Introduction
Established in the year 1972, DONG Energy is the largest of all energy production companies in the country of Denmark. Its headquarters are also situated here, with a significant amount of its work going into the production of energy both on and off land.
The company was started as a company to provide energy to the state, with the original title of Dansk Naturgas A/S being changed at the beginning of the last decade to its current name DONG, which stands for Dansk Olie org Naturgas A/S. In this case study, research and analysis of the company over a period of ten years or will be done.
The case study will make use of the company’s annual reports for 10 years including both primary and secondary sources together with other publicly available sources.
Literature Review
There is scanty literature detailing the performance of DONG Energy in the Danish and international markets. The secret to the performance of a company is based on the implementation of the recommendations in most of the case studies done in time. In history, most of the companies that triumphed can be studied to indicate the necessary steps towards profitability (McCraw 1998). Companies should have clear strategies on how they will meet their objectives.
This helps in the consolidation of profits in the various operations. According to Micklethwait and Wooldridge (2003), the average performance of a company can be gauged from the financial returns that it posts every year.
Methodology
The case study will utilise primary and secondary sources to derive the statistical performance of the company through a period of ten years beginning 2002. The use of secondary sources will be significant as it provides information that is not widely available in the literature.
Some gaps in the literature concerning the performance of the company will be analysed using the sources, with the data being quoted in the case study. Qualitative and quantitative research methods will also be utilised in the study, with the different sources being analysed in this form. The information from the literature review and sources will then be presented in a logical and meaningful manner.
Company Analysis
The performance of DONG Energy Company over the past decade can be effectively evaluated using the annual reports that the company posts. These have the necessary financial and technical performance indices necessary for the company.
In the 2012 annual report, for example, the company prided itself as being among the leaders in the energy business, with the main roles being the procuring production and distribution of energy in the region including energy trade (DONG Energy A/S Annual Report 2012, p. 2). The company also reported having 7000 employees, with the headquarters still in Denmark.
The 7000 employees are an increase from 1,043 it employed in 2004 who were also more than the 996 that were employed in the year 2005 (DONG Energy A/S Annual Report 2005, p. 17).
The company reported shareholding as 79.96% for the Danish State, 10.88% for the SEAS-NVE Holding with the rest 9.16% being held by the other shareholders (DONG Energy A/S Annual Report 2012, p. 2). The core activities as indicated for the same year included “oil and gas exploration and production, construction of wind farms located offshore, generation of electricity from power stations, wholesale activities in the power sector, and distribution of the same” (DONG Energy A/S Annual Report 2012).
The company has also seen significant growth in the financial and operation magnitudes, thus ranking among the best performing companies in the industry in the world.
In 2012, the components of power company contributed to a share capital of DKK 2,144 million, with the Equity being 14, 655 million (DONG Energy A/S Annual report 2002). The profit after tax for the same year was DKK 1476 with which represented a poor performance as compared to the previous two years (DONG Energy A/S Annual Report 2002, p. 6). The revenue from the different activities was also not even for activities.
Natural gas exploration and mining constituted the largest proportion at 70.2%. This was followed by the exploration and production of energy in general, with this making up 26.7%. The rest of the proportions were made up of oil transportation and renewable energy production among other activities (DONG Energy A/S Annual report 2002, p. 7).
In the same year of 2002, the total net interest bearing debt was DKK 6,919 million, which indicates what the financial year closed at (DONG Energy A/S Annual report 2002, p. 23). In terms of liquidity, the company had a total of DKK 3,655 million, with this mainly being the fixed term deposits that the company had made with banks and a part of it being mortgage bonds (DONG Energy A/S Annual report 2002, p. 23).
The company also made a few policies based on the risks that it faces in the industry, and these were to be implemented in the years that followed.
In the year 2003, the performance was better in terms of profits, with the company making a net profit of DKK 1,941million, which was better compared to the year that followed where the same company reported a net profit of DKK 1,881 million (DONG Energy A/S Annual Report 2004, p. 5). The year 2004 was however an improvement, with the non-recurring income being as high as DKK 647 million (DONG Energy A/S Annual Report 2004, p. 5).
This can be attributed to the profits that were gotten from the revaluation of one of the companies that was a major shareholder, which improved to a share value of DKK 562 million with an observed reversal of some of the previous write-downs (DONG Energy A/S Annual Report 2004, p. 5). As stated above, there was a drop in the net profit for the year 20004 compared to the previous year.
Some of the reasons for the observation include loss of the company’s market share in its home country of Denmark, the hedging of oil, and the USD exchange rate exposure. The charge in exploration also depreciated for the year compared to the previous year (DONG Energy A/S Annual report 2004, p. 5).
The year 2004 had some of the significant mergers that the company has engaged in, with Elsam and DONG embarking on working together in electricity generation and distribution. The company thus enjoyed large shareholdings in Elsam. This contributed to the rapid expansion seen in the year.
As a result of the merger and other activities that the company undertook in the year 2004, profits improved, with the year 2005 having an observed profit after tax of DKK 2, 818 million (DONG Energy A/S Annual report 2005, p. 5). The non-recurring income was also a departure from the one reported in the year 2004, which stood at DKK 360 million (DONG Energy A/S Annual report 2005, p. 5).
This was a reduction from the previous year’s value of DKK 889 million. The better performance of the company could be attributed to several factors, with one of the most significant being the better performance of the price of oil on the international front for the same year. There were also significant reductions in the exploration costs in the same year, which prompted a record profit margin for the company (DONG Energy A/S Annual report 2005, p. 5).
The company continued its expansion into the electricity sector, with its partnership with Elsam continuing together with the introduction of new partnerships with companies such as Energi E2 and Nesa (DONG Energy A/S Annual report 2005, p. 5). The transition from the year 2005 to 2006 had some of the greatest of changes in the company, with the same being reflected on the performance at the end of the year 2006. As indicated above, the company had 1,018 employees in its payroll.
This figure changed significantly to 4,585 employees for the year 2006 (DONG Energy A/S Annual report 2006, p. 3). The revenue rose from that recorded in the year 2005 in the exploration and production as well as other activities that the company performed.
In 2006, the exploration and production revenue stood at DKK 5,556 million, which was a marked improvement from the DKK 4, 346 million that was reported for the previous year as stated above (DONG Energy A/S Annual report 2006, p. 3). The revenue from energy generation also improved from DKK 114 million in 2005 to a total of DKK 7,620 million for the year 2006 (DONG Energy A/S Annual report 2006, p. 3).
The other observed change in the year 2006 was in the size of assets, with these totalling to DKK 105 billion, which was an improvement from the previous DKK 47 billion in 2005 (DONG Energy A/S Annual report 2006. p. 4).
Distribution revenue that the company gets from distributing power and gas across the continent grew from DKK 857 million to DKK 2,560 million for the year 2006, with the market revenue growing to DKK 24,114 from the previous 13, 885 million (DONG Energy A/S Annual report 2006, p. 4). In general, the company grew in 2006 to reach the current heights. This was attributed to the relative profitability in the industry at the time, networking, and expansion that the company enjoyed during this period.
The year 2007 was also a continuous improvement year for the company, with the generation part raising about DKK 12,335 million in revenue, which was an improvement from the DKK 7,682 million that was reported the previous year of 2006 (DONG Energy A/S Annual report 2007, p. 4).
The exploration and generation part also had improved profits, with revenue of DKK 4,869 million being reported as an improvement from DKK 5,556 million in the year 2006 (DONG Energy A/S Annual report 2007, p. 4). The distribution revenue rose from DKK 2,560 million in 2006 to DKK 4,520 million that was almost double in 2007 (DONG Energy A/S Annual report 2007, p. 4).
The market revenue, however, remained constant at DKK 24,583 million, with only about DKK 277 million improvements from the previous value of DKK 24,306 million (DONG Energy A/S Annual report 2007, p. 4). The year 2007 was also marked by various trade agreements with some of the related companies.
The milestones in the year include the agreements with Wingas GmbH and other companies such as Wintershall Holding AG and the acquisition of Conoco Philips company (DONG Energy A/S Annual report 2007, p. 3). The company increased its offshore wind farms, increased its revenue by selling some of its activities in Portugal and Spain, and started production of gas from the Ormen Lange gas fields that it owned a significant proportion in shareholding (DONG Energy A/S Annual report 2007, p. 3).
The marked growth continued in the year 2008, with growth in revenue in all the sections that the company prides itself as owning. In the exploration and production sector, for example, the revenue grew from the DKK 4,409 million recorded in the year 2007 to a record DKK 7,114 million (DONG Energy A/S Annual report 2008, p. 2; ‘DONG Energy A/, 2008).
The generation part of the company also grew from DKK 12,358 million to DKK 15,298 million, with the energy markets growing from the DKK 20,262 for the year 2007 to the 2008 value of DKK 38,087 million (DONG Energy A/S Annual report 2008, p. 2). The same growth was seen in the sales and distribution sector, with this reporting a record DKK 15,595 million from the previous DKK14, 552 million (DONG Energy A/S Annual report 2008, p. 2).
The revenues by proportion included 50% from the energy and production part, 21% from the sales and distribution section, 20% from the generation and the remainder 9% being contributed by the exploration and production part (DONG Energy A/S Annual report 2008, p. 5)
In the year 2009, some of the important highlights of the company include the discovery of gas in the Glenlivet, with a license being obtained for the same (2009, p. 39). The company also signed one of the most important agreements in the energy production sector, with an agreement between it and Siemens constituting the largest offshore wind turbine agreement ever (DONG Energy A/S Annual report 2009, p. 44).
It also sold its shares in the Walney wind project to the SSE, thus ending its minority stake in the same project (DONG Energy A/S Annual report 2009, p. 44). With the sale of the stake in this project, the company further acquired 25%shares in another offshore wind project dubbed Lincs (DONG Energy A/S Annual report 2009, p. 44; DONG Energy AS Wind Energy Market Analysis, 2009).
Some of the other developments include the creation of more offshore wind farms, selling of its fibrotic network, and selling of shares in the Swedegas Company (DONG Energy A/S Annual report 2009). The company however scored poorly financially, with a reduction in revenue generated in all sectors that constitute its operations.
In the following year of 2010, the company improved and recovered from its previous underperformance. This was marked by a revenue improvement in all sectors that the company operates, with the exploration and production recording a revenue of DKK 8,224 million up from the previous low of 6,579 (DONG Energy A/S Annual report 2010, p. 2).
Generation revenue grew from the levels experience in 2009 of DKK 10,818 million to the experienced revenue of DKK 11,330 million (DONG Energy A/S Annual report 2010, p. 2). The energy markets revenue grew from the previous DKK 28,201 million to DKK 31,764 million, with the sales and distribution growing from DKK 13,386 to DKK 14,185 million for the year 2010 DONG Energy A/S Annual report (2010, p. 2).
The company continued with its upward growth for the year 2011, with the revenues improving and surpassing all sectors and operations. The company also had some remarkable performance on the international front by engaging in bilateral agreements and making trade agreements. In the exploration and production sector, the company got DKK 10,469 million in revenue, which was an improvement from the previous year (DONG Energy A/S Annual report 2011, p. 4).
The energy markets also stabilised, with the revenue significantly improving to DKK 33,689.million (DONG Energy A/S Annual report 2011, p. 4). In the sales and distribution sector, the company got DKK 13,009 million in revenue as an improvement from the previous years of DKK 14,185 million, with other activities being additive to the total revenues (DONG Energy A/S Annual report 2011, p. 4).
The year 2012 was marked by improvement in some of the quarters although with marked losses for the year (DONG Energy A/S Annual report 2012, p. 2; DONG Energy A/S SWOT Analysis, 2012). The company reported losses in the year. These amounted to DKK 4,021 million (DONG Energy A/S Annual report 2012, p. 2).
For the year 2013, the financial estimates favour the positive performance of the company, with the first quarter performing better than the previous year’s quarter (DONG Energy A/S Annual report 2013, p. 2). The performance for the year also indicates that the company will perform better that the previous years. The enhanced performance is also indicated by the figures in the pricing of the main commodity that is oil.
Industrial Competition
The company has grown in various areas. In the past decade, it has managed to overcome competition both locally and internationally. The industry is competitive on the global. Several companies are well established in the field. The performance of DONG Energy has maintained a steady rise in profitability and size despite the international competition. It has maintained its position as the largest company in Denmark in the same industry.
The performance for the year 2007 was particularly affected by the industrial competition at the time, with the continuous improvement over the years being cut short (DONG Energy A/S Annual report 2007, p. 4). The same trend was experienced for the year 2011, with the company recording some poor performance because of the advancing competition (DONG Energy A/S Annual report 2011; Energy Companies, 2012).
Conclusion
In conclusion, DONG Energy is one of the best performing energy exploration and production companies in the world. It is the largest in Denmark. The company has performed positively over the last decade as analysed in the review. This may indicate a working strategy adopted by the management.
The trend is an upward one for the better part of the decade, only being interrupted by a single slowing in development in 2007. The analysis proves that the company is ready to be the best in the world within the energy production and distribution.
References
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