Earnings Transcript for EDF.PA - Q3 Fiscal Year 2017

Executives: Xavier Girre - Group SEVP of Group Finance Dominique Minière - Group SEVP, Nuclear and Thermal Generation

Analysts: Vincent Ayral - JPMorgan Chase Sam Arie - UBS Emmanuel Turpin - Societe Generale Carolina Dores - Morgan Stanley A.J. Patel - Goldman Sachs Martin Brough - Deutsche Bank Ali Jafri - RBC Capital Markets

Operator: Good day, and welcome to the EDF Q1 2017 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Xavier Girre. Please go ahead, sir.

Xavier Girre: Good afternoon, everyone. I am pleased to welcome you to this conference call. I will walk through our nine months 2017 sales, starting with the main highlights over the period. And I will dedicate the second part of my presentation to the financial outlook that we updated yesterday. This will be followed by the status update and the French nuclear reactors by the Dominique Minière, EDF's Group Senior Executive Vice President for our Nuclear and Thermal Generation. We will then open then Q&A session. The session during which Philippe Castanet, who head our French Nuclear fleet will join Dominique to answer specific questions you may have on our generation fleet. This call is expected to end at 7 PM Paris time. Let me start with the first look at the overall sales numbers by segment. Over the first nine months, sales came out at EUR49.7 billion. You may remember that 2016 sales recorded EUR1 billion positive impact linked to the 2014 tariff catch up. Once adjusted for this impact, as well as for scope and ForEx effect, the underlying change in sales is a 1.3 dropped over the same period in 2016. You can see on this slide that Italy registered the most significant drop in sales, the drop that has actually no impact on margins. Turning to slide four, we have a closer look at the sales numbers in a minute, but before that, let's review some of the key highlights since our previous communication end of July, starting with recent decisions pertaining to the French and European policy frameworks. The French government disclosed on the 7th of November some aspect of the division for the development of the electricity sector in France. Based on scenarios presented by RTE, the government considers that reaching 50% of nuclear power in the generation mix by 2025 raises significant challenges. The draft multi-year energy plan, the so-called PPE is expected to present mid-2018 and the new timeline for the evolution of the share of nuclear power. In addition, alongside the preparation of PPE beginning of 2018, the government has indicated they're preparing a plan to speed up development of renewable energy sources in the French electricity system. At European level, the long process to revise the EU carbon market directly reached a concluding milestone on the 9th of November. The European Parliament, the council and the commission signed an agreement that will help withdraw excess allowances at an accelerated pace starting 2019. This will contribute to strengthen to some extent the EU carbon pricing. Looking now at the latest developments in renewables on slide five, emerging countries took center stage over the last few months especially in solar. In Brazil, we commissioned 350 megawatts as part of the Pirapora solar PV project through a partnership with Canadian Solar in which we hold an 80% stake. We also commissioned the 66-megawatt Ventos da Bahia wind project. In solar again, we entered onto the Egyptian market with the signing of a partnership project with Elsewedy Electric Group for the design building and operation of two plants totaling 100 megawatts of capacity. In India, we commissioned 87 megawatts of solar and 164 megawatt of wind capacity bringing our total installed renewable capacity above 370 megawatts. We also announced the completion of a new offshore wind farm at Blyth in the UK. This groundbreaking offshore wind project brings significant innovations. The first one is installation of 8.7 megawatt MHI turbines, the most powerful to be used on an offshore wind farm to-date. The second innovation is the installation at the site of gravity-based foundations using the new float and submerge process. This is the first time this method has been used for offshore wind turbines. And lastly, this is also the first time that a 66 KV high voltage cable has been used for an offshore wind farm. An outstanding project overall which was developed and built within a very short period of time. Last but not least, EDF EN increased its stake in Futuren to 87.5% as a result of the simplified public tender offer that took place end of July. These developments it is trade ongoing acceleration of capital allocation to the Group’s renewable activities and adds significant steps towards the ambitions set under our cap 2030 strategy. Slide six shows a selection of the main developments in the field of customer solutions. Competition is indeed becoming increasingly intense in European Energy supply activities, EDF response with innovative solutions and targeted investments. First, EDF launched new fronts the new range of electricity supply solutions for residential customers called VERT électrique i.e. Electric Green. The goal is to refer renewably sourced electricity combined with solutions adapted to new pattern electricity used. These plants provide green electricity with high quality customer service stuff based exclusively in France. In addition, innovative services and tariff options are variable to customers already equipped with Linky smart meter. In the context of this green electricity supply solutions, our dedicated subsidiary SOWEE also launched the extension of its connected home solutions to electric heating, which allows in particular for room-by-room control by off-temperature. Second, we announced significant developments on the customer front in Italy, with binding agreements signed by Edison for the acquisition of energy supplier Gas Natural Vendita Italia, when finalized this transaction will increase Edison's customer base by 50%. We expect this transaction to generate significant synergies in the coming years given the potential scale effect. Last in September, the Group created EDF renewable business. The purpose of this subsidiary is to develop new solutions along with innovative, competitive services in areas such as smart home, decentralized energy systems of smart cities. EDF new business is both a specialized investment arm and a business incubator working closely with EDF R&D department. Egresio [ph], the first startup developed under EDF new business umbrella was launched on the same date. Egresio [ph] acts as an aggregator of renewable generation and load shifting capacities and our first customized solutions to optimize and monetize these capacities. Here too, I want to highlight that these developments illustrate our commitment to cap 2030 and the strong priority given to customer solutions. I will end the review of these highlights for the period with the status update on our disposal plant. Over the last three months we have finalized a number of transactions signed earlier this year. First, the sale of our stake in EDF Polska to PGE that was closed yesterday with a EUR1 billion positive impact on net financial debt. This is a key milestone in our disposal plan that was reached after a long process. Second transaction, the sale of around 200 real estate sets to Tikehau Capital. This operation is an important step to reduce our commercial real estate portfolio. Third, the disposal of some of the Edison's gathered sets, namely the 100 percent stake in ITG, owner of the [indiscernible] gas pipeline and 7.3% equity investment in Dunkerque [ph] LNG, the company that owns the regassification terminal in Jovego [ph]. As a whole, we have now achieved around EUR8 billion in closed disposals. This represents roughly 80% of our EUR10 billion target over the 2015 to 2020 period which means that we are well-advanced and ahead of schedule. Let me now move on to the sales numbers. Slide eight illustrates the trend presented on the first slide. The 2014 tariff adjustment is the most important factor explaining the 3.2% organic drop in Group sales. Excluding these one-off element, the organic change in sales is a limited minus 1.3%, which is largely linked to Italy. The EUR848 million decline in Italian sales has no impact on margins as I already said. Let me move on to the review by segment in order to analyze the main drivers behind the sales numbers. Starting with French generation, supply activities on slide nine. Sales amounted to EUR25.4 billion, up 0.2% versus the same period last year, when excluding the impact of the tariff catch-up. Weather on the 2016 leap year drove a negative change of EUR236 million compared to the first nine months of 2016. Cumulative changes in regulated sales tariffs in August 2016 and August 2017 had a negative effect of EUR205 million excluding the impact of capacity certificates. Downstream sales experience a EUR560 million drop, mainly due to a reduction in sale volume to end customers that you see in the next slide. The effect of our RM subscriptions on sales over the first nine months of 2017 was two-fold. They carried a EUR2.578 billion positive impact corresponding to the sale of 61.4 terawatt hours at the RM price, which had no equivalent during the same period last year. Conversely, volume supply and our RM mechanically reduced the net volume sold on wholesale markets. This negative impact together with the reduction in market sales linked to the lower generation output amounted to negative EUR2.413 billion. One last point on sales in this segment with regard to the impacts of the capacity mechanism, pass through of the capacity price to end customers and sales on capacity auctions of capacity certificate carried a positive impact overall of EUR457 million. On slide 10, the upstream, downstream balance shows on the right-hand side, the shift in volumes from market currency. The 8-terawatt hour reduction demand from end customers reflects the market share erosion as well as the reduction in demand mostly linked to the 2016 leap year. On the generation side, the increase sells more output partly offset reduced hydro and nuclear generation. Let's have a closer look at nuclear output. Nuclear generation was down 3.8 terawatt hours at 283.3 terawatt hours for the first nine months of 2017. These lower French nuclear output reflects the long-term outages at Biget 5 and Paluel-2 [ph] as well as the extending outages at Gravelines 5 and Fessenheim 2 linked to Le Creusot manufacturing quality issues. And plant outages at Flamanville 1 and Cattenom 1 also panelized the output. As you know EDF provides its 2017 nuclear output guidance following the temporary shutdown of Tricastin reactors and the reserve elements I just mentioned. Accumulative impacts of these elements haven’t directed the progressive catch-up of 2017 nuclear output with 2016. These led to a revised guidance of 383 to 387 terawatt hours. Indeed, we should be closed to last year’s output. In order to meet this target, we are fully focused on restarting trends currently on outage schedule. As I said, at the start of the call, Dominique Minière will provide you with a status update on the French fleet in a few minutes. Moving to French hydro generation on the next slide, the hydro output over a nine month, is down 5.6 terawatt hours to 28.6 terawatt hours, these reflects the very challenging hydro conditions that we continue to experience with a driest first nine month in France since 2011. You can see on the chart on the right-hand-side that record low hydro levels were also observed in October. Sales in French re-aggregator activities came to EUR11.3 billion at 0.9% when excluding the 2014 tariff catch-up impact. These positive trends were mainly driven by the changes in distribution tariffs in August 2016 and 2017. I will come back on this later on when we discuss the 2018 outlook in particular with respect to volume trends. Looking now at the UK on slide 14, sales in the segment came to EUR6.2 billion down 2.3% in organic terms, which excludes a significant ForEx effect. This change was mainly driven by the impact of lower wholesale power prices on realized prices of nuclear generation. This effect was partly compensated by the continued good operating performance of the British nuclear fleet. UK nuclear output came at 48.7 terawatt hours which is 0.7 terawatt hours above delivered of the first nine months of 2016. In B2C supply activities, the average number of product accounts stayed stable despite very intense competition. Consumption was driven down slightly by weather an increasing electricity savings effort. Let’s now move to Italy on slide 15, where sales are down 10.5% in organic terms to EUR7.2 billion. The main driver is the unfavorable effect on sales of hedging derivatives of Edison’s long-term gas supply contracts in the context of the new pricing formula agreed recently, but this has no material impact on margins. Sales in hydro carbon activities were supported by rising thermal generation and industry oil and gas consumption. Not enough, however, to have fed the drop-in wholesale volumes solved. Sales in the electricity activities are down slightly with falling sales volumes partly offset by higher sale prices mainly on wholesale power markets. Turning on to EDF Energies Nouvelles on slide 16, nine months sales came at EUR898 million, slightly down by 1.4% in organic terms. The drop-in sales are mainly explained by slightly lower O&M activity over this period in contrast with EDF EN overall growth trend. Generation output continued to grow, it is 3% up compared to the first nine months of 2016. This was driven by good win output and the increase in capacity. Over the 12 months period leading up to September 2017, net capacity increased by 0.9 gigawatt. EDF EN displayed a strong pipeline of gross capacity under construction at 2.4 gigawatt. Dalkia’s sales grew 7.4% in organic terms, this evolution reflects a good commercial performance with a number of contracts newly signed and renewed, support also came from in the excision of services contracts and pass-through of higher of your prices. In addition, we are very pleased to have Imtech now fully part of the EDF Group following the closing of the acquisition Leicester [ph]. To conclude on this segment on slide 18, trading margin at EDF trading is down 24.7%, as the impact of low price conditions in North American markets combined with lower liquidity and unfavorable price conditions in Europe. In the U.S. EDF Energy Services continued to perform well, and year-to-date sales to both 2016, that of commercial operations and Dunkerque LNG terminal was a significant milestone. This concludes the well-managed construction and commissioning phases of these assets, which now our first strong commercial development prospects. Finally, the other international segment on slide 19, total sales of the segment came at EUR3.6 billion, down 0.8% in organic terms. Belgium sales were up 4.4% under the positive effect of continued development of wind capacity and service activities. Prices dropped both in gas and electricity. This was partly offset by higher electricity sales volume to B2B customers. Brazil sales were down EUR60 million to EUR344 million, under the negative impact of the annual price review under North [ph] PPA. Lastly, bear in mind that the 2016 sales numbers included the activity of EDF Démasz in Hungary, a subsidiary result end of January 2017. This leads to the final part of this presentation focusing on our targets. With regards to 2017, as you know, we revised our nuclear output and EBITDA guidance on 27th October. This target requires avoiding any additional delay in restart [ph], as well a severe cold or mild weather event that would call for incremental purchases on the market allover sales. Let me now comeback on the revision of our 2018 guidance and address salient points and the questions and comments we received just yesterday ahead of our Q&A session. It is worth tracing out first the EBITDA trend remains unchanged. 2017 was a strife year, and 2018 will be significantly higher. Let’s also keep in mind, that those elements that are expected to penalize 2018 EBITDA are essentially one-offs or timing differences and lead to a revised guidance with the midpoint less than EUR400 million below the previous target. 2018 EBITDA, we faced two main adverse events. First, electricity consumption tends to slightly stand on in 2017 and 2018. These effects in addition particular, therefore we had to revise our 2018 forecast for distribution volumes from a moderate growth to a 0.3% drop. And seems the shift has already started, the change is actually applied from a lower starting point, as 2017 volumes are now expected to be lower than what was expected until recently. Moreover, there are also negative price impacts due to an increase in the transport tariff and tariff structure effects. These impacts are only partially offset by the increase in 2018 of the distribution tariff related to the compensation of 2017 lower volumes toward the catch-up mechanism called CRCP. The net cumulated effects of those factors amount to around negative EUR300 million for 2018, in comparison with our previous forecast. Let me remind here, that these negative impacts in 2018, will be recouped in the following years of the tariff period. This is provided for under the so-called CRCP, the balancing mechanism designed to mitigate under or over recoveries, versus the authorized revenue territory defined in the distribution tariff. So, this will be a mutual over the tariff period. The second negative driver, is the expected drop in availability of the French nuclear fleet, at the beginning of 2018. Many of you, have enclosing monitoring recently the restart dates and the reactors on plant outage. You have seen that several outages have been extended some time for a significant period of time, when taking stock of the reasons behind those extended outages, it seems appropriate to consider that on the whole future of planned outages could save extensions and that average availability maybe reduce over the first part of the year. Dominique Minière will come back on that in a minute and if this during the Q&A. While the overall impact on output maybe relatively small, this will take place at a period when power has most value which will be more impactful for EBITDA. Let me be clear that this does not however put into question, our previous indication about the increase of our nuclear output in 2018 versus 2017. Bearing in mind that we gave this indication when 2017 output guidance was set at 390 to 400 terawatt hours. We will articulate a specific number for output target in February next year as usual. In the face of those adverse events, we have decided to intensify our OpEx cut report by further EUR100 million in 2018. This additional report is mainly driven by two action lines that we've been initiated in France. First, an additional report on procurement to reduce the amount of purchases mainly for general goods and services. And second, optimizing our workforce mobility within the group. Overall this leads to the new 2018 EBITDA range of EUR14.6 billion to EUR15.3 billion. Nuclear output will of course be a key driver with respect to this range. Let me also remind you that RM is an important risk factor. Indeed, we have to be in a position to meet their demand, which means that we cannot benefit from higher prices on such volumes and that we are at risk if R&D is below or both our central [ph] scenario. Let me also address one of the questions frequently asked yesterday, regarding the bridge between the recent increase in power prices and our EBITDA target revision. Prices have indeed appreciated throughout 2017 but the impact is limited on our 2018 EBITDA since large portion of our position has been covered before this rebound. This is fully consistent with what we have always expand regarding our hedging policy. The average price we have captured for 2018 since January 1st, this year is slightly higher, but much closer to the 36 years of per megawatt hour reference than the current level of 2018 forward, and so far as a power price increase happened only since September. If prices remained at current levels, their positive impact could be more pronounced in 2019. Net investments including link new developments and disposals and expected to stand at close to $11 billion against $10.5 billion previously. Let me be very clear that this is not a slippage. It is important to stress that part of the EUR500 million revision is due to strategic will to increase our investments in renewable energy. This acceleration is consistent with the group's strategic priorities and shows that the group remains strongly focused on these priorities. Regarding other elements explaining the EUR500 million increase. This is mainly related to maintenance operations on the nuclear fleet which simply have to be done. This does not mean that the total budget for the [indiscernible] is revised. It is confirmed at EUR45 billion over the 2014 to 2025 period. Obviously, we remain committed to control the level of CapEx, but this can only be done gradually. Let me remind you that lever was EUR12.4 billion in 2015. In that context, we have also decided to accelerate the delivery pace of our disposal plant. We now aim to nearly complete the EUR10 billion plant by the end of 2018. Our revised net financial debt-to-EBITDA ratio for 2018 was set at 2.7 times. This should not be read as an indication of revision in the total cost of project included in our so-called new development CapEx. This includes obviously some headroom. The last slide on our guidance beyond 2018, and we are confirming all our targets here. Let me conclude and remind you of the few key messages from the third quarter in the context of the implementation of our strategic priorities. Our nine months phase were down EUR30 billion to EUR49.7 billion. The increase in renewable output as well as the 2018 acceleration in renewable investments are consistent with the ambitions set under the cap 2030 strategy. Third, the implementation of cap 2030 has also reflected in developments in customer solutions with new commercial offers in France and an acquisition in Italy. This the completion of our disposal plant is well advanced and ahead of schedule. And last the adjustments made to our 2018 objective are mainly rated to one-off effects and timing differences. Let me now hand the floor to Dominique Minière.

Dominique Minière: Yes, good afternoon, ladies and gentlemen. So just to give you a brief situation of our nuclear fleet today. So, today I would talk 58 reactors of the French nuclear fleet, we have 39 reactors in production, 14 in planned outages, 1 in own planned outage for technical issues and of course the 4 Tricastin reactors which have been shut down temporarily as a request of the French nuclear authority. Today,15 reactors among these 19 reactors which are today offline are scheduled to restart operation by early December. With regard to Tricastin site, the works undertaken to reinforce the [indiscernible] of the plant have been completed since the end of October. We are waiting for the authorization from the EDF [ph] to restart before the end of November. With delays, the shutdown of reactor number one, until the end of December in order to carry out McMahon's [ph] operation. As said by this year, so first nine months of the year were marked by longer outages of the four reactors is our thermal fleet are flying during last winter. Two of them VGA Unit V and Unit V [ph] were restarted, but only during this summer, Unit II [ph] is still offline because our main supplier has been very late earlier replacing the stimulators including Class 1, the delay on Class 1 which has carried our Pelvin [ph] unit. On Fessenheim Unit II despite the submission of complete five last year mainly additions are to be provided to our nuclear system authority. The decision under file will not be made as I said before early 2018. These two reactors, Fessenheim 2 and Pelvin-2 which we opt to bring online in late to service in 2017 at the beginning of the year, we’ll not be online in early 2018 contrary to initial expectation as the beginning of the year. Our shutdown campaign moreover was made more complicated this year by the lack of fuel break last winter for our teams due to the mainly additional shutdowns related to the carbon segregation issue beginning of this year. However, I would like to underline that the inspection of the manufacturing fives of the company’s manufacturer of the plant, which is now completed didn't much reveal any new problems. The six reactors concern to-date by the decision issued in August of this year by ISN, received approval to restart. So, in a global sum up, in January-February 2018 during the big consumption triad, no more and the four of five reactors should be offline compared to nine also an average, reactors which were offline last year.

Xavier Girre: We will now move on to Q&A and we’re ready to take some questions.

Operator: Thank you, sir. [Operator Instructions] We well now take your first question from Vincent Ayral from JPMorgan. Please go ahead.

Vincent Ayral: Yes, good evening. Thank you for the presentation. So, the guidance sound great seems to be mostly one-offs, I would like to get some clarity on the couple of points regarding these. One is the price assumption for the 2018 guidance, when we look to the press release we could see what that the all guidance was based on 36 for the unhedged volumes on the 31st of December 2016, what exactly is assumed for the new guidance? You say that the volume there have been hedge since then are slightly above 36, what assumptions are you making on the remaining volumes to be sold? That will be question number one. Question number two would be related to the potential cost of this winter outages as you flagged this would happened at times where full price are quite high so begin fold power can be expensive. What are you assumed in your guidance regarding this? And finally, after I'll leave this full to all the people, the CRCP on end of this and so low volume 2017 will be below back in 2018, when we look at the regulation, they should be CRCP elements every year starting from 2018. So what element of CRCP are you assuming, which would be basically a positive for our 2019 numbers? Thank you.

Xavier Girre: Thank you for these questions. And first, as I got the price for 2018, as I explained that we have hedge the volumes which weren’t at the beginning of this year, at a price which is taking higher than EUR76 per megawatt hour and we're still open only for a limited volume in order to be in a position to mitigate the RM risk. Second as regards the potential cost, lead to the winter outages, I have explained that we have considered that the potential outages that Dominique referred to at the beginning of next year could have an impact incorporate and with our previous guidance in the range of EUR200 million. Third, as regards the CRCP, you’re right, this will have a positive impact in 2018. This is integrated in our new guidance. And for time being, it's too early to tell about 2019.

Vincent Ayral: Thank you.

Xavier Girre: Next question.

Operator: We will now take our next question comes from Sam Arie from UBS. Please go ahead.

Sam Arie: Hi. Good afternoon. Thank you. Yes, I have a couple of questions on the guidance, so the new guidance issued yesterday as well. And the first one is just referencing your comment about still targeting nuclear output exceeding the 390 to 400 the original guidance for this year. Can you just clarify is that your assumption as a midpoint of the new guidance so I as a midpoint of 14.6 to 15.3 you would be above that level on the nuclear production? And then secondly, I think you did put some numbers around the one-off effects from Edison and also the UK capacity market effect so within your note yesterday. But can you help us size into the million euros of EBITDA, firstly impact of the effect you are expecting from nuclear availability in the beginning of next year? And then lastly just coming back to the variation that you mentioned and the risk around variation and our end demand, could you also help us understand how material that could be given the changes in the RM framework and again in sort of for the millions of euros what could be the size of the risk there? Thank you.

Dominique Minière: Thank you for these questions. As I guess the nuclear outputs, usually our outputs are, roughly speaking, centered, the range is organized around the center. So, this gives you, maybe the best assumption, you can have in mind, as well as the previous target we had for 2017 and the fact that we confirm today, that there was goal for 2018 is to be higher than this previous 2017 targets. As regards the - in addition one-off on the volumes, as I said, we assess it roughly speaking in the range of EUR300 million. And as regards toward the nuclear outages, I also already said that we assess them in the range of roughly speaking EUR200 million in comparison with our previous forecast. And as regards the RM, it’s a significant factor of course, so, it’s difficult to assess the impact that could appear, because it will depend on the volumes, which are requested and also on the prices and so, that’s why we maintained that this RM, and the current organization of the RM is clearly negative option against EDF.

Sam Arie: And are you able to, I mean that’s very helpful, I think we understand the mechanism, but are you able to go any further in sort of giving a view on what scale of risk you see from that negative option?

Dominique Minière: As I just said, it’s difficult to assess, because it depends on the volumes, it depends on the prices. So, I mean, as we’re concerned site, I think, we’re not in a position to give you our additional details about these potential risks.

Sam Arie: Okay, fair enough. Well, thank you for your other answer.

Xavier Girre: So, we can now move to the next question. Please can you limit yourself to two questions per participant.

Operator: We will now take our next question from Mohamed Raymond [ph] from Jefferies. Please go ahead.

Unidentified Analyst: Yes. Hi, everyone. So, I have this first question, I just want to go back to the bridge under guidance, if I look at sort of the bottom end of the previous guidance to the new guidance, excluding the OpEx savings, the delta is 700 million. So, I got the 300 million on Enedis 200 million from additional outages, but I think, I’m sort of missing the 200 million, I think, could you just remind me what that is? And then I think, I just want to talk a little bit about the capacity payment because that is also mentioned, the capacity payment in France. Could you just tell us, I think you mentioned a EUR9 sort of figure there, could you just tell us little bit about how do you see the capacity payments in France or the coming years? What is your outlook for that? Thank you.

Xavier Girre: Thank you. As regards the bridge between the guidances, we have explained that there were, the bridge is mostly on EUR500 million. Of course, in a guidance, there’re also some risk factors, that has taken into consideration, as regards the bottom end of the guidance, and these explains the third part that you referred to. As regards the capacity payment, you know that it’s something very significant, you have seen the contribution of the capacity payment and our nine months figures for 2017. We have taken as emphasis for next year, the price that appeared during the last capacity payment option, meaning EUR9.31.

Unidentified Analyst: Okay, thank you. Can I just sort of really quickly follow up there. So, the risk factor that explain the remaining EUR200 million variance. So, are these sort of the take up of RM volume or the risk of I guess digital outages, are these, can you maybe just sort of qualitatively remind us of those factors?

Xavier Girre: Of course, there are different factors, you've referred to some of them. Of course, as you know in the guidance there are always risk and upside, because we always consider a range. But of course, the nuclear generation will be a key driver within this guidance. And as RM, we've considered some sort of scenario and these can happen, or it can also diverge from this total scenario. So, I mean of course you understand that in the guidance there are always different upsize and the downwards risk or upside that are to build the range. But you have here the two key points I mean the volume and the nuclear generation at the beginning of next year.

Unidentified Analyst: Okay, thank you.

Operator: We will now take our next question from Emmanuel Turpin from Societe Generale. Please go ahead.

Emmanuel Turpin: Hello. Good evening, everybody. First question, coming back on RM volumes, it's very clear that you don't wish to share with us the exact numbers that you are budgeting for next year. Now I would like to share with you my thinking and get your reaction to that, forward prices for next year are below 42. And the booking of reservation periods is going to close at the end of November. So, if you assume that there is no sharp move into higher forwards, there is very limited interest for alternative suppliers to actually book RM volumes for next year. So, I would logically assume that once you'd budget relatively low RM volumes. And I would like to check my logic with you, that's my first question. And secondly, looking at the regulatory documents of entities [ph], the regulators is assuming a slight increase in distribution volumes each year to 2020. And it’s getting us a general prognosis of at best stable maybe lower volumes with that being too percentage year-by-year, but if we assume that essentially the core assumptions are overshooting every year, then we're running into almost a structural shortfall in this EBITDA year-after-year. Is that the way we should be thinking in our model? I understand that you should be compensated with a little bit of delay, it should NTV-neutral but is the way we should essentially model the years to 2020. And as we are potentially looking to a structural issue in, would you be able to maybe structure maybe some securitization against that future compensation. And that's my two questions. So, my last one is just could you quantify for us the impact on the tax reimbursement of the tax on dividends and maybe what will be exceptional tax amount for you this year. Thank you very much.

Xavier Girre: Thank you for these questions. Once more as regard to the RM, your hypothesis maybe the right one. That once more there are different hypothesis and that could occur. So, I think we cannot comment more about these different hypotheses. Euros is interesting one of course the possible one and there are some others. As I guess in this for the time being, we are not saying this is a structural shortfall. We are considering that in 2017 and 2018 there is a limited version of the volumes in the range of minus 0.3% it is positive for 2018. And this will be compensated year-after-year with this balance mechanism. We have of course analyzed and read and analyzed the positives take by RTE, but for time being we're assumption is based on 2018. As regards the tax reimbursement as far as we are concerned the impact is in the range of EUR250 million, which is the potential reimbursement after the consideration of the 2% tax on the dividends.

Operator: We will take our next question from Carolina Dores from Morgan Stanley. Please go ahead.

Carolina Dores: Hi, Hello, good afternoon. I have two questions, my first question is you mention that your main supplier has been late, how are you preparing yourself to avoid that’s similar problems with an accord through the Grand [ph]? And second if I understood you correctly your cost cutting, your increasing cost cutting target is for 2018 only it doesn’t change your target for 2019 so you are just bringing the cost cutting forward, how you have any room to or any plans to increase the cost cutting from 2019 and beyond more? Thank you.

Xavier Girre: Thank you for your question. I propose that Dominique you answer the first one, and I will take the second one.

Dominique Minière: That was the first one, so, our main supplier is of course reinforcing this competency which I am generally speaking but counseling more specifically team generator replacement activity, big job has to be done inside our main supplier and this partners who are outside there are waiting for such kind of replacement and for the time being. We have decided now to postpone one of our two generator replacements which was scheduled next year to another year and we will do some mezzanine [ph] supervision to preventive mezzanine [ph] supervision to be able to delay team generator replacement, but we prefer to delay team generator replacement we think was increase of competency of our main supplier -- activity next year. We will have so, next team generator replacement now in 2019 and that’s in 2018.

Xavier Girre: As regard your question about the OpEx cut program, so we have communicated up in 2018 and we are very reactive and so will accelerate were OpEx cut in 2018, but we haven’t communicated for 2019.

Operator: We will take our next question from A.J. Patel from Goldman Sachs. Please go ahead.

A.J. Patel: Hi. Good evening. I just wanted to ask one about electricity distributions so, how this 300 million short for 2018, how does in terms of the future recovery of that 300 million is there any use of cap nature in the way that money has returned, as in could it take one, two, three, four years to come back or is it -- could you -- is there is mechanism that we could sort of understand could you give us a little bit more clarity around that? And then second question in the presentation back you talked about a new trajectory on electricity generation nuclear power to be present in mid-2018, and clearly you have life extension for your 900-megawatt reactors and I am just wondering what happen when this is there was trajectory change that was similar to what your based case is, how does that, what happens next, just trying to get an idea what your reaction would be to propose that to the French government next year?

Xavier Girre: Thank you for your questions. As regards the electricity or distribution volumes trend, so this is compensated in what we call the CRCP, which is a balancing mechanism, which means that as you know within the electricity distribution mechanism, you have a regulated tariff, which is called [indiscernible] for full year period starting 1st of August of first year. And quite important, we are currently in the number five that has started in the 1st of August I mean in this year with the price increase, tariff increase of 2.71% which considers I mean the full year. So, for 2017 we got 2.71%, which reflects the remuneration of the set and CapExes of the distributor. And then for each year, it's adjusted on the basis of the inflation, plus some elements that are taken into considering in this so-called CRCP. So, it means that when the volume is lower for example, let's take into consideration 2017 lower volume, this lower volume will be compensated in the new rate starting from the 1st of August 2018. And so, we will be compensated in 2018 for on the basis of five elements for the 2017 erosion of the volumes. And same thing for the erosion that now we expect for 2018 meaning that the minus 0.3% we have indicated has being our hypothesis for the volumes in 2018 we'll be compensated from the 1st of August 2019. So, this is exactly how it works, and so that's why also it's only during the first period it's only partial compensation. Because you have this time effect, but on the global period of this tariff, we're seeing we'll be compensated. And so that's why we have indicated that this will be neutral on the global tariff period.

A.J. Patel: Thanks.

Operator: We will now take our next question from Martin Brough from Deutsche Bank. Please go ahead.

Martin Brough: Hi. Thanks. I just wanted to ask on the timing of power prices reading through into 2019, are you leaving more of your output structurally open now as the wholesale price gets closer to the RM as you say to mitigate the risk of that in the future years. And secondly, could you just give us a bit of an insight into the timing of new material and wholesale prices and when that starts to feed through into non-regulated business tariffs. What kind of time lag are you setting for yourself so for your competitors in terms of forward cost moving versus volumes being sold to business customers. Thanks.

Xavier Girre: I'm sorry we haven't understood your second question. As regard, first I will answer your first question. As regard, the 2019, RM risk I mean for the time being there is no expectation of change of the RM mechanism. So, if there is no change in the mechanism and particular in the schedule of the RM auctions, we will each year face the same risk, which means that at the end of the previous year we have this uncertainty about the volume that will be required within RM and about the price that we will have to face. If we have to purchase an electricity to serve these iron demand. So that's why we really consider that this arrangement is bias mechanisms which are creates these risks for EDF. And with regard to your second question maybe could you please repeat it?

Martin Brough: Yeah, so obviously you sold some volumes into the wholesale market, you sold some volumes on the regulated blue tariff to households, but for the business customers could you give us some idea of what the typical time lag is between power prices moving up in the wholesale markets. And then you and other competitive retailers adjusting the prices that you’re offering to business customers, so, how long is lag between price move of when you actually start seeing revenues go up for your business customer volumes?

Xavier Girre: I mean roughly speaking, the time lag is more as two years.

Martin Brough: Okay. And is that the same to your competitors?

Xavier Girre: Sorry?

Martin Brough: Is that the same for your competitors, you’re buying on the wholesale market and also making offers to business customers, because it takes quite long time to adjust the pricing environment?

Xavier Girre: We don’t know.

Martin Brough: Okay.

Dominique Minière: One last question on the phone and then we will take question that we have received on the web.

Operator: We will now take our next question from Ali Jafri, of RBC. Please go ahead.

Ali Jafri: Hi, there. I had a question on 2017 EBITDA guidance, and the update you gave on expected output for the [indiscernible]. On the call, you mentioned that you’re now expecting, me for output for 2017 similar to last year, which was 384 terawatt hours, which will be at the lower end of the 383 to 3870 guides up full. And then your note you said that you remained focused on achieving a 2017 EBITDA of above EUR13.7 billion, which is around about the mid-point of the guidance. So, I was just wondering given the output figures low end of the range, are you still able to poke [ph] from reaching out 2017 EBITDA or above EUR13.7 billion? Thank you.

Xavier Girre: As we have said, I mean, today our expectation as regards the nuclear output is closed to last year nuclear output. And as regards the EBITDA, we’ve confirmed our guidance, but today, of course we’ve to have in mind the fact that these range is between EUR13.4 billion and EUR14 billion. And due to the fact that the nuclear output is in the lower range of the guidance, it could be, also the same thing for the EBITDA. But this depends also very significantly on the weather during the first part of the year, because the weather is a key driver of the demand and this is why I explained that, if the weather is very mild, the generation could be they were. But if we were to face the severe cold winter, we will have also to purchase some electricity on the market. So, during the last part of the year, the weather conditions are also significant to be taken into consideration in order to analyze the future nuclear of generation earned EBITDA of the Group for 2017.

Ali Jafri: Thanks. That’s great.

Dominique Minière: Thank you. One last question that we received for concluding this Q&A session, that's actually two questions. Number one from Mr. Lace [ph] BlackRock. Number one, does your leverage guidance for 2017 and 2018 include this puzzle? And number two, at your guided leverage of 2.5 for 2017 and based on the middle of the range of EBITDA at EUR13.7 billion, the implied net debt would be EUR34.3 billion, that is EUR39.4 billion when applying to new 2.7 multiple to the lower end of the 2018 range. So, can you explain the volumes, the EUR5 billion volumes on top of your new cash flow guidance, which is slightly positive across to balance?

Xavier Girre: Thank you for these questions. Yes, our leverage guidance includes some disposals. As I said we have today reached roughly speaking 80% of our EUR10 billion target and we expect to be the EUR10 billion disposal program to be almost fully achieved at the end of 2018. Secondly, as I said also, we have considered some at whom in our leverage that we have given for 2018. So, this has also to be considered when assessing our future date. There is some headroom in these 2.7 leverage indicated for 2018, and we definitely want it to be below lower than that.

Dominique Minière : Thank you. I think that closes our session.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.