Orsted A/S

Welcome to this Orsted Q3 2025 earnings call. For the first part of this call, all participants will be in listen-only mode and afterwards there will be a question and answer session. Today's speakers are Group President and CEO Rasmus Erbo and CFO Trond Wesley. Speakers, please begin.

Hello everyone. During the third quarter of the year, we have continued our focus on the execution of the four strategic priorities that we presented in February. These will continue to be the core focus as we execute on our strategy. Let me start by going through our progress across the four priorities. Our first priority is to strengthen our capital structure, and with the completion of the rights issue in early October, we have taken a significant step on this priority. The rights issue strengthens our financial foundation, allows us to focus on delivering our six offshore wind farms under construction, provides the financial robustness to manage the ongoing challenges and uncertainty, as well as the financial strength to pursue upcoming attractive opportunities within offshore wind. I am very pleased and grateful for the strong support that we received from our shareholders in the rights issue, including from our majority shareholder, the Danish state. Also, we announced on November 3 that we have entered into an agreement with Apollo to divest a 50% ownership share in both the project and associated transmission asset for our 2.9 gigawatt Horn C3 project in the UK. The total value of the transaction is approximately 39 billion, and the transaction supports a further strengthening of our capital structure and marks a significant milestone in our partnership and divestment program. Another important element in supporting our capital structure is the continued performance of our operational portfolio. Even though wind speeds have been below the norm thus far in the year, we have delivered 17 billion of EBITDA for the first nine months of the year, which is mainly driven by the increase in the availability across our offshore portfolio due to strong performance every single day by our generation team. We remain on track to deliver earnings in the range of 24 to 27 billion for the full year. Our second priority is to deliver on our 8.1 gigawatt offshore wind construction portfolio. And we continue to make good progress across the projects, which upon completion will contribute with an annual EBITDA run rate of 11 to 12 billion. I will shortly go through the construction progress details, but first I want to mention the stop work order which Revolution Wind received in the U.S. during the third quarter, instructing the project to halt offshore activities pending completion of the Interior Department's review required by the executive order issued on January 20th. Revolution Wind continues to seek a complete resolution, both by engaging with the US administration and other stakeholders, as well as through legal proceedings. As part of the legal part, the project filed a lawsuit and sought a preliminary injunction, which was granted on February 22nd by the court while the lawsuit is ongoing. The offshore activities have resumed and since then progressed well. Our third priority is to ensure a focused and disciplined capital allocation, always prioritizing value over volume, where our focus going forward primarily will be on offshore wind in Europe and select markets in APAC. As part of these efforts, we will move towards a more flexible partnership and financing model in order to improve value creation and ensure risk diversification. On this basis, we recently entered into memorandum of understandings with Cohen and Posco for our 1.4 gigawatt Incyon offshore wind project in Korea. The aim is to explore cooperation on joint development, construction and operations, including potential equity participation. Finally, on our fourth priority, we have also taken steps in improving our competitiveness with the announcement of adjustments to our organization. Due to the sharpened strategic focus of our business going forward and the fact that we will be finalizing our large construction portfolio in the coming years, we will adjust our organization accordingly to become more efficient and flexible. Once all efficiency measures have been implemented, the annual cost savings are expected to amount to approximately 2 billion from 2028. The cost savings related to these efficiency measures have been incorporated into our business plan. Let's turn to slide 5, where I will talk through some of the operational highlights for the first nine months. First, I am pleased with the operational performance with our EBITDA excluding new partnerships and cancellation fees amounting to 17 billion for the first nine months. Despite the fact that wind speeds have been below the norm so far this year, our strong generation performance ensures we remain on track towards delivering our full year guidance of 24 to 27 billion of EBITDA. This is mainly driven by high availability within our offshore business, which stood at 93 for the first nine months. Compared to same period last year, this is an increase of 7 percentage points and thus ensured a material earnings contribution. Market-leading performance of our 10 gigawatt offshore wind fleet is a key priority for us, and we are progressing several measures within our generation organization to improve our output and lower cost base through portfolio and operational efficiencies, technological innovation, standardization, and generation excellence. 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 this has been the case during the first nine months of the year. 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 on our decarbonization journey. Lastly, our continued and relentless focus on safety have continued, and the total recordable injury rate for the first nine months of 2025 is at 2.5, which is in line with our targets. This remains highest priority for us, and we are continuing an internal program across the full organization, which is intended to further increase training, safety awareness, and management focus, all aimed at lowering the incident rate and bringing our people home safe every day. Let's turn to slide six and an overview of our construction projects. I will cover the more advanced projects individually and in more detail as usual on the next slides, while putting a few remarks on the remainder of the construction portfolio here. For Borkum Rifkon 3 in Germany, we have installed all foundations and turbines. Commissioning of the grid connection for Borkum 3 has started according to plan. We expect first power before the end of the year and the project is expected to be commissioned towards the end of Q1 2026. For Honshi 3 in the UK, construction is progressing well. The onshore works at the landfall, cable route and converter stations have progressed in line with the schedule since last quarter. For the offshore scope, the project will be using two HVDC offshore converter stations. The first platform is undergoing final equipment installation in Norway, which is progressing well, and the second platform completed its scope in Thailand and is currently in transit to Norway to complete the same final works. We have continued with the offshore activities where we completed the removal of unexploded ordinances across the whole site during the third quarter. We continue to closely monitor a number of items related to the delivery of the project. This includes the installation schedule of the project's grid connection, where we are working closely with National Grid on our onshore grid connection works to support planning of our commissioning next year. Further, we continue to focus on manufacturing of turbine monopile foundations to ensure it is delivered according to plan, enabling us to commence installation in 2026. The manufacturing has started as planned, and there are multiple suppliers contracted for the scope, and if relevant, we can utilize the flexibility gained from this to mitigate risks if they occur. Next steps in the project will be commencement of the main offshore installation activities in early 2026, which start with the installation of the offshore export cable as well as monopile foundation installation. In Poland, our BOLTIKA II project is moving ahead according to schedule, and we are progressing the first phases of the construction work. In the third quarter, we have continued construction work at the onshore substation site, which includes the installation of the first part of the export cable. The manufacturing of turbine foundations is progressing well, with 22 completed so far. The manufacturing of the four offshore substations is progressing and manufacturing of the offshore export cable started mid-October. With this progress, the degree of completion for the project has increased to approximately 15% up from 10% in Q2. There are a number of items for the installation schedule that we are closely monitoring. This includes progress on the manufacturing of the four offshore substations and fabrication progress of the key components for onshore and offshore substations. We remain on track for earliest possible sail away mid-2026 from Vietnam for the four offshore substations. Progress on the turbine installation harbour in Poland is still on track. We are closely engaged with contractors and regulators to ensure that we progress according to the current schedule. Next steps are preparation of the seabed area ahead of turbine foundation installation, which is planned to commence during mid-2026. Now turning to slide 7 and a more detailed update on our Greater Changwa 2B and 4 project in Taiwan. Overall, the installation of the remaining scopes of the project has made good progress during the quarter. Greater Changhua 4 has commenced generation, and this will continue to ramp up as more turbines get energized during Q4 of this year. For Greater Changhua 2B, the damage to the export cable means that we will only be producing power again from mid-2026 once the damaged export cable has been replaced. Looking at installation during the quarter, we have made progress across several scopes. This includes the installation of turbines, where 58 turbines of the total 66 positions are now installed. And the rest are expected to be completed by end of 2025. We have installed array cables for 50 of the 66 positions, and we have mobilized additional vessels during the quarter to strengthen the installation progress or process of the remaining cables. as weather conditions are expected to be more challenging during the winter season. With progress achieved during the quarter, the project has now reached a degree of completion of approximately 65%, up from 55% in Q2. The focus of the project remains on installation of remaining turbines and array cables, as well as replacing the export cable for the Greater Chang'e 2B section. Turning to slide 8 and an update on our North East program starting with Revolution Wind. During the quarter, the project has made good progress as we have completed both the installation of the replacement monopile for the second offshore substation, as well as the installation of the offshore substation itself, such that both of the project's two offshore substations are now installed. On turbine installation, we continue to make progress, as we have now installed 52 of the 65 turbines for the project, and the ray cable installation has commenced and is progressing well. With progress achieved during the quarter, the project has now reached a degree of completion of approximately 85%, up from 80% in Q2. The project continues to progress on a number of scopes that are critical to the delivery of the current schedule. For the onshore substation, we are continuing to progress construction activity according to the current schedule. We remain on site to manage the continued installation of the project and expect initialization of the onshore substation early next year. For turbine installation, we will continue to monitor the installation rate closely as we enter into the winter season where weather conditions impact speed of the installation rate. First power is expected during first half of 2026 and the project remains on track for commissioning in the second half of 2026. Now turning to slide 9 and our sunrise wind project, where we have also continued to see good progress across the different scopes. We have completed the installation of the project's single offshore converter station in September and continued the installation of turbine foundations with 44 of the 84 positions installed now. This work will soon be paused as planned due to time of year restrictions of when turbine foundations can be installed and will be presumed when next installation season starts in the spring. The turbine installation will commence following completion of turbine installation Revolution Wind. For the onshore substation, the commissioning works are progressing according to plan, with installation of near-shore section of the export cable expected in the coming months. With progress achieved during the quarter, the project has now reached a degree of completion of approximately 40%, up from 35% in Q2. The focus remains on the items that are critical to delivery on the current schedule. The fabrication of remaining turbine foundations is progressing according to plan, and we expect to have all remaining turbine foundations completed by the end of the year. On the export cable, we have completed the final factory acceptance tests for majority of the sections, with the final ones expected to be completed by end of the year. And we will start the installation of the near shore section at the end of this year as well. We continue to manage the risks related to the installation of the project, and we remain on track for commissioning in the second half of 2027. With this, let me hand over the word to you, Tond.

Thank you, Rasmus. And good afternoon, everyone. As always, unless I state otherwise, the numbers I refer to will be in Danish Kroner. So before covering the third quarter development, let's go to slide 11. And I want to start with our announcement from Monday. as we have entered into an agreement with Apollo to divest 50% stake in our 2.9 gigawatt Hornsea 3 offshore wind farm in the UK. The transaction balances the key objectives for partnerships and divestments with an emphasis on capital management and represents a major milestone in our funding plan. The transaction supports a further strengthening of our capital structure and ensures significant progress on our partnership and divestment program. The total value of the transaction is approximately 39 billion and around 20 billion of the total transaction value will be paid upon closing of the transaction. The remaining amount is expected to be paid under the construction agreement upon achievement of certain construction milestones. In terms of our targeted proceeds, or more than 35 billion across 25 and 26, it is the 10 billion received under the SBA agreement which counts towards this target. The total transaction value covers the acquisition of 50% equity share and the commitment from the partner to fund 50% of the payment under the EPC contract for the wind farm and the offshore transmission costs. The upfront non-cash EBITDA effect of the transaction is in line with the expectation outlined in the prospectus of the recently completed rights issue, and including the other aspects of the transaction, such as the expected earnings under the construction agreement and service contract between Ørsted and the project, the expected EBTA impact of the transaction is broadly neutral over the lifetime of the project. With that, let's turn to slide 12 and the EBTA for the quarter. In third quarter, we realized an EBTA of 3.1 billion. Let me walk you through the main developments for the quarter. For our offshore business, the overall earning came in at 2.2 billion. The earnings from sites decreased driven by lower wind speeds and stepped down in subsidy levels from older wind farms as well as lower power trading earnings. This was partly offset by full contribution at Godewind 3, compensation for Borken Rifgrim III and higher availability rates across the portfolio. Earnings on existing partnership decreased as a result of updated costs for array cable installation for Greater Changma IV. Over the summer, there were challenging weather conditions, including a typhoon, which slowed down our planned installation speed. As a result, we have, during third quarter, strengthened our setup for the installation of the remaining array cables by mobilizing additional vessels. This has led us to revise the earnings that we expect under the construction agreement. As communicated earlier, we did not anticipate any material earnings under the construction agreement, so taking into account the strengthening of the installation setup and costs relating to extending the installation period leads to an impact in our accounts. Following this revision, the business case continued to have a comfortable headroom. Other costs, which includes unallocated overhead and fixed costs as well as expense project development costs, increased compared to last year, in line with our expectation. Part of the increase is driven by a change in our cost allocation methodology and does not impact the total EBITDA. This cost reallocation is reflected in our full year guidance 425. For onshore, the EBITDA decreased by approximately 200 million, primarily driven by lower wind speeds, which were partly offset by ramp-up generation from new assets. Within bioenergy and other, earnings from our combined heat and power plants were higher than last year, driven by higher power prices. Earnings in our gas business increased slightly driven by higher off-tech volumes. We did not enter into any new partnerships in the third quarter of 2025. Let's turn to slide 30. In the third quarter, total impairments amounted to $1.8 billion. The impairments primarily relate to our U.S. offshore projects and are driven by higher tariffs and increased cost as a result of the stop-work order for revolution win, partly offset by decrease in long-dated U.S. interest rates. The impairment related to higher tariffs amount to 2.5 billion, in line with the range that was included in the prospector released in connection with the rights issue. This amount reflects recent changes to the US trade policies, including the increased tariffs on steel and aluminium. The impairment related to the stop work order amount to 500 million and is also in line with estimates that was included in the prospectus in connection with the rights issue. This reflects the higher cost for both Revolution Wind and Sunrise Wind due to extension contracts needed to complete the installation of the projects. These effects are partly offset by a reversal of 1.3 billion due to the decrease in long-dated US interest rates, leading to lower WAC level across our US offshore and onshore projects. Our net profit for the quarter totaled a negative 1.7 billion and was impacted by both the decreased earnings as well as the impairments. In Q3 2024, net profit amounted to 5.2 billion, of which 5.1 billion were related to a reversal of a provision related to ocean width. Adjusted for impairments and cancellation fees, our 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 ROSI came in at 2% and was impacted by the impairment recognized over the last 12 months. Let's turn to slide 14 and our net interest-bearing debt and credit metrics. At the end of Q3 2025, our net debt amounted to 83 billion, an increase of approximately 16 billion during the quarter. The increase was predominantly driven by gross investments of 15 billion into the construction of our renewable project portfolio. The contribution of our operating earnings in our cash flow from operating activities was more than offset by cost relating to the construction of transmission assets in the UK, as well as seasonally in other working capital items. This was also the case for the same quarter last year. As the right issue was completed on 9th of October 25, the proceeds of approximately 60 billion will accordingly be reflected in our accounts by full year. Also, subject to the closing of the transaction before the end year, the proceeds from the Hornsea 3 transaction will likewise be included in the net debt numbers. Finally, the project financing package for Greater Changwa II was closed in July, yet had no impact on net debt. As the proceeds received were matched by a corresponding increased debt. Upon closing of the planned equity divestment of the project, the asset and associated project financing package is planned to be deconsolidated, which will then have an impact on the net debt position. Our credit metric FFO to adjusted net debt stood approximately at 14% at the end of the third quarter, which is a slight decrease compared to the previous quarter. The higher funds from operation in the 12-month rolling period was offset by the increase in adjusted net debt. The metric will expectedly increase to well above target of 30% in the next quarter as the incoming proceeds from the rights issue and closing on the Horsi3 transaction will be reflected in our accounts. And finally, let's turn to slide 15 and look in our outlook for 2025. With our solid operational performance for the first nine months and heading into a quarter with seasonal higher wind speeds, we reiterate our full year EBITDA guidance, excluding new partnership and cancellation fees of 24 to 27 billion. We also maintain our gross investment guidance for 25 of 50 to 54 billion. The gross investment guidance is sensitive to milestone payments being moved between years and the level of tariffs. We continue to follow the development regarding potential tariffs and other regulatory changes, particularly affecting the US, and are continually assessing any possible financial and wider impacts. So with that, we will now open for question. Operator, please.