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The DONG Energy Turnaround .

A journey from a fossil fuel centric/state-owned company to a publicly owned leader in wind power.

The DONG Energy Turnaround

In his native Denmark, Henrik Poulsen is known as one of the most driven top executives in the noble discipline of the turnaround. Last summer, his efforts were crowned when he led DONG Energy onto the Nasdaq Copenhagen stock exchange in the biggest stock market listing in the history of the Kingdom of Denmark.

On June 9, 2016 DONG Energy burst onto the Nasdaq Copenhagen stock exchange with a market capitalization of approximately 100 billion DKK. After four years of turning a business that was on the brink of breaking its neck on fossils, DONG Energy had made the transition from state ownership to the public markets to become a front runner of the emerging global wind energy industry.

Dong Energy Bell CeremonyAs clear as the task had been for the new energy giant CEO when he took over in 2012, just as extensive and complex was the maneuver he had to perform: a state-owned group that historically had earned billions of kroners from pulling oil and gas out of the North Sea needed to reverse a deficit by fundamentally adjusting the entire business and its business models.

"What is it that we do better than others and how do we leverage this advantage in the fastest and best possible manner? DONG Energy was a business that had a significant need for conversion. Because its historical main sources of income were about to disappear completely or partially," Henrik Poulsen says about the company he took over in 2012.

Danish Oil and Natural Gas

DONG is an acronym for Danish Oil and Natural Gas. And it was the earnings from these sources that had begun to dwindle.

"The two main sources of income would gradually drop within a relative few years. And in 2012, when I arrived, the fall in earnings had already been felt, and obviously, it would accelerate," says Henrik Poulsen.

Even before Henrik Poulsen came onboard Standard & Poors had downgraded DONG’s credit rating to ‘negative outlook’. Something had to be done.

"That was when we had to decide: Where do we go from there? Which led to the famous capital injection," says Henrik Poulsen, referring to the capital injection, which the Danish state, Danish pension funds ATP and PFA and the American investment bank Goldman Sachs agreed upon years before the listing.

The turnaround plan

The decision to go for offshore wind was taken pretty fast after Henrik Poulsen joined DONG. Due to the financial challenge with the capital structure Henrik Poulsen and the management team had to accelerate work to find out what could be built on and what to shed.

“We needed to present a turnaround plan to the board and to the main shareholders. What we did, in fact, was that we took all business areas - at that time we were talking about 12 units, some small, some large - and went through each area at a time. We asked some basic questions like, "what is our competitiveness?", "what is our risk?" and "in relation to the risk, can we yield a return on this area that can create value?" We did this for all the 12 business areas. In the big units we were completely down to active levels. So, for oil and gas we zeroed in and looked at each field just as we looked at the individual wind farm.”

The goal was to ‘de-compose the company’, so that one could look at the individual components and determine where value could be created and where value was destroyed.

"This led to our five-point plan, where we decided to reduce the group's annual costs by 1.2 billion DKK, and we decided to sell a number of non-core assets," says Henrik Poulsen.

Out of the 12 business units, four were kept: off shore wind, biomass conversion, electricity distribution grid and the already begun oil and gas projects, which were decided to follow through on.

All bets on offshore wind

Today, the focus on offshore wind is one of the more successful decisions. It emerged from that detailed review of the business areas. So, before the business case in offshore could materialize, DONG Energy had already begun building this unit stronger, something that gave the company a competitive advantage.

"We had a front runner position. And when you have that, it's a question of whether you believe in the industry; do you think that offshore wind will be big or not? That was where the risk was," says Henrik Poulsen.

Poulsen took a big bet on sea wind. But he also attributes the success to the shareholders and the board, consisting of representatives of the owners.

"One must give them credit for repeatedly telling us that they believe in us and believed in the plan to roll out these initiatives, and then to set a high benchmark that we want to become a global leader.”

“This is the direction, folks”

"Since the goal was set, we have been able to say that this is the benchmark - so let's go," he says, recognizing that some of the goals have also been achieved faster than expected.

According to Henrik Poulsen this shows that the direction chosen by the management team and the competencies of the employees have matched up to a great extent, which has enabled DONG employees to solve incredibly complex challenges.

"Our employees have often succeeded in a way we could never imagine. In fact, they have done the job. We, the management, really just said ‘this is the direction, folks’, and then they've figured out how to do it. It's fascinating, really," concludes Henrik Poulsen.

(This article is a summary of an article in Dagbladet Børsen, April 9, 2017)

Ownership

Danish State: 50.12%

SEAS-NVE: 9.54%

Goldman Sachs: 7.00%

Capital Group: 5.9%

ATP: 3.6%

Revenue + EBITDA (continuing operations)

Null

Number of employees globally

December 2016: 5,775

Transformation in numbers

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(Source: DONG Energy)

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