Orsted A/S (CPH:ORSTED) will pause dividend payments until at least 2025 and slash plans to build new projects this decade as part of a wide array of cost-cutting measures outlined by chief executive officer Mads Nipper.
The Danish wind-power giant will cut its target for its green power project construction by at least 24% to between 35 to 38 gigawatts by 2030, down from a previous goal of 50 gigawatts, according to a statement Wednesday. That will help limit capital expenditure with Nipper also ramping up asset sales as he tries to haul the company back from huge writedowns on unfulfilled projects.
Orsted needs to cut costs and recover from a 28.4 billion Danish kroner ($4.1 billion) hit last year as costs spiraled for its portfolio of wind farms planned off the coast of the US. The firm took the decision to cancel development of two of those projects and dismissed two top executives as part of an effort to put the company back on stable footing. Nipper is under pressure to show that the worst is over and the company has a credible plan to get back on track.
© BloombergThe company will chop as many as 800 jobs, starting with 250 redundancies in the coming months. Orsted will exit some emerging offshore wind markets and narrow the focus of its US offshore portfolio to the North-East Atlantic. Project cancellations and changes to buildout plans will save the company 35 billion Danish Kroner ($5.1 billion) through 2026.
Nipper vowed to take a more disciplined approach with future projects. In the US, the company failed to anticipate rising inflation and interest rates and continued to move forward with its plans, despite deteriorating economics.
“Had we known what would happen, we shouldn’t have continued to mature and commit capital,” Nipper said on a call with reporters. “Some of the core changes we’re making to our operating model of how we do projects is to not have anything near the capital commitments we’ve seen in the US markets.”
New auctions
The company will continue to participate in auctions for new sites, but will be more careful in its approach. It won’t pursue project auctions that have long delays between when a government contract is awarded and when the project can be delivered unless there are inflation indexing stipulations, Nipper said.
© Supplied by OrstedThat was part of the problem with the US projects, as Orsted committed to sell power at a certain price, but didn’t yet have all the permits to actually deliver the wind farms. That left the company open to costly delays, but potential revenues were fixed.
Orsted’s stock slumped over 40% last year and is trading at less than a third of its value at the peak in early 2021. Shares fluctuated on Wednesday, trading down 1.7% as of 10:34 a.m. in Copenhagen.
The company said its plans are fully funded without any need to raise new equity.
“The big news from Orsted is the decision to not raise equity to support the balance sheet,” said Alex Wheeler, analyst at RBC Europe Ltd. “We now have a period where Orsted needs to execute on various components of its plan to improve its balance sheet metrics over the medium term.”
Nipper will outline more details of the plans for investors at an event Wednesday afternoon.
Cost Cutting:
- Orsted is exiting Norway, Spain, and Portugal and deprioritizing development activities in Japan
- “Leaner” development in hydrogen and floating wind segments
- Cutting staff by 600-800 positions globallyThere will 250 redundancies in the coming months in 2024
- Farm-downs and divestments are expected to contribute 115 billion Danish Kroner by 2030
- Capex reductions in 2024-2026 of DKK 3 billion compared to June
- Reduce fixed costs by 1 billion kroner by 2026 compared to 2023
- Thomas Thune Andersen steps down as Chair
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