Orsted A/S

Ladies and gentlemen, welcome to the Orsted Q1 2025 earnings call. For the first part of this call, all participants will be listened on remote, and afterwards, there will be a question and answer session. Today's speakers are Group President and CEO, Rasmus Erboe, and CFO, Trond Wesley. Speakers, please begin.

Hello, everyone, and thank you for joining today's presentation. During the first quarter of the year, we have focused on execution of the business plan that we presented in February. As part of the updated plan, we established four key business priorities for Ørsted, which will be the core focus as we execute on our strategy. First, it is the strengthening of our capital structure. Secondly, it is the delivery of more than 8 GW offshore construction portfolio. And thirdly, it is a focused and disciplined approach towards capsule allocation with value over volume. And finally, we will ensure that Ørsted is even more competitive in the future. We will continue to focus on progressing all four priorities to deliver on our plan. With that said, the offshore wind industry continues to be challenged in the short term with headwinds relating to supply chain, regulatory uncertainty, and macroeconomic developments. We follow the developments around further potential tariffs and other regulatory changes closely. Despite the significant challenges across certain geographies, the long-term fundamentals for offshore wind are strong, given the increasing global electricity demand, a strengthened focus on energy security and affordability through renewables, and improvements in framework conditions in several major markets. With that, let me walk you through our progress on each of the four strategic priorities. During the first quarter, we have seen solid operational results, with a reported group EBITDA increasing 18% compared to last year. In addition, we continue to deliver on our farm down program as we closed two divestments since the start of the year. In the US, we completed the 50% farm down of two of our solar farms. And just last week, we completed a divestment of a part of our West of Dutton Sands offshore wind farm in the UK. These transactions deliver total proceeds of around $7 billion and are supportive of our capital structure. We continue our relentless focus on the delivery of our offshore construction portfolio. And during the first quarter, we continue to deliver on this with successful commissioning of Goodwin III. This also marks that we now have installed more than 10 gigawatts of offshore wind capacity. On the back of the short-term challenged offshore wind 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 ample opportunities in our core offshore wind markets to leverage our distinct capabilities. With the opportunity set that we have, we will only select and progress the most attractive investment opportunities. A key part of this is a very clear prioritization of value over volume for our shareholders. This disciplined approach to capital allocation has led us to the decision to discontinue the development of our 2.4 GW Horn C4 project in the UK in its current form. Since the award, the business case has seen numerous adverse developments, especially cost increases across the supply chain and higher interest rates. In combination, these developments have deteriorated the potential value creation and increased the execution risk. Throughout the development phase, we have been very diligent in our approach to capital commitments and followed our updated stage-gate model. We are well below our internal commitment thresholds and we are taking this decision well ahead of the planned FID. I would like to emphasize that Ørsted continues to view the long-term fundamentals as strong and see attractive perspectives for offshore wind in the UK. We will evaluate options for future development of the Horn C4 project as we continue to hold the seabed rights, the development consent order, as well as a grid connection agreement. The decision to discontinue the development of Horn C4 in its current form will not impact our mid- and long-term strategic ambitions and financial targets. I am excited to have welcomed two new members to our group executive team. Part of our journey to become increasingly competitive in the future will require our business to be more efficient and focused going forward. With the recent appointments of Amanda Das and Godson Yoku, the full offshore wind value chain from development to construction to generation is now represented in our group executive team. The changes to the group executive team reflect our sharpened focus on our core business, project execution, and on improving our competitiveness. And I'm very pleased that we have been able to attract two such strong candidates to our team. Let's turn to slide five, where I will walk through some of the operational highlights for the quarter. First, I am pleased with the operational earnings for the first quarter of the year, where our EBITDA, excluding new partnerships and cancellation fees, amounts to 8.6 billion. The 14% increase compared to last year puts us on track towards delivering our full year guidance of 25 to 28 billion of EBITDA. One of the supporting elements of our solid operational performance was the availability within our offshore business. Compared to same quarter last year, the availability increased with 9 percentage points and is as such a significant contributing element to the increase in our earnings, despite the lower wind speeds offshore in Europe that we have seen. Operating our 10 GW offshore wind fleet with a sharp focus on financial performance will remain a key priority for us. During the quarter, we also made progress on the renewable share of our generation. For several years, we have had a target that renewables should consist of 99% of our generation by 2025. And during the first quarter of the year, this was in fact the case. The increased share of renewables was driven by the closing of our last coal-fueled CHP plant in the second half of 2024, which marked another important milestone in our decarbonization journey. Lastly, our continued and relentless focus on safety have continued and the total recordable injury rate for the first quarter of 25 has been reduced from 2.9 last year compared to 1.9 this year. However, this positive development was overshadowed by the two tragic fatalities among our contractor employees at the Plum Creek onshore wind farm earlier this year. Our deepest condolences go to their families and friends. We are focusing on the current investigation that the relevant authorities are conducting, and we are in close coordination with GE, WinCom and the authorities. Let's turn to slide 6 and an overview of our construction projects. As mentioned as part of our release in February, we will going forward provide more insights into the execution of our construction portfolio. To keep this the most relevant for you, we will do so for the projects that are most advanced and active in their construction activities. Before I go into the detailed updates, let me put a few remarks to the remainder of our construction portfolio. During the first quarter, we successfully commissioned the Godeven 3 project. This achievement increases our operational capacity and also marks that we now have installed more than 10 gigawatts of offshore wind capacity. For Borkenbrittgrund 3, we have installed all foundations and turbines and are awaiting the grid connection from the German transmission system operator. First power is expected towards the end of this year, and the project is expected to be commissioned in the beginning of 2026. The delay of the connection will be compensated according to market regulations. Until the grid connection is ready and the project can be commissioned, we are ensuring that we maintain the integrity of the assets as part of our service and inspection campaigns. For the Horn C3 project in the UK, the construction continues to progress as planned. The onshore works are on track and the offshore scope started in Q1 2025, focusing on pre-construction activities such as removal of unexploded ordinances. We are working closely with suppliers to manage the ramp-up and delivery of components to be installed offshore during 26, with fabrication and monopiles being a key focus. The construction work for the co-located battery storage solution is planned to start during the second quarter of this year. Following the final investment decision on our Baltica 2 project in January, we are progressing the first phases of the construction work. At the current stage, this involves the preparation of the onshore substation as well as the manufacturing activities related to the offshore substation. We are closely monitoring the fabrication progress of the key components for the project as well as the progress on the installation harbour in Poland, which will be used for the loadout of the turbines. We will continue progressing the fabrication, cable route preparation and also commence the offshore boulder removal campaign in the coming period. Lastly, the construction of our onshore projects across Europe and the US continues to progress according to plan. Turning to slide 7 and a more detailed update on our Greater Tiangwa 2B and 4 project in Taiwan. The degree of completion for the project is around 35%. The degree of completion is one of our metrics measuring the progress of a construction project's installation schedule and reflects a combination of scheduled progress and financial spend. At this point, all the foundations and export cables have been fabricated. The vast majority of the array cables have been fabricated as well, and the manufacturing of the remaining turbines are progressing according to plan. Remaining array cables and majority of turbine components are being fabricated in Europe, and once complete, they will be transported to Taiwan for pre-assembly and installation. It is the first project in our portfolio where we are installing the 14 MW wind turbines from Siemens, and the installation is going really well. During the first quarter, we have progressed the fabrication of key components and also achieved important milestones as we have started offshore construction activities with the installation of both foundations and turbines. Currently, we have installed around 30% of the foundations and the first few turbines. The vessels needed for the installation of array cables have also arrived in Taiwan and are ready to begin the installation in the coming period. From a risk perspective, the project is focused on managing any potential schedule implications caused by the weather conditions. We have taken into consideration an expeditiously longer installation period during the winter season due to challenging weather conditions throughout this season. Likewise, the project continues the monitoring of the sea routes needed for transportation of the remaining equipment. In the coming period, the project will continue to progress the installation of foundations, turbines, export and array cables. First power is expected over the summer and we expect to commission the project towards the very end of this year. Now turning to slide 8 and an update on our North-East program starting with Revolution Wind. The degree of completion for the project is around 75%. and we have continued making good progress on both the construction of the onshore substation in Davisville, Rhode Island, as well as the installation of monopiles and turbines offshore. We currently have installed nearly half of the 65 turbines and around 80% of the monopiles, as well as completed all installation of the export cable. The project's focus remains on a number of items that are critical to delivering the project on the updated schedule. For the onshore substation we are implementing the updated solution, and this work is reflected in the project schedule. We took over site management at the beginning of this year, and we have subsequently accelerated works, which means that all buildings have now been erected and made watertight. This was a key deliverable for the de-risking of the installation schedule for the onshore substation, which is on the critical path for the project. Next stage is the installation of the equipment and commissioning, where management of risk primarily are related to safety and quality. Regarding the monopile installation for one of the project's two offshore substations, work is also progressing well on the challenge that arose last year. We will conduct a new monopile installation for the offshore substation, and we expect this installation to take place later this year, utilizing the already contracted installation vessels that are undertaking work at Sunrise and Revolution. Lastly, turbine installation remains well underway and is progressing according to the updated plan. As you are aware, the turbine installation requires a different local setup in the US until US installation vessels are built and available. This means that the components are assembled and staked out of the new London port and transported to site on barges where they are then installed using installation vessels. This scope has had the highest priority focus of the team and is on track to be completed later this year. The project remains on track for commissioning in the second half of 2026. Now turning to slide 9 and our Sunrise Wind project. Sunrise Wind is being constructed together with Revolution Wind as one program, including vessel arrangements and the broader offshore installation campaign. The degree of completion for sunrise is around 35%, with almost half of the turbines fabricated, the onshore converter station being near complete, and the monopile fabrication progressing according to the updated plan. We commenced offshore construction during the quarter, beginning with boulder relocation and two horizontal drillings for the export cable. And we are implementing the learnings accumulated for Revolution Wind. These learnings are reflected in the installation schedule as Sunrise Wind undertakes monopile installations, followed by turbine installation later this year as part of our US Northeast program. The project's focus remains on a number of items that are critical to delivering the project on the updated schedule. The fabrication of monopiles is progressing according to plan and will continue throughout 2025. Installation of monopiles will continue over two seasons due to the time of year restrictions on when they can be installed. On the export cable we have seen good progress as one section of the cable has been manufactured now and the remaining two are expected to be completed later this year, again according to plan. All sections of the cables have passed all critical tests, including the factory acceptance testing. On the jacket structures for the HVDC, it is in final phase of quality control, before it is planned to be transported to the site over the summer. We remain on track for commissioning in the second half of 2027. With this, let me hand over the word to you, Trond.

Thank you, Rasmus, and good afternoon, everyone. First, let me start with slide 11 and the EBITDA for the quarter. As always, unless I state otherwise, the numbers I referred to will be in Danish chronos. In first quarter, we realized an EBITDA including new partnerships of 8.9 billion, which is an increase, as Rasmus mentioned, of 18% compared to last year. Excluding new partnerships, EBITDA was 8.6 billion. Let me walk you through the main earnings developments for the quarter. For our offshore businesses, with the overall earnings came in 200 million higher than last year. The earnings from sites increased driven by ramp up generation, higher availability, as well as higher prices on the green certificate and inflation indexed assets. There was also a positive effect from our power trading activities. This was partly offset by wind speeds being significantly lower than the same period last year. Other costs, which includes an allocated overhead and fixed cost as well as expensed project development costs, increased compared to last year, but in line with our expectations. The increase is driven by a change in our cost allocation methodology and does not impact the total EBDA expectations for offshore. For onshore, the EBDA excluding divestment gains increased by approximately 400 million, primarily driven by ramp-up generation from new assets that have been commissioned during 2024. Within bioenergy and other, earnings from our combined heat and power plants were higher than last year, driven by higher power prices and spreads. Earnings in gas business increased driven by higher off-take volumes and a negative impact from revaluation of gas at storages last year, which was not repeated to the same extent in first quarter this year. Finally, we recognized an EBITDA gain of 300 million relating to the 50% divestment of our two U.S. onshore projects, 11 Mile and SPARTO. Let's turn to slide 12. Our net profit totaled 4.9 billion, which was a significant increase compared to last year. Net profit benefited from higher EBITDA and lower tax expenses as a result of the reversal of previously expensed deferred tax liability. In the first quarter, we had a net impairment reversal of 300 million. The main contributor to this reversal was a decrease in long-dated US interest rates, which was partly offset by the impact of the imposed tariff in the US. In March this year, the United States imposed a 25% tariff on imports of steel, aluminium and certain products containing steel and aluminium. These new tariffs have resulted in increased costs and contingencies on our Sunrise Wind and Revolution Wind projects, leading to an additional impairment of 1.2 billion. In addition, an executive order was signed in April 2025, imposing a 20% tariff on imports to the United States from the European Union, of which 10% is effective and the last 10% is postponed. we have not included the potential adverse impact from such additional 10 plus 10% tariffs due to the ongoing uncertainties. In a scenario of an additional 20% import tariff, we assess this would have less than half of the impact from the steel and aluminium tariff. On the effective tax rate, that was as low as 5%. However, adjusting for the reversal of the unrecognized deferred tax assets, the underlying tax rate was 23%. Adjusted for impairments and cancellation fear on return on capital employed came in at 10.2%, which was a decrease compared to last year, driven by the higher capital employed. The reported return on capital employed came in at 4.6% and was impacted by the impairment recognized over the last 12 months. Our Scope 1, 2 and 3 greenhouse gas intensity, excluding gas sales, decreased by 7% in the first quarter this year, compared to last year. The decrease was mainly due to lower Scope 1 and 2 emissions, resulting from reduced fossil-based generation, partly offset by higher Scope 3 emissions from capital goods. Moving then to slide 13 and our net interest-bearing debt and credit metrics. At the end of the first quarter this year, our net debt amounted to 68.4 billion, an increase of approximately 10 billion during the quarter. Our cash flow from operating activities contributed with around 600 million. Our operational earnings were partly offset by costs related to construction of transmission assets in the UK, as well as seasonality in other working capital items. Compared to last year, we did not receive any material milestone payments related to our construction projects, nor any tax equity contributions. For the quarter, our gross investments totaled 13.8 billion, driven by our investments into the construction of our renewable project portfolio. The cash flow from divestments of 3 billion primarily related to the farm down of the 50% stake in our 11 Mile and Sparta onshore projects. The divestment of a stake in West of Duden Sands, which was announced last week, is not included here as it closed after the end of the first quarter. and will accordingly be reflected in our accounts for the second quarter. Our key credit metrics, FFO to adjusted net debt, stood approximately at 14% at the end of the first quarter, which is a slight increase compared to the end of last year, primarily driven by higher funds from operation in the 12-month rolling period. Throughout 2025, the cancellation fee payments incurred over the last 12 months will be rolling off the metric and thus benefit the FFO number. Finally, let's turn to slide 14 and our outlook for 2025. With a solid operational performance for the first quarter, we reiterate our full year EBTA guidance, excluding new partnerships and cancellations fees of 25 to 28 billion. As the offshore wind speeds have been below the norm, we are expecting our offshore sites EBTA to come in lower than anticipated in the beginning of the year. However, we still expect our offshore segment EBTA to be higher than last year. Adjusting the future for our Horn C4 project will have financial implications, which will be reflected in our accounts in the second quarter of this year. For Horn C4, it was our plan to use the export cables from Oceanwind 1. So we will now evaluate the value of these cables going forward. the book value of the export cables is approximately 1.5 billion. In addition, we have so far spent approximately half a billion on the offshore transmission assets and have an estimated additional spend of around 1 to 1.5 billion related to a combination of expected contract cancellation costs and committed project spend. In total, this can potentially lead to a negative impact on our EBITDA of approximately 3 to 3.5 billion in next quarter or this quarter, Q2, in 2025. The capitalized construction cost for Hornsea 4 is around 700 million and will be written off below EBITDA in our accounts for the second quarter. As an additional information, as a result of closing out the outstanding ocean wind cancellation contracts, we will also review the remaining provision level during the second quarter. On CapEx, we also maintain our gross investment guidance for 2025 of 50 to 54 billion. And with that, we will now open for question. Operator, please.