Earnings Transcript for ENGI.PA - Q4 Fiscal Year 2019

Operator: Good morning, ladies and gentlemen and welcome to the conference call on ENGIE 2019 Annual Results and Forward Outlook. For your information, this conference is being recorded. Thank you for holding. Mr. Manager, I now hand over to you.

Jean-Pierre Clamadieu: Thank you very much. Welcome to everyone who has joined us for this morning's call and webcast. I'm Jean-Pierre Clamadieu, the Chairman of Board of ENGIE. And I know it's fairly unusual for a Non-Executive Chairman to be present for a full year results presentation. But as you know ENGIE is currently in a bit of a peculiar situation due to the recent decision made by the Board not to renew the mandate of Isabelle Kocher as CEO. We are entering into a transition period and I hope it was useful for his community to have a quick introduction by myself to keep you abreast of the developments as we take place during the next few months. Probably the main message I would like to share with you today is to remember that our executive management team and board have fully mobilized underline to move forward on an ENGIE's transformation path, and we want to make the best use of the next month. I confirm our strategic ambition to make ENGIE a leader in energy and climate transitions. We have some very simple priorities, bringing more innovative and evaluating solutions to our customers to help them execute their energy transition, and we want to capitalize on the high skilled teams and contingencies to reach this ambition quickly and efficiently. And I'm absolutely convinced and so are my colleagues at the board that the strategy will allow us to sustain an attractive and profitable long term growth trajectory. As you all know, Isabelle's mandate ended last Monday after she led ENGIE powerful transformation. As from this date the board has decided to appoint a transition management team made a free complimentary and very experienced profile to collectively manage the operation that. I name Paulo Almirante, our COO; Judith Hartmann, our CFO; and Claire Waysand, our General Secretary, who has been nominated to you for this period, and I would obviously like to greatly thanks them and congratulate them for this, the role they will be taking in the next few months. We are confident in the ability to run the company and ensure the success of this transition period. I would also like to find the members of the Executive Committee for their continued commitment and support. Three main objectives will be pursued by the transition management, first, reassure our team and maintains a strong engagement of all of our employees, which is absolutely indispensable for us to continue to create the strong impact on the world energy transition. Second, very important, ensure the delivery of solid operational performance and our financial objectives that will be explained during this call. To that end increasing simplicity and prioritization will be key. I think we still have ways to go to bring simplicity and organization processes and they are working. We want to be an agile and efficient organization. We need also to make some progress in the prioritization of our process to make sure that we allocate resources, human and financial to the right projects, provide further clarity and focus to our employees, shareholders, suppliers and customers. And last but not least, I would like this transition into alpha setup roadmap to clarify ENGIE's strategic choices and boost our business model. The Board and myself have a very clear vision and our growth drivers, but also our main challenges. To further focus on our strategy, we need to address the right question. That's why I've asked the transition management team to work on a range of key topics include for future of our nuclear generation fleet in Belgium, and more broadly our role in the future Belgium energy mix. Second, given our big positions in Europe and Latin America, how should we better leverage the role of gas in the energy transition and accelerate the development of green gases. Third, what is the renewable growth model we want to build, to balance impact on balance sheet, and since that will contribution to the P&L. And finally on consumer solutions, how can we leverage our expertise and solutions range to accelerate significantly profitable growth. That's the agenda of the executive team, and I'm very confident that will be able to execute it. The Board asked me to support the transition management team in order to insurers to a smooth period, thus, I will dedicate extra time and attention to management as ENGIE Chairman in the coming months to coordinate and ensure close cooperation between board and the management team and produce ensure sustainable value creation for all of our stakeholders, which is a key objective of our Board. On a side note, the Board and myself are absolutely convinced that separation of functions between Chairman and CEO is the most appropriate way to run a listed company of this size. It's best practice in governance and we intend to keep it that way even in the transition period. Well, obviously something an important task is for the Nomination Committee and myself to identify the new CEO. We are currently in the process of appointing an executive search company who will perform a wide-range search for the new CEO. We expect, it will take 6 to 12 months to have the right leader in place. But again, our ambition with Judith, Paulo and Claire is to keep ourselves very busy during this period and make significant step forward in our transformation. With that, I will now give the floor to Claire Waysand to start this presentation before turning to Paulo and Judith that you already know very well. Thank you. Claire, the floor is yours.

Claire Waysand: Thank you. Thank you very much Jean-Pierre and hello to everybody. If some of you come from the sovereign debt world, we may have interacting before. But it is in any case, my pleasure to be here with you today as the Interim CEO of the company. Jean-Pierre has introduced earlier the management team. Together with Judith and with Paulo, we are used to working together in a fluid and effective manner. And with complimentary profiles an areas of expertise. So I think, my message is and our message to start with will be brief. 2020 will be a productive year. We will continue to build on the strengths of the company and energy service actor that contributes to accelerating the transition towards carbon neutrality at an affordable cost. Offering both integrating energy saving solutions and greener energy. We will also streamline further as our processes, increase the selectivity of our geographical footprint and clarify further our focus. We are fully committed to delivering the results in the guidance of 2020, together with continuing to build a strong and resilient business model. Second message, our business model is sustainable bringing together financial delivery providing energy and services to accelerate our customers' transition towards carbon neutrality and corporate social responsibility. We are and will continue to be an actor of the transition towards carbon neutrality based on three pillars, renewables, energy efficiency, and gas becoming progressively greener. First renewables.With of course decades of growth ahead and you will see significant investment going into this.Second energy efficiency, which we all know is an obvious part of the solution. It is about having a lower impact on the environment, reducing the costs for the customer and for companies making the transition affordable in short. And we already have two thirds of our employees in this field. Thirdly gas. Gas is a critical part of the world's clean energy transition. It is easy to transport easy to store over a long period and at a large scale. It is also a perfect complement to renewables and we are working on making it greener. Lastly, we truly believe that CSR is a key success criteria for the future of Engie, its resilience and its attractiveness. While our comprehensive CSR strategy will be presented at the General Assembly. From now on, we will integrate three key objectives to our regular reporting. These key objectives are

Paulo Almirante : Thank you, Claire, and thank you for the good news. Good morning, everyone. Let me start with a review of our major developments in 2019. In client solutions, we are growing organically on asset-based projects. An example is the Iowa State University contract, where we are investing $1 billion with a financial partner to provide heating, cooling, and electricity through dedicated networks during a period of 50 years. Just to give you an idea, this campus has almost 100 buildings and the population of 33,000 students. Similar projects but with different scopes has been awarded to Engie by the City of Ottawa in Canada, and Angers in France. Just to name some of the most visible commercial successes of 2019. On asset light, our performance was not good, with organic growth significantly below last year related mainly to underperforming contracts. However, we have also progressed with selective tuck-in acquisitions of part supply companies to diversify our operations in specific markets. The examples are Conti in the U.S., OTTO and Powerlines in Europe. These three acquisitions represent a total turnover of €1 billion. We also see an increased demand from global clients to develop carbon-neutrality road maps. This led us to create a dedicated entity called ENGIE impact with your objectives to provide clients with integrated solutions, from design to execution, with options for financing and supply of renewable. Amongst the first clients are GE Renewables, Verizon and IKEA. Regarding Networks, the acquisition of TAG in Brazil is a major step in the development of international infrastructures. It is also a strong contributor to our results, partially offsetting the impact of the regulatory reviews influence. Power transmission projects with similar secured business models and also under development. In 2019, we added in Brazil 1800 kilometers of Greenfield concessions, in addition to 1000 kilometers already under construction. On biogas, ENGIE continues to invest in the development of new facilities and we acquired the biogas activities of VOL-V, a local developer in France. Let's move now to renewables. We commissioned a record 3 gigawatts of capacity across the U.S., Latin America, Europe, India and Africa. About two-thirds of that capacity is wind and one-third is solar. Important to note that this is four times more than the capacity we commissioned in 2018. And it was organic growth. However, in Portugal, we also did some M&A. We acquired a portfolio of hydro assets, including pump storage, which allow us to provide clients in Iberia with 24/7 renewables. These assets have an average concession life of 45 years contributing to the long term visibility of ENGIE's portfolio. But 2019 was not only about short term development, we are also building solid foundations to deploy our renewable strategy. In Mexico and India, we created local platforms with other investors to implement the DBSO model. And finally, on our Renewable activities, we entered into a global joint venture with GDPR for offshore winds. The transaction is expected to close by mid March, as we just received approval from the European competition authorities. And by that time, the JV will be fully operational with employees, offices and systems in place. Let's now go to conventional generation and supply. Nuclear operations have stabilized in 2019 after a very difficult 2018. Thanks to the efforts of our teams to nuclear fleet, achieved and availability of 79% significantly above the 52% level of the previous year. The objective to phase out call is progressing well. In '19, we have divested or closed more than 6 gigawatts of capacity, out of which 3.5 gigawatts are coal, which represents now only 4% of our portfolio. And lastly, I also want to mention the excellent performance of our gas midstream activities. The Energy Management teams have been able to structurally optimize the entire gas value chain with a more dynamic management of market volatility and the renegotiation of long-term gas contracts. If we now move to the next slide, in 2020, we are accelerating the execution of our key priorities. I will not go through all of them as presented in the slide, but let me select some. For Client Solutions, we have a strong focus on growing asset based projects like district heating and cooling networks, on-site generation and public lighting. We have a pipeline of opportunities similar to Ohio State and Iowa State Universities. And we see an increased demand from public and private entities asking for solutions to reduce their carbon footprint. Additionally, we are improving the performance of asset-light activities by reviewing underperforming contracts, and everything subscale positions to improve margins. Expand organically is a type of the key priority for us. We have a backlog of over €10 billion and around 70% in Q2 for 2020. For renewables, we have 5 gigawatts under construction. This is the highest ever had in the group. Out of these, we will commission 3 gigawatts in 2020. A significant portion of this capacity are dedicated to final client. In 2019, we have signed 2 gigawatts of corporate PPAs. And we have an ambitious sell-down plan, mainly in the U.S. and Latin America to deploy our DBSO model. Regarding nuclear in Belgium, the last major lifetime extension works, known as LTO, for our first-generation units will be carried out in 2020. The words are complex, but so far, they are progressing in accordance with the plan. In 2020, we also expect clarity from the Belgium authorities on the extension beyond 2025 of 2 nuclear unit, Doel 4 and Tihange 3. Finally, decision is fundamental to execute what is a long and demanding process from licensing to execution. And with that, I hand over now to Judith.

Judith Hartmann: Thank you very much, Paulo. Good morning, everybody. It is great to be here with you today. First, let me summarize the key points of today's announcements, our 2019 results show as expected and acceleration in earning growth in the second half of 2019 results are aligned with our guidance ranges. I would like to take this opportunity to also thank all of our ENGIE employees, we have helped drive these results. Not just throughout this last year, but more importantly for the steady progress that we have made in building the underlying strategic and capability momentum. On an organic basis, current operating income grew by 14%, mainly driven by Nuclear. Others, notably Energy Management, Thermal and Renewables. The strong growth in earnings seen in 2019 leads us to propose an $0.80 dividend on 2019 earnings, up 7% versus last year's ordinary dividends. We also expect an increasing net recurring income in 2020 between €2.7 billion and €2.9 billion. It's now have a look at our key numbers for 2019. EBITDA and COI were €10.4 billion and €5.7 billion rising organically by 8% and 14%, respectively. Net recurring income on continued operations is up 9% and 11% organically. Financial net debt stands at roughly 26 billion showing a growth increase of 2.7 billion versus the end of 2018, mostly due to growth investments. Our CFFO improved significantly from H1 that was finishing only slightly down year-on-year as commodity margin calls and financial derivatives have slightly outweighed a significant increase in operating cash flow. As already mentioned, these results are within our guidance ranges and we remained at or below the 2.5 times financial debt to EBITDA ratio targets. Beyond the solid financial performance, I'd like to turn back on some value levers that I discussed with many of you during 2019. Indeed, this past yearwe improved visibility on some front and continue to enhance our growth profile. On the regulatory front, we receive more visibility on two crucial aspects.First, The French Gas Network's regulatory reviews concluded early 2020. We gained visibility over the next four years on the financial outlook for these important activities in our portfolio. Second, towards the year end a constructive arrangement on a Belgium nuclear provisions and the funding was published, reducing uncertainty for all parties. But obviously, we will not stop here. To further enhance the robustness of these businesses, we are committed to creating widespread stakeholder recognition of the critical role of gas in the energy transition. And we're committed to clarifying the long-term future of our nuclear activity in Balgium and more broadly, Engie's role in supporting the country's future energy strategy. In addition, our growth profile has been enhanced in 2019.In renewables, you already heard it we commissioned to record 3-gigawatts of new generation capacity. This is 4 times more than were commissioned in 2018. Moreover, we announced the acquisition of a large and promising hydro portfolio in Portugal which will add 1.7 gigawatts of renewable capacity. On top of that we strengthened our professional Networks and Client Solutions to key acquisitions. In Brazil, we acquired TAG, a significant gas transmission pipeline, which has already began to generate meaningful learning contribution in 2018. And in Client Solutions, we made important acquisitions that already added £800 million of annual revenues in 2019 and will add £1.5 billion of revenues on a volume basis. Now turning to a performance by business line. First Client Solutions, our Client Solutions activities finished with the strong fourth quarter. And as you can see this is slightly higher than we expected at our Q3 driven by the action plan we have put in place. Full year revenues were up 11%, employee increased 7% on a gross basis, while roughly level organically. The 7% COI growth excludes the net positive impact of all 2019 SUEZ one-off. Growth is being driven by increased asset based activity. I would call out the progress of our BD teams in Europe and Asia, for example. Momentum in decentralized generation and district heating and cooling was evidenced by our new contracts in Scotland, Germany, Italy, France and Singapore. And we fully expect this trend to continue. Many of these contracts have durations of 20 years or more. The Client solutions without also intuitive contributions from acquisitions that I've just mentioned, and this performance helped to fund start-up costs as we invest into the future. Indeed, e-mobility and microgrids are both examples of topics that are important, but they will need more time before they contribute to earnings in the coming years. We've also started a strategic review of certain activities following the negative one of experience in 2019. And you will learn more about this later in 2020. As we reinforce our productivity around geographies and certain businesses. Cumulative project backlog continues to rise, Paulo has already mentioned it and is now reaching close to a year of revenues in total. We also continue to increase our installed district heating and cooling capacity to 16 gigawatts of thermal capacity up 3% year-on-year. Let's now move to networks where COI was down 3% primarily driven by gas distribution and French gas transmission. In gas distribution, international activities faced several headwinds. Negative effect from one-offs in all geographies, mild temperatures in Romania and Germany and negative foreign exchange effect in Argentina, weighed on the financial performance. These headwinds are partially offset by French gas distribution. GRDF profit was indeed slightly up, benefiting from a tariff increase the conditioning costs, provision reversals and additional smart meter installed. Our smart meter rollout is the well underway over 4.9 million smart meters are installed by the end of 2019 of which 87% are operated in remote reading mode. Nevertheless volumes distributed in France for 2.6 terawatt hour lower year-on-year, mainly because of warmer temperatures. And average temperature this volume decreased amount to only 0.1%, in other words very close to the previous year. Gas transmission in France also faced headwinds we already explained in previous without presentation. First, a negative volume effect in France with lower capacities subscribed mainly due to the merger of the north and south gas market zone. This lead to the end of North South connection revenues compensated by a new price structure of the transmission network. Second, as anticipated, in our current regulatory mechanism, GRDF gas 2019 revenues are subject to smoothing a delayed throughout mechanism to limit the magnitude of tariff evolution while remaining neutral over the period. As a result, following two years of favorable smoothing that the April 2019 annual revenue revision only partially covered the additional operating and G&A costs incurred by GRDF gas. Last but not least, we are pleased to note our first equity accounted earnings coming from TAG following the June acquisition which was a big step forward on our network business. Let's now moved to renewables whose COI was up 5% on the gross basis. At constant foreign exchange and normalized tighter conditions, the growth would have indeed been 10%. On hydro, Brazilian prices for hydroelectric power generation were more favorable. In France, we still suffered from lower volume versus last year. Although we did see a partial recovery in Q4. Our wind and solar activities posted a strong performance with more than 12% growth, COI growth. The earnings increase was driven by the commissioning of new renewable capacities, you can see translate the 3 gigawatts commissioning in 2019. And we've also benefited from the contribution of these assets together with the ramp up of the ones commissioned last year. Overall wind and solar production grew by 15% year-over-year and we have now entirely secured our 2021 target of nine gigawatts additional renewable capacity over '19 to '21. As an example of our momentum, I'm really pleased to know the progress of our North American business development teams. This year, we have 7 grid scale wind sites coming online, totaling over 1.2 gigawatts and 4 solar site totaling 450 megawatts. Our sell down slightly decrease versus last year as 2018 DBSO margins were exceptional, particular instance we have mentioned this last year. This was broadly in line with our expectation of roughly 200 million cell down gain for 2019. We also made further progress in establishing strategic partnerships concerning renewal financing in Mexico and India. And these will allow us to deploy our DBSO model and accelerate the development of our portfolio 2020 and onwards. Turning to thermal, we post that 11% growth COI decrease for the full year, predominantly due to the large scope effect of the Glow disposal in March of 2019. The exploration in April of the binding of PPA in Turkey was also a negative factor. Partially offsetting these headwinds, we benefited from the ramp up in Latin America PPAs contract and positive price conditions in Chile. Indeed, a very good commercial progress in that country. The reinstated UK capacity marked as attractive to Q4 2018 was a big factor, and the favorable impact of the gas spread in Europe was European merchant gas fired power plant production up 31% in 2019. Finally, it is important to note that the amount of liquidated damages received in 2019 was roughly stable versus 2018. After the sale of Glow and the coal plants in Germany and the Netherlands, coal now represents only 4% of our total installed capacity. Moving to nuclear. Nothing surprising, but really impressive figures after very challenging 2018. The hard work of all the teams has definitely paid off as expected nuclear COI was indeed up 70% over 700 million on the back of the successful restart of all of our nuclear reactors in Belgium, resulting in higher output volumes up 62%. As availability rose significantly was mentioned by power from 52% to 79%. The second effect was better achieved prices up €2 per megawatt hour. On the other hand, on a much smaller scale, of course is expected our German drawing rates contracts from E.ON terminated in April 2019, leading to a negative volume effect compared to 2018. It is worth noting that Nuclear COI remains negative. Volumes produced were sold at an average of €36 per megawatt hour. And over the next two years, the chief price expect to further increase with current 1000 forward power prices standing at approximately €40 to €45 per megawatt hour. On the next slide in supply, the significant COI reduction of 36% was mainly driven by continuing margin pressure in French retail. The commissioning costs accrual reversal, positive one-off in 2018 in Benelux and negative temperature effect in Australia. As this commissioning accrual reversal is quite material for the supply business line, let me take a moment to provide some additional details. In 2016 GRDF our gas distribution company in France booked a provision covering the cost to serve customers handled by energy supplier during the French market opening from 2007 to 2016.Likewise, a symmetrical accrual was booked for our B2Csupply activities in France. Recent legal decisions led us to reverse these two bookings, creating a negative financial impact in supply as you can see and a positive one-off in network thus been globally neutral at the group level. In general, this was partly offset by increased power margins in French business supply over the last 12 months. We continue to increase our B2C retail power customer base by 0.2 million isup 2.4% as well as our returned service customers by 0.4 million up 15%. On the other hand, we lost 0.3 million customers in gas down 2.2% mainly on regulated offers in France. As you can see, the supply business line has been strongly impacted in 2018 by the margins squeeze on French Power. And this situation is expected to improve from H2, 2020 onwards as we start benefiting from the recent increase in French regulatory power tariffs. Lastly, our other activities performed very well with a 42% increase in COI. This is mainly due to our Energy Management business, whose performance has notably benefited from the partial sale of a gas supply contract to Shell in Q3, 2019. In addition, there were positive effect of gas contract renegotiations while we benefited from international development and from favorable market conditions, characterized by volatility especially on gas markets. Growth is all the more impressive as 2018 was already a good year, with favorable conditions linked in particular to the cold snap at the beginning of 2018. The underlying performance of team has improved over the last two years and should remain sustained. We have been able to derisk our gas supply portfolio and we are in position now to take full advantage of market opportunities and volatility as it as it arises. In addition, our latest group efficiency program Lean 21 has begun to deliver cost savings at the corporate level. And we benefited from a favorable comparable due to the cost of the Lean 2018 employee shareholder plan. On the other hand, we have the impact of future oriented investment for the development of digital platforms and hydrogen. A quick word on lean as we implement our lean 2021 time we continue to improve efficiency and operating average thanks to a very extensive basket of cost enhancement opportunities, mostly around procurement and digitization, but also share service centers. And we also continue to leverage revenue enhancement opportunities mostly around industrial assets, performance improvement, as well as improved service offerings, especially targeted pricing actions. We achieve lean 2021 with a quite improvement of approximately 338 million. This is about 30% higher than our initial targets and it helps us to reinvest indeed, we have invested about a third of this amount in organic business development and into digital. So we're confident in our delivery time from the program in the coming year. And this will help us in the future also to be have a meaningful contributor to our earnings momentum. A few words now on the P&L with the path from EBITDA to net recurring income as well as a description of the nonrecurring elements. First, from EBITDA to net recurring income, starting with the small variations for D&A financial costs and minority interest. D&A was slightly up mainly because of investments notably in Latin America. Interest expense was also slightly higher due to the higher cost of debt, no surprise mainly due to the additional debt in Brazil. And minority interests were lower mainly due to the scope effect of Glow. Turning to taxes with the biggest variation of €300 million taxes were higher indeed, mainly due to the 2018 positive effect from the recognition of deferred tax assets and the impact of the future tax rates in France. As you can remember, 2018 was an exceptional year for taxes with a low recurring tax rate of 24% in 2019, should higher and more normal recurring tax rate of 28%. Let's move to the nonrecurring elements, some mainly negative moving parts between net recurring income groups share and net income group shares, which reached again 1 billion in 2019 stable year-over-year. The main drivers here where the mark-to-market below COI was negative, mainly due to Energy Management activities. Impairments and others are mainly resulting from the changes in the regulatory framework related to nuclear provisions in Belgium. And of course, we always have some restructuring costs. These negative elements were partly compensated by 1.6 billion of capital gains mainly linked to the Glow disposal. Turning to cash flows with the classic waterfall on the next slide. As expected in our nine months presentation, CFFO did significant to increase in Q4, and at 7.6 billion was almost stable year-on-year. The slide decrease was due to the working capital requirements evolution down 1.3 billion. This working capital requirement evolution was mainly driven by commodity related margin calls and financial derivative coming from our energy management activities as gas prices were down. You will remember these margin calls relate to our commodity hedges while the underlying transactions are not marked to market, and thus there is always a temporary mismatch. On the other hand, our operating cash flow increased 900 million in line with the EBITDA evolution. And we also benefited from 200 million lower taxes and interest paid. Let's now look at the forward looking outlook. And I will start with our 2020 guidance. For 2020, we expect our EBITDA to be in the 10.5 billion to 10.9 billion range, our COI to be in the 5.8 billion to 6.2 billion range and our net recurring income to be at 2.7 billion to 2.9 billion. As in 2019, the quarter development of the financial delivery will not be linear, but rather wait towards the second half of the group, both at the group level and for the business lines. The 2019 dividend to be paid in 2020 will be proposed to the AGM at $0.80, up 7% versus the 2018 ordinary dividends evidencing our confidence in increasing earnings. Regarding our financial policy, we remained firmly committed to strong investment grade credit rating and as such continue to target a leverage ratio of below 4 times economic net debt to EBITDA. Following our recent commitments for fully fund the nuclear waste provisions, indeed, the economic net debt ratio becomes the most relevant leverage indicator. Note that the financial net debt to EBITDA ratio will now incorporate effect of the neutral fund and agreement with the additional financial CapEx corresponding to additional financial assets on the balance sheet. In general, we remain positive about the scale of our attractive investment opportunities. And we are confident in our ability to address these while maintaining one of the strongest balance sheet in the sector. This year instead of providing precise capital range of, we will speak qualitatively as to our expectation for each global business lines. The expects COI growth by business line is broken down as follows. Client solutions after facing several headwinds in 2019 that have tamed the underlying growth, we expect a rebound to more normative returns and growth beginning in 2020 as our 2019 acquisitions begin to ramp up. Networks as you know, the new regulatory returns will be inactive for our main French infrastructure activities in 2020, driving the COI forecast lower. However, this will be partially offset by international growth as we expand this business outside of Europe. On Renewables volumes and price of contraction as a positive effect and we expect to positive decision in Brazil on compensation for past losses due to lower hydro dispatch. Wind and solar contributions will also increase things to do digital and commissioning of assets. On thermal, we continue to reduce and optimize our thermal generation portfolio with a disposable focus on coal plants and some merchant assets. Additionally, spreads have decreased putting pressure on the business lines. Nuclear, we expect contributions increase, as we have already secured better pricing for part of our future output. Despite lower volumes due to the scheduled maintenance. And our supply outlook is improving at strange margin recover and on the assumption of temperature normalization Let's now move to indicative expectations for the three coming years. As announced last year we decided to provide each year a rolling guidance for the next three year. So 2020 to 2022 for today. And before that as for comment on the 2019 to 2021 guidance we provided a to CMD one year ago. I'm pleased to confirm the outlook at the group level as we believe that we are able to offset significant price headwind through 2019 investments and with our lean efforts. Starting for the new period 2020 to 2022 with growth CapEx. We expect to invest €10 billion in growth with most of the capital to be allocated to Client Solutions, Networks and Renewables. We will also continue to seek M&A driven growth opportunity, mostly bolt-ons that we did in the past. As we disclosed in December, an updated provision and funding arrangement was put in place with the Belgian Nuclear Authorities following its triannual review. Updated discount rates and technical dismantling and waste assumptions were set alongside an Engie commitment to fully fund waste provisions by 2025. This funding will comprised €4 billion of financial CapEx over 2020 to 2022. And I already mentioned no impact on our economic net debt. Disposals are expected this amount to €4 billion over 2020 to 2022, primarily driven by further decarbonisation of our power production portfolio, and also by the simplification of our geographical footprint and structure. Finally, the level of maintenance CapEx to remain broadly stable at €8 billion over the period. So based on organic revenue growth efficiency gains and macro assumptions, and returns and reinvestments are indicative medium term financial outlook is as follows. EBITDA to grow through 2022 annually between 2% and 4%. COI is expected to grow between 4% and 6%. And this growth along with greater capital efficiency will rise a higher return by 2022. Net recurring income group share is expected to grow annually between 6% and 8% for the new three years, that is to say to reach a range of €3.2 billion to €3.4 billion. And we confirm our dividend policy with a payout ratio of 65€ to 75%. This translates our commitment to create value for our shareholders. With that let's now take your questions. And operator I'm handing over to you.

Operator: Thank you. [Operator Instructions] We'll take our first question from Vincent Ayral from JPMorgan. Please go ahead. Your line is open.

Vincent Ayral: Good morning. So a couple of questions, as guided. One is on the guidance, just to understand the impact of mark to market in 2020 and 2022 -- I think 2021 and 2022 guidance that would be highly interesting. So we're talking commodity ForEx and on the guidance as well. Could you confirm this includes, indeed the deletion from the forbidden disposal you've been talking about? So that's regarding to guidance. And the second thing is under strategy. If I understand well, you seem to confirm there is no drastic change to expect there. It's more going forward you flagging Belgium. We see France reregulating the nuclear. Could you share a bit useful there and could you confirm that you're not contemplating large M&A? Thank you very much.

Judith Hartmann: Thank you for your questions. The guidance indeed, those of course mark-to-market effects from, as the prices and FX included are the December 31st number. The impact isn't that big on when I look at the two, three years. I would say roughly 25-ish 2020 35-ish on 2021 and 2022 an impact of roughly 75 million and that is how by slight positive effects. So nothing to worry about this is all, these are the kind of amounts, obviously, that we will work to offset. On your question on the disposals indeed, the guidance does include the impact of the earnings dilution, we will of course, it's always work to keep those as limited as possible. And there was good strategic reasons that I've mentioned, the decarbonization but also the simplification, continued simplification of the company that will lead to these disposal. Under strategy, in fact, indeed we have, we confirm we're very committed to the energy transition it was mentioned by both Jean-Pierre and Claire. And we are not including in this guidance any major M&A.

Claire Waysand: Maybe just to complement on the strategy, totally in line with what she just said. Indeed no drastic changes in the strategy and strong focus on delivery and selectivity.

Operator: Thank you. We will now take our next question from Peter Bisztyga from Bank of America.

Peter Bisztyga: Good morning it's Peter Bisztyga from Bank of America. So you talking about no drastic changes to strategy. So I'm just wondering what specifically do you think has been wrong with a strategy today? For example, when you say you want to sort of simplify the group going forward. Does that means sort of fewer business activities or are you just talking about simplifying your own internal processes and structure? So that's my first question. My second question is just on the growth CapEx. Your previous sort of 3-year guidance for growth CapEx was 11 billion to 12 billion, that's now sort of dropped to 10 billion. Is that because you're now netting off DBSO? Or have you actually reduced the pace of growth CapEx? And if so, why, please. Thank you.

Judith Hartmann: On the strategy, I'll start and I'm sure Claire or Jean-Pierre might want to add anything. But again, we confirm the strategy. We're very happy with what we have been able to achieve the specification that was mentioned will be around a geography and our processes. And that should help us to speed up on the delivery, which is obviously very important to us. On the growth CapEx indeed, 10 billion that we are projecting. 2019 was an excellent year in terms of investment opportunities that you've seen it. So we have, we mentioned, reiterate a few about 1.5 billion on TAG, a very significant investment into networks, about an additional billion that we did last year on renewables. And then, of course, we announced also the hydro, which is not get in the 2019 numbers. But DBSO is already included in this 10 billion. So I would say, we had a big increase in 2019 through the 10 billion of more for normalization for just 2-year period. Just adding in the strategy that we feel that we have a right strategy and so that's consistent with no major shift. It's not strong on the contrary, it's a strong positioning as an actor, major actor in transition towards carbon neutrality. The strategy, by the way, as you all know, was co-constructed between the management and the Board. And so no change in the strategy and in terms of simplification, indeed, is both simplifying our internal processes and also looking at different businesses as is normal for our company.

Operator: Our next question comes from Emmanuel Turpin from Societe General.

Emmanuel Turpin: My first question is on strategy maybe for Jean-Pierre Clamadieu on 2 points. Maybe I'm too sensitive a person, but I didn't hear you mentioned the word networks to us in the new introduction. Speech, you didn't mention gas, but it was more of a general term. So would you mind clarifying for us whether networks still a score to your strategy as they have been in the past few years? Do you, therefore intend to retain control of the ownership of the French gas assets, which does not mean you can't crystallize a bit of value as allowed by law? But I would like to clarification please on, on networks. On renewables, I think you listed the question on how what renewables growth model. You should have or how to maybe make it work better as a topic. To be discussed by your phone worked on by your transition team seem to me that you presented to us a pretty thorough explanation of what the strategy in renewables was and a pretty discussion of your business model. Is it more of the same or is it a genuine review of the way, you want to do something renewable. Media question on guidance numbers. And, Judith, would you mind sharing with us your main assumptions, as you have done in the past regarding tax rate on maybe direction of financial expenses. Maybe qualify for us, the positive contribution of the gas contract negotiations on partial sale of a gas supply contract booked '18. How much was that on therefore, how much would you tear from that EBITDA position in '20? Thank you very much.

Pierre Clamadieu: Well Emmanuel. thank you very much unless you're directed your question to me, I will answer, generally speaking I try to withdraw a bit and let the management team answer. On strategy, we recognized what has been done in the past four years. And indeed Isabel led the transformation of Engie to the point where we are today. Our view is that for the next period, we really need to focus on a number of key item and delivery, shareholder value, simplification focus. And when I say simplification and focus it means choosing clearly the businesses and the geographies where we want to operate and making sure that we prioritize accordingly. And maybe in some cases we're trying to do too much in too many places. As you have a specific question, let may give you very specific question and the question was very well crafted. So yes, networks are part of our strategy. And when I say that we need to leverage our position in gas to benefit from the hole that gas could play in the energy transition, I probably could not have stated more clearly that in France and now in Brazil we have a position to benefit from the all of gas in the energy transition. Brazil quite obvious, and kind of blue sky horizon as far as gas development is concerned. In France we realized that there are still another things to do to make sure that all the stakeholders understand that indeed gas as all play. We have a guess that we know today but also the greenhouses gases on which Engie is very much focused. So network are part of our strategy. There could be some adjustments in our optimization of our exposure led to the flexibility that we have no to do so. But no question and whether gas with -- if there is a question the answer is a stone yes. On whether our infrastructure we continue to be part of our strategy. On Renewable I think the key question, you probably understand that is really DBSO approach and recognize that the DBSO is important in a number of situations to optimize the impactor to manage the impact of our development and our balance sheet. In some cases it's also an opportunity to be more competitive in specific situations. Now, the question of how you balance DBSO, how you balance the divestment, and the long term impact of these activities and our P&L is something that needs to be a fine tune. And as I'm talking about focus and prioritization, we need to figure out how much capital we are willing to allocate to this renewable activities.

Judith Hartmann: And on some of the assumptions going into the guidance. On the tax rate I mentioned to 28% in 2019. You can assume it's going to go out that in 2020, roughly to 20% 21% and then come back around at the end of the year in 2020, about 31% and then come back down over the three years to like 200 basis points roughly again in line with 2019. You have asked the question on the financial expenses. So those were roughly €1.3 billion in 2019 1.28 to be precise. And they're going to go up by and we're assuming they're going up not great by €100 million but something slightly below that. And on your question, on the gas contract, which was indeed one of the big successes all for 2019 the partial sale of one of the gas supply contracts, it was just below €100 million in 2019.

Operator: Thank you. We'll now take our next question from Aymeric Parodi from UBS.

Aymeric Parodi: My question is on Renewables. You added 3 giga last year, 100% of capacity by '21 are now secured. Looking for what kind of [final weight] of addition should we expect? And then Iberdrola are talking about [indiscernible] giga. And looking at your balance sheet, do you think this is something you could achieve?

Judith Hartmann: So indeed, we have added 3 gigawatts, which is a great success in 2019. It's 4 times as much than the year before. This is a good run rate for now for the next couple of years, which driver very confident on the 9 gigawatts. I would add, though, that obviously, the teams are continued to work. So stay tuned on this one, we're going do a quarterly series, again, with Investor Day later this year on this and I'm sure by the end, we will have a better view on what the pipeline could be. I also want to mention the hydro assets that we're buying in Portugal, so these are not part of the 9 gigawatts it comes on top and that is also something that we think is going to be a really good step forward with the those 2 gigawatt that we're going to add on top of the 9 that we've mentioned for the period. So, those are, I really feel when I look at the underlying growth for 2019. This is one of the successes, and I see it continue over the next few years.

Operator: Thank you. Our next question comes from Meike Becker from Bernstein.

Meike Becker: I have two. One going to the strategy and one on the returns for renewables. On the strategy we are, you've mentioned the role of that in transition and making it cleaner. How do you think about the role of that after the transition so to speak? What is the role of gas in France in 2050? And how do you think about adding as the potential replacement of it with electricity or hydrogen if you are really pulling towards a net zero world? What are the discussions you're having with the regulator? What is your view how bullish France particularly is on gas in 2050? Or possibly leaning more towards electricity? And what are your thoughts about around hydrogen and maybe developing hydrogen as a replacement for gas? That would be very useful to understand. And then on the renewables business, have your returns changed over the last year or have your expectations change on the returns you're making in your renewables investment? And ideally, if you could comment on it, the returns you're making or bidding the project returns, you're getting before the DBSO, that would be great. Thank you.

Claire Waysand: Okay. Thank you. On the role of gas during the transition and beyond. My first point would be that gas, natural gas is under critical tasks in a number of geography. On their way towards carbon neutrality. If you think about a country like Germany, obviously it will not go from a situation, where it relies very heavily on coal to a situation where it's only renewables. So gas is on the critical path and we indeed have activities of building CCGT in Germany. Gas is also useful in a country like France. I mean, obviously, your as much as a nuclear in the energy providing the base during throughout the year. In peak periods, the production very much relies on added capacities and gas plants play a major role. So during these years, our gas is clearly cheap, easy to transport, and a very useful component to other energies in particular, as a as a source of production of electricity. Going ahead, we see all that gas is going and need to become greener and greener. And that's the conditions for the long-term success of gas as an energy. You have to keep in mind that we are in the energy sector in a sector where the relative prices of energy are very much varied over time. If you look at the price of PV or the price of nuclear, obviously the has moved in different directions. So it's very difficult to know today issue you think about 2050, which was your question, it's very difficult to know what will be the relative costs of a different energies. So our sense is that we have to make sure that we don't put all the eggs in the same basket. And that we, there is support to different streams, different sources of energy to show by 2050, which are the ones which will be the most competitive. And that's, by the way important for the company. It's also very important for the economies, other larger scale, because that's about competitiveness of the economies at the end of the day, and protecting power of customers. So indeed, we feel that gas becoming greener should be given a chance to be at the sign line. We are very happy about the support we received from the government in terms of green hydrogen. And by the way, we have started to scale up our projects in terms of green hydrogen being a country like France, in South of France other major actors. And also, I mean an green hydrogen is one of the green gas looking ahead another one obviously is biomethane, which we are also very much working on which also has the advantage of being an energy that can be sourced within territories. So it's also interesting from the perspective.

Judith Hartmann: And you think you can, we are at the biomethane leader in France, which is awesome. You had a question like renewables returns. So, we look at each of the projects the same as you know, we mentioned this many times, we always expect of access 200 basis points or cost of equity plus 4. We will flex in all the detail, so depending on the situation in the market and go higher or lower. On the road say typically is in the high-single-digits and we are expecting indeed, if anything a slight increase between 2019 to 2022. We're still seeing in the high single digit range. It's also important to note that our DBSO margin, obviously, because there's depending on some of the sell downs, they might fluctuate a little bit in the in during the years in the various years. But roughly €200 million is something that we are comfortable with and that you can expect also for the expect also for the outer years.

Meike Becker: And if you don't mind, it's just for meto be clear and understand when you say you expect to walk just 200 basis points. is this including the DBSO transaction?

Judith Hartmann: It is including that DBSO transaction. So in DBSO sometimes we keep it on balance sheet as you know.

Meike Becker: Thank you.

Judith Hartmann: You're welcome.

Operator: Thank you. Our next question comes from Ajay Patel from Goldman Sachs. Please go ahead.

Ajay Patel: Good morning. Yeah, I have two questions, please. Firstly, could you give us guidance or rough idea DBSO for '19, '20 and '22that you're assuming within the guidance? And then so just have a relative idea of how that changes? And then just on the working capital. Do you expect that to sizably swing next year as they sort of forward hedges roll off a decent amount forward hedges begin to roll off or would it be over three years period we'd start to see that working capital come back? Thanks.

Judith Hartmann: On the DBSO. So like I mentioned earlier, the run-rate has roughly been €200 million depending on the timing of the sell downs. It could be higher than it was in 2018, 2019 was 400, 2020 it's going to go up because we have some big platforms that will coming online. We've mentioned it, some of them already signed with India and Mexico. And we're also working on the United States. So we're assuming about €250 million there in 2020. And then slightly normalizing back to 200-ish in 2022. And then you have asked the question, Ajay, on the working capital. And I think you're referring to the margin costs, because the other operational working capital was up significantly in line with EBITDA. So yes, it will be -- it will swing back over -- It's hard to predict exactly what the prices are doing. But it has already started to improve in 2020.

Ajay Patel: Thank you.

Operator: Thank you. We'll take our next question from James Brand from Deutsche Bank. Please go ahead.

James Brand: Hello good morning. A first question is on the you mentioned, you hoping to consider some kind of agreement and on the way forward in Belgium this year. If you do get agreement to extend some of the lives of the nuclear plants there, could you give us a bit of an idea as to what that might cost you in terms of maintenance CapEx or just general CapEx on the plants? And then secondly, as I just think I've got a couple of clarifications on questions earlier around the guidance. The first is on, I think you seem to answer one of the questions earlier about disposals saying that the dilution from disposals had of course, been factored into the guidance. But there's a footnote on the slides and in the release saying that no significant impacts from disposals that have not already been announced were incorporated. So, just wanted to clarify whether these disposals have been include in the guidance or not or maybe you think they might be offset with some other factors? And then, secondly, on the power price side. Are you able to tell us what power prices you're assuming in Belgium and France for 2020? That'd be useful so that we could work out sensitivity ourselves going forward.

Judith Hartmann: Okay, wonderful. So thank you for the questions. And Belgium indeed, we are, there will be discussion as the government is being, there's no government in place yet. Before I hand over to Paulo to talk about the processes we're expecting it again, just to reiterate, like we said before, we will make sure we get the right financials. We're really a big partner to the government in Belgium. We're about 50% of production today. We'd like it to be that way in the future. And as Paulo will explain, we have several opportunities to get there.

Paulo Almirante: So as you know, the current law in Belgium requires that all the nuclear unit will be stopped by 2025. If Belgium authorities decides to extend some of them, we can extend Doel 2 and Tihange 3 and that would be requiring an investment of the although €900 million to eur1 billion. And it's a program that needs to start during this year with the licensing and engineering works to be able to be executing and procuring the necessary services and spares by 2023 and executing until 2025.

Judith Hartmann: And on the guidance on the disposals, yes, I do perform again that there's a dilution that we have assumed in the guidance and so that such would be hopefully clear by now. And then on the power prices, your question was on the, on what are we assuming? It is also in the additional materials between €42 per megawatt hour for Belgium I mean 2020 going to €47 in 2022 and so that that should raise, obviously will raise and increase in the results.

Operator: Thank you. We will now take our next question from Arthur Sitbon from Morgan Stanley.

Arthur Sitbon: So, I have two questions. The first one is, if you could just provide the assumption you make on the contribution of SUEZ equity income to your COI in 2020 [indiscernible] important restructuring costs at SUEZ. And so I was wondering if this were taken into account in your COI or if they were booked below the line? And my second question is, what is your assumptions in terms of contribution of the compensation for past losses for hydro dispatch in Brazil? And what's the timing expected on outcome on the decision? Thank you very much.

Judith Hartmann: I'll quickly answer on SUEZ and then Paulo will talk about Brazil. So you obviously saw the presentation of SUEZ yesterday, and we are very much, obviously, in lockstep on their financials and what we're including on 2020. And so those are the same assumptions that we're taking. And then Paulo on GFOM?

Paulo Almirante: So on GFOM in Brazil, our assumption is of the order of €75 million based on the documentation that has put forward to the Brazilian Congress for approval. This has not yet been approved that we expect it to be approved between now and the end of the year.

Operator: Our next question comes from Stefano Bezzato from Credit Suisse.

Stefano Bezzato: Just a quick question for me. One clarification on your previous answer on the mark-to-market, when you said 25 million in 2020 to 75 million in 2022. Does that include those who mark-to-market or commodities or was it already for the fact? And the second question is on your net debt target, if you can provide for the end of 2020? Thank you.

Judith Hartmann: Yes. I confirm that the mark-to-market was, is that include of course the commodity prices. And on the midday net debt for 2022, there will be increase, but again, they you conformed, we will be in the 4 times leverage, in fact we should be below that in 2020. So I look at the team to look at the precise number.

Operator: We'll now take our next question from Sam Arie from UBS.

Sam Arie: 2 questions from me, actually. Based on some industry topics that we've heard about recently from other companies, too. And the first is thinking about what we've heard from EDF. There's obviously some quite interesting developments in where French nuclear policy might be going, and we may be heading towards effectively a regulated nuclear price. I know your situation in Belgium is different. But I'm just wondering, if you think developments in France helped you at all, with your discussions in Belgium? And do you think ultimately you could get to some kind of regulated return model for the life extensions that we spoke about earlier? That's the first one. And then my second question is actually just a quick follow-up on Meike's question earlier on Renewable returns. I know we're all sort of struggling with this as an industry issue, because I think most companies don't want to talk about that actual hurdle rates or IRR assumptions. But I noticed that EDP has found a very good and simple way to talk about this, but speaking about value creation in terms of an NPV-to-CapEx ratio, where they target 25% value creation. So you put a €1 billion and you make 250 million. I think that's very helpful. We're speaking about and I wonder, if you could comment in the same language is a 25%. NPV-to-CapEx ratio a good assumption for your renewal business going forward or what kinds of number, could you think about in those terms?

Claire Waysand: So on the regularly, regulation, indeed, our discussions in France, which we're following very closely about the future of ARENH, I mean the reform of the current mechanism is clearly necessary and is asked for by all energy suppliers. It's very important that we're all put on the same footing. It's also very important that there is the right balance that is struck between a sufficient return for the EDF and an attractive price for the consumers. So we will be very attentive to the conditions. We will be very attentive also to the methodology that's used to calculate the proper price, which has to be transparent. Turning to Belgium. As Paulo and Judith said, the first step is really depending on Belgian government. It's up to the Belgian government to determine whether they want us to continue to operate our nuclear plants after 2025. The two one we mentioned. On these basis of course, and if Belgian government wants us to continue to operate our nuclear plants, we will have discussions on what would be the proper financial framework for us to continue to operate. But it's too early at this stage to enter into this subject.

Judith Hartman: And then on your question on the renewable returns. In fact, that is one way of looking at it. And we are roughly in that ballpark digit above the 20% and somewhere in between 20 and 25, depending on the project.

Sam Arie: Okay. That's very helpful on both questions. Thank you.

Operator: Thank you. There are no further questions.

Judith Hartmann: Okay with that, thank you very much for calling in. We're looking forward to interacting with you in person over the next few months. And we are going into 2020 with a lot of confidence. Thank you and have a great day.