Orsted A/S

Good morning, good afternoon, everyone, and thank you for joining our earnings call. During the third quarter, we have continued the progress of our business plan and achieved a number of significant milestones, including CFD awards for 3.5 gigawatts in the UK, favorable contract settlements for Ocean Wind 1, and signing of a partnership agreement. We continue to see solid operational performance across our fleet of assets and good overall progress on our construction projects, though we have seen some unexpected challenges impacting the construction of one of our U.S. offshore projects. Looking at our finances for the third quarter, our underlying business continues to perform well and our operational portfolio have delivered strong earnings. EBITDA excluding new partnerships and cancellation fees totaled 4.4 billion in Q3 of 24, and earnings from offshore sites amounted to 4 billion. The reported EBITDA for the first nine months amounted to 23.6 billion DKK, an increase of 22% over last year, and EBITDA excluding new partnerships and cancellation fees increased by 12% to 17.2 billion DKK. Based on these solid nine-month earnings, we have narrowed our 2024 EBITDA guidance to 24 to 26 billion DKK, once again excluding new partnerships and cancellation fees. During the quarter, we have commissioned 550 megawatts of renewable capacity, bringing our total portfolio to 18.2 gigawatts. In the U.S., we successfully commissioned the final part of the solar project 0300 and the full 471-megawatt Mockingbird solar project. We also added to our construction portfolio with the final investment decision on two U.S. onshore projects with a total capacity of 500 megawatts. A key milestone was the award of 3.5 GW of offshore wind in the UK allocation round 6, and thereby securing inflation-linked offtake for a 1.1 GW share of the Hornsea 3 project and a 2.4 GW for the Hornsea 4 project. We are very satisfied with the outcome of the auction, and with the added capacity, we move closer to our ambition of 20 to 22 GW offshore capacity by 2030. As announced at our capital markets update, we plan to deliver around 70 to 80 billion DKK proceeds from partnerships and divestments in the years 24 through 26. We expect that these proceeds will be approximately evenly split over the three-year period, and we are progressing well on this plan, supported by the recent transaction and a number of ongoing processes. Last week, we announced the divestment of a minority stake in four of our operational UK offshore assets to Brookfield. While Brookfield has acquired 12.45% minority share of Hornsey I and II, Walney Extension and Burbo Bank Extension, Ørsted will retain 37.55% ownership interest in these assets. The proceeds of 15.7 billion are a significant contributor to our Farm Down program, and at the same time, we have ensured a high level of value retention with the transaction, which we expect to close before the end of the year. The agreement includes a unilateral option for Ørsted, providing us with the opportunity, but no obligation, to repurchase the assets between two and seven years after the closing at a pre-agreed price. We see it as an attractive option to have that call option that we can exercise, ensuring that we maintain a level of strategic and financial flexibility as well as value upside. Regarding the farm down of Greater Shanghai 4 in Taiwan, our dialogue with Cathay Life Insurance is progressing according to plan. Cathay has obtained the approval from the Taiwanese Financial Supervisory Commission for the acquisition of a 50% ownership stake, which marks the last significant milestone prior to signing of the transaction, which we expect to happen before year-end. In August, we shut down our last coal-fueled CHP plant, the Esbjerg Power Station, in Denmark. This marks the end of a chapter in our green transformation and is the last major step on our journey to meet our industry leading science based target of reducing our scope one and two emissions intensity by 98 percent by 2025. Going forward, our entire energy generation will essentially be fossil free. Let me turn to the developments across our U.S. offshore portfolio. We have taken important steps to de-risk the Ceasing the Ocean Wind 1 project as we have finalized the negotiations of the cancellation of several supplier contracts with outcomes significantly better than we had assumed last year when we made our provisions for the project's cancellation costs. As a result of these favorable settlements, we have reversed more than 5 billion DKK of cancellation fee provision during the third quarter, which has had a positive effect on reported EBDA. Additionally, we have found further equipment that can be used in other projects in our portfolio, which had a minor positive effect on the provision as well. We have recognized a net impairment loss of 0.3 billion DKK in Q3, driven by updated assumptions regarding market prices for our U.S. portfolio, as well as increased cost and a challenge relating to the installation of the offshore substation monopile at Revolution Wind. These developments were partly offset by the decrease in the long-dated interest rates. Let's turn to slide 4, where I will give a status on our construction projects, starting with Revolution Wind. At Revolution Wind, we continue to make progress on the onshore and offshore construction, and have currently installed 52 turbine foundations, 9 turbines, and 20 array cables. Since taking FID last year, the project's risk picture has been evolving. With our direction and our team on site, Eversource continues to manage the onshore substation work and there are no new developments in this area. We continue to expect to follow the updated construction timeline with the onshore work going as the project's critical path. Additionally, we have extended the contracted period for one of our installation vessels using an option we had secured earlier. This does come with higher than anticipated costs, but from a risk and project execution perspective, we see it as the appropriate step to take. These installation vessel costs are incorporated into the impairment that we have booked in this quarter. We are managing a challenge with the installation of one of our offshore substation monopiles. It is a complication related to the piling of the monopile into the seabed, leaving the monopile in a position where, although it has been safely driven to the target depth, it may not be suitable for use as currently installed. The course is likely to be related to the resistance within the seabed soil, which is an extremely rare occurrence that we have only seen very few times in our experience of installing more than 2,000 monopiles. The offshore substation monopile is in a safe and stable position, and using our extensive experience, our team are assessing the root cause and establishing the best path forward for the project. The offshore construction activities, including foundation, turbine and array cable installations, are continuing as planned and we do not expect to change the commissioning date of the project. As a result of this complication, we are expecting additional costs to complete the project, which despite these developments still holds a positive value from an absolute lifecycle IRR level, as well as an attractive forward-looking return. This is an evolving situation, and we are still evaluating all options, but have incorporated a prudent cost estimate into the impairment calculation, and we have increased our contingencies accordingly. For our German program, we are working on the final pieces of commissioning at Godewind 3. All turbines at the project have been installed and 21 out of the 23 turbines have been fully commissioned. The remaining two turbines are undergoing final testing and we expect to commission the full project in the very near future. At Bokom Rifgun 3, all monopiles have been delivered and installed, which has been one of the supplier contracts that we have monitored diligently and worked on mitigating actions. 85% of the turbines are installed and our part of the construction scope are fully on track. However, we have been informed by the German transmission system operator that the grid connection will be delayed and therefore first power is not expected until Q4 of 2025 with commissioning in Q1 2026. The delay of the grid compensation will be compensated according to market regulation, and therefore there is no impact to the value creating of the project. In Taiwan, we are progressing the construction of Greater Shanghai 2B and 4, with the installation of the offshore substation about to commence. The fabrication of foundations and cable are progressing well, and the Turbine Foundation installation is expected to start in the first half of 2025. At our Sunrise project we are progressing the onshore construction work according to updated schedule and the offshore installation is expected to commence in 2025. The project is progressing on a tight schedule as we work towards commissioning at the end of 2026 or first half of 2027. As I mentioned, we have secured offtake for the Horn-C3 project with a 1.1 gigawatt award in the recent allocation round 6, which also resulted in the capacity of the project to increase to 2.955 megawatts. In onshore, the construction of our European and U.S. portfolios progressing well, with construction work ongoing in Germany and Ireland. We have an attractive pipeline of onshore development projects and recently took FID on two U.S. projects with strong value creation and expect to bring further projects to FID in the coming quarters to support our continued growth in our onshore business. With that, let me hand over the finances to you, Trond.

Thank you, Mats, and good afternoon, everyone. For the third quarter results, let me start with slide five and the EBTA for the quarter. For the presentation, all numbers are quoted in Danish kroners. For the group, we realized the total underlying EBTA of 4.4 billion. Total EBTA including impacts from cancellation fees is 9.5 billion. Let me walk you through the main earnings developments for the quarter. For our offshore sides, earnings were around the same level as last year. This was driven by ramp-up generation, higher prices on our green certificates, and improved earnings from our power trading activities. These effects were offset by the divestment of London Array in 2023, as well as lower wind speeds and availability due to the planned outages. Earnings from our existing partnerships were slightly lower compared to last year, and were mainly related to construction of Borken Rifgrun 3. Lastly, as expected and reflected in our guidance at the start of the year, we have incurred higher costs as a result of internal spend on ceasing execution of projects and have recognized the higher share of costs being expensed. For onshore, earnings increased by almost 200 million due to ramp-up generation from new assets that have been commissioned. Within bioenergy and other, earnings from our combined heat and power plants increased by around 100 million as a result of higher heat generation and compensation from Energinet for keeping three of our Danish power stations operational until August. Within gas business, earning decreased as we recognized temporary positive effects from revaluation of our gas at storage in 2023, which was not repeated to the same extent this year. Finally, we have continued to work through the contracts relating to Ocean Wind 1. And during the quarter, we have reversed cancellation fees of 5.1 billion due to better than assumed outcomes of the contract settlements. Turning then to slide six and our net profit and rosy. As part of our Q3 2024, we have recognized a net impairment loss of 300 million related to our US portfolio. The main drivers are negative impact of updated assumptions regarding power prices and costs. These updates were partly offset by decrease in the long-dated interest rate in the US during the quarter. leading to lower weighted average cost of capital levels across our US portfolio. The effect from the decreasing interest rates led to an impairment reversal of 2.4 billion. Let me walk you through the project's specific developments. For Sunrise Wind, we reversed 1.5 billion, driven by the impact from the lower interest rates. The positive accounting impact from completing the acquisition of the 50% share in the project at a price below our recoverable amount was countered by adjustments to the tax base's impact and a consideration of the market appetite in relation to a potential future found out. Furthermore, there was a negative impact from the updated assumptions for power prices. For Revolution Wind, we incurred an impairment of 1.2 billion and a quarter. The offshore substation monopile challenge that Mats mentioned and the extended vessel charter have led to an increase in the expected cost of the project. In addition, we have reassessed the risks related to the offshore scope of the project, leading to higher contingencies being added. In addition, we have lowered our assumptions for the future power prices. Finally, updates to the power price assumption in our US onshore portfolio has resulted in impairment losses of $500 million. Let me remind everyone again that as we have had to recognize impairments on these projects in the past, any changes to the business case, including movement to the interest rates, are likely to lead to further adjustment to impairments as there is no headroom. At the same time, it is important to keep in mind that once the projects are operational, they will contribute with significant earnings and cash flow throughout their lifetime. The adjusted net profit totaled 400 million, with the difference to last year primarily driven by exchange rate adjustments to our net financial income and expenses. Our reported net profit was 5.2 billion, driven by the significant positive EBITDA impact from the reversal of cancellation fees relating to Ocean Wind 1. Adjusted for impairments and cancellation fees, our return on capital employed came in at 11.5%, which is in line with the number for Q3-23. The reported ROSI landed at 8.1% and was primarily driven by a lower EBIT as a result of the impairments and the cancellation fees over the last 12 months. Then let's turn to slide 7 and our net interest-bearing debt and credit metrics. At the end of the third quarter, our net debt amounted to just shy of 63 billion. With our cash flow from operating activities was supported by our operational earnings, it was more than offset by payments of settlements related to ocean wind bond contracts and a cash outflow relating to construction of Hornsea 3 transmission assets. For the first nine months of 2024, we have had cash outflow of 5.9 billion relating to cancellations fees from Ocean Wind 1, of which 1.8 billion was in the third quarter. In total, We have now reversed more than six billion. And as a result of our settlements, we have around three billion left of the provision and expect to close out more towards the end of the year. For the quarter, our gross investments totaled 9.8 billion, driven by our investment into the construction of our renewable project portfolio. In September, we executed an early redemption of the remaining hybrids with first reset date in November, in line with standard market practices. In terms of net debt position, I want to highlight that the proceeds from the minority transaction with Brookfield is not reflected in our third quarter accounts. And therefore, the benefit from this transaction will come during fourth quarter, as we expect to close the transaction before the year end. Our key credit metrics, FFO to adjusted net debt, stood at 13% at the end of the third quarter. Compared to last year, the decrease was primarily driven by lower FFO as a result of payments related to the settlement of contracts, as well as a higher net debt position. However, our FFO and net debt for 2024 will expectedly be better than what we assumed at the beginning of the year, given the favorable contract settlements related to Ocean Wind 1. As we shared in February, the ratio is expected to be lower for the full year of 2024 before starting to recover towards the targeted level above 30% by the end of 2026. Then going to slide eight and our non-financial metrics, For the first quarter of 2024, our taxonomy-aligned metrics were in line with expectations. Renewable share of energy came in at 97% compared to 92% for the same period last year. Development was driven by ramp-up generation in offshore, high wind speeds, as well as lower coal-based generation. For our renewable share of energy generation, we have seen an increase driven by a higher share of renewable projects coming online, combined with a decrease of coal-based generation. Additionally, the shutdown of our last coal-based combined heat and power plant puts us on our target of essentially having a fossil-free energy generation by 2025. On safety, we are encouraged to see another reduction in the number of recordable injuries, both for our own and contractors' employees. And finally, going then to slide nine and our outlook for 24. As Mats mentioned in the beginning, our solid financial performance for the first nine months have led us to narrow our full year EBTA guidance of 24 to 26 billion from previously 23 to 26 billion. Compared to our full year expectations for the earnings mix at second quarter, we now expect lower earnings for the bioenergy and other business as a result of lower volumes coming from the delayed TIDA gas field and less favorable development in our gas at storage, as well as lower earnings for our combined heat and power plant business. Our level of gross investments for 2024 is now expected in the range of 36 to 40 billion, which is a reduction of 8 billion compared to our expectations at the last quarter or second quarter. This is due to timing effects across our project portfolio, as significant milestone payments are expected to move into next year. And with that, we will now open for questions. Operator, please.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. questioners on the phone are requested to disable the loudspeaker mode while asking a question. And no one has a question. We press star and one at this time. Our first question comes from Peter Vizcica in Bank of America. Please go ahead.