ANNUAL REPORT 2011 - DONG Energy
ANNUAL REPORT 2011 - DONG Energy
ANNUAL REPORT 2011 - DONG Energy
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RIsk AND RISK MANAGEMENT<br />
risk and risk policy Exposure and hedging<br />
interest rate risks<br />
<strong>DONG</strong> <strong>Energy</strong>’s interest rate risks relate to interestbearing<br />
assets, financial price hedges, non-current liabilities<br />
and current interest payments. The Group wants to<br />
limit the effect of changes in interest rates. As a result, the<br />
loan portfolio, including hybrid capital, was predominantly<br />
fixed-rate at the end of <strong>2011</strong>. Interest rate risk is managed<br />
actively via a target for the duration of the net debt.<br />
liquidity and financing risks<br />
Implementation of <strong>DONG</strong> <strong>Energy</strong>’s strategy assumes financing<br />
in the form of asset disposals or the raising of<br />
loans in addition to the cash inflow from operating activities.<br />
The refinancing risk is reduced by having a diversified<br />
debt mix and maturity profile and ample cash resources in<br />
the form of committed loan facilities, cash or liquid securities.<br />
To secure financing on attractive terms, <strong>DONG</strong> <strong>Energy</strong><br />
has set targets for its credit rating and capital structure<br />
(see page 42). The credit rating target is ratings of at least<br />
BBB+ (Standard & Poor’s) and Baa1 (Moody’s).<br />
Up to and including <strong>2011</strong>, the capital structure target<br />
was for adjusted net debt not to exceed three times cash<br />
flows from operating activities. From and including 2012,<br />
the target has been changed so that adjusted net debt<br />
must not exceed 2.5 times EBITDA.<br />
48<br />
manaGEmEnt’s rEviEw – <strong>DONG</strong> ENERGY GROUP <strong>ANNUAL</strong> <strong>ANNUAL</strong> <strong>REPORT</strong> <strong>REPORT</strong> <strong>2011</strong> <strong>2011</strong><br />
The table below shows the key indicators for interest rate<br />
risk. Total interest rate risk at the end of <strong>2011</strong> was DKK 3.1<br />
billion, calculated as the amount by which the market<br />
value of debt, hybrid capital and cash and cash equivalents<br />
would fall in the event of a one percentage point increase<br />
across the interest rate curve. The interest rate risk<br />
corresponds to the loan portfolio (excluding hybrid capital)<br />
having a duration of 7.7 years.<br />
In 2012, a one percentage point increase in the interest<br />
rate would result in a DKK 32 million increase in net interest<br />
expense compared with a total cost in 2012 for net debt<br />
and hybrid capital at the end of <strong>2011</strong> of DKK 2.1 billion.<br />
loan portfolio profile<br />
(excl. hybrid capital) at 31 Dec. <strong>2011</strong><br />
Fixed-interest portion 1 (%) 88.9<br />
Duration (years) 7.7<br />
Average time to maturity (years) 9.4<br />
Average interest rate (%) 4.1<br />
1 The fi xed-interest portion incl. hybrid capital was 91.5%<br />
At the end of <strong>2011</strong>, cash resources were DKK 23.1 billion,<br />
of which DKK 13.4 billion was committed borrowing facilities<br />
and DKK 9.7 billion available cash and cash equivalents<br />
and securities.<br />
<strong>DONG</strong> <strong>Energy</strong>’s current ratings are A- (Standard &<br />
Poor’s) and Baa1 (Moody’s).<br />
At the end of <strong>2011</strong>, adjusted net debt amounted to 2.0<br />
times cash flows from operating activities and 1.9 times<br />
EBITDA.<br />
Maturity profile, DKK billion<br />
7<br />
6<br />
5<br />
4<br />
3<br />
2<br />
1<br />
0<br />
Committed borrowing facilities Bonds<br />
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022+<br />
Note: Excluding hybrid capital, which comprises: EUR 600 million<br />
maturing in 3005 with first call date in 2015 and EUR 700 million<br />
maturing in 3010 with first call date in 2021.