/&!#4)6)4)%3 4(%2%6%.43 MANAGEMENT´S REVIEW 32011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=8http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=8FINANCIAL KEY PERFORMANCE INDICATORS 2009 2008 2007 DKK million 2006 2005 2009 EUR million 2008 INCOME STATEMENT Revenue: Exploration & Production Generation Energy Markets Sales & Distribution Other activities/eliminations EBITDA: Exploration & Production Generation Energy Markets Sales & Distribution Other activities/eliminations EBITDA adjusted for special hydrocarbon tax EBIT Financial items, net Pro t after tax BALANCE SHEET Assets Additions to property, plant and equipment Interest-bearing assets Interest-bearing debt Net interest-bearing debt Equity Capital employed CASH FLOW Funds From Operation (FFO) Cash ows from operating activities Cash ows from investing activities Gross investments Free cash ow to equity (with acquisitions/disposals) Free cash ow to equity (without acquisitions/disposals) KEY RATIOS EBITDA margin EBIT margin (operating margin) Financial gearing Net interest-bearing debt + hybrid capital / EBITDA adjusted for special hydrocarbon tax Adjusted net debt / Cash ows from operating activities Number of shares, end of year Average number of shares Earnings per share Proposed dividend per share Cash ows from operating activities per share Free cash ow to equity (without acquisitions/disposals) per share % % x 49,262 6,579 12,441 28,201 13,386 (11,345) 8,840 3,427 915 2,046 2,239 213 60,777 7,114 15,298 38,087 15,595 (15,317) 13,622 4,053 3,155 5,082 1,827 (495) 41,625 4,409 12,358 20,262 14,552 (9,956) 9,606 2,290 3,769 1,582 1,961 4 36,564 5,111 7,682 18,286 12,254 (6,769) 8,950 3,370 2,663 1,803 1,303 (189) 18,493 3,879 114 } 14,550 (50) 6,314 2,569 47 6,615 884 1,671 3,787 1,798 (1,525) 1,187 460 123 275 301 28 8,152 954 2,052 5,109 2,092 (2,055) 1,827 543 423 682 245 (66) } 3,609 89 5,886 4,099 (152) 2,687 46,854 8,041 7,356 7,148 (208) 26,278 26,070 5,419 5,866 (9,542) 10,691 (3,676) 3,325 34 22 (0.01) 8,371 3,757 (1,362) 1,138 120,552 16,530 7,510 34,440 26,930 44,808 71,737 7,402 9,468 (21,199) 17,937 (11,731) (10,623) 18 8 0.60 12,876 8,004 (1,134) 4,815 106,085 9,853 2,794 18,047 15,253 46,190 61,443 11,165 10,379 (8,629) 11,225 1,750 430 22 13 0.33 9,584 4,783 (740) 3,259 89,710 11,151 2,517 17,309 14,792 42,211 57,003 10,046 8,842 (11,803) 17,465 (2,961) 641 23 11 0.35 8,727 5,691 (592) 5,039 99,255 5,281 9,981 27,760 17,779 42,390 60,169 6,694 8,169 (7,809) 9,728 360 14,302 24 16 0.42 1,124 504 (183) 153 16,200 2,224 1,009 4,628 3,619 6,021 9,640 994 1,271 (2,848) 2,409 (1,576) (1,427) 18 8 0.60 1,727 1,073 (152) 646 14,238 1,321 375 2,422 2,047 6,200 8,247 1,543 1,392 (1,157) 1,505 235 58 22 13 0.33 x x 1,000 1.000 DKK DKK DKK DKK 4.2 3.3 293,710 293,710 2.73 1.64 32.24 (36.17) 1.8 1.9 293,710 293,710 15.07 6.56 35.34 1.46 2.4 2.1 293,710 293,710 9.93 5.00 29.81 2.18 3.0 2.7 293,710 270,167 17.45 6.70 29.78 52.94 1.3 0.7 214,360 214,360 12.50 0.16 27.37 15.51 4.2 3.3 293,710 293,710 0.37 0.22 4.33 (4.86) 1.8 1.9 293,710 293,710 2.02 0.88 4.74 0.20 For de nitions of nancial highlights, reference is made to the description of accounting policies in note 40 to the consolidaed nancial statements. 4 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=9http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=9NON-FINANCIAL KEY PERFORMANCE INDICATORS 2009 VOLUMES Production: Oil and gas production - oil - gas Power generation - thermal - renewable Heat generation - thermal - renewable Sales and distribution: Gas sales (ex consumption own power stations) Power sales Gas distribution Power distribution Oil transportation, Denmark ENVIRONMENT Greenhouse gas emissions: Carbon dioxide (CO2), subject to allowances Other direct greenhouse gas emissions Initiatives for reduction of greenhouse gas emissions: Percentage of CO2-neutral fuels at power stations CO2 emissions per energy unit generated (power and heat)1) Campaign "1 tonne less CO2 per employee": Total reduction Reduction per employee Other emissions to air: Nitrogen oxides (NOX) Sulphur dioxides (SO2) Natural gas aring (offshore and at gas storage facility) Other emissions: Oil discharged to sea from production platforms Reinjection of produced water at production platforms Waste: Reuse of waste in administration Reuse of waste in production Environmental accidents and excavation damage: Signi cant environmental accidents Excavation damage to gas pipes Methane leaks due to excavation damage WORKING CONDITIONS Employees: Man-years (FTE) Executives Average age Employee turnover Occupational health and safety: Occupational injuries Lost time injury frequency 2) Total injury frequency Fatal accidents no. per 1 million hours worked per 1 million hours worked no. 129 6.8 26 1 no. no. years % 5,865 53 43 11 no. no. Nm3 5 79 33,844 % % 31 57 2008 2007 2006 million boe million boe million boe GWh GWh GWh TJ TJ TJ GWh GWh GWh GWh million bbl 24.0 8.5 15.5 18,074 15,264 2,810 46,686 46,618 68 93,961 10,723 9,966 9,156 85 18.5 10.0 8.5 18,536 15,958 2,578 46,380 46,321 59 99,413 10,853 10,346 9,371 91 11.3 9.1 2.2 20,534 17,310 3,224 47,257 47,205 52 78,820 10,893 10,212 9,289 100 13.8 12.1 1.7 26,278 23,116 3,162 50,508 50,468 40 99,712 10,775 11,087 5,116 107 million tonnes of CO2 million tonnes of CO2 equivalent % g/kWh tonnes of CO2 tonnes of CO2 per employee tonnes tonnes million Nm3 tonnes % 11.9 0.2 15.2 574 2,895 0,49 9,304 2,425 7.3 18 49 12.6 0.3 14.1 590 11,650 3,507 8.6 24 51 10 52 1 107 25,490 13.8 0.2 14.5 613 17,006 4,199 9.7 23 56 45 45 2 118 63,647 18.2 0.1 10.0 638 25,352 6,629 8.4 26 59 20 48 128 25,797 5,644 56 43 12 112 7.5 25 1 5,042 49 43 14 112 10.4 29 0 4,412 45 43 99 10.4 32 0 Reference is made to the description of accounting policies on pages 162-166. 1): The determination has been made on a proportionate basis for all activities and consequently includes associates and non-consolidated enterprises. 2): DONG Energy de nes absence as an occupational injury resulting in at least one day’s absence from work in addition to the day of the injury. The rate for 2008 has been restated in relation to the rate published in 2008 (from 7.4 to 7.5). MANAGEMENT´S REVIEW 52011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=10http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=10MARKET AND STRATEGY MOVING ENERGY FORWARD The international energy markets Since the opening of local energy markets at the start of the 1990s, major structural changes have taken place in both power and natural gas across national borders. The result is a major consolidation to the effect that the power and natural gas markets in Europe are now dominated by six large international players: EDF, E.ON, Enel, GDF Suez, Iberdrola and RWE. There are also a number of medium-sized, more regionally based companies such as Centrica, Fortum, Statkraft, Vattenfall and DONG Energy. The consolidation continued in 2009 and included Vattenfall’s acquisition of Nuon and RWE’s acquisition of Essent. Besides this consolidation, the heightened focus on the climate has had a major impact on the development in this sector. Europe’s energy sector has entered a phase where generating capacity is being converted on a large scale to enable it to comply with the stricter climate requirements. This calls for major investments, and this will have a major impact on the future composition of energy production, including especially by increasing the proportion of energy generated from renewable sources of energy. DONG Energy has made good headway in this transition and has taken signi cant steps towards greener power generation, partly by investing in wind and biomass, and partly by reducing its coal-based power generation. The full opening of the EU power and natural gas markets was completed in July 2007. The aim was the creation of ef cient price formation and incentives to invest in new capacity. However, the creation of a single energy market in the EU is still a long way off. There are thus still many regional markets in Europe in both power and natural gas. However, signi cant investments are being made in expansion of transmission capacity between the various countries, which is contributing to a more cohesive European market. One example is the NorNed cable between Norway and the Netherlands, which was opened in 2008. Natural gas and power account for a substantial part of DONG DONG Energy’s thermal power generation is concentrated in Denmark, which is part of the regional Nord Pool market area. Denmark is also connected to the German market via transmission cables. The Nordic area is characterised by the fact that a large proportion of power generation comes from hydropower plants, while power generation in Germany and DenEnergy’s business. Jointly, these two forms of energy accounted for 80% of revenue in 2009. In addition, DONG Energy produces oil and, as part of its power generation, heat. Overall, these four forms of energy accounted for 93% of consolidated revenue. To this should be added other activities ancillary to the core business. The oil market differs from the power and natural gas markets by being global. DONG Energy has a large and rapidly growing portfolio of wind power activities. Investments in wind turbines depend, to a great extent, on political initiatives aimed at promoting renewable energy through subsidies. Schemes vary from country to country. The vast majority of DONG Energy’s wind turbines are located in the UK, Denmark and Poland. Subsidy schemes in the UK and Poland are based on the award of a speci c number of green certi cates per MWh that can be traded in the market, while, in Denmark, a xed minimum payment per MWh generated is received that is xed in connection with the authorities’ approval of a wind farm project. The natural gas market is also regional, with most of the natural gas being transported in pipeline systems. Upstream, the natural gas market is dominated by Russian and Norwegian producers, including Gazprom and Statoil. Lique ed natural gas (LNG) from overseas plays a larger part than previously and is contributing to the growing globalisation of the natural gas market. Downstream, the market is largely dominated by a few large energy companies. mark is predominantly thermally based. This creates diff2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=11http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=11for the activities in other countries. This applies to the design, REVENUE IN 2009 "# ! % #" !" ""!! " establishment and operation of wind farms and to energy sales to wholesale and end customers. Experience from the &$ liberalisation of the energy market in Denmark has proved particularly useful in connection with the expansion of market in Germany. growth and the establishment of new market $ ! positions #" International "# ! positions help to develop DONG Energy’s capabilities on an ongoing basis. At the same time, these initiatives help to strengthen the Group’s long-term robustness by spreading the Group’s business risks across several energy markets. DONG Energy aims to strengthen its international position in the Primary activities DONG Energy is Denmark’s largest energy company. In 2009, the Group produced the equivalent of 52% of overall domestic power supply in Denmark. Just under 30% of Danish power consumers and around 30% of Danish natural gas consumers are customers of DONG Energy. Since the establishment of DONG Energy in 2006, the Group has been working in a targeted manner on expanding its international market position. Revenue outside Denmark thus accounted for 40%, 52% and 46% of revenue respectively in the past three years. International growth is concentrated in the areas in which value creation based on DONG Energy’s spearhead capabilities can be ensured or where the Group has advantages in terms of existing market positions. In that connection, it has been useful to be able to draw on experience from Denmark coming years. Natural gas Natural gas is an important source in relation to providing a secure energy supply and is the purest of the fossil fuels, with CO2 emissions far lower than those of coal. An essential part of DONG Energy’s value creation is based on the procurement and equity production of natural gas and ensuring secure and exible supplies of natural gas to customers in the markets in Northern Europe. Most of DONG Energy’s sales are made to other utility companies, which sell on the natural gas to their end customers. To this should be added direct sales to private consumers and companies as well as sales on the European gas hubs. Lastly, DONG Energy uses natural gas as fuel at several of the Group’s power stations. DONG Energy’s procurement of natural gas is based partly on equity production, and partly on long-term purchase contracts FOCUS AREA FOR DONG ENERGY'S CURRENT ACTIVITIES MANAGEMENT´S REVIEW 72011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=12http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=12MARKET AND STRATEGY with major natural gas producers. DONG Energy also buys natural gas on European energy hubs. To this should be added production of oil, which is sold on international energy markets. DONG Energy owns or co-owns a number of infrastructure assets, predominantly for storage and distribution of natural gas and transportation of oil. Earnings from these activities are based, in particular, on transportation of natural gas to DONG Energy customer supply points and making use of the exibility that having our own natural gas storage facilities gives us. Power DONG Energy’s second core activity is the production, sale and distribution of power. Upstream value creation is based on ef ciency, while downstream value creation relies on the ability to offer customers service-orientated energy solutions at competitive prices. Most of DONG Energy’s power generation today takes place at thermal power stations in Denmark, where the Group has a number of ef cient power stations that can use a variety of fuels - coal, oil, natural gas, biomass and waste. Surplus heat from generation is sold to district heating companies in Denmark, which distribute the heat to end customers. In addition, DONG Energy is in the process of building natural gas- red power stations outside Denmark. Wind farms account for a rapidly growing proportion of DONG Energy’s generating capacity. At present, DONG Energy primarily has wind farms in Denmark, the UK and Poland as well as a number of new wind farms under construction primarily in the UK. To this should be added power generation from hydropower plants in Sweden and Norway. Downstream, DONG Energy has extensive activities within power sales to wholesale and end customers in Denmark, Germany, the Netherlands and Sweden. DONG Energy procures power in the Nordic energy markets independently of the Group’s equity production. This means that DONG Energy sells power in the Nordic energy markets in its capacity as producer, while the Group purchases the volume of power demanded by end customers in its capacity as distributor of power to end customers. Finally, DONG Energy has activities within power distribution and thus operates the overall power distribution network in Copenhagen, the district of Frederiksberg and North Zealand. The collaboration with customers can be developed into a strong partnership. A good example is the conclusion of 36 climate partnerships with Danish companies, organisations and municipalities. The climate partnerships are tailored to the individual partners and draw extensively on the options that DONG Energy’s overall business offers the individual customer. Market synergy Demand for integrated energy solutions based on the customer’s energy needs is growing, especially among wholesale and business customers. With strong capabilities in both power and natural gas and the credibility that comes with having extensive equity production in both areas, DONG Energy is well equipped to offer its customers integrated energy solutions. Balanced portfolio enhances robustness DONG Energy’s portfolio of ancillary activities has various return and risk pro les that supplement each other. For the energy sector, which is currently undergoing major change – in market, technological and regulatory terms – such a balanced portfolio of business activities helps, overall, to enhance the Group’s robustness in the face of the development in its surroundings. Portfolio optimisation Diversi ed and exible access to energy and the opportunity to sell this energy via the sales channels that offer the most attractive terms are of major importance to DONG Energy’s value creation. This applies especially to markets in which DONG Energy has considerable volumes of natural gas combined with a number of exible options for selling the natural gas, for example as fuel in power generation, on a wholesale basis or selling it on European energy hubs. DONG Energy optimises its natural gas portfolio still further b2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=13http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=13ENERGY FLOWS IN DONG ENERGY'S VALUE CHAIN (TWh) INPUT External suppliers CONVERSION OUTPUT Gas: 77 Gas: 26 Gas: 94 Coal: 28 Gas: 9 Global commodity market Oil: 3 Power: 15 Biomass: 5 Oil: 14 Waste: 2 Heat: 13 Trading and optimisation Power: 11 District heating companies Power: 2 Power: 1 Note: All figures are stated in Terawatt-hours (TWh). Natural gas and oil have been converted from million boe to TWh using an aggregated conversion factor that does not take account of differing calorific values for the products from the various production fields. Realisation of growth potential DONG Energy is currently making considerable investments in the development of the energy supply in its various markets, and the Group has an attractive portfolio of investment opportunities. DONG Energy can implement the individual opportunities on a continuous basis or opt out of them based on an overall assessment of the market development and taking into account the need for balanced development of the Group. In 2009, earnings and cash ows from some business areas, for example the trading, sales and distribution activities, were channelled towards investments in, particularly, renewable energy and natural gas and oil production, which offer many attractive investment opportunities. EBITDA AND GROSS INVESTMENTS IN 2009 % 100 90 80 70 27% 60 50 40 24% 30 20 10 0 26% 3% 10% 42% 2% 8% DKK 9 billion DKK 18 billion Exploration & Production 40% 18% Generation (thermal) Generation (renewables) Energy Markets Sales & Distribution EBITDA Gross investments MANAGEMENT´S REVIEW 92011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=14http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=14MARKET AND STRATEGY Vision: Secure energy without co2 Global energy resources are under increasing pressure while at the same time there is growing global recognition of the need to reduce CO2 emissions. Against this background, DONG Energy - along with all other energy companies - is faced with a considerable task, i.e. ensuring secure energy supplies with lower CO2 emissions. DONG Energy has a vision to supply secure energy without CO2. The vision re ects the fact that society wants both a high security of supply and an energy production that does not contribute to climate change. As a responsible energy company, DONG Energy focuses actively on helping to reconcile these two objectives. The challenge is that the energy system that we know today is unable to deliver a high security of supply without CO2 emissions. This is because the secure energy that we know today primarily comes from power stations and because renewable energy sources are unable to provide secure supplies, as supplies are dependent on the forces of nature. For many years to come, it will therefore not be a question of choosing between power stations and renewable energy, but of combining forms of energy in a way that ensures that CO2 emissions are reduced signi cantly while at the same time maintaining security of supply. DONG Energy is consequently working on converting its power generation from black to green and on securing the supply of natural gas. The continued development of wind power generating capacity is a key element of the strategy to reduce CO2 emissions. DONG Energy is currently among the most experienced in the world when it comes to the design, construction and operation of offshore wind farms, and this position must be maintained through extensive growth in generating capacity in the coming years. The Group is working intently on exploiting its strong market position to strengthen value creation from offshore wind farms still further. This will be achieved by utilising economies of scale in procurement of wind turbines and components and optimising and rationalising the construction process. Another key element in the realisation of the targets up to 2020 is the establishment of natural gas- red power stations. DONG Energy is in the process of establishing three natural gas- red power stations - one in Norway, one in the UK and one in the Netherlands - that will help to double the Group’s natural gas- red power station capacity. The plant in Norway will deliver a variety of services to Statoil’s re nery nearby under a long-term contract. Besides producing signi cantly lower CO2 emissions than coal- red power stations, natural gas- red power stations provide signi cantly greater exibility More green power generation In the coming years, DONG Energy will be making major investments in expansion of its renewable energy capacity. These investments will be made in order to convert the Group’s power and heat production from being predominantly coal-based to being based, in particular, on green and low-carbon energy sources such as wind, biomass and natural gas. DONG Energy has therefore set itself the target of halving its CO2 emissions per energy unit generated from power and heat generation by 2020 and then, by 2040, reducing its emissions still further to 15% of current CO2 emissions per energy unit generated. The Group has made a number of decisions that The use of biomass also contributes signi cantly to the transition of combined heat and power generation from black to green. In 2009, 11% of DONG Energy’s combined heat and power generation was biomass-based, and the Group has extensive experience in the use of biomass, both for co- ring and in dedicated boilers. The aim is to increase the use of biomass substantially in the coming years, partly by converting existing coal- red power stations to biomass- ring. as a supplement to the uneven generation from renewable energy sources. DONG Energy is consequently focusing on developing its port2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=15http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=15The changeover of production from black to green has been accelerated by the fact that DONG Energy has suspended operations at a number of coal- red power station units in the past two years. The Group thus suspends operation of 25% of its total coal-based power station capacity in under two years. Growth of natural gas portfolio The supply of natural gas from the Danish sector of the North Sea, where DONG Energy has traditionally sourced most of its natural gas supply, is expected to fall in the years ahead due to dwindling reserves. To secure a continued adequate supply of natural gas, DONG Energy is working intently on strengthening the Group’s supply of natural gas from a variety of different international sources. DONG Energy wishes to be independent of individual suppliers and sources of supply. To that end the Group has been strengthening its long-term natural gas supply in recent years, enhancing its security of supply and cementing its position in the European natural gas markets. The Group’s strategy is predominantly based on four sources: t &YQBOTJPOPGOBUVSBMHBTQSPEVDUJPOGSPNPXOmFMETJO Denmark, Norway and the UK t -POHUFSNQVSDIBTFDPOUSBDUTXJUIJOUFSOBUJPOBMTVQQMJFST t $PPXOFSTIJQPGBUFSNJOBMJO3PUUFSEBNGPSSFDFQUJPOPG lique ed natural gas (LNG) from overseas t 1VSDIBTFTPO&VSPQFBOFOFSHZIVCT In natural gas and oil exploration and production DONG Energy participates in a number of activities that will strengthen the Group’s position and value creation in the various markets in the future. The development of the exploration and production activities is based on maturing, development and production from own elds in Denmark, Norway and the UK. This involves balanced growth of the natural gas and oil production. The Ormen Lange eld in Norway accounts for an essential part of DONG Energy’s equity production of natural gas, but the Group expects to strengthen its position in the coming years by participating in more development projects in Norway. The Group is the largest licence holder in the West of Shetland area in the UK and has participated in all major discoveries in the past six years. DONG Energy expects that development of the Laggan and Tormore elds will commence in 2010, increasing the Group’s equity production of natural gas for the UK market. In 2010, the focus in Denmark will be on preparations for the development of the Hejre eld and evaluating the Svane discovery. In Greenland, DONG Energy is participating in exploration that may prove to be of major strategic signi cance in the longer term. Optimisation of sales and distribution The growing global demand for energy, the increased pressure on global resources and the requirement concerning cleaner energy production are placing severe demands on the transition of DONG Energy’s energy supply in future. The expectations of the customers that use this energy on a daily basis are also growing, and this places demands on the parts of the Group that supply and sell energy to the customers. DONG Energy is Denmark’s largest distributor and supplier of power and natural gas. A large proportion of the earnings in this part of the Group are subject to statutory regulation, which means that earnings are relatively stable. However, the stable earnings are counterbalanced by strong incentives in the legislation that are to ensure ef ciency and security of supply, among other things. By virtue of this and DONG Energy’s leading position in the market, the Group has a natural obligation to its customers to strive for high ef ciency and cost focus. The Group also focuses on ensuring a high security of supply (for example through the cable-laying project in North Zealand), attractive product offerings (for example part- TARGETS FOR REDUCTION OF SPECIFIC CO2 EMISSIONS Horns Rev 2 (DK) Gunfleet Sands (UK) Walney (UK) Lincs (UK) London Array (UK) g /kWh 600 Suspension of operation at two coal-fired power station units Onshore wind farms: Storrun (SE), Karnice (PL), Karcino (PL) and2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=16http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=16MARKET AND STRATEGY nership agreements with companies concerning energy savings) and good customer service in a cost-effective manner. To this end, DONG Energy is working systematically on optimising internal processes and on ef ciency improvement. Major ef ciency improvements have been made in recent years and the Group has ambitious targets for the coming years. The Group’s investments in wind turbines are concentrated in a few countries. The background for this includes favourable generating conditions in the chosen areas and suf ciently attractive subsidies. The concentration of wind turbines provides economies of scale, but restricts exposure to a few markets, both in terms of market and regulatory risks. The access to natural gas from a variety of sources, including equity natural gas production, and investments in exibility in the form of storage facilities contribute to reducing dependence on a single supplier or a handful of suppliers. In the same way the opportunities for optimisation and exiBecause of the Group’s asset portfolio and natural gas and power purchase and sales activities, DONG Energy is exposed to a variety of energy prices and exchange rates. The key price risks comprise crude oil and various oil products, natural gas, power, coal and CO2 allowances (EUA) as well as currency. Realisation of the vision requires considerable investments and consequently capital. To secure adequate nancial exibility DONG Energy has a exible investment programme and the Group also endeavours to achieve a balance between increased capital requirements and reduced exposure to uctuations in market prices. The latter is secured through extensive price hedging with a view to reducing the annual uctuations in the Group’s operating cash ows. Investments in offshore wind farms, biomass plants and natural gas- red power stations have a long service life. In this manner, DONG Energy assumes long-term price risks. Price hedging contracts in the markets can typically be used within a time horizon of up to ve years, while management of the long-term price development is based, to a greater extent, on a spread over assets and markets and focus on exibility in the utilisation of those assets, for example in the form of fuel exibility at power stations. The price risk associated with power stations based on fossil fuels is related to the difference between the power generated and the fuel (e.g. coal) and CO2 allowances (green dark spread). Risk management in relation to power stations is aimed at hedging the value of the contribution margin by locking in the prices of power, fuel and CO2 allowances at the same time. The price risk associated with renewable energy assets varies from market to market. In some markets, the renewable energy generated is sold at xed prices and consequently without any price risk, while, in other markets, it is sold directly in the market at current prices. DONG Energy also maintains solid cash resources, partly in the form of committed borrowing facilities. bility inherent in DONG Energy’s business model contribute to securing the Group’s competitiveness in the natural gas markets. The establishment of a well-diversi ed portfolio of wholesale contracts and exibility in the natural gas markets in Northern Europe constitute the most important element of the long-term risk management in this area. A balanced and robust strategy DONG Energy’s strategy, which focuses on expansion of renewable energy and efforts to secure the supply of natural gas, is fundamental to DONG Energy’s overall risk pro le. Healthy nancing and liquidity The purpose of DONG Energy’s nancial management is to secure the necessary capital on attractive terms for the Group’s investments and adequate cash resources. To secure attractive borrowing terms DONG Energy has sought access to a variety of loan markets, including the bank and Eurobond markets. Diversi cation across a variety of loan markets has proved essential in connection with, for ex2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=17http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=17Installation of foundations and wind turbines at Horns Rev 2 offshore wind farm, which is located 30 km off Blåvands Huk. MANAGEMENT´S REVIEW 132011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=18http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=18CORPORATE RESPONSIBILITY RESPONSIBILITY CREATES VALUE At DONG Energy responsibility is all about ensuring credible and transparent business operations as a basis for the Group’s continued good reputation. Responsible business practices help to create value for owners and society alike, both now and in the future. DONG Energy joined the UN Global Compact already in 2006. With this strategic framework as its platform DONG Energy has been taking an active approach to its corporate responsibility since 2006 and is applying the Global Compact’s ten principles in the areas of human rights, labour standards, environment and anti-corruption. For the fourth year running, DONG Energy is reporting on its corporate responsibility performance in accordance with the Global Reporting Initiative (GRI), an internationally recognised sustainability reporting framework. DONG Energy has chosen to integrate the statutory report on corporate responsibility performance that was introduced in 2009 into its annual report. However, DONG Energy also still publishes “Responsible Energy”, which focuses on corporate responsibility issues. Corporate responsibility highlights for the Group appear from non- nancial key performance indicators on page 5. The Group’s performance in areas not covered by the initiatives described below appears from the review of nancial performance in 2009 on pages 16-25. DONG Energy’s efforts in the eld of corporate responsibility have a wide reach and involve a whole host of both internal and external players, as the Group’s activities span the entire energy value chain. The three topics below have been identied as key areas for DONG Energy. Ethics and market Climate and environment As an energy company DONG Energy has a signi cant impact on the environment and is consequently working long term and systematically to reduce this impact. In 2007, DONG Energy adopted its rst environmental strategy, which placed the environment on an equal footing with the other overall objectives for the Group’s activities: sustainable business operations, security of supply and growth. In 2009, the environmental strategy was replaced by an “ambition process” involving all the Group’s business areas. The purpose of this process is two-fold: setting common, long-term environmental performance objectives and ensuring that DONG Energy responds to new relevant action areas. DONG Energy has had an ethical code of conduct for its suppliers since 2007 that de nes the social, environmental and ethical requirements made of the Group’s suppliers. The code of conduct is based on DONG Energy’s values and internationally recognised principles for responsible business practices, including the UN Global Compact. With gross investments totalling DKK 18 billion in 2009, more than one million customers, many thousands of suppliers and ambitious plans for the future, DONG Energy is a major player in the markets in which the Group has a presence. DONG Energy consequently has high expectations of its own and its business partners’ conduct. DONG Energy’s efforts to achieve its objective of reducing CO2 emissions are concentrated within three key areas: the transformation of DONG Energy’s energy production in a direction that secures a reduction in carbon intensity (85/15 plan), the Group’s own energy consumption and DONG Energy’s contribution to reducing its customers’ energy consumption. With respect to the latter DONG Energy has in recent years realised annual energy savings of 144 GWh for its residential and business customers under an energy savings agreement with the Danish Ministry of Climate and Energy. In 2009 alone, DONG Energy’s energy advice led to savings of 91 GWh for its business customers, equivalent to a reduction of 28,000 tonnes of CO2. Energy savings for residential customers amounted to 54 GWh in 2009. The ways in which energy savings were achieved included energy advice, sales of cleantech solutions to residential customers, and climate partnerships2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=19http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=19To ensure that the code of conduct is adhered to, DONG Energy has made a number of inspection visits and audits at selected suppliers in recent years, partly to assess their health, safety and environmental performance. The visits have generally had a positive effect both commercially and in relation to the collaboration with the suppliers. People DONG Energy has just under 6,000 employees. It is vital to value creation, customer satisfaction and employee wellbeing that the Group is skilled at recruiting and retaining employees. At the same time, DONG Energy continuously endeavours to be in dialogue with the communities that are affected by the Group’s business activities, including by holding public meetings, through dialogue with NGOs and customer satisfaction surveys. A good working environment and a high level of safety in the workplace for both employees and suppliers are prerequisites for responsible and ef cient business operations. DONG Energy factors safety into everything it does, whether customer activities, construction of wind farms, drilling for natural gas and oil or operation and maintenance of the Group’s installations. In 2009, the injury frequency rate (number of lost time injuries per one million hours worked) was 3.8 for own employees and 9.5 for suppliers. The Group’s overall injury frequency rate was consequently 6.8, close to the 6.5 target for the year. Further information: Further information on DONG Energy’s performance in 2009 and forward-looking deliberations and challenges relating to responsibility can be found in the Group’s publication ”Responsible Energy 2009”, which can be viewed online, downloaded or ordered at www.dongenergy.com. The website includes further information on DONG Energy’s environmental performance and the audited reporting to the Global Reporting Initiative. Reference is also made to the GRI overview on the inside of the back cover of this report. SELECTED RESPONSIBILITY TARGETS FOCUS AREAS Energy savings TARGETS DONG Energy aims to help customers save an average of 144 GWh of power per year in 2006–2009. Lost-time injuries to be reduced to 6.5 per one million hours worked. DONG Energy to invest DKK 250 million in research and development of sustainable energy. DONG Energy’s energy consumption associated with administration, transportation and other infrastructure to be reduced to save 1 tonne of CO2 per employee. 65% of waste from production and 50% from administration to be recycled. TIME In 2009 STATUS 2009 Achieved. GRI REFERENCE EN6 Safety In 2009 Not achieved. The result was 6.8. Not achieved. DKK 197 million was invested. Progressing to plan. LA7 Research and development In 2009 EU8 Energy consumption In 2012 EN5 and EN18 Waste In 2012 Progressing to plan. EN22 Power stations CO2 emissions from power and heat production to be reduced by 50% from 638 g/ kWh (2006 level) to 320 g/kWh. Renewable energy capacity (wind, hydro and solar energy) to be tripled from 972 (2006 level) to about 3,000 MW. Relevant employees to be trained in the policy for preventing fraud and corruption. Code of conduct for suppliers to be implemented in all tenders and contracts. An employee opinion survey to be conducted among all employees once every second year as a minimum. In 2020 Progressing to plan. EN16 Renewable energy In 2020 Progressing to plan. EU1 Business ethics Ongoing Progressing to plan. HR3 and SO3 Suppliers Ongoing Progressing to plan. HR3 Welfare Ongoing Achieved for 2008 – repeated in 2010. MANAGEMENT´S REVIEW 152011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=20http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=20FINANCIAL PERFORMANCE AND OUTLOOK CONSOLIDATED RESULTS Financial performance The nancial performance in 2009 was affected by the nancial crisis, which led to lower demand for power and natural gas and consequently low prices for these core products that were one third lower and halved respectively compared with the previous year. Production from the Ormen Lange natural gas eld continued to rise in 2009 and was the reason why natural gas production exceeded oil production for the rst time. EBITDA was on a par with expectations at the start of the year. However, there were major variations between the business areas, proving the strength of DONG Energy’s integrated business model. Given the tough market conditions, EBITDA is considered to be satisfactory. Furthermore, DONG Energy succeeded in maintaining strong cash ows from operating activities. The business area Energy Markets outperformed expectations, as the increase in the oil price through 2009 led to a lower negative time lag effect in natural gas contracts than expected. At the same time, some natural gas contracts enaMarket conditions Total power generation in the Nord Pool area was 7% down on 2008. A lower level of activity in industry, in particular, led to lower demand. The power market in Germany (EEX) suffered largely the same decline, also in this case due to lower demand from industry. The performance of the business area Generation had the opposite effect, as the decline in demand for power was sharper than expected, and falling coal and power prices exerted pressure on earnings due to the application of the FIFO principle to coal inventories. DONG Energy invested DKK 17.9 billion in new activities, expansion of existing areas of activity, and ef ciency improvement and upgrading of existing plants. At the same time, DONG Energy disposed of activities outside the Group’s strategic focus to the tune of DKK 0.4 billion. bled DONG Energy to reduce its purchases under the oilindexed DUC contracts and instead meet its requirements via gas hubs, where prices were lower. Green dark spread and contribution margin from power generation Green dark spread represents the contribution margin per MWh of power generated at a coal- red power station of a given ef ciency. It is calculated as the difference between the market price of power and the cost of the coal (including associated freight costs) and CO2 emissions allowances used to generate the power. Power generated is affected by the green dark spread. The contribution margin from power generation is affected, among other things, by whether power is generated at times during the 24-hour cycle when prices are relatively high (peak) or at times when prices are relatively low (off-peak). The contribution margin is also affected by the fact that the cost of coal for accounting purposes differs from the market price resulting from application of the rst-in, rst-out (FIFO) principle to inventories. In addition, DONG Energy is allocated a speci c volume of CO2 emissions allowances. Time lag Oil price changes and changes in the USD exchange rate impact on gas selling prices relatively quickly, whereas purchase prices are adjusted with a time lag effect of up to a year and a half. For example, a change in the price of oil and/or the USD exchange rate in January may affect DONG Energy’s selling prices already in February, but may not be felt on purchase prices before the summer of the following year. The impact on the individual periods consequently varies, and this may lead to considerable uctuations in operating pro t from one period to the next in the case of oil price changes. However, the uctuations will balance each other out over a number of years. FIFO principle - coal inventories DONG Energy buys physical coal up to one year ahead of delivery. To ensure security of supply, the inventory of coal typically corresponds to 4 to 6 months’ consumption. As the value of coal inventories is recognised in the balance sheet using the 2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=21http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=21The hydrological balance – i.e. water and snow reservoir levels in Norway and Sweden compared with the norm – was relatively stable at a low level in the rst half of 2009. The stable level led to tighter focus on the macroeconomic development in the market, which was the primary reason for the development in power prices. With major uctuations in the hydrological balance later in the year, the latter again dictated power prices in the Nordic area. USD/bbl 140 125 110 95 80 65 OIL (monthly average) HYDROLOGICAL BALANCE (weekly average) TWh 20 10 0 -10 -20 -30 -40 Q1 2008 2009 Q2 Q3 Median 2001-2008 Range 2001-2008 Q4 50 35 2008 2009 The abundant supply of natural gas led to a very low price level in 2009, with the price on the Dutch TTF hub averaging EUR 12/MWh, half the 2008 price. GAS (monthly average) EUR/MWh 35 30 25 2009 was characterised by low demand for natural gas in Northern Europe due to the lower level of activity in industry. In addition, increased lique ed natural gas (LNG) imports from Asia and the Middle East led to an oversupply in the European market. Demand for oil was also adversely affected by weaker economic activity and consequent historically high oil inventories. Unlike the natural gas and power markets, the oil market is global, which means that supply and demand were affected by global macroeconomic factors. The oil market thus bene ted, periodically, from the rising stock market, the falling USD exchange rate and OPEC’s cut in oil production. Furthermore, during some periods, greater importance was placed on positive macroeconomic indicators than on negative ones. Overall, this resulted in several months of an upward trend in oil prices, albeit with major daily uctuations. 20 15 10 5 2008 2009 Averaging USD 71/tonne, the coal price was also halved compared with 2008 due to lower global demand, full inventories in Europe and the abundant supply of inexpensive natural gas. The CO2 price (EUA) averaged EUR 13/tonne in 2009, down 40% on 2008, re ecting a reduced level of activity in Europe, especially in the emissions-trading sectors. COAL AND CO2 (monthly average) Market prices Commodity prices were at signi cantly lower levels in 2009 than in 2008 as a result of market conditions. The market price of oil showed an upward trend through most of the year, but was 37% down on the previous year, averaging USD 62/ bbl in 2009 versus USD 97/bbl in 2008. In spring 2009, a decoupling of natural gas and oil prices occurred, when the price of natural gas continued to fall, while the price of oil showed an upward trend. This trend has continued into 2010. Such a prolonged, opposing price trend has not previously been seen on this scale. USD/t (coal) 215 195 175 155 135 115 95 75 55 2008 Coal (API 2) CO2 (EUA) 2009 EUR/t (CO2) 30 25 20 15 10 5 MANAGEMENT´S REVIEW 172011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=22http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=22FINANCIAL PERFORMANCE AND OUTLOOK well as Danish power prices were signi cantly lower than in POWER AND GREEN DARK SPREAD (GDS) (monthly average) EUR/MWh 100 80 60 40 20 0 -20 -40 2008 Power (Nord Pool, DK) Power (Nord Pool, system) Power (EEX) 2009 GDS (Nord Pool, DK) GDS (Nord Pool, system) GDS (EEX) 2008, while natural gas production was signi cantly higher. Natural gas production was 81% ahead of 2008, at 15.5 million boe. The increase came predominantly from the Ormen Lange natural gas eld and was due to new production wells being brought on stream. Power generation was down 2% on 2008, amounting to 18.1 TWh. The lower demand for power led to lower thermal generation, despite higher green dark spreads. Renewables generation, on the other hand, showed an increase, primarily re ecting the taking into use of the new wind farms Horns Rev 2, Gun eet Sands, Karnice and Storrun. Natural gas sales (excluding own consumption at power stations) Nordic and German power prices were generally much closer to each other in 2009 than the previous year. The Nord Pool system price averaged EUR 35/MWh in 2009, 22% lower than in 2008. The German EEX power price averaged EUR 39/MWh, 41% lower than the previous year, but slightly higher than the Nord Pool price. In between these two market prices was the average power price in the two Danish price areas, which was EUR 38/MWh in 2009. Overall, the prices of power, coal and CO2 resulted in positive green dark spreads in 2009, which, like the power prices, followed each other much more closely than the previous year. The average green dark spread for the two Danish price areas was EUR 8/MWh in 2009 compared with EUR 0/MWh in 2008. Despite higher green dark spreads in 2009, DONG Energy’s earnings from thermal generation were signi cantly lower than in 2008, primarily as a consequence of application of the FIFO principle to coal inventories, lower value of allocated CO2 emissions allowances and lower peak surcharges due to surplus capacity. Revenue The Group’s revenue was down 19%, amounting to DKK 49.3 billion compared with DKK 60.8 billion in 2008. The decline re ected two opposing effects: natural gas and oil prices as were down 5% at 94.0 TWh compared with 99.4 TWh in 2008, despite higher equity production of natural gas. The decline re ected lower demand for natural gas as a result of the nancial crisis and the resulting decline in industrial output, on the one hand, and, on the other, the fact that DONG Energy was a net buyer on the Dutch gas hub in 2009 as opposed to a net seller in 2008, which led to a reduction in revenue. The latter re ected the declining prices on gas hubs in 2009. DONG Energy’s active price hedging policy had a positive effect of DKK 1.6 billion in 2009 compared with a negative effect of DKK 0.2 billion in 2008. Hedging of oil and power prices had a positive effect on revenue in 2009, while hedging of coal prices had an adverse impact on the contribution margin. Forward natural gas sales also had a positive effect. EBITDA EBITDA amounted to DKK 8.8 billion compared with DKK 13.6 billion in 2008. A substantial part of the decrease was due to lower natural gas and oil prices and effects from timing differences in connection with the huge uctuations in market prices. The rising prices of oil and coal through the rst part of 2008 resulted in large negative effects in 2009 from time lag in natural gas contracts and application of the FIFO principle to coal inventories. REVENUE 2009 EBITDA 2009 22% 11% Exploration & Production 20% DKK 49.3 billion Generation Energy Markets Sales & Distribution DKK 8.8 billion 26% 40% Exploration & Production Generation Energy Markets Sales & Distribution 24% 47% 10% 18 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=23http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=23The DKK 4.8 billion decrease can be broken down by business area as follows: t *O&YQMPSBUJPO1SPEVDUJPO&#*5%"XBTEPXO%,CJMlion at DKK 3.4 billion as a result of lower natural gas and oil prices, partly offset by signi cantly higher natural gas production and a positive effect of oil price hedging t *O(FOFSBUJPO&#*5%"EFDMJOFECZ%,CJMMJPOUP%, 0.9 billion, primarily re ecting a lower contribution margin from thermal power production as a result of application of the FIFO principle to coal inventories, lower value of granted CO2 emissions allowances, and lower peak surcharges, partly offset by a positive effect of power price hedging t *O&OFSHZ.BSLFUT&#*5%"XBTEPXO%,CJMMJPOBU%, 2.0 billion, re ecting lower gas margins, including from a negative time lag effect in 2009 compared with a positive effect in 2008. t *O4BMFT%JTUSJCVUJPO&#*5%"XBT%,CJMMJPOBIFBE at DKK 2.2 billion, primarily as a result of higher power and natural gas distribution tariffs and lower capacity costs. Depreciation, amortisation and EBIT Depreciation, amortisation and impairment losses were down DKK 0.5 billion at DKK 5.1 billion in 2009. Impairment losses in 2009 amounted to DKK 0.8 billion, including an impairment loss of DKK 0.7 billion on the bre optic network. Impairment losses in 2009 were DKK 0.9 billion lower than the previous year, while depreciation was DKK 0.4 billion higher due to the bringing on line of new assets. EBIT was DKK 3.8 billion versus DKK 8.0 billion in 2008. Gain (loss) on disposal of enterprises Disposals in 2009 generated a total loss of DKK 62 million. The sale of Frederiksberg Forsyning and Frederiksberg Forsynings Ejendomsselskab to the Municipality of Frederiksberg was completed in March, yielding a gain of DKK 31 million. The bre optic network and EnergiGruppen Jylland Biogas were sold in November and December, at a loss of DKK 85 million and DKK 8 million respectively. Associates Pro t after tax from associates amounted to DKK 74 million against a loss of DKK 48 million in 2008. The hydropower activities in Norway were the largest contributor to earnings in 2009. Financial items Financial items amounted to a net charge of DKK 1.4 billion compared with a net charge of DKK 1.1 billion in 2008. Net interest expense increased by DKK 0.2 billion to DKK 0.9 billion as a result of an increase in average net interest-bearing debt from just under DKK 15 billion in 2008 to just under DKK 20 billion in 2009 and signi cantly higher gross debt as a consequence of the issuing of bonds in May and December. The implementation of IAS 23 means that borrowing costs relating to certain investments decided upon in 2009 are capitalised during the construction period. Interest expense in the income statement bene ted by DKK 0.3 billion from this change. The interest element of the Group’s decommissioning obligations amounted to DKK 0.2 billion, on a par with 2008. Other nancial items amounted to a DKK 0.3 billion charge on a par with 2008. The charge in 2009 arose primarily from impairment losses, etc., on the Group’s participation in project development companies, foreign exchange adjustments of receivables and trade payables as well as market value adjustment of an interest rate swap taken over in connection with the acquisition of the Severn power station project. Income tax Income tax expense for the year amounted to a charge of DKK 1.3 billion compared with DKK 2.9 billion in 2008. The tax rate was 53% versus 43% in 2008, adjusted for the tax-free gain on disposal of enterprises and the fact that associates are recognised after tax. The reason for the increase in the tax rate was that earnings in Norway, where hydrocarbon income is taxed at 78%, accounted for a larger proportion of total earnings in 2009 than in 2008. Pro t for the year and dividends Pro t for the year decreased by DKK 3.7 billion to DKK 1.1 billion in 2009. The Supervisory Board will recommend at the Annual General FINANCIAL ITEMS Meeting that a dividend of DKK 1.64 per share be2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=24http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=24FINANCIAL PERFORMANCE AND OUTLOOK working capital in 2009 compared with a DKK 1.0 billion increase in funds tied up in working capital in 2008 due to a reduction in natural gas and coal inventories and an increase in other payables. In addition, income tax expense was DKK 1.0 billion lower than in 2008. Balance sheet Investing activities absorbed DKK 21.2 billion compared with DKK 8.6 billion in 2008, of which DKK 17.9 billion in 2009 and DKK 11.2 billion in 2008 represented new activities, expansion of existing areas of activity and ef ciency improvement and upgrading of existing plants. The main investments in 2009 were: t &YQBOTJPOPGXJOEQPXFSBDUJWJUJFT%,CJMMJPO o including the offshore wind farms Gun eet Sands (DKK 2.0 billion), Horns Rev 2 (DKK 1.7 billion), London Array (DKK 0.7 billion) and Walney 1 (DKK 0.6 billion) – and the acquisition of the specialist shipping company A2SEA (DKK 0.7 billion) t 5IFSNBMBDUJWJUJFT%,CJMMJPO JODMVEJOHBDRVJTJUJPO and construction of the natural gas- red power station projects Severn in the UK (DKK 2.3 billion) and Enecogen in the Netherlands (DKK 0.8 billion) t %FWFMPQNFOUPGOBUVSBMHBTBOEPJMmFMETBTXFMMBTJOGSBstructure (DKK 3.1 billion), including Ormen Lange in Norway (DKK 0.6 billion) and Nini Øst in Denmark (DKK 0.7 billion) t 6OEFSHSPVOEJOTUBMMBUJPOPGQPXFSDBCMFTJO/PSUI;FBMBOE and other capital expenditure on the power distribution network (DKK 0.7 billion) t &YQBOTJPOBOEDFOUSBMJTBUJPOPGUIF(SPVQTPGmDFGBDJMJUJFT in Vangede (DKK 0.7 billion) t 1 VSDIBTFTPGTFDVSJUJFT%,CJMMJPO OPFGGFDUPOUIF Group’s net interest-bearing net debt). Acquisitions and disposals of enterprises and activities absorbed DKK 1.1 billion net in 2009 compared with a net cash in ow of DKK 1.3 billion in 2008. Acquisitions, totalling DKK 1.5 billion, comprised two natural gas- red power station projects, a wind turbine project, A2SEA, the wholesale company KOM-STROM and further stakes in the Trym and Oselvar natural gas elds. Disposals, totalling DKK 0.4 billion, related primarily to the bre optic network. DONG Energy’s net investments amounted to DKK 19 billion in Financing activities generated a net cash in ow of DKK 12.2 billion compared with a net out ow of DKK 1.3 billion in 2008. Loans totalling DKK 18.9 billion were raised in 2009, with the Eurobond issues in May and December accounting for DKK 14.9 billion and loans from the European Investment Bank (EIB) accounting for DKK 1.9 billion. The Group made loan repayments of DKK 4.9 billion, including project nancing and other debt of DKK 2.6 billion assumed in connection with company acquisitions and DKK 1.5 billion to Realkredit Danmark. The sale of the 25.1% minority stake in the Walney offshore wind farm only contributed limited liquidity in 2009, as the buyer will not be paying its share of the project construction costs until phases one and two respectively of the farm have been completed. Appraisal well on Svane eld DONG Energy and its licence partners Bayerngas (30% interest) and the Danish North Sea Fund (20% interest) have Events after the balance sheet date Siri back in production Production on the Siri eld was resumed on 24 January, which meant that production from the adjacent elds, Nini, Cecilie and Stine, could also be resumed. A permanent repair of the damage is expected to be nalised in the second half of 2010. 2009, which was less than the announced level of DKK 20 billion. Net investments are de ned as the impact on DONG Energy’s net interest-bearing debt of investments in assets as well as company acquisitions and disposals, etc. (for de nition see page 27). Equity decreased by DKK 1.4 billion to DKK 44.8 billion at the end of 2009. The decrease re ected payment of DKK 1.9 billion in dividend to shareholders, coupon to hybrid capital holders and a reduction in hedging instruments recognised in equity. These factors were only partly offset by pro t for the year and a reduction in the negative translation reserve relating to investments in subsi2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=25http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=25decided to drill an appraisal well on the Svane eld. The well will be technically challenging due to the reservoir depth. The costs are consequently subject to uncertainty and are expected to amount to DKK 0.6-0.9 billion, depending on the drilling results, with DONG Energy’s share making up 50%. The detailed planning of the appraisal well will take place in 2010. Sale of shares in Swedegas AB closed DONG Energy’s sale of its 20.4% stake in Swedegas AB to EQT was closed on 4 February following approval of the transaction by the Swedish competition authorities. The proceeds from the sale will be recognised in pro t after tax for the 2010 nancial year. Lincs offshore wind farm project in the UK DONG Energy and Siemens Project Ventures (SPV) have acquired a 50% stake in the Lincs offshore wind farm project from Centrica via a joint venture contract. The transaction was closed on 5 February against payment of 50% of the incurred development costs of around GBP 50 million. DONG Energy’s 25% share of the capital investment is expected to amount to DKK 1.6 billion. First oil from Nini Øst eld The Nini Øst eld produced its rst oil on 24 February. DONG Energy is the operator of the Nini licence and has a 40% stake. In keeping with the strategy concerning cleaner energy production, the proportions of both CO2-neutral fuels at power stations and power generation from wind turbines were increased. CO2 emissions per energy unit generated (power and heat) amounted to 574 g/kWh in 2009. This was less than the three previous years in which DONG Energy has calculated this indicator, and indicates that the Group is on track to achieve its strategic objective of halving its carbon intensity by 2020 compared with the base year of 2006. DONG Energy was the main sponsor of the Danish Ministry of Climate and Energy’s CO2 campaign “One tonne less” and offers advice to companies and residential customers on how to make energy savings to reduce CO2 emissions. It was therefore natural to apply the same approach internally in the Group, partly to identify opportunities for energy savings in the day-to-day consumption of power and heat. Speci c energysaving measures were initiated in 2009, for example on lighting and ventilation installations. The initiatives included optimisation of IT systems in of ce buildings. The reductions led to a total saving of 47.9 TJ, corresponding to 2,895 tonnes of CO2. The target is the emission of 7,000 tonnes less CO2 by 2012, corresponding to one tonne less per employee. The Group’s environmental action includes reuse of waste both in production and administration. In 2009, DONG Energy thus reused 57% and 31% respectively of the waste it generated. The targets for reuse are 65% in production and 50% in administration by 2012. Safety performance Safety at the workplace is a key focus area for DONG Energy. The Group is working purposefully on improving safety in all business areas and corporate functions. Preventive action in 2009 primarily focused on the prevention of occupational injuries among DONG Energy’s suppliers when working in the Group’s premises. There were 129 lost time injuries in 2009, including 93 among suppliers. Converted to LTIF (lost time occupational injuries per one million hours worked) the total number of injuries at DONG Energy and among the Group’s suppliers was 6.8. The injury frequency rate thus showed an improvement over 2008, when it was 7.5, but did not live up to the Group’s target for 2009 of 6.5. The injury frequency target for 2010 is 6.2. The injury frequency for the Group’s own employees was only 3.8 in 2009, a small improvement on 2008, when it was 4.0. In November, there was a fatality on a leased drilling rig near the Siri eld in the Danish sector of the North Sea, where DONG Energy is the operator. The deceased was working for a subsupplier. A number of initiatives have been put in place in DONG Energy, Mærsk Drilling and at the supplier to prevent similar incidents in future. Non- na2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=26http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=26FINANCIAL PERFORMANCE AND OUTLOOK REVIEW OF BUSINESS AREAS’ PERFORMANCE The nancial and environmental performance of each of the Group’s four business areas is commented on in the following. EXPLORATION & PRODUCTION Financial highlights VOLUMES Oil and gas production - oil - gas FINANCIAL RESULTS Revenue EBITDA EBITDA adjusted for special hydrocarbon tax EBIT DKK million DKK million 6,579 3,427 7,114 4,053 million boe million boe million boe 24.0 8.5 15.5 18.5 10.0 8.5 2009 2008 Exploration & Production Volumes Natural gas production was up 81% in 2009, while oil production was down 15%. Overall, production was up 29%, amounting to 24.0 million boe in 2009. The increased natural gas production came primarily from the Ormen Lange eld and re ected new production wells coming on stream at the end of 2008 and in autumn 2009. The decline in oil production was affected by the shut down of the Siri eld from 31 August due to cracks in a subsea tank structure. Natural gas production, expressed in boe, amounted to 65% of total production compared with 46% in 2008. The Danish elds accounted for 19% of production and the Norwegian elds for 81%, with the latter consequently accounting for a larger proportion of production than in 2008, when the proportion was 69%. Financial performance and investments / capital expenditure Revenue was down DKK 0.5 billion at DKK 6.6 billion, re ecting signi cantly lower natural gas and oil prices, which were partly offset by increased production and a positive effect from oil price hedging. EBITDA decreased by DKK 0.6 billion to DKK 3.4 billion in 2009, re ecting lower revenue and higher operating expenses as a result of expansion of activities (additional producing wells). Expensed exploration expenditure was lower than in 2008, on the other hand, as hydrocarbon discoveries led to the capitalisation of a large proportion of the expenditure incurred in 2009. DKK million DKK million 2,959 2,040 667 3,050 3,307 2,471 4,011 3,434 Cash ow from operating activities DKK million Gross investments ENVIRONMENT CO2 emission, subject to allowance Natural gas aring Oil discharged to sea Reinjection of produced water at platforms million tonnes million Nm3 tonnes DKK million 0.04 6 18 0.05 7 24 % 49 51 should be viewed in the context of the 29% increase in production. The reason for the difference was partly the fact that the increased production came from some of the less depreciation-intensive elds, and partly that impairment losses in 2008 reduced the basis of depreciation in 2009. The net cash in ow from operating activities was DKK 0.7 bil- EBIT decreased by DKK 0.4 billion, as depreciation and impairment losses were DKK 0.2 billion lower. Impairment losses were lower than in 2008, while depreciation was higher due to increased production. The 10% increase in depreciation lion compared with DKK 4.0 billion in 2008. Besides lower EBITDA, the reduction re ected higher income tax expense, prepaid lease payments in respect of a drilling rig and increased working capital in 2009 compared with a reduction in 2008. 22 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=27http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=27Investments and capital expenditure amounted to DKK 3.1 billion versus DKK 3.4 billion in 2008 and related primarily to the development of producing natural gas and oil elds. Investments and capital expenditure in 2009 related mainly to the development of the Danish Nini Øst eld (DKK 0.7 billion), the continued development of the Norwegian Ormen Lange natural gas eld (DKK 0.6 billion) and the acquisition of further equity stakes in the Oselvar and Trym licences (DKK 0.2 billion in total). Environment Discharges to sea of oil from production platforms totalled 18 tonnes in 2009, down 25% from 24 tonnes in 2008. FINANCIAL RESULTS GENERATION Financial highlights VOLUMES Power generation - thermal - renewable Heat generation - thermal - renewable GWh GWh GWh TJ TJ TJ 18,074 15,264 2,810 46,686 46,618 68 18,536 15,958 2,578 46,380 46,321 59 2009 2008 On the Siri platform, which is operated by DONG Energy, DONG Energy had an internal target in 2009 that discharges from the platform must not exceed an average of 17 mg of oil per litre of produced water, which was signi cantly less than the permitted concentration of 30 mg of oil per litre. The target was met, with an average concentration of 12 mg of oil per litre of produced water being discharged in 2009, 39% less than in 2008. Reinjection of oil-containing water dropped to 49% overall in 2009. However, the Siri platform improved its reinjection performance from 76% in 2008 to 78% in 2009. Exploration & Production suffered one signi cant environmental incident in 2009, when the discharge of water with a high oil content resulted in a 3.3 m oil spill. The spill occurred as a result of 3 Revenue - thermal power - thermal heat - renewable energy - other EBITDA DKK million DKK million DKK million DKK million DKK million DKK million 12,441 7,278 2,184 1,676 1,303 915 722 (520) 1,001 11,565 15,298 9,436 2,442 1,453 1,967 3,155 771 1,640 3,466 4,778 - including renewable energy DKK million EBIT DKK million Cash ow from operating activities DKK million Gross investments ENVIRONMENT CO2 emission, subject to allowance Percentage of CO2neutral fuels at power stations million tonnes DKK million 11.8 12.6 operational fault in the oil separators. A number of measures have been implemented subsequently in order to avoid similar incidents in future. % 15.2 14.0 Generation Volumes Power generation decreased by 2% to 18.1 TWh against 18.5 TWh in 2008. The lower demand for power resulted in lower thermal generation, despite higher green dark spreads. Renewables generation, on the other hand, increased by 9%, accounting for 16% of the Group’s power generation in 2009. The increase was primarily due to the start-up of operations at the new wind farms Horns Rev 2, Gun eet Sands, Karnice and Storrun and increased generation from hydropower plants. Heat generation was 1% ahead at 46.7 PJ in 2009. During large parts of the year, heat generation bene ted from the fact that Amager Power Station, which is owned by Vattenfall, did not produce the normal heat volume. Own outages at the end of the year impacted adversely on generation, on the other hand. Financial performance and investments / capital expenditure Revenue was down DKK 2.9 billion at DKK 12.4 billion in 2009 as a result of lower Danish power prices and lower peak surcharges, which were partly offset by a positive effect from power price hedging and sale of virtual power under xedprice contracts. EBITDA was down DKK 2.2 billion at DKK 0.9 billion in 2009. The decline primarily re ected a lower contribution margin from thermal power generation, as power prices were lower while average fuel costs per GWh generated were in line with 2008. The average fuel cost for natural gas followed the decline in natural gas prices, while the average coal price realised for accounting purposes (excluding price hedging) increased to USD 116/tonne versus USD 100/tonne in 2008 due to the application of the FIFO principle to coal inventories. Furthermore, the value of 2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=28http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=28FINANCIAL PERFORMANCE AND OUTLOOK EBIT amounted to a loss of DKK 0.5 billion against a pro t of DKK 1.6 billion in 2008, primarily re ecting the lower EBITDA. The net cash in ow from operating activities was down at DKK 1.0 billion from DKK 3.5 billion in 2008, mainly as a result of the lower EBITDA. Less funds tied up in coal inventories had a positive effect, on the other hand. Investments and capital expenditure amounted to DKK 11.6 billion compared with DKK 4.8 billion in 2008 and related primarily to the natural gas- red power station projects Severn in the UK (DKK 2.3 billion) and Enecogen in the Netherlands (DKK 0.8 billion for the 50% ownership interest), the offshore wind farms Gun eet Sands (DKK 2.0 billion), Horns Rev 2 (DKK 1.7 billion), London Array (DKK 0.7 billion) and Walney 1 (DKK 0.6 billion) as well as the specialist shipping company A2SEA (DKK 0.7 billion). Maintenance and capital expenditure on plant life extension at the Danish power stations amounted to DKK 1.0 billion. Environment CO2 emissions subject to emissions trading amounted to 11.8 million tonnes compared with 12.6 million tonnes in 2008. The reduction was due to lower power station generation, a reduction in the use of fossil fuels and an increase in the proportion of CO2-neutral fuels used. CO2-neutral fuels accounted for 15% compared with 14% in 2008. The change was due to increased use of biomass as a result of the Group’s strategic decision to convert to cleaner energy production. Generation experienced three signi cant environmental incidents in 2009: a release of coal dust to the atmosphere on unloading of coal, an additional emission of NOx due to incorrect setting of burners, and an oil leak at the oil terminals from a buried pipeline. Preventive action has been initiated concerning all the incidents. The net cash in ow from operating activities was DKK 4.8 bilEBIT was down DKK 3.2 billion at DKK 1.5 billion in 2009 due to the lower EBITDA and a DKK 0.1 billion increase in depreciation due to a changed depreciation pro le for the North Sea natural gas pipelines. EBITDA decreased by DKK 3.0 billion to DKK 2.0 billion in 2009. Besides the lower revenue, the lower EBITDA was primarily due to a negative time lag effect. The rising oil prices in the rst part of 2008 resulted in a signi cant negative time lag effect in 2009 as opposed to a positive effect in 2008. Financial performance and investments / capital expenditure Revenue was down DKK 9.9 billion at DKK 28.2 billion compared with DKK 38.1 billion in 2008 as a result of fewer sold volumes and signi cantly lower natural gas selling prices, but was partly offset by a positive effect from forward natural gas sales in 2008 for delivery in 2009 at prices signi cantly above the current market price level. ENERGY MARKETS Financial highlights VOLUMES Natural gas sales Power sales FINANCIAL RESULTS Revenue EBITDA EBIT Cash ow from operating activities Gross investments DKK million DKK million DKK million DKK million DKK million 28,201 2,046 1,504 4,078 418 38,087 5,082 4,684 (699) 229 GWh GWh 102,436 10,723 108,394 10,482 2009 2008 Energy Markets Volumes Natural gas sales were down 6% in 2009 at 102.4 TWh compared with 108.4 TWh the previous year. The decline re ected lower demand from industrial and wholesale customers as well as DONG Energy being a net purchaser on the Dutch TTF gas hub due to low prices as opposed to a net seller in 2008. Power sales were on a par with 2008 and amounted to 10.7 TWh. Due to low gas hub prices, DONG Energy chose in 2009 to exploit the options in some natural gas purchase contracts to reduce its purchases under the oil-indexed DUC contracts. DONG Energy instead met part of its natural gas requirements via purchases on TTF at lower prices. lion higher in 2009 than in 2008, despite the lower EBITDA, and amounted to DKK 4.1 billion. The improvement primarily re ected a reduction in funds tied up in working capital, including gas inventories and intragroup receiva2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=29http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=29Sales & Distribution Volumes This business area’s natural gas sales were 6% ahead, amounting to 21.8 TWh in 2009, while power sales dropped 6% to 8.5 TWh. Natural gas and power distribution was 4% and 2% respectively lower than in 2008, while transportation in the oil pipeline was down 7% at 85 million barrels. Financial performance and investments / capital expenditure Revenue amounted to DKK 13.4 billion compared with DKK 15.6 billion in 2008. The decline was due to signi cantly lower natural gas and power prices and the sale of the 132 kV power transmission grid in June 2008. Generating positive contributions, on the other hand, were both natural gas distribution due to higher tariffs as a result of regulatory shortfall revenue in previous years and higher power distribution tariffs. SALES & DISTRIBUTION Financial highlights VOLUMES Natural gas sales Natural gas distribution Power sales Power distribution Oil transportation, Denmark FINANCIAL RESULTS Revenue EBITDA EBIT DKK million DKK million DKK million 13,386 2,239 594 1,935 1,663 15,595 1,827 (240) 2,103 2,065 GWh GWh GWh GWh million bbl 21,756 9,966 8,529 9,156 85 20,550 10,346 9,066 9,371 91 2009 2008 Cash ow from operating activities DKK million Gross investments ENVIRONMENT DKK million EBITDA was DKK 0.4 billion ahead at DKK 2.2 billion in 2009. The increase re ected higher power and natural gas distribution tariffs, lower network loss and lower capacity costs, which were partially offset both by lost earnings due to the sale of the 132 kV grid referred to above and by a lower value of the transported oil due to lower oil prices. EBIT increased by DKK 0.8 billion to DKK 0.6 billion, re ecting the higher EBITDA and the fact that the DKK 0.7 billion impairment loss on the bre optic network in 2009 was lower than the previous year’s impairment losses, which primarily related to power distribution assets. Other depreciation remained unchanged. Net cash in ow from operating activities decreased by DKK 0.2 billion to DKK 1.9 billion in 2009, despite an increase in EBITDA. The decline primarily re ected a negative contribution from increased intragroup working capital requirements in 2009 versus a positive contribution in 2008. Investments and capital expenditure amounted to DKK 1.7 billion compared with DKK 2.1 billion in 2008, and related primarily to maintenance of the power distribution network (DKK 0.4 billion), underground installation of power cables in North Zealand (DKK 0.3 billion), and establishment of bre optic network in North Zealand (DKK 0.3 billion). Environment In connection with the storage and treatment of natural gas some of the natural gas is ared. Flaring amounted to 1.2 million Nm3 in 2009, 21% less than in 2008, when aring amounted to 1.5 million Nm3. CO2 emission, subject to allowance Natural gas aring Excavation damage to gas pipes Methane leaks due to excavation damage million tonnes million Nm3 no. Nm3 0.02 1.2 79 33,844 0.02 1.5 107 25,490 Excavation damage to natural gas pipes occurred 79 times in 2009 compared with 107 times in 2008, but methane leaks were 33% higher than in 2008, amounting to 33,844 Nm3. The reason for the increased volume was four particularly large leaks jointly amounting to 20,339 Nm3. Sales & Distribution experienced one signi cant environmental incident in 2009, when a re broke out in a power distribution station from which SF6 gas escaped. A number of measures have subsequently been put in place to avoid a recurrence of similar incidents. MANAGEMENT´S REVIEW 252011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=30http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=30FINANCIAL PERFORMANCE AND OUTLOOK FINANCIAL OUTLOOK FOR 2010 External assumptions The development in a variety of market prices, including oil, natural gas, power, coal, CO2 and the USD exchange rate, has a major impact on DONG Energy’s nancial performance. The outlook for 2010 is based on the average market prices in the table. In principle, the nancial performance will bene t from the higher market prices in 2010 compared with 2009. Price hedging A major proportion of market price exposure in 2010 has been hedged, which means that any deviations from assumed prices will not lter through in full to nancial performance. At the end of 2009, Exploration & Production’s expected crude oil exposure in 2010 had been fully hedged at an average price of USD 80/bbl, while the Group’s expected natural gas exposure in 2010 was largely neutral. At the end of 2009, 60% and 30% of expected thermal power generation in 2010 and 2011 respectively had been hedged at A large proportion of the Group’s power price hedging is also adjusted to market value in the income statement on a continuous basis, as this hedging does not meet the effectiveness criteria for hedge accounting. This can also lead to large uctuations in nancial performance. The latter two factors result in considerable uncertainty with respect to nancial performance in 2010. In 2009, EBITDA bene ted from market value adjustments of hedging instruments that do not meet the criteria for hedge accounting. The outlook for 2010 does not include a similar positive effect. Timing differences prices corresponding to green dark spreads of around EUR 10/ MWh and EUR 13/MWh respectively. Oil price hedging has also been effected for the period 20122014, largely using options. These options can make nancial performance highly volatile in the event of oil price changes, as their time value is continuously adjusted to market value in the income statement despite the fact that their intrinsic value is accounted for in accordance with the criteria for hedge accounting. MARKET PRICES (average prices) Oil, Brent Gas, TTF Power, Nord Pool system Power, EEX Coal, API 2 CO2 emissions allowances US Dollar USD/bbl EUR/MWh EUR/MWh EUR/MWh USD/t EUR/t DKK/USD Estimate 2010 81 14 41 46 44 87 13 12 5.3 2009 62 12 35 38 39 70 13 8 5.4 The development in market prices led to major negative effects in 2009, but is expected to be turned around to neutral or positive effects in 2010. The expected higher oil price in 2010 compared with 2009 and the resulting effects on contracts with oil-indexed natural gas prices are thus expected to have a positive time lag effect. On the other hand, the positive optimisation effects in 2009 are not expected to be repeated in 2010. Overall, EBITDA in Energy Markets is expected to be somewhat better than in 2009. With the assumed market prices, application of the FIFO principle to coal inventories is not expected to have any effect on EBITDA in 2010, whereas contracts entered into at high prices in 2008 depressed EBITDA by DKK 0.7 billion in 2009. Power, Nord Pool DK 1) EUR/MWh Green dark spread DK 1) EUR/MWh 1) Based on the average prices in DK1 and DK2. 26 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=31http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=31Other assumptions The following signi cant new or expanded activities are expected to contribute around DKK 1.0 billion to EBITDA in 2010 compared with 2009: t 'VMMZFBSFGGFDUPGUIF)PSOT3FW(VOnFFU4BOET,BSOJDF and Storrun wind farms and the taking into use of Karcino in the second quarter of 2010. Also full-year effect of the A2SEA acquisition t 4UBSUVQPGQSPEVDUJPOPOUIF/JOJTUmFMEJO'FCSVBSZBOE almost a full production year from the Siri area, where production was suspended in the last four months of 2009. Also expected start-up of production on the Trym eld at the end of 2010 t 1 SPEVDUJPOGSPNUIF0SNFO-BOHFmFMEJTFYQFDUFEUPCF marginally higher than in 2009 t 4UBSUVQPGPQFSBUJPOPGUIFOBUVSBMHBTmSFEQPXFSTUBUJPO Severn, although earnings in 2010 are expected to be modest. Regulatory factors are expected to have an adverse effect on Sales & Distribution in 2010, and EBITDA is consequently expected to be somewhat lower than in 2009. The ef ciency improvement and cost reduction programmes initiated, which are expected to gradually improve EBITDA by altogether DKK 1.5 billion in 2011 compared with 2008, are expected to contribute a further DKK 0.5 billion compared with 2009, with a large proportion being realised in Generation. Net interest-bearing net debt was higher at the end of 2009 than at the start of the year. Net interest expense is consequently expected to be higher in 2010 than in 2009. The sale of the shareholding in Swedegas AB in January 2010 is expected to yield an accounting gain of approx. DKK 150 million after tax. EBITDA outlook for 2010 Based on the market prices and other assumptions outlined in the foregoing, EBITDA for 2010 is expected to be signi cantly ahead of 2009. Outlook for net investments in 2010 and 2011 The previously announced level of net investments of DKK 10 billion in 2010 and between DKK 10 billion and DKK 15 billion in 2011 is reaf rmed. In this context, net investments are de ned as the impact on DONG Energy’s net interest-bearing debt and consist of: t /FUDBTInPXTGSPNJOWFTUJOHBDUJWJUJFTJODMVEJOHEJTQPTBMT t -FTTOFUQVSDIBTFTTBMFTPGCPOETBOETFDVSJUJFT t 1MVTBOZEFCUBTTVNFEJODPOOFDUJPOXJUIDPNQBOZBDRVJsitions t -FTTNJOPSJUZJOUFSFTUTTIBSFPGJOWFTUNFOUTJOGVMMZDPOTPMidated investment projects (including 25.1% minority stake in Walney wind farm project) t -FTTUIFTFMMJOHQSJDFPGBOZEJTQPTBMTPGNJOPSJUZIPMEJOHT accounted for as part of cash ows from nancing activities t -FTTEJWJEFOETSFDFJWFE Outlook concerning capital structure The long-term capital structure target has been changed from 2010 onwards to adjusted net debt of around three times cash ows from operating activities. The reason for the change is to make cash ows rather than earnings a driving force. Adjusted net debt is de ned as net debt for accounting purposes plus 50% of hybrid capital. DONG Energy is expected to achieve this target in 2010. Forward-looking statement The annual report contains forward-looking statements, which include projections of nancial performance in 2010 and 2011. These statements are not guarantees of future performance and involve certain risks and uncertainties. Therefore, actual future results and trends may differ materially from what is forecast in this report due to a variety of factors, including, but not limited to, changes in temperature and precipitation; the development in the oil, gas, power, coal, CO2, currency and interest rate markets; changes in legislation, regulation or standards; changes in the competitive situation in DONG Energy’s markets; and security of supply. Reference is made to the chapter risk management, and notes 32 and 33 to the consolidated nancial statements. MANAGEMENT´S REVIEW 272011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=32http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=32RISK MANAGEMENT DONG Energy’s risk management focuses on identifying, assessing and measuring the risks associated with its business activities. Against that background, DONG Energy considers risk mitigation measures on an ongoing basis, partly through price hedging contracts, insurance contracts, its organisational structure and operational alignments. This provides increased certainty in relation to DONG Energy’s nancial manoeuvrability to make the necessary business transactions related to its strategy. DONG Energy’s risk management comprises a number of nancial and non- nancial risks. Some of these risks are outside - or partly outside - DONG Energy’s control. The economic slowdown, which has led to falling demand for power and natural gas as well as lower prices, impacted on risk management in 2009. At the same time, DONG Energy tightened its focus on factors related to nancing and credit risks. In addition, the Executive Board’s risk committee regularly discusses issues related to risk and monitors compliance with the Group’s internal risk policies. Factors to which particular risk applies are presented to the Executive Board’s nance COMMERCIAL RISKS Supervisory Board receives systematic follow-up on identi ed risks as well as reports on the exercise of delegated authorities and compliance with established guidelines on a quarterly basis. committee. Furthermore, a risk control function has been established that monitors, independently of the business, whether established procedures, etc., are being complied with Operational risks and quality assures and validates the risk models on which some risk assessments are based. Market risks Insurable risks DONG Energy has chosen a business model whereby the business areas’ external energy price hedging is undertaken by the energy trading function in the business area Energy Markets. This ensures that external trading is undertaken on a Group basis, minimising suboptimisation. At the same time, DONG Energy optimises and manages its positions in the energy market on a daily basis. Trading in Energy Markets is undertaken via a number of delegated authorities to trade that are Credit risks Risk governance Risk management in DONG Energy is organised through a number of decision-making bodies and carried out in accordance with xed internal policies and procedures. All controllable risks are thus managed under authorities approved by the Supervisory Board that have been delegated by the Executive Board via a risk policy for the Group and risk policies for the individual business areas and subsidiaries. DONG Energy has established a number of internal processes and procedures that ensure ongoing assessment, monitoring and follow-up of the current risk pro le both in the short and the long term. The key business risks are identi ed at least annually. These risks are discussed by the Supervisory Board’s Audit and Risk Committee and the full Supervisory Board. The monitored by daily reporting of earnings and associated risk (Value-at-Risk and stress testing). The trading function is organised into front, middle and back of ces, ensuring a clear distribution of responsibilities and ef cient performance and control of trading activities. DONG Energy uses a number of IT systems in its risk management. Market and credit risks DONG Energy’s nancial position is affected by movements in natural gas, oil, power, coal and CO2 prices, exchange rates, interest rates and – to a lesser extent – other commodity prices. The exposure to natural gas and oil prices is linked to the production of natural gas and oil and the portfolio of natural gas contracts. The exposure to power, coal and CO2 prices is primarily linked to thermal power generation. The Group’s 28 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=33http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=33Credit risk arises as a result of the Group’s physical and nanDECISION BODIES cial trading in energy with customers and suppliers, investment of cash funds and the conclusion of nancial interest rate and foreign exchange transactions. All these activities Supervisory Board involve a risk of loss in the event of the counterparty’s failure to perform. Audit and Risk Committee Natural gas and oil price risks Natural gas and oil production and DONG Energy’s portfolio of natural gas contracts involve a natural exposure to movements in oil and natural gas prices. To this should be added the fuel consumption related to thermal power generation. Executive Board The natural gas contracts are typically indexed to gas and fuel oil, and natural gas prices consequently echo the movements in the prices for these products. Risk control DONG Energy applies a ve-year time horizon in the management of its natural gas and oil price risks. Future cash ows from natural gas and oil price exposure are estimated on the basis of both current forward prices and a set downside price scenario. The difference in cash ows in the two scenarios is a Risk departments (centralised and decentralised) Finance committee Risk committee measure of risk and is managed within xed delegated authorities using price hedging contracts. The need for price hedging is reviewed on a regular basis, as the exposure changes in connection with changes in forward prices and production estimates within the time horizon. growing portfolio of wind power activities also increases its exposure to power prices and risks related to the public subsidy regimes and legislative framework that affect their pro tability. The time horizon of the Group’s management of market risks depends mainly on the liquidity of the nancial products used to hedge price risks. The scope of price hedging decreases with the time horizon. This is due to several factors, including market liquidity and the increased uncertainty over time associated with the Group’s estimates of future natural gas, oil and power production and its assumptions concerning the portfolio of natural gas contracts. This basis risk is measured and assessed on an ongoing basis. Price hedging is also undertaken with a view to achieving an appropriate balance between future potential earnings opportunities and protection against unfavourable market development. Currency exposure depends on the Group’s energy positions and is managed on an ongoing basis to achieve a high degree of hedging of currency risk. Interest rate risks depend on the Group’s capital structure and debt and are managed with a view to achieving a high degree of certainty concerning future interest payments. DONG Energy’s debt is predominantly xed-rate. Wherever possible, price hedging is undertaken using instruments matching the actual exposure. Where this is not feasible, instruments are used that provide the highest possible degree of co-variation with the actual exposure, for example in the form of rolling price hedging, or price hedging using an oil product other than that to which the exposure relates, for example crude oil instead of gas oil or fuel oil. DONG Energy thus seeks to minimise the basis risk, i.e. the risk that the change in value of the exposure being hedged does not completely match the change in value of the hedging instrument. Price hedging is undertaken using both physical and nancial contracts, with the emphasis on swaps and put options as far as oil is concerned. At the end of 2009, Exploration & Production’s expected crude oil exposure in 2010 had been fully hedged at an average price of USD 80/bbl, while the Group’s expected natural gas exposure in 2010 was largely neutral. Price risks related to power generation The contribution margin related to thermal power generation is determined by revenue from power sales less fuel and CO2 costs. The contribution margin is called green dark spread in connection with coal-based power generation and green s2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=34http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=34RISK MANAGEMENT ern in the UK at the end of 2010, DONG Energy will be exposed to the UK green spark spread. The price exposure related to generation at Danish power stations, which is still primarily based on coal, is managed with a time horizon of 2½ years. The green dark spread is hedged based on expected production by the simultaneous forward sale of power and forward purchase of coal and CO2 respectively, so that the portion hedged is bigger the more favourable the green dark spread. In addition, the portion of expected production that is hedged is bigger the shorter the time to delivery. Risk management of the Severn power station will be based on similar principles, but aligned to local UK market conditions. Price hedging of thermal power generation in Denmark is, as far as possible, undertaken using Danish power price instruments, but also to a great extent the more liquid contracts for the Nord Pool system power price and Swedish area prices and German power price contracts (primarily EEX), the changes in value of which are typically closely correlated to Danish power prices. The price exposure relating to the resulting basis risk cannot be hedged. At the end of 2009, 60% of the price exposure related to the expected thermal generation in 2010 and 30% in 2011 had been hedged. The price risk related to the Danish offshore wind farms has been hedged via contracts on publicly guaranteed minimum prices for a number of years ahead. In the coming years, DONG Energy will be bringing more UK offshore wind farms on line, considerably increasing its exposure to UK power prices. UK power prices are typically hedged in the form of individually negotiated bilateral xed-price contracts, as there is no liquid nancial power market in the UK. DONG Energy is also exploring the possibilities for hedging price risk using hedging instruments with a close correlation to UK power prices. The growing wind power portfolio also increases the Group’s exposure to public subsidy regimes and associated legislation, including especially the UK Renewables Obligation Certi cates (ROCs). The price risk related to ROCs can to some extent be hedged using bilateral contracts. CO2 The contribution margin from coal- red and natural gas- red power stations depends on the green dark spread/green spark spread. Accordingly, earnings from thermal power stations will not be determined by the current price level for CO2, as the level does not normally affect the spread. However, in the typically limited periods in which nuclear power and/or hydropower dictate power prices in Denmark, a high CO2 price may impact earnings adversely. DONG Energy has been granted CO2 allowances up to 2012 roughly corresponding to its Interest rate risks The Group’s interest rate risks are determined by its loan portfolio, nancial price hedging and investment of cash funds. Interest rate risk is managed in relation to the Group’s net Currency risks DONG Energy’s business activities expose it to risks related to movements in exchange rates, primarily USD, GBP, PLN, SEK, NOK and EUR. Because there are typically signi cant offsetting currency positions internally in the Group, consolidated currency exposure is calculated on an ongoing basis, and efforts are made to minimise total net exposure by using forward contracts and swaps. Risk exposure is calculated on the basis of the cash ow volatility – expressed in DKK – that currency movements typically give rise to over a ve-year time horizon. At the end of 2009, the currency risk on 84% of the consolidated net position in 2010 had been hedged (excluding EUR). DONG Energy engages in active position taking and market making within narrow risk tolerance levels, compliance with which is monitored by daily reporting of earnings and risk. Overall one-day 95% VaR (value-at-risk) for active position taking was DKK 4.5 million at the end of 2009, which was representative of the level through the year. To support ef ciency and liquidity DONG Energy h2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=35http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=35interest-bearing debt, equivalent to a speci c proportion of net debt being xed-rate. This translates into a requirement for a DKK duration on the net debt (the change in market value of the net debt in DKK in the event of a one percentage point change in the interest rate for all currencies) that constitutes the practical risk management objective. This strategy re ects the wish for a limited effect of interest rate changes. The loan portfolio including hybrid capital was thus predominantly xed-rate (94%) at the end of 2009. Interest rate risk totalled DKK 2,118 million at the end of 2009. This corresponds to the amount by which the market value of net interest-bearing debt including hybrid capital would fall in the event of a one percentage point increase across the interest rate curve for all currencies and corresponds to a duration of 4.6 years for the gross loan portfolio including hybrid capital. Credit risks Credit risks in DONG Energy exist both in relation to physical trading and delivery of energy products, nancial transactions and customers and suppliers, with all contracts entailing a risk of loss in the event of the counterparty failing to perform. All signi cant counterparties are consequently rated, and credit risk limits are set that are monitored and reported to the Executive Board and the Supervisory Board on a regular basis. All counterparties in energy trading and nancing activities are followed up on daily, and standardised contract provisions are used that are normal for trading in energy and nancial markets. DONG Energy’s increased presence in several international markets has led to management of credit risk across national borders based on the Group’s adopted risk policy, so that credit risk is consolidated across all business areas. The nancial crisis has heightened DONG Energy’s focus on credit risk management and has led to a number of initiatives aimed at reducing the Group’s credit risk, including restrictions on or discontinuation of further trading with selected counterparties and stricter requirements concerning the provision of collateral. Credit risk is assessed on a regular basis in relation to business activities. DONG Energy did not suffer any material credit losses in 2009 and no losses relating to its trading activities. However, DONG Energy recorded increasing losses in the end customer segment. Liquidity and nancing risks DONG Energy’s liquidity and nancing risks are managed centrally in accordance with principles and delegated authorities laid down by the Supervisory Board. One of the main nancial management tasks in DONG Energy is to secure suf cient and exible nancial resources in relation to the day-to-day operations and the Group’s investment programme. To this end, internal management objectives have been established for the required level of nancial resources, taking into account primarily factors such as investment programme, cash ows from operations and debt maturity pro le. It is DONG Energy’s nancing policy to concentrate loans in the parent company in order to optimise the loan portfolio on a consolidated basis. Non-current assets are primarily nanced by cash ows from operations, supplemented by the raising of debt. DEBT PROFILE 31/12 2009 DKK billion 5 4 3 2 1 0 2020+ 2016 2019 Note: Excluding hybrid capital and loans where DONG Energy holds the counterbalancing securities. In May and December 2009, DONG Energy issued bonds in the euro market totalling EUR 2 billion (DKK 15 billion). Both issues were oversubscribed, and the credit margins were satisfactory. Other large-scale borrowing in 2009 comprised the raising of loans from the European Investment Bank (EIB) totalling EUR 250 million (DKK 1.9 billion). DONG Energy thus had access to the necessary nancing throughout 2009. DONG Energy manages its debt pro le and cash resources via In 2009, DONG Energy strengthened its internal procedures in relation to having adequate nancial resources in the event of a large counterpart2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=36http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=36RISK MANAGEMENT construction. DONG Energy has taken out a number of insurCAPITALISATION DKK billion 90 80 70 60 50 40 30 20 10 0 Bonds and loans, etc.: 22.5 and 11.9 Hybrid capital: 8.1 Equity (excl. hybrid capital): 36.7 ance policies to protect the value of these installations. The all risks facilities insurance largely relates to the membership of the reinsurance company OIL Insurance Ltd. DONG Energy is insured for up to USD 250 million with an excess of up to USD 10 million per insurance event. With a view to achieving adequate cover for certain assets, supplementary insurance policies have been taken out with other insurance companies, including Lloyd’s of London. A subsidiary, DONG Insurance A/S, has been set up with a view to insuring the Group and achieving a cost-effective In order to secure nancing on attractive terms at all times, DONG Energy has set targets for its creditworthiness and capital structure. The target for creditworthiness is the maintenance of ratings with the rating agencies Standard & Poor’s and Moody’s of at least BBB+ and Baa1 respectively. DONG Energy considers that poorer ratings would limit the Group’s possibilities for effective implementation of the investment programme that is part of its strategy. Standard & Poor’s upgraded DONG Energy’s rating to A- from BBB+ (stable outlook) in 2009. The Baa1 (stable outlook) rating from Moody’s remained unchanged in 2009. DONG Energy has elected to review its capital structure target with a view to focusing on credit investors. The long-term target in 2009 was for net interest-bearing debt (including hybrid capital) to be around three times EBITDA (adjusted for special hydrocarbon taxes). This nancial key performance indicator stood at 4.2 at the end of 2009 compared with 1.8 at the same time the previous year. The increase re ected substantially lower EBITDA due to the unfavourable market conditions in 2009 and an increase in net interest-bearing debt as a result of the Group’s investment programme. This nancial key performance indicator will be changed with effect from 2010 onwards with a view to focusing more directly on the cash ows that are generated by operations and can be used to service debt. This will also bring the indicator more in line with the indicators on which the rating agencies focus. In future, this nancial key performance indicator will consequently be replaced by a long-term target to the effect that adjusted net interest-bearing debt must correspond to around three times cash ows from operating activities. Adjusted net interestbearing debt will be determined as net interest-bearing debt plus 50% of issued hybrid capital in accordance with the rating agencies’ treatment of hybrid capital. This indicator would have been 3.3 in 2009. insurance portfolio. The company is subject to supervision by the Danish Financial Supervisory Authority. Other commercial risks In addition to the risks described in the foregoing, DONG Energy’s business activities expose it to various other risks that may have an adverse impact on the Group’s nancial position, and may consequently prevent or hamper the achievement of its strategic targets. Selected signi cant risks identi ed are described in the following. Production of power, natural gas and oil DONG Energy’s construction and operation of production facilities relating to power, natural gas and oil rely on a number of complex technologies that expose the Group to the risk of failure or delays due to technical problems or other unforeseen events. The shutdown of production on the Siri platform in 2009 is an example of one such risk, which has resulted in remediation costs and loss of pro ts. Expected production volumes are also subject to uncertainty. The volume of natural gas and oil production in individual years and the elds’ total lifespan can only be estimated with a degree of uncertainty, and power generation from wind turbines varies with wind force. Due to the possibility of imported hydro-gene2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=37http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=37The surplus of natural gas in Europe triggered by the economic downturn has led to low natural gas prices in Europe compared with oil prices for a longer period than normal. The oversupply of natural gas re ects the lower cyclical demand and recent years’ mild winters. To this should be added the expansion of the European natural gas distribution network, which has improved liquidity on the European gas hubs. Increased imports of lique ed natural gas (LNG) from overseas also added to the supply of natural gas in Europe in 2009. There is a risk that the decoupling of natural gas and oil prices will be protracted, which may have adverse consequences in the event of natural gas purchase and sales contracts not having the same base exposure. However, oil-indexed natural gas contracts normally feature renegotiation clauses that are aimed at maintaining the competitiveness of the contracts relative to the actual market price of natural gas. In the short term, the decoupling of natural gas and oil prices may have a signi cant impact on DONG Energy’s earnings, while, in the longer term, it may present improved opportunities for alignment to the changed market conditions. Technical exposure relating to offshore wind turbines The expansion and operation of offshore wind farms forms an essential element of DONG Energy’s strategy. To improve the ef ciency of procurement, design, installation and subsequent operation of offshore wind farms, the Group has entered into an agreement with Siemens on the supply of a speci c type of wind turbine for a number of wind power projects. The wind turbines for several of the Group’s established wind farms were also supplied by Siemens. This will increase DONG Energy’s exposure to batch faults in turbines, which, in turn, may result in higher investment and maintenance costs and loss of pro ts. The Group is also exposed to defects and failure of transmission cables and transformer stations, exposing it to the risk of loss of pro ts, as farms typically have to be shut down while remedial work is carried out. DONG Energy endeavours to counter such risks through manufacturers’ warranties, by choosing well-proven turbine types, and in some cases compensation schemes with national system operators. Insurance against loss of pro ts is assessed on a case-by-case basis for the individual farms. Regulatory risks DONG Energy is engaged in a number of activities that are subject to statutory regulation, or where political decisions may have a major impact on earnings. This applies, for example, to subsidy regimes for offshore wind turbines and income cap regulation in respect of distribution activities. The amendments to the Danish Electricity Supply Act in 2009 are one example of the latter. The authorities in several countries award green certi cates per MWh generated as part of the payment for power generated by wind turbines. Green certi cates typically make up more than half of earnings from wind power. DONG Energy is primarily exposed to the UK ROC regime. The number of renewables certi cates granted is decided politically. The number of certi cates required to emit polluting gases, and consequently demand for certi cates, is also decided politically. Common to green certi cates is the fact that there is not a liquid market in which they can be traded, which makes longterm price hedging of such certi cates costly and cumbersome. Investments and capital expenditure DONG Energy’s growth is to a great extent based on capital expenditure on new production facilities and to a lesser extent on acquisitions. The design and construction of large construction projects involve a number of risks, including delays due to the weather, unforeseen technical challenges and regulatory requirements that can increase the construction cost here and now. At the same time, an inappropriate choice of technical solution or similar can impact future earnings adversely. MANAGEMENT´S REVIEW 332011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=38http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=38SØREN GATH HANSEN, Executive Vice President, Exploration & Production ”Our business is experiencing continuous growth. Exploration & Production will contribute to increased natural gas and oil production in the years ahead through a robust and diversi ed product portfolio, to the bene t of security of supply and the Group’s bottom line.” Natural gas and oil production 24 million boe Natural gas and oil reserves (2P) 364 million boe EBITDA DKK 3.4 billion 40% DONG Energy is the operator of the Siri eld and the adjoining elds. Oil production from, for example, the Nini Øst eld, which was recently brought on stream, is transmitted for treatment on the Siri platform. 34 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=39http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=39EXPLORATION & PRODUCTION MANAGEMENT´S REVIEW 352011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=40http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=40EXPLORATION & PRODUCTION INCREASED PRODUCTION AND NEW DISCOVERIES Exploration & Production explores for and produces natural gas and oil in Denmark and Norway, on the Faroe Islands, in Greenland and in the West of Shetland area in the UK. DONG Energy also has a stake in the overall natural gas pipeline network (Gassled) connecting the Norwegian elds with the European continent and the UK. Exploration & Production creates value through a number of activities in the upstream part of the energy value chain - from own exploration to natural gas and oil production. Exploration & Production’s natural gas production travels further down the value chain to the business area Energy Markets, where it creates additional value by forming part of the overall natural gas portfolio. The objective is for equity natural gas production to meet 30% of DONG Energy’s needs, thereby strengthening security of supply. At the end of 2009, DONG Energy had 14 production licences and 56 exploration and appraisal licences. Two of these are being developed and are expected to go on stream within the coming years. DONG Energy is the operator of nine licences in Denmark, six in Norway, seven in the UK and one in Greenland. 2009 was characterised by several key events underpinning DONG Energy’s growth strategy. Exploration for new reserves thus led to four new discoveries: one in Norway and three in the West of Shetland area in the UK. Furthermore, DONG Energy’s rst UK well in an operatorship role, on licence P1195, led to the Glenlivet natural gas discovery. Also in an operatorship role, DONG Energy initiated the development of the Oselvar natural gas eld in Norway. DONG Energy increased its stake in this eld from 40% to 55%. In addition, DONG Energy increased its stake in the Trym natural gas eld from 40% to 50%. Lastly, DONG Energy developed the Nini Øst oil eld in the Siri area in Denmark in 2009 and production has just commenced. The eld’s production is piped to the Siri platform for treatment and then lifted together with other production from Number of licences 80 70 60 50 40 30 20 10 0 the area for onwards transportation by sea. DONG Energy is the operator of all four production platforms and installations in the area. Reserves DONG Energy’s 2P oil and gas reserves amounted to 364 million boe (barrels of oil equivalent) at end 2009 compared with 392 million boe at end 2008. The lifespan (R/P) of oil and gas reserves (calculated as 2P reserves at end-2009 to production in 2009) was 15 years. As production increases over the coming years the long-term target is to maintain a lifespan of oil and gas reserves of at least eight years. Reserves matured into 2P during 2009 came predominantly from the Laggan and Tormore elds as well as acquisition of EXPLORATION AND PRODUCTION LICENCES 75 64 68 70 63 2005 Denmark 2006 UK 2007 Greenland 2008 2009 Faroe Islands Norway 36 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=41http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=41additional interests in the Trym and Oselvar elds. Glitne and Enoch reserves were removed from the reserves base as a result of divestment. All production wells on the Ormen Lange eld have performed as expected, whereas two appraisal wells in the Northern licence block of the eld (licence PL 209) in 2008 and 2009 showed less natural gas volumes in this area than expected. An interpretation of these results has negatively impacted 2P reserves for the business area and DONG Energy follows the operator’s downward adjustment of reserves by 25% (approx. 70 million boe), which is included in the 2009 reserves. The near-future development programme and production from Ormen Lange will not be affected. Ormen Lange is a unitised eld, based on a unit operating agreement for the three licences making up the Ormen Lange eld. DONG Energy is not a party to licence PL 209 and consequently may not be affected in the long term by the downgrading of the total Ormen Lange eld reserves. Current geographic focus area for oil and natural gas exploration and production Gassled natural gas transmission system partly owned by DONG Energy Gas treatment plant Oil/natural gas field, partly owned by DONG Energy. (Producing, evaluation/ development or with DONG Energy as licence operator) DONG Energy offices New discoveries in 2009 Alve Thorshavn Ormen Lange Nyhamna Rosebank Cambo Glenlivet Laggan/Tormore Tornado Stavanger Aberdeen Oselvar Ula Tambar Gyda Hejre Siri Trym Syd Arne Esbjerg Copenhagen London MANAGEMENT´S REVIEW 372011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=42http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=42EXPLORATION & PRODUCTION Production Natural gas and oil production totalled 24.0 million boe in 2009 compared with 18.5 million boe in 2008. Natural gas accounted for 15.5 million boe compared with 8.5 million boe in 2008, which meant that natural gas production exceeded oil production for the rst time. This is in line with DONG Energy’s strategy to strengthen its security of supply by increasing its natural gas supply. Production came primarily from Ormen Lange (61%), the new eld Alve (5%), the mature elds Ula, Gyda and Tambar in Norway (14%) and Syd Arne, Siri/Stine, Nini and Cecilie in Denmark (19%). 81% of total natural gas and oil production came from Norway compared with 69% in 2008. The increase in production was primarily attributable to Ormen Lange. Production from Danish elds, on the other hand, was 22% down on the previous year. Denmark As operator of the Siri oil eld, DONG Energy decided to stop production in August 2009 when a routine inspection revealed cracks in a subsea tank structure connected to the oil storage tank underneath the platform. There was no evidence of any oil spills. A temporary solution was established at the end of 2009, and production from the elds in the area was resumed at the end of January 2010. Plans for a permanent solution are under development. Production on the Syd Arne oil eld has been stable compared with 2008. In 2009, together with the operator of Syd Arne, DONG Energy focused on preparations for the drilling of new production wells in 2010 and on exploring options for continued development and optimisation of production. DONG Energy is the operator of the development of the Hejre eld. The eld contains both oil and wet natural gas, which requires the establishment of special technical installations for exporting the natural gas. The establishment of a solution whereby the wet natural gas is transported to Denmark has proved a challenge in terms of the time it takes. To achieve an optimum solution with regard to the time and technical installations required, DONG Energy is exploring several options in parallel, including export via Norwegian and Dutch infrastructure. A nal development plan for the eld will depend on these studies, which are expected to be completed in 2010. In North Jutland, DONG Energy has acquired on-shore seismic data in order to explore possible oil deposits in the substrata below Thy. These investigations will form part of the assessment of whether there is a basis for acquiring further data and possibly drilling an exploration well in the area. Norway In Norway, DONG Energy has commenced the development of the Trym and Oselvar natural gas elds as operator. Such projects are a key element of DONG Energy’s growth strategy for Norway. In 2009, DONG Energy concluded a partial exchange agreement with Faroe Petroleum under which DONG Energy increased its stake in the Trym eld from 40% to 50%. At the same time the Group relinquished its stakes in the producing Norwegian oil elds Glitne and Enoch. Development of the Trym eld is pending nal of cial approval. Production is expected to commence at the end of 2010. Trym is located on the boundary between the Danish and Norwegian sectors of the continental shelf, and according to the development plan the natural gas will be transported from the subsea production facility on Trym via the Danish platforms Harald and Tyra to Nybro in Denmark or Den Helder in the Netherlands (see map on page 39). DONG Energy owns the pipelines from Harald to Tyra and from Tyra to Nybro and is co-owner of the pipeline from Tyra to Den Helder. Oil and condensate from Trym will be transported from Harald via the Gorm eld to Fredericia via DONG Energy’s oil pipeline. The authorities approved the development of the Oselvar eld in June 2009, and the eld is expected to go on stream at the end of 2011. Oselvar is being developed through three horizontal production wells connected to the platform at the Ula eld via a pipeline. DONG Energy expects to 2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=43http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=43Oil pipeline Natural gas pipeline Producing field, partly owned by DONG Energy Field under evaluation and/or development, partly owned by DONG Energy Field owned by others Norwegian shelf Oselvar Ula Tambar Gyda Ekofisk Hejre Trym Harald Syd Arne Siri Danish shelf Norpipe English shelf Tyra Gorm Nybro Fredericia Teesside Dutch shelf German shelf Energy acquired 3D seismic data that will be evaluated in relation to the exploration potential. UK In the UK, DONG Energy’s exploration and production activities are concentrated in the West of Shetland area. The area is key to DONG Energy’s growth strategy, and the Group participates in 24 licences. DONG Energy has participated in all important nds in the area since its establishment in the UK in 2000. In 2009, DONG Energy participated in three nds in the Rosebank, Tornado and Glenlivet licences. The discovery of natural gas on the Glenlivet licence was made from DONG Energy’s rst well as operator in the UK. A total of three successful wells were drilled on the licence with the aim of delineating the extent of the discovery. Drilling proceeded to plan despite harsh weather conditions. In 2009, proposals for development plans for the Laggan and Tormore licences near Glenlivet were submitted to the authorities. The development of Laggan and Tormore will include the establishment of new infrastructure in the area, which opens up the possibility for existing and future nds in the area being produced via this infrastructure. Successful appraisal wells were drilled on the Rosebank licence. Added to the latest discovery in 2009, this has resulted in an increase in estimated reserves. The latest dis- covery in 2009 was made on the northern part of the licence, and, coupled with the appraisal wells, this boosts reserves in the area. In 2009, DONG Energy acquired a stake in the Tornado licences P1190 and P1262, which are located south of the Cambo and Rosebank licences. An exploration well drilled in October led to a discovery on the licences. The commercial potential of the discovery is still being evaluated. Faroe Islands On the Faroe Islands, DONG Energy participates in three licences. In 2009, efforts focused on appraising the exploration potential of existing licences, which resulted in one licence being relinquished. In addition, a decision was made to drill an exploration well in licence F008, which is located immediately west of the Rosebank discovery. Greenland In Greenland, DONG Energy participates as operator of exploration in West Greenland. Seismic surveys were carried out in 2008 and the data are still being appraised. Great water depths and the fact that activities are restricted during part of the year as a result of the climatic conditions mean that the time horizon for any nds and subsequent development of commercial production in this area will be protracted. MANAGEMENT´S REVIEW 392011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=44http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=44NIELS BERGH-HANSEN, Executive Vice President, Generation “One of the consequences of the transition of power and heat generation to low-carbon fuels is increased use of biomass. Following a conversion of Herning Power Station in 2009 biomass now accounts for 97% of fuel consumption. Coupled with considerable growth in wind energy capacity, we are well on the way towards a greener future.” Power generation 18,074 GWh Heat generation 46,686 TJ EBITDA DKK 0.9 billion 10% Biomass aring is CO2-neutral and represented 11% of DONG Energy’s combined heat and power generation. Herning Power Station is close to achieving CO2-neutral power and heat generation, and won recognition by the Municipality of Herning in 2009 for its active approach to climate and energy. 40 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=45http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=45GENERATION MANAGEMENT´S REVIEW 412011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=46http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=46GENERATION MUCH MORE GREEN POWER The business area Generation produces and sells power and heat. Generation takes place at 25 thermal power stations in Denmark and from wind turbines in Denmark, the UK, Poland, Norway, Sweden and France. DONG Energy also has stakes in hydropower plants in Sweden and Norway as well as Danish production based on geothermal heat. The terms for power and heat generation are undergoing radical change in current years. The global nancial crisis has led to a historic reduction in power consumption from 2008 to 2009 due to a signi cant decline in industrial production across Europe. Falling demand, coupled with falling fuel prices, led to a considerable decline in power prices in DONG Energy’s principal markets in 2009. At the same time, there is a growing wish among legislators, private consumers and business customers for increased use to be made of green power from renewable energy sources or CO2-neutral fuels such as biomass. 15% of the Group’s power and heat generation is currently based on renewable energy or CO2-neutral fuels, while 85% is based on fossil fuels. Under the heading 85/15, DONG Energy has set itself the target of reducing its CO2 emission per energy unit generated to 15% of the current level by 2040. DONG Energy expects to have halved its emissions in as little as ten years. The strategy is based on, among other things, DONG Energy’s skills in the design, construction and operation of offshore wind farms and the use of biomass at power stations. Switching to more eco-friendly fuels DONG Energy is Denmark’s leading power generator. In 2009, the Group’s Danish thermal power generation amounted to 15,264 GWh, equivalent to 55% of the total in Denmark. Heat generation amounted to 46,686 TJ in 2009, equivalent to 38% of Denmark’s total heat generation. Power generation in Denmark is sold on the Nordic energy exchange Nord Pool, while heat generation is sold to district heating companies in Denmark. The deteriorated market conditions in 2009 had a signi cant adverse impact on earnings from the Danish thermal activities. In October 2009, DONG Energy consequently decided to implement a number of initiatives aimed at bolstering earnings. One initiative is the suspension of operations of two coal- red power station units in the second quarter of 2010. The two units, at Studstrup Power Station near Århus and Asnæs Power Station near Kalundborg, have a total capacity of 980 MW. New thermal generation abroad As part of the Group’s strategy to grow its international thermal activities, DONG Energy decided in 2009 to invest in natural gas- red power station projects in the UK and the Netherlands. DONG Energy is also working on reducing the transport sector’s CO2 emissions by converting straw to CO2-neutral bioethanol. Bioethanol can be blended with petrol, thereby helping to reduce dependence on oil. In November 2009, the Group inaugurated one of the world’s rst demonstration plants for production of second-generation bioethanol, Inbicon near Kalundborg. This bioethanol is based on residual products, where rst-generation bioethanol was based on food crops. DONG Energy must use its experience with biomass to change several large Danish power station units over to CO2-neutral fuels. DONG Energy is working closely with the Municipality of Århus to convert a power station unit at Studstrup Power Station from coal to biomass. DONG Energy also has plans to convert to further biomass- ring in Copenhagen. At the same time, efforts to switch Danish generating capacity from fossil fuels to CO2-neutral biomass are in full swing. DONG Energy has many years’ experience in using different types of biomass as fuel, for example straw, wood pellets and wood chips. Some power stations use biomass as the sole source of fuel, while others use biomass in combination with fossil fuels. Following the completion of a conversion of Herning Power Station in October 2009, biomass accounts for 97% of the fuel used at this 2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=47http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=47%(.& ) &*($#%(.'(&+* &% % &% &$))( %(. ZEALAND .%. &%)* 0()* )%1) ,2( ,%$2## &'%% $( %*(#'&-()** &%) &-(%(* &%) ('&-( )** &%'(&!*+%(&%)*(+* &% &-(%*%(* &%) ( '&-()** &%'(&!*+%(&%)*(+* &% * )%1) )()+#*&#&%*($&%*(*&%#+ - ***& #*'#%* )&+%*&()# +%( %%#) )* *+)*(+' )!( "1(1" %)* & %*,%*+( ,(% %&% ()/- In March 2009, DONG Energy thus acquired the natural gasred Severn power station, located in Wales in the UK. The power station is under construction and will have a capacity of 850 MW. It will commence operations at the end of 2010 and is expected to be one of the most ef cient natural gas- red power stations in the UK. The acquisition was made in collaboration between the business areas Generation and Energy Markets. Generation is responsible for the construction of the power station and will also be responsible for its operation. Energy Markets is responsible for optimising the procurement of natural gas and selling the power station’s generated capacity in the UK market. In this way, DONG Energy is capitalising on the advantages of being an integrated energy company with strong skills in several links of the value chain. Furthermore, DONG Energy can advantageously combine operation of the Severn plant both with the Group’s natural gas supplies to the UK and its considerable wind power activities in the area. The same business model will be used in the Netherlands, where, in April 2009, the Group acquired 50% of Enecogen, which is building a 870 MW natural gas- red power station near Rotterdam. The plant is scheduled for operation at the end of 2011. Enecogen is owned together with the Dutch energy company Eneco. In addition, the Group is in the process of commissioning the natural gas- red power station Mongstad near Bergen in Norway. The plant has a capacity of 260 MW and has an obligation to supply energy to Statoil’s nearby re nery under a longterm contract. The use of fossil fuels will be necessary for many years to come until adequate CO2-neutral generating capacity that can deliver a reliable energy supply has been established. In keeping with DONG Energy’s vision concerning a greener generation pro le, the Group decided in 2009 to cease building new coal- red power stations. This also applied to the project exploring the opportunities of building a coal- red power station near Greifswald in Germany. DONG Energy also withdrew from a number of other projects that were at an earlier stage. Instead, the possibilities for establishing one or more biomass- red power stations abroad are being explored. Global leadership position in offshore wind power DONG Energy has pioneered the establishment of offshore wind farms. In this way, DONG Energy has acquired extensive knowledge both on the construction and operation of offshore wind farms that is unique in the world. The Group focuses on developing this leadership position to optimise the value creation from its wind turbine activities. MANAGEMENT´S REVIEW 432011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=48http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=48GENERATION Expressed in present value, the cost of constructing an offshore wind farm accounts for a substantial proportion of the farm’s costs during its lifecycle. It is therefore vital for value creation to bring down construction costs and execute construction projects as quickly as possible. Constructing offshore wind farms is a major logistical and engineering challenge, as construction at sea is exposed to factors outside the client’s control such as the weather and seabed conditions. Knowledge about the logistics of working offshore is therefore of major importance, and considerable advantages can be gained by sharing resources exibly between several construction projects. Against that background, DONG Energy was the rst energy company to industrialise the construction of offshore wind farms. As part of this, DONG Energy entered into an extensive agreement with Siemens in March 2009 for the acquisition of up to 500 offshore wind turbines with a capacity of 3.6 MW each, giving a total capacity of 1,800 MW. The agreement enables the parties to streamline the construction of a number of wind farms, reducing total construction costs and allowing the projects to be executed in a shorter timeframe. In December 2009, Siemens and DONG Energy signed an agreement to further utilise and expand the collaboration and the scope of the supply agreement. In May 2009, a decision was made to go ahead with phase With the acquisition of the company A2SEA in June 2009, DONG Energy took the next important step in the optimisation of the offshore wind farm construction process. A2SEA is a market leader in the installation of wind turbines and foundations offshore. The company owns four installation vessels and has 200 employees. Drawing on A2SEA’s knowledge, DONG Energy will be able to further optimise the construction of offshore wind farms, thereby securing greater value creation. The Group is also expanding its activities in Norway. A deciNew wind farms 2009 was also the year in which DONG Energy brought on stream ve new wind farms. In September 2009, the Group thus inaugurated the Horns Rev 2 offshore wind farm, which is located 30 km off Blåvands Huk on the west coast of Denmark. With a capacity of 209 MW this is the world’s largest offshore wind farm to date. The farm was completed at the end of December 2009. The Gun eet Sands wind farm located off the east coast of the UK was taken into use at the end of 2009. The farm has a total capacity of 173 MW, and the last turbines were installed in January 2010, ahead of schedule, re ecting optimised planning and close collaboration with A2SEA and the other suppliers. The onshore wind farms Storrun in Sweden and Karnice 1 in Poland, with a capacity of 30 MW each, were also brought on stream. Lastly, two wind turbines with a total capacity of 7.2 In December 2009, DONG Energy concluded a contract for the acquisition of 25% of the Lincs offshore wind farm project in the UK, which has a capacity of 270 MW. The acquisition was completed in January. At the same time, Siemens Project Ventures acquired 25% of the project, while the energy company Centrica has retained the last 50% of the project. A decision has been made to build the wind farm, and the project is expected to kick off in late summer 2010. The farm is expected to be ready for operation in 2012. In addition, DONG Energy is developing a number of projects with a view to establishing new wind farms onshore as well as offshore. For example, the Group has secured full ownership of sion has been made to build the wind farm Nygårdsfjellet 2 near Narvik. The farm will have a capacity of 25.3 MW, of which DONG Energy owns 67%. The farm is located on shore next to Nygårdsfjellet 1, in which DONG Energy also has a 67% stake. one of the London Array offshore wind farm off the east coast of the UK. The farm has a capacity of 630 MW and is expected to begin operation in 2012. DONG Energy owns 50% of the farm. The other owners are the energy company2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=49http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=49.3()!##*% '(* &%#- %'&-( %'&-(+%( &%)*(+* &% .(&'&-(0'(*#.&-% . %(. (, " %( #*%(*)$% ))& *) RENEWABLES CAPACITY MW (installed capacity at 31/12) Offshore wind turbines Denmark UK Onshore wind turbines Denmark Poland Sweden/Norway France Hydropower Total 2009 749 441 308 355 201 112 33 9 205 1,309 2008 361 226 135 245 205 31 9 205 811 Growth 82% (( "),% %)&(- %($) &(%), +%1%& *&((+% %#)2#,% #%.% ((&+(&%" %) &(%), %. #(+%% ,1( .)* ( %& ")*(&-& (% +%#*%)% &%&%((. #&+#$/+ Borkum Riffgrund 1 and 2 through its acquisition of PNE Wind’s 50% stake in December 2009. These are two promising wind turbine projects in the German sector of the North Sea. DONG Energy has also acquired 50% of the capital in three Dutch companies that hold the rights to offshore wind farm projects that are being developed in collaboration with Scottish and Southern Energy. Overall, DONG Energy is constructing wind farms with a total capacity of just under 700 MW and is involved in development projects with a total capacity of up to 2,000 MW. This means that the Group is well on the way towards its target of a total wind turbine capacity of at least 3,000 MW by 2020. MANAGEMENT´S REVIEW 452011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=50http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=50KURT BLIGAARD PEDERSEN, Executive Vice President, Energy Markets ”With our investment in LNG capacity, we will have access to a further source of supply, which, combined with our equity natural gas production and long-term purchase contracts, provides us with a robust portfolio and substantial security of supply.” Natural gas sales 102,436 GWh Power sales 10,723 GWh EBITDA DKK 2.0 billion 24% DONG Energy owns 5% of the company that owns the Gate LNG terminal in Rotterdam. The terminal is under construction and is scheduled for operation in 2011, when the LNG will be converted to pipeline gas. 46 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=51http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=51ENERGY MARKETS MANAGEMENT´S REVIEW 472011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=52http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=52ENERGY MARKETS INCREASED SECURITY OF SUPPLY The business area Energy Markets optimises DONG Energy’s energy portfolio, forming the link between the Group’s procurement and sale of energy. Energy Markets trades in natural gas and power with manufacturers and wholesale customers as well as on European energy hubs and exchanges. Energy Markets is the centre for the Group’s trading in energy markets, and buys and sells natural gas and power and related products and services in Northern Europe. Energy Markets also owns and operates parts of DONG Energy’s natural gas infrastructure and is responsible for the Group’s portfolio of natural gas purchase contracts. Energy Markets also looks after the Group’s risk management in relation to energy prices, including by engaging in nancial transactions. In order to continuously participate in the market and gain insight into price formation, Energy Markets also engages in active position taking. Energy Markets procures the natural gas and power sold by the business area Sales & Distribution, but predominantly sells natural gas and power to external wholesale customers in and outside Denmark. Energy Markets mainly procures natural gas under long-term purchase contracts, but the business area Exploration & Production’s natural gas production is contributing an increasing proportion, particularly via the ownership interest in the Ormen Lange natural gas eld. Most of the natural gas from this eld is landed near the Easington terminal in the UK or the Emden terminal in Germany, following which Energy Markets sells it to wholesale customers or on hubs. Natural gas sales As already mentioned, the business area Generation is constructing natural gas- red power stations in the UK and the Netherlands that are expected to be ready to commence operation in 2010 and 2011 respectively, following which Energy Markets will be responsible for optimising the power stations. In future, these power stations will be supplied with natural gas from Energy Markets’ portfolio, and Energy Markets already supplies natural gas to the Group’s Danish natural gas- red power stations. The largest international market was Germany, where sales amounted to 33,356 GWh. The natural gas was primarily sold under long-term contracts with wholesale customers. The remaining sales in Germany are primarily taken care of by the sales subsidiary DONG Energy Sales GmbH, in which DONG Energy Markets’ physical natural gas sales in 2009 totalled 102,436 GWh, which was sold internally in the Group, to wholesale customers and on hubs. On the sales side, Energy Markets experienced customers similarly reducing their natural gas purchases, which the exibility clauses in their contracts allow them to do. The combination of falling demand for natural gas and increased availability of LNG in 2009 led to lower gas prices on European hubs. At the same time, the differential between gas and oil prices has increased, also in the last few years, something not previously seen on this scale. The low gas prices meant that purchases under long-term oil price-indexed natural gas purchase contracts were less advantageous. DONG Energy consequently reduced its purchases under these contracts, buying instead on gas hubs at lower prices. At the same time, there was an oversupply of natural gas in Europe in 2009 due to increased transportation of lique ed natural gas (LNG) to Europe from Asia and the Middle East. The reason for this was that demand in Asia fell signi cantly as a consequence of the global economic downturn. Market conditions The nancial crisis led to a decline in the level of activity in European industry in i 2009, which, in turn, led to a decline in demand for natural gas. 48 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=53http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=53Natural gas pipeline, owned or partly owned by DONG Energy Gas treatment plant Gas receiving terminal DONG Energy offices Energy exchange Oslo Gate terminal. Liquefied natural gas (LNG) terminal, partly owned by DONG Energy. Project under development Operational gas storage Gas storage under construction Stadtwerke Lübeck, partly owned by DONG Energy Nybro Copenhagen Fredericia Easington Emden Egmond aan Den Hoef London Rotterdam Zeebrügge Düsseldorf Leipzig Kiel Lübeck Hamburg Nüttermoor Peckensen Kiel-Rönne Etzel Den Helder Stuttgart Naturgas has a 75% direct ownership interest. This company markets supply and partnership concepts to regional distribution companies (Stadtwerke) and large industrial customers. This company increased its sales signi cantly in 2009, and the number of customers continued to grow. This strengthened DONG Energy’s position in the northern and eastern parts of Germany, in particular. A total of 21,000 GWh was sold internally in Denmark, partly for resale to end customers in Sales & Distribution, and partly for thermal power station fuel. 6,114 GWh was sold to external wholesale customers. The supply contract with HNG Midt-Nord Handel, the business area’s largest Danish wholesale customer, was extended in May to 30 September 2011. The contract still comprises annual natural gas supplies of 6,000 GWh. In Sweden, natural gas sales amounted to 9,562 GWh, with external wholesale customers accounting for 6,635 GWh and internal sales for 2,927 GWh. In the Netherlands, natural gas sales totalled 4,831 GWh, including wholesale sales of 5,104 GWh and internal sales of 6,297 GWh. Net purchases on the TTF hub totalled 6,569 GWh. Power trading Energy Markets’ physical sales of power in 2009 totalled 10,723 GWh, 8,529 GWh of which was resold internally to the business area Sales & Distribution. 1,082 GWh was sold on a wholesale basis to regional distribution and trading companies in Germany. Power for resale is purchased exclusively on European power exchanges, primarily Nord Pool. In September, DONG Energy acquired 83.57% of the shares in In the UK, natural gas sales amounted to 25,092 GWh. Sales were made under long-term contracts with wholesale customers and via the NBP hub. the German wholesale trading company KOM-STROM AG in Leipzig, signi cantly increasing its portfolio of wholesale customers in the power market. KOM-STROM has more than ten MANAGEMENT´S REVIEW 492011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=54http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=54ENERGY MARKETS years of market experience. The company’s core activity consists in the sale of, in particular, power-related products with a strong market position in consultancy within portfolio management as well as operational and nancial services, primarily to regional distribution companies and energy-intensive industry in Germany. The acquisition of KOM-STROM strengthens DONG Energy’s business within wholesale trade in Germany, which it has been building up over the past four years. The acquisition has expanded the product portfolio, strengthening DONG Energy’s competitiveness in relation to regional distribution companies and large industrial customers. Procurement of natural gas In 2009, DONG Energy procured 75% of its natural gas supplies from long-term purchase contracts with external suppliers, while 25% was produced by the business area Exploration & Production. Of the external suppliers, the DUC partners were responsible for the bulk of the supplies (89%), which came from the Danish sector of the North Sea. The DUC partners are A.P. Møller-Mærsk A/S, Shell Olie- og Gasudvinding Danmark B.V. and Chevron Denmark Inc. Via its ownership interest in the Norwegian Ormen Lange natural gas eld DONG Energy sold large volumes of natural gas to the UK market in 2009, while sales of volumes to the Northwest European market were limited due to market conditions. Today, natural gas from Ormen Lange makes up a substantial part of the Group’s overall natural gas portfolio. It is DONG Energy’s objective for equity natural gas to meet 30% of the Group’s natural gas needs. DONG Energy also trades actively on European hubs, primarily NBP and TTF, to supplement and optimise the Group’s equity production of natural gas and to optimise its long-term natural gas purchase contracts. It is part of DONG Energy’s strategy for its natural gas supply portfolio to be based on four sources of supply: equity production, natural gas purchases from Northwest Europe and Russia DONG Energy owns or part-owns a number of natural gas pipelines in the North Sea. These enable DONG Energy to transport natural gas from the DUC elds and other elds on the Danish shelf to Denmark and the Netherlands. To this should be added co-ownership of the Deudan pipeline system connecting the Danish and German transmission networks. Up to and including the end of 2009, the Group also owned 20.4% of the Swedish transmission company Swedegas AB, but DONG Energy and the other co-owners agreed in December to sell the shares to EQT Infrastructure Fund. The competition authorities approved the transaction in January 2010. DONG Energy has built up a portfolio of own natural gas storage facilities and long-term leases relating to natural gas storage facilities in Denmark and Germany. DONG Energy As part of this strategy DONG Energy signed a contract with Gazprom in October 2009 for annual supplies of 1 billion m3 (12 TWh) of natural gas via the Nord Stream pipeline in the Baltic Sea starting from 2012, for a period of 18 years. The natural gas is to be delivered at the Danish-German border and is linked to the completion of the second part of the pipeline. The Group already has a contract with Gazprom for annual supplies of 1 billion m3 (12 TWh) of natural gas from 2011, for a period of 20 years, and it is the exercise of an option in this contract that forms the background for the new contract. Natural gas infrastructure Energy Markets takes care of the Group’s commercial and ownership interests relating to a number of infrastructure assets. Value creation is predominantly secured by ensuring that natural gas is available in DONG Energy’s markets, primarily via own natural gas storage facilities and exibility of supplies. under long-term contracts, purchases of LNG, and trading on European hubs, where DONG Energy can be both a net purchaser and a net seller. The Group achieves a high degree of security of supply in relation to the Danish and Swedish markets through this diversi 2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=55http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=55increases its security of supply and the exibility of supplies to the Group’s customers by establishing its own storage capacity. This also improves DONG Energy’s possibilities for optimising its trading portfolio on the European hubs. DONG Energy has entered into storage agreements featuring a total volume of 6,200 GWh (510 million m3) in Germany. DONG Energy owns 5% of the company that owns the Dutch Gate LNG terminal in Rotterdam. In 2007, DONG Energy concluded a contract for annual import capacity of 2 billion m3 (24.3 TWh) from 2011 to 2014, followed by 3 billion m (36.5 3 TRADE BETWEEN AREAS Germany The Netherlands TWh) from 2015. Special carriers transport the lique ed gas from the point of production, typically outside Europe, to the terminal, which is close to the European markets. At the terminal the lique ed gas is converted to pipeline gas. The Gate terminal is expected to become operational in 2011, and DONG Energy’s contract will then run for 20 years. Optimisation of the natural gas portfolio Energy Markets optimises the Group’s natural gas portfolio through optimum use of infrastructure and exibility clauses in purchase and sales contracts. Value creation is achieved through utilisation of the often considerable price differentials over time and place, i.e. through optimum exploitation of the exibility in storage facilities, production and purchase contracts, to ensure partly that the natural gas is traded at the most attractive point in time, and partly the exibility in the transportation systems between Denmark, Norway, Germany, the Netherlands and the UK to ensure that the natural gas is always traded in the most attractive market in terms of price. To this should be added substantial value creation by using the exibility in the contract clauses relating to price indexation and similar. Climate projects Energy Markets is also working on identifying climate projects internationally. These projects generate CO2 credits that can be used to meet part of the Group’s obligations under the Kyoto Protocol to reduce its CO2 emissions. $ #$$ $ "! Approval of climate projects both by the UN, the host country and Denmark is conditional upon proof of CO2 reductions that would otherwise not have been achieved. It is also a requirement on the part of the UN that reductions must be quanti able and sustainable. The costs associated with implementing CO2 reductions in developing countries are often considerably lower than in Denmark and lower than buying CO2 allowances (EUAs) in the market. At the same time, Energy Markets becomes directly involved in the projects at an early stage to ensure that the CO2 credits are generated under sustainable conditions and to take advantage of the difference in price in relation to CO2 credits traded on energy exchanges. The price difference arises as a result of project and supply risks, for example. In 2009, 12 new contracts for purchases of CO2 credits were concluded. Overall, contracts have been concluded for the purchase of CO2 credits from 61 climate projects in countries such as Russia, China, Thailand, Mexico, Poland and Vietnam. The projects are expected to reduce CO2 emissions by 7.7 million tonnes, including 5.3 million tonnes in the period 2009-2012. By comparison, the Group’s CO2 emissions in 2009 that were subject to emissions trading schemes amounted to 11.9 million tonnes. MANAGEMENT´S REVIEW 512011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=56http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=56LARS CLAUSEN, Executive Vice President, Sales & Distribution ”2009 was a satisfactory year viewed in relation to our mission of delivering climate-friendly and easily accessible energy solutions to the bene t of our customers, society and owners. We increased both customer satisfaction and supply quality in all areas. The number of climate partnerships increased markedly and here wind energy is an essential part of the sustainable solution.” Natural gas sales 21,756 GWh Natural gas distribution 9,966 GWh Power sales 8,529 GWh Power distribution 9,156 GWh EBITDA DKK 2.2 billion 26% The 3.6 MW wind turbines at Avedøre Power Station on the outskirts of Copenhagen. One of the wind turbines supplies power to the Tivoli Gardens in Copenhagen, which have concluded a climate partnership agreement with DONG Energy. Tivoli’s energy consumption will be based on wind energy in future. 52 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=57http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=57SALES & DISTRIBUTION MANAGEMENT´S REVIEW 532011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=58http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=58SALES & DISTRIBUTION MORE GREEN INITIATIVES Sales and distribution of power and natural gas are the last link in the energy value chain, which ranges from production through to consumption. The business area Sales & Distribution is responsible for an ef cient and secure supply. The business area Sales & Distribution supplies more than one million residential, public-sector and business customers in Denmark with power and/or natural gas and also owns and operates 26,000 km of power and natural gas distribution networks, a natural gas storage facility and an oil pipeline. It is DONG Energy’s mission to develop and supply products within power and natural gas and energy solutions to the bene t of customers, society and its owners. New business initiatives must secure future growth and value creation for DONG Energy and contribute to an increase in the proportion of CO2-neutral energy. This must be done via the work on climate partnerships, among other things. Sales & Distribution purchases all natural gas and power and related products, such as CO2 allowances and green certi cates, from the business area Energy Markets. DONG Energy retained its leading position as the customers’ energy partner in the Danish business market, despite intensi ed competition. The level of activity in 2009 was characterised by a general downturn, especially in the industry that acts as a supplier to the building and construction sector. DONG Energy holds a leading position in the Danish market for both power and natural gas, with market shares in 2009 of 22% and 37% respectively. Swedish business customers bought 2,927 GWh of natural gas in 2009, equivalent to a 20-25% market share. The ambition for 2010 is to win new market shares, partly through new power products. In the Netherlands, natural gas sales amounted to 6,297 GWh in Sales & Distribution has activities in the energy markets in Denmark, Sweden and the Netherlands. Natural gas sales to end customers in Denmark totalled 12,532 GWh in 2009, with sales to customers in the open market amounting to 84%. The remainder was sold via DONG Energy’s PSO companies, whose prices are publicly regulated. 2009, going to 113,000 supply points. Power sales amounted to 746 GWh, distributed on 41,000 supply points. A new business model was developed in 2009 that focuses on natural gas sales to business customers. DONG Energy had a 1% share of the Dutch power and natural gas market in 2009. xed-price contracts in 2009. Following successful spring and autumn campaigns, the number of customers with xed-price contracts has doubled in one year to more than 18,000. Power and natural gas sales Steady increase in customer satisfaction Sales of power to end customers in Denmark totalled 7,760 GWh in 2009, with 49% going to PSO customers. The remaining 51% was sold on open market terms to business customers and residential customers. Residential customers showed a growing interest in Customer satisfaction surveys at the end of 2009 showed a signi cant improvement in several of DONG Energy’s customer segments in the past year. The improvement was partly due to the heightened focus on customer service and the roll-out of several new products that were well received by customers. Customer satisfaction among residential customers in the metropolitan area was up just over MARKET SHARES - RETAIL SALES 10%, showing the largest improvement. Customer satisfaction among large public-sector customers and small and medium-sized Power 22% 1% The number of claims dropped by 15% in 2009 and is at a satisfactory level. enterprises was 8% and 6% ahead respectively. The relatively high satisfaction levels among other residential and business customers were retained. Natural gas Denmark Sweden The Netherlands 37% 20-25% 1% 54 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=59http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=59Climate and energy ef ciency Climate partnerships gaining ground In 2009, the signi cantly increased focus on climate and energy ef ciency enhanced opportunities for entering into climate partnerships with companies, municipalities and organisations. These partnerships feature customised solutions integrating climate, energy procurement and ef ciency improvement of energy consumption as well as servicing of energy installations. Customised solutions enable the partners to tackle the climate challenges facing their businesses. Financially, climate partnerships are made up in such a way that the initiatives can be nanced from the energy savings realised. DONG Energy entered into 23 climate partnerships in 2009, taking the total to 36. Toms, Mærsk, Rockwool, Siemens and Codan were among the more prominent companies that entered into climate partnerships with DONG Energy in 2009, and Århus and Frederikshavn featured among the more prominent municipalities. In the partnership with the Municipality of Frederikshavn DONG Energy uses expertise from across the entire organisation. In addition to the concept put together by Sales & Distribution for the customer, Generation takes care of advice on waste handling, geothermal energy and installation of heat pump systems. The experience gained from this rst cross-organisational partnership has been valuable and will be used as a model for future partnerships. Cleantech – a new alliance In May, DONG Energy, Rockwool, Danfoss and PRO TEC established an alliance that is to make it easier for homeowners to save energy. DONG Energy takes care of customer contact, and the solutions offered comprise insulation, window replacement and installation of heat pumps. Homeowners can receive advice, help in the choice of product and installation, and nancing at a competitive interest rate. Helps customers save energy In recent years, DONG Energy has realised annual energy savings of 144 GWh for its residential and business customers, achieving the target it was under obligation to meet under the previously con- cluded energy savings agreement. DONG Energy identi ed further savings in 2009, partly through its involvement in climate partnerships. In November 2009, the Danish energy companies and the Danish Ministry of Climate and Energy entered into a new agreement on energy savings. The agreement runs until 2020. DONG Energy had its requirement concerning energy savings increased from 144 GWh to 308 GWh a year, i.e. savings corresponding to more than the power consumption of all households in the district of Frederiksberg. The intelligent power grid In 2009, DONG Energy continued its efforts to develop the intelligent power grid, which can be used to monitor power supply and for remote control and metering of consumption and production facilities (see illustration on page 56). In recent years, DONG Energy has been carrying out a number of measurements of the overall power distribution network in Denmark and has developed calculation systems that make it possible to calculate the load on all sections of the network. At the same time, automatic redistribution has been established at selected transformer stations, which is triggered in the event of a power failure. These two initiatives have jointly helped to improve security of supply. In 2009, work began on the systems that are to make it possible to switch parts of power consumption to periods where there is a surplus of wind turbine power. One of the elements is an IT system that makes it possible to transmit control signals to consumption and production installations. A pilot version was developed in 2009. The work is continuing on a larger scale in 2010. In the future, the aim is for intelligent units at customers to respond to current power prices, so that when prices are low, heat pumps will start up or electric cars be charged, for example. In 2008, DONG Energy joined Global Intelligent Utility Network Coalition (GIUNC), where a number of energy comp2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=60http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=60SALES & DISTRIBUTION Distribution and storage activities DONG Energy owns and operates the power distribution network that supplies customers in the metropolitan area and northeastern Zealand with power. DONG Energy also owns and operates the natural gas distribution networks in West and South Zealand and southern Jutland. In addition, DONG Energy owns and operates a natural gas storage facility near Stenlille in Zealand, and the oil pipeline from the Gorm E platform in the North Sea to the crude oil terminal in Fredericia. DONG Energy’s earnings from its distribution and storage activities are regulated by the authorities and consequently relatively stable if the legislation remains unchanged. The Danish Electricity Supply Act was amended in May 2009, resulting in a tightening of the regulation of power distribution companies. One consequence of this is lower prices. Power distribution DONG Energy’s power distribution networks comprise 19,000 km of cables and overhead lines and 10,000 transformer stations. In 2009, 960,000 supply points were provided with power via DONG Energy’s distribution networks, including 900,000 supply points in Denmark, equivalent to 28% of the total in Denmark. The volume of power distributed in DONG Energy’s distribution networks in 2009 was 9,156 GWh. DONG Energy tariffs for distribution through its networks are subject to the Danish Energy Regulatory Authority’s (DERA) rules and re ect the costs of ef cient operation of the networks plus a return on the invested capital. DERA lays down requirements concerning permanent ef ciency improvements on an annual basis. As a consequence of a tightened method of measurement, the overall requirements Earnings are publicly regulated and must re ect the costs of ef cient operation of the network plus a return on the invested capiNatural gas distribution At the end of 2009, the number of connected natural gas customers was 122,000, corresponding to around one third of all Danish natural gas customers. DONG Energy distributed 9,966 GWh of natural gas in 2009. In December, DONG Energy decided to merge its three power distribution companies to form a single company, DONG Energy Eldistribution A/S, providing a more unambiguous power supply framework and a single tariff across the whole of DONG Energy’s supply area from 1 January 2010. Cable laying Approx. 435 km of overhead lines were replaced with underground cables in 2009. DONG Energy cut back the rate of installation of underground cables in 2009. This was due to the general economic downturn and lower energy prices. Cable laying was carried out in the areas that are the most vulnerable during stormy weather. All cable boxes replaced A total of 2,800 underground cable boxes have been replaced with cable cabinets in a comprehensive project that begun in 2006. The aim has been to eliminate the safety risk associated with cable boxes in central Copenhagen. The last cable box was replaced in September 2009. concerning ef ciency improvement of DONG Energy’s three power distribution companies were more than doubled in 2009 compared with the requirements stipulated by the Danish Energy Regulatory Authority in 2008. The new requirements enter into effect from 2010. THE FUTURE INTELLIGENT POWER GRID Network Power system An intelligent power grid unit at the customer responds to external price signals. The unit can automatically start up a heat pump or charge an electric car if prices drop. The smart meter is necessary to settle power consumption at variable prices. Development is driven mainly by customers, based on needs and options. Electric car Heat pump Intelligent unit Electricity meter 56 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=61http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=61Oil pipeline, owned by DONG Energy Gas storage facility Oil terminal Power distribution Gas distribution Gas and power sales DONG Energy offices Gothenburg Vejen Copenhagen ‘s-Hertogenbosch tal. Operating expenses are subject to annual ef ciency requirements, and the Danish Energy Regulatory Authority has imposed an annual ef ciency requirement of 0.6% on DONG Energy’s gas distribution network for the period 2010-2013. The low rate shows that DONG Energy’s activities rank among the most ef cient in the sector. Natural gas storage facility near Stenlille At the end of 2009, DONG Energy’s natural gas storage facility had a volume capacity of 6,598 GWh of natural gas and injection and withdrawal capacities of 2.4 GWh and 4.8 GWh per hour respectively. The value of storage services increased in 2009 by increasing injection and withdrawal capacities by 64% and 20% respectively. The storage facility near Stenlille is the largest of two natural gas storage facilities in Denmark, and primarily serves the Danish and Swedish markets. At the end of 2009, the storage facility accounted for 55% of total storage capacity in the two markets. Storage capacity is sold to market players on non-discriminatory terms. 2009 was the rst time storage capacity from the storage facility was sold at auction. As transmission network operator, Energinet.dk buys storage services to enable it to satisfy the requirements concerning system balancing and emergency supply. In 2009, Energinet.dk booked 22% of the total capacity of the Stenlille storage facility. Oil pipeline The oil pipeline is used by the oil producers in the Danish sector of the North Sea and has a total length of 330 km. A total of 84.9 million barrels of oil was transported in 2009. Earnings are publicly regulated under separate legislation. Other activities Outdoor lighting Municipalities, housing societies and houseowners’ associations as well as companies use the Group’s outdoor lighting solutions. The solutions are sold on subscription terms, and DONG Energy owned 248,000 street lights at the end of 2009. DONG Energy is also responsible for the operation and maintenance of a further 24,000 street lights, primarily for municipalities. In Høje-Taastrup, the rst residential street was lit using energy ef cient LED lights in the autumn. The energy saving compared with conventional light sources is approx. 50%. The work on disseminating LED lighting will be intensi ed in 2010, partly in collaboration with the Group’s climate partner, Philips. Electric car DONG Energy is collaborating with Better Place on the spread of electric cars in Denmark. Better Place has set up an organisation in Denmark. In 2009, the electric car project evolved from being a development activity to being a new product being phased in. DONG Energy’s role in the collaboration is primarily to develop systems that can ensure intelligent charging of batteries in response to customer needs. Fibre optic network sold to TDC The future of DONG Energy’s bre optic network was resolved in 2009 with the acquisition by TDC of all assets with the exception of the bres used to monitor the power distribution network. Electrical installations business sold to NCC DONG Energy signed an agreement with NCC Construction Danmark A/S in December on the latter’s acquisition of DONG Energy’s electrical installations business. At the same time, closer collaboration was agreed in connection with, for example, energy saving measures and installation works. MANAGEMENT´S REVIEW 572011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=62http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=62EMPLOYEES EMPLOYEE DEVELOPMENT 2009 was characterised by the continued development of DONG Energy’s business. This meant both expansion of activities and the disposal of a number of activities. At the same time, the organisation was aligned in response to the economic downturn. DONG Energy welcomed many new employees in 2009, but also had to let a number of employees go due to cost cuts and restructuring of the Group’s activities. DONG Energy would like to promote female representation at DONG Energy had 5,865 employees (full-time equivalents, FTE) at the end of 2009, an increase of 221 on 2008, primarily re ecting the expansion of the Group’s activities. The business area Generation had to shed approx. 260 jobs in 2009, of which 163 were redundancies. The falling demand for power led to a decision to suspend operations at two power station units in order to align production to the new market conditions. The employees in question were all offered advice on how to nd new employment. Employee turnover fell to 11% in 2009, from 12% in 2008. The drop was natural in the current labour market. The average age of employees was 43 in 2009, in line with Diversity For DONG Energy, having a diverse workforce of employees and managers is of great value. The coming-together of a mix of people creates results, whether the diversity is in the form of education, gender, nationality or other factors. Women made up 29% of DONG Energy’s workforce in 2009, and men Employees approaching retirement age have broad experience and knowledge that is valuable to the company. In 2009, DONG Energy established a senior policy for employees over 60 that offers good alternatives to pre-retirement or early retirement. The scheme enables employees to work shorter hours without any reduction in the Group’s pension contribuEMPLOYEES, YEAR-END 2009 (man-years, FTE) 770 521 71%. At executive level, women made up 9% and men 91%, on a par with 2008. management level. The aim is for female representation among the top 200 managers to re ect the number of women on the courses of study from which managers are recruited. Against this background, network groups have been formed among female employees and efforts are being made to identify potential female managers in the organisation. The number of employees working abroad has increased in step with DONG Energy’s growth outside Denmark. At the end of 2009, DONG Energy had 84 employees in Norway, 94 in the UK, 108 in the Netherlands, 32 in Poland, 58 in Germany, and 7 in Sweden. previous years. tion. The scheme initially comprises employees employed on Danish terms. The next phase will be the implementation of the scheme in foreign entities’ policies and terms. Internal communications 1,583 5,865 2,620 371 DONG Energy attaches importance to open communications with its employees. Both strategy and vision as well as the latest company news, whether of a positive or negative nature, are consequently communicated via the Group’s intranet. DONG Energy considers good communications between management and employees as a means of improving the working Exploration & Production Generation Energy Markets Sales & Distribution Group functions environment, and makes extensive use of video clips on the intranet to render communications accessible and clear. 58 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=63http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=63To bring the Executive Board and employees closer to each other, a forum has been established on the intranet where employees put questions to the Executive Board about the overall strategy, objectives, business practice and the areas in which the Group works, and the forum has proved very popular. A total of 143 questions have thus been posted since the forum was set up in January 2008. It is vital for DONG Energy to be able to attract and retain competent and talented employees, and to be able to meet the training and education wishes of employees at all levels of the organisation. DONG Energy Academy offers an extensive training, education and development programme, but external courses are also used to develop employee skills. In 2009, the rst group completed DONG Energy’s Graduate Health, wellbeing and image DONG Energy places emphasis on health and wellbeing in the workplace. Employees are consequently offered health insurance, and tness facilities are made available at most of DONG Energy’s locations. In addition, DONG Energy sponsors participation of its employees in a number of sports events. Many factors in uence employees’ satisfaction in their day-today work and whether they thrive. Employee opinion surveys are consequently prepared in order to gain insight into employee satisfaction. The ndings from the employee opinion surveys are analysed and used actively to identify new action areas that can assist in ensuring employee satisfaction and good leadership. Against the background of the employee opinion survey in 2008 the Executive Board continued its efforts to make its overall strategy visible to employees in 2009 and translating the strategy into speci c targets in the individual departments in interaction between managers and employees. The results will be measured in the next survey, which will be conducted in 2010. In 2009, DONG Energy featured among the top 10 workplaces for engineers in Denmark, a step up from its No. 21 ranking in 2008. This happened when the Danish engineering weekly ”Ingeniøren” published its annual survey of 111 large Danish companies’ image as a workplace for engineers. Development All DONG Energy employees are offered the opportunity to take part in an annual performance appraisal where their development is evaluated and targets are set. The purpose of performance appraisals is to create a clear connection between the Group’s strategy and each employee’s targets, performance, career and development. Programme. Participants are newly quali ed graduates from institutions of higher education. Participants complete a twoyear programme in which they either work with a particular business area or complete a multidisciplinary programme in which they rotate between several business areas or Group functions. All 18 graduates that completed the programme now have permanent jobs. In 2009, the Group kicked off its third Graduate Programme and received almost 1,000 applications from universities. The 17 successful candidates started on the programme in September. Talented managers inspire employee motivation and commitment, thereby helping to create good results. DONG Energy consequently offers both new and more experienced managers a number of training programmes aimed at developing their leadership potential and broadening their understanding of the strategy and the overall business as well as their ability to tackle strategic challenges. Tomorrow’s employees DONG Energy has entered into partnerships with Aarhus School of Business, Copenhagen Business School and The Technical University of Denmark (DTU). The aim is partly to make DONG Energy visible to and establish contact with students in order to attract recruits with the right skills, and partly to strengthen collaboration between the energy industry and the education and research environment. DONG Energy also collaborates with Imperial College London and Durham University in the UK on enhancing education and research internationally. Planni2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=64http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=64CORPORATE GOVERNANCE DONG attaches importance to ensuring that the overall principles and structures that govern the interaction between the management bodies, the owners and the company’s other stakeholders are compatible with the principles of good corporate governance at all times. The Corporate Governance Committee has prepared recommendations for corporate governance that must be observed by listed companies. As a State-owned public limited company, DONG Energy operates on terms very similar to those applying to listed companies. The Group has consequently elected to basically comply with the recommendations. As a result of DONG Energy’s ownership structure with the Danish State as principal shareholder (72.98% ownership interest at the end of 2009, but increased to 74.04% in February 2010) and a limited number of minority shareholders, the aim of some parts of the corporate governance recommendations is deemed not to be relevant. These are a number of recommendations aimed at the relationship with a broad group of owners in listed companies, i.e. the recommendations concerning the exercise of ownership and communications with owners, and the recommendations concerning preparation of the Annual General Meeting, including notice of meeting and proxy. In addition, the recommendations on disclosures concerning shares, options and warrants held members of the Supervisory Board are not relevant, as the possibility for the Supervisory Board and the Executive Board to buy shares does not exist and DONG Energy has not issued any options or warrants. DONG Energy has also decided not to set an age limit for members of the Supervisory Board, and not to set limits for the number of Supervisory Board memberships that may be held by members of the Supervisory Board that are also members of the Executive Board of another company. However, the age and other Executive Board and Supervisory Board memberships of potential candidates form part of the overall assessment of the composition of the Supervisory Board. The Supervisory Board reviews the corporate governance recommendations annually based on best practice. The Articles of Association were last amended in April 2009 and can be viewed on DONG Energy’s website. As a consequence of the new Companies Act, a revision of the Articles of Association is planned in connection with the Annual General Meeting in April 2010. Composition of Supervisory Board The Supervisory Board consists of 11 members. Seven members are elected by the shareholders in general meeting and four by the employees. DONG Energy attaches importance to the members of the Supervisory Board possessing extensive knowledge and experience from managerial posts with large Danish and foreign companies with a broad range of areas of activity, including activities in areas directly related to DONG Energy’s business areas. In the assessment of the composition of the SuperviAnnual General Meeting General meetings are convened by not less than two weeks’ notice in accordance with the Articles of Association. At the Annual General Meeting the annual report is adopted; the appointment of auditors; the election of a chairman, deputy chairman and other members of the Supervisory Board; the determination of the Supervisory Board’s remuneration; the discharge of the Supervisory Board and Executive Board from their obligations; and any proposed resolutions from the Supervisory Board on authority to purchase treasury shares. Shareholder meetings In spring 2009, the initiative was taken for regular shareholder meetings to be held at which management can brief shareholders on the Group’s activities – within the framework laid down by law. As principal shareholder, the State exercises its ownership in accordance with the principles in the publication ’The State as shareholder’. 60 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=65http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=65sory Board, the candidates’ skills and background are considered, but also the wish to achieve diversity and an appropriate balance in the composition of the Supervisory Board. Details of the members of the Supervisory Board are set out on pages 63-65. A Nomination Committee is appointed after the Annual General Meeting each year and before 30 September of the following year. The main responsibilities of this committee are to keep under review the composition of the Supervisory Board and to recommend suitable candidates to the board for election by the shareholders at the Annual General Meeting. The committee must also ensure that all candidates to the Supervisory Board are positively received in the nancial markets and that the composition of the Supervisory Board complies with the recommendations for corporate governance, including, to the extent possible, by taking into consideration the wish for diversity. The rules of procedure for the Nomination Committee can be downloaded from DONG Energy’s website. The Nomination Committee consists of six members. Each of the four largest registered shareholders is entitled to elect one member to the committee. The other two members are the chairman of the Supervisory Board, who also chairs the committee, and the deputy chairman. Two of the board members elected by the shareholders in general meeting are appointed by SEAS-NVE and the former shareholders in Elsam under a provisional shareholders’ agreement between DONG Energy’s shareholders. None of the members of the Supervisory Board elected by the shareholders in general meeting has had any other association with DONG Energy than as member of the Supervisory Board in companies that are now part of the Group, and as residential customers on standard terms, neither in previous years nor in the current year. All members of the Supervisory Board elected by the shareholders in general meeting retire at the Annual General Meeting each year, but may stand for re-election. Under Danish legislation the Group’s employees are entitled to elect a number of members to the Supervisory Board corresponding to half the number of members elected by the shareholders in general meeting. Employee representatives are elected for four-year terms and have the same rights, duties and responsibilities as members elected by the shareholders in general meeting. The employee representatives were elected in 2007. The Supervisory Board’s duties and responsibilities DONG Energy’s overall objectives and strategy are determined by the Supervisory Board, which is also responsible for appointing a competent Executive Board. The Supervisory Board is also responsible for ensuring clear guidelines for accountability, distribution of responsibilities, planning, follow-up and risk management. The duties of the Supervisory Board and its chairman are set out in the Supervisory Board’s rules of procedure, which are reviewed and updated annually by the full Supervisory Board. The rules of procedure were most recently revised in December 2009. The Supervisory Board met nine times in 2009. The Supervisory Board undertook a structured self-assessment in 2009 based on assessment forms distributed to each member of the Supervisory Board and subsequent discussion of the responses by the full Supervisory Board. The Supervisory Board has appointed an Audit and Risk Committee and a Remuneration Committee. Audit and Risk Committee After the Annual General Meeting the Supervisory Board appoints the members of the Audit and Risk Committee, which reports to the Supervisory Board. The committee’s main responsibilities are to support the Supervisory Board in its review of the nancial reporting, the annual report and internal accounting and ERP systems. The committee also keeps under review the external auditors’ skills and independence and is responsible for the conclusion of engagement agreements with external auditors. The committee monitors the Group’s compliance with legislation and other2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=66http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=66CORPORATE GOVERNANCE executives, other salary and employment conditions, which are submitted to the Supervisory Board, and the Supervisory Board’s remuneration, which is submitted to the shareholders for approval at the Annual General Meeting. The committee met three times in 2009. Details of the remuneration of the members of the Supervisory Board and the Executive Board can be found in a note to the consolidated nancial statements. DONG Energy’s remuneration policy can be viewed on DONG Energy’s website. Executive Board The Executive Board is responsible for the day-to-day management of the company and consisted of six persons at the end of 2009. Details of the members of the Executive Board are set out on pages 66-67. The CEO and CFO are registered with the Danish Commerce and Companies Agency as members of the Executive Board of DONG Energy A/S. The Supervisory Board lays down the detailed rules for the Executive Board, including the distribution of responsibilities between the Supervisory Board and the Executive Board and the Executive Board’s powers to enter into agreements on behalf of the company. As part of the annual risk assessment the Supervisory Board and the Executive Board assess the risk of fraud and the arrangements that need to be made to mitigate and/or eliminate such risks. This includes an assessment by the Supervisory Board of any incentives and motives for the Executive Board to manipulate the accounts or engage in other types of fraud. The Audit and Risk Committee and the Executive Board monitor risks in connection with the nancial reporting on an ongoing basis and report on these to the Supervisory Board. Auditors At the Annual General Meeting two external auditors recommended by the Supervisory Board are appointed. From the 2010 nancial year, only one external auditor will be appointed. Prior to the recommendation for appointment at Internal control The Supervisory Board and the Executive Board determine and approve overall requirements relating to procedures and internal controls in key areas in connection with nancial reporting by subsidiaries and the Group. For jointly controlled assets and entities such requirements are determined and approved in collaboration with the partners in the assets and entities in question. The internal control system comprises clearly de ned organisational roles and responsibilities, reporting requirements and approval powers. The auditors attend meetings with the Audit and Risk ComEach month, the Group’s companies report nancial data to the Group, which consolidates the data for use for its nancial reporting and its reporting to the Supervisory Board and the Executive Board. The companies supplement the nancial data mittee, where, among other things, the reports presented by the auditors are discussed in depth. The auditors also participate in Supervisory Board meetings in connection with the presentation of reports to the Supervisory Board. The auditors appointed by the shareholders in general meeting audit the nancial statements. As part of their audit, the auditors report on any weaknesses in procedures, internal controls, etc. The auditors report in writing to the Supervisory Board when they have carried out work and also immediately upon identifying any issues of which the Supervisory Board should be informed. the general meeting, the Supervisory Board, in consultation with the Executive Board, carries out a critical assessment of the auditors’ skills, independence, etc. Risk assessment At least once a year, the Supervisory Board and the Executive Board carry out an overall assessment of risks in connection with the nancial reporting. The Audit and Risk Committee and the Executive Board monitor compliance with procedures, internal controls, relevant legislation and other regulations and provisions in connection with the nancial reporting on an ongoing basis and report on this to the full Supervisory Board. reported with comments on nancial and operating performanc2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=67http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=67SUPERVISORY BOARD 1988-1996 Reconstruction and winding up of companies in distress, primarily for banks Other management positions: CEO, Chairman, Deputy Chairman or member of companies in the Fritz Schur Group Chairman: Posten Norden AB SAS AB (Sweden) F. Uhrenholt Holding A/S Relationscore ApS FRITZ H. SCHUR C.P. Dyvig & Co. A/S (CHAIRMAN) Deputy Chairman: Brd. Klee A/S b. 1951. Joined the Supervisory Board as Chairman in 2005, reMember: elected 2009. Term of of ce expires Center for formidling af naturin 2010. Chairman of Remuneravidenskab og moderne teknologi tion Committee and Nomination Fonden Eventyrteatret Committee Kronprins Frederiks og Education: BSc (Business Adminis- Kronprinsesse Marys Fond tration), Copenhagen Business Den Kongelige Danske Ballets School (1973) Fond Remuneration, Board: DKK 500,000 Remuneration, Committees: DKK 50,000 Career and posts: 1973 Formation of FSC A/S (Fritz Schur Consumer Products A/S) 1978CEO, Chairman, Deputy Chairman or member of companies in the Fritz Schur Group 1983-1985 Danish School of Public Administration, Management Consultant 1986 Danish Insurance Association, Vice President 1986-1988 Baltica, Claims Manager, Vice President 1988-1995 Falcks Redningskorps A/S and Falck Holding A/S, CEO 1995-2000 Falck A/S, CEO 2000-2004 Group 4 Falck A/S, LARS NØRBY JOHANSEN CEO (DEPUTY CHAIRMAN) 2004-2005 Group 4 Securicor, CEO b. 1949. Joined the Supervisory Other management positions: Board in 1997, re-elected 2009. Chairman: Deputy Chairman since 2001. Falck Holding A/S and a whollyTerm of of ce expires in 2010. Chairman of Audit and Risk Com- owned subsidiary mittee. Member of Remuneration Georg Jensen A/S Committee and Nomination Com- William Demant Holding A/S mittee. CAT Invest I A/S Education: MPhil, Århus University Nature Consult ApS (1974) OMI People A/S Remuneration, Board: Deputy Chairman: DKK 300,000 Rockwool Fonden Remuneration, Committees: Member: DKK 125,000 Index Award A/S Codan A/S and a wholly-owned Career and posts: subsidiary 1974-1983 Odense University, CAT Forsknings- og Teknologipark Lecturer in Political A/S and two wholly-owned Science and from 1978 subsidiaries Associate Professor Institut for selskabsledelse ApS 1977-1979 European University CEO: Center, Florence (Italy), GJKJUS 607 ApS Associate Professor 1982 Harvard University, Visiting Fellow Career and posts: 1964-2007 Danske Bank A/S (member of Executive Committee 1996-2007) Other management positions: Deputy Chairman: LR Realkredit A/S Finansiel Stabilitet A/S Roskilde Bank A/S Member: Forsikringsselskabet Danica, Skadeforsikringsaktieselskab af 1999 and three wholly-owned subsidiaries Wrist Group A/S Newco AEP A/S HANNE STEN ANDERSEN * b. 1960. Joined the Supervisory Board in 2007. Term of of ce expires in 2011. Education: Graduate Diploma in Business Administration, Copenhagen Business School, 1990 Remuneration, Board: DKK 175,000 Career and posts: 1985-1992 Industrirådet (replaced by Confederation of Danish Industry (DI)), Information Consultant 1992-1998 DI, HR Consultant 1998-2000 Leo Pharma A/S, HR Partner for Production 2000-2003 Danisco A/S, Group HR, HR Consultant 2003DONG Energy A/S, Training Manager in Sales & Distribution JAKOB BROGAARD b. 1947. Joined the Supervisory Board in 2007, re-elected 2009. Term of of ce expires in 2010. Member of Audit and Risk Committee. Education: Academy Foundation Degree (Management Accounting and Business Finance), 1976 Remuneration, Board: DKK 175,000 Remuneration, Comittees: DKK 50,000 MANAGEMENT´S REVIEW 632011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=68http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=68SUPERVISORY BOARD Career and posts: 1985-1987 Royal Danish Life Guards, Sergeant 1987Industrial Operator, NESA A/S (now DONG Energy A/S) POUL DREYER* b. 1964. Joined the Supervisory Board in 2007. Term of of ce expires in 2011 Education: Industrial Operator, 1993 Remuneration, Board: DKK 175,000 JØRGEN PETER JENSEN* b. 1968. Joined the Supervisory Board in 2007. Term of of ce expires in 2011 Education: MSc (Chemical Engineering), Technical University of Denmark (DTU), 1993 PhD, DTU, 1996 Remuneration, Board: DKK 175,000 Career and posts: 1996-1997 DTU, Post. doc. 1997-2001 Skærbæk Power Station, Chemical Engineer 2001-2005 Energi E2, R&D Project Engineer 2005-2008 DONG Energy Power A/S, Chemical Engineer 2009 DONG E&P, Facility Engineer 2009DONG Energy Power A/S, Manager 1974-1977 Danish Ministry of Finance (Ministry of Economic Affairs) 1978-1990 Danish Environmental Protection Agency, Director 1990-2006 Invest Miljø A/S, CEO Other management positions: Chairman: Frydenholm Holding A/S and a wholly-owned subsidiary Dalum Holding A/S Desmi A/S Special Waste Systems A/S Deputy Chairman: BP-U Holding A/S Member: White Arkitekter A/S JKC ApS LD Invest Holding A/S and a wholly-owned subsidiary Retrocom Holding A/S Genan A/S Genan Business & Development A/S Kampus.NU ApS CEO: JKC ApS Toftøje Invest ApS Career and posts: 1982-1998 Høje-Taastrup Upper Secondary School, Lecturer 1994-2007 Vallø Municipality, Mayor 2007Stevns Municipality, Mayor Other management positions: Chairman: SEAS-NVE A.m.b.a. and a whollyowned subsidiary SEAS-NVE Strømmen A/S Sjællandske Medier A/S Member: Sampension KP Livsforsikring A/S and a wholly-owned subsidiary JENS KAMPMANN b. 1937. Joined the Supervisory Board in 2005, re-elected 2009. Term of of ce expires in 2010. Member of Audit and Risk Committee. Education: MSc (Economics), Copenhagen University, 1962 Remuneration, Board: DKK 175,000 Remuneration, Committees: DKK 50,000 Career and posts: 1962-1964 Danish Ministry of Education 1964-1971 Danish Ministry of Finance (Ministry of Economic Affairs) 1966-1978 Member of Danish Parliament and, in 1971, 1972-1973 and 19771978, also Minister POUL ARNE NIELSEN b. 1944. Joined the Supervisory Board in 2006, re-elected 2009. Term of of ce expires in 2010 Education: Agricultural college, 1968, and MSc (Sports, Social Science and Business Economics), 1991. Remuneration, Board: DKK 175,000 64 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=69http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=69Career and posts: 1978-2001 Southern Jutland County Council, member 1982-2000 Southern Jutland County, Mayor Other management positions: Chairman: Sydbank A/S Privathospitalet Kollund A/S Sydenergi A.m.b.a. and a whollyowned subsidiary Lundtoftbjerg Opformering A.m.b.a. Member: DTL A/S Dansk-Tysk Landbrugsinvestering Netsam A/S A/S Plantningsselskabet Sønderjylland Fonden til fremme af elitesport og kultur i Sønderjylland Det Danske Hedeselskab and a wholly-owned subsidiary Career and posts: 1990-2000 SK Power Company A/S 2000-2006 Energi E2 A/S 2006DONG Energy A/S KRESTEN PHILIPSEN b. 1945. Joined the Supervisory Board in 2006, re-elected 2009. Term of of ce expires in 2010 Education: Agricultural college, Gråsten, 1965-1966 Remuneration, Board: DKK 175,000 JENS NYBO STILLING SØRENSEN* b. 1968. Joined the Supervisory Board in 2007. Term of of ce expires in 2011. Education: Unskilled Remuneration, Board: DKK 175,000 Career and posts: 1982Novo Nordisk A/S, CEO from 2000 Other management positions: CEO: Novo Nordisk A/S Member: ZymoGenetics Inc. (USA) Bertelsmann AG (Germany) LARS REBIEN SØRENSEN b. 1954. Joined the Supervisory Board in 2007, re-elected 2009. Term of of ce expires in 2010. Career: MSc (Forestry) (Royal Veterinary and Agricultural University, Copenhagen), 1981 Graduate Diploma in International Trade, Copenhagen Business School, 1983 Remuneration, Board: DKK 175,000 *Employee representative. MANAGEMENT´S REVIEW 652011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=70http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=70EXECUTIVE BOARD KURT BLIGAARD PEDERSEN LARS CLAUSEN ANDERS ELDRUP NIELS BERGH-HANSEN SØREN GATH HANSEN CARSTEN KROGSGAARD THOMSEN 66 MANAGEMENT’S REVIEW DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=71http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=71ANDERS ELDRUP Registered with the Danish Commerce and Companies Agency as CEO b. 1948. CEO since 2001. Remuneration: DKK 6,182,068 Education MSc (Political Science), Århus University, 1972 Career and posts 1972-1973 Of ce of the Auditor General of Denmark 1973-1991 Budget Department: Personal Secretary to Minister of Finance from 1980-1984, Head of Department from 1984-88, Deputy Permanent Secretary 19881990, Department of the Budget, Director 1990-91 1991-2001 Danish Ministry of Finance, Permanent Secretary 2001- DONG Energy A/S, CEO Chairman Copenhagen Cleantech Cluster Deputy Chairman Better Place Denmark A/S Fonden Lindoe Offshore Renewables Center Center for Formidling af Naturvidenskab og Moderne Teknologi (fund) Rockwool Fonden NIELS BERGH-HANSEN b. 1948. Member of DONG Energy’s Executive Board since 2006 and responsible for Generation. Education MSc (Civil Engineering), Technical University of Denmark, 1973 Career and posts 1973-1976 A. Jespersen & Søn, Engineer and Project Manager 1976-1980 Bruun & Sørensen, Engineer and Project Manager 1981 Nielsen & Rauschenberger, Engineer and Project Manager 1982-1988 Århus Kommunale Værker, Senior Engineer and Project Manager 1988-1990 Tarco, CEO 1990-1992 Søren T. Lyngsø, CEO 1992-2000 Sønderjyllands Højspændingsværk, CEO 2000-2006 Elsam A/S, from 2005 CEO 2006- DONG Energy A/S, Executive Vice President Generation Other management positions Chairman Foreningen af Danske Privathavne Dansk Energi Deputy Chairman Port of Aabenraa Member Project Zero-Fonden SØREN GATH HANSEN b. 1954. Member of DONG Energy’s Executive Board since 2002 and responsible for Exploration & Production. Education MSc (Political Science), Copenhagen University, 1983 Career and posts 1983 Department of Danish Ministry of the Environment, Head of Section 1983-1984 Danish Ministry of Finance, Administration Department, Head of Section 1984- DONG Energy A/S, fra 2002 Executive Vice President Exploration & Production. Other management positions None CARSTEN KROGSGAARD THOMSEN Registered with the Danish Commerce and Companies Agency as CFO b. 1957. Member of DONG Energy’s Executive Board and CFO since 2002. Remuneration: DKK 5,386,218 Education MSc (Economics), Copenhagen University, 1983 Career and posts 1983-1985 Danish Ministry of the Interior 1985-1986 Danish Ministry of Finance 1986-1988 Andelsbanken 1988-1991 McKinsey, Consultant 1991-1994 Rigshospitalet, Director of Finance 1995-2002 Danish State Railways, CFO 2002- DONG Energy A/S, CFO Other management positions Deputy Chairman NNIT A/S Member GN Store Nord A/S and two wholly-owned subsidiaries BaneDanmark LARS CLAUSEN b. 1959. Member of DONG Energy’s Executive Board since 2007 and responsible for Sales & Distribution. Education MSc (Civil Engineering), Technical University of Denmark, 1986, and Graduate Diploma in Economics and Marketing, Copenhagen Business School, 1988 Career and posts 1986-1995 Shell 1995-1996 PA Consulting 1996-1998 A/S Dansk Shell, Commercial Director 1999-2003 A/S Dansk Shell, CEO 2004-2007 Shell Gas in the UK and Scandinavia, General Manager 2007- DONG Energy A/S, Executive Vice President Sales & Distribution Other management positions Member Dansk Energi KURT BLIGAARD PEDERSEN b. 1959. Member of DONG Energy’s Executive Board since 2002 and responsible for Energy Markets. Education MSc (Political Science), Århus University, 1988 Career and posts 1988-1992 Social Democratic Parliamentary Group, Consultant 1992-1996 Danish Ministry of Finance, Head of Department and later Deputy Permanent Secretary 1996-2000 City of Copenhagen, CFO and, from 1997, CEO of the Financial Department 2000-2001 Falck Danmark A/S, CEO 2002- DONG Energy A/S, Executive Vice President Energy Markets Other management positions Deputy Chairman BRF Holding A/S and a whollyowned subsidiary Member BRF Fonden Copenhagen Zoo MANAGEMENT´S REVIEW 672011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=72http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=72CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER DKK million Revenue Production costs Gross pro t Sales and marketing Management and administration Other operating income Other operating expenses Operating pro t (EBIT) Gain (loss) on disposal of enterprises Share of pro t (loss) of associates Financial income Financial expenses Pro t before tax Income tax expense Pro t for the year Note 3, 4 5, 6, 15, 16 2009 49,262 (43,345) 5,917 2008 60,777 (50,334) 10,443 (428) (2,060) 82 (33) 8,004 917 (48) 2,746 (3,880) 7,739 (2,924) 4,815 5, 6, 15, 16 5, 6, 7, 15, 16 8 8 (428) (1,930) 241 (43) 3,757 29 17 10 11 (62) 74 2,662 (4,024) 2,407 12 (1,269) 1,138 Attributable to: Equity holders of DONG Energy A/S Hybrid capital holders of DONG Energy A/S (adjusted for tax effect) Minority interests Pro t for the year Earnings per share (EPS) and diluted earnings per share (DEPS) of DKK 10, in DKK Proposed dividend per share (DPS) of DKK 10, in DKK Dividend paid per share (DPS) of DKK 10, in DKK Payout ratio in % 22 802 340 (4) 1,138 4,427 340 48 4,815 14 2.73 1.64 6.56 42.27 15.07 6.56 5.00 40.00 68 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=73http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=73CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER DKK million Pro t for the year Value adjustments of hedging instruments: Value adjustments for the year Value adjustments transferred to revenue Value adjustments transferred to production costs Value adjustments transferred to nancial income and nancial expenses Value adjustments transferred to non-current assets Value adjustments transferred to inventories Note 2009 1,138 2008 4,815 (1,911) (999) 76 8 0 244 4,237 (1) 0 (67) (17) (151) Foreign exchange adjustments: Foreign exchange adjustments relating to foreign enterprises Foreign exchange adjustments relating to equity-like loans, etc. 995 327 (1,965) (31) CONSOLIDATED NON-FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS Other adjustments: Tax on other comprehensive income Other adjustments Other comprehensive income Total comprehensive income Total comprehensive income for the year is attributable to: Equity holders of DONG Energy A/S Hybrid capital holders of DONG Energy A/S Minority interests Total comprehensive income 100 451 4 555 5,447 451 50 5,948 13 677 0 (583) 555 (887) 15 1,133 5,948 CONSOLIDATED FINANCIAL STATEMENTS 69 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=74http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=74CONSOLIDATED BALANCE SHEET AT 31 DECEMBER ASSETS DKK million Goodwill Rights Completed development projects In-process development projects Intangible assets Land and buildings Production assets Exploration assets Fixtures and ttings, tools and equipment Property, plant and equipment in the course of construction Property, plant and equipment Investments in associates Other securities and equity investments Deferred tax Receivables Other non-current assets Non-current assets Inventories Receivables Income tax Securities Cash Current assets Assets classi ed as held for sale Assets 21 18 19 26 31 31 16 17 17 23 19 15 Note 2009 663 2,100 245 144 3,152 3,013 50,827 2,997 267 13,026 70,130 3,605 1,374 281 3,596 8,856 82,138 3,064 27,783 422 2,570 4,499 38,338 76 120,552 2008 447 1,867 218 189 2,721 2,949 40,646 2,784 216 7,400 53,995 3,306 85 13 1,980 5,384 62,100 3,918 36,073 11 753 3,043 43,798 187 106,085 70 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=75http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=75EQUITY AND LIABILITIES DKK million Share capital Reserves Retained earnings Proposed dividends Equity attributable to the equity holders of DONG Energy A/S Hybrid capital Minority interests Equity Deferred tax Pension obligations Provisions Bond loans Bank loans Other payables Non-current liabilities Provisions Bond loans Bank loans Other payables Income tax Current liabilities Liabilities Liabilities associated with assets classi ed as held for sale Equity and liabilities 21 24 25 25 25 26 22 23 5 24 25 25 25 Note 2009 2,937 9,256 23,944 481 36,618 8,088 102 44,808 6,666 21 7,260 22,549 10,859 1,970 49,325 212 0 1,798 24,370 39 26,419 75,744 0 120,552 2008 2,937 9,950 23,242 1,926 38,055 8,088 47 46,190 5,461 38 5,466 7,734 9,277 1,624 29,600 229 160 1,952 27,447 420 30,208 59,808 87 106,085 CONSOLIDATED FINANCIAL STATEMENTS 71 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=76http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=76CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER Equity attributable to equity holders of DONG Energy A/S 38,055 100 0 (1,926) (43) 432 (1,437) DKK million Equity at 1 January 2009 Comprehensive income for the year, see page 69 Coupon payments, hybrid capital Proposed dividends Dividends paid Addition on acquisition of enterprises Addition of minority interests Disposal of minority interests Total changes in equity in 2009 Equity at 31 December 2009 Share capital 2,937 - Reserves 9,950 (694) (694) Retained earnings 23,242 794 (481) (43) 432 702 Proposed dividends 1,926 481 (1,926) (1,445) Hybrid capital 8,088 451 (451) 0 Minority interests 47 4 (31) 29 50 3 55 Total 46,190 555 (451) 0 (1,957) 29 7 435 (1,382) 2,937 9,256 23,944 481 36,618 8,088 102 44,808 DKK million Share capital Reserves Retained earnings Proposed dividends Equity attributable to equity holders of DONG Energy A/S Hybrid capital Minority interests Total Equity at 1 January 2008 Comprehensive income for the year, see page 69 Coupon payments, hybrid capital Proposed dividends Dividends paid Addition of minority interests Disposal of minority interests Total changes in equity in 2008 Equity at 31 December 2008 2,937 0 8,955 995 995 20,716 4,452 (1,926) 0 0 2,526 1,469 1,926 (1,469) 457 34,077 5,447 0 (1,469) 0 0 3,978 8,088 451 (451) 0 46 50 0 1 (50) 1 42,211 5,948 (451) 0 (1,469) 1 (50) 3,979 2,937 9,950 23,242 1,926 38,055 8,088 47 46,190 72 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=77http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=77CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER DKK million Cash ows from operations (operating activities) Interest income and similar items Interest expense and similar items Income tax paid Cash ows from operating activities Purchase of intangible assets Sale of intangible assets Purchase of exploration assets Purchase of other property, plant and equipment Sale of property, plant and equipment Acquisition of enterprises Disposal of enterprises Acquisition of associates Acquisition of other equity investments Acquisition of securities Change in other non-current assets Financial transactions with associates Dividends received and distribution of capital Cash ows from investing activities Proceeds from raising of loans Instalments on loans Coupon payments on hybrid capital Dividends paid Dividends paid to minority interests Acquisition of minority interests Disposal of minority interests Other capital transactions with minority interests Change in other non-current payables Cash ows from nancing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Net increase (decrease) in cash and cash equivalents Cash classi ed as held for sale, etc. Foreign exchange adjustments of cash and cash equivalents Cash and cash equivalents at 31 December Note 27 2009 11,084 2,523 (3,361) (778) 9,468 (170) 8 (699) (14,990) 191 2008 13,001 2,800 (3,663) (1,759) 10,379 (156) 1 (1,253) (8,276) 91 (136) 2,374 (3) (60) 0 (1,341) 79 51 (8,629) 3,214 (1,836) (451) (1,469) (2) (1) 13 0 (794) (1,326) 424 28 29 (1,304) 376 0 17 17, 28 (168) (3,742) (605) (195) 99 (21,199) 18,881 (4,946) (451) (1,926) (31) (32) 30 86 38 610 12,229 498 2,369 498 63 (15) 31 2,915 1,780 424 (27) 192 2,369 CONSOLIDATED FINANCIAL STATEMENTS 73 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=78http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=78INDEX OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1 2 3 Basis of reporting . . . . . . . . . . . . . . . . . . . . . . 75 Signi cant accounting estimates and judgements . . . 76 Segment information . . . . . . . . . . . . . . . . . . . . 82 22 Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 23 Deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . 108 24 Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 111 25 Loans and borrowings . . . . . . . . . . . . . . . . . . . 112 26 Income tax payable and receivable . . . . . . . . . . . . 114 Notes to the income statement 4 5 6 7 8 9 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Staff costs . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Research and development costs . . . . . . . . . . . . . 89 Fees to auditors appointed at the Annual General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Other operating income and other operating expenses 90 Government grants . . . . . . . . . . . . . . . . . . . . . 90 Notes to the cash ow statement 27 Cash ows from operations (operating activities) . . . 115 28 Acquisition of enterprises . . . . . . . . . . . . . . . . . 115 29 Disposal of enterprises . . . . . . . . . . . . . . . . . . . 120 30 Disposal of minority interests . . . . . . . . . . . . . . . 121 31 Cash and cash equivalents . . . . . . . . . . . . . . . . 121 10 Financial income . . . . . . . . . . . . . . . . . . . . . . 91 11 Financial expenses . . . . . . . . . . . . . . . . . . . . . 91 12 Income tax expense . . . . . . . . . . . . . . . . . . . . . 92 13 Tax on other comprehensive income . . . . . . . . . . . 94 14 Earnings per share . . . . . . . . . . . . . . . . . . . . . 94 Notes without reference 32 Financial risks . . . . . . . . . . . . . . . . . . . . . . . . 122 33 Financial instruments . . . . . . . . . . . . . . . . . . . 124 34 Jointly controlled entities . . . . . . . . . . . . . . . . . 132 35 Operating leases . . . . . . . . . . . . . . . . . . . . . . 133 36 Contractual obligations and security arrangements . . 134 37 Contingent assets and contingent liabilities . . . . . . 134 38 Related party transactions. . . . . . . . . . . . . . . . . 136 39 Events after the reporting period . . . . . . . . . . . . . 138 40 Description of accounting policies . . . . . . . . . . . . 138 41 Licence overview . . . . . . . . . . . . . . . . . . . . . . 154 42 Company overview . . . . . . . . . . . . . . . . . . . . . 157 Notes to the balance sheet 15 Intangible assets . . . . . . . . . . . . . . . . . . . . . . 95 16 Property, plant and equipment . . . . . . . . . . . . . . 99 17 Associates and other securities . . . . . . . . . . . . . . 102 18 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 103 19 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 104 20 Construction contracts . . . . . . . . . . . . . . . . . . . 106 21 Assets classi ed as held for sale . . . . . . . . . . . . . 106 74 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=79http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=79BASIS OF REPORTING 01 / BASIS OF REPORTING DONG Energy A/S is a public limited company with its registered of ce in Denmark. The annual report for the period 1 January – 31 December 2009 comprises the consolidated nancial statements of DONG Energy A/S and its subsidiaries (the Group) as well as separate nancial statements for the parent company, DONG Energy A/S. The annual report has been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and also complies with International Financial Reporting Standards issued by the IASB. The annual report has been prepared in accordance with Danish disclosure requirements for annual reports of listed and State-owned public limited companies, see the statutory order on adoption of IFRS issued pursuant to the Danish Financial Statements Act. The annual report is presented in Danish kroner (DKK), rounded to the nearest million, unless otherwise stated. The annual report has been prepared on the historical cost basis except that derivative nancial instruments, nancial instruments held for trading, nancial instruments classi ed as available-for-sale and CO2 emissions allowances held for trading are measured at fair value. Non-current assets and disposal groups classi ed as held for sale are stated at the lower of carrying amount before the reclassi cation and fair value less costs to sell. The accounting policies described in note 40 have been applied consistently to the nancial year and the comparative gures. The new standards and interpretations affect earnings per share and diluted earnings per share by DKK 0.96 per share for 2009. Apart from IAS 23, the new standards and interpretations have not had any effect on recognition and measurement in 2009, but have resulted in additional note disclosures. The implementation of IAS 1 has only changed the presentation of primary statements and some note disclosures. IAS 23 relating to the recognition of borrowing costs as part of the cost of qualifying assets and which applies to the construction and development of qualifying assets for which the commencement date is on or after 1 January 2009 has resulted in the capitalisation of borrowing costs of DKK 282 million in respect of production assets in 2009. Comparative gures have not been restated. In 2009, IFRICs 16 and 18 were adopted with different effective dates in the EU than the corresponding IFRICs as issued by the IASB. DONG Energy has consequently implemented these interpretations early, so that their implementation follows the IASB effective dates. Amendments to IAS 32 and IAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation Amendments to IFRS 1 and IAS 27: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate Amendment to IFRS 7: Improving Disclosures about Financial Instruments Parts of Improvements to IFRSs May 2008 with an effective date of 1 January 2009 New International Financial Reporting Standards and IFRIC Interpretations The IASB has issued the following new or amended standards and interpretations that have been adopted by the EU but have not yet become effective and are consequently not mandatory for DONG Energy in connection with the preparation of the annual report for 2009: Revised IFRS 3 Business Combinations IAS 27 Consolidated and Separate Financial Statements PARENT COMPANY FINANCIAL STATEMENTS Implementation of new standards and interpretations In 2009, DONG Energy implemented the following standards (IASs and IFRSs) and interpretations (IFRICs), which are relevant to DONG Energy and have effect for reporting periods beginning on or after 1 January 2009: Amendments to IAS 1 Presentation of Financial Statements: A Revised Presentation Amendment to IAS 23 Borrowing Costs CONSOLIDATED FINANCIAL STATEMENTS 75 CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=80http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=80BASIS OF REPORTING 01 / BASIS OF REPORTING (CONTINUED) Amendments to IAS 39 Financial Instruments: Recognition and Measurement: Eligible Hedged Items Amendments to IAS 32 Financial Instruments: Presentation: Classi cation of Rights Issues Improvements to IFRSs May 2008 Amendments to IFRS 5 Amendments to IFRIC 9 and IAS 39 Embedded Derivatives IFRIC 17 Distributions of Non-Cash Assets to Owners Revised IAS 24 Related Party Disclosures Amendments to IFRS 1 Limited Exemptions for First-Time Adopters IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments DONG Energy has carefully considered the implications of these new or changed standards and interpretations, none of which is expected to have a material effect on DONG Energy’s nancial reporting except as otherwise described in the following. The revised IFRS 3 Business Combinations and the concurrent revision of IAS 27 Consolidated and Separate Financial Statements come into effect for nancial years beginning on or after 1 July 2009. DONG Energy does not expect to make use of the DONG Energy expects to implement the new standards and interpretations from their mandatory effective dates. The standards and interpretations that are adopted with different effective dates in the EU than the corresponding effective dates from the IASB will be implemented early, so that their implementation follows the IASB effective dates. None of the new standards and interpretations is expected to have a material effect on DONG Energy’s nancial reporting. Amendments to IFRS 1 Additional Exemptions for FirstTime Adopters Amendments to IFRS 2 Group Cash-settled Share-based Payment Transactions Improvements to IFRSs April 2009 The IASB has also issued the following new or amended standards and interpretations of relevance to DONG Energy that have yet to be adopted by the EU: option to recognise goodwill relating to any minority interests’ shares in enterprises acquired, and expects the effect on the nancial reporting of a number of the technical adjustments to the purchase method in IFRS 3 to be insigni cant. SIGNIFICANT ACCOUNTING ESTIMATES AND 02 / JUDGEMENTS Accounting estimates In the process of preparing the consolidated nancial statements, management makes a number of estimates and judgements that affect the reported amounts of assets and liabilities at the balance sheet date, the reported amounts of income and expenses in the reporting period and disclosures on contingent assets and contingent liabilities at the balance sheet date. Estimates and assumptions made are based on historical experience and other factors that are believed by management to be reasonable under the circumstances, but that, by their nature, are uncertain and unpredictable. The effect of such judgements and assumptions can potentially lead to results that differ signi cantly from those that would result from the use of other judgements and assumptions. The international nancial crisis led to exceptional uctuations in, for example, commodity prices, exchange rates and interest rates again in 2009. In connection with the preparation of the consolidated nancial statements for 2009, increased focus has consequently been placed on the estimates made in respect of, for example, discount rates and expectaEstimates and judgements relating to impairment testing of intangible assets and property, plant and equipment have had a signi cant effect on the consolidated nancial statements for 2009. The Group’s special risks are referred to in the chapter on risk management on pages 28-32 of management’s review comprising the sections Risk governance, Market and credit risks and Liquidity and nancing risks as well as in the notes. 76 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=81http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=81tions concerning the future development in commodity prices and exchange rates to ensure that the consolidated nancial statements are not affected by short-term uctuations that are not expected to apply in the long term. The areas in which estimates and judgements can have the most signi cant effect on the nancial statements are described in the following. Determination of natural gas and oil reserves DONG Energy conducts an annual internal evaluation and review of the Group’s reserves as part of the annual business cycle. An independent valuer has reviewed DONG Energy’s reserves classi cation system and guidelines and has veri ed that the internal guidelines are in agreement with the SPEPRMS directives. The assessment of natural gas and oil reserves is based on estimates and assumptions of both proved and probable reserves (Proved and Probable/2P). Proved reserves are the estimated quantities of hydrocarbons that geological and engineering data demonstrate with reasonable certainty to be recoverable within future years from known reservoirs under existing economic and operating conditions, i.e. prices and costs estimates as of the date the estimate is made. Probable reserves are those additional reserves that are less likely to be recovered than proved reserves. The evaluation of natural gas and oil reserves affects the assessment of the recoverable amount and depreciation pro le of DONG Energy’s Exploration & Production assets, and future changes in reserves may have a signi cant effect on the unit-of-production depreciation applied in connection with depreciation and impairment losses related to a number of the Group’s production assets. the carrying amount exceeds the sum of discounted cash ows that can be expected to arise on use of the asset (value in use) and the carrying amount at the same time exceeds the fair value less disposal costs. Such events may include long-term changes in future market conditions, market prices of natural gas, oil, power, fuel and CO2, changes in the weighted average cost of capital, reductions in estimated reserves, or changes in regulatory provisions. If such a judgement indicates a possible impairment, and neither quoted market prices in active markets nor prices of similar assets are available, discounted cash ows are used to measure the recoverable amount to determine whether the value of the assets is impaired. The assumptions and criteria applied to determine the assets’ recoverable amounts constitute management’s best estimates and assumptions based on the available information such as market prices, levels of xed costs, revenue growth rates and reserve estimates, which, however, by their nature, are subject to uncertainty. Impairment losses on intangible assets and property, plant and equipment amounted to DKK 37 million and DKK 741 million respectively in 2009 (2008: DKK 84 million and DKK 1,628 million). Reference is made to notes 15 and 16. Depreciation pro les for production assets Production assets are measured at cost less accumulated depreciation. As stated in note 40, the depreciation pro le for a number of production assets has been determined using the unit-of-production method based on the ratio of current production to estimated proved reserves or based on the expected earnings pro le. The future expected applications may subsequently prove not to be realisable, which may require useful lives to be reviewed and may result in a need for the recognition of impairment losses or the charging of a loss on disposal of the assets. Investments in associates, other securities and other non- Impairment testing DONG Energy has signi cant investments in intangible assets and property, plant and equipment, including primarily production assets, the values of which are sensitive to various factors, including changes in commodity prices, exchange rates, interest rates and regulatory provisions. Goodwill and in-process development projects are tested for impairment annually. Other intang2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=82http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=82ACCOUNTING ESTIMATES AND JUDGEMENTS SIGNIFICANT ACCOUNTING ESTIMATES AND 02 / JUDGEMENTS (CONTINUED) Write-downs and valuation of receivables Write-downs are made for bad and doubtful debts on the basis of due date and historical experience. The estimates are subject to uncertainties, as they are based on an estimation of the right to collect the receivable and an assessment of the counterparty’s ability to pay. The risk of bad debts has increased as a consequence of the international nancial crisis, and this has been taken into consideration in connection with the valuation of the Group’s receivables. Trade receivables were written down by DKK 183 million at 31 December 2009 (2008: DKK 291 million). Provisions for decommissioning costs DONG Energy has signi cant decommissioning obligations. The estimates of the Group’s decommissioning obligations are updated on a regular basis, and the provisions amounted to DKK 5,667 million at 31 December 2009 (31 December 2008: DKK 4,469 million), see note 24. The excess of the cost of the acquiree over the fair value of the These provisions comprise expected costs for decommissioning of production facilities and technical installations and restoration of drilling sites and other installations in accordance with current legislation. In Exploration & Production, such obligations include facilities for production of natural gas and oil; in Generation, they include decommissioning obligations relating to the Group’s thermal generating plants and wind farms; in Energy Markets, they include natural gas pipelines and associated infrastructure; and in Sales & Distribution, they include the Group’s natural gas distribution network, natural gas storage facility and oil pipeline. No decommissioning obligations are recognised in respect of the power grid in Sales & Distribution, as it is considered improbable that such decommissioning obligations will result in an out ow from the Group of resources embodying economic bene ts. Provisions for decommissioning costs are measured at the present value of the future restoration and decommissioning obligations estimated at the balance sheet date. The assumptions and estimates applied in the calculation of the present value of decommissioning obligations are affected by any changes in expected decommissioning and restoration costs, the future date on which the corresponding costs will be incurred, and of cial requirements. Expected decommissioning and restoration costs are based either on examinations carried Onerous contracts In the course of the Group’s operations, a number of Unlisted nancial contracts The DONG Energy Group has concluded nancial contracts based, among other things, on natural gas, oil, power and coal, that are unlisted and are measured at fair value, including a single long-term contract that runs until 2020. Reference is made to note 33 for further details. Fair values are determined based on xed valuation models by reference to market data and the outlook concerning long-term prices and exchange rates, etc., each of which is subject to uncertainty. The determination of fair values of identi able assets, liabilities and contingent liabilities relating to acquisitions in 2009 was completed in 2009. It was estimated that the value of acquired net assets still existed at 31 December 2009. assets, liabilities and contingent liabilities acquired is recognised as goodwill and allocated to the cash-generating units, which subsequently form the basis for impairment testing. In that connection, management makes estimates of acquired and existing cash-generating units and the associated goodwill allocation. The value of goodwill in connection with the year’s business combinations is described in note 28. Business combinations The identi able assets, liabilities and contingent liabilities acquired in a business combination are measured at fair values at the date of acquisition. For a signi cant part of the assets acquired and liabilities assumed, an2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=83http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=83commercial contracts have been entered into with xed terms of contract that may result in the contracts being onerous depending on market developments, etc., and the liabilities incurred by the DONG Energy Group as a result of these contracts may also be subject to uncertainty. The judgements concerning these complex contracts and their future effects are subject to signi cant uncertainties. Reference is made to note 24. Provisions for litigation costs The Group is a party to various litigation proceedings, including relating to obligations assumed by the Group in relation to acquisitions of enterprises made in 2006, and claims have been advanced against the Group, see note 37. the ongoing competition disputes concerning alleged abuse of a dominant position in the wholesale market for physical power in Western Denmark, see note 37. This amount was determined on the basis of the Danish Competition Council’s rulings. In connection with the litigation proceedings referred to in the foregoing, a group of power consumers have lodged a complaint in which the primary claim is for DKK 4,404 million plus interest. As both the justi cation for the claim and the evaluation of the size of a potential loss are subject to signi cant uncertainty, a separate provision has not been made in this respect. In addition, the Danish Competition Council is in the process Provision for estimated losses is made in the income statement, if both of the following criteria are met: 1) the information that was available prior to the publication of the nancial statements indicates that it is more likely than not that an obligation had arisen at the balance sheet date, and 2) the amount of the loss can be estimated reliably. The application of these accounting principles for determining potential losses in connection with a dispute is naturally dif cult, considering the complexity of the factors involved and the legislation. The decision as to whether a provision should be made in such disputes requires conclusions to be drawn concerning various factual and legal matters outside the Group’s control. If the judgements do not, at a given time, re ect the subsequent development or the nal outcome of the dispute, this may have a signi cant impact on the Group’s future income statements and balance sheets and may have an adverse impact on the Group’s operating pro t, cash ows and nancial position. The factors taken into consideration when deciding whether to make a provision include the nature of the action, claim or statement. Other factors taken into consideration include the development of the case (including the development after the balance sheet date, but before publication of the nancial statements), recommendations or opinions from legal or other advisers, experience from similar cases, and management’s decision on how the Group will react to the action, the claim or the statement. The fact that legal advisers are not able to express an opinion as to the outcome of a case does not necessarily mean that the above criteria concerning provision for losses have been met. At 31 December 2009, DONG Energy had made provisions totalling DKK 298 million (2008: DKK 298 million) relating to of examining whether, in the period 1 July 2003 to 31 December 2005, Energi E2 A/S abused a dominant position in the wholesale market for physical power in Eastern Denmark, see note 37. No provision has made for any loss in respect of this case. CONSOLIDATED NON-FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS Judgements made in connection with accounting policies As part of the Group’s accounting policies, management makes judgements, apart from those involving estimations, that may have a signi cant effect on the consolidated nancial statements. These judgements primarily comprise the selection of recognition methods for exploration assets, recognition and classi cation of derivative nancial instruments and commodity contracts, and classi cation of, for example, hybrid c2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=84http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=84ACCOUNTING ESTIMATES AND JUDGEMENTS SIGNIFICANT ACCOUNTING ESTIMATES AND 02 / JUDGEMENTS (CONTINUED) probability the existence of reserves that can be utilised commercially. Following the evaluation of a successful exploration well, and once a decision has been made on a development and operating plan for a licence, and the plan has been approved by the relevant authorities, the exploration costs are transferred to property, plant and equipment in the course of construction. When the eld is ready for start-up of commercial production, the total costs in the balance sheet, including the initial exploration and evaluation costs, are transferred to a single cost centre for the eld under production assets. Subsequent costs are capitalised if this increases the economic bene ts from the production assets or replaces a part of the existing production asset. Depreciation commences when the eld comes on stream. Accounting treatment of derivative nancial instruments and commodity contracts DONG Energy hedges commodity, currency and interest rate risks. These hedging transactions predominantly relate to future income from the sale of natural gas, oil and power, and coal purchase costs. Changes in the fair value of the derivative nancial instruments that, according to the provisions in IAS 39, qualify for recognition as cash ow hedges, are recognised directly in other comprehensive income until the hedged transaction, e.g. the sale, is recognised in the income statement. The purpose of managing nancial and commodity risks is to limit the risk of signi cant uctuations in earnings and cash ows from the underlying operations. Through internal policies and guidelines, DONG Energy seeks to ensure that derivative nancial instruments used to manage risks are only used to hedge booked, agreed or planned underlying transactions rather than for own trading. Own trading is limited to commodity derivatives and is undertaken in speci c markets within a de ned framework to limit any signi cant impact from the trading activities on earnings. Open positions from operating activities and activities in connection with hedging of own trading are reported and monitored on an ongoing basis. Furthermore, contracts to which the Group is a party are reviewed to identify any features that correspond to derivative Accordingly, any coupon payments are accounted for as dividends that are recognised directly in equity at the time the payment obligation arises. This is because the coupon payments are discretionary and relate to the part of the hybrid capital that is recognised in equity. Coupon payments consequently do not have any effect on the income statement. 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, Accounting treatment of hybrid capital DONG Energy has issued hybrid capital of EUR 1,100 million, see note 22. Hybrid capital comprises issued bonds that qualify for recognition as compound nancial instruments due to the special characteristics of the loan. The principal amount, which constitutes a liability, is recognised at present value (nil). The balance of the net proceeds is recognised in equity. Under IFRS, contracts that involve physical delivery of commodities are, in certain circumstances, accounted for as derivative nancial instruments. Based on an evaluation of the purpose of the Group’s commodity contracts and the connection between that purpose and the Group’s other activities, the Group’s contracts that involve physical delivery of commodities are generally deemed to satisfy the criteria for exemption from classi cation as derivative nancial instruments for normal sale and purchase contracts. Contracts that involve physical delivery of commodities and are classi ed and accounted for as derivative nancial instruments primarily comprise contracts entered into in the course of the Group’s trading activiti2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=85http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=85as a result of the 1,000-year term of the hybrid capital, amortisation charges will only impact on the income statement towards the end of the 1,000-year term of the hybrid capital. Coupon payments are recognised in the cash ow statement in the same way as dividend payments under nancing activities. In the period 2010 to 2014, any coupon payments on the hybrid capital will amount to about DKK 451 million per year using the current EUR/DKK exchange rate. The amount will subsequently vary in step with changes in the interest rate level. DONG Energy will be able to omit or defer interest payments. Any deferred coupon payments concerning the hybrid capital will be payable if a decision is made to make dividend or other distributions to the company’s shareholders, and the company’s equity will be reduced by a corresponding amount less tax each time coupon is paid. Jointly controlled assets and entities DONG Energy recognises the Group’s jointly controlled assets and entities using proportionate consolidation. These primarily comprise natural gas and oil exploration licences, wind farms and power stations. If the option to recognise jointly controlled entities using proportionate consolidation is abolished, this will affect the Group’s income statement, as it is expected that the income statement items for jointly controlled entities will have to be presented as an aggregated amount in future, in the same way as the share of pro t of associates. It is also expected to affect the balance sheet, including primarily intangible assets and property, plant and equipment, as it is expected that assets and liabilities relating to jointly controlled entities will have to be presented as a net amount in future, in the same way as investments in associates. Business combinations In connection with business combinations, the Group makes judgements of the contracts concluded in order to determine whether the acquiree should be classi ed as a subsidiary, a jointly controlled asset, a jointly controlled entity or an associate. Such judgements are made individually for each acquiree on the basis of purchase contracts concluded, shareholders’ agreements and similar agreements, which determine the extent to which control of the acquiree has been transferred. For acquisitions accounted for as business combinations, the purchase method is used, and identi able assets, liabilities and contingent liabilities are valued at fair value in connection with the acquisition. The fair value of individual assets is determined based on publicly available market prices to the extent that an ef cient market exists for the asset in question. Key assets acquired in 2009 comprised property, plant and equipment in the course of construction and installation vessels. The fair value of property, plant and equipment in the course of construction has been determined on the basis of knowledge of construction prices for similar installations, the percentage of completion in relation to budgets, etc., and any other indications and relevant information relating to each project. Installation vessels have been valued on the basis of independent valuations carried out by a third party. Transactions with minority interests are accounted for as transactions with the group of owners. If the acquisition of further ownership interests in a subsidiary results in a difference between the purchase price and the carrying amount of the acquired minority interest, the difference is taken directly to equity. Gains and losses on sale of minority interests are also recognised in equity to the extent that the sale does not result in a loss of control. The determination of whether a sale results in a loss of control relies on judgements on a case-by-case basis based on contracts concluded. CONSOLIDATED FINANCIAL STATEMENTS 81 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=86http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=86NOTES TO THE INCOME STATEMENT 03 / SEGMENT INFORMATION Segmentation Management has de ned the Group’s operating segments based on the reporting regularly presented to the Group’s Executive Board, and which forms the basis for management’s strategic decisions. The Executive Board adopts a productdriven approach to the management of activities, managing each segment differently from a commercial point of view. Energy Markets optimises DONG Energy’s energy portfolio, Segment income, segment expense, segment assets and segment liabilities are those items that, in the internal management reporting, are directly attributable to the individual segment or can be indirectly allocated to the individual segment on a reliable basis. Other activities/eliminations primarily comprise income and expense, assets and liabilities, investing activities, income taxes, etc., relating to the Group’s administrative functions, certain initial stages of research and development that do not relate to the Group’s primary activities, and eliminations. Segment information has been prepared in accordance with the Group’s accounting policies. EBITDA was determined inclusive of DKK 186 million amortisation of purchased CO2 emissions allowances (2008: DKK 487 million), as purchased CO2 emissions allowances are accounted for as cost of sales Generation produces and sells power and heat. Generation takes place at 25 thermal power stations in Denmark and from wind turbines in Denmark, the UK, Poland, Norway, Sweden and France. DONG Energy also has stakes in hydropower plants in Sweden and Norway as well as Danish production based on geothermal heat. forming the link between the Group’s procurement and sale of energy. Energy Markets trades in natural gas and power with manufacturers and wholesale customers as well as on European energy hubs and exchanges. Sales & Distribution is the last link in the energy (power and natural gas) value chain, which ranges from production through to consumption. The business area Sales & Distribution is responsible for an ef cient and secure supply and has activities in Denmark and the Netherlands. Geographical location DONG Energy primarily sells products and services in the market in Northern Europe. A large part of the Group’s sales takes place via power exchanges and gas hubs in Europe the physical location of which does not re ect the Group’s market risks. The transfer of risk normally takes place on delivery at the exchange or hub, and DONG Energy consequently does not know the counterparty in every single case. items. Non-current segment assets comprise those of the Group’s non-current assets that are directly allocated to the individual segment. Reportable segments comprise the following products and services: Exploration & Production explores for and produces natural gas and oil in Denmark and Norway, on the Faroe Islands, in Greenland and in the West of Shetland area in the UK. DONG Energy also has a stake in the overall natural gas pipeline network (Gassled) connecting the Norwegian elds with the European continent and the UK. No single customer accounts for more than 10% of the Group’s total revenue. Further details of the Group’s reportable segments are given in management’s review. Reference is also made to note 4 for a breakdown of the Group’s sales by products and services. 82 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=87http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=87Activities – 2009 DKK million External revenue Intragroup revenue Revenue EBITDA Depreciation and amortisation, excluding purchased CO2 emissions allowances Impairment losses Operating pro t (EBIT) Non-current segment assets Gross investments Net working capital, external transactions Net working capital, intragroup transactions Net working capital Exploration & Production 4,446 2,133 6,579 3,427 (1,343) (44) 2,040 19,693 3,050 (672) 268 (404) Generation 10,922 1,519 12,441 915 (1,383) (52) (520) 34,977 11,565 2,413 (330) 2,083 Energy Markets 20,300 7,901 28,201 2,046 (542) 0 1,504 4,492 418 1,790 1,609 3,399 Sales & Distribution 13,072 314 13,386 2,239 (968) (677) 594 15,177 1,663 2,856 (1,312) 1,544 Reportable segment total 48,740 11,867 60,607 8,627 (4,236) (773) 3,618 74,339 16,696 6,387 235 6,622 Natural gas and oil exploration expenditure of DKK 292 million has been recognised in Exploration & Production. Natural gas and oil exploration assets and liabilities amounted to DKK 3,176 million and DKK 166 million respectively at 31 December 2009. Operating and investing cash ows arising from natural gas and oil exploration absorbed DKK 312 million and DKK 699 million respectively. DKK million Revenue Denmark 26,690 Rest of world 22,572 Consolidated total 49,262 DKK million Intangible assets and property, plant and equipment Denmark Norway UK Rest of world Consolidated total CONSOLIDATED FINANCIAL STATEMENTS 83 PARENT COMPANY FINANCIAL STATEMENTS 43,798 14,412 11,951 3,121 73,282 CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=88http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=88NOTES TO THE INCOME STATEMENT 03 / SEGMENT INFORMATION (CONTINUED) Activities – 2008 DKK million External revenue Intragroup revenue Revenue EBITDA Depreciation and amortisation, excluding purchased CO2 emissions allowances Impairment losses Operating pro t (EBIT) Non-current segment assets Gross investments Net working capital, external transactions Net working capital, intragroup transactions Net working capital Exploration & Production 4,758 2,356 7,114 4,053 (1,226) (356) 2,471 15,638 3,434 (615) (22) (637) Generation Energy Markets 14,365 933 15,298 3,155 (1,291) (224) 1,640 21,222 4,778 3,149 (866) 2,283 26,712 11,375 38,087 5,082 (353) (45) 4,684 5,151 229 1,368 2,700 4,068 Sales & Distribution 14,874 721 15,595 1,827 (976) (1,091) (240) 15,344 2,065 3,357 (2,370) 987 Reportable segment total 60,709 15,385 76,094 14,117 (3,846) (1,716) 8,555 57,355 10,506 7,259 (558) 6,701 Natural gas and oil exploration expenditure of DKK 946 million has been recognised in Exploration & Production. Natural gas and oil exploration assets and liabilities amounted to DKK 2,941 million and DKK 149 million respectively on 31 December 2008. Operating and investing cash ows arising from natural gas and oil exploration absorbed DKK 946 million and DKK 846 million respectively. DKK million Revenue Denmark 29,446 Rest of world 31,331 Consolidated total 60,777 Consolidated total DKK million Intangible assets and property, plant and equipment Denmark Norway UK Rest of world 40,055 11,848 3,568 1,245 56,716 84 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=89http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=89Reconciliations Revenue DKK million Segment revenue for reportable segments Revenue, other activities Elimination of intersegment revenue Total revenue, see consolidated income statement, page 68 2009 60,607 1,960 (13,305) 49,262 2008 76,094 1,379 (16,696) 60,777 Performance measures DKK million Segment EBITDA for reportable segments Depreciation, amortisation and impairment losses, excluding purchased CO2 emissions allowances Segment EBIT for reportable segments EBIT other activities/eliminations EBIT, see consolidated income statement, page 68 Gain (loss) on disposal of enterprises Investments in associates Financial income and nancial expenses, net Pro t before tax, see consolidated income statement, page 68 2009 8,627 (5,009) 3,618 139 3,757 (62) 74 (1,362) 2,407 2008 14,117 CONSOLIDATED NON-FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS (5,562) 8,555 (551) 8,004 917 (48) (1,134) 7,739 Assets DKK million Non-current segment assets for reportable segments Non-current assets, other activities/eliminations Investments in associates Other securities and equity investments Deferred tax Non-current assets, see consolidated balance sheet, page 70 Net working capital, reportable segments Net working capital, other activities/eliminations Trade payables included in net working capital, see note 25 Unallocated current assets: Receivables (excl. trade receivables), see note 19 Income tax receivable Securities and cash and cash equivalents Total current assets, see consolidated balance sheet, page 70 Assets classi ed as held for sale Total assets, see consolidated balance sheet, page 70 19,619 422 7,069 38,338 76 120,552 25,088 11 3,796 43,798 187 106,085 2009 74,339 2,539 3,605 1,374 281 82,138 6,622 (391) 4,997 2008 57,355 1,341 3,306 85 13 62,100 6,701 47 8,155 CONSOLIDATED FINANCIAL STATEMENTS 85 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=90http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=90NOTES TO THE INCOME STATEMENT 04 / REVENUE DKK million Sales and transportation of natural gas Sales and transportation of oil Sales of power Sales of district heat Distribution and storage of natural gas Distribution of power Construction contracts Trading activities, net Effect of economic hedges, net Effect of hedge accounting, net Other revenue Revenue 2009 20,377 3,132 12,397 2,289 1,285 4,024 823 908 925 999 2,103 49,262 2008 28,068 5,165 16,598 2,518 830 3,220 1,535 1,086 (392) 1 2,148 60,777 05 / STAFF COSTS DKK million Wages, salaries and remuneration Pension obligations Other social security costs Other staff costs Staff costs Staff costs are recognised as follows: Production costs Sales and marketing Management and administration Transfer to assets Staff costs (2,042) (209) (771) (713) (3,735) (1,541) (210) (788) (714) (3,253) 2009 (3,370) (282) (40) (43) (3,735) 2008 (2,944) (248) (28) (33) (3,253) The Group’s pension plans are primarily de ned contribution plans that do not commit DONG Energy beyond the amounts contributed. The de ned bene t plans relate to obligations to pay a de ned bene t to a few power station employees that are no longer with the company and to public servants taken over from municipally owned regional gas companies. The average number of employees in DONG Energy in 2009 was 5,820 (2008: 5,347 employees). 86 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=91http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=9105 / STAFF COSTS (CONTINUED) Remuneration to the Supervisory Board, Executive Board and other senior executives DKK ‘000 Salaries Parent company Supervisory Board: Chairman Deputy chairman Other members2 Audit and Risk Committee: Chairman Other members 3 2009 Bonus1 Pension Total (500) (300) (1,575) 0 0 0 0 0 0 (500) (300) (1,575) (100) (100) 0 0 0 0 (100) (100) Remuneration Committee: Chairman Other member Executive Board and other senior executives in the Group: CEO CFO Other senior executives in the Group (4,817) (4,384) (12,277) (24,128) 1 2 2 (50) (25) 0 0 0 0 (50) (25) (1,363) (1,000) (2,614) (4,977) (2) (2) (2,163) (2,167) (6,182) (5,386) (17,054) (31,272) Of this amount, DKK 4.3 million had not been paid at 31 December 2009 Annual remuneration amounted to DKK 175 thousand per member in 2009 Annual remuneration amounted to DKK 50 thousand per member in 2009 At 31 December 2009, the Executive Board and other senior executives consisted of six persons in total (2008: six persons). DONG Energy has prepared a remuneration policy for the remuneration of the Supervisory Board and for the Executive Board registered with the Danish Commerce and Companies Agency, and overall guidelines for incentive pay for these of cers were adopted at DONG Energy’s Annual General Meeting in January 2008. Both the remuneration policy and the overall guidelines for incentive pay can be viewed on DONG Energy’s website. Remuneration for the Supervisory Board and for the Executive Board registered with the Danish Commerce and Companies Agency complied with the remuneration policy and the overall guidelines for incentive pay in 2009 and continues to do so in 2010. The service contract of the CEO includes a termination package under which he will be entitled to salary equivalent to 33½ months’ salary if his service contract is terminated by the company (2008: 33½ months). The CFO and the Group’s other senior executives will be entitled to 24 months’ salary if their contracts of service are terminated by the company (2008: 24 months). PARENT COMPANY FINANCIAL STATEMENTS Further details of the Executive Board are provided in the Corporate governance and Supervisory Board and Executive Board chapters on pages 60-67 of the annual report. CONSOLIDATED FINANCIAL STATEMENTS 87 CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=92http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=92NOTES TO THE INCOME STATEMENT 05 / STAFF COSTS (CONTINUED) DKK ‘000 Salaries Parent company Supervisory Board: Chairman Deputy chairman Other members2 Audit and Risk Committee: Chairman Other members3 Remuneration Committee: Chairman Other member Executive Board and other senior executives in the Group: CEO CFO Other senior executives in the Group (4,631) (4,515) (11,823) (23,638) 1 2 3 2008 Bonus1 Pension Total (481) (288) (1,600) 0 0 0 0 0 0 (481) (288) (1,600) (100) (125) 0 0 0 0 (100) (125) (50) (25) 0 0 0 0 (50) (25) (1,146) (1,563) (2,046) (4,755) (2) (2) (2,075) (2,079) (5,779) (6,080) (15,944) (30,472) Of this amount, DKK 4.8 million had not been paid at 31 December 2008 Annual remuneration amounted to DKK 169 thousand per member in 2008 Annual remuneration amounted to DKK 50 thousand per member in 2008 88 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=93http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=9306 / RESEARCH AND DEVELOPMENT COSTS DKK million Research and development costs incurred during the year Amortisation of and impairment losses on development costs recognised under intangible assets and property, plant and equipment Development costs recognised under intangible assets Research and development costs recognised in the income statement Research and development costs by function: Production costs Sales and marketing Management and administration Research and development costs recognised in the income statement Research and development costs incurred include development of wind farms in the UK, Sweden, Poland, Denmark, Germany and the Netherlands; development of thermal generation; bioethanol (1,026) (3) (15) (1,044) (1,085) 0 (8) (1,093) 2009 (1,074) (131) 161 (1,044) 2008 (1,083) (128) 118 (1,093) technology; and development of infrastructure and systems enabling power to be used for transportation. FEES TO AUDITORS APPOINTED AT THE ANNUAL 07 / GENERAL MEETING DKK million Audit fees Other assurance engagements Tax and VAT advice Non-audit fees Total fees to KPMG Audit fees Other assurance engagements Tax and VAT advice Non-audit fees Total fees to Deloitte 2009 (18) (2) (19) (58) (97) (4) (2) (6) (2) (14) 2008 (18) (2) (14) (46) (80) (5) (1) (2) (4) (12) CONSOLIDATED FINANCIAL STATEMENTS 89 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=94http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=94NOTES TO THE INCOME STATEMENT OTHER OPERATING INCOME AND OTHER 08 / OPERATING EXPENSES DKK million Gain on sale of intangible assets and property, plant and equipment Other operating income, other Other operating income Loss on sale of intangible assets and property, plant and equipment Other operating expenses, other Other operating expenses Other operating income and other operating expenses, net 2009 40 201 241 (40) (3) (43) 198 2008 19 63 82 (23) (10) (33) 49 Other operating income includes insurance compensation of DKK 160 million received in respect of production assets. 09 / GOVERNMENT GRANTS DKK million Government grants recognised in the income statement under revenue Government grants recognised in the income statement under other operating income Government grants recognised in the balance sheet Government grants recognised during the year 2009 869 1 (53) 817 2008 548 11 24 583 In 2009, several of the UK wind farms became subject to a different subsidy scheme. In that connection, subsidies totalling DKK 122 million awarded under the previous subsidy scheme were repaid. The repayment has been recognised under government grants recognised in the balance sheet. Grants recognised as revenue comprise green certi cates and price supplements granted for power generation based on wind power, biomass and waste, and natural gas at small-scale power stations. DONG Energy has received grants for feasibility studies in connection with the establishment of installations and the construction of installations. Government grants received have been recognised under liabilities and transferred to other operating income in the income statement as the assets to which the grants relate are depreciated. 90 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=95http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=9510 / FINANCIAL INCOME DKK million Interest income from cash, etc. Interest income from securities at fair value Gains on securities at fair value Foreign exchange gains Value adjustments of derivative nancial instruments Dividends received Other nancial income Financial income 2009 280 175 30 2,050 80 0 47 2,662 2008 865 17 36 1,763 47 1 17 2,746 11 / FINANCIAL EXPENSES DKK million Interest expense relating to payables Transfer to assets Interest element of decommissioning costs Losses on securities at fair value Foreign exchange losses Value adjustments of derivative nancial instruments Losses on nancial liabilities Impairment losses on other equity investments classi ed as available for sale Other nancial expenses Financial expenses Foreign exchange adjustments are recognised in revenue and cost of sales for the year with DKK 93 million (2008: DKK 369 million) and in pro t for the year with a charge of DKK 26 million (2008: gain of DKK 95 million). The weighted average effective interest rate relating to capitalised borrowing costs on general borrowing for the construction and development of assets amounted to 4.35% in 2009. 2009 (1,619) 282 (176) (31) (2,169) (100) (150) (52) (9) (4,024) 2008 (1,579) 0 (174) 0 (2,037) (81) 0 (4) (5) (3,880) The Group had speci c loans with a capitalisation factor of 6.5% 14.5% in acquirees in 2009. The loans were partially repaid in 2009 and the balance of loans is expected to be repaid in the course of 2010. PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS 91 CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=96http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=96NOTES TO THE INCOME STATEMENT 12 / INCOME TAX EXPENSE DKK million Tax on pro t for the year Tax on other comprehensive income Tax for the year Income tax expense can be broken down as follows: Current tax (income tax and hydrocarbon tax) calculated using normal tax rates Special current tax, hydrocarbon tax calculated using higher tax rate Current tax on assets classi ed as held for sale Deferred tax calculated using normal tax rates Special deferred tax, hydrocarbon tax calculated using higher tax rate Deferred tax on assets classi ed as held for sale Adjustments to current tax in respect of prior years Adjustments to deferred tax in respect of prior years Income tax expense (802) (75) 0 (117) (394) 0 235 (116) (1,269) (1,596) (278) (20) (496) (468) (2) (13) (51) (2,924) 2009 (1,269) 677 (592) 2008 (2,924) (887) (3,811) 92 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=97http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=972009 Income tax expense can be explained as follows: Calculated 25% tax on pro t before tax Adjustments of calculated income tax in foreign subsidiaries in relation to 25% Special tax, hydrocarbon tax Tax effect of: Non-taxable income Utilisation of previously unrecognised tax assets for reduction of current tax Utilisation of previously unrecognised tax assets for reduction of deferred tax Non-deductible expenses Unrecognised tax assets Share of pro t of associates Adjustments to tax in respect of prior years Effective tax for the year DKK million % (602) (21) (469) 25 1 19 80 0 98 (236) (158) 18 21 (1,269) DKK million (3) 0 (4) 10 CONSOLIDATED NON-FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS 7 (1) (1) 53 2008 Income tax expense can be explained as follows: Calculated 25% tax on pro t before tax Adjustments of calculated income tax in foreign subsidiaries in relation to 25% Special tax, hydrocarbon tax Tax effect of: Non-taxable income Utilisation of previously unrecognised tax assets for reduction of current tax Utilisation of previously unrecognised tax assets for reduction of deferred tax Non-deductible expenses Unrecognised tax assets Share of pro t of associates Adjustments to tax in respect of prior years Effective tax for the year % (1,935) (34) (746) 25 0 10 283 12 0 (239) (177) (12) (76) (2,924) (3) 0 0 3 2 0 1 38 CONSOLIDATED FINANCIAL STATEMENTS 93 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=98http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=9813 / TAX ON OTHER COMPREHENSIVE INCOME 2009 DKK million Foreign exchange adjustments relating to foreign enterprises Foreign exchange adjustments relating to equity-like loans, etc. Value adjustments of hedging instruments Tax on hybrid capital Other adjustments Before tax Tax After tax Before tax 2008 Tax After tax 995 327 (2,582) 0 0 (1,260) 0 (89) 655 111 0 677 995 238 (1,927) 111 0 (583) (1,965) (31) 4,001 0 15 2,020 0 8 (1,006) 111 0 (887) (1,965) (23) 2,995 111 15 1,133 14 / EARNINGS PER SHARE DKK million Pro t for the year Coupon on hybrid capital after tax Attributable to minority interests Attributable to DONG Energy Group Average number of shares of DKK 10 each Earnings per share (EPS) and diluted earnings per share (DEPS) of DKK 10 each 2009 1,138 (340) 4 802 293,709,900 2.73 2008 4,815 (340) (48) 4,427 293,709,900 15.07 94 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=99http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=9915 / INTANGIBLE ASSETS DKK million Cost at 1 January 2009 Foreign exchange adjustments Addition on acquisition of enterprises Additions Disposal on sale of enterprises Disposals Transfers Reclassi cations Cost at 31 December 2009 Amortisation and impairment losses at 1 January 2009 Foreign exchange adjustments Disposal on sale of enterprises Amortisation on disposals Amortisation Impairment losses Amortisation and impairment losses at 31 December 2009 Carrying amount at 31 December 2009 Goodwill 447 (1) 217 0 0 0 0 0 663 0 0 0 0 0 0 0 663 Rights 3,643 5 313 380 (10) (482) 33 (122) 3,760 (1,776) 0 5 476 (328) (37) (1,660) 2,100 Completed development projects 726 2 0 14 (18) 0 103 0 827 (508) (3) 5 0 (76) 0 (582) 245 In-process development projects 189 2 0 133 0 (3) (92) (85) 144 0 0 0 0 0 0 0 144 Total 5,005 8 530 527 (28) (485) 44 (207) 5,394 (2,284) (3) 10 476 (404) (37) (2,242) 3,152 Cost at 1 January 2008 Foreign exchange adjustments Addition on acquisition of enterprises Additions Disposals Transfers to assets classi ed as held for sale Transfers Reclassi cations Cost at 31 December 2008 Amortisation and impairment losses at 1 January 2008 Foreign exchange adjustments Amortisation on disposals Amortisation Impairment losses Transfers to assets classi ed as held for sale Amortisation and impairment losses at 31 December 2008 Carrying amount at 31 December 2008 322 0 125 0 0 0 0 0 447 0 0 0 0 0 0 0 447 4,876 (2) 0 521 (1,751) (1) 0 0 3,643 (2,839) 0 1,750 (649) (39) 1 (1,776) 1,867 572 (2) 0 16 0 0 140 0 726 (386) 6 0 (83) (45) 0 (508) 218 191 (5) 0 170 (1) 0 (140) (26) 189 0 0 0 0 0 0 0 189 5,961 (9) 125 707 (1,752) (1) 0 (26) 5,005 (3,225) 6 1,750 (732) (84) 1 (2,284) 2,721 CONSOLIDATED FINANCIAL STATEMENTS 95 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=100http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=100NOTES TO THE BALANCE SHEET 15 / INTANGIBLE ASSETS (CONTINUED) DKK million Amortisation and impairment losses for the year can be broken down as follows: Production costs Sales and marketing Management and administration 2009 2008 The recoverable amount of each CGU has been determined as a value in use. The determination of net cash ows for subsidiaries is based on business plans and budgets approved by manage- 412 5 24 441 785 16 15 816 ment. A terminal value based on the general growth outlook for each market has been determined for the period after the budget period (terminal period). The determination of net cash ows for the CGU central power stations in Western Denmark is based on a forecasting model. Net cash ows have been discounted using a discount rate (before tax) that re ects the risk-free interest rate with the addition of a risk premium in respect of speci c risks Impairment testing Basis of reporting Goodwill and in-process development projects are tested for impairment annually. The carrying amounts of rights and completed development projects are assessed annually to determine whether there is any indication of impairment. If any such indication exists, an impairment test is carried out. related to the activities. Central power stations The central power stations in Western Denmark produce power and district heat and are recognised in the Group under the Generation segment. The main criteria used for determining the recoverable amount In an impairment test, the asset’s recoverable amount is compared with its carrying amount. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The recoverable amount of an intangible asset is the higher of its fair value less expected disposal costs and the present value of the expected future net cash ows (value in use). Goodwill The carrying amounts of goodwill allocated to the CGUs central power stations in Western Denmark, DKK 125 million, the three subsidiaries DONG Energy Sales B.V., DONG Energy Sales GmbH and A2SEA, DKK 275 million, DKK 46 million and DKK 157 million respectively, and the business area Energy Markets, DKK 60 million, have been tested for impairment by DONG Energy. Common to all the CGUs is the fact that they each constitute the smallest CGU to which the carrying amount of goodwill can be allocated on a reasonable and consistent basis. The result of the impairment tests was that the recoverable amount was higher than the carrying amount of goodwill. It has consequently not been deemed necessary to write down goodwill in 2009. are the discount rate and the green dark spread. The green dark spread represents the contribution margin per MWh of power generated at a coal- red power station and is calculated as the difference between the market price of power and the cost of the coal and CO2 emissions allowances used to generate the power. The calculation of expected net cash ows is based on the Group’s own forecasting model, which forecasts net cash ows for the period 2010-2046. The model has been prepared so that it takes into account the history of each power station and the Group’s experience in power station operation, including service lives, maintenance, etc. Against this background, the model is estimated to be more accurate than a calculation of the value in use using terminal values. Net cash ows have been discounted using a discount rate before tax of 9.25%. DONG Energy is of the opinion that no reasonably probable changes in the main criteria used as a basis for calculating the recoverable amount will cause the carrying amount of the central power stations in Western Denmark to exceed the recoverable amount. A2SEA DONG Energy acquired goodwill in 2009 on acquisition of the subsidiary A2SEA, which specialises in the construction of offshore wind farms. The company is part of the segment Generation. 96 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=101http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=101NOTES TO THE BALANCE SHEET The carrying amount of goodwill stood at DKK 157 million at 31 December 2009. The main criteria used for determining the recoverable amount are the utilisation rate, daily rates for A2SEA’s vessels, synergies in the installation process for offshore wind turbines and the discount rate. The assumptions on which budgeted utilisation rates are based include the existence of contracts for part of revenue and the setting-up of projects in the immediate future. Budgeted daily rates are based on evaluation of the current level of daily rates and the prices of vessel newbuilds. The determination of net cash ows is based on the company’s business plan and budgets for the period 2010-2015. Net cash ows have been discounted using a discount rate before tax of 11.50%. DONG Energy is of the opinion that no reasonably probable changes in the main criteria used as a basis for calculating the recoverable amount will cause the carrying amount of A2SEA to exceed its recoverable amount. recoverable amount will cause the carrying amount of Energy Markets to exceed its recoverable amount. DONG Energy Sales B.V. DONG Energy Sales B.V. sells natural gas and power to end users in the Netherlands and is recognised in the Group under the Sales & Distribution segment. The main criteria used for determining the recoverable amount are the discount rate used and gross margins. Budgeted gross margins are based on recently realised margins. Net cash ows are calculated on the basis of the company’s business plan and budgets for the period 2010-2018. A growth rate of 2.00% during the terminal period has been assumed. DONG Energy estimates that the estimated growth rate during the terminal period will not exceed the long-term average growth rate in the market. Net cash ows have been discounted using a discount rate before tax of 10.00%. DONG Energy is of the opinion that no reasonably probable Energy Markets DONG Energy acquired goodwill in 2009 on acquisition of the subsidiary KOM-STROM. The goodwill has been allocated to the CGU Energy Markets. changes in the main criteria used as a basis for calculating the recoverable amount will cause the carrying amount of DONG Energy Sales B.V. to exceed its recoverable amount. DONG Energy Sales GmbH The carrying amount of goodwill stood at DKK 60 million at 31 December 2009. The main criteria used for determining the recoverable amount are gross margins, portfolio composition and the discount rate used. Budgeted gross margins are based on recently realised margins. Net cash ows have been determined on the basis of budgets and forecasts for the period 2010-2020, which have been prepared and approved by management. The model has been prepared so that it takes account of contract composition in the period and the Group’s portfolio management experience. The growth rate of expected net cash ows during the terminal period from 2020 onwards is 2% and is estimated to be on a par with the market development. Net cash ows have been discounted using a discount rate before tax of 8.75%. DONG Energy is of the opinion that no reasonably probable changes in the main criteria used as a basis for calculating the DONG Energy Sales GmbH sells natural gas and power to customers in Germany and is recognised in the Group under the Energy Markets segment. The main criteria used for determining the recoverable amount are the discount rate used and gross margins. Budgeted gross margins are based on recently realised margins, adjusted for economies of scale within administration, sales and marketing, which are expected to be realised as the company grows. Net cash ows are calculated on the basis of the company’s business plan and budgets for the period 2010-2014. A growth rate of 2.00% during the terminal period has been assumed. DONG Energy estimates that the estimated growth rate during the terminal period will not exceed the long-term average growth rate in the market. PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDAT2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=102http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=102NOTES TO THE BALANCE SHEET 15 / INTANGIBLE ASSETS (CONTINUED) Net cash ows have been discounted using a discount rate before tax of 10.00%. DONG Energy is of the opinion that no reasonably probable changes in the main criteria used as a basis for calculating the recoverable amount will cause the carrying amount of DONG Energy Sales GmbH to exceed its recoverable amount. Rights Rights consist primarily of natural gas purchase rights, purchased CO2 emissions allowances, customer-related rights and a connection right relating to natural gas transportation. At 31 December 2009, the carrying amount of natural gas purchase rights was calculated at DKK 948 million (2008: DKK 1,033 million), CO2 emissions allowances amounted to DKK 410 million (2008: DKK 42 million) and customer-related rights amounted to DKK 73 million (2008: DKK 58 million). At 31 December 2009, the carrying amount of the connection right was DKK 348 million (2008: DKK 372 million). There have been no indications of impairment of customerrelated rights in 2009. Consequently, customer-related rights have not been tested for impairment. As a result of indications of impairment of customer-related rights in 2008, customer-related rights were tested for impairment. This led to a DKK 39 million impairment loss. The right forms part of the Sales & Distribution segment. A DKK 37 million impairment loss in respect of discontinued projects was recognised in 2009 (2008: DKK 0). Completed development projects Completed development projects relate primarily to IT software and the development of technical solutions, including for the power grid. The carrying amount of completed development projects was DKK 245 million at 31 December 2009 (2008: DKK 218 million). The Group tested the carrying amounts of recognised in-process development projects for impairment in 2009. The test included reviewing the project development stage in the form of expenses incurred and milestones achieved, etc., compared with the approved business plans. Against this background, it is estimated that the recoverable amounts exceed the carrying amounts. In-process development projects In-process development projects relate primarily to the implementation of new IT systems. The carrying amount of in-process development projects stood at DKK 144 million at 31 December 2009 (2008: DKK 189 million). A DKK 45 million impairment loss on IT software was recognised in 2008 as a result of changed use in the Group. The impairment loss related to the Energy Markets segment. It has not been deemed necessary to write down any other completed development projects in the current year and the previous year. There have been no indications of impairment of completed development projects in 2009. Consequently, completed development projects have not been tested for impairment. 98 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=103http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=10316 / PROPERTY, PLANT AND EQUIPMENT Fixtures and ttings, tools Exploration assets and equiment 2,784 75 0 699 0 (14) (547) 2,997 373 3 4 110 (11) (40) 34 473 Property, plant and equipment in course of construction 7,620 181 1,801 13,540 (78) (5) (10,016) 13,043 DKK million Cost at 1 January 2009 Foreign exchange adjustments Addition on acquisition of enterprises Additions Disposal on sale of enterprises Disposals Transfers Cost at 31 December 2009 Depreciation and impairment losses at 1 January 2009 Foreign exchange adjustments Disposals Disposal on sale of enterprises Depreciation Impairment losses Transfers Depreciation and impairment losses at 31 December 2009 Carrying amount at 31 December 2009 Including assets held under nance leases Land and buildings 3,292 4 0 37 0 (28) 177 3,482 Production assets 60,054 2,535 1,160 2,144 (1,484) (460) 10,308 74,257 Total 74,123 2,798 2,965 16,530 (1,573) (547) CONSOLIDATED NON-FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS (44) 94,252 (343) (1) 0 0 (125) 0 0 (469) 3,013 0 (19,408) (566) 319 1,037 (3,866) (726) (220) (23,430) 50,827 0 0 0 0 0 0 0 0 0 2,997 0 (157) 1 21 10 (81) 0 0 (206) 267 42 (220) (2) 0 0 0 (15) 220 (17) 13,026 82 (20,128) (568) 340 1,047 (4,072) (741) 0 (24,122) 70,130 124 CONSOLIDATED FINANCIAL STATEMENTS 99 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=104http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=104NOTES TO THE BALANCE SHEET Property, plant and Fixtures and ttings, equipment in course of tools and equipment construction 455 (2) 77 (41) (8) 2 (110) 0 373 5,185 (672) 6,834 (12) 0 0 (3,727) 12 7,620 DKK million Cost at 1 January 2008 Foreign exchange adjustments Additions Disposals Transfers to assets classi ed as held for sale Transfers from assets classi ed as held for sale Transfers Reclassi cations Cost at 31 December 2008 Depreciation and impairment losses at 1 January 2008 Foreign exchange adjustments Disposals Depreciation Impairment losses Transfers to assets classi ed as held for sale Transfers from assets classi ed as held for sale Depreciation and impairment losses at 31 December 2008 Carrying amount at 31 December 2008 Including assets held under nance leases Land and buildings 3,057 (5) 87 (9) (157) 0 319 0 3,292 Production assets 58,592 (3,529) 1,602 (71) 0 139 3,307 14 60,054 Exploration assets 2,103 (221) 1,253 (562) 0 0 211 0 2,784 Total 69,392 (4,429) 9,853 (695) (165) 141 0 26 74,123 (223) 0 0 (128) 0 8 0 (343) (15,105) 609 0 (3,452) (1,408) 0 (52) (19,408) 0 0 0 0 0 0 0 0 (134) 0 39 (65) 0 4 (1) (157) 0 0 0 0 (220) 0 0 (220) (15,462) 609 39 (3,645) (1,628) 12 (53) (20,128) 2,949 0 40,646 0 2,784 0 216 52 7,400 0 53,995 52 DKK million Depreciation and impairment losses can be broken down as follows: Production costs Sales and marketing Management and administration 2009 2008 is any indication of impairment. If any such indication exists, an impairment test is carried out. In an impairment test, the asset’s recoverable amount is 4,687 16 110 4,813 5,214 12 47 5,273 compared with its carrying amount. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The recoverable amount of property, plant and equipment is Basis of reporting Exploration assets are tested for impairment annually or when there are indications that their value may be impaired. Impairment testing is also carried out at the time commercial nds of natural gas and/or oil have been identi ed, and when the exploration assets are reclassi ed to production assets. The carrying amounts of other items of property, plant and equipment are assessed annually to determine whether there the higher of the assets’ fair value less expected disposal costs and the present value of the expected future net cash ows (value in use). Production assets Natural gas and oil-producing elds Natural gas and oil-producing elds were tested for impairment in 2009. Based on the impairment testing of natural gas and oil-producing elds, it is estimated that the recoverable 100 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=105http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=10516 / PROPERTY, PLANT AND EQUIPMENT (CONTINUED) amount exceeds the carrying amount. No impairment losses were recognised on the Group’s natural gas and oil-producing elds in 2009. It is estimated that there is no basis for reversing the impairment loss recognised in 2008. In 2008, there were indications of impairment of natural gas and oil-producing elds as a result of falling oil prices, and a DKK 356 million impairment loss was recognised on some mature elds on the Norwegian continental shelf. A DKK 44 million impairment loss was recognised in 2009 in respect of plants no longer in operation. Power distribution networks DONG Energy’s power distribution network activities were previously taken care of under three licences in the companies DONG Energy Nord Elnet A/S, DONG Energy City Elnet A/S and DONG Energy Frederiksberg Elnet A/S. Each company constituted a separate CGU. The companies merged in 2009, and the licences were combined into a single licence in the continuing company, following which the networks constitute a single CGU in Sales & Distribution. In 2009, the power distribution networks were tested for impairment as a single CGU. Based on the impairment testing of the power distribution networks, it is estimated that the recoverable amount matches the carrying amount. No impairment loss was consequently recognised on the Group’s power distribution networks in 2009. The main criteria in connection with the determination of the recoverable amount are the regulatorily permitted return, discount rats, expected volume of transported Kwh, operation and maintenance as well as the associated investment level. The recoverable amount has been determined using a discount rate before tax of 7.25%. It is estimated that there is no basis for reversing the previously recognised impairment loss. It was estimated in 2008 that the recoverable amount of the power distribution network in DONG Energy City Elnet A/S was lower than its carrying amount, and an impairment loss of DKK 900 million was recognised on property, plant and equipment. Fibre optic network DONG Energy’s bre optic network, which constituted a Based on the impairment testing of exploration assets, it is estimated that the recoverable amount corresponds to the carrying amount. No impairment losses were consequently recognised on the Group’s exploration assets in 2009. Other production assets Several other CGUs have been tested for impairment, including primarily power stations and wind farms. It is estimated that the recoverable amount of other production assets corresponds to the carrying amount, and no impairment losses were consequently recognised in respect of other production assets in 2009. separate CGU and product group in Sales & Distribution, was put up for sale in 2009. In connection with the sales process, the bre optic network was written down by DKK 677 million in 2009 to the expected selling price less expected costs to sell. The bre optic network was subsequently sold at a further loss of DKK 85 million in 2009. Exploration assets Signi cant parameters in connection with the determination of the recoverable amount of exploration assets are expectations concerning reserves, production pro le, natural gas and oil prices, exchange rates, discount rates, and production costs. Property, plant and equipment in the course of construction Signi cant items of property, plant and equipment in the course of construction, including primarily power stations and wind farms, have been tested for impairment. It is estimated that the recoverable amount of property, plant and equipment in the course of construction generally exceeds the carrying amount. A DKK 15 million impairment loss has been recognised in respect of discontinued projects. The impairment loss was recognised in Generation. It is estimated that there is no basis for reversing a DKK 220 million impairment loss recognised in 2008 relating to the Horns Rev 2 wind farm. PARENT COMPANY FINANCIAL STATEMENTS Othe2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=106http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=106NOTES TO THE BALANCE SHEET ASSOCIATES 17 / AND OTHER SECURITIES Investments in associates DKK million Cost at 1 January Foreign exchange adjustments Additions Disposal on sale of associates Capital contributions Capital reductions Transferred on change of capital structure Transfers to assets classi ed as held for sale Cost at 31 December Value adjustments at 1 January Foreign exchange adjustments Share of pro t (loss) for the year Dividends received Impairment losses Transferred on change of capital structure Transfers to assets classi ed as held for sale Value adjustments at 31 December Carrying amount at 31 December 2009 4,165 0 0 0 93 (9) 0 (106) 4,143 (859) 307 74 (90) 0 0 30 (538) 3,605 2008 4,113 (1) 0 (2) 6 (22) 71 0 4,165 (201) (551) (48) (28) 0 (31) 0 (859) 3,306 Other equity investments 2009 101 0 168 0 0 0 0 0 269 (16) 0 0 0 (52) 0 0 (68) 201 2008 41 0 60 0 0 0 0 0 101 (12) 0 0 0 (4) 0 0 (16) 85 Other securities 2009 0 0 1,173 0 0 0 0 0 1,173 0 0 0 0 0 0 0 0 1,173 2008 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Other equity investments comprise investments in unlisted securities classi ed as assets available for sale. The investments are measured at the lower of cost and recoverable amount, as the fair value of the assets cannot be determined reliably. The impairment losses in respect of other equity investments relate to investments, etc., in connection with the Group’s participation in development project companies. Other securities are measured at fair value via the income statement and comprise bonds acquired in continuation of the acquisition of the Severn group, see note 28. 102 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=107http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=107Associates DKK million Revenue Pro t Attributable to DONG Energy Assets Liabilities Equity Equity attributable to DONG Energy The accounting gures disclosed in the note have been determined on the basis of the recognised values in the Group. For an overview of the Group’s ownership interests in associates, reference is made to note 42. Investments in associates include rights with inde nite useful lives. These rights have been tested for impairment. There was deemed to be no need to write down rights with inde nite useful lives in 2009 and 2008. 2009 4,860 306 74 16,913 3,052 13,861 3,605 2008 4,851 (213) (48) 13,897 1,390 12,507 3,306 The value of the investment in Stadtwerke Lübeck GmbH was tested for impairment in 2009 and 2008. There was deemed to be no need to write down this investment in 2009. An impairment loss of DKK 205 million before tax was recognised in the company’s pro t in 2008. 18 / INVENTORIES DKK million Raw materials and consumables Fuel Natural gas and crude oil CO2 emissions allowances Other inventories Inventories at 31 December Write-downs of inventories to net realisable value Cost of sales totalled DKK 30,014 million in 2009 (2008: DKK 36,096 million). The carrying amount of inventories recognised at fair value was DKK 210 million (2008: DKK 0). 2009 134 1,889 825 210 6 3,064 9 Raw materials and consumables as well as fuel inventories are written down to net realisable value if this is lower than cost. The bulk of the inventories are expected to be used within one year. 2008 158 2,253 1,506 0 1 3,918 9 CONSOLIDATED FINANCIAL STATEMENTS 103 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=108http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=108NOTES TO THE BALANCE SHEET 19 / RECEIVABLES DKK million Receivables from associates Receivables from sale of activities Receivables from sale of minority interests Construction contracts Other receivables Non-current receivables at 31 December Trade receivables Receivables from associates Receivables from sale of activities Fair value of derivative nancial instruments, see note 33 Deposits Construction contracts Other receivables Current receivables at 31 December Current and non-current receivables at 31 December Other receivables include VAT, duties, prepayments, etc. Apart from the fair value of derivative nancial instruments, current receivables fall due less than one year after the close of the nancial year. The remaining maturity of derivative nancial instruments appears from note 33. 2009 527 100 349 1,763 857 3,596 8,164 27 111 15,282 153 67 3,979 27,783 31,379 2008 428 0 0 1,197 355 1,980 10,985 183 111 21,712 111 52 2,919 36,073 38,053 Further details of credit risks related to receivables are given in the chapter on risk management in management’s review on pages 28-31 comprising the section Market and credit risks and in note 32. An overview of unimpaired receivables that are not past due, broken down by credit quality, is also given in note 32. 104 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=109http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=109Receivables that are past due but not impaired DKK million Days past due: Up to 30 days 30 - 90 days More than 90 days General write-downs Trade receivables that are past due but not impaired 428 216 380 (143) 881 301 209 419 (185) 744 2009 2008 The Group’s trade receivables at 31 December 2009 include receivables totalling DKK 50 million (2008: DKK 106 million) that have Movements in individual and general write-downs DKK million Write-downs at 1 January Write-downs for the year Receivables written off Reversal of previous write-downs Write-downs at 31 December 2009 291 71 (154) (25) 183 2008 180 117 0 (6) 291 CONSOLIDATED FINANCIAL STATEMENTS 105 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS Write-downs on trade receivables are assessed on the basis of due date and historical experience, and general write-downs are recorded on a summary account. been written down to DKK 10 million following individual assessment (2008: DKK 0). The individual write-down on receivables in 2009 was DKK 40 million (2008: DKK 106 million). CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=110http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=110NOTES TO THE BALANCE SHEET 20 / CONSTRUCTION CONTRACTS DKK million Selling price of construction contracts Progress billings Net value of construction contracts at 31 December 2009 1,827 0 1,827 2008 1,249 0 1,249 which is recognised as follows: Construction contracts (assets) Construction contracts (liabilities) Net value of construction contracts at 31 December The selling price of construction contracts at 31 December 2009 and in 2008 related predominantly to the construction of a gasred power station for Statoil in Mongstad in Norway. 1,830 3 1,827 1,249 0 1,249 The power station is expected to be completed and begin operation in the rst half of 2010. Construction contracts are recognised in receivables, see note 19, and liabilities, see note 25. 21 / ASSETS CLASSIFIED AS HELD FOR SALE In 2009, a contract on sale of DONG Energy’s investment in Swedegas AB was concluded, and the sale was closed in the rst quarter of 2010. The company forms part of the Energy Markets segment and constitutes the Group’s assets classi ed as held for sale at 31 December 2009. DONG Energy expects an accounting gain after tax of approx. DKK 150 million. Assets classi ed as held for sale at 31 December 2008 relate to Frederiksberg Forsyning A/S and Frederiksberg Forsynings Ejendomsselskab A/S (Sales & Distribution), which were sold in 2009. Reference is made to note 29. DKK million Property, plant and equipment Other non-current assets Non-current assets Current assets Assets classi ed as held for sale at 31 December Non-current liabilities Current liabilities Liabilities relating assets classi ed as held for sale at 31 December 2009 0 76 76 0 76 0 0 0 2008 154 0 154 33 187 11 76 87 106 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=111http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=11122 / EQUITY Share capital DKK million Share capital at 1 January Share capital at 31 December 2009 2,937 2,937 2008 2,937 For further information about the Group’s capital management procedures and processes, reference is made to the section on Liquidity and nancing risks on pages 31-32 of management’s review. Hybrid capital 2,937 Hybrid capital of DKK 8,088 million comprises the EUR bonds (hybrid capital) issued in the European capital market in June 2005. The loan principal is EUR 1.1 billion, and the loan is subject to a number of special terms. The purpose of the issue was to strengthen DONG Energy A/S’s capital base and to fund DONG Energy’s CAPEX and acquisitions. CONSOLIDATED NON-FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS The company’s share capital amounts to DKK 2,937,099,000, divided into shares of DKK 10 each. The share denomination was changed from DKK 1,000 per share to DKK 10 per share in 2008. All shares rank equally. There are no restrictions on voting rights. The shares are fully paid up. The shares may only be assigned or otherwise transferred with the written consent of the Danish Finance Minister. Resolutions concerning amendments to the Articles of Association or DONG Energy A/S’s dissolution require at least two thirds of the votes cast and of the voting share capital represented at the general meeting in order to be carried. The bonds rank as subordinated debt and have a maturity of 1,000 years. The coupon for the rst ten years is xed at 5.5% p.a., following which it becomes oating with Eurocibor +3.2%. The tax effect of coupon payments is recognised directly in other comprehensive income. Coupon is settled annually in the middle of the year. DONG Energy A/S can omit or defer coupon payments to the bond holders. However, deferred coupon payments will fall due for payment in the event of DONG Energy A/S subsequently making any distributions to its shareholders. The proceeds from the issuing of hybrid capital amounted to DKK 8,111 million (EUR 1.1 billion). So far, DONG Energy A/S has not used the option to defer coupon payments. Dividends The Supervisory Board recommends that dividend of DKK 481 million be paid for the 2009 nancial year, equivalent to 60% of pro t for the year determined as pro t after tax attributable to the company’s shareholders (i.e. excluding coupon to holders of hybrid capital and minority interests), corresponding to DKK 1.64 per share (2008: DKK 6.56 per share). It is the Supervisory Board’s intention to distribute DKK 7.50 per share in 2010, and, in the years after the 2010 nancial year, and until a decision, if any, on an IPO is made, to generally increase the distribution by DKK 0.25 per share, although in such a way that the payout ratio does not fall below 40% and does not exceed 60% of pro t for the year determined as pro t after tax attributable to the company’s shareholders (i.e. excluding coupon to holders of hybrid capital and minority interests). Dividend distributions to shareholders have no tax implications for DONG Energy A/S. Dividend paid (DPS) per DKK 10 share amounted to DKK 6.56 (2008: DKK 5.00). Minority interests Minority interests’ share of recognised pro t and equity in the Group at 31 December 2009 concerns: Pro t for the year (4) 0 2 (3) 0 0 1 0 (4) DKK million Borkum Riffgrund I Holding A/S DONG Energy Kraftwerke Greifswald GmbH & Co. KG DONG Energy Sales GmbH EnergiGruppen Jylland F&B A/S KOM-STROM AG MIG Business Development A/S Storrun Vindkraft AB Walney (UK) Windfarms Ltd. Equity 0 0 4 15 30 1 52 0 102 CONSOLIDATED FINANCIAL STATEMENTS 107 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=112http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=112NOTES TO THE BALANCE SHEET 22 / EQUITY (CONTINUED) Speci cation of reserves 2009 Hedging Translation reserve reserve 2,594 (1,936) 658 (1,892) 1,242 (650) Share premium 9,248 0 9,248 2008 Hedging Translation reserve reserve (389) 2,983 2,594 96 (1,988) (1,892) Share premium 9,248 0 9,248 DKK million Reserves at 1 January Comprehensive income for the year Reserves at 31 December Total 9,950 (694) 9,256 Total 8,955 995 9,950 23 / DEFERRED TAX DKK million Deferred tax at 1 January Foreign exchange adjustments Additions on acquisition of enterprises Deferred tax for the year recognised in pro t for the year Deferred tax for the year recognised in other comprehensive income Prior year adjustments Transfers to assets classi ed as held for sale Deferred tax at 31 December Deferred tax is recognised in the balance sheet as follows: Deferred tax (assets) Deferred tax (liabilities) 281 6,666 13 5,461 2009 5,448 331 (21) 511 0 116 0 6,385 2008 5,007 (450) 0 964 (117) 51 (7) 5,448 Deferred tax at 31 December, net 6,385 5,448 108 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=113http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=113DKK million Deferred tax relates to: Intangible assets Property, plant and equipment Other non-current assets Current assets Non-current liabilities Current liabilities Retaxation Tax loss carryforwards Deferred tax at 31 December Deferred tax assets that are not recognised in the balance sheet relate to: Temporary differences Tax loss carryforwards Unrecognised deferred tax assets at 31 December 2009 2008 470 8,380 27 (125) (2,646) (1) 1,049 (769) 6,385 374 6,671 23 57 (2,349) (82) 834 (80) 5,448 CONSOLIDATED NON-FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS 320 12,476 12,796 411 8,750 9,161 The tax base of tax loss carryforwards includes DKK 113 million (2008: DKK 0) relating to unutilised deductible net nancing costs. Unrecognised deferred tax assets relate primarily to unutilised losses in hydrocarbon income. It is considered unlikely that the losses will be utilised in the foreseeable future. CONSOLIDATED FINANCIAL STATEMENTS 109 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=114http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=114NOTES TO THE BALANCE SHEET 23 / DEFERRED TAX (CONTINUED) Changes in temporary differences during the year 2009 Foreign exchange adjustments 0 412 0 4 (77) (2) 0 (6) 331 Recognised in other comphreAdditions Recognised hensive subsi- in pro t for income the year diaries 0 (22) 8 (1) 0 0 0 (6) (21) 140 1,218 24 (246) (335) 55 251 (596) 511 0 0 0 (33) 60 (36) 0 9 0 Transfers to assets Prior year classi ed adjust- as held for sale ments (44) 101 (28) 94 55 64 (36) (90) 116 0 0 0 0 0 0 0 0 0 DKK million Intangible assets Property, plant and equipment Other non-current assets Current assets Non-current liabilities Current liabilities Retaxation Tax loss carryforwards Balance sheet at 1 January 374 6,671 23 57 (2,349) (82) 834 (80) 5,448 Balance sheet at 31 December 470 8,380 27 (125) (2,646) (1) 1,049 (769) 6,385 2008 Foreign exchange adjustments 0 (793) 0 (2) 327 6 0 12 (450) Recognised in other compreRecognised hensive in pro t for income the year 113 945 (160) 21 (595) 97 168 375 964 0 0 0 (81) (77) 41 0 0 (117) Transfers to assets Balance Prior year classi ed adjust- as held for sheet at 31 sale December ments 6 (97) 130 6 (169) 111 (245) 309 51 0 (7) 0 0 0 0 0 0 (7) 374 6,671 23 57 (2,349) (82) 834 (80) 5,448 DKK million Intangible assets Property, plant and equipment Other non-current assets Current assets Non-current liabilities Current liabilities Retaxation Tax loss carryforwards Balance sheet at 1 January 255 6,623 53 113 (1,835) (337) 911 (776) 5,007 Additions subsidiaries 0 0 0 0 0 0 0 0 0 110 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=115http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=11524 / PROVISIONS 2009 Decommissioning obligations 4,469 215 (9) (14) 830 0 176 5,667 Decommissioning obligations 4,227 (268) (2) (114) 438 14 174 4,469 2008 DKK million Provisions at 1 January Foreign exchange adjustments Provisions used during the year Provisions reversed during the year Provisions made during the year Transferred to/from assets classi ed as held for sale Interest element of decommissioning obligations Provisions at 31 December Other 1,226 0 (238) 0 817 0 0 1,805 Total 5,695 215 (247) (14) 1,647 0 176 7,472 Other 1,557 (2) (82) (493) 246 0 0 1,226 Total 5,784 (270) (84) (607) 684 14 174 5,695 Decommissioning obligations relate to expected future costs for decommissioning of production facilities, including primarily decommissioning of power stations and wind farms, and restoration of natural gas and oil drilling sites. The equivalent value of the provision is recognised under production assets (property, plant and equipment) and depreciated together with the production assets. The increase in decommissioning obligations in 2009 was primarily due to new wind farms and natural gas and oil drilling sites. Changes in estimates in 2009 increased provisions for decommissioning obligations by DKK 642 million. Other provisions include guarantee obligations; expected repayments to power consumers, etc., relating to litigation; contractual disputes; and provisions for onerous contracts. Provisions are determined as expected future payments with addition of a risk premium and discounted to present value. The discount rate applied re ects the general risk-free interest rate level in the given country. The range is 3.25%-4.25%. Expected maturities DKK million 0 - 1 year 1 - 5 years 5 - 10 years 10 - 20 years 20 - 30 years 30 - 40 years Provisions at 31 December 2009 212 2,095 2,147 1,743 608 667 7,472 2008 229 1,432 1,162 1,612 627 PARENT COMPANY FINANCIAL STATEMENTS 633 5,695 CONSOLIDATED FINANCIAL STATEMENTS 111 CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=116http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=116NOTES TO THE BALANCE SHEET 25 / LOANS AND BORROWINGS 2009 Noncurrent liabilities 2008 Noncurrent liabilities DKK million Non-derivative nancial instruments: Bond loans Mortgage loans Bank overdrafts Other bank loans Trade payables Payables to associates Other liabilities Income tax payable Construction contracts Liabilities associated with assets classi ed as held for sale Derivative nancial instruments: Fair value of derivative nancial instruments, see note 33 Liabilities at 31 December Current liabilities Total Current liabilities Total 0 0 1,487 311 4,997 58 6,932 39 3 0 22,549 0 0 10,859 0 5 1,965 0 0 0 22,549 0 1,487 11,170 4,997 63 8,897 39 3 0 160 0 1,211 741 8,155 24 4,613 420 0 87 7,734 1,258 0 8,019 0 70 1,554 0 0 0 7,894 1,258 1,211 8,760 8,155 94 6,167 420 0 87 12,380 26,207 0 35,378 12,380 61,585 14,655 30,066 0 18,635 14,655 48,701 At 31 December 2009, DONG Energy had loans totalling DKK 8,559 million from the European Investment Bank and the Nordic Investment Bank to nance certain assets, including marine pipelines, Avedøre Power Station and the offshore wind farms Barrow Offshore Wind, Horns Rev I, Horns Rev 2 and Nysted Offshore Wind Farm. The loans offered by these multilateral nancial institutions include loans with co- nancing of infrastructure and energy projects on favourable terms and with maturities that often exceed those normally available in the commercial banking market. In connection with debt to both the European Investment Bank and the Nordic Investment Bank, the Group may be met with demands concerning collateral in the event of the State’s ownership interest in DONG Energy falling below 51% or Moody’s or S&P downgrading DONG Energy A/S’s rating to less than Baa1 or BBB+ respectively. Commercial agreement has been reached with both banks on a reduction of the level below which they will be entitled to request collateral to less than Baa2 and BBB for Moody’s and S&P respectively. The Group’s nancing agreements are not subject to any other unusual terms or conditions. Pledging of collateral in connection with loans appears from note 36. 112 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=117http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=117Finance leases 2009 Minimum lease payments 54 189 49 292 Carrying amount at 31 December Interest element (3) (24) (35) (62) Present value 51 165 14 230 Minimum lease payments 33 168 0 201 2008 Interest element (6) (22) 0 (28) Present value 27 146 0 173 DKK million 0 - 1 year 1 - 5 years > 5 years Obligations relating to assets held under nance leases are recognised in bank loans. The present value of minimum lease payments has been calculated using the original interest rate in the respective leases. There is no contingent rent under the leases. Further details of other leases entered into by the Group are given in note 35. CONSOLIDATED FINANCIAL STATEMENTS 113 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS 220 184 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=118http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=118NOTES TO THE BALANCE SHEET 26 / INCOME TAX PAYABLE AND RECEIVABLE DKK million Income tax receivable at 1 January, net Foreign exchange adjustments Addition on acquisition of enterprises Disposal on sale of enterprises Adjustments to current tax in respect of prior years Payments in respect of prior years Current tax for the year Current tax for the year from other comprehensive income Current tax from non-consolidated enterprises Payments for the year Transferred to liabilities associated with assets classi ed as held for sale Income tax receivable at 31 December, net Income tax at 31 December is recognised as follows: Income tax receivable (assets) Income tax payable (liabilities) Income tax receivable at 31 December, net 422 (39) 383 11 (420) (409) 2009 (409) (17) (1) (1) 235 131 (877) 677 0 645 0 383 2008 714 4 0 0 (13) (661) (1,874) (1,004) 2 2,418 5 (409) 114 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=119http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=119CASH FLOWS FROM OPERATIONS 27 / (OPERATING ACTIVITIES) DKK million Operating pro t (EBIT) Depreciation, amortisation and impairment losses Amortisation of purchased CO2 emissions allowances Operating pro t before depreciation and amortisation (EBITDA) Other adjustments Cash ows from operations (operating activities) before change in working capital Change in inventories Change in trade receivables Change in other receivables Change in trade payables Change in other payables Change in working capital Cash ows from operations (operating activities) 2009 3,757 5,254 (171) 8,840 305 9,145 1,054 3,514 (528) (3,602) 1,501 1,939 11,084 2008 8,004 6,093 (475) 13,622 340 13,962 (1,133) (2,359) (583) 2,838 276 (961) 13,001 28 / ACQUISITION OF ENTERPRISES Acquisitions of enterprises in 2009 DKK million Acquired shares Acquisition date Core activity Construction of power station Construction of wind farm Installation of offshore wind turbines Trading in energy-related products Cost Cash purchase price, net Severn group1 DONG Energy Karcino (formerly WKN Polska) A2SEA KOM-STROM Payments relating to prior year acquisitions 100.00% 100.00% 100.00% 83.57% 6 March 2009 28 May 2009 30 June 2009 30 September 2009 328 48 728 211 1,315 295 168 713 92 PARENT COMPANY FINANCIAL STATEMENTS 1,268 36 1,304 Cash ows for the year for acquisition of enterprises 1 The acquisitions in the Severn group have been aggregated, as the contracts were completed via interdependent negotiations, etc. Consolidated revenue and pro t for the year for 2009 were determined on a pro forma basis as if the companies had been acquired on 1 January 2009, and constituted DKK 49,538 million and DKK 1,146 million respectively. CONSOLIDATED FINANCIAL STATEMENTS 115 CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=120http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=120NOTES TO THE CASH FLOW STATEMENT 28 / ACQUISITION OF ENTERPRISES Severn group: DKK million Intangible assets Property, plant and equipment Other non-current assets Receivables Cash Non-current liabilities Current liabilities Net assets Intragroup debt acquired Cash acquired Cash purchase price, net Determination of cost: Cash consideration Cost of purchase Total cost The acquisition of the Severn group included a gas- red power station project in Wales, which is expected to become operational at the end of 2010, and the engineering company Carron Engineering & Construction, which provides consultancy services, particularly in construction, operation and maintenance of power stations. The determination of the fair values of the acquired assets and liabilities was carried out in accordance with IFRS and was completed at 31 December 2009. 271 57 328 The acquisition of the Severn group is in keeping with the Group’s strategy to develop the portfolio within power generation and complements the Group’s existing UK wind power and gas activities. The Severn group contributed a loss of DKK 5 million to consolidated pro t after tax for 2009. In continuation of the acquisition of the Severn group, DONG Energy acquired bonds at a value of DKK 1.2 billion. Carrying amount prior to acquisition 1 1,749 10 64 467 (1,643) (52) 596 Fair value at acquisition date 314 1,633 114 58 467 (1,929) (329) 328 434 (467) 295 116 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=121http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=121DONG Energy Karcino (formerly WKN Polska): DKK million Property, plant and equipment Other non-current assets Receivables Current liabilities Net assets Intragroup debt acquired Cash purchase price, net Determination of cost: Cash consideration Cost of purchase Total cost Carrying amount prior to acquisition 199 0 1 (126) 74 Fair value at acquisition date 167 6 1 (126) 48 120 168 37 11 48 The acquisition of DONG Energy Karcino comprises a wind turbine project located in the northwestern part of Poland, where DONG Energy already operates two wind farms. The determination of the fair values of the acquired assets and liabilities was carried out in accordance with IFRS and was completed at 31 December 2009. The acquisition of DONG Energy Karcino helps to strengthen DONG Energy’s position in the renewables market in Poland, which offers good opportunities for wind energy generation with attractive selling prices. At the same time, the acquisition is part of the achievement of the Group’s strategy to expand power generation from renewable energy sources. DONG Energy Karcino contributed a loss of DKK 4 million to consolidated pro t after tax for 2009. CONSOLIDATED FINANCIAL STATEMENTS 117 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=122http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=122NOTES TO THE CASH FLOW STATEMENT 28 / ACQUISITION OF ENTERPRISES (CONTINUED) A2SEA: DKK million Intangible assets Property, plant and equipment Other non-current assets Receivables Cash Non-current liabilities Current liabilities Net assets Cash acquired Cash ow effect, net Determination of cost: Cash consideration Cost of purchase Total cost The acquisition of A2SEA comprises the acquisition of installation vessels for the construction of offshore wind farms. The acquisition of A2SEA provides DONG Energy with the opportunity to secure and improve the ef ciency of the installation process for offshore wind turbines, which is intended to help to ensure the achievement of the Group’s strategy to increase the proportion of generation from renewable energy sources in future. The determination of the fair values of the acquired assets and liabilities was carried out in accordance with IFRS 713 15 728 and was completed at 31 December 2009. In connection with the acquisition of A2SEA, the value of goodwill was determined at DKK 157 million. The determined goodwill represented the value of synergies that are expected to materialise in the acquirees as well as employee skills in the installation of offshore wind farms. The synergies relate, among other things, to expected cost savings, including fast completion, commissioning and repair of offshore wind farms. A2SEA contributed a pro t of DKK 7 million to consolidated pro t after tax for 2009. Carrying amount prior to acquisition 0 789 13 68 15 0 (593) 292 Fair value at acquisition date 157 1,160 13 68 15 (94) (591) 728 (15) 713 118 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=123http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=123KOM-STROM: DKK million Intangible assets Property, plant and equipment Other non-current assets Receivables Cash Non-current liabilities Current liabilities Net assets Minority interests Attributable to DONG Energy Cash acquired Cash ow effect, net Determination of cost: Cash consideration Cost of purchase Total cost Carrying amount prior to acquisition 0 4 57 1,574 119 (65) (1,509) 180 Fair value at acquisition date 60 4 57 1,574 119 (65) (1,509) (29) 211 (119) 92 203 8 211 The acquisition of KOM-STROM comprises the acquisition of wholesale trading companies with expertise in sales of energyrelated products. The determination of the fair values of the acquired assets and liabilities was carried out in accordance with IFRS and was completed at 31 December 2009. In connection with the acquisition of KOM-STROM, the value of goodwill was determined at DKK 60 million. The determined goodwill represented the value of synergies that are expected to materialise in the acquirees, primarily in the form of anticipated portfolio optimisation gains in the Energy Markets segment. The acquisition of KOM-STROM is part of a strategy to strengthen the wholesale trading business in Germany, where KOM-STROM has a strong market position in portfolio management and sale of services to, primarily, Stadtwerke and the energy-intensive industry in Germany. KOM-STROM contributed a pro t of DKK 2 million to consolidated pro t after tax for 2009. Acquisitions of enterprises in 2008 PARENT COMPANY FINANCIAL STATEMENTS A further purchase price of DKK 136 million in respect of previously acquired enterprises was triggered in 2008. The purchase price was paid in 2008. CONSOLIDATED FINANCIAL STATEMENTS 119 CONSOLIDATED NON-FINANCIAL STATEMENTS 240 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=124http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=124NOTES TO THE CASH FLOW STATEMENT 29 / DISPOSAL OF ENTERPRISES DKK million Intangible assets Property, plant and equipment Other non-current assets Inventories Other current assets Non-current liabilities Current liabilities Non-cash transactions Gain (loss) on disposal of enterprises Selling price Attributable to minority interests Selling price receivable Cash selling price 2009 20 528 36 8 31 (62) (23) 0 (62) 476 0 (100) 376 2008 14 2,091 6 0 284 (442) (138) (300) 917 2,432 (48) (10) 2,374 Disposals of enterprises in 2009 Disposals of enterprises in 2009 comprised Frederiksberg Forsyning A/S, Frederiksberg Forsynings Ejendomsselskab A/S, EnergiGruppen Jylland Biogas A/S, Fiber Newco A/S, Ayrshire Power Limited and Ayrshire Power LP. The accounting gain from the sale of the Frederiksberg companies was calculated at DKK 31 million, while the sale of EnergiGruppen Jylland Biogas A/S and Fiber Newco A/S generated accounting losses of DKK 8 million and DKK 85 million respectively. The sale of the Ayrshire companies generated an accounting gain of DKK 0. Disposals of enterprises in 2008 Disposals of enterprises in 2008 comprised Regionale Net.dk A/S (132 kV transmission grid in North Zealand), EnergiGruppen Jylland A/S, EnergiGruppen Jylland Varme A/S, EnergiGruppen Jylland Vand A/S, EGJ Udvikling A/S and the Greek companies Energi E2 Aiolika Parka Karystias EPE and Energi E2 Aioliki S. A. (Greek wind power activities). The proceeds from these disposals were calculated at DKK 477 million for the 132 kV transmission grid, DKK 99 million for the companies in EnergiGruppen Jylland and DKK 41 million for the Greek wind power activities. In addition, a DKK 300 million purchase price adjustment has been triggered relating to the sale of Energi E2 Renewables Ibericas S. L. (the Spanish wind power activities) in 2007. 120 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=125http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=12530 / DISPOSAL OF MINORITY INTERESTS DKK million Selling price Selling price receivable Cash selling price 2009 435 (349) 86 2008 13 0 13 Disposals of minority interests comprised 25.1% of DONG Energy Kraftwerke Greifswald GmbH & Co. KG and 25.1% of Walney (UK) Windfarms Ltd (formerly DONG Walney (UK) Ltd.). The selling price for Walney (UK) Windfarms Ltd. was contingent on certain future conditions. The selling price was determined based on management’s best estimate of the probability of these conditions. 31 / CASH AND CASH EQUIVALENTS DKK million Securities with limited price risk that are part of the ongoing cash management Available cash Bank overdrafts that are part of the ongoing cash management, see note 25 Cash and cash equivalents at 31 December, see cash ow statement Cash at 31 December can be broken down into the following balance sheet items: Available cash Cash not available for use Cash at 31 December Securities can be broken down into the following balance sheet items: Securities with limited price risk that are part of the ongoing cash management Other securities Securities at 31 December Cash not available for use primarily comprises cash and cash equivalents pledged as collateral for trading in nancial instru0 2,570 2,570 753 0 753 4,402 97 4,499 2,827 216 3,043 2009 0 4,402 (1,487) 2,915 2008 753 2,827 (1,211) 2,369 ments and cash and cash equivalents received from users of the North Sea oil pipeline for use for pipeline maintenance. CONSOLIDATED FINANCIAL STATEMENTS 121 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=126http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=126NOTES WITHOUT REFERENCE 32 / FINANCIAL RISKS DKK million 2009 2008 Clearing centres 5,205 7,644 AAA/Aaa 3,195 104 AA/Aa 4,691 6,994 A/A 10,178 10,237 BBB/Baa 767 2,580 Other 8,515 8,833 Total 32,551 36,392 Financial risks Counterparty risks The gure above provides an overview of the credit quality of the market value of derivative nancial instruments, cash and cash equivalents and trade receivables at 31 December 2009 in the DONG Energy Group based on the individual counterparty’s rating with Standard & Poor’s and Moody’s. The amounts stated do not include any collateral, and the gure consequently does not re ect the actual credit risk. The counterparty risk has generally decreased compared with 2008 against the background of a decrease in market values. Again in 2009, the bulk of the rated counterpary risks were concentrated in the category ”AA/Aa” and ”A/A”-rated counterparties, which represents DONG Energy’s trading with large international energy companies and banks. The most signi cant changes compared with 2008 were in the groups ”AAA/Aaa” and ”BBB/Baa”. The ”AAA/Aaa” category increased in 2009 as a consequence of increased investment in Danish AAA-rated mortgage bonds. Besides upgrading of a large commercial counterparty, the decrease in the ”BBB/Baa” category re ected changes in market values. Such trading is generally regulated under standard agreements, such as EFET and ISDA agreements, which feature credit and netting provisions. Cash makes up a small proportion and is primarily placed with the leading Danish banks. The ”Other” group predominantly consists of trade receivables from customers, such as end users and PSO customers. Moreover, a substantial proportion of DONG Energy’s trading is via exchanges and hubs, where participants regularly provide collateral in respect of their obligations, and where all settlement is via clearing centres without any credit risk and rating. Further details of the Group’s risk management are given in the sections Risk governance, Market and credit risks and Liquidity and nancing risks in the risk management chapter on pages pages 28-32 of management’s review. Sensitivity analysis concerning nancial instruments The table below illustrates the Group’s sensitivity to uctuations in commodity prices, exchange rates and interest rates measured as effect on pro t and equity, respectively, in the event of a price increase or decrease on the Group’s nancial instruments at the balance sheet date. A pre-tax approach has been adopted. The table includes the risks perceived by management to be the most signi cant for the Group. The Group also calculates and manages the currency risk vis-à-vis EUR; however, as price uctuations between DKK and EUR are small, the risk is considered to be insigni cant. 122 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=127http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=127NOTES WITHOUT REFERENCE The analysis shows the sensitivity in the event of a relative price change of 10%, as this corresponds to the average annual volatility of the underlying risks. Some of the risks have uctuated, historically, by slightly more than 10%, while Estimated effect on pro t at 31 December Risk Oil Price change + 10% - 10% Gas + 10% - 10% Power + 10% - 10% Coal + 10% - 10% USD + 10% - 10% GBP + 10% - 10% NOK + 10% - 10% SEK + 10% - 10% Interest 100 basis points 2009 (96) (4) (34) 34 618 (618) (161) 161 44 (44) (39) 39 (121) 121 38 (41) 4 2008 72 (40) 10 (10) 440 (440) (163) 163 (79) 79 120 (120) (149) 149 40 (64) 8 Estimated effect on equity at 31 December 2009 (578) 722 0 0 (249) 249 101 (101) (179) 179 (33) 33 23 (23) (112) 123 306 2008 (835) 847 (15) 15 (79) 79 125 others have uctuated by slightly less, and a 10% uctuation has consequently been deemed to be a good average for price changes. (207) 207 91 (91) (81) 139 212 Estimated effect on pro t The shown effect on pro t is the effect from nancial instruments that are open at the balance sheet date, and that have an effect on pro t in the current nancial year. Besides derivative nancial instruments on commodities, currency and interest, nancial instruments in this context also include receivables and debt in foreign currencies. derivative nancial instruments on commodities, currency and interest, which are accounted for as hedges of cash ows. However, net investments and associated hedging of net investments in foreign subsidiaries are not included, as the effect of the sum of the investment and the hedging is considered to be neutral to price changes. For further details of the Group’s net investments and hedging It should be noted that the shown sensitivities only comprise the Group’s nancial instruments and consequently are not representative of the Group’s total risk pro le in relation to commodity prices and exchange rates. Furthermore, the sensitivities only re ect the effect of changes at the balance sheet date, and not through an entire accounting period. Estimated effect on equity The shown effect on equity is the effect from nancial instruments that are open at the balance sheet date and affect equity at the balance sheet date excluding instruments that affect the income statement. Here, nancial instruments include of same, reference is made to note 33. The shown effect from an interest rate change of 100 basis points is the amount by which the Group’s equity would be affected in the event of the entire interest rate curve increasing by 100 basis points. PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS 123 CONSOLIDATED NON-FINANCIAL STATEMENTS (126) CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=128http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=128NOTES WITHOUT REFERENCE 33 / FINANCIAL INSTRUMENTS Maturity analysis of nancial liabilities, including interest payments 2009 DKK million Bond loans Bank overdrafts Other bank loans Trade payables Payables to associates Fair value of derivative nancial instruments Other liabilities Carrying amount 22,549 1,487 11,170 4,997 63 12,380 8,897 61,543 Payment obligation 29,596 1,487 11,291 4,997 63 8,897 56,331 8,897 17,051 0 5,827 0 5,458 0 2,827 0 5,031 0 20,137 2010 1,062 1,487 545 4,997 63 2011 5,059 0 768 0 0 2012 4,598 0 860 0 0 2013 753 0 2,074 0 0 2014 4,471 0 560 0 0 After 2014 13,653 0 6,484 0 0 The maturity analysis is based on undiscounted cash ows relating to nancial liabilities. For a breakdown of payment obligations and maturities by negative derivative nancial instruments, reference is made to pages 128-129. Derivative nancial instruments have been used to hedge interest rate and currency risks on the Group’s loan portfolio. Under other bank loans, loans where DONG Energy owns the counterbalance of bonds constituted DKK 1,173 million. These loans have been recognised in the carrying amount, but have not been included in maturity or in payment obligations. Apart from the fair value of derivative nancial instruments, current liabilities fall due for payment less than one year after the end of the nancial year. Other liabilities predominantly comprised VAT and duties as well as deferred income. 2008 Carrying amount 7,894 1,258 1,211 8,760 8,155 94 14,655 6,167 48,194 Payment obligation 8,928 1,578 1,211 10,957 8,155 94 6,167 37,090 6,167 17,235 0 889 0 5,233 0 4,876 0 3,598 0 5,259 DKK million Bond loans Mortgage loans Bank overdrafts Other bank loans Trade payables Payables to associates Fair value of derivative nancial instruments Other liabilities 2009 466 64 1,211 1,078 8,155 94 2010 301 64 0 524 0 0 2011 4,312 64 0 857 0 0 2012 3,849 64 0 963 0 0 2013 0 1,322 0 2,276 0 0 After 2013 0 0 0 5,259 0 0 124 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=129http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=129Categories of nancial instruments 2009 Carrying amount 10,727 3,743 14,470 4,296 90 169 4,555 8,164 560 3,294 4,499 16,517 201 201 9,092 9,092 121 194 2,973 3,288 22,549 12,657 9,392 44,598 2008 Carrying amount 12,834 753 13,587 8,004 771 103 8,878 10,985 111 3,154 3,043 17,293 85 85 10,694 10,694 13 168 3,780 3,961 7,894 11,229 10,724 29,847 DKK million Derivative nancial instruments held for trading Securities Financial assets measured at fair value via the income statement Derivative nancial instruments entered into to hedge future cash ows Derivative nancial instruments entered into to hedge net investments in foreign enterprises Derivative nancial instruments entered into to hedge fair values Financial assets used as hedging instruments Trade receivables Receivables from sale of activities Other receivables Cash Loans and receivables Other equity investments Financial assets available for sale Derivative nancial instruments held for trading Financial liabilities measured at fair value via the income statement Derivative nancial instruments entered into to hedge net investments Derivative nancial instruments entered into to hedge fair values Derivative nancial instruments entered into to hedge future cash ows Financial liabilities used as hedging instruments Bond loans Bank loans Other liabilities Financial liabilities measured at amortised cost The fair value has been determined as the present value of expected future instalments and interest payments using the Group’s current interest rate on loans as discount rate. The nominal value Fair value 10,727 3,743 14,470 4,296 90 169 4,555 8,164 560 3,294 4,499 16,517 201 201 9,092 9,092 121 194 2,973 3,288 23,539 13,193 9,392 46,124 Fair value 12,834 753 13,587 8,004 771 103 8,878 10,985 111 3,154 3,043 17,293 85 85 10,694 10,694 13 168 3,780 3,961 7,689 11,524 29,937 of bond loans, bank overdrafts and other bank loans was DKK 35,092 million (2008: DKK 19,082 million). CONSOLIDATED FINANCIAL STATEMENTS 125 PARENT COMPANY FINANCIAL STATEMENTS 10,724 CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=130http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=130NOTES WITHOUT REFERENCE 33 / FINANCIAL INSTRUMENTS (CONTINUED) Fair value of derivative nancial instruments 2009 DKK million Commodities: Oil swaps Positive Negative Oil options Positive Negative Gas swaps Positive Negative Power swaps Positive Negative Power options Positive Negative Coal forwards Positive Negative CO2 emissions allowances Positive Negative Currency: Forward exchange contracts Positive Negative Currency swaps Positive Negative Currency options Positive Negative Interest: Interest rate swaps Positive Negative 1 (1) 4 (6) 201 (227) 17 (34) 90 (216) 313 (484) 415 (284) 52 (12) 3 0 0 (13) 12 (36) 0 0 0 0 60 (4) 0 0 0 0 6 (162) 0 0 0 0 32 0 0 0 415 (297) 162 (214) 3 0 477 (447) 529 (18) 2,676 (2,467) 5,997 (5,726) 0 (1) 318 (511) 35 (32) 58 (186) 332 (3) 396 (408) 1,018 (834) 0 0 32 (133) 36 (14) 1 (90) 383 0 58 (58) 320 (230) 0 0 13 (5) 16 (14) 4 (102) 354 0 7 (7) 339 (86) 0 0 0 0 0 (1) 0 0 0 0 0 0 990 (12) 0 0 0 0 0 0 540 (825) 1,598 (21) 3,137 (2,940) 8,664 (6,888) 0 (1) 363 (649) 87 (61) 2010 2011 2012 2013 2014 After 2014 Total Positive at 31 December 10,503 1,888 1,052 727 1,112 15,282 Negative at 31 December (9,499) (1,633) (628) (392) (228) (12,380) The Group uses derivative nancial instruments as part of its risk management, trading and when position taking. The maturity analysis for interest rate swaps re ects the expected maturity for each contract. 126 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=131http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=131Fair value of derivative nancial instruments 2008 DKK million Commodities: Oil swaps Positive Negative Oil options Positive Negative Gas swaps Positive Negative Power swaps Positive Negative Power options Positive Negative Coal forwards Positive Negative CO2 emissions allowances Positive Negative Currency: Forward exchange contracts Positive Negative Currency swaps Positive Negative Currency options Positive Negative Interest: Interest rate swaps Positive Negative 12 (12) 2 (3) 2 0 152 (191) 42 (173) 210 (379) 1,068 (396) 40 (10) 31 (4) 152 (108) 37 (8) 0 0 0 (28) 0 (3) 0 0 0 0 71 0 0 0 0 0 28 (147) 0 0 1,220 (532) 176 (168) 31 (4) 525 (255) 1,157 (6) 3,006 (2,515) 6,709 (6,132) 0 0 1,718 (1,852) 2 (4) 136 (26) 897 (24) 688 (493) 1,570 (1,322) 0 0 177 (320) 1 (3) 26 (8) 464 0 83 (71) 493 (299) 0 0 2 (124) 0 (2) 2 (3) 917 0 0 0 428 (111) 0 0 0 0 0 (2) 0 0 0 0 0 0 1,074 0 0 0 0 0 0 0 689 (292) 3,435 (30) 3,777 2009 2010 2011 20122013 After 2013 Total 10,274 (7,864) 0 0 1,897 (2,296) 3 (11) Negative at 31 December (11,186) (2,307) (535) (307) (320) (14,655) The maturity analysis for interest rate swaps re ects the expected maturity for each contract. CONSOLIDATED FINANCIAL STATEMENTS 127 PARENT COMPANY FINANCIAL STATEMENTS Positive at 31 December 14,268 3,660 1,070 1,570 1,144 21,712 CONSOLIDATED NON-FINANCIAL STATEMENTS (3,079) CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=132http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=132NOTES WITHOUT REFERENCE 33 / FINANCIAL INSTRUMENTS (CONTINUED) Hedging of future cash ows 2009 DKK million Commodities: Oil swaps Oil options Power swaps Coal forwards Currency: Forward exchange contracts Currency swaps Currency options Interest: Interest rate swaps Derivative nancial instruments, total 5,094 31,592 (123) 1,323 (136) 889 (2) 401 1 191 1 364 (136) (67) 4,878 765 253 96 52 3 283 57 0 (43) 57 0 120 0 0 175 0 0 31 0 0 4,718 10,292 4,051 1,541 (280) 1,577 269 (271) (152) 1,123 (90) (196) 77 472 (52) (108) (32) 255 (56) (97) (94) 261 12 9 (103) 135 6 0 Notional amount, net Fair value Recognised in equity Expected date of transfer to income statement 2010 2011 2012 After 2012 Ineffectiveness arising from commodity hedging was recognised under the item effect of economic hedging with a gain of DKK 339 million (2008: loss of DKK 206 million), see note 4, and in production costs with a gain of DKK 9 million (2008: DKK 0). Ineffectiveness of interest rate and currency hedging amounted to a loss of DKK 26 million in 2009 (2008: gain of DKK 47 million). 128 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=133http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=1332008 DKK million Commodities: Oil swaps Oil options Gas swaps Power swaps Coal forwards Currency: Forward exchange contracts Currency swaps Currency options Loans foreign currency Interest: Interest rate swaps Derivative nancial instruments, total 4,052 38,958 (104) 4,266 (46) 3,466 6,023 501 1,277 101 (75) 78 27 42 101 89 0 42 4,292 15,326 208 5,149 2,029 378 3,404 (11) 970 (443) 406 3,048 (13) 228 (389) Notional amount,net Recognised Fair value in equity Expected date of transfer to income statement 2009 2010 2011 After 2011 288 896 (13) 155 (120) 93 775 0 19 (147) 21 542 0 30 (122) 4 835 0 24 0 CONSOLIDATED NON-FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS 16 41 0 42 143 45 0 0 (89) 3 0 0 31 0 0 0 27 1,332 12 940 12 397 (97) 797 Hedging of fair values Monetary items DKK million Currency: EUR USD GBP SEK NOK Other 17,681 2,545 3,569 632 929 159 25,515 (40,314) (3,554) (3,290) (46) (2,134) (39) (49,377) 2009 Monetary items Hedged using hedging instruments Net position 2008 Assets Liabilities Assets Liabilities Hedged using hedging instruments Net position 13,022 1,443 0 0 0 0 14,465 (9,611) 434 279 586 (1,205) 120 (9,397) 18,897 5,510 2,688 692 398 117 28,302 (22,971) (4,691) (1,501) (50) (2,036) (27) (31,276) 6,706 1,528 0 0 0 0 8,234 2,632 2,347 1,187 642 (1,638) 90 5,260 In addition to the above, the Group’s CO2 portfolio has been hedged. In 2009, value adjustment of this hedging amounted to DKK 26 million (2008: DKK 0), which was offset by fair value adjustment of the hedged CO2 emissions allowances. CONSOLIDATED FINANCIAL STATEMENTS 129 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=134http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=134NOTES WITHOUT REFERENCE 33 / FINANCIAL INSTRUMENTS (CONTINUED) Hedging of net investments in foreign subsidiaries 2009 Foreign exchange adjustments recognised in Net equity position 2008 Foreign exchange adjustments recognised in Net equity position DKK million Currency: GBP NOK SEK EUR PLN Investment including equity-like loans Hedged amount in currency Investment including equity-like loans Hedged amount in currency 14,623 11,097 2,434 1,601 1,264 31,019 (8,739) (3,036) (1,594) 0 (1,034) (14,403) 5,884 8,061 840 1,601 230 16,616 (170) (54) (366) 1 13 (576) 3,224 9,237 2,085 936 478 15,960 (1,845) (3,064) (34) 0 (261) (5,204) 1,379 6,173 2,051 936 217 10,756 (289) (1,193) (412) (1) (4) (1,899) Trading portfolio and economic hedging 2009 Notional amount, net 17 0 1,422 9,002 23 549 44 9,114 20,171 2008 Notional amount, net DKK million Fair value (5) 0 197 1,507 (1) 0 (15) (48) 1,635 Fair value Oil swaps Oil options Gas swaps Power swaps Power options CO2 emissions allowances Coal forwards Interest rate swaps 164 192 2,358 8,671 0 26 40 7,566 19,017 19 1 709 1,440 0 (8) 44 (65) 2,140 130 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=135http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=135Fair value hierarchy 2009 DKK million Derivative nancial instruments Securities Assets Derivative nancial instruments Liabilities Fair value of nancial instruments using: Quoted prices (level 1) 0 2,566 2,566 0 0 Observable inputs (level 2) 13,682 1,177 14,859 (12,254) (12,254) Non-observable inputs (level 3) 1,600 0 1,600 (126) (126) Total 15,282 3,743 19,025 (12,380) Level 1 comprises quoted securities that are traded in active markets. Level 2 comprises derivative nancial instruments where valuation models with observable inputs are used to measure the fair value, and where discounting to present value is carried out using a discount rate set by the Group. Level 2 also comprises quoted securities that have not been traded in the market suf ciently for a reliable fair value to be obtained. Level 3 primarily comprises a long-term nancial power purchase contract expiring in 2020. The fair value is based on assumptions concerning long-term prices of power, coal, USD and EUR as well as risk premiums in respect of liquidity and market risks and is determined by discounting of expected future cash ows. Level 3 also comprises other derivative nancial instruments, where the value of one or more key non-observable inputs has been estimated and where the sum of these estimated non-observable inputs may affect the fair value. Reconciliation of nancial instruments based on non-observable inputs DKK million Opening at 1 January 2009 Gains and losses recognised in income statement under revenue Purchases Other transfers to and from level 3 Closing at 31 December 2009 Derivative nancial instruments (assets) 2,020 (423) (15) 18 1,600 Derivative nancial instruments (liabilities) (143) 143 (126) 0 (126) A loss of DKK 371 million has been recognised in the income statement under revenue in respect of losses on assets and liabilities that are valued on the basis of non-observable inputs and are still recognised in the balance sheet at 31 December 2009. The fair value of nancial instruments based on non-observable inputs is signi cantly affected by the non-observable inputs used. As a result of the long-term and illiquid nature of the contracts, the fair value may change signi cantly in the event of a change in the Group’s reasonable expectations relating to the non-observable inputs used. CONSOLIDATED FINANCIAL STATEMENTS 131 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS (12,380) CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=136http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=136NOTES WITHOUT REFERENCE 34 / JOINTLY CONTROLLED ENTITIES DONG Energy has ownership interests in jointly controlled entities that primarily comprise ownership and operation of wind farms and power stations. The Group’s interests in jointly controlled entities are shown in note 42. DONG Energy has assumed investment obligations through its participation in jointly controlled entities and has made capital commitments to jointly controlled entities as shown in note 36 on contractual obligations and security arrangements. The Group’s recognised share of the pro ts, costs, assets and liabilities of jointly controlled entities is as follows: Contingent liabilities relating to jointly controlled entities are shown in note 37. DKK million Income Expenses Non-current assets Current assets Assets at 31 December Non-current liabilities Current liabilities Liabilities at 31 December 2009 553 (299) 3,859 2,595 6,454 478 1,150 1,628 2008 583 (354) 2,396 243 2,639 411 167 578 132 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=137http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=13735 / OPERATING LEASES DKK million 0 - 1 year 1 - 5 years > 5 years Minimum lease payments Minimum lease payments on subleasing of assets held under operating leases Net minimum lease payments DONG Energy has entered into operating leases comprising leasing of a drilling rig in the period 2008-2011, leasing of a natural gas storage facility in Germany in the period 2008-2023, leases of of ce premises in the period 2007-2012, and vehicle leasing, etc. The Group has entered into an operating lease for a further natural gas storage facility in Germany for the period 2010-2018. The min2009 159 554 662 1,375 (212) 1,163 2008 562 1,241 689 2,492 (44) 2,448 A sum of DKK 850 million was recognised in 2009 (2008: DKK 87 million) in respect of operating lease payments. CONSOLIDATED FINANCIAL STATEMENTS 133 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS imum lease payments amount to DKK 524 million and are not recognised in the above statement of minimum lease payments relating to commenced lease arrangements. CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=138http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=138NOTES WITHOUT REFERENCE CONTRACTUAL OBLIGATIONS 36 / AND SECURITY ARRANGEMENTS Contractual obligations The Group has entered into binding contracts with suppliers for the purchase of property, plant and equipment. The obligations total DKK 22.6 billion (2008: DKK 11.4 billion) and relate primarily to contracts concerning investment in wind farms and power stations. The Group is also a party to a number of long-term purchase The DONG E&P Group participates in a number of natural gas and oil exploration and production licences. Through its participation in these licences, DONG Energy has assumed investment obligations totalling DKK 3.6 billion (2008: DKK 559 million). DONG Energy has also assumed investment obligations totalling DKK 72 million in respect of the Group’s exploration and production licences (2008: DKK 45 million). DONG Energy participates in jointly controlled entities and, by virtue of its participation in these, has assumed investment obligations amounting to DKK 2.1 billion (2008: DKK 195 million). DONG Energy has also assumed investment obligations totalling DKK 2.1 billion in respect of jointly controlled entities (2008: DKK 232 million). and sales contracts that have been concluded in the course of the Group’s normal operations. Apart from the liabilities already recognised, the Group does not expect to incur any nancial losses as a result of the performance of these contracts. In 2009, the Group entered into contracts on investment in activities with contingent purchase consideration, where payment is partly depending on several uncertain events outside DONG Energy’s control. Security arrangements The Group did not pledge any assets as collateral for loans in 2009, except as provided in note 31. In 2008, mortgage loans totalling DKK 1,252 million were secured on four central power stations with a carrying amount of DKK 3,704 million. The loan was repaid in 2009. 37 / CONTINGENT ASSETS AND CONTINGENT LIABILITIES Contingent assets Signi cant unrecognised contingent assets comprise deferred tax assets at DKK 12.8 billion (2008: DKK 9.2 billion). Reference is made to note 23. DONG Energy has advanced claims against a few trading partners. Management is of the opinion that the claims are justi ed. However, the claims have not been recognised, as the existence of this asset is subject to several uncertain future events that are outside DONG Energy’s control. In 2009, the Group concluded agreements on the sale of companies that feature contingent consideration, the consideration depending in part on several uncertain future events that are outside DONG Energy’s control. Guarantees DONG Energy A/S has furnished the Danish Ministry of Economic and Business Affairs with a guarantee for ful lment of all obligations and liability to the Danish State or third parties incurred by DONG E&P A/S as co-holder of the licences in which the company participates, irrespective of whether the obligations and liability rest on DONG E&P A/S alone or jointly and severally with others. However, the guarantee is Contingent liabilities Liability to pay compensation According to the legislation, DONG Energy’s natural gas companies DONG Oil Pipe A/S, DONG E&P A/S and DONG E&P Grønland A/S are liable to pay compensation for damage caused by their natural gas and oil activities, even where there is no proof of negligence (strict liability). The usual insurance has been taken out to cover any such claims. 134 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=139http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=139limited to a sum corresponding to twice DONG E&P’s share of each obligation or liability. As a condition for approval of its participation in natural gas and oil exploration and production on the Norwegian, UK, Greenland and Faroese continental shelves, DONG Energy A/S has provided a guarantee under which it assumes primary liability as normally required by the local authorities. The guarantee covers obligations and liability incurred or assumed by the DONG E&P Group in connection with its exploration and production activities. The guarantee has no maximum limit, and the DONG E&P Group is jointly and severally liable with the other partners for obligations and liability. Through subsidiaries and jointly controlled assets and entities, DONG Energy participates in natural gas and oil exploration and production, construction and operation of wind farms, geothermal plants and natural gas installations. The Group has provided guarantees, and guarantees under which the Group assumes primary liability, in respect of the construction and operation of installations, and leases, decommissioning obligations, purchase and sales contracts, etc. Joint and several liability DONG Energy participates in a number of jointly controlled assets and entities, including renewable energy projects and natural gas and oil exploration and production licences. The Group’s companies are jointly and severally liable with the other venturers for obligations and liability under agreements concluded. DONG Energy Power A/S is liable as a partner for nancial losses at certain CHP plants. Litigation DONG Energy is a party to actions relating to the competition authorities’ claim that Elsam A/S, Elsam Kraft A/S and Energi E2 A/S charged excessive prices in the Danish wholesale power market in some periods. Following a merger in 2008, Elsam Kraft A/S and Energi E2 A/S are part of DONG Energy Power A/S. The Competition Appeals Tribunal has concluded that Elsam A/S and Elsam Kraft A/S abused their dominant positions 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. DONG Energy disputes the rulings and has appealed them to the Copenhagen Maritime and Commercial Court. A group of power consumers has led a claim with the Copenhagen Maritime and Commercial Court for compensation of up to DKK 4.4 billion with addition of interest in connection with the above actions relating to excessive prices in Western Denmark. DONG Energy has recognised a provision of DKK 298 million, which has been determined on the basis of the Danish Competition Council’s calculation of the consumers’ losses. The Competition Council is in the process of examining whether, in the period 1 July 2003 to 31 December 2005, Energi E2 A/S abused a dominant position in the wholesale power market in Eastern Denmark by charging excessive prices. In management’s opinion, there is no basis, at the present time, for making any provisions for losses. In connection with collaboration agreements entered into by the Group concerning jointly controlled assets and entities, etc., various minor litigation cases are pending that are not expected, either individually or collectively, to have any effect on the Group’s nancial position. The Group is also a party to a number of litigation proceedings and legal disputes that do not have any effect on the Group’s nancial position, either individually or collectively. CONSOLIDATED FINANCIAL STATEMENTS 135 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=140http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=140NOTES WITHOUT REFERENCE 38 / RELATED PARTY TRANSACTIONS Related parties that have control over the Group comprise the Danish State, represented by the Danish Ministry of Finance, which owns 73% of the parent company. Reference is made to note 42 for an overview of the Group’s Related parties that exercise signi cant in uence comprise the Group’s Supervisory and Executive Boards, senior executives and close members of their families. Related parties also comprise companies in which the persons referred to above have signi cant in uence. Remuneration to the Supervisory and Executive Boards and other senior executives is disclosed in note 5. Related parties also include the Group’s associates, i.e. companies in which DONG Energy has signi cant in uence, The Group was involved in the following transactions with related parties in the year under review. These transactions exclude income taxes, taxes deducted at source, etc., VAT and other normal transactions with the Danish State, including ministries, etc., and companies controlled by the Danish State. Transactions with related parties are made on arm’s length terms. associates and jointly controlled entities. and jointly controlled entities, i.e. companies that are jointly controlled by DONG Energy and other venturers. Danish State DKK million Dividends paid Dividends received Capital transactions, net Trade receivables Trade payables Pipeline and exemption duty Government grants Interest, net Receivables Payables 2009 (1,406) (1,320) 604 2008 (1,072) (2,137) 300 - Associates 2009 0 45 (8) 315 (188) 32 554 63 2008 0 28 (16) 591 (165) 28 611 94 Jointly controlled entities 2009 36 66 (66) 2 18 0 2008 127 151 (48) 16 95 135 136 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=141http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=141Licences from the Danish State Exploration & Production DONG E&P A/S has participated as a partner in all exploration licences granted in Denmark in the period 1984 to 2004. DONG E&P A/S has participated with a paying share of normally 20% at the date of award. From 2005, DONG E&P A/S has been awarded licences in the 6th licensing round and via the ”Open Door” procedure. Hydrocarbon exploration and production licences normally run for six years during the exploration phase and then for 30 years during the production phase. DONG E&P A/S has provided services to the licences in which it participates. Generation DONG Energy has been granted power generation licences (thermal) and licences to operate wind farms. The durations of the licences vary. DONG Energy, represented by DONG VE A/S and DONG Energy Power A/S, has an interest in three geothermal energy exploration and recovery licences. One of the licences, in which DONG VE is the sole licensee, comprises one third of Denmark’s territory with the exception of the metropolitan region. Two thirds of the area was relinquished in 1998 and 2003 respectively, and the remaining one third must be relinquished in 2013. The second licence, in which DONG VE A/S has a 28% interest and DONG Energy Power A/S an 18% interest, comprises the metropolitan area. The licence was granted on 19 February 2001, initially for 15 years. The third licence, in which DONG VE A/S has a 50% interest, was granted on 11 October 2007 and runs provisionally until 2016. During the year under review, DONG Energy provided services as operator of the Metropolitan Geothermal Alliance (HGS). Sales & Distribution DONG Energy has been granted natural gas storage and distribution licences by the Danish State under sections 10 and 59 of the Danish Natural Gas Supply Act. The licences have been granted for the period up to 2023. Under sections 24, 25 and 59 of the Natural Gas Supply Act, DONG Energy has also been granted a licence to engage in natural gas supply activities on the conditions laid down in the Natural Gas Supply Act. The licence expires in 2013. DONG Energy has also been granted a power distribution licence that runs until 2023, a power transmission licence that expires in 2025 and power PSO licences that are renewed on an ongoing basis subject to application. Reference is made to note 41 for an overview of licences and signi cant licences. Other transactions Subject to the constraints following from the capacity of the pipeline, DONG Oil Pipe A/S is under obligation to transport through its pipeline all crude oil and condensate recovered on the Danish continental shelf in the North Sea. The authorities may grant DONG Oil Pipe A/S exemption from this obligation if, in the Minister’s opinion, transportation through the pipeline is uneconomical or inexpedient. Under the Danish Pipeline Act, DONG Oil Pipe A/S is under obligation to pay duty to the State amounting to 95% of the pro t made. Duty paid to the Danish State in 2009 amounted to DKK 1,256 million (2008: DKK 2,011 million). Several of DONG E&P A/S’s Danish elds are not connected to DONG Oil Pipe’s pipeline, and DONG E&P consequently pays exemption duty to the Danish State. Exemption duty paid in 2009 amounted to DKK 64 million (2008: DKK 126 million). DONG Energy engages in signi cant transactions with Energinet.dk on a daily basis in the latter’s capacity of transmission system operator (TSO) in Denmark. As the Danish TSO, Energinet.dk operates the 400 kV power transmission grid in Denmark and the Danish natural gas transmission network, which the Group uses to transport power and natural gas. The Group also sells power system services and natural gas storage capacity to Energinet.dk to meet the need for system integrity and emergency supplies to the Danish power and natural gas supply system. If the Danish State wishes to relinquish its majority shareholding in DONG Energy A/S, the Danish State is under obligation to buy back parts of DONG Energy’s nat2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=142http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=142NOTES WITHOUT REFERENCE 39 / EVENTS AFTER THE REPORTING PERIOD Siri back in production Production on the Siri eld was resumed on 24 January, which meant that production from the adjacent elds, Nini, Cecilie and Stine, could also be resumed. A permanent repair of the damage is expected to be nalised in the second half of 2010. EQT was closed on 4 February following approval of the transaction by the Swedish competition authorities. The proceeds from the sale will be recognised in pro t after tax for the 2010 nancial year. Lincs offshore wind farm project in the UK Appraisal well on Svane eld DONG Energy and its licence partners Bayerngas (30% interest) and the Danish North Sea Fund (20% interest) have decided to drill an appraisal well on the Svane eld. Drilling will be technically challenging due to the reservoir depth. The costs are consequently subject to uncertainty and are expected to amount to DKK 0.6-0.9 billion, depending on the drilling results, with DONG Energy’s share making up 50%. The detailed planning of the appraisal well will take place in 2010. DONG Energy and Siemens Project Ventures (SPV) have acquired a 50% stake in the Lincs offshore wind farm project from Centrica via a joint venture contract. The transaction was closed on 5 February against payment of 50% of the incurred development costs of around GBP 50 million. It is expected that DONG Energy’s 25% share of the capital investment will amount to DKK 1.6 billion. First oil from Nini Øst eld The Nini Øst eld produced its rst oil on 24 February. DONG Energy is the operator of the Nini licence and has a 40% stake. Sale of shares in Swedegas AB closed DONG Energy’s sale of its 20.4% stake in Swedegas AB to 40 / DESCRIPTION OF ACCOUNTING POLICIES Basis of preparation Consolidated nancial statements The consolidated nancial statements include the nancial statements of the parent company DONG Energy A/S and subsidiaries in which DONG Energy A/S has the power to govern the nancial and operating policies so as to obtain a return or other bene ts from the subsidiary’s activities. Control exists when DONG Energy A/S holds, directly or indirectly, more than 50% of the voting rights or otherwise has the power to control the subsidiary in question. Regulated companies that operate according to a principle of self- nancing and where DONG Energy A/S does not have direct or indirect access to receive a return or other bene ts are not included in the consolidation, but are instead measured at fair value as investments under other equity investments. The consolidated nancial statements have been prepared as a consolidation of the parent company’s and the individual subsidiaries’ nancial statements, in accordance with the Enterprises over which the Group exercises signi cant in uence, but not control, are accounted for as associates. Signi cant in uence is typically achieved by holding or having the ability to exercise, directly or indirectly, more than 20% but less than 50% of the voting rights, although this is based on a speci c assessment of the possibility of exercising in uence. Any such enterprises that satisfy the criteria for common control are instead accounted for as investments in jointly controlled entities, see the description under “Investments in jointly controlled assets and entities”. Potential voting rights exercisable at the balance sheet date are taken into account in assessing whether DONG Energy has control, joint control or signi cant in uence. 138 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=143http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=143Group’s accounting policies. Intragroup income and expenses, shareholdings, balances and dividends as well as realised and unrealised gains and losses arising from intragroup transactions are eliminated on consolidation. Unrealised gains resulting from transactions with associates and entities under common control are eliminated to the extent of the Group’s investment in the enterprise. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Investments in subsidiaries are offset against the proportionate share of the fair value of the subsidiaries’ identi able net assets and recognised contingent liabilities at the date of acquisition or formation. The items in the subsidiaries’ nancial statements are recognised in full in the consolidated nancial statements. The minority interests’ share of pro t for the year and of equity of subsidiaries that are not wholly-owned is recognised as part of the Group’s pro t and equity respectively, but disclosed separately. Business combinations Enterprises acquired or formed during the year are recognised in the consolidated nancial statements from the date of acquisition or formation. Enterprises disposed of during the year are recognised in the consolidated income statement up to the date of disposal. Comparative gures are not restated to re ect acquisitions or disposals; however, discontinued operations are presented separately, see below. On acquisition of enterprises whereby the parent company obtains control of the acquiree, the purchase method is applied. The acquiree’s identi able assets, liabilities and contingent liabilities are measured at fair value at the acquisition date. Identi able intangible assets are recognised if they are separable or arise from a contractual right, and the fair value can be measured reliably. Deferred tax on revaluations is taken into account. Minority interests are measured on initial recognition at the proportionate share of the acquiree’s identi able assets, liabilities and contingent liabilities. liabilities assumed (goodwill) is recognised as goodwill under intangible assets. Goodwill is not amortised, but is tested for impairment, at least annually. The rst impairment test is carried out before the end of the year of acquisition. On acquisition, goodwill is allocated to the cash-generating units, which subsequently form the basis for the impairment test. Goodwill and fair value adjustments in connection with the acquisition of a foreign entity with a functional currency that is different from the presentation currency (DKK) of the DONG Energy Group are accounted for as assets and liabilities belonging to the foreign entity and translated into the foreign entity’s functional currency at the exchange rate at the transaction date. Any excess of the fair value over the cost of acquisition (negative goodwill) is recognised in the income statement at the date of acquisition. The cost of an enterprise consists of the fair value of the consideration paid plus costs that can be directly attributed to the acquisition. If parts of the consideration are contingent on future events, these parts are recognised in the cost to the extent that the events are probable and the consideration can be measured reliably. If there is any uncertainty, at the acquisition date, concerning the measurement of identi able assets acquired and liabilities and contingent liabilities assumed, initial recognition is based on provisional fair values. If the fair value of identi able assets, liabilities and contingent liabilities subsequently proves to differ from the fair value assumed at the acquisition date, goodwill may be adjusted for up to twelve months following their acquisition. The effect of any such adjustments is recognised in opening equity, and the comparative gures are restated accordingly. Subsequently, goodwill is only adjusted as a consequence of changes in estimated contingent purchase cons2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=144http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=144ACCOUNTING POLICIES DESCRIPTION OF ACCOUNTING POLICIES 40 / (CONTINUED) Gains or losses on disposal of enterprises and investments in associates are recognised in the income statement in the item gain (loss) on disposal of enterprises. Where a business combination involves successive acquisitions, each signi cant acquisition is treated separately with a view to determining the cost and fair value of the acquired identi able assets, liabilities and contingent liabilities, including any goodwill. The fair value of the identi able assets, liabilities and contingent liabilities may be different at the date of each acquisition. Where a transaction results in DONG Energy A/S obtaining control of the acquiree, previously acquired shares of identi able assets, liabilities and contingent liabilities relating to the already acquired investments are remeasured at fair value at the acquisition date. The remeasurement is accounted for as a revaluation, which is recognised via equity. The effect of acquisitions and disposals of minority interests after control is obtained is recognised directly in equity. Net assets acquired are not revalued on acquisition. Investments in jointly controlled assets and entities Investments in jointly controlled assets and entities comprise natural gas and oil exploration and production licences, wind farms and a power station under construction, etc. Recognition of an investment as a jointly controlled asset or entity is conditional upon the existence of a contractual arrangement between the parties stipulating joint control. The contractual arrangement must also stipulate whether the parties are jointly and severally liable or liable for their proportionate shares only. Investments in jointly controlled assets and entities are recognised using proportionate consolidation as a share of assets and liabilities in jointly controlled assets and entities. Shares of assets and liabilities are classi ed by their nature in the consolidated balance sheet. Shares of income and expenses generated from the sale and production from jointly controlled assets and entities are recognised on a proportionate basis in the consolidated income statement, classi ed by function. Own liabilities and expenses incurred in respect of jointly controlled assets and entities are also recognised. On recognition in the consolidated nancial statements of subsidiaries and proportionately consolidated enterprises with a different functional currency than DKK, the income statement items are translated at the exchange rates at the Gains and losses on hedging transactions relating to purchases and sales of goods are recognised at the same time as and in the same item as the hedged item. Receivables, payables and other monetary items in foreign currencies are translated into the functional currency at the exchange rates at the balance sheet date. The difference between the exchange rates at the balance sheet date and at the date at which the receivable or payable arose or was recognised in the latest annual report is recognised in the income statement as nancial income or nancial expenses. Foreign currency translation For each of the reporting enterprises in the Group, a functional currency is determined. The functional currency is the currency of the primary economic environment in which the individual reporting enterprise operates. Transactions in other currencies than the functional currency are accounted for as transactions in foreign currencies. On initial recognition, transactions in foreign currencies are translated into the functional currency at the exchange rates at the transaction date. Exchange differences arising between the exchange rate at the transaction date and at the date of payment are recognised in the income statement as nancial income or nancial expenses. Acquisitions of shares of natural gas and oil exploration and production licences are accounted for as acquisitions of jointly controlled assets. Deferred tax on temporary2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=145http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=145transaction date, and the balance sheet items are translated at the exchange rates at the balance sheet date. An average exchange rate for each month is used as the exchange rate at the transaction date to the extent that this does not signi cantly distort the presentation of the underlying transactions. Exchange differences arising on translation of the opening equity of these enterprises at the exchange rates at the balance sheet date and on translation of the income statements from the rates at the transaction date to the exchange rates at the balance sheet date are recognised directly in equity under a separate translation reserve. Foreign exchange adjustments of balances that are accounted for as part of the total net investment in enterprises with a different functional currency than DKK are recognised in the consolidated nancial statements directly in equity under a separate translation reserve. Likewise, foreign exchange gains and losses on the portion of loans and derivative nancial instruments that has been entered into to hedge the net investment in these enterprises and that provides an effective hedge against corresponding foreign exchange gains/losses on the net investment in the enterprise are taken directly to a separate translation reserve under equity. On recognition in the consolidated nancial statements of associates with a different functional currency than DKK, the share of pro t for the year is translated using an average exchange rate, and the share of equity including goodwill is translated at the exchange rates at the balance sheet date. Exchange differences arising on translation of the share of foreign associates’ opening equity at the exchange rates at the balance sheet date and on translation of the share of pro t for the year from average rates to the exchange rates at the balance sheet date are recognised directly in equity under a separate translation reserve. On complete or partial disposal of a foreign entity, or on repayment of balances that are considered part of the net investment, the share of the cumulative exchange adjustments that is recognised directly in equity relating to that foreign equity is recognised in the income statement when the gain or loss on disposal is recognised. Derivative nancial instruments Derivative nancial instruments and loans are used to hedge currency and interest rate risks and risks related to the price of natural gas, oil, power, coal and CO2 emissions allowances. Derivative nancial instruments are recognised from the trade date under receivables (positive fair values) and other payables (negative fair values) respectively and are measured in the balance sheet at fair value. Costs directly related to the acquisition or issue of the individual nancial instrument (transaction costs) are added to the fair value on initial recognition, unless the nancial asset or the nancial liability is measured at fair value through the income statement. Positive and negative fair values are only offset if the enterprise is entitled to and intends to settle several nancial instruments net (in cash). The fair value of derivative nancial instruments is determined on the basis of current market data and assumptions, and recognised valuation methods. Fair value hedging. Changes in the fair value of derivative nancial instruments designated as and qualifying for recognition as hedges of the fair value of a recognised asset or liability are recognised in the income statement together with changes in the value of the hedged asset or liability to the extent of hedged risk. Hedging of future cash ows of contracts concluded ( rm commitment) is accounted for as hedging of the fair value of a recognised asset or liability, except in the case of foreign currency hedging. Cash ow hedging. Changes in the portion of the fair value of derivative nancial instruments and foreign exchange adjustments of loans that is designated as and quali es for recognition as a hedge of future cash ows and th2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=146http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=146ACCOUNTING POLICIES DESCRIPTION OF ACCOUNTING POLICIES 40 / (CONTINUED) rates in these enterprises are recognised in the consolidated nancial statements directly in equity under a separate translation reserve. Other derivative nancial instruments. Value adjustments of derivative nancial instruments that have been entered into to hedge the Group’s primary activities but do not satisfy the criteria for hedge accounting are recognised as revenue. Likewise, value adjustments of nancial contracts offered to customers with a view to price hedging are recognised as revenue. This classi cation is judged to best re ect the results of the Group’s operations. For derivative nancial instruments that have not been entered into to hedge revenue or production costs, changes in fair value are recognised in the income statement as nancial items when they occur. Some contracts include terms that correspond to derivative nancial instruments. Such embedded nancial instruments are recognised separately and measured on a continuing basis at fair value if they differ signi cantly from the contract in question, unless the host contract is recognised and measured at fair value on a continuing basis. Under IFRS, contracts that involve physical delivery of commodities are, in certain circumstances, accounted for as derivative nancial instruments. Based on an evaluation of the purpose of the Group’s commodity contracts and the connection between that purpose and the Group’s other activities, the Group’s contracts that involve physical delivery of commodities generally satisfy the criteria for exemption from classi cation as derivative nancial instruments for normal sale and purchase contracts. Contracts that involve physical delivery of commodities and are classi ed and accounted for as derivative nancial instruments primarily comprise contracts entered into in the course of the Group’s trading activities or as part of certain hedging activities. Value adjustments of nancial instruments that have been entered into to hedge the Group’s primary operating activities but do not satisfy the criteria for hedge accounting are recognised as revenue. Likewise, value adjustments of nancial contracts offered to customers with a view to price hedging are recognised as revenue. Production costs Production costs comprise costs incurred to achieve revenue for the year. Production costs include cost of sales, depreciation and amortisation, wages and salaries, relating to Physical and nancial contracts relating to trading in natural gas, oil, power, CO2 emissions allowances, etc., that are concluded in the course of the Group’s trading activities with a view to generating gains from short-term price uctuations are fair value adjusted under revenue. Overlift/underlift of natural gas and oil is recognised in revenue at realisable value. Overlift/underlift relates to situations in which the Group participates in producing elds (licences) with several participants and where the Group has lifted and sold more or less natural gas and oil from the producing elds than its entitlement at the time of lifting. Construction contracts for the construction of assets involving a high degree of customisation, and the rendering of services (consultancy services, etc.), are recognised as revenue as the work to which they relate is performed or the service rendered to the effect that revenue corresponds to the selling price of the work performed during the year (percentage of completion method). When the outcome of a construction contract cannot be estimated reliably, revenue is only recognised to the extent of the costs incurred that it is probable will be recovered. Revenue is measured at the fair value of the agreed consideration, excluding VAT and duties collected on behalf of third parties. All forms of discounts granted are recognised in revenue. friendly power (price supplement), etc. Revenue is recognised in the income statement when delivery and transfer of risk to buyer have take2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=147http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=147equity production of natural gas, oil, power and heat, etc., operation and maintenance of production assets, etc., during the year under review. natural gas and oil exploration, including costs for exploration licences, own costs for geological data, seismic surveys, licence administration, expensing of exploration wells, etc. research and development, including costs for research into new and improved production methods and further development of existing technologies. Research and development also includes costs for project maturing of potential investments in production assets, such as wind farms. and property, plant and equipment are determined as the selling price less costs to sell and the carrying amount at the date of disposal. Government grants Government grants comprise grants for eco-friendly power generation, grants for and funding of research and development projects and grants for other investments, etc. Government grants are recognised when there is reasonable assurance that they will be received. Grants for power generation are recognised under revenue as Production costs are recognised in the income statement as incurred. Research and development costs are recognised only if the criteria in IAS 38 for capitalisation of development costs are met. Development costs relating to project maturing of potential investments in production assets are recognised in the income statement until the date of the investment decision. Costs incurred are accounted for as acquisitions of property, plant and equipment from the date on which an investment decision is made. Sales and marketing Sales and marketing, comprising general marketing of DONG Energy and DONG Energy’s products, is recognised in the income statement as incurred. This item includes direct expenses as well as allocated indirect expenses for sales and marketing. the related power revenue is recognised. Grants for research and development costs, which are recognised directly in the income statement, are recognised under other operating income as the costs to which the grants relate are incurred. Grants for development projects and other investments are recognised in the balance sheet under liabilities and transferred to other operating income in the income statement as the assets to which the grants relate are depreciated. Allocated CO2 emissions allowances are recognised under rights as intangible assets. Reference is made to the description of the accounting policies under the relevant sections. Income from investments in associates CONSOLIDATED NON-FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS Management and administration Management and administration, comprising primarily staff costs for management and administrative staff, is recognised in the income statement as incurred. This item includes direct expenses as well as allocated indirect expenses for management and administration. It also includes write-downs of trade receivables. Other operating income and operating expenses Other operating income and operating expenses comprise items secondary in nature to the Group’s activities, including gains and losses on ongoing disposal and replacement of intangible assets and property, plant and equipment, and government grants received for research and development projects and other investments, etc. Grants for development projects and other investments are recognised as the assets to which they relate are depreciated. Other income and expenses are recognised as earned/ incurred. Gains and losses on disposal of intangible assets The proportionate share of associates’ pro t after tax and minority interests and after elimination of the proportionate share of intragroup pro ts/losses is recognised in the consolidated income statement. Financial income and nancial expenses Financial income and nancial expenses comprise interest income and expense, capital gains and losses and impairment losses relating to securities, payables and transactions denominated in f2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=148http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=148ACCOUNTING POLICIES DESCRIPTION OF ACCOUNTING POLICIES 40 / (CONTINUED) Borrowing costs relating to general borrowing or loans directly attributable to the acquisition, construction or development of qualifying assets form part of the cost of those assets. Income tax expense The Group is subject to the Danish rules on compulsory joint taxation and has also elected international joint taxation with the Group’s foreign subsidiaries. The Group’s subsidiaries are included in the joint taxation from the date they are included in the consolidation in the consolidated nancial statements and up to the date on which they are no longer included in the consolidation. The current Danish income tax is allocated among the jointly taxed Danish subsidiaries in proportion to their taxable income. In this connection, Danish subsidiaries with tax losses receive joint taxation contributions from the parent company equivalent to the tax base of the tax losses utilised (full absorption), while companies that utilise tax losses in other Danish companies pay joint taxation contributions to the parent company equivalent to the tax base of the utilised losses. Income tax expense, which consists of current tax, joint taxation contribution for the year and changes in deferred tax, is recognised in the income statement to the extent that it relates to pro t for the year, and directly in other comprehensive income to the extent that it relates to entries directly to other comprehensive income. The Group is registered for the Danish on-account tax scheme. Tax refunds/tax surcharges are allocated between the jointly taxed Danish companies in accordance with the allocation of the Danish income tax and recognised as nancial income and nancial expenses respectively. Subsidiaries that are engaged in natural gas and oil recovery (hydrocarbons) are subject to the hydrocarbon tax legislation in the countries in which they operate. Hydrocarbon taxes are calculated on the basis of taxable hydrocarbon income and comprise taxes calculated applying the respective country’s ordinary income tax rate as well as taxes calculated applying increased tax rates. Hydrocarbon taxes are recognised under income tax expense. The value of associates includes rights with inde nite useful lives. Natural gas purchase rights are amortised using the unitof-production method, taking into account the expected earnings pro le, so that the amortisation pattern re ects the expected earnings patterns. Other rights are amortised on a straight-line basis over their expected economic lives, which are determined on the basis of management’s experience of the speci c business areas, and the assets to which the rights relate. Capitalised rights are estimated to have a life of 5 - 20 years. Other rights comprise natural gas purchase rights, acquired customer rights and IT software licences, etc., and are measured at cost less accumulated amortisation and impairment losses. Rights. Allocated and purchased CO2 emissions allowances, including CO2 credits, that are accounted for as rights are measured initially at cost. To the extent that a grant is received in connection with an allocation, the cost constitutes the actual consideration paid for the allowances, i.e. nil if they are allocated free of charge. CO2 emisions allowances are amortised in step with actual CO2 emissions. To the extent that actual emissions exceed allocated and purchased CO2 emissions allowances, the fair value of the additional CO2 emissions allowances that DONG Energy is under obligation to settle is recognised as a liability. The amortisation basis for CO2 emissions allowances is determined taking into account their residual value, which depends on whether they are held for use or for sale. The residual value of CO2 emissions allowances held for use is nil. Balance sheet Intangible assets Goodwill. Goodwill is recognised initially in the balance sheet at cost as described under business combinations. Subsequent to initial recogn2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=149http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=149Development projects. Development projects comprise development of IT systems, etc. Development projects that are clearly de ned and identi able, and for which technical feasibility, adequate resources and a potential future market or an application in the enterprise can be demonstrated, and which the enterprise intends to manufacture, market or use, are recognised as intangible assets if the cost can be determined reliably and if there is reasonable certainty that the future earnings or the net selling price will cover production costs, selling costs, administrative expenses and development costs. Other development costs are recognised in the income statement when incurred. Recognised development costs are measured at cost less accumulated amortisation and impairment losses. Cost comprises salaries, amortisation and other costs attributable to the Group’s development activities as well as borrowing costs relating to speci c and general borrowing directly attributable to the development of development projects. On completion of the development work, development projects are amortised on a straight-line basis over the estimated economic life from the date the asset is available for use. The amortisation period is usually ve years. The basis of amortisation is reduced by any impairment losses. Prepayments for intangible assets are classi ed together with in-process development projects. Property, plant and equipment Property, plant and equipment comprises land and buildings, production assets, exploration assets, other assets, tools and equipment, etc., Property, plant and equipment is measured at cost less accumulated depreciation and impairment losses. 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, subsuppliers and labour. Speci c and general borrowing costs attributable to a construction period are recognised in the cost of the asset constructed. Cost is increased by the present value of the estimated obligations for dismantling and removing the asset and restoring the site to the extent that they are recognised as a provision. Where individual components of an asset have different useful lives, they are accounted for as separate items, which are depreciated separately. In the case of assets held under nance leases, cost is determined at inception of the lease as the lower of the fair value of the assets and the present value of future minimum lease payments. The present value is determined using the interest rate implicit in the lease as the discount rate or an approximated value. 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 bene ts will ow to the Group from the expenses incurred. Replaced parts are derecognised from the balance sheet, and their carrying amount is taken to the income statement. All other repair and maintenance expenses are recognised in the income statement as incurred. Exploration assets comprise exploration expenses that relate to successful wells on which production has not yet begun. Costs are recognised using the successful efforts method. Under the successful efforts method, exploration expenses for drilling speci c exploration wells are recognised in the balance sheet. Acquired licences where nds have been made, including acquired reserves, are also recognised under exploration assets. Recognition in the balance sheet is maintained pending determination of commercial viability. Recognised exploration expenses relating to commercial nds are transferred to production assets when a eld has been fully developed and production begins. The asset is tested for indications of impairment in connection with the transfer to production assets, see the description2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=150http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=150ACCOUNTING POLICIES DESCRIPTION OF ACCOUNTING POLICIES 40 / (CONTINUED) the ratio of current production to estimated proven reserves by individual eld. In the case of natural gas activities and wind turbines, cost is depreciated using the unit-of-production method, taking into account the expected earnings pro le, so that the depreciation pattern re ects the expected earnings patterns. In the case of other property, plant and equipment, cost is basically depreciated on a straight-line basis over the estimated future useful lives. Prepayments for property, plant and equipment are classi ed together with property, plant and equipment in the course of Depreciation pro les for property, plant and equipment Buildings used for own purposes 1 If the depreciation period or the residual value changes, the effect on depreciation is recognised prospectively as a change in accounting estimates. Depreciation and impairment losses are recognised in the income statement as production costs, sales and marketing, and management and administration respectively, to the extent that depreciation is not recognised in the cost of selfconstructed assets. construction. Investments in associates Investments in associates are measured in the consolidated nancial statements using the equity method whereby the investments are measured in the balance sheet at the proportionate share of the associates’ net assets determined in accordance with the Group’s accounting policies, plus or minus the carrying amount of goodwill. Associates with a negative equity value are measured at nil. If the Group has a legal or constructive obligation to cover the associate’s de cit, the obligation is recognised as a liability. 20 - 50 years 20 - 40 years 20 - 35 years 25 - 35 years 15 - 24 years 20 years 20 - 40 years 10 - 40 years 10 - 50 years Production assets, natural gas and oil2 Production assets (thermal), power Production assets, district heat Wind turbines 2, 3 Geothermal plants Distribution network, natural gas3 Distribution network, power Distribution network, heat Natural gas storage facilities Natural gas transportation system (marine pipelines)3 Oil transportation system (marine pipeline) Exploration assets4 IT hardware Fixtures and ttings, tools and equipment Assets in the course of construction4 3 20 - 40 years 20 - 40 years 15 years - Receivables from associates are measured at amortised cost. Write-downs are made for bad debts. On acquisition of investments in associates, the purchase method is applied, cf. the description under business combinations. 3 - 5 years 3 - 10 years - Land is not depreciated. 2 Depreciation is charged using the unit-of-production method. 3 The depreciation pro le takes account of the fact that the earnings pro le changes substantially over the life of the asset as a result of the statutory revenue caps. 4 Depreciation does not commence until the date of entry into service, at which time the asset is transferred to the relevant item under property plant and equipment. 1 Other equity investments Other equity investments are recognised as nancial assets available for sale. Available-for-sale nancial assets are those non-derivative nancial assets that are designated as available for sale or are not classi ed as loans and receivables, nancial assets at fair value through the income statement or held-to-maturity nancial assets. Other equity investments are recognised initially in the balance sheet at cost, equivalent to fair value plus transaction costs. Subsequent to initial recognition, equity investments are measured at cost less any impairment losses, as DONG The basis of depreciation is determined on the basis of the asset’s residual value less any impairment losses. The residual value is determined at the acquisition date and reassessed annually. Depreciation ceases if the residual value exceeds the carrying amount of the individual components. 146 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=151http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=151Energy’s other equity investments consist of unlisted securities and it is deemed impracticable to reliably determine their fair value. Other non-current nancial assets Other non-current nancial assets comprise receivables that are recognised initially in the balance sheet at cost, equivalent to fair value, and are subsequently measured at amortised cost. The carrying amounts of other non-current assets are tested annually to determine if any indication of impairment exists. If any such indication exists, the asset’s recoverable amount is determined. The recoverable amount is the higher of an asset’s fair value less expected disposal costs and its value in use. The value in use is determined as the present value of the expected future cash ows from the asset or cash-generating unit to which the asset belongs. An impairment loss is recognised whenever the carrying Impairment of assets Goodwill and intangible assets with an inde nite useful life are tested for impairment annually, initially before the end of the year of acquisition. In-process development projects are also tested annually for impairment. The carrying amount of goodwill is tested for impairment, along with the carrying amounts of the other non-current assets of the cash-generating unit to which the goodwill has been allocated, and written down to the recoverable amount in the income statement if the carrying amount exceeds the recoverable amount. The recoverable amount is generally determined as the fair value less expected disposal costs of the enterprise or activity (cash-generating unit) to which the goodwill relates. amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement as production costs, sales and marketing or management and administration; however, impairment losses relating to goodwill are recognised as a separate line item in the income statement. Impairment losses relating to goodwill are not reversed. Impairment losses relating to other assets are reversed to the extent that the assumptions or estimates that led to the impairment have changed. Impairment losses are only reversed to the extent that the asset’s new carrying amount does not exceed the value of the asset after depreciation had no impairment losses been charged. Inventories CONSOLIDATED NON-FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS Exploration assets are reviewed for impairment annually and if there is any indication of impairment. Impairment testing is also carried out at the time commercial nds have been identi ed, and the exploration assets are reclassi ed to natural gas and oil production assets. In carrying out the test, emphasis is placed on the special indicators that are relevant to the exploration industry, including the duration of the period for which DONG Energy holds the rights for exploration wells, the timing and costs in connection with the exploration wells in the individual elds, the results of existing exploration wells and the expectations concerning future exploration wells, including the level of future exploration wells, and the probability that the exploration wells will result in commercial nds. The recoverable amount of exploration assets is reviewed if any indication of impairment exists. The recoverable amount is the higher of the assets’ fair value less expected disposal costs and the present value of the expected future net cash ows (value in use). Deferred tax assets are reviewed annually and recognised to the extent that it is probable that they will be utilised. Inventories consist of natural gas and oil in storage facilities, as well as raw materials, consumables and fuel inventories. In the case of natural gas, cost is determined as a weighted average of the previous month’s buying prices, including transportation costs. In the case of oil, cost is determined as the average production cost. Allocated and purchased CO2 emissions allowances that form part of the2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=152http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=152ACCOUNTING POLICIES DESCRIPTION OF ACCOUNTING POLICIES 40 / (CONTINUED) account marketability, obsolescence and development of expected selling price. Receivables Receivables are measured at amortised cost. A write-down for bad and doubtful debts is made if there is any objective evidence of impairment of a receivable or a portfolio of receivables. If there is any objective evidence of impairment of an individual receivable, the receivable is written down individually. Receivables for which objective evidence of impairment is not available on an individual basis are assessed for impairment on a portfolio basis. Portfolios are primarily based on the debtor’s registered of ce and credit rating in conformity with the Group’s credit risk management policy. The objective evidence applied to portfolios is determined on the basis of historical loss experience. Where the selling price of work performed on construction If there is any objective evidence of impairment of a portfolio, an impairment test is carried out where expected future cash ows are estimated on the basis of historical loss experience adjusted for current market conditions and individual factors related to the individual portfolio. The impairment loss is calculated as the difference between the carrying amount and the present value of estimated future cash ows, including the realisable value of any collateral received. The discount rate used is the effective interest rate for the individual receivable or portfolio. Interest income on impaired receivables is calculated on the written-down value at the effective interest rate for the individual receivable or portfolio. Construction contracts Construction contracts comprise the construction of assets involving a high degree of customisation in terms of design, and where a binding contract has been entered into prior to start-up of the work that will trigger a penalty or compensation in the event of subsequent cancellation. Construction contracts also include services such as establishment of grids and networks, etc. Construction contracts are measured at the selling price of the work performed less progress billings. Equity Hedging reserve. The hedging reserve comprises the accumulated net change in the fair value of hedging transactions Changes in the fair value of securities are recognised in the income statement as nancial income and nancial expenses. Short-term and long-term securities Securities, comprising bonds that are monitored, measured and reported at fair value on a continuing basis in conformity with the Group’s investment policy, are recognised at the trade date under current assets and measured at fair value, equivalent to market price for listed securities and estimated fair value determined on the basis of current market data and recognised valuation methods for unlisted securities. contracts exceeds progress billings and expected losses, the contracts are recognised under receivables. Where progress billings and expected losses exceed the selling price of construction contracts, the contracts are recognised under liabilities. Prepayments from customers are recognised under liabilities. Costs related to sales work and the winning of contracts are recognised in the income statement as incurred. When the outcome of a construction contract cannot be estimated reliably, the selling price is only recognised to the extent of the costs incurred that it is probable will be recoverable. When it is probable that total contract costs on a construction contract will exceed total contract revenue, the expected loss on the construction contract is recognised as an expense and a provision immediately. The selling price of construction contracts is measured on the basis of the stage of completion at the balance sheet date and total expected income on each contract. The stage of completion is determined on the basis of an assessment of the work performed, normally determined as the proportion that contract costs incurred2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=153http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=153that qualify for designation as hedges of future cash ows, and where the hedged transaction has yet to be realised, less the related tax. ments are recognised in the cash ow statement in the same way as dividend payments under nancing activities. Premium on acquisition of minority interests. Premium on Translation reserve. The translation reserve comprises exchange differences arising on translation of the nancial statements of foreign entities with a functional currency that is different from the presentation currency (DKK) of the DONG Energy Group, foreign exchange adjustments relating to assets and liabilities that form a part of the Group’s net investment in such entities, and foreign exchange adjustments relating to hedging transactions that hedge the Group’s net investment in such entities, less the related tax. The foreign exchange adjustments are recognised in the income statement on realisation or partial realisation of the net investment. Share premium. Share premium represents the excess of the amount subscribed for share capital over the nominal value of these shares in connection with capital increases as well as gains on sale of treasury shares. The share premium is available for distribution. Dividends. Proposed dividends are recognised as a liability at the date of their adoption at the Annual General Meeting (declaration date). Up to the declaration date, proposed dividends are disclosed as a separate item under equity. Extraordinary dividends are recognised as a liability at the declaration date. Hybrid capital. Hybrid capital comprises issued bonds that qualify for treatment in accordance with the rules on compound nancial instruments due to the special characteristics of the loan. The principal amount, which constitutes a liability, is recognised at present value (nil), and equity has been increased by the difference between the net proceeds received and the present value of the discounted liability. Accordingly, any coupon payments are accounted for as dividends, which are recognised directly in equity at the time the payment obligation arises. This is because the coupon payments are discretionary and relate to the part of the hybrid capital, the equity instrument, that is recognised in equity. Coupon payments consequently do not have any effect on the income statement. The part of the hybrid capital that is accounted for as a liability is measured at amortised cost. As the carrying amount of this component amounted to nil on initial recognition, and, as a result of the 1,000-year term of the hybrid capital, amortisation charges will only impact on the income statement towards the end of the 1,000-year term of the hybrid capital. Coupon pay- acquisition of minority interests is accounted for as a transaction with the Group’s owners and consequently recognised directly in equity. Income tax and deferred tax Current tax payable and receivable is recognised in the balance sheet as tax computed on the taxable income for the year, adjusted for taxes paid on account. Deferred tax is measured using the balance sheet liability method, providing for all temporary differences between the carrying amounts and the tax base of assets and liabilities. However, temporary differences are not provided for in respect of goodwill not deductible for tax purposes, of ce properties and other items - apart from business combinations - where temporary differences have arisen at the acquisition date without having any effect on either pro t/loss or taxable income. Where different tax rules can be applied to determine the tax base, deferred tax is measured on the basis of management’s planned use of the asset or settlement of the liability respectively. Deferred tax assets, including the tax base of tax loss carryforwards, are recognised as other non-current assets at the value at which they are expected to be utilised either by elimination against tax on future earnings or by set-off against deferred tax liabilities within the sam2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=154http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=154ACCOUNTING POLICIES DESCRIPTION OF ACCOUNTING POLICIES 40 / (CONTINUED) Deferred tax on temporary differences between the carrying amounts and the tax base of acquisitions of jointly controlled assets, including licence interests, is not provided for. Provisions for decommissioning of production facilities and Pensions The Group has entered into pension agreements and similar agreements with most of the Group’s employees. Contributions to insured (de ned contribution) pension plans are recognised in the income statement in the period to which they relate, and any contributions payable are recognised in the balance sheet as other payables. Non-insured pensions (de ned bene t plans) relate to pensions to a few power station employees that are no longer with the company and public servants taken over from municipally owned regional gas companies. The obligation has been determined using an actuarial calculation. In the case of de ned bene t plans, the present value of future bene ts to be paid under the plan is determined actuarially on an annual basis. The present value is determined on the basis of assumptions about future trends in salary levels, interest rates, in ation, mortality, etc. The present value is determined only for the bene ts to which the employees have earned the right through service already rendered to the Group. The actuarially determined present value is recognised in the balance sheet under pension obligations. The year’s pension costs, including actuarial gains and losses, are recognised in the income statement. The nancial consequences of the de ned bene t pension plans entered into by the Group are insigni cant. Provisions Provisions are recognised when, as a result of an event occurring before or at the balance sheet date, the Group has a legal or constructive obligation, the settlement of which is expected to result in an out ow from the company of resources embodying economic bene ts. In subsequent periods, the nancial liabilities are measured In measuring provisions, the costs required to settle the liability are discounted to net present value, if this has a signi cant effect on the measurement of the liability. A pre-tax discount rate is used that re ects the general interest rate level in the at amortised cost using the “effective interest rate method”. Accordingly, the difference between the proceeds received and the nominal amount is recognised in the income statement under nancial expenses over the term of the loan. Bond loans, mortgage loans and bank loans are recognised at inception at the proceeds received net of transaction costs incurred. Financial liabilities Financial liabilities comprise mortgage loans, bank loans, trade and other payables to public authorities, etc. If it is considered unlikely that an out ow of resources embodying economic bene ts will be required to settle an obligation, or if the obligation cannot be measured reliably, the obligation is accounted for as a contingent liability that is not recognisesed in the balance sheet. Information about material contingent liabilities is disclosed in the notes. A provision for onerous contracts is recognised when the expected bene ts to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. restoration of drilling sites are measured at the present value of the future liability in respect of decommissioning and restoration as estimated at the balance sheet date. The amount provided is determined on the basis of existing requirements and estimated expenses, which are discounted to present value. If speci c risks are deemed to attach to a provision, the estimated costs are recognised. A discount rate is used that re ects the general interest rate level in the market. These liabilities are recognised as they arise and are adjusted on a regular basis to re ect changes in requirements, price level, etc. The value of the provision is recognised under property, plant and2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=155http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=155For hybrid capital, reference is made to the speci c details given under equity. Other bank loans include the capitalised residual lease commitment under nance leases, measured at amortised cost. Trade payables, payable income tax and other payables are measured at net realisable value. Other payables include negative fair values of derivative nancial instruments and certain realised and unrealised gains and losses on loans in DONG Oil Pipe A/S, etc. Financial liabilities the value of which has been effectively hedged are adjusted to fair value to the extent of the hedged risk. The value adjustment is recognised in the income statement as nancial income or nancial expenses. Leasing Lease commitments are accounted for as commitments under nance leases and commitments under operating leases respectively. A lease is classi ed as a nance lease if it transfers substantially all the risks and rewards incidental to ownership of the leased asset. Other leases are classi ed as operating leases. The accounting treatment of assets held under nance leases and the associated liability is described in the sections on property, plant and equipment and nancial liabilities. Lease payments under operating leases are recognised in the income statement over the term of the lease on a straight-line basis. Assets classi ed as held for sale Assets classi ed as held for sale and the associated liabilities are presented as separate line items in the balance sheet, and the principal items are speci ed in the notes. Comparative gures in the balance sheet are not restated. transaction within twelve months under a formal plan rather than through continuing use. Assets or disposal groups classi ed as held for sale are measured at the lower of carrying amount at the date of classi cation as held for sale and fair value less costs to sell. No depreciation or amortisation is charged on assets from the date they are classi ed as held for sale. Impairment losses arising on initial classi cation as held for sale and gains and losses on subsequent measurement at the lower of carrying amount and fair value less costs to sell are recognised in the income statement under the items to which they relate. Gains and losses are disclosed in the notes. Cash ow statement The cash ow statement shows cash ows for the year from operating, investing and nancing activities, the year’s changes in cash and cash equivalents, and cash and cash equivalents at the beginning and end of the year. The cash ow effect of acquisitions and disposals of enterprises is disclosed separately under cash ows from investing activities. Cash ows relating to acquired enterprises are recognised in the cash ow statement from the date of acquisition, and cash ows relating to enterprises disposed of are recognised up to the date of disposal. Cash ows from operating activities are determined using the indirect method as operating pro t adjusted for non-cash operating items, changes in working capital, interest received and interest paid, and income tax paid. Cash ows from investing activities comprise payments in connection with acquisition and disposal of enterprises and activities; purchase and sale of intangible assets, property, plant and equipment and other non-current assets; and purchase and sale of securities that are not recognised as cash and cash equivalents. Finance leases are accounted for as non-cash transactions. PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS Assets classi ed as held for sale comprise non-current assets and disposal groups classi ed as held for sale. Disposal groups are groups of assets to be disposed of, by sale or otherwise, together as a group in a single transaction. Liabilities relating to assets held for sale are liabilities directly associated with those assets that will be transferred in the transaction. Assets are classi ed as held for sale when their carrying amount will be recovered principally through a sale Cash ows from nancing acti2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=156http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=156ACCOUNTING POLICIES DESCRIPTION OF ACCOUNTING POLICIES 40 / (CONTINUED) Cash ows relating to assets held under nance leases are recognised as payment of interest and repayment of debt. Cash and cash equivalents comprise cash as well as securities that form part of the ongoing cash management, are readily convertible to cash and are subject to an insigni cant risk of changes in value. Cash ows in currencies other than the functional currency are translated at the average exchange rates for the month in question, unless these deviate signi cantly from the rates at the transaction date. Segment information in respect of geographical markets is Net working capital is de ned as inventories and trade receivables less trade payables. Segment investments comprise investments in exploration assets; other intangible assets; property, plant and equipment; and long-term construction contracts. receivables. Deferred tax, investments in associates and other equity investments are not allocated to individual segments, as they are not directly employed by the individual segment in its operating activities. Segment information Operating segments are reported in accordance with the Group’s internal management reporting, which is presented to the Group’s chief operating decision maker. The operating decision maker is de ned as the Executive Board. Segment information has been prepared in accordance with the Group’s accounting policies. Segment income, segment expense, segment assets and segment liabilities are those items that, in the internal management reporting, are directly attributable to the individual segment or can be indirectly allocated to the individual segment on a reliable basis. Unallocated items are included in other activities and comprise primarily assets, liabilities, revenue and expense relating to the Group’s administrative functions, investing activities, income taxes, etc. The Group operates with two performance measures, with EBITDA as the primary measure of performance, and EBIT as the secondary measure of performance. EBITDA is de ned as earnings before interest, tax, depreciation and amortisation, but inclusive of amortisation of purchased CO2 emissions allowances, as purchased CO2 emissions allowances are accounted for as a cost of sales item. EBIT is de ned as earnings before interest and tax. Non-current segment assets comprise those non-current assets that are directly employed by a segment in its operating activities, including intangible assets and property, plant and equipment; long-term construction contracts; and non-current determined by breaking revenue down, as far as possible, by customer location based on supply point. When delivery is made directly from production platforms in the North Sea, the nal supply point is not known to DONG Energy. In such cases, customer location is de ned on the basis of invoicing address. Non-current assets are broken down geographically based on the physical location of the assets and comprise intangible assets and property, plant and equipment. Intersegment transactions are priced on arm’s length terms. 152 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=157http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=157Financial key performance indicators Unless otherwise stated, performance indicators have been calculated in accordance with the Danish Society of Financial Analysts’ ‘Recommendations & Financial Ratios 2005’. EBITDA margin 1 EBIT margin Earnings per share (EPS) of DKK 10 1 Proposed dividend per share (DPS) of DKK 10 Payout ratio 1 Earnings before interest, tax, depreciation and amortisation Revenue Earnings before interest and tax Revenue Pro t2 Average number of shares Total proposed dividend Number of shares year end Total proposed dividend Pro t Total paid dividend Number of shares3 (Sharesbeg of yr x D4 ) + (Sharesyr end x (365-D4)) 365 Cash ows from operating activities Net interest-bearing debt + hybrid capital EBITDA adjusted for special hydrocarbon tax Net interest-bearing debt + 50% hybrid capital Cash ows from operating activities Net interest-bearing debt Total equity Free cash ow to equity (without acquisitions/disposals) Average number of shares Earnings before interest, tax, depreciation, amortisation. From 2007 onwards, EBITDA has been determined inclusive of amortisation of purchased CO2 emissions allowances, as such allowances are accounted for as cost of sales items EBITDA adjusted for special hydrocarbon taxes that follow from the Group’s natural gas and oil exploration and production activities Interest-bearing assets less utilised bank overdrafts Interest-bearing debt excluding utilised bank overdrafts and hybrid capital Equity + net interest-bearing debt Cash ows from investing activities before change in working capital plus dividends received from associates and equity investments less 50% of coupon on hybrid capital Cash ows from investing activities, excluding dividends received from associates and equity investments, disposal of assets and enterprises, nancial transactions with associates, and short-term investments that are not part of cash Cash ows from investing activities, excluding dividends received from associates and equity investments, nancial transactions with associates and short-term investments that are not part of cash. To/from this should be added/deducted acquired/transferred debt in connection with acquisitions and disposals of enterprises, and deducted minority interests’ share of investments in consolidated investment projects and the selling price of minority holdings. Cash ows from operating activities and investing activities Cash ows from operating activities and investing activities, excluding cash ows from acquisitions/disposals of enterprises and asset groups Inventories + external trade receivables less external trade payables Intragroup trade receivables less intragroup trade payables Dividend paid per share of DKK 10 Average number of shares Cash ows from operating activities per share Interest-bearing debt to EBITDA Adjusted net debt to operating cash ows 1 Financial gearing Free cash ow to equity (without acquisitions/disposals) per share EBITDA EBITDA adjusted for special hydrocarbon tax Interest-bearing assets Interest-bearing liabilities Invested capital Funds From Operation (FFO) Gross investments 1 Net investments 1 Free cash ow to equity (with acquisitions/disposals) Free cash ow to equity (without acquisitions/disposals) Net working capital, external transactions 1 Net working capital, intragroup transactions 1 1 The de nition deviates from the Danish Society of Financial Analysts’ ‘Recommendations & Financial Ratios 2005’. Earnings per share (EPS) is determined in accordance with IAS 33. 3 Number of shares outstanding at declaration date. 4 D = number of days prior to a capital increase, including the day on which the proceeds are received. 2 CONSOLIDATED FINANCIAL STATEMENTS 153 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS Average number of shares CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=158http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=158NOTES WITHOUT REFERENCE 41 / LICENCE OVERVIEW Signi cant licences and hydrocarbon exploration and production licences in Denmark and abroad Segment Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Activity Production Production Production Production Production Production Production Production Production Production Production Production Production Production Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Licence Licence 7/89 Syd Arne Licence 1/90 Lulita Licence 4/95 Nini Licence 6/95 Siri Licence 16/98 Cecilie Licence PL250 Ormen Lange Licence PL019A Ula Licence PL019B Gyda Licence PL065 Tambar Licence PL300 Tambar East Licence P159B Alve Licence PL208 Ormen Lange Licence PL274 Oselvar Licence PL147 Trym Licence 7/86 Amalie Licence 9/95 Maja Licence 4/98 Svane Licence 5/98 Hejre Licence 1/06 Hejre Extension Licence 2/06 Syd Tor Pod Licence 03/07 Visby Licence 03/09 Solsort Licence PL019C Kark Lead Licence PL019D Licence PL113 Mjølner Licence PL122 Marulk Licence PL122B Marulk Licence PL122C Marulk Licence PL122D Marulk Licence PL273 Trane Licence PL274BS Mandarin Licence PL274CS Licence PL289 Marsvin Licence PL299 TR3 Licence PL301B Nemo SE Licence PL301CS Agn Licence PL360 Lupin Location Denmark Denmark Denmark Denmark Denmark Norway Norway Norway Norway Norway Norway Norway Norway Norway Denmark Denmark Denmark Denmark Denmark Denmark Denmark Denmark Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Ownership interest (%) 34 44 40 50 22 9 20 34 45 45 15 45 55 50 30 20 45 60 48 27 80 50 35 35 20 30 30 30 30 10 20 55 40 40 40 28 20 Expiry 2027 2028 2032 2027 2032 2041 2029 2018 2022 2023 2029 2040 2039 2027 2026 2011 2011 2010 2012 2012 2013 2028 2018 2011 2021 2025 2025 2025 2025 2039 2011 2039 2039 2011 2011 2013 2012 154 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=159http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=159Segment Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Exploration & Production Generation Generation Generation Generation Activity Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Exploration Production Production Production Exploration/ Production Licence Licence PL429 Spinell Licence PL480 Eiktyrne Licence PL514 Licence PL518 Licence PL529 Licence P911 Laggan Licence P912 Torridon Licence P967 Tobermory Licence P1026 Rosebank N Licence P1028 Cambo Licence P1159 Tormore Licence P1163 MacAllan Licence P1189 Blackrock Licence P1190 Tornado Licence P1191 Rosebank S Licence P1194 Lochside Licence P1195 Glenlivet Licence P1262 Tornado Licence P1272 Rosebank N Licence P1373 Cretaceous A Lead Licence P1374 Creetaceous F Licence P1407 Glenshee Licence P1453 Black Sail Licence P1454 Glenesk Licence P1572 Highland Park Licence P1598 Tamdhu Licence P1599 Cretaceous A Lead Licence P1636 Longmorn LicenceP1678 Dalmore Licence F008 Stelkur Licence F009 Sildrakin Licence F016 Kúlubøkan Licence G2007/26 Puilasoq Licence to operate wind farm (Nysted) Licence to operate wind farm (Middelgrunden) Licence to operate wind farm (Horns Rev 2) Location Norway Norway Norway Norway Norway UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK Faroe Islands Faroe Islands Faroe Islands Greenland Denmark Denmark Denmark Ownership interest (%) 30 20 30 40 20 20 6 33 10 20 20 19 20 20 10 10 80 20 10 40 40 10 19 40 22 40 40 30 20 20 20 30 33 - Expiry 2012 2012 2015 2016 2016 2031 2031 2045 2018 2018 2010 2010 2010 2010 2010 2010 2010 2010 2010 2011 2011 2011 2011 2011 2013 2013 2013 2016 2013 2014 2011 2014 2017 2028 2025 2034 2013 Geothermal energy exploration and production licence Denmark CONSOLIDATED FINANCIAL STATEMENTS 155 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=160http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=160NOTES WITHOUT REFERENCE 41 / LICENCE OVERVIEW (CONTINUED) Segment Activity Exploration/ Production Exploration/ Production Production Sales Production Production Production Production Production Sales Licence Location Ownership interest (%) Expiry Geothermal energy exploration and production licence Denmark Geothermal energy exploration and production licence Denmark Power generation licence Natural gas supply licence Underground natural gas storage licence Underground natural gas storage licence Natural gas distribution licence Power distribution licence Power transmission licence PSO licence, power Denmark Denmark Denmark Denmark Denmark Denmark Denmark Denmark Generation Generation Generation Sales & Distribution Sales & Distribution Sales & Distribution Sales & Distribution Sales & Distribution Sales & Distribution Sales & Distribution 1 2 - 2016 2016 2022 20131 2023 2012 2023 2023 2025 20122 The licence is renewed on an ongoing basis for ve-year terms. In 2010, the Danish Energy Agency approved the combination of the licences for Frederiksberg, North Zealand and Copenhagen to a single licence. However, approval was subject to the companies comprised merging. For a number of the Group’s licences, the licence expiry dates shown opposite each licence indicate the entire term of the exploration and evaluation licence that can be retained if DONG Energy and the Group’s partner in each licence meet certain licence criteria. These criteria may include an obligation to drill a speci c number of wells or to assume other obligations relating to planning or development of the area to which the licence relates. If DONG Energy and the Group’s licence partners opt not to meet such criteria, the licence term may expire earlier than the date shown in the table above. For wind farms with a capacity of less than 25 MW in Denmark and less than 100 MW in the UK, a production licence is not required. 156 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=161http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=16142 / COMPANY OVERVIEW Segment/company Parent company DONG Energy A/S Fredericia, Denmark Type 1 Registered of ce Ownership interest Exploration & Production DONG E&P nr. 1 2008 A/S 2 DONG CentralGraben E&P Ltd. DONG E&P (UK) Ltd. DONG E&P A/S DONG E&P Føroyar P/F DONG E&P Grønland A/S DONG E&P Norge AS S S S S S S S Fredericia, Denmark Fredericia, Denmark London, England Fredericia, Denmark Torshavn, Faroe Islands Sermersooq, Greenland Stavanger, Norway 100% 100% 100% 100% 100% 100% 100% CONSOLIDATED NON-FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS Generation A2Sea A/S A2Sea Deutschland GmbH A2Sea Ltd. Barrow Offshore Wind Ltd. Borkum Riffgrund I Holding A/S Breeveertin II Wind Farm BV Carron Engineering & Construction Limited Den Helder Wind Farm BV DONG Energy - Anholt Offshore A/S 2 DONG Energy Ayshire Holdco Ltd. DONG Energy Burbo (UK) Limited DONG Energy Horns Rev I A/S DONG Energy Horns Rev 2 A/S DONG Energy Karcino Sp.z.o.o. DONG Energy Kraftwerke Emden GmbH DONG Energy Kraftwerke Greifswald Beteiligungs-GmbH DONG Energy Kraftwerke Greifswald GmbH & Co. KG DONG Energy Kraftwerke Greifswald Verwaltungs GmbH DONG Energy Kraftwerke Holding GmbH DONG Energy London Array Ltd. DONG Energy London Array II Ltd. DONG Energy NearshoreLAB, Frederikshavn A/S DONG Energy Nysted I A/S DONG Energy Polska S.A. DONG Energy Power A/S DONG Energy Power Holding A/S S S S J S J S J S S S S S S S S S S S S S S S S S S Fredericia, Denmark Hamburg, Germany London, England Berkshire, England Copenhagen, Denmark Rotterdam, Holland Stokesley, England Rotterdam, Holland Fredericia, Denmark London, England London, England Fredericia, Denmark Fredericia, Denmark Koszalin, Poland Hamburg, Germany Rubenow, Germany Rubenow, Germany Rubenow, Germany Hamburg, Germany London, England London. England Frederikshavn, Denmark Fredericia, Denmark Warsaw, Poland Fredericia, Denmark Fredericia, Denmark 100% 100% 100% 50% 100% 50% 100% 50% 100% 100% 100% 100% 100% 100% 100% 100% 75% 75% 100% 100% 100% 100% 100% 100% 100% 100% CONSOLIDATED FINANCIAL STATEMENTS 157 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=162http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=162NOTES WITHOUT REFERENCE 42 / COMPANY OVERVIEW (CONTINUED) Segment/company DONG Energy Power Holding UK Ltd. DONG Energy Power UK I Ltd. DONG Energy Power Rotterdam B.V. DONG Energy Shell Flats (UK) Limited DONG Energy West of Dudden Sands (UK) Limited DONG Generation Norge AS DONG VE A/S DONG Vind A/S DONG Wind I (UK) Ltd. DONG Wind (UK) Ltd. DONG Wind (UK) II Ltd. Dublin Waste to Energy (Holdings) Limited Dublin Waste to Energy Ltd. E2 Landvind A/S E2 Landvind A/S af 15. september 2003 E2 Landvind A/S af 20. oktober 2003 Elsam France S.A.S. Elsamprojekt Polska Sp. z.o.o. Emineral A/S Enecogen V.O.F Energi E2 Renewables A/S Frederikshavn Affaldskraftvarmeværk A/S Greenpower (Broadmeadows) Limited Gun eet Grid Company Limited Gun eet Sands Ltd. Gun eet Sands II Ltd. Haderslev Kraftvarmeværk A/S Heysham Offshore Wind Ltd. Horns Rev I Offshore Wind Farm I/S Horsens Kraftvarmeværk A/S I/S Ensted Transithavn Kappa Sp. z.o.o. Kraftgården AB Lincs Renewable Energy Holdings Limited London Array Ltd. Midtfjellet Vindkraft AS MIG Business Development A/S Morecambe Wind Ltd. Type 1 S S S S S S S S S S S A A S S S S S J J S S J S S S S S J S J S A J J J S J Registered of ce London, England London, England Rotterdam, Holland London, England London, England Lindås, Norway Fredericia, Denmark Fredericia, Denmark London, England London, England London, England Dublin, Ireland Dublin, Ireland Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Paris, France Warsaw, Poland Aalborg, Denmark Rotterdam, Holland Fredericia, Denmark Fredericia, Denmark Aberdeen, Scotland London, England London, England London, England Fredericia, Denmark London, England Fredericia, Denmark Fredericia, Denmark Aabenraa, Denmark Szczecin, Poland Ragunda, Sweden London, England Coventry, England Fitjar, Norway Frederikshavn, Denmark London, England Ownership interest 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 49% 49% 100% 100% 100% 100% 100% 50% 50% 100% 100% 50% 100% 100% 100% 100% 100% 40% 100% 50% 100% 26% 50% 50% 50% 50% 33% 158 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=163http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=163Segment/company Måbjergværket A/S Nesa Vind A/S Nordkraft AS Nordkraft Vind AS 4 Nysted Havmølle Park I 4 Type 1 S S A J J S S S S S S A A J S S S S S S S S J J S A Registered of ce Fredericia, Denmark Gentofte, Denmark Narvik, Norway Narvik, Norway Fredericia, Denmark Fredericia, Denmark Szczecin, Poland Paris, France Cuxhaven, Germany Cuxhaven, Germany Szczecin, Poland Copenhagen, Denmark Fauske, Norway Coventry, England Newport, Wales Newport, Wales Newport, Wales Newport, Wales Uddevalla, Sweden Stockholm, Sweden Fredericia, Denmark London, England Rotterdam, Holland London, England London, England Sarpsborg, Norway Ownership interest 100% 100% 33% 67% 80% 100% 100% 100% 100% 100% 100% 22% 29% 50% 100% 100% 100% 100% 80% 80% 100% 75% 50% 33% 100% 33% Odense Kraftvarmeværk A/S Omikron Sp. z.o.o. Ploudalmezeau - Breiz Avel 01 S.A.S. PNE2 RIFF I GmbH PNE2 RIFF II GmbH Polska Energia Wiatrowa Sp. z.o.o. P/S BI New Energy Solutions Salten Kraftsamband AS 3 Scarweather Sands Ltd. Severn Gas Transportation Limited Severn Power Funding Limited Severn Power Holdings Limited Severn Power Limited Storrun Vindkraft AB Storrun Vindkraft Elnät AB Vejen Kraftvarmeværk A/S Walney (UK) Offshore Windfarms Ltd. West Rijn Wind Farm BV West of Dudden Sands Westermost Rough Ltd. Zephyr AS Energy Markets Deudan GmbH Deudan GmbH & Co. KG DONG Energy Infrastruktur Holding GmbH DONG Energy Leitung E GmbH DONG Energy Markets B.V. DONG Energy Markets GmbH DONG Energy Pipelines A/S DONG Energy Pipelines GmbH DONG Energy Sales GmbH DONG Energy Speicher E GmbH A A S S S S S S S S Handewitt, Germany Handewitt, Germany Hamburg, Germany Hamburg, Germany Amsterdam, Holland Dorsten, Germany Fredericia, Denmark Kiel, Germany Lübeck, Germany Hamburg, Germany 49% 49% 100% 100% 100% 100% 100% 100% 81% 100% PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS 159 CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=164http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=164NOTES WITHOUT REFERENCE 42 / COMPANY OVERVIEW (CONTINUED) Segment/company DONG Energy Speicher R GmbH DONG Naturgas A/S Etzel Kavernenbetriebsverwaltungsgesellschaft mbH Etzel Kavernenbetriebsgesellschaft mbH & Co. KG Gaspool Balancing Service GmbH Kielspeicher 103 GmbH & Co. KG Kielspeicher 103 Verwaltungs-GmbH Stadtwerke Lübeck GmbH Stadtwerke Lübeck Netz GmbH Swedegas AB Swedegas Intercon AB KOM-STROM AG KOM-FIN GmbH Type 1 S S A A A J J A A A A S S Registered of ce Kiel, Germany Fredericia, Denmark Hamburg, Germany Hamburg, Germany Berlin, Germany Kiel, Germany Kiel, Germany Lübeck, Germany Lübeck, Germany Gothenburg, Sweden Gothenburg, Sweden Leipzig, Germany Leipzig, Germany Ownership interest 100% 100% 33% 33% 25% 49% 49% 25% 25% 20% 20% 84% 84% Sales & Distribution Dansk Gasteknisk Center A/S DE 2008 A/S DE EM nr. 1 2008 A/S DE S&D nr. 1 2008 A/S 2 DE S&D nr. 2 2008 A/S 2 DELPRO A/S DONG Energy Aktiebolag DONG Energy City Drift ApS DONG Energy City Elnet A/S DONG Energy City Forsyning A/S DONG Energy El & Gas A/S DONG Energy Frederiksberg Elforsyning A/S DONG Energy Frederiksberg Elnet A/S DONG Energy Gasforsyning A/S DONG Energy Kabler A/S DONG Energy Nord Elnet A/S DONG Energy Nord Forsyning A/S DONG Energy Sales B.V. DONG Energy Sales & Distribution A/S DONG Energy Service 1 A/S DONG Energy Service 2 A/S DONG Gas Distribution A/S DONG Oil Pipe A/S A S S S S A S S S S S S S S S S S S S S S S S Rudersdal, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Kolding, Denmark Gothenburg, Sweden Fredericia, Denmark Frederica, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Oesterhout, Holland Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark 37% 100% 100% 100% 100% 33% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 160 CONSOLIDATED FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=165http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=165Segment/company DONG Storage A/S DONG Sverige Distribution AB FordonsGas Sverige AB Frederiksberg Energiservice A/S PowerSense A/S Type1 S S A S A Registered of ce Fredericia, Denmark Gothenburg, Sweden Gothenburg, Sweden Fredericia, Denmark Lyngby-Taarbæk, Denmark Ownership interest 100% 100% 50% 100% 44% Other DONG EGJ A/S DONG El A/S DONG Energy Oil & Gas A/S DONG Insurance A/S EnergiGruppen Jylland F&B A/S EM El Holding A/S EnergiGruppen Jylland El A/S EnergiGruppen Jylland El Holding A/S EnergiGruppen Jylland Forbrænding A/S Hovedstadsområdets Geotermiske Samarbejde Inbicon A/S Stigsnæs Vandindvinding I/S DE nr. 1 2003 A/S 1 2 3 S S S S S S S S NC NC S NC S Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Herning, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Herning, Denmark Copenhagen, Denmark Fredericia, Denmark Slagelse, Denmark Fredericia, Denmark 100% 100% 100% 100% 66% 100% 100% 100% 66% 46% 100% 59% 100% CONSOLIDATED NON-FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS 2 S = subsidiary, A = associate, J = jointly controlled entity, NC = non-consolidated enterprise The company applies the provison in section 6 of the Danish Financial Statements Act to omit presenting a separate annual report. DONG Energy holds 5% of the share capital in Salten Kraftsamband AS through Narvik Energi AS. This ownership interest is not recognised in the Group’s share of pro t and equity. DONG Energy is not deemed to have control over the company. 4 The company overview above shows the DONG Energy Group’s ultimate ownership interest in each enterprise, regardless of whether it is held directly or indirectly. CONSOLIDATED FINANCIAL STATEMENTS 161 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=166http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=166CONSOLIDATED NON-FINANCIAL STATEMENTS REPORTING CRITERIA Overview 2009 is the rst year that DONG Energy combines nancial and non- nancial data in a single report. The overview showing non- nancial key performance indicators on page 5 and the review of nancial performance in 2009 on pages 16-25 comprise data from the four business areas in DONG Energy: Exploration & Production (natural gas and oil exploration and production); Generation (power and heat generation); Energy Markets (optimisation of the Group’s energy portfolio and wholesale sales of natural gas and power); Sales & Distribution (sales and distribution of power, natural gas and related products to residential customers, companies and public institutions). The non- nancial data comprising production, environmental, health and safety and employee data for DONG Energy and its activities have been collected with the delimitations appearing from this description of accounting policies for 2009. Reporting and materiality criteria Management’s reasons for choosing the environmental data that are included in the overview of non- nancial key performance indicators in the nancial annual report for 2009 are based on the business areas’ evaluations in 2007 of their environmental impacts, the subsequently set corporate targets and underlying key performance indicators identi ed for one or more of the business areas. The choice of occupational injuries and injury frequency rate as the key occupational health and safety parameter is based on a management decision. The same applies to the employee data that have been chosen for inclusion in the overview. Standards and GRI reporting DONG Energy has been reporting in accordance with the Global Reporting Initiative’s (GRI’s) Reporting Guidelines G3 annually since 2006. Since 2008, DONG Energy has also been reporting in accordance with the GRI’s Electric Utilities Sector Supplement (EUSS). An overview of the GRI indicators that DONG Energy has chosen to report on for the 2009 nancial year is set out on page 204 of this annual report. The reporting is based on application level B+. In practice, this means that the reporting comprises all operational activities in DONG Energy and the Group’s subsidiaries as well as jointly controlled entities. The latter are determined on the basis of ownership interest. Associates are not included in the reporting. The reporting covers the period 01.01.2009 to 31.12.2009. Audit DONG Energy has had the non- nancial reporting for the 2007, 2008 and 2009 nancial years audited externally. Reference is made to the assurance statement on page 201. Organisation and data quality The business areas’ reporting has been systematised and streamlined via a common reporting system that forms the basis for the consolidated reporting. In DONG Energy the business areas are responsible for the quality of non- nancial data, although based on corporate reporting instructions the purpose of which is to support a Group-wide approach to data quality and ensure that data in the consolidated reporting can be reproduced in accordance with the stated methods for recognition and measurement and for determination of data. The implementation of consolidated reporting instructions is ongoing, as they have not been implemented in all areas by local units, and procedures and systems relating to some control measures are still being developed. Taking into account the uncertainties that exist as a result of the ongoing work, data have been recognised in the consolidated reporting based on the data reported by the business areas and accounting technical corporate controlling. DONG Energy has carried out an assessment of materiality of the GRI indicators based on the methodology proposed by GRI. The methodology remains unchanged from 2008 and can be viewed at www.dongenergy.com. Accounting policies for non- nancial data Except as otherwise described in the following sections, nonnancial data are determined using the same delimitations and2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=167http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=167About environmental data Environmental data comprise data relating to consumption, emissions and discharges, waste and other environmental data. (direct and indirect) ownership interest). However, a de minimis rule has been introduced for associates, which means that plants with a capacity of less than 10 MW are omitted. Additions and disposals during the year The reporting of environmental data does not include construction projects and development projects and similar activities that are not part of the ordinary activities. The business areas Exploration & Production and Energy Markets In the case of activities where DONG Energy is not the operator, only environmental impacts from the production activities are included, and not any impact from administrative support functions. The reporting does not include construction projects, exploration and drilling projects, development projects, JI/CDM projects and non-operated gas storage facilities, including LNG terminals and similar activities that are not part of the Group’s ordinary operating activities. Waste data are not received from elds not operated by DONG Energy. The reporting from this area previously also included discharges of chemicals from drilling activities. DONG Energy has chosen not to report on this in 2009 as the original corporate target no longer applies. About occupational health and safety Occupational injuries and injury frequency rate both for own employees and for suppliers working in locations in which DONG Energy is responsible for safety are included from companies that are owned or co-owned by DONG Energy and where DONG Energy is directly responsible for safety. About employees The reporting comprises paid employees in Danish and foreign consolidated companies, except for associates and a few companies in which the power to control the employment relationship does not lie with DONG Energy. About production The reporting on production comprises all operational activities in DONG Energy and the Group’s subsidiaries as well as jointly controlled entities. The latter are determined on the basis of ownership interest. Associates are not included in the reporting. If an activity has not been owned for the entire reporting period, it is, in principle, recognised from the date on which operation began, the acquisition date or up to the date of transfer. In 2009, DONG Energy sold its stake in the biogas activities of EnergiGruppen Jylland A/S as well as Frederiksberg Forsyning and Frederiksberg Forsyningsejendomsselskab. In 2009, DONG Energy acquired the following companies: A2SEA A/S and subsidiaries, KOM-STROM AG, Lincs Renewable Energy Holdings Ltd., Carron Engineering & Construction Ltd., Enecogen V.O.F., Breeveertien II Wind Farm BV, Den Helder Wind Farm BV, West Rijn Wind Farm BV and Severn Power Holdings Ltd. and its subsidiaries and associates. In addition to additions and disposals of companies, the Horns Rev 2 offshore wind farm in Denmark and the Karnice wind farm in Poland were brought on line in 2009. Production and environmental data for the acquired companies will be recognised from 2010 onwards only, while employee and occupational health and safety data for the individual companies have been recognised. Besides changes in the portfolio of companies, there were also changes in offshore licences. Interests in two production licences in the Norwegian sector of the North Sea - Enoch and Glitne – were sold in favour of interests in a development licence - Trym. Data for Enoch and Glitne are consequently only recognised up to and including October 2009, when they were transferred. As Trym is a development licence and DONG Energy does not currently report on project activities, this new licence is not included in the reporting. Furthermore, the Alve production platform in the Norwegian sector of the North Sea was brought on stream in March 2009 and is consequently recognised in the reporting from March onwards. The Alve platform is a satellite platf2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=168http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=168ACCOUNTING POLICIES FOR NON-FINANCIAL DATA Compared with 2008, chemicals are not included, as the original corporate target no longer applies. The statement of man hours has been harmonised, so that the same basic number is used across the Group. Gas distribution has been determined on the basis of data acquired from Gas-Panda that have been transferred to and calculated in SAP based on total volumes and calori c values received from Energinet.dk Oil transportation Production Power and heat generation Power generation has largely been determined as net generation sold based on settlements from the of cial Danish production database Panda. Data on production from foreign and non-operated renewable energy facilities are provided by the operators. Heat generation has been determined as net production sold. Heat generation from renewable sources is determined on the basis of monthly heat withdrawals from geothermal water. Geothermal energy from Margretheholmen is not recognised, as DONG Energy does not have a share in the production but instead owns the underground in which the facility lies. For the hydropower plant Indalselven, the ownership interest has been converted to an annual withdrawal right from the plant, and the reporting is consequently based on annual withdrawals and not on total production based on ownership interest. Natural gas and oil production Natural gas and oil production is determined on the basis of meter readings on delivery to shore. Oil transportation has been determined on the basis of ow meter readings on delivery to shore. Emissions Carbon dioxide, CO2: CO2 emissions subject to emissions trading schemes CO2 emissions are calculated for facilities that are subject to emissions trading schemes and for which DONG Energy is responsible in its capacity as operator or its capacity as accountable for operations, and in accordance with the methods laid down in the Danish Act on CO2 allowances. Greenhouse gas emissions: CO2 emissions not subject to emissions trading schemes, CH4, NMVOC, N2O, CO and SF6 CO2 emissions not subject to emissions trading schemes and NMVOC and methane (CH4) from other processes, etc., are determined using plant-speci c emission factors from power stations. For other natural gas and oil-consuming plants that are not subject to the Danish Act on CO2 allowances, sectorspeci c emission factors from OGP (1995) for the calculation of CO2, NMVOC and methane emissions are used, based on the consumption of natural gas and oil products. Energinet.dk’s 2008 environmental impact statement and standard factor from the Danish Energy Agency for emissions from heat are used for indirect CO2 emissions resulting from power and heat consumption in facilities/buildings in Denmark. For international activities country-speci c emission factors for power and heat total from the International Energy Agency 2007 are used. Environmental strategy 2012 – one tonne less It is DONG Energy’s CO2 target to reduce its overall CO2 emissions as an energy consumer by the equivalent of one tonne of CO2 per employee by 2012. The reduction will determined on the basis of the reduction potential (usually in terms of power consumption) of speci c projects, converted to CO2. The conversion for power and heat in of ce buildings and nonpower and heat-generating plants is made applying conversion factors for Energinet.dk’s environmental impact assessment for electricity and the Danish Energy Agency’s Energy Statistics for 2007. For reductions in natural gas and oil consumption the same conversion factor is used as is used for calculating emissions based on natural gas and oil consumption in general. Sales and distribution Gas and power sales Power sales determined as physical power sales to identi able counterparties are reported on a gross basis in the nancial statements. All power volumes and revenue come from the trading systems. Gas sales have been determined as physical sales from the gas portfolio, as calculated in the tr2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=169http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=169For power and heat-generating plants, reductions in natural gas and oil consumption are calculating on the basis of the plant-speci c factors that are also used to calculate emissions based on consumption. For reductions based on power and heat reductions, plant-speci c factors are also used. Nitrogen oxides (NOx) and sulphur dioxides (SO2) Power station emissions are mainly determined based on continuous measurement. A few power stations use plant-speci c emission factors to determine emissions. Exploration & Production uses sector-speci c emission factors from OGP (International Association of Oil and Gas Producers, report 1995). Nitrogen oxide and sulphur oxide emissions from other processes, etc., on distribution of power and natural gas, etc., are determined using plant-speci c emission factors or standard factors from the Danish Energy Agency, the National Environmental Research Institute, and others. Data are based on the consumption of natural gas and oil products. Natural gas aring (offshore and at gas storage facility) Data for offshore installations are based on ultrasonic measurements. Volumes for the gas storage facility are calculated based on pressure and the dimension of the emptied process plant. Oil discharged to sea from production platforms Determined on the basis of extracted and reinjected volume including measurements of content (oil and water). Oil discharged with produced water is calculated on the basis of three daily random samples that are analysed for oil content, one sample every 24 hours based on ballast water. Reinjection of produced water on production platforms Determined based on pump capacity, pressure and time. Percentage of CO2 -neutral fuels at power stations Consumption at power stations is measured on input into production or determined on the basis of red volume. The percentage of CO2-neutral fuels is calculated at corporate level as biomass and waste used for power and heat generation. Emissions from waste are calculated based on Energinet.dk’s model, where 80 per cent of the waste is considered CO2-neutral, while the remaining fraction is considered to be CO2emitting. 85/15-plan, speci c emissions, g CO2 /kWh The purpose of the calculation method is to determine physical CO2 emissions relative to total physical production of power, heat and steam supplied to the network. Production comprises the whole of DONG Energy, with the exception of the business area Exploration & Production. Speci c CO2 emissions per kWh are calculated by converting heat and steam to power equivalents. The equivalent power supplies represent the volume of additional power that could have been supplied if the plants had not been producing heat and/or steam. Waste is not recognised as being 100% CO2-neutral. A conversion factor from incinerated waste to CO2 emissions is applied. Biomass, biogas, land ll gas and livestock manure are recognised as CO2-neutral. Emission and production data are collected applying the normal quality criteria, with the exception of data from associates, where a lower quality level is accepted. Data from the associate Stadtwerke Lübeck GbmH have not been recognised, as no data were available. Furthermore, a triviality limit is applied, which means that companies with plants with an installed power, heat or steam capacity of less than 10 MW are omitted. Waste Reuse of waste in administration (including project-related waste) Waste is determined on the basis of invoices received from waste recipients. Waste from buildings that accommodate one per cent or less of the total number of employees is not reported. Waste from the building of Nesa Allé in Gentofte is not recognised, as the contractor disposes of waste as part of the design-build contract. Reuse of waste in commercial activities (including projectrelated waste) Waste is determined on the basis of invoices received from waste recipients or using plant-speci c measuring methods. For offshore installations and power stations, the re2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=170http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=170ACCOUNTING POLICIES FOR NON-FINANCIAL DATA Gas leaks due to excavation damage Any gas leaks are determined on the basis of pressure and dimension of the affected process plant, and the time it has been open. Injury frequency rate The injury frequency rate is calculated as the lost time injury frequency per one million hours worked. Working hours are determined on the basis of an indicator of 1,667 working hours annually per FTE and annual employee records converted to FTE. For DONG Energy’s 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. The injury frequency rate is subject to some uncertainty: any upward or downward trends as a result of the data basis for hours worked and varying criteria for recognition of suppliers. The injury frequency rate is determined on a monthly basis. The determination of annual data is based on the monthly statements. Employees Employee data are included in the reporting based on records from the Group’s registration systems. Number of employees The number of employees is determined as the number of employees at the end of the nancial year converted to fulltime equivalents (FTE). The number of employees by gender and country is based on FTE at the end of the nancial year. Employees are de ned as paid employees hired on a contract basis in Danish and foreign consolidated companies, except for associates and a few companies in which the power to control the employment relationship does not lie with DONG Energy. Employee turnover Employee turnover is measured as the number of employees that leave the Group during the nancial year compared with the average number of employees during the nancial year. The average number of employees is determined as a weighted average of recorded employees during the year. Average age Average age has been determined as the average age of employees at the end of the nancial year. Occupational health and safety Occupational health and safety Data are recognised for own employees and for suppliers working in or providing services in areas in which DONG Energy is directly responsible for safety in its capacity of operator or because of the operating assignment. Data from Danish and some foreign sites are recognised. Only supplier data from administration relating to activities such as cleaning and canteen operation and ongoing construction of Danish administration buildings are recognised. The criteria for recognition of suppliers vary for the individual business areas and over time, as it is DONG Energy’s policy to recognise all suppliers. However, this was not possible in 2009. Occupational injuries An occupational injury is de ned as an injury that results in absence of one or more working days in addition to the day of the incident. 166 CONSOLIDATED NON-FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=171http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=171PARENT COMPANY FINANCIAL STATEMENTS 2009 DONG ENERGY A/S Reg. No. 36213728 The nancial statements of the parent company, DONG Energy A/S, form an integral part of the overall annual report. Parts of the parent company nancial statements appear from the preceding part of the annual report only. These parts are: management’s review and the parts of the accounting policies and notes that are identical to the corresponding parts of the consolidated nancial statements. PARENT COMPANY FINANCIAL STATEMENTS 167 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=172http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=172PARENT COMPANY INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER DKK million Revenue Production costs Gross pro t (loss) Management and administration Other operating income Operating pro t (loss) (EBIT) Gain on disposal of enterprises Financial income Financial expenses Pro t before tax Income tax expense Pro t for the year Attributable to: Equity holders of DONG Energy A/S Hybrid capital holders of DONG Energy A/S (adjusted for tax effect) Pro t for the year Proposed dividend per share of DKK 10, in DKK Note 3 4, 11 2009 98 (98) 0 2008 50 (55) (5) (134) 1 (138) 0 14,942 (10,786) 4,018 (429) 3,589 4, 5 6 (132) 0 (132) 20 7 8 32 14,882 (9,619) 5,163 9 (82) 5,081 4,741 340 5,081 1,64 3,249 340 3,589 6,56 168 PARENT COMPANY FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=173http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=173PARENT COMPANY STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER DKK million Pro t for the year Value adjustments of hedging instruments: Value adjustments for the year Value adjustments transferred to nancial income and nancial expenses Other adjustments: Tax on other comprehensive income Other comprehensive income Total comprehensive income Attributable to: 10 Note 2009 5,081 2008 3,589 (88) (7) (132) (32) 134 39 5,120 152 (12) 3,577 Hybrid capital holders of DONG Energy A/S Total comprehensive income 451 5,120 451 3,577 PARENT COMPANY FINANCIAL STATEMENTS 169 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS Equity holders of DONG Energy A/S 4,669 3,126 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=174http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=174PARENT COMPANY BALANCE SHEET AT 31 DECEMBER ASSETS DKK million Investment property Fixtures and ttings, tools and equipment Property, plant and equipment in the course of construction Property, plant and equipment Investments in subsidiaries Investments in associates Other securities Receivables Other non-current assets Non-current assets Receivables Income tax Securities Cash Current assets Assets classi ed as held for sale Assets 14 21 13 18 11 12 12 12 13 Note 2009 46 9 1 56 25,976 0 1,173 27,266 54,415 54,471 27,910 256 2,524 3,877 34,567 106 89,144 2008 50 0 5 55 25,995 106 0 19,626 45,727 45,782 22,039 51 553 3,671 26,314 35 72,131 170 PARENT COMPANY FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=175http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=175EQUITY AND LIABILITIES DKK million Share capital Reserves Retained earnings Proposed dividends Equity attributable to equity holders of DONG Energy A/S Hybrid capital Equity Deferred tax Bond loans Bank loans Non-current liabilities Bond loans Bank loans Other payables Current liabilities Liabilities Equity and liabilities 17 17 17 16 17 17 Note 15 15 2009 2,937 9,149 21,489 481 34,056 8,088 42,144 1,058 22,549 9,170 32,777 0 1,582 12,641 14,223 47,000 89,144 2008 2,937 9,221 17,229 1,926 31,313 8,088 39,401 846 7,734 16,025 160 455 16,090 16,705 32,730 72,131 PARENT COMPANY FINANCIAL STATEMENTS 171 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS 7,445 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=176http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=176PARENT COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER DKK million Equity at 1 January 2009 Comprehensive income for the year, see page 169 Coupon payments, hybrid capital Proposed dividends Dividends paid Total changes in equity in 2009 Equity at 31 December 2009 Share capital 2,937 0 2,937 Reserves 9,221 (72) (72) 9,149 Retained earnings 17,229 4,741 (481) 4,260 21,489 Equity attributable to equity holders of DONG Proposed dividends Energy A/S 1,926 481 (1,926) (1,445) 481 31,313 4,669 0 (1,926) 2,743 34,056 Hybrid capital 8,088 451 (451) 0 8,088 Total 39,401 5,120 (451) 0 (1,926) 2,743 42,144 DKK million Equity at 1 January 2008 Comprehensive income for the year, see page 169 Coupon payments, hybrid capital Proposed dividends Dividends paid Total changes in equity in 2008 Equity 31 December 2008 Share capital 2,937 0 2,937 Reserves 9,344 (123) (123) 9,221 Retained earnings 15,906 3,249 (1,926) 1,323 17,229 Proposed dividends 1,469 1,926 (1,469) 457 1,926 Equity attributable to equity holders of DONG Energy A/S 29,656 3,126 0 (1,469) 1,657 31,313 Hybrid capital 8,088 451 (451) 0 8,088 Total 37,744 3,577 (451) 0 (1,469) 1,657 39,401 172 PARENT COMPANY FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=177http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=177PARENT COMPANY CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER DKK million Cash ows from operations (operating activities) Interest income and similar items Interest expense and similar items Income tax paid Cash ows from operating activities Purchase of property, plant and equipment Sale of property, plant and equipment Capital contributions in subsidiaries Disposal of subsidiaries Financial transactions with subsidiaries Acquisition of securities Dividends received Other investments Cash ows from investing activities Proceeds from raising of loans Instalments on loans Dividends paid Coupon payments on hybrid capital Cash ows from nancing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at 31 December Note 19 2009 447 7,252 (5,603) 59 2,155 (5) 0 0 2008 (1,049) 5,234 (4,554) 44 (325) (5) 13 (330) 0 (1,392) 0 20 67 (18,405) (3,697) 4,788 (4) (17,256) 16,676 (1,023) (1,926) (451) 13,276 (1,825) 4,224 (1,825) 0 518 5,816 (1,625) (1,469) (451) 2,271 2,464 1,760 2,464 4,224 21 2,399 PARENT COMPANY FINANCIAL STATEMENTS 173 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS 2,232 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=178http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=178INDEX OF NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS Note 1 2 Basis of reporting, description of accounting policies and new standards and interpretations . . . . . . . . . . . . 175 Signi cant accounting estimates and judgements . . . 176 14 Assets classi ed as held for sale . . . . . . . . . . . . . 185 15 Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 16 Deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . 187 17 Loans and borrowings . . . . . . . . . . . . . . . . . . . 189 Notes to the income statement 3 4 5 6 7 8 9 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 Staff costs . . . . . . . . . . . . . . . . . . . . . . . . . . .177 Fees to auditors appointed at the Annual General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 Other operating income . . . . . . . . . . . . . . . . . . 179 Financial income . . . . . . . . . . . . . . . . . . . . . . 179 Financial expenses . . . . . . . . . . . . . . . . . . . . . 179 Income tax expense. . . . . . . . . . . . . . . . . . . . . 180 Notes without reference 22 Financial risks . . . . . . . . . . . . . . . . . . . . . . . . 191 23 Financial instruments . . . . . . . . . . . . . . . . . . . 193 24 Operating leases . . . . . . . . . . . . . . . . . . . . . . 196 Notes to the balance sheet 11 Property, plant and equipment . . . . . . . . . . . . . . 182 12 Investments in subsidiaries, associates and other securities. . . . . . . . . . . . . . . . . . . . . 183 13 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 184 25 Contingent assets, contingent liabilities and security arrangements . . . . . . . . . . . . . . . . . . . 196 26 Related party transactions. . . . . . . . . . . . . . . . . 197 27 Company overview . . . . . . . . . . . . . . . . . . . . . 198 Notes to the cash ow statement 19 Cash ows from operations (operating activities) . . . 190 20 Disposal of subsidiaries . . . . . . . . . . . . . . . . . . 190 21 Cash and cash equivalents . . . . . . . . . . . . . . . . 191 18 Income tax receivable . . . . . . . . . . . . . . . . . . . 190 10 Tax on other comprehensive income . . . . . . . . . . . 181 174 PARENT COMPANY FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=179http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=179ACCOUNTING POLICIES BASIS OF REPORTING, DESCRIPTION OF ACCOUNTING POLICIES AND NEW STANDARDS 01 / AND INTERPRETATIONS Basis of reporting The parent company nancial statements are prepared pursuant to the requirements in the Danish Financial Statements Act concerning preparation of separate parent company nancial statements for companies applying IFRS. The parent company nancial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and also complies with International Financial Reporting Standards issued by the IASB. The annual report has been prepared in accordance with Danish disclosure requirements for listed and State-owned public limited companies, see NASDAQ OMX Copenhagen A/S’s disclosure requirements for annual reports of listed companies and the statutory order on adoption of IFRS issued pursuant to the Danish Financial Statements Act. Implementation of new standards and interpretations The parent company has implemented the amended IAS 27 Consolidated and Separate Financial Statements with effect from 1 January 2009. As a result of the amendment, dividends from subsidiaries in the parent company nancial statements must always be recognised in the income statement and not be offset in cost, even where distribution comes from pro ts for the period prior to the acquisition date. Reference is also made to the description in note 1 to the consolidated nancial statements. Description of accounting policies The parent company accounting policies deviate from the accounting policies described for the consolidated nancial statements (reference is made to note 40 to the consolidated nancial statements) in the following areas: Foreign currency translation Foreign exchange adjustments of balances that are accounted for as part of the total net investment in enterprises with a different functional currency than DKK are recognised in the parent company income statement under nancial income and nancial expenses. Likewise, foreign exchange gains and losses on the portion of loans and derivative nancial instruments that has been entered into to hedge the net investment Investments in subsidiaries and associates Investments in subsidiaries and associates are measured at cost in the parent company nancial statements. Impairment testing is carried out as described in the accounting policies in the consolidated nancial statements if there is any indication of impairment. Cost is written down to recoverable amount whenever the cost exceeds the recoverable amount. Fixtures and ttings, tools and equipment are depreciated over 3-5 years. Property, plant and equipment Investment property comprises properties held to earn rentals and that are used for own purposes to an insigni cant extent only. Investment property is measured at cost less accumulated depreciation and impairment losses. Investment property is depreciated over 20 years. Dividends from investments in subsidiaries and associates Dividends from investments in subsidiaries and associates which they are declared. are recognised in the income statement in the nancial year in Revenue Rental income comprises income from commercial leases and is recognised over the term of the lease. Income from services is recognised when delivery has taken place. in these enterprises are taken directly to the income statement under nancial income and nancial expenses. PARENT COMPANY FINANCIAL STATEMENTS 175 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=180http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=180NOTES TO THE INCOME STATEMENT SIGNIFICANT ACCOUTING ESTIMATES AND 02 / JUDGEMENTS Determining the carrying amount of some assets and liabilities requires estimation of the effects of future events on those assets and liabilities at the balance sheet date. Estimates that are material to the parent company’s nancial reporting are made in connection with, among other things, impairment testing of investments in subsidiaries and associates. Management is of the view that no judgements are made The estimates applied are based on assumptions that are believed by management to be reasonable, but that, by their nature, are uncertain and unpredictable. The assumptions may be incomplete or inaccurate, and unforeseen events or circumstances may occur. Moreover, the company is subject to risks and uncertainties that may cause actual results to differ from these estimates. Financial risks for the DONG Energy Group are disclosed in note 32 to the consolidated nancial statements. in connection with the application of the parent company’s accounting policies, other than accounting estimates, that may have a material effect on the amounts recognised in the nancial statements. Assumptions for forward-looking statements and other estimation uncertainties at the balance sheet date that involve a considerable risk of changes that may lead to a material adjustment in the carrying amount of assets or liabilities within the coming nancial year are disclosed in the notes. 03 / REVENUE DKK million Rental income and sale of services Revenue 2009 98 98 2008 50 50 176 PARENT COMPANY FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=181http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=18104 / STAFF COSTS DKK million Wages, salaries and remuneration Staff costs Staff costs are recognised as follows: Production costs Management and administration Staff costs The average number of employees in DONG Energy A/S in 2009 was 4 employees (2008: 5 employees). (13) (3) (16) (12) (2) (14) 2009 (16) (16) 2008 (14) (14) Remuneration to the Supervisory Board, Executive Board and other senior executives DKK ’000 Salaries Parent company Supervisory Board: Chairman Deputy chairman Other members2 Audit and Risk Committee: Chairman Other members 3 2009 Bonus1 Pension Total (500) (300) (1,575) 0 0 0 0 0 0 (500) (300) (1,575) (100) (100) 0 0 0 0 (100) (100) Remuneration Committee: Chairman Other member Parent company Executive Board: CEO CFO (4,817) (4,384) (11,851) 1 2 3 (50) (25) 0 0 0 0 (50) (25) (1,363) (1,000) (2,363) (2) (2) (4) (6,182) PARENT COMPANY FINANCIAL STATEMENTS (5,386) (14,218) Of this amount, DKK 2.4 million had not been paid at 31 December 2009. Annual remuneration amounted to DKK 175 thousand per member in 2009. Annual remuneration amounted to DKK 50 thousand per member in 2009. A bonus plan has been established for the Executive Board. The service contract of the CEO includes a termination package under which he will be entitled to salary equivalent to 33½ months’ salary if his service contract is terminated by the company (2008: 33 1/2 months). The CFO will be entitled to 24 months’ salary if his service contract is terminated by the company (2008: 24 months). PARENT COMPANY FINANCIAL STATEMENTS 177 CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=182http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=182NOTES TO THE INCOME STATEMENT 04 / STAFF COSTS (CONTINUED) DKK ’000 Salaries Parent company Supervisory Board: Chairman Deputy chairman Other members2 Audit and Risk Committee: Chairman Other members3 Remuneration Committee: Chairman Other member Parent company Executive Board: CEO CFO (4,631) (4,515) (11,815) Of this amount, DKK 2.7 million had not been paid at 31 December 2008. Annual remuneration amounted to DKK 169 thousand per member in 2008. 3 Annual remuneration amounted to DKK 50 thousand per member in 2008. 2 1 2008 Bonus1 Pension Total (481) (288) (1,600) 0 0 0 0 0 0 (481) (288) (1,600) (100) (125) 0 0 0 0 (100) (125) (50) (25) 0 0 0 0 (50) (25) (1,146) (1,563) (2,709) (2) (2) (4) (5,779) (6,080) (14,528) FEES TO AUDITORS APPOINTED AT THE 05 / ANNUAL GENERAL MEETING DKK million Audit fees Other assurance engagements Tax and VAT advice Non-audit fees Total fees to KPMG Audit fees Other assurance engagements Total fees to Deloitte 2009 (2) 0 (1) (1) (4) (1) 0 (1) 2008 (2) 0 (7) (2) (11) (1) (1) (2) 178 PARENT COMPANY FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=183http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=18306 / OTHER OPERATING INCOME DKK million Gains on sale of intangible assets and property, plant and equipment Other operating income 2009 0 0 2008 1 1 07 / FINANCIAL INCOME DKK million Interest income from cash, etc. Interest income from subsidiaries Interest income from securities at fair value Gains on securities at fair value Foreign exchange gains Value adjustments of derivative nancial instruments Dividends received Other nancial income Financial income 2009 60 1,743 173 30 2,172 5,888 4,788 28 14,882 2008 432 1,899 12 35 2,465 7,939 2,154 6 14,942 CONSOLIDATED NON-FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS 08 / FINANCIAL EXPENSES DKK million Interest expense relating to payables Interest expense to subsidiaries Impairment of investments in subsidiaries Losses on securities at fair value Foreign exchange losses Value adjustments of derivative nancial instruments Financial expenses 2009 (1,094) (143) (19) (31) (1,185) (7,147) (9,619) 2008 (969) (322) 0 0 (2,731) (6,764) (10,786) Foreign exchange adjustments are recognised in pro t for the year with DKK 987 million (2008: loss of DKK 266 million). PARENT COMPANY FINANCIAL STATEMENTS 179 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=184http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=184NOTES TO THE INCOME STATEMENT 09 / INCOME TAX EXPENSE DKK million Tax on pro t for the year Tax on other comprehensive income Tax for the year Income tax expense can be broken down as follows: Current tax Deferred tax Adjustments to current tax in respect of prior years Adjustments to deferred tax in respect of prior years Income tax expense 140 (238) (10) 26 (82) DKK million (301) (151) 221 (198) (429) 2009 (82) 134 52 2008 (429) 152 (277) 2009 Income tax expense can be explained as follows: Calculated 25% tax on pro t before tax Tax effect of: Non-taxable income Non-deductible expenses Adjustments to tax in respect of prior years Effective tax for the year %. (1,291) (25) 1,207 (14) 16 (82) 23 0 0 (2) 2008 Income tax expense can be explained as follows: Calculated 25% tax on pro t before tax Tax effect of: Non-taxable income Non-deductible expenses Adjustments to tax in respect of prior years Effective tax for the year DKK million %. (1,005) (25) 571 (18) 23 (429) 14 0 0 (11) 180 PARENT COMPANY FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=185http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=18510 / TAX ON OTHER COMPREHENSIVE INCOME 2009 DKK million Value adjustments of hedging instruments Tax on coupon, hybrid capital Before tax (95) 0 (95) Tax 23 111 134 After tax (72) 111 39 Before tax (164) 0 (164) 2008 Tax 41 111 152 After tax (123) 111 (12) PARENT COMPANY FINANCIAL STATEMENTS 181 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=186http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=186NOTES TO THE BALANCE SHEET 11 / PROPERTY, PLANT AND EQUIPMENT DKK million Cost at 1 January 2009 Additions Transfers Disposals Cost at 31 December 2009 Depreciation and impairment losses at 1 January 2009 Disposals Depreciation Depreciation and impairment losses at 31 December 2009 Carrying amount at 31 December 2009 Fixtures and ttings, tools Investment property and equipment 88 0 0 0 88 (38) 0 (4) (42) 46 0 0 10 0 10 0 0 (1) (1) 9 Property, plant and eqpt. in the course of construction 5 6 (10) 0 1 0 0 0 0 1 Total 93 6 0 0 99 (38) 0 (5) (43) 56 Depreciation is recognised in the item production costs in the income statement. DKK million Cost at 1 January 2008 Additions Disposals Cost at 31 December 2008 Depreciation and impairment losses at 1 January 2008 Disposals Depreciation Depreciation and impairment losses at 31 December 2008 Carrying amount at 31 December 2008 The fair value of investment property was DKK 100 million (2008: DKK 50 million). The determination of fair value is based on a calculation of the value in use. The value in use has been determined as the present value of the expected future net cash ows from the properties. The net cash ows have been determined on the basis of budgets for the period 2010-2047. A discount rate of 6.2% before tax has been used. A growth rate of 2.00% during the terminal period has been assumed. External valuers have not been used in connection with the determination of fair value. Fixtures and ttings, tools Investment property and equipment 88 0 0 88 (33) 0 (5) (38) 50 14 0 (14) 0 (1) 1 0 0 0 Property, plant and eqpt. in the course of construction 0 5 0 5 0 0 0 0 5 Total 102 5 (14) 93 (34) 1 (5) (38) 55 Total rental income for the year from investment property, DKK 5 million (2008: DKK 5 million), is recognised in the income statement under revenue. Total costs for operation and maintenance of investment property, DKK 0 (2008: DKK 0), are recognised in the income statement under production costs. The investment properties were let to subsidiaries throughout the year. No mortgages or other restrictions on the use of investment property were registered at 31 December 2009. 182 PARENT COMPANY FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=187http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=187INVESTMENTS IN SUBSIDIARIES, ASSOCIATES 12 / AND OTHER SECURITIES Investments in subsidiaries DKK million Cost at 1 January Additions Dividends Disposals Transfers to assets classi ed as held for sale Cost at 31 December Value adjustments at 1 January Impairment losses Transfers to assets classi ed as held for sale Value adjustments at 31 December Carrying amount at 31 December Investments in associates 2009 175 0 0 0 (175) 0 (69) 0 69 0 0 Other securities 2009 0 1,173 0 0 0 1,173 0 0 0 0 1,173 2009 25,995 0 0 0 0 25,995 0 (19) 0 (19) 25,976 2008 25,778 330 (78) 0 (35) 25,995 0 0 0 0 25,995 2008 175 0 0 0 0 175 (69) 0 0 (69) 106 2008 0 0 0 0 0 0 0 0 0 0 The investment in DONG Energy Ayrshire Holdco Ltd. was written down to the recoverable amount. The impairment loss amounted to DKK 19 million. The recoverable amount has been determined as the value in use based on expected cash ows. The company is not engaged in any activities. No other investments in subsidiaries and associates were tested for impairment in 2009, as there were no indications of impairment in the nancial year. DONG Energy A/S acquired shares in the following companies: 2009: None 2008: DONG Energy Ayrshire Holdco Ltd. Reference is made to the company overview in note 27. PARENT COMPANY FINANCIAL STATEMENTS 183 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS 0 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=188http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=188NOTES TO THE BALANCE SHEET INVESTMENTS IN SUBSIDIARIES, ASSOCIATES 12 / AND OTHER SECURITIES (CONTINUED) Associates 2009 Ownership interest 20% Pro t for the year 32 DKK million Swedegas AB Registered of ce Stockholm, Sweden Revenue 167 Assets 652 Liabilities 281 Swedegas AB was disposed of after the end of the nancial year, see note 14. 2008 Ownership interest 20% Pro t for the year 47 DKK million Swedegas AB Registered of ce Stockholm, Sweden Revenue 154 Assets 653 Liabilities 303 13 / RECEIVABLES DKK million Loans to subsidiaries Non-current receivables at 31 December Receivables from subsidiaries Fair value of derivative nancial instruments Deposits Other receivables Current receivables at 31 December Current and non-current receivables at 31 December 2009 27,266 27,266 22,906 4,873 13 118 27,910 55,176 2008 19,626 19,626 12,161 9,808 10 60 22,039 41,665 Except for the fair value of derivative nancial instruments and deposits, receivables fall due for payment less than one year after the end of the nancial year. The carrying amount of receivables is estimated to correspond to the fair value. Receivables from subsidiaries relate to current credit facilities that are made available to subsidiaries. 184 PARENT COMPANY FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=189http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=18914 / ASSETS CLASSIFIED AS HELD FOR SALE In 2009, a contract on sale of the investment in Swedegas AB was concluded, and the sale was closed in the rst quarter of 2010. The investment constitutes the parent company’s assets classi ed as held for sale at 31 December 2009. DONG Energy A/S expects an accounting gain after tax of approx. DKK 120 million. DKK million Non-current assets Assets classi ed as held for sale at 31 December 2009 106 106 2008 35 35 Assets classi ed as held for sale at 31 December 2008 relate to Frederiksberg Forsyning A/S and Frederiksberg Forsynings Ejendomsselskab A/S (Sales & Distribution), which were sold in 2009. Reference is made to note 20. 15 / EQUITY DKK million Share capital at 1 January Share capital at 31 December 2009 2,937 2,937 2008 2,937 2,937 Dividends The Supervisory Board recommends that a dividend of DKK 481 million be paid for the 2009 nancial year. Dividend paid to shareholders for the 2008 nancial year amounted to DKK 1,926 million. Dividend per share (DPS) of DKK 10 was DKK 6.56 (2008: DKK 5.00). Dividend distributions to shareholders have no tax implications for DONG Energy A/S. The company’s share capital is DKK 2,937,099,000, divided into shares of nominally DKK 10. The share denomination was changed in 2008 from DKK 1,000 per share to DKK 10 per share. All shares rank equally. There are no restrictions on voting rights. The shares are fully paid up. The shares may only be assigned or otherwise transferred with the written consent of the Danish Finance Minister. Resolutions concerning amendments to the Articles of Association or DONG Energy A/S’s dissolution require at least two thirds of the votes cast and of the voting share capital represented at the general meeting in order to be carried. PARENT COMPANY FINANCIAL STATEMENTS 185 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=190http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=190NOTES TO THE BALANCE SHEET 15 / EQUITY (CONTINUED) Hybrid capital Hybrid capital of DKK 8,088 million comprises the EUR bonds (hybrid capital) issued in the European capital market in June 2005. The loan principal is EUR 1.1 billion, and the loan is subject to a number of special terms. The purpose of the issue was to strengthen DONG Energy A/S’s capital base and to fund DONG Energy’s CAPEX and acquisitions. The bonds rank as subordinated debt and have a maturity of 1,000 years. The coupon for the rst ten years is xed at 5.5% p.a., following which it becomes oating with Eurocibor +3.2%. The tax effect of coupon payments is recognised directly in DONG Energy A/S’s other comprehensive income. Coupon is settled annually in the middle of the year. DONG Energy A/S can omit or defer coupon payments to bond holders. However, deferred coupon payments will fall due for payment in the event of DONG Energy A/S subsequently making any distributions to its shareholders. The proceeds from the issuing of hybrid capital amounted to DKK 8,111 million (EUR 1.1 billion). So far, DONG Energy A/S has not used the option to defer coupon payments. Reserves DKK million Hedging reserve Reserves at 1 January Comprehensive income for the year Reserves at 31 December (27) (72) (99) 2009 Share premium 9,248 0 9,248 Hedging reserve 96 (123) (27) 2008 Share premium 9,248 0 9,248 Total 9,221 (72) 9,149 Total 9,344 (123) 9,221 186 PARENT COMPANY FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=191http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=19116 / DEFERRED TAX DKK million Deferred tax at 1 January Deferred tax for the year recognised in pro t for the year Prior year adjustments Deferred tax at 31 December Deferred tax is recognised in the balance sheet as follows: Deferred tax (liabilities) Deferred tax at 31 December, net Deferred tax relates to: Property, plant and equipment Current assets Non-current liabilities Current liabilities Retaxation Tax loss carryforwards Deferred tax at 31 December 16 (6) 14 0 1,053 (19) 1,058 15 (3) 12 (12) 834 0 846 1,058 1,058 846 846 2009 846 238 (26) 1,058 2008 497 151 198 846 PARENT COMPANY FINANCIAL STATEMENTS 187 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=192http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=192NOTES TO THE BALANCE SHEET 16 / DEFERRED TAX (CONTINUED) Changes in temporary differences during the year 2009 DKK million Property, plant and equipment Current assets Non-current liabilities Current liabilities Retaxation Tax loss carryforwards Balance sheet Recognised in pro t at 1 January for the year 15 (3) 12 (12) 834 0 846 1 (3) 2 12 219 (19) 212 Balance sheet at 31 December 16 (6) 14 0 1,053 (19) 1,058 2008 DKK million Property, plant and equipment Current assets Non-current assets Current liabilities Retaxation Tax loss carryforwards Balance sheet Recognised in pro t at 1 January for the year 36 5 0 0 911 (455) 497 (21) (8) 12 (12) (77) 455 349 Balance sheet at 31 December 15 (3) 12 (12) 834 0 846 188 PARENT COMPANY FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=193http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=19317 / LOANS AND BORROWINGS DKK million Current liabilities Non-derivative nancial instruments: Bond loans Bank overdrafts Other bank loans Trade payables Payables to subsidiaries Other liabilities Fair value of derivative nancial instruments Loans and borrowings at 31 December 0 1,478 104 9 7,745 621 4,266 14,223 22,549 0 9,170 0 0 0 0 31,719 22,549 1,478 9,274 9 7,745 621 4,266 45,942 160 0 455 11 7,753 421 7,905 16,705 7,734 0 7,445 0 0 0 0 15,179 7,894 0 7,900 11 7,753 421 7,905 31,884 2009 Non-current liabilities Current liabilities 2008 Non-current liabilities Total Total The company’s nancing agreements are not subject to any unusual terms or conditions, apart from those disclosed in note 25 to the consolidated nancial statements. PARENT COMPANY FINANCIAL STATEMENTS 189 PARENT COMPANY FINANCIAL STATEMENTS CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=194http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=194NOTES TO THE BALANCE SHEET 18 / INCOME TAX RECEIVABLE DKK million Income tax receivable at 1 January Adjustments to current tax in respect of prior years Payments in respect of prior years Current tax for the year Current tax for the year from other comprehensive income Payments for the year Income tax receivable at 31 December 2009 51 (10) (77) 140 134 18 256 2008 23 221 (244) (301) 152 200 51 CASH FLOWS FROM OPERATIONS 19 / (OPERATING ACTIVITIES) DKK million Operating pro t (loss) (EBIT) Depreciation and amortisation Operating pro t before depreciation and amortisation (EBITDA) Other adjustments Cash ows from operations (operating activities) before change in working capital Change in trade receivables Change in other receivables Change in trade payables Change in other payables Change in working capital Cash ows from operations (operating activities) 2009 (132) 5 (127) 65 (62) 132 (79) 257 199 509 447 2008 (138) 5 (133) (940) (1,073) (142) 159 (60) 67 24 (1,049) 20 / DISPOSAL OF SUBSIDIARIES DKK million Carrying amount of enterprises disposed of Gain on disposal of enterprises Cash selling price 2009 35 32 67 2008 0 0 0 190 PARENT COMPANY FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=195http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=195NOTES TO THE CASH FLOW STATEMENT 21 / CASH AND CASH EQUIVALENTS DKK million Securities with limited price risk that are part of the ongoing cash management Available cash Bank overdrafts that are part of the ongoing cash management Cash and cash equivalents at 31 December, see cash ow statement Cash at 31 December can be broken down into the following balance sheet items: Available cash Cash at 31 December Securities can be broken down into the following balance sheet items: Securities with limited price risk that are part of the ongoing cash manangement Other securities Securities at 31 December 0 2,524 2,524 553 0 553 3,877 3,877 3,671 3,671 2009 0 3,877 (1,478) 2,399 2008 553 3,671 0 4,224 22 / FINANCIAL RISKS The parent company acts as the Group’s internal banker in relation to nancing, currency, interest rate and cash management as well as the conclusion of some commodityrelated contracts, see the sections Market and credit risks and Liquidity and nancing risks on pages 28-32 of management’s review. As part of its nancial management, DONG Energy A/S hedges currency risks and interest rate risks. Full or partial hedging of recognised assets and liabilities (hedging of fair value) and of future transactions (hedging of cash ows) is carried out in accordance with the framework laid down in the nancial risk policy implemented by DONG Energy. Derivative nancial instruments such as forwards, swaps and options are used as hedges. In some cases, the company has also entered into contracts to hedge risks in subsidiaries. Currency risks Recognised assets and liabilities: Payables Net position PARENT COMPANY FINANCIAL STATEMENTS Cash and cash equivalents and receivables DKK million EUR USD GBP SEK NOK Other Forward exchange contracts and currency swaps 2009 3,462 4,189 10,094 0 7,602 1,136 26,483 2008 759 6,298 2,389 8 4,233 416 14,103 2009 (29,075) (3,172) (346) (250) 34 4 (32,805) 2008 (12,660) (6,311) (392) (29) (139) (19,531) 2009 13,774 1,547 371 (1,595) (3,037) (1,034) 10,026 2008 6,848 1,638 (1,197) 33 (2,912) (260) 4,150 2009 (11,839) 2,564 10,119 (1,845) 4,599 106 3,704 2008 (5,053) 1,625 800 12 1,182 156 (1,278) PARENT COMPANY FINANCIAL STATEMENTS 191 CONSOLIDATED NON-FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=196http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=196NOTES TO THE CASH FLOW STATEMENT 22 / FINANCIAL RISKS (CONTINUED) At 31 December 2009, unrealised value adjustments of derivative nancial instruments for currency hedging of recognised assets and liabilities totalled a loss of DKK 294 million (31 December 2008: gain of DKK 161 million), which is recognised in the parent company income statement. Sensitivity analysis The company’s principal currency risks relate to USD, GBP, SEK and NOK. The company also calculates and manages the currency risk vis-à-vis EUR; however, as price uctuations between DKK and EUR are small, the risk is considered to be insigni cant. All other conditions being equal, a 10% increase in the USD exchange rate in relation to the exchange rate at the balance sheet date would have had a (positive) effect of DKK 256 million on pro t and equity (2008: DKK 162 million). All other conditions being equal, a decrease in the exchange rate would have had a corresponding adverse impact. All other conditions being equal, a 10% increase in the GBP exchange rate in relation to the exchange rate at the balance sheet date would have had a (positive) effect of DKK 1,012 million on pro t and equity (2008: DKK 80 million). All other conditions being equal, a decrease in the exchange rate would have had a corresponding adverse impact. The company’s counterparty risks comprise primarily receiAll other conditions being equal, a 10% increase in the SEK exchange rate in relation to the exchange rate at the balance sheet date would have had a (negative) effect of DKK 185 million on pro t and equity (2008: DKK 1 million). All other conditions being equal, a decrease in the exchange rate would have had a corresponding adverse impact. All other conditions being equal, a 10% increase in the NOK exchange rate in relation to the exchange rate at the balance sheet date would have had a (positive) effect of DKK 460 million on pro t and equity (2008: DKK 118 million). All other conditions being equal, a decrease in the exchange rate would have had a corresponding adverse impact. The amounts with which the items in question are recognised in the balance sheet correspond to the company’s maximum counterparty risk. Losses on receivables from individual business partners have historically been low. In the company’s opinion, there are no special concentrations of counterparty risks. The company’s counterparty risk in connection with derivative nancial instruments is limited as they have primarily been entered into with major international banks or other counterparties with a high credit rating. Reference is made to note 32 to the consolidated nancial statements. vables from nancial counterparties. Credit rating of business partners is carried out on a regular basis to generally minimise this risk. Interest rate hedges As part of its nancial management, the company swaps the interest basis on loans from a oating rate to a xed rate or vice versa using interest rate swaps. For interest rate swaps converting oating-rate loans to xed-rate loans (hedging of cash ows), value adjustments recognised directly in equity at 31 December 2009 totalled a net loss of DKK 133 million (31 December 2008: net loss of DKK 44 million). Reference is made to note 33 to the consolidated nancial statements. Ineffectiveness Ineffectiveness of interest rate hedging amounted to DKK 7 million in 2009 (2008: DKK 12 million). Interest rate risks Interest rate risks are the risk that externally introduced changes in agreed interest rates lead to increased interest expense or reduced interest income for the company. For an analysis of the company’s interest rate sensitivity, reference is made to note 32 to the consolidated nancial statements. Counterparty risks Counterparty risks are the risk that a nancial loss will be realised in the event of a counterparty to an agreement being unable to ful l its obligations under the agreement. 192 PARENT COMPANY FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=197http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=197NOTES WITHOUT REFERENCE 23 / FINANCIAL INSTRUMENTS Maturity analysis for nancial liabilities including interest payments 2009 DKK million Non-derivative nancial instruments: Bond loans Bank overdrafts Other bank loans Trade payables Payables to subsidiaries Other payables Derivative nancial instruments Carrying amount Payment obligation 2010 2011 2012 2013 2014 After 2014 22,549 1,478 9,274 9 7,745 621 4,266 29,596 1,478 10,421 9 7,745 621 - 1,062 1,478 282 9 7,745 621 5,059 0 611 0 0 0 4,598 0 720 0 0 0 753 0 1,964 0 0 0 4,471 0 475 0 0 0 13,653 0 6,369 CONSOLIDATED NON-FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS 0 0 0 Payables at 31 December 45,942 49,870 11,197 5,670 5,318 2,717 4,946 20,022 2008 DKK million Non-derivative nancial instruments: Bond loans Bank overdrafts Other bank loans Trade payables Payables to subsidiaries Other payables Derivative nancial instruments 7,894 0 7,900 11 7,753 421 7,905 31,884 8,928 0 9,987 11 7,753 421 27,100 9,416 698 5,039 4,692 2,176 5,079 466 0 765 11 7,753 421 301 0 397 0 0 0 4,312 0 727 0 0 0 3,849 0 843 0 0 0 0 0 2,176 0 0 0 0 0 5,079 0 0 0 Carrying amount Payment obligation 2009 2010 2011 2012 2013 After 2013 The maturity analysis is based on undiscounted cash ows relating to nancial liabilities. PARENT COMPANY FINANCIAL STATEMENTS 193 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=198http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=198NOTES WITHOUT REFERENCE 23 / FINANCIAL INSTRUMENTS (CONTINUED) Categories of nancial instruments 2009 Carrying amount 4,724 3,697 8,421 39 110 149 50,303 3,877 54,180 3,921 3,921 162 183 345 22,549 10,752 8,366 41,667 2008 Carrying amount 9,459 553 10,012 251 98 349 31,857 3,671 35,528 7,425 7,425 312 168 480 7,894 7,900 8,174 23,968 DKK million Derivative nancial instruments held for trading Securities Financial assets that are measured at fair value in the income statement Derivative nancial instruments entered into to hedge future cash ows Derivative nancial instruments entered into to hedge fair values Financial assets used as hedging instruments Other receivables Cash Loans and receivables Derivative nancial instruments held for trading Financial liabilities measured at fair value via the income statement Derivative nancial instruments entered into to hedge future cash ows Derivative nancial instruments entered into to hedge fair values Financial liabilities used as hedging instruments Bond loans Bank loans Other liabilities Financial liabilities measured at amortised cost Fair value 4,724 3,697 8,421 39 110 149 50,303 3,877 54,180 3,921 3,921 162 183 345 23,539 11,088 8,366 42,993 Fair value 9,459 553 10,012 251 98 349 31,857 3,671 35,528 7,425 7,425 312 168 480 7,689 8,188 8,174 24,051 194 PARENT COMPANY FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=199http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=199Fair value hierarchy Fair value of nancial instruments using: Quoted prices (Level 1) 0 2,520 2,520 0 0 NonObservable observable inputs inputs (Level 3) (Level 2) 4,873 1,177 6,050 (4,170) (4,170) 0 0 0 (96) (96) 2009 DKK million Derivative nancial instruments, see note 13 Securities Assets Derivative nancial instruments, see note 17 Liabilities Total 4,873 3,697 8,570 (4,266) (4,266) CONSOLIDATED NON-FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS Level 1 comprises quoted securities that are traded in active markets. Level 2 comprises derivative nancial instruments , where valuation models with observable inputs are used to measure the fair value, and where discounting to present value is carried out using a discount rate set by the Group. Level 2 also comprises quoted securities that have not been traded in the market suf ciently for a reliable fair value to be obtained. Level 3 comprises other derivative nancial instruments, where the value of one or more key non-observable inputs has been estimated and where the sum of these estimated non-observable inputs may affect the fair value. Reconciliation of nancial instruments based on non-observable inputs Derivative nancial instruments (assets) 33 (33) 0 0 0 Derivative nancial instruments (liabilities) 0 (26) (88) 18 (96) DKK million Opening at 1 January 2009 Income and expenses (realised and unrealised) - recognised in income statement under revenue Purchases Other transfers to and from Level 3 Closing at 31 December.2009 A loss of DKK 98 million was recognised in the income statement under revenue in respect of losses on assets and liabilities that are non-observable inputs and are still recognised in the balance sheet at 31 December 2009. PARENT COMPANY FINANCIAL STATEMENTS 195 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=200http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=200NOTES WITHOUT REFERENCE 24 / OPERATING LEASES Non-cancellable operating lease payments DKK million 0 - 1 year 1 - 5 years Minimum lease payments DONG Energy A/S has entered into operating leases for leasing of of ce premises in the period 2007-2012 and vehicle leasing on behalf of the Group’s companies. 2009 61 42 103 2008 50 80 130 The latter lease runs for a period of up to ve years. There are no signi cant restrictions in the leases. In 2009, an amount of DKK 66 million (2008: DKK 40 million) was recognised in the income statement in respect of operating lease payments. CONTINGENT ASSETS, CONTINGENT 25 / LIABILITIES AND SECURITY ARRANGEMENTS Contingent liabilities As a shareholder in the mutual insurance company Oil Insurance Limited (OIL), DONG Energy is under obligation to pay a theoretical withdrawal premium (TWP) in the event of the company deciding to withdraw from the mutual insurance cover. DONG Energy A/S is also under obligation to pay an avoided premium surcharge (APS) in the event of the company deciding to alter or reduce its existing insurance arrangements. Provision is made in the nancial statements for the retrospective adjustment (TWP). The prospective premium (APS) is not expected to exceed USD 1.5 million (2008: USD 2.5 million). Litigation DONG Energy A/S is a party to a number of litigation proceedings and legal disputes that do not have any effect on the company’s nancial position, either individually or collectively. DONG Energy A/S acts as guarantor with primary liability for bank balances in subsidiaries for DKK 3,976 million (2008: DKK 3.880 million). Guarantees DONG Energy A/S has provided guarantees in connection with participation by subsidiaries and participation by joint ventures in which subsidiaries are partners in natural gas and oil production and exploration, construction and operation of wind farms, and geothermal plants and natural gas installations. DONG Energy A/S has also provided guarantees in respect of leases, decommissioning obligations, purchase and sales contracts, etc. 196 PARENT COMPANY FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=201http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=20126 / RELATED PARTY TRANSACTIONS Trading with subsidiaries and associates DKK million Rental income and services to subsidiaries Purchases of goods and services from subsidiaries Interest, subsidiaries (net income) 2009 98 (148) 1,600 2008 76 (84) 1,577 Capital transactions and balances with subsidiaries and associates at 31 December DKK million Receivables from subsidiaries Payables to subsidiaries Dividends received from subsidiaries Dividends received from associates 2009 50,172 (7,745) 4,782 6 2008 31,787 (7,753) 2,224 8 CONSOLIDATED NON-FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL STATEMENTS Reference is made to note 38 to the consolidated nancial statements. PARENT COMPANY FINANCIAL STATEMENTS 197 CONSOLIDATED FINANCIAL STATEMENTS2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=202http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=20227 / COMPANY OVERVIEW Name Subsidiaries DE nr. 1 2003 A/S DONG E&P A/S DONG El A/S DONG Energy Ayrshire Holdco Ltd. DONG Energy Infrastruktur Holding GmbH DONG Energy Oil & Gas A/S DONG Energy Pipelines GmbH DONG Energy Power Holding A/S1 DONG Energy Sales & Distribution A/S DONG Energy Frederiksberg Elnet A/S DONG Gas Distribution A/S DONG Insurance A/S DONG Naturgas A/S DONG Oil Pipe A/S DONG Storage A/S DONG Sverige Distribution AB DONG VE A/S Associates Swedegas AB2 1 2 Registered of ce Ownership interest Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark London, England Hamburg, Germany Fredericia, Denmark Kiel, Germany Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Fredericia, Denmark Gothenburg, Sweden Fredericia, Denmark 100% 100% 100% 100% 100% 100% 100% 57% 100% 100% 100% 100% 100% 100% 100% 100% 100% Gothenburg, Sweden 20% The remaining part of the company is owned by EnergiGruppen Jylland El A/S, which is wholly-owned by the DONG Energy Group. The company will be disposed of with effect from 2010. 198 PARENT COMPANY FINANCIAL STATEMENTS DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=203http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=203STATEMENT BY THE EXECUTIVE AND SUPERVISORY BOARDS The Executive and Supervisory Boards have today considered and approved the annual report of DONG Energy A/S for the nancial year 2009. The annual report has been prepared in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for annual reports of listed and State-owned public limited companies. In our opinion, the consolidated nancial statements and the parent company nancial statements give a true and fair view of the Group’s and the parent company’s nancial position at 31 December 2009 and of the results of the Group’s and the parent company’s operations and cash ows for the nancial year 1 January – 31 December 2009. We recommend that the annual report be approved at the Further, in our opinion, the Management’s review gives a fair Annual General Meeting. DONG Energy’s non- nancial reporting has been prepared in accordance with the international guidelines for sustainability reporting from Global Reporting Initiative (GRI-G3 2006 Guidelines), application level B+. In our opinion, the nonnancial statements represent a reasonable and balanced representation of the company’s corporate responsibility and sustainability performance. review of the development in the Group’s and the parent company’s operations and nancial matters, the results for the year and the Group’s and the parent company’s nancial position as a whole and a description of the signi cant risks and uncertainty factors pertaining to the Group and the parent company. Skærbæk, 11 March 2010 Executive Board Anders Eldrup CEO Carsten Krogsgaard Thomsen CFO Supervisory Board Fritz H. Schur Chairman Lars Nørby Johansen Deputy Chairman Hanne Steen Andersen* Jakob Brogaard Poul Dreyer* Jørgen Peter Jensen* Jens Kampmann Poul Arne Nielsen Kresten Philipsen Jens Nybo Stilling Sørensen* Lars Rebien Sørensen * Employee representative 1992011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=204http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=204INDEPENDENT AUDITORS’ REPORT To the shareholders of DONG Energy A/S We have audited the consolidated nancial statements and the parent company nancial statements of DONG Energy A/S for 2009, pages 68-161 and 167-198. The consolidated nancial statements and the parent company nancial statements comprise income statement, statement of comprehensive income, balance sheet, statement of changes in equity, cash ow statement and notes for the Group and the parent company respectively. The consolidated nancial statements and the parent company nancial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed and State-owned public limited companies. In addition to our audit, we have read the Management’s review, pages 1-67, which has been prepared in accordance with Danish disclosure requirements for listed and State-owned public limited companies, and issued a statement in this regard. Management’s responsibility Management is responsible for the preparation and fair presentation of consolidated nancial statements and parent company nancial statements in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed and State-owned public limited companies. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated nancial statements and parent company nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Further, it is the responsibility of Management to prepare and issue a Management’s review that gives a fair review in accordance with Danish disclosure requirements for listed and State-owned public limited companies. Auditors’ responsibility and basis of opinion Our responsibility is to express an opinion on the consolidated nancial statements and the parent company nancial statements based on our audit. We conducted our audit in accordance with Danish Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated nancial statements and the parent company nancial statements are free from material misstatement. Copenhagen, 11 March 2010 KPMG Statsautoriseret Revisionspartnerselskab Torben Bender State Authorised Public Accountant Lars Rhod Søndergaard State Authorised Public Accountant Deloitte Statsautoriseret Revisionsaktieselskab Kim Mücke State Authorised Public Accountant Mogens Henriksen State Authorised Public Accountant Opinion In our opinion, the consolidated nancial statements and the parent company nancial statements give a true and fair view of the Group’s and the parent company’s nancial position at 31 December 2009 and of the results of the Group’s and the parent company’s operations and cash ows for the nancial year 1 January – 31 December 2009 in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed and State-owned public limited companies. Statement on the Management’s review Pursuant to the Danish Financial Statements Act, we have read the Management’s review in the annual report, pages 1-67. We have not performed any additional procedures in addition to the audit of the consolidated nancial statements and the parent company nancial statements. On this basis, it is our opinion that the information given in the Management’s review is consistent with the consolidated nancial statements and the parent company nancial statements. Our audit did not result in any quali cation. We believe that the audit evidence we have obtained is suf cient and appropriate to provide a basis for our audit opinion. An audit involves per2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=205http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=205ASSURANCE STATEMENT Assurance Statement for DONG Energy’s stakeholders from independent auditor We have assessed DONG Energy’s 2009 Corporate Responsibility Reporting for the purpose of expressing an opinion on CSR data. Criteria for preparation of the Corporate Responsibility Reporting The criteria for preparation of the CSR data contained in the Corporate Responsibility Reporting are evident from the CSR accounting policies described on pages 162-166. These contain information on which of the Group’s business areas and activities are included in the reporting types of data and Management’s reasons for choosing the data included. The data are computed in accordance with the CSR accounting policies described on pages 162-166. Delegation of responsibility Company Management is responsible for preparing the Corporate Responsibility Reporting, including for establishing registration and internal control systems with a view to ensuring reliable reporting, specifying acceptable reporting criteria as well as choosing data to be collected. Our responsibility is, on the basis of our work, to express an opinion on the CSR data contained in the Corporate Responsibility Reporting. Scope of our work We have planned and completed our work in accordance with the International Auditing Standard ISAE 3000 (assurance engagements other than audits or reviews of historical nancial information) for the purpose of obtaining limited assurance that the CSR data presented on page 5 have been computed in accordance with the stated criteria for preparation of the Corporate Responsibility Reporting. The obtained assurance is limited as we have not performed a comprehensive review. Our work has thus - based on an assessment of materiality and risk - comprised inquiries regarding applied registration and reporting systems and procedures, auditing analyses of data used in connection with preparation of the Reporting, judgemental samples of data and underlying documentation, including visits at selected local units, as well as control of compliance with the described CSR accounting policies. Special statement on GRI reporting and the principles of the UN Global Compact We have assessed the extent to which DONG Energy has applied the Global Reporting Initiative Sustainability Reporting Guidelines (GRI-G3), application level B+, including GRI’s Draft Electric Utility Sector Supplement, for the accounting year 2009. Our work has primarily comprised a review of the documentation presented, including chosen inquiries and judgemental sample tests of data. The review has been performed in order to determine whether the documentation complies with the requirements in the GRI-G3 reporting framework. We have furthermore been presented with DONG Energy’s own assessment of how reporting information and underlying policies, systems and activities are aligned with and support the principles of the UN Global Compact. Based on our review, nothing has come to our attention contradicting DONG Energy’s self assessment of the extent to which its reporting is in accordance with the GRI-G3 reporting framework, including GRI’s Draft Electric Utility Sector Supplement. We are thus able to state that nothing has come to our attention causing us to believe that DONG Energy has not reported in accordance with GRI-G3, application level B+. Furthermore, we are of the opinion that the policies, systems and activities taken as a whole support Management’s commitment to the UN Global Compact, while systems and activities are in the implementation phase regarding ethical guidelines in the supply chain and anticorruption. Conclusion regarding the CSR data contained in the Corporate Responsibility Reporting Based on our review, nothing has come to our attention causing us to believe that the CSR data presented in the 2009 Corporate Responsibility Reporting on page 5 have not been included in accordance with the stated criteria for preparation of the Corporate Responsibility Reporting. Copenh2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=206http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=206COMPANY ANNOUNCEMENTS IN 2009 23.12.2009 DONG Energy and Siemens enter into a new supply agreement regarding offshore wind turbines 23.12.2009 DONG Energy sells minority stake in Walney Offshore Wind Farm 23.12.2009 DONG Energy and Siemens Project Ventures to join UK offshore wind farm project 17.12.2009 DONG Energy to sell its shares in Swedegas AB to EQT 17.12.2009 DONG Energy acquires full ownership of offshore wind turbine projects Borkum Riffgrund 1 and 2 11.12.2009 DONG Energy withdraws from Greifswald project in Germany 09.12.2009 DONG Energy A/S has issued a dual-tranche EUR 1.0 billion Eurobond 09.12.2009 DONG Energy A/S Senior Eurobond Announcement 07.12.2009 DONG Energy publishes supplementary prospectus on debt issuance 18.11.2009 Standard & Poor’s upgrades rating on DONG Energy A/S 17.11.2009 17.11.2009 13.11.2009 Interim nancial report - rst nine months 2009 DONG Energy sells bre optic network to TDC DONG Energy will release its third quarter results for 2009 on November 17, 2009. 11.11.2009 09.11.2009 DONG Energy reducing staff The Danish Financial Supervisory Authority brings action against DONG Energy 03.11.2009 Appraisal Drilling Successfully Completed on Glenlivet Discovery 27.10.2009 DONG Energy Cuts Power Production Capacity 07.10.2009 Temporary production solution at Siri 06.10.2009 DONG Energy to strengthen capital structure 01.10.2009 DONG Energy doubles its future gas supplies from Gazprom 30.09.2009 DONG Energy closes acquisition of KOM-STROM 14.09.2009 DONG Energy: Gas nd West of Shetland 17.03.2009 03.09.2009 Investigations of cracks on the Siri installation 11.08.2009 11.08.2009 Interim nancial report - rst half-year 2009 DONG Energy to acquire German wholesale company 07.08.2009 DONG Energy Builds Wind Farm in Northern Norway 25.06.2009 DONG Energy buys A2SEA 19.05.2009 DONG Energy extends agreement with HNG 19.05.2009 Correction: Interim nancial report - Q1 2009 19.05.2009 Interim nancial report - Q1 2009 12.05.2009 DONG Energy, E.ON and Masdar give green light to build world’s largest offshore wind farm 05.05.2009 DONG Energy in search of new ways to promote bre optic networks 28.04.2009 DONG Energy A/S issues a dual-tranche EUR 1.0 billion Eurobond 23.04.2009 DONG Energy buys stake in gas- red power station project in the Netherlands 22.04.2009 DONG Energy to build further offshore wind farms in the UK 18.03.2009 DONG Energy consolidates its position in Poland Presentation for credit investors 09.03.2009 DONG Energy submits development plan and increases equity in Oselvar 06.03.2009 DONG Energy acquires gas- red power station in Wales 06.03.2009 DONG Energy and Siemens enter into the world’s largest offshore wind turbine agreement 06.03.2009 Announcement of nancial results for 2008 05.03.2009 DONG Energy press conference 6 March 2009 20.02.2009 New operating segments 06.02.2009 Updated nancial calendar 05.01.2009 DONG Energy and the municipality of Frederiksberg sign agreement on utility company Frederiksberg Forsyning 202 DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=207http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=207GLOSSARY The following explanations are not intended as technical de nitions, and are provided purely for assistance in understanding certain terms as used in this Annual Report. 2P-reserves: Sum of Proved Reserves plus Probable Reserves (Society of Petroleum Engineers and World Petroleum Congress (SPE/WPC) reserve classi cation standards) Biomass: Also known as biomass fuel. A term for all combustible organic materials including straw, woodchips and wood pellets. CO2 emissions produced by the combustion of biomass are not covered under the ETS. Biomass can be used in both central power plants and local CHP plants Central Power Plant: A large power plant, typically with a net installed power capacity of over 100 MW CO2 Certi cates: Certi cates for the emission of carbon dioxide under ETS CHP plant: A CHP (Combined Heat and Power generation) plant that generates both heat and power in the same process. The heat generated may be used for industrial purposes and/ or district heating DK1 and DK2: Area prices for power in West Denmark (DK1) and East Denmark (DK2) respectively DUC: Danish Underground Consortium EEX: The European Energy Exchange Exploration and appraisal wells: Wells drilled to discover and evaluate oil or natural gas in an unproved area to nd new reserves in an area in which hydrocarbon discoveries have previously been made or to delineate a know accumulation ETS: The EU Emissions Trading Scheme, which aims to reduce emissions of carbon dioxide and combat climate change by means of a scheme that allocates CO2 Certi cate allowances and enables power generators and other emitters to trade these CO2 Certi cates EUA-quotas: EU Allowance. Quotas available within the EU borders FIFO: First-in, First out. Reference is made to page 16 Fossil Fuels: Organic fuels including coal, coal products, natural gas, crude oil and other petroleum products Geothermal generation: Heat generation using naturally occurring geological heat sources Green dark spread: Reference is made to page 16 LNG: Lique ed Natural Gas. Gas that has been lique ed by cooling to minus 161 degrees Celsius. LNG takes up 600 times less space than conventional gas. LNG can be transValue at Risk (VaR): A nancial indicator used for measuring the loss that may occur from a risk position, assuming a certain volatility and that the position is held for a certain period of time Peak and off-peak: Re ects prices for power generated at times during the 24 hour cycle with high demand and low demand respectively PJ: Petajoule, a unit of energy. 1 PJ is equivalent to 1,000 TJ or 1,000,000 GJ or 1,000,000,000 MJ SO2: Sulfur dioxide Supply-obligation: A company with a supply-obligation is bound by law to deliver power or natural gas in a certain geographic area at prices approved by the Danish Energy Regulatory Authority Thermal generation: Power and heat generated through the combustion of fossil fuels , biomass or waste Timelag: Reference is made to page 16 TTF: The Title Transfer Facility natural gas trading market in the Netherlands TWh: Terawatt hour. The amount of energy generated or used in 1 hour with the effect of 1 TW 1 TW is equivalent to 1,000 GW or 1,000,000 MW or 1,000,000,000 kW ported in customised tankers, enabling it to be transported from remote destinations. In the receiving terminal the LNG is vaporised and pressurised before being routed into the transmission system for onwards distribution and sale Local CHP plant: A CHP plant, typically with a net installed power capacity of less than 100 MW LTIF: Lost Time Injury Frequency. DONG Energy de nes absence as an occupational injury resulting in at least one day’s absence from work in addition to the day of the injury Mmboe: Million barrels of oil equivalent Nord Pool: The Norwegian-based Nordic power exchange, which facilitates the trading of power in Norway, Sweden, Finland and Denmark NOx: Nitrogen oxides Operator: The company appointed to conduct operations under an exploration, production and/or develo2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=208http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=208GRI INDICATOR PROFILE 1. Strategy and Analysis 1.1 1.2 Preface from the CEO Description of key impacts, risks, and opportunities Reference Coverage Responsible Energy 2009, page 1 page 28-33 and Responsible Energy 2009, page 1 and page 4-6 2. Organisational pro le 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 Name of the organisation Primary brands, products, and/or services Operational structure of the organisation Location of organisation’s headquarters Countries where the organisation operates Nature of ownership and legal form Markets served Scale of the reporting organisation Changes during the reporting period regarding size, structure or ownership Awards received in the reporting period cover page 6-7 page 157-161 cover page 6, 7, 37, 43, 45, 49 and 57 page 60 page 6-7 online page 113-117, 162-166 online 3. Parameters EU1 EU2 EU3 EU4 EU5 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 3.13 Capacity Net energy output Number of residental, industrial/commercial customer accounts Length of transmission and distribution lines by voltage Allocation of CO2 emissions permits Reporting period Date of the most recent report Reporting cycle Contact point for questions regarding the report and its content Process for de ning report content Boundary of the report Speci c limitations on the scope or boundary of the report Basis for reporting on joint ventures, subsidiaries etc. Data measurement techniques and the bases of calculations Explanation of any re-statements of information in earlier reports Signi cant changes from previous reporting periods GRI content index Assurance online online online online online page 162-166 See DONG Energy’s online CSR reports page 162-166 cover online page 162-166 see page 3.5 (link) page 162-166 page 162-166 page 162-166 page 162-166 cover page 162-166 4. Governance, Commitments, and Engagement 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 Governance structure of the organisation Indicate whether the chair of the highest governance body is also an executive of cer Members of the highest governance body that are independent and nonexecutive members Mechanisms to provide recommendations or direction to the highest governance body Linkage between compensation performance Processes in place for the highest governance body to ensure con icts of interest are avoided Process for determining the quali cations of the members of the highest governance body Internally developed statements of mission or values, principles etc. The supervision by the hitghest governance body with the management of results, for example within nance/economy page 60 page 1 and page 63 page 60-61 page 60-61 page 61 and 86-87 page 61 page 60 - 61 Responsible Energy 2009, page 2 and page 18 page 61 Processes for evaluating the highest governance body’s own performance page 61 204 DONG ENERGY ANNUAL REPORT 20092011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=209http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=2094.11 4.12 4.13 4.14 4.15 4.16 4.17 Use of the precautionary approach or principle in the organization Externally developed initiatives to which the organisation endorses Memberships in associations and advocacy organisations List of stakeholder groups engaged by the organisation Approaches to stakeholder engagement Key topics and concerns that have been raised through stakeholder engagement page 28-29 and Responsible Energy 2009, page 4-7 online online online online online Basis for identi cation and selection of stakeholders with whom to engage online 5. Manangement Approach DMA DMA DMA DMA DMA DMA Management approach, economy Management approach, environment Management approach, labour practices Management approach, human rights Management approach, society Management approach, products Responsible Energy 2009, page 2 Responsible Energy 2009, page 2 Responsible Energy 2009, page 2 Responsible Energy 2009, page 2 Responsible Energy 2009, page 2 Responsible Energy 2009, page 2 PERFORMANCE INDICATORES Economic EU6 EU7 EU8 EC1 EC2 EC4 EU10 EU11 EU12 Planning to ensure short and long-term electricity availability and reliability online Demand-side management programs for electricity Development activities aimed on providing electricity and promoting sustainability Direct economic value generated and distributed. Signi cant nancial assistance received from government Planned capacity (MW) against projected demand. Average generation ef ciency. Transmission and distribution ef ciency online online page 4 page 90 online online online Risks and opportunities for the organisation’s activities due to climate change online Environment EN1 EN2 EN3 EN4 EN5 EN6 EN8 EN11 EN12 EN16 EN18 EN20 EN21 EN22 EN23 EN24 EN28 EN29 Labour EU14 EU15 EU16 LA1 EU17 EU18 Programs to ensure the availability of a skilled workforce Employees eligible to retire in the next 5 and 10 years Policies regarding health and safety Workforce by employment type, employment contract, and region Total subcontracted workforce Contractors that have undergone health and safety training online online online online online online ◗ Materials used by weight or volume Percentage of materials used that are recycled Direct energy consumption by primary energy source Indirect energy consumption by primary source Energy saved due to conservation and ef ciency improvements Energy-ef cient or renewable energy-based products and services Total water withdrawal by source Locations managed in, or adjacent to, protected areas Signi cant impacts on biodiversity in protected areas Total direct and indirect greenhouse gas emissions Reduction of greenhouse gas emissions NOx, SOx, and other signi cant air emissions Total water discharge by quality and destination Total weight of waste by type and disposal method Total number and volume of signi cant spills Weight of waste deemed hazardous and percentage of waste shipped internationally Fines and sanctions for noncompliance with environmental laws and regulations Signi cant environmental impacts of transporting online online online online online online online online online online online online online online online online online online ◗2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=210http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=210LA2 LA4 LA5 LA7 LA8 LA10 LA12 LA13 LA14 Employee turnover by age group, gender, and region Employees covered by collective agreements Minimum notice period(s) regarding signi cant operational changes Rates of occupational disease, absenteeism and fatalities Programmes in place to assist regarding serious diseases Average hours of training per year per employee Employees receiving performance and career development reviews Composition of governance bodies and employees Ratio of basic salary of men to women online online online online online online online online online ° ◗ ◗ Human Rights HR1 HR2 HR3 HR4 HR6 Society EU21 S01 S02 S03 S04 S05 S06 S07 S08 Disaster/emergency management plan and training programs, and recovery/restoration plans Impacts of operations on communities Business units analysed for risks related to corruption Training in anti-corruption policies and procedures Actions taken in response to incidents of corruption Public policy positions and participation in public policy development Legal actions for anti-competitive behaviour or the like Fines and sanctions for noncompliance with laws and regulations online online online online online online online online ◗ ° ◗ Investment agreements that include human rights clauses Contractors that have undergone screening on human rights Total number of incidents of discrimination and actions taken Risk for incidents of child labour, and initiatives to the eliminate these online online online online ◗ ◗ Training on policies and procedures concerning aspects of human rights online Value of nancial and in-kind contributions to political parties or the like online Products PR1 PR2 EU25 PR3 PR4 PR5 PR6 PR7 PR8 PR9 EU27 EU28 EU29 EU30 Life cycle assessment of health and safety impacts of products and services online Non-compliance with regulations concerning health and safety impacts from products and services Number of injuries and fatalities involving company assets Information about products and services required by procedures Non-compliance with regulations concerning product and service information and labelling Practices related to customer satisfaction Compliance with laws etc. related to marketing communications Protection of customers privacy and losses of customer data Fines concerning the provision and use of products and services Residential disconnections for non-payment Power outage frequency Average power outage duration Average plant availability factor online online online online online online online online online online online online ◗ Non-compliance with regulations concerning marketing communications online Fully reported Patrially reported Not reported ◗ °2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=211http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=211RE AD M O RE DONG Energy A/S Annual Report 2009 Design: Bysted A/S Printing: Scanprint A/S This report was printed by an ISO 14001 ecocerti ed and EMAS-registered printing rm. COMPANY INFORMATION AT 31 DECEMBER 2009 Shareholders holding at least 5% of the shares: The Danish Ministry of Finance 72.98%* SEAS-NVE Holding A/S 10.88% Syd Energi Net A/S 6.95% * At 12.02.2010, the Danish Ministry of Finance held 74.04% of the shares 541-166 Printed matter2011-02-11T00:21:42+01:00http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=212http://ipaper.ipapercms.dk/DONGENERGY/Internet/UK/Annualreports/Annual_Report_2009/?Page=212www.dongenergy.com DONG Energy A/S Kraftværksvej 53 7000 Fredericia Denmark Tel. +45 99 55 11 112011-02-11T00:21:42+01:00