Shares in the Danish renewables company fell 20% on Copenhagen's stock exchange after the firm booked impairments worth 28.4 billion Danish Kroner (£3.31 billion) in its US portfolio and announced it is walking away from two US offshore projects.
Ørsted has decided to suspend the development of the Ocean Wind 1 and 2 projects in the US and has made investment decisions on the Revolution Wind project, as part of the ongoing review of the US offshore wind portfolio, the company’s third quarter results reveal.
The company had previously said that the writedowns “may total up to 16 billion Danish kroner” in its US portfolio. But since then, the US offshore wind projects have experienced “further negative developments from adverse impacts related to supply chain, increased interest rates, and the lack of an OREC adjustment on Sunrise Wind.”
“Due to adverse impacts relating to supply chain, progress in investment tax credit (ITC) guidance, increased interest rates, and the lack of an OREC adjustment on Sunrise Wind, we have recognised impairment losses of DKK 28.4 billion in 9M 2023. The majority of these (DKK 19.9 billion) relate to our US offshore project Ocean Wind 1”, said Mads Nipper, group president and CEO Ørsted.
“In addition to the impairment losses, a provision of approximately DKK 8-11 billion related to us ceasing the development of Ocean Wind 1 will negatively impact our EBITDA in Q4 2023”, Nipper adds.
The provision accounts for potential contract cancellation fees not already covered by the impairment losses and excludes any potential reuse value of existing contracted equipment.
Since the writedown affects the capital structure, Ørsted is taking measures aimed, among other things, at reducing costs, improving capital employed, financing the supply chain, prioritising development activities and rationalising portfolios.
“As part of the ongoing review of our US portfolio, we will assess the potential implications for our current long-term strategic build-out ambition and financial targets”, the company states.
Morningstar analyst Tancrede Fulop says: "Orsted highlights that its capital structure is significantly challenged by these adverse developments. This could imply a future rights issue that explains a good chunk of today's share price fall in our view. We view the shares as materially undervalued but pending more clarity on measures to shore up the balance sheet, shares will not rebound."
Ørsted expects to update the market at the latest in connection with the publication of the year-end report for 2023.
Operating profit (EBITDA) amounted to DKK 19.4 billion in the first nine months of 2023, a DKK 6.0 billion decrease compared to the same period last year. EBITDA excluding new partnerships increased by DKK 1.0 billion to DKK 15.4 billion.
Ørsted's 2023 EBITDA-forecast of $20-23 billion remains, excluding the provision of approximately $8-11 billion related to Ocean Wind 1. Due to longer timeframes in the project portfolio and the completion of Ocean Wind 1, Ørsted's gross capex in 2023 is expected to reach 40- 44 billion Danish kroner, 4 billion less than previous forecast.
As for Revolution Wind, which Ørsted owns half of, onshore construction has begun and offshore construction will start in 2024. Expected completion of the project is expected to take place in 2025. In addition to the write-down of 3.3 billion that Ørsted takes in the report for the third quarter means Revolution Wind attractive value creation, Ørsted says.
