ANNUAL REPORT 2011 - DONG Energy

consolIdated RESULTS
A large portion of the difference was due to the discontinuation
of hedge accounting for commodities and related
currency exposures and initial recognition of certain fixedprice
contracts. This part of the difference would consequently
not have arisen if the existing classification had
been retained.
initial recognition of certain contracts
Based on the development in the European energy markets,
including increased liquidity and trading in the markets,
certain physical electricity and gas contracts that
have not previously been fair value adjusted in the financial
statements are now classified as financial contracts.
The market value of these contracts at 1 January 2011 was
therefore recognised in the income statement in the IFRS
financial statements.
As these contracts had not been realised at the start of
the year, and therefore should not affect the business performance
results, they were recognised in the adjustment
between the two performance measures and will continue
to be recognised in this adjustment until they are realised.
The market value of these contracts was negative with
DKK 1.8 billion at 1 January 2011. The contracts related primarily
to net forward sales of gas on the Dutch TTF gas
hub at fixed prices with a view to reducing the Group’s exposure
to the price development and electricity sales in
Denmark at fixed prices at auction (terms of up to three
years). These sales form an integral part of the hedging of
the Danish thermal electricity generation.
The negative market value reflected the fact that the
electricity and gas were sold at prices below the forward
prices at the start of 2011.
market value adjustments relating to other periods
The IFRS results include a DKK 3.3 billion market value adjustment
of financial and physical hedging contracts, as the
value of these hedging transactions is not to be recognised in
the business performance results until subsequent periods.
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manaGEmEnt’s rEviEw – DONG ENERGY GROUP ANNUAL ANNUAL REPORT REPORT 2011 2011
The positive market value adjustment related primarily to a
positive effect from hedging of electricity and gas at higher
prices and USD at a lower exchange rate than the respective
market prices at 31 December 2011.
A large portion of the market value adjustment in the
IFRS results reflected the discontinuation of hedge accounting
for commodities and related exposures as well as
initial recognition of certain fixed-price contracts, and
therefore would not have affected the income statement if
the existing classification had been retained.
Deferred losses/gains
Lastly, deferred losses and gains on financial and physical
hedging transactions from previous periods have been
recognised where the commercial exposure (production,
purchase or sale) has been recognised in 2011.
The positive effect of DKK 0.4 billion reflected a loss in
the IFRS results in previous years that is to be recognised
as a loss in the business performance results in 2011.
The loss for recognition in the business performance results
related primarily to higher electricity prices in 2011
than at the dates of the hedging. The loss were partly offset
by a gain on gas hedging.
Cash flows and equity
The new presentation of the results has not had any effect
on the Group’s cash flows from operating activities. It has
simply resulted in a redistribution between the “EBITDA”
and “other adjustments” items, equivalent to the difference
between the market value adjustments.
The new presentation has not had any effect on the
Group’s total equity.