Orsted A/S

Ladies and gentlemen, welcome to the Orsted Q4 2024 earnings call. I would like to remind you that all participants will be in listen-only mode, the conference being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or for broadcast. Today's speaker, our group president and CEO, Rasmus Erbel, and CFO, John Wesley. Gentlemen, please begin.

Hello, everyone, and thank you for joining today's presentation. This is my first earnings call as CEO of Ørsted, and I'm honored and humbled to step into this role after having been with the company for 13 years. Together with our skilled employees, I and the rest of the group executive team will work relentlessly to create value for our customers, shareholders, and stakeholders at large. Ørsted has a strong foundation with unique capabilities, and I'm looking forward to taking the lead on the transformation necessary to navigate the headwinds that Ørsted and our industry currently face. While I'm only a few days into the role, I know Ørsted and the challenges we face very well, and I am convinced that the measures we are introducing today are needed, in particular with respect to the lowering of our projected investments towards 2030 by approximately 25% on a like-for-like basis through a more disciplined approach to capital allocation. Ørsted will continue to be active across our three regions, and our number one priority will be to deliver on our committed construction program. That being said, when we pursue new development opportunities across offshore wind, onshore wind, solar PV, battery energy storage and also carbon capture, we will first and foremost prioritize the most financially attractive offshore wind opportunities in regions and countries where we see the most attractive framework conditions and investment environment, and where we have the most distinct competitive differentiation and ability to leverage and unfold our business model across the full life cycle. As it has been the case in the past, Offshore wind is where we have our unique and most distinct capabilities, and our capital allocation going forward will continue to reflect this. Further, our reduced growth ambitions towards 2030 will inevitably lead to Ørsted becoming a more focused company. We are currently constructing more than 8 GW of offshore wind, but with an expectation to see a lower construction of GW per year towards the back end of 2030, we will in the coming years be right-sizing our organization to fit our future needs. At the same time, we expect to see growth, in particular in our generation and trading and revenue business, as further offshore wind farms will be commissioned in the years to come, adding to our existing operating fleet of 10 GW offshore wind. At the same time, I want to reiterate that despite the recent and highly disappointing challenges related to our U.S. offshore wind projects under construction, and the adverse impact it has had on our capital structure, we remain fully committed to our target of having a solid investment grade credit rating. With that said, let me start with the performance highlights and strategic milestones achieved during 2024. For the full year 24, we achieved an EBITDA of 24.8 billion DKK, in line with our guidance of 24 to 26 billion. Adjusted for cancellation fees and new partnerships, this represents an increase of 700 million compared to last year, and an earnings mix where our offshore and onshore assets were significant contributors, highlighting again the strong operational platform we have. During 2024, we also managed to settle a large number of contracts related to Ocean Wind 1 and Flagship 1. Some of these settlements were finalized at better than assumed terms, leading to a total net reversal of cancellation fees of 7.3 billion. At this point, we have less than 2 billion remaining in the provision, meaning that we have nearly worked our way through all the contracts related to the projects and significantly better outcomes than we had expected. The total group EBITDA for 2024, including the new partnerships and these cancellation fees, was 32 billion, which was one of the highest EBITDA levels in the history of the company. As part of 2024 accounts, we have recorded total impairments of 15.6 billion for the year, with the majority relating to the adverse developments within our US offshore wind portfolio. While a portion of the impairments are driven by the increase in the long-dated US interest rates, as well as prevailing market uncertainties outside of our control, we are very disappointed with the execution challenges and will ensure an increasingly sharp focus going forward on delivering these projects according to the updated schedules and budgets. We will also work towards being more granular in our communication around the progress and the risk in our offshore construction projects. For the full year, adjusted for impairment losses and cancellation fees, we delivered a return on our capital employed of 10.1%, which is slightly below our average ROCE target towards 2030. We will come back to this number later in the presentation. Lastly, our continued and relentless focus on safety continues to pay off, as we have reduced our total recordable injury rate in 2024. It is the second year in a row that we experience a reduction, and we see it as a result of our long-term focused effort. While we are very pleased with this development, we will never rest when it comes to safety, and we will go to work every day with an aspiration to bring it down even further. Turning from the performance highlights towards our strategic milestones, where I am pleased to say we made significant progress through the year. First, we have commissioned around 2.4 gigawatts of total renewable capacity across offshore and onshore assets, representing a significant contribution to the build-out of our operational fleet of assets. In addition, we very recently took the final investment decision on our Baltica II project in Poland, All major component and vessel contracts for the projects have been signed, logging in the majority of the project's CAPEX, which significantly derives the project's We are satisfied with the value creation of the project, which has an attractive risk-reward profile. This FID highlights that solid investment opportunities continue to exist despite the challenging industry backdrop, and I am proud of the team getting the project to this important milestone. Another key milestone for 2024 was the award of 3.5 GW of offshore wind in the UK allocation round 6, with an inflation-linked offtake for 1.1 GW share of the Hornsea 3 project and 2.4 GW for the Hornsea 4 project. We are very satisfied with the outcome of the auction in one of our core markets, and we acknowledge that the UK government has shown resolve in adapting its support schemes for offshore wind to reflect current market conditions. In addition to the UK, we find the recent regulatory developments for offshore wind in Poland and Denmark encouraging. Within our divestment program, we achieved significant progress during 2024 and delivered in line with our expectations. During 2024, we secured proceeds of around 22 billion across five divestments. This demonstrates our ability to take projects to the market, and we continue to see an interest for our broad asset portfolio. Despite the challenging market conditions, we are on track to deliver on our divestment program towards 2026, which Trond will talk more about later in the presentation. During the year, we also shut down our last coal-fueled combined heat and power plant, the SBI power station in Denmark. This marks the end of a chapter in our green transformation and is the last major step in our journey to meet our industry-leading science-based targets of reducing our scope 1 and 2 emissions intensity by 98% by 2025. Going forward, our entire energy generation will essentially be fossil-free. On innovation, we introduced new groundbreaking technology as part of the installation of Godeven 3, and we have successfully developed and used a first-of-its-kind noiseless monopion installation technique, which enables a further reduction of the potential impact from construction activities on the marine environment as well as constructing in a more cost-effective way once we have adopted this at scale. Let's turn to slide five, where I will walk you through the adjustments to our business plan. While we did achieve significant strategic steps during 2024, we also saw adverse developments and continued challenging market conditions. While the majority of these industry-related challenges were reflected in the updated business plan we presented a year ago, We have seen further challenges materializing, which have put our capital structure under pressure. So in addition to the number of ongoing activities we have talked about before, we are now taking further measures to improve our value creation and competitiveness, as well as ensuring that we have a self-funded plan that can improve our capital structure in the medium to long term. These measures are all within our control, and they will contribute to our business being more efficient, more focused, and more simple going forward. As I mentioned, we will first and foremost prioritize offshore wind opportunities in the markets with the most attractive investment environment and where we can leverage our distinct capabilities. This focus will lead us to pursue and invest into fewer opportunities than we have previously anticipated, and combined with a dedicated focus on executing the current construction portfolio and our 2026 targets, we have chosen to step away from our previous 2030 gigawatt ambitions. That being said, I want to make it absolutely clear that we still fundamentally believe in the long-term attractiveness of offshore wind and renewables more broadly. As an extension of the lower expected build-out and following the adverse developments that have impacted our capital structure, we will reduce our investment program to 2030 with around 25% compared to our previous ambition. This decision is in line with our commitment to ensure a strong capital structure that can support a solid investment grade rating. We want to be a focused and efficient business, and therefore we are introducing additional measures to achieve this. We are delivering on the cost savings plan launched a year ago, which will bring permanent cost savings of 1 billion per year as part of organizational efficiency initiatives, and we will take further measures to go beyond this. We will not be expanding and constructing at a pace similar to our current build-up program, and we will, as a natural consequence, be continuously right-sizing our costs and organization in the years to come to fit our value and capacity ambition. The final part of this is a very clear prioritization of value over volume, including a more focused capital allocation. On the back of the challenge renewable industry, and the adverse developments experienced in recent years, we will employ an even more focused approach to our capital allocation. And we do see that we have plenty of opportunities in our core markets to leverage our core capabilities. With the opportunity set that we have, we will only select and progress investments within the most attractive market opportunities and continuously assess which markets we should continue to prioritize. Turning to slide six and our investment program. In February last year, we provided guidance on our long-term investment program, where we expected to invest around 270 billion towards 2030. When we take an adjusted view on this number today, reflecting the same group of projects, we see that the CAPEX program would have increased by around 10% on a like-for-like basis. This is primarily based on both cost increases for the offshore projects under construction, as well as cost increases in the projects in our pipeline, which we have not yet committed to. As a result of the adverse developments in 2024, we have decided to prioritize our investments and reduce our total gross investment by approximately 20-25% on a like-for-like basis towards 2030, which means we expect to invest in the range of 210-230 billion towards 2030. This range can be categorized into three components. First, we invested around 43 billion last year into our construction portfolio. Second, the incremental investment level into our 9 gigawatt construction portfolio is planned to be around 130 billion and will take place towards the back end of 2027. When we look beyond our construction portfolio and the committed CAPEX, we have an investment capacity of around 40 to 60 billion. The allocation of this capital will be prioritized to the most value-accretive opportunities going forward, while ensuring a continued stable capital structure. I will now turn to slide 10 and our current build-out plan. As of today, we have 18.2 GW of installed renewable capacity, more than half of which is within our offshore business. We currently have 9.2 GW of renewable capacity under construction, of which 8.4 GW is offshore capacity. The capacity under construction will come online throughout the next three years and once fully commissioned by 2027, the installed capacity of our portfolio will increase by around 50% in total and almost double for offshore wind. It will not be easy and further challenges will arise. but delivering on this plan in the coming years will make us enter the back end of this decade from a position of strength and will solidify our position as the undisputed global leader in offshore wind. We have a high degree of CAPEX visibility for the projects under construction, and we expect to hold investments of around 30 billion from now on and onwards to complete installation of the construction portfolio. It is important to highlight that we do have a meaningful investment capacity to support further growth beyond this build-out. However, I will reiterate and emphasize that it is solely the value creation and capital structure that will drive our future capital allocation decisions. Within the strategic parameters that we have set, we have named a few of our near-term opportunities, including Horn C4, where we have secured off-take but not yet taken a final investment decision. And as we ensure to limit capital commitments in the early stage of project development, we can prioritize or deselect based on risk-reward of the projects. We do have a broad opportunity set of development projects, both near and long term, and we will only progress the opportunities that are aligned with our capital allocation principles. Despite stepping away from our 2030 ambition, it is important to highlight the broad set of opportunities that we have available. We have numerous options ranging from centralized and decentralized tenders, seabed licenses, as well as greenfield opportunities across our three regions. And this showcases that the long-term outlook for the renewable industry in Ørsted remains attractive. Let's turn to slide 8 and our earnings outlook and return on capital employed. When looking at our earnings growth in the coming years, we expect to deliver significant growth. By 26, we expect to reach an EBITDA level in the range of 29 to 33 billion, which implies a CAGR of 12%. The earnings increase towards 25 will predominantly be driven by ramp-up generation within our offshore business. Trond will cover this in further details in a minute. Looking at the earnings increase from 2025 into 2026, this consists of two main categories, with the first one being ramp-up generation from our offshore and onshore assets, including full-year contribution from assets being commissioned during 2025. And secondly, we expect to see higher earnings from our existing partnerships agreements due to timing of transactions. This second component is obviously associated with some uncertainties. As you may notice, the EBITDA guidance range for 2026 has been slightly lowered as a result of the delayed installation and thus ramp-up generation from our Revolution and Sunrise wind projects. When we turn to our ROCE for the period up to 2030, we continue to see it at an attractive level. When comparing to the outlook that we saw one year ago, our ROCE will improve as a result of the lower investment program. However, this is offset by the higher cost and schedule delays that we have seen to our U.S. construction projects, as well as higher cost for our pipeline projects. The totality of these developments lead us to revise our ROCE for the period to around 13%. We continue to guide on this metric towards 2030 as the different scenarios and opportunities that we internally are assessing and working within on this longer-term horizon all will yield a similar level of ROCE over the period. Let's then turn to slide 9, where I will give a status on our construction projects. For our German program, our Godwin 3 project is producing at full capacity. The final park testing is expected to be completed within the coming two months. At Borkum Riftgrund 3, all foundations and turbines have been installed, and our mitigating actions have successfully managed the installation of the project according to the schedule. As mentioned at our Q3 earnings call, the German transmission system operator has seen a delay to the grid connection and therefore first power is not expected until end of this year. The delay of the grid connection will be compensated according to market regulation and is reflected in our EBITDA guidance for 2025. In Taiwan, we continue to progress the construction of Greater Changwa 2B and 4, with the expected completion of the offshore substation jacket and topside during the quarter. The fabrication of foundations and cables continue to progress as planned, and turbine foundation installation is expected to start in the first half of 2025, and we expect to see first power over the summer. Commissioning of the project is currently expected at the very back end of 25, with the risk of it becoming early 26. For Revolution Wind, construction remains well underway. We have currently 52 monopiles installed, 18 turbines installed, and the vast majority of the export cable in place. Nearly all remaining components, including monopiles and array cables, are fabricated. We have a strong visibility on the fabrication and installation of remaining components, including the offshore substation monopile, where we have secured a viable path forward for the installation. The onshore substation work continues to progress according to our updated plan. We have a suitable level of contingency in the project reflecting the remaining risks, and we are delivering according to the updated schedule. We expect to complete offshore construction work later in 2025 and commission the project in the back end of 2026. For Sunrise Wind, we continue to progress the construction. As we shared a few weeks ago, the project has seen adverse developments in terms of higher costs and schedule delays, which have been factored into the business case now. While we work extremely dedicated to deliver on the updated schedule and timelines, We have seen good progress in terms of onshore construction work as well as fabrication of the offshore components such as monopiles, turbines and export cable. We expect to commence the offshore construction work during the first quarter of this year. Regarding the U.S., we have closely followed the recent political and policy developments, and we are currently reviewing the executive order on wind energy that was issued on January 20. Appointees are being confirmed as we speak and are stepping into their positions, and these officials will interpret and implement these policies. We will continue to update our assessment throughout this process. For the Honshi 3 project, the construction continues to progress as planned, both with the onshore scope as well as the offshore activities, which will commence later this year. The offshore works will relate to pre-construction activities such as boulder clearance and rock dumping. Also, the construction work for the co-located battery storage solution is planned to start during the second quarter of this year. We currently expect to commission the project at the back end of 2027. Lastly, we have taken the final investment decision on our BaltiCat 2 project. The project holds a 25-year inflation index CFD contract and has secured all major components and vessel contracts for the project, logging in the majority of the capex. We are satisfied with the value creation of the project, which has an attractive risk-reward profile, and we expect to commission the project in late 2027. In onshore, the construction of our European and US portfolio continues to progress well, with construction work ongoing in the US, Germany and Ireland. Let me then finish my part of the presentation with slide 10, summarizing our value creation. Even though we will be reducing our investment program, we do have investment capacity to pursue the most attractive projects amongst the growth opportunities we have in our portfolio, in addition to our current under construction portfolio. Our targeted value creation remains in place with a spread-to-back target of 150 to 300 basis points. We remain firmly convinced that our business will continue to deliver value through a solid and attractive platform. Our operational renewable assets continue to deliver strong cash flows based on a high degree of contracted and regulated revenues. And as I have highlighted on the previous slides, we have a high degree of visibility on the near-to-medium term capacity expansion and EBITDA growth through our construction portfolio of renewable assets. The combination of earnings from our operational assets construction portfolio, as well as the return requirement for future investment capacity, will continue to ensure attractive returns on our investments with a ROCE of around 30%. With this, let me hand over to Trond and a walkthrough of our finances.

Thank you, Rasmus, and good afternoon, everyone. First, let me start with slide 12, the EBITDA for the year 2024. For the presentation, all numbers are quoted in Danish cronies. In 24, we realized the total underlying EBITDA of 24.8 billion. Total EBITDA, including new partnerships and cancellation fees, is 32 billion, one of the highest EBITDA levels in Ørsted history. The operational earnings have been solid and consistent throughout each of the quarters and delivered in line with our expectations. Let me walk you through the main earnings developments for the year. For our offshore business, the overall earnings came in around the same level as last year. The earnings from CITES increased significantly, driven by ramp-up generation, higher wind speeds for the year, and higher prices on green certificates and inflation-indexed assets. Also, the CITES performed was positively impacted by around 900 million as a result of change in our cost allocation mythology, which does not affect the overall earnings profile. Earnings from our existing partnership decreased compared to last year and were mainly related to updated assumptions and increased provisions in the operation and maintenance contracts of the UK offshore transmission assets. The losses reflect a net present value of the remaining lifetime of the projects and are driven by, expectedly, higher cost relating to assumptions on transmission charges and servicing of the offshore substations. Despite not owning these assets, we have assumed the operations of them to ensure that we can maximize the generation output of the wind farms and ensure Any potential downtime in the export cables are identified and fixed as quickly as possible. Also, we have seen higher costs for Boken Rifkin, which have led to reduced earnings under the construction agreement. Lastly, there is an increase of other bucket, primarily driven by the cost reallocation of overhead that I mentioned before, of about 900 million. For onshore, earnings increased by one billion in line with expectation, primarily due to ramp up generation from new assets that have been commissioned during 24. Within bioenergy and other, Earnings from our combined heat and power plants were around the same level as last year, whereas earnings from our gas business decreased. As a temporary positive effect from revaluation of our gas at storage recognized in 2023 was not repeated to the same extent this year. Finally, we have continued to work through the contracts relating to Ocean Wind 1 and for the full year we have reversed cancellation fees of 7.3 billion due to better than assumed outcomes of the contract settlements. Turning to slide 13 and our financial guidance for 2025, for the full year of 2025, we expect an EBITDA in the range of 25 to 28 billion. Let me go through the expected drivers for the different segments. In our offshore business, overall earnings are expected to be higher in 2025. For the sites, our earnings performance is expected to increase, driven by ramp-up generation of a number of projects, as well as compensation for the grid delay at Borken Rifklund 3 in Germany. Similarly, we expect to see higher availability rates in 2025 compared to 2024, leading to an increase in earnings. We also expect earnings increase from inflation-linked ROCs and CFD farms, partly offset by lower offtake price assumptions for our merchant assets, as well as lower earnings at Anholt and the older German assets, as they respectively see a phase-out and a step-down in the subsidy level. Also, we expect to incur ramp-up costs relating to revolution win and sunrise win as they are preparing for operations, but we do not expect any ramp-up generation. Earnings from our existing partnership is expected to increase as we do not anticipate the negative effects in 24 to be repeated in 25. For our offshore business, we anticipate a higher share of project development costs to be expensed and likewise higher fixed costs. For our onshore business, we expect an increase in the earnings performance. This is driven by the ramp-up capacity as well as expectedly higher availability rates. These elements are partly offset by the impact of the lower generation capacity following the divestment of a portfolio of projects to ECP. For our bioenergy segment, we expect earnings from our combined heat and power plants to be in line with the same level as last year. For our gas business, we expect earnings to increase driven by the higher gas volumes that will be available following the full reopening of the Tyra field. Finally, we expect gross investments in the range of 50 to 54 billion, driven by investments into our offshore and onshore construction activities. Our gross investment guidance is particularly sensitive to our divestment program and may be impacted by changes in timing of transactions. Let's turn to slide 14 and our sources and uses. When we look at our funding composition towards 2030, the reduction in our future expected build-out as well as our investment program ensure that we continue to have a fully self-funded plan. To fund our investment program of 210 to 230 billion, the largest contributor remains anchored in the strong and stable cash flow generation from our operational portfolio, contributing to more than half of our funding needs. Funding from partnership and divestment program will make up around 30%, reflecting a sizable share as well. It is planned to be more front-end loaded and is an element of our funding program that we consistently have shown over the years that we can deliver on, also with our 24 divestments in mind. The final two components are our tax equity funding as well as the debt and hybrids. When we look at our tax equity funding, the majority of this is expected to come from our revolution and sunrise wind projects. The net issuance of debt hybrid will also remain limited as we progress over the coming years. On the user side, we have strong visibility on the gross investments as we are constructing an advancing renewable portfolio of more than 9 gigawatts. In addition to this, we have some hybrid coupons as well as minority dividends payments that we are planning to undertake. With the measures we have taken to ensure focus on the improvement of our credit metrics, we have a headroom in our funding plan to strengthen our capital structure. So let's go to slide 15 and our divestment program. During 24, we have delivered proceeds of around 22 billion, which was in line with our expectations and puts us on track to deliver on our target of proceeds of 70 to 80 billion for the period 2024 to 2026. As we said one year ago, we have a number of transactions in the market and the transactions announced during 24 is the testament to this. We continue to have a broad set of opportunities that we can bring to the market and ultimately progress with the transactions that are the most attractive to us. When evaluating the attractiveness of the transaction, we do such based on three non-prioritized criteria, which are value creation, capital recycling, as well as risk diversification. With the conditions for divestments are different compared to years ago, we do see benefits from our experience within the farm down market that we have accumulated through frequent engagement for more than two decades. And we continue to see a sufficient appetite in the market, particularly for high quality assets. Over the coming two years, we anticipate to deliver the remainder of our targeted proceeds, while we continue to assume a relative balance split of proceeds across the three years. It will ultimately come down to the timing of transaction, which can shift the distribution of the proceeds between the calendar years. Let's turn to slide 16 and our capital structure. Throughout 24, we have taken a number of steps to support the trajectory of strengthening our capital structure and ensuring a solid investment grade rating. First, we managed to settle contracts related to Ocean Wind 1 at a better than assumed terms, such that we have preserved more than 7 billion in 24. which would have had an FFO as well as net debt impact. We have also introduced a reduction in our development expenses through market prioritizations, which will lead to a reduction of 3 billion towards 2026. And we continue to progress this number. Furthermore, we have succeeded in reducing our cost base on a like-for-like basis by 1 billion through simplification and efficiency increases. Finally, we have so far delivered on our targets for our divestment program, where we have secured proceeds of 22 billion during 2024 and remain on track to secure in the range of 50 to 60 billion over the coming two years. However, following the recent adverse developments in our U.S. offshore portfolio, we have seen further pressure to our credit metric in the short term. In addition to progressing what we already have initiated, we are taking further measures to strengthen our balance sheet. In short, this includes a reduction in our investment program and introducing new additional cost efficiency measures. Turning to our credit metric, we ended the year at 13%. This is better than we assumed a year ago, given that we have reached settlements on the contracts relating to Ocean Wind 1 at better than assumed terms. During 24, we have paid off 6.3 billion of cancellation fees, And if you remove the impact of this had to our credit metrics for the year, the number would have been around 22%. Looking at our short-term credit metric projections, we do see that the recent adverse development within our U.S. offshore portfolio impact put pressure on our credit metric in the short term. As such, the improvement of our credit metric will be slower than we previously assumed, but we still remain on track to deliver on the trajectory towards the FFO to net debt of 30%. We have taken note of recent rating agency decisions following our impairment announcement earlier in January and our swift reaction to mitigate the pressure on our balance sheet and the additional levers we have available is how we signal very clearly that we are serious about our rating commitments and the trajectory of improving our capital structure. even as it requires more of us compared to our expectations a year ago. So with that, let's go to the Q&A session.