Orsted’s net loss widens after significant write-downs – 2nd update

By Dominic Chopping

Ørsted’s net loss in the second quarter unexpectedly widened after it booked significant write-downs on its wind and synthetic fuels projects.

The Danish renewable energy company said on Thursday it booked impairment charges totaling 3.91 billion Danish crowns ($577.1 million) in the quarter, mainly due to delays in the construction of an onshore substation for its U.S. offshore Revolution Wind project and a decision to withdraw from its FlagshipONE synthetic fuels project in Sweden.

Ørsted’s FlagshipONE project aimed to produce e-methanol, a liquid fuel made from green hydrogen and carbon dioxide, to power maritime transport and heavy industry.

Shares fell more than 9% in early trading.

“The liquid e-fuel market in Europe is developing slower than expected. We have made a strategic decision to deprioritize our activities in this market and discontinue the development of FlagshipONE,” said Orsted CEO Mads Nipper.

The company now intends to focus its synthetic fuel development efforts on green hydrogen, a fuel produced by using electricity from renewable sources to separate hydrogen from oxygen in water.

Ørsted, which has transformed itself in recent years from a small Danish state-owned oil company into a global wind energy development giant, has faced significant headwinds in the past year as it aggressively sought to expand into new markets, particularly the U.S.

After struggling with U.S. supply chain bottlenecks, higher interest rates and trouble getting tax breaks, the company late last year announced it was pulling out of two high-profile wind projects off the coast of New Jersey due to soaring costs.

Earlier this year, the company embarked on a comprehensive restructuring to cope with the costly entry into the U.S. offshore wind market. The restructuring included cutting costs, halting dividends for several years, selling assets and changing business priorities.

While some of its problems have begun to ease, the company has run into particular problems at its Revolution Wind project off the coast of Connecticut and Rhode Island. The project’s onshore substation, which will serve as a receiving center for the electricity generated by the offshore turbines, is being built on a military waste disposal site, and Orsted said obtaining permits and preparing the site has proven more difficult than anticipated.

“It’s not about the supply chain, it’s about the specific challenge that is obviously frustrating and disappointing,” Nipper told reporters on the call. “Are there any further risks? Of course there are, but our mitigation efforts to date are on track, so we’re on track with the offshore construction.”

The delays will negatively impact revenues and installation costs, and will also cause the start of commercial operation of Revolution Wind to be postponed from 2025 to 2026.

Still, the company’s offshore wind farm operations fared much better than analysts had expected in the quarter, with power production up 20% year-on-year and earnings before interest, taxes, depreciation, and amortization rising 75%. That was despite write-downs and cancellation charges as the company benefited from higher wind speeds and accelerated projects in Taiwan, the U.S., and Germany.

“Strong performance from offshore wind in Q2, even after cancellation charges,” RBC Capital Markets analyst Alexander Wheeler said in a note to clients. “We believe some of these positives may be somewhat mitigated by impairments, with continued challenges to construction in the U.S. and the cancellation of the FlagshipONE project, although the magnitude of these impairments is much smaller than in 2023.”

The company said second-quarter EBITDA, excluding new partnerships (the company’s preferred metric), came to 5.27 billion crowns compared with 3.32 billion crowns, beating the FactSet consensus of 4.75 billion crowns.

Net loss attributable to shareholders was 1.72 billion crowns, compared with a loss of 596 million crowns a year earlier, as revenue rose 3.1% to 15.02 billion crowns. The FactSet consensus was for net profit of 1.33 billion crowns on revenue of 16.57 billion crowns.

The Company continues to expect EBITDA in 2024, excluding new partnership agreements and provisions, to be between CZK 23 billion and CZK 26 billion, but gross investments in 2024 are expected to be between CZK 44 billion and CZK 48 billion, which is CZK 4 billion less than the previous forecast due to the timing effects of the project.

The profitability of Ørsted’s offshore wind business is expected to remain at the same level compared to the previous year, while the profitability of its bioenergy business is expected to increase from a significantly higher level.

Write to Dominic Chopping at [email protected]

(END) Dow Jones Newswires

August 15, 2024, 07:36 ET (11:36 GMT)