Elia Group SA/NV (ELI) Earnings Call Transcript & Summary

Good morning. Thank you for joining us for this live stream event during which we will be presenting Elia Group's annual results. We are kicking off with a company first. It is the first time that we are holding an event live from our own very [indiscernible] studio in our headquarters in Brussels. A new TV studio, but familiar faces will be taking part today and it will be Elia Group's CFO, Catherine Vandenborre; and Elia Group's CEO, Chris Peeters are here with me now. Acceleration of the energy transition and new projects that are on the horizon. Catherine Vandenborre will then present the financial results. And finally, we will present you with some of our conclusions and give you an outlook for the years to come. As mentioned on screen now, you must read the disclaimer before we can continue. And I assume that you have all read it by now and then we can begin. Chris, our last analyst presentation was held at the end of July 2021. What events from the last 6 months are worth mentioning?

Well, again, like each period when we talk, we see again an acceleration in this energy transition. If you look at Germany, we see that the new government has put higher ambitions even than the government before, so the government before had already changed that. They said it's not 2050 that would Net Zero. We go to 2045. Now we see that it is 40-gigawatt 2025 and 70 gigawatt by 2045. So that is, of course, an important investment opportunity that we have. Second thing is that in their new development plan, they gave us access to the North Sea. So we have a project where we will connect all region to the North Sea. And so we will become the first TSO in Germany that will have access at both seas. That means as well that we will have new opportunities to connect wind farms at the North Sea side as well to the grid and that we can then bring it down to the South to the industrial region of Bayern. So that's an important development that we see over there.

Indeed, important developments in Germany. But what about the activities in Belgium? Are things accelerating there, too?

Yes, actually as well that we have seen since last time the government has taken the decision that they would increase the capacity that will be developed in the Princess Elisabeth zone. So they moved from 2.1 gigawatts to 3.5 gigawatts, which is quite an important step-up that they do. And as well, just before the end of the year, they have decided that we can develop this with an island, an island that will not only bring these new wind farms energy to shore, but also that will be a connection point to the future Nautilus and the future Triton cable on which I will talk later.

Okay. Thank you, Chris, for sharing these first insights with us. In the press release that we published this morning, Elia Group provided an overview of last year's most important achievements. We made good progress on major infrastructure works and new cooperation agreements were signed. Catherine, all of these activities, what is their financial impact? In other words, what are our key figures?

Yes, Marleen, we invested EUR 1.2 billion last year, and Chris will walk you through the important CapEx project later. The vast majority of this investment is related to the expansion or the strengthening of our onshore and offshore grid, and a small but increasing portion for facilitating the digitalization of the power sector. As a consequence, the group regulated asset base grew with 6.2% to EUR 10.3 billion. In terms of grid reliability, I am proud to say we have achieved a level of 99.99%. It is a sign we provide society with a robust transmission grid that is crucial for socioeconomic positive signs. This is year-on-year an increase of 36 basis points, which was driven by the investment in the grid and very strong performance from Nemo Link. It was partially offset by the lower result of 50 Hertz due to higher operational costs, and I will provide you with more details about this later, Marleen.

Okay. Thank you, Catherine. Let's have a look at the cover of our next annual report that will be published in mid-April. Its title is Powering the Decades of Electrification. Chris, the energy transition is accelerating, it is being scaled up. Do you think that we have reached the kind of turning point in reaching climate neutrality?

Well, I think so. What you see now, of course, with COP26, we see that now as well with FIT455, you see that the overall society understands that the urgency of the climate changes there. And I think that is, of course, an important step because our mission and our strategy is to be a facilitator of that transition that is needed to achieve this climate neutrality. And I think that is the important thing about the Elia Group. From a very first moment, we embraced the future. We said we will make sure that we deliver to society the needed infrastructure that will accompany this transition. And secondly, we will also make sure that our system is capable to integrate all those renewals and also to capture the opportunities that come from electrification. And so what you see is the strategy that we developed over the years that has been complemented with additional growth opportunities. We have seen that it has become very fruitful and as well that it has a great future because it continues to be true. It's not only about delivering the basics and keeping the lights on, but also making sure that we capture the growth opportunities of this energy transition by investing on the one hand, into new infrastructure on the other hand, into the system so that we can integrate the full and make it work together.

Yes. Capturing the growth opportunities you said? Well, yesterday, the Board of Directors approved the creation of Wind Grid, a new Elia Group company which will respond to growth opportunities in offshore wind. Chris, what was the rationale behind this decision?

Well, for us, it's a very logical step. Those who follow us already for a while, but you will hear it lead later as well, we are actually a company which is on the forefront of this offshore development. Yes. We did a lot of those projects in Germany. We did some of them in Belgium already. We have the Nemo Link cable, we have the MOG. So we developed quite some capabilities we have in Germany, the first hybrid interconnector in the world that we have operating as we speak. So a lot of things have happened over here. But what we see is if we look at the size of the energy transition, a lot more infrastructure will be needed. So the so-called meshed offshore grid is something that will need to be developed by people who have the capabilities of doing that, and we see ourselves positioning into that area. In addition, what we see is now that the U.S. is picking up as well the shift towards renewal, but also including the shift towards offshore wind. And we want to make sure that we capture that opportunity now to move into that space. And so that's an acceleration for us as a development as a group. And therefore, we ask that approval of our board so that we could move and found this new pillar of our future growth. And as well, of course, this is something that is well prepared before. We already hired the new CEO, which is Marcus Locamp, who's coming from [indiscernible] coming out of the renewable industry, but also with a long track record together with Ascent and with Orsted. So he already understands very well what's happening in the European space. And we hope as well that he can then soon scale up as well to the U.S.

Yes. And he will start the 1st April. Okay. Let's zoom in on some key achievements. In 2021, Catherine already mentioned the investment program of EUR 1.2 billion. Can you give some examples of major projects that were realized, and let's start in Belgium.

Yes. As we start in Belgium, I think the most important thing that we've done next to the typical replacement investment that we have to do because we have a bit of an older grid in Belgium. We have done a lot of investments in strengthening the backbone. So the 380 kV backbone in Belgium, not in the sense like we have those products that we talk later about [indiscernible] more in reinforcing the corridors that they can transport more energy than they do today. So we replaced traditional lines with what they call HTLS lines. We have done that now in the northeast of Belgium to make a strong corridor there on that part and as well in our connection towards France, where this has been done. And that, of course, will increase the capacity of that backbone and ensure that we can have imports of more renewables also that we can manage the renewables of the future better on a grid.

Yes. So the focus in Belgium was on strengthening the backbone. What about Germany?

Well, in Germany, you see that we have 2 movements that were already, of course, engaged in before. On the one side, on onshore, we have the development around SuedOstLink, which is the largest project that we've ever done in 50Hertz. It's something that we do in collaboration with TenneT. And there, we connect the north with the south to ensure that the wind energy that we captured in the North can find its way towards the demand centers that we see in Byron. So that's a very important project for the energy in Germany. And so this year, we made big progress on the procurement process. So we did the procurement of the converter stations. And so that's a big step, of course, on this very important project that we have over there. But not only there, we also already had a number of projects at the sea, for instance, Ostwind 2. Ostwind 2 is now in its way to prepare to capture 2 additional offshore zones in the coming year. And so for that, of course, we are now in the phase of laying the cable, the submarine cable. The one on land has already been laid last year, so that is something as well where we make big progress today.

Yes. And meanwhile, we see new projects on the horizon. You already mentioned the Energy Island. There's a lot of excitement about this project. Can you give some details?

Yes. Indeed, I think for a good reason and a lot of excitement about it. It will be the first artificial island at the North Sea. And so that's an important step, of course. But it's not because it's an island that we're so excited. It will be the first energy hub at sea. And so Energy Hub, why is that concept important? On the one hand, we will integrate the last part of offshore wind that will be developed in the Belgian season. So that's important, of course, for the country that been integrated. But as well, we bring actually with the interconnection the Triton link that we will develop towards Denmark and to scale to U.K., we will make it a real dispatch point. So it will be actually the first, not of an offshore grid and Belgium will integrate itself into that. And of course, a lot of technology developments that need to happen over there, which excites our engineers. And so we see that there's a lot of excitement around that project.

You mentioned the Triton Link, the interconnector with Denmark, another exciting project, I would say. What progress has been made in 2021 on this project?

Well, we have concluded the second step of the agreement that we have with Energinet in Denmark. That was based on an agreement between our 2 governments. So they made an agreement that they wanted to have a long-term relationship in terms of energy. And in that framework now, we will have to develop the details of the project that we're still looking at, what are the exact landing points. It will be a project where we likely will connect 2 artificial islands that will also be, again, first in the world that we will do over there. So again, a lot of excitement around that project. But also a lot of, let's say, work that we have to develop. It's 600 kilometers away. It is connecting a country that is not a neighbor for the first time. Important to tap into energy of the Nordic Sea. So many things around that project as well that excites us a lot.

Yes, very challenging project, sorry. We have the Triton link between Belgium and Denmark, but let's have a look at the map. Two additional interconnectors are currently under development. So Chris already mentioned Nautilus in the North Sea, a second interconnector with the U.K., and the Bornholm Energy Island project in the Baltic Sea, another project with Energinet. Chris, how come that interconnectors are so important in the next stage of the energy transition?

Well, they bring a number of things in this energy transition. The first of all, and the most important one is if you look in Europe, you have countries that are short in renewable energy for their final potential that we need to have at the moment that were net zero, and we have countries that are long. So they have too much renewable energy. And you have, of course, to make sure that there is a transport of that energy from those countries, which are long towards those countries which are short. We are serving 2x a country which is short; Belgium and Germany are short. And therefore, building those interconnectors to tap into that to support the industry, there's also decarbonizing, it's a very important step for that transition. And that's why these interconnects are so important. Second thing, what you see is that Europe focuses a lot on unlocking the potential of the seas. And so if we build hybrid interconnects, if we build islands, we, of course, make it the most efficient way to do that. And that's why those new technologies are so important for the energy transition.

In the coalition agreement of the new German government, the Baltic Sea is designated as an important area of growth for renewable energy, like Chris mentioned. We'll take a moment to listen to Stefan Kapferer, CEO of 50Hertz, who will give an overview of existing and future developments in the Baltic Sea. [Presentation]

It is clear, our seas will play a leading role in the next phase of energy transition. Chris, earlier today, you referred to an important development in Germany. 50Hertz is getting access to the German North Sea. Why is this so-called multiterminal project so important?

Well, of course, having access to both seas as only TSO gives also a very important position into the energy, and that's, of course, something that we always strive for. And it gives us, well, for us, additional investment opportunities because now we also can connect offshore wind farms that are in the North Sea. It is, therefore, as well for us, a proof of the fact that we increased our share a few years ago in 2018 and that we brought on board KFW as a partner so that we can continue to be supportive towards energy because we still think that Germany will continue to be an important part of the growth engine within Elia.

Multiterminal project is a very complex project, and we asked Stefan Kapferer from 50Hertz to give us some more details. . [Presentation]

Until now, we talked about speeding up the delivery of infrastructure. But what about system management? We see the increase of intermittent renewables, increasing electrification and sector convergence, European integration, thanks to more interconnectors. Chris, how do you keep the lights on in a system that is becoming so complex?

Well, of course, when you see the complexity of the system is increasing at rapid space, it's not only the increase of renewables that we have to integrate. But also on the other side, of course, the demand side that is electrifying. We see more and more demand that is electrifying and in small pieces like electrical vehicles, like heat, but also in the industrial side. For that, we have launched a digital transformation office. And digital transformation office is really focused in managing that complexity, making sure that we can integrate all those flexibilities in the right way and that we can balance the system of the future. We have a very important concept around that, which is the concept that we say we have to put the consumer in the center. We're not anymore a system that tries to manage the equilibrium by itself, but we try to make sure that customers benefit from using the flexibility in the interest of the system also in the interest of themselves. And for that, we have developed a new market design, which we have proposed to all our stakeholders in June, which we are discussing today. Of course, it's a proposal, and we try to see how we can further improve. But not only that, we also launched the Hackathon. And on that Hackathon, what we have done in that Hackathon is getting all kind of startups, universities, [indiscernible] was there. So we had multiple companies that were joining us. We have more than 100 participants, and we focused on 5 key areas where they could have a challenge developed about how do we bring some consumer-centric product to those clients. And that was a very exciting moment for us because we saw for the first time how this was becoming concrete because you can imagine, of course, Elia is a grid operator. We're not directly understanding all the difficult needs that potential clients will have in the charging of their cars, but you have done those teams that get very excited about, oh, we can do this or we can make sure that you can get your solar panel charts on your car at work. These kind of projects, and we were able to have a couple of interesting wins in a very short period of time, which shows that the infrastructure that we are delivering from the digital side, from the system side is the right one that ensures that you get good client solutions, but also client solutions that help us to balance that grid. And that is really important for us that we can create that combination going forward.

Consumer centricity is becoming more and more important. You also have collaboration. Last year, Elia, we had many collaboration projects that were set up. That's a clear trends in our sector. Could you mention maybe the most important collaborations?

Well, maybe the first one to mention is Octopus Energy. That was maybe for some people a surprise. We made an agreement at COP26 with Octopus Energy. Octopus Energy is specialized in consumer-centric products around digitalization. What they really do is make sure that they have, for instance, products, which help you to have your car charge at the right moment. So that are products which are of interest, but they have a real life client portfolio on that. And that's, of course, for us very interesting to see what is then the behavior of the overall portfolio towards the grid. And so in that combination, on the one hand, we help them how can valorize that flexibility on our system, and we try to better understand what kind of products will create which kind of behavior on our system, and the combination of the 2 of us make sure that we can make faster progress on understanding what's happening by the electrifying needs of the customer. Second, maybe important agreement that we had is one that we made together with Basics. Basics is a company that is building all kind of warehouse buildings, et cetera, and on other side also own some of these and is exploiting these buildings and devices, also provides smart building applications to us. And so understanding how buildings can become the batteries of the future is a really critical thing for us, how they can play their role, vis-a-vis, the system. And so how do we see those flexibility is coming from heat management, flexibility is coming from, having clean air in the building, flexibility is coming from lightning applications, et cetera, the use of the building at the right moment. There are things, of course, that we want to integrate to make sure that they integrate into our grid and again, provide the flexibility that is so much needed to integrate more renewables.

Okay. I would like to enter this overview with the first CRM auction in Belgium, which aims to secure the electricity supply following the nuclear phase out. I think that everyone agrees, Chris, that this is a very, very complex projects.

It was a piece of cake. No, of course. It was a very complex project. I can only admit that. It was the first time that we had to organize a competitive tender for or a competitive auction to ensure that we would have enough capacity after the phase out. So very important is to maybe understand that the role of Elia is really one of public service. We try to make sure that on the one hand, we advise the government on, for instance, the volumes that are needed, et cetera, to make sure that we can keep the lights on in whatever scenario that they choose. And on the other hand, we are executing of the decisions they made they decided on this CRM mechanism. We are the ones that make sure that the auction is well organized. And so what we've seen is actually that we were very successful in that because, of course, the objective that we had was within the constraints that were given that we would have a competitive auction with many technologies. And that's what we have seen. Of course, we still are working on a number of the problems that we have around the permits. But actually, if you look at the real results that we have with our teams, I'm extremely proud that our teams could deliver that in such a short period of time.

Yes. And in a few weeks, government will take, hopefully, a decision. This will definitely leave its mark on 2022 and on the future energy system. Thank you, Chris, for your explanations. Catherine, another key moment in 2021 was the launch of ActNow, our sustainability program. Let's do maybe first a little recap. ActNow includes 5 different dimensions. We see them on the slide: climate action, environment and circular economy, health and safety, diversity, equity and inclusion and governance, ethics and compliance. Catherine, can you talk us through the categories in which we made some progress last year?

Sure. And maybe first, being a TSO, our biggest contribution to accelerating the energy transition is expanding on grid infrastructure and digitalizing the electricity sector for inferring real-time security of supply in the context of intermittent generation capacities. There, we made considerable progress in terms of commissioning of new overhead lines and cables as well as in terms of evolution of market design with our consumer-centric market design study. However, the carbon intensity of the electricity mix in Germany, which was 404 CO2 by megawatt at the end of 2021, increased compared with 2020 due to low amount of wins and a shift towards coal and lignite caused by high gas prices in 2021. On the contrary in Belgium, the carbon intensity in the control zone was lower due to a small rise in renewable production and good availability of nuclear capacity. Moreover, the group took some important steps forward in terms of diversity, equity and inclusion. First, Elia was again awarded the top employer label for the fifth year in a row and the progress we made in terms of diversity and inclusion and leadership we highlighted. Second, the proportion of women who occupy leadership positions in our organization or form part of our total workforce is increasing. Furthermore, all workforce became more diverse in terms of nationalities, totaling 37 different nationalities in 2021 compared to 32 last year. And finally, an audit of Elia safety practices was carried out in 2021. It confirmed the professionalism of our safety practices. But unfortunately, our strong track record in terms of CST was overshadowed by a fatal accident that occurred as maintenance activities were being undertake. An investigation into the accident was card and additional measures are being implemented across the group to prevent such incidents from reoccurring. The event has reinforced the group's resolve to make sure that all of our employees return home safely every day.

A fatal accident, that was indeed bad news that affect us all. Something completely different now. The regulatory frameworks. Elia Group activities today span several countries, invested here to 3 different regulatory frameworks. Nemo Link's framework is fixed until 2044. However, both for Belgium and Germany, a new period will start 2 years from now. Catherine, discussions with the regulators are ongoing. Can you give some more details?

Yes, with pleasure. And let us start by looking at Germany. So what do we know today? First of all, and you know it, the regulatory return on equity for the next regulatory period has been set at a post-tax rate of 4.13%. For asset commissions before 2016, which represent approximately 10% of the assets portfolio, the post tax rate has been set at 2.87%. Secondly, the investment measures mechanism will be phased out during the next regulatory period and will be gradually replaced by a so-called capital cost adjustment model with a yearly update of the regulated asset base. For offshore, the current cost-plus regime remains applicable. What do I mean by gradually? Well, during a transition period until 2028, TSOs will be given the option of extending existing investment measures mechanism project for another 5 years instead of transitioning them to the new framework. What are the main features of the capital cost adjustment model? First, all onshore CapEx will be treated equally. No distinction will be made anymore between expansion CapEx, replacement CapEx or IT investments. Second, an annual update of the hub will be undertaken regarding all capital cost of assets with deduction for depreciation or divestments and addition of actual new assets. Third, there will be no OpEx lumpsum anymore. Fourth, the clawback mechanism will disappear. And moreover, clawbacks that we paid in the past for already commissioned project will be partly reimbursed. And finally, there will be a different treatment of the cost of debt. For onshore OpEx costs, the current base approach remains applicable. The OpEx costs are determined by the regulator in the base year and then amend it yearly with a defined individual efficiency factor and productive factor and increase with inflation. Data on the cost base will be submitted to the regulator in June 2022 and a decision about the new cost base, which is the basis for the future revenue cap is expected by the end of 2023. Also, the efficiency and productivity factors are expected to be determined by the regulator through the course of 2023. With regard to offshore activities, the current cost-plus regulation for OpEx remain unchanged. And let's now turn to Belgium. You know that the Belgian regulation is fixed until the end of 2023. The first interactions with the regulator over the next regulatory periods are currently ongoing. At the end of April, we expect the crack to launch a public consultation on the different element of the new methodology -- and by the end of Q2, a final methodology will be published by the regulator. At this stage, we don't expect major changes to the principles of the regulation, but we don't have visibility yet on the return for the next regulatory period, Marleen.

Okay. Thank you, Catherine, for this regulatory update. What about the rising inflation, the rising interest rates? Do they have an impact on Elia?

Well, for all regulated activities, the increase in inflation and interest rates has no significant impact on our results. First, in terms of investment, the real CapEx spend is included in the hub from the moment it is spent and as such, remunerated. Second, with regard to the noncontrollable cost or the non-influenceable cost, they are passed through to the tariffs. With regard to the comparable cost in Belgium, the budget is adjusted annually, in line with inflation. While in Germany, the onshore base costs are increased annually in line with inflation. And finally, from a funding perspective, the higher borrowing costs are covered by the embedded debt principle in Belgium. While in Germany, a major part of the funding costs are passed through. Looking at the nonregulated segment and Nemo Link, higher inflation could impact the operating cost of the holding, while the higher interest rates could affect the refinancing cost. And in that respect, the EUR 700 million hybrid as a first call date in September of 2023 and the EUR 300 million senior bond is fixed until 2028. Finally, with regard to Nemo Link, the cap and floor levels are recalculated annually to consider average inflation in Belgium and in U.K.

Okay. Thanks, Catherine. We'll come back to you in a moment to talk about the annual group results. But we want to close this first part with a video message from the Belgium Prime Minister, Alexander De Croo. The following is a statement he recorded for the 20th anniversary of Elia, which we celebrated last October. [Presentation]

Thank you, Alexander De Croo, and welcome back. Catherine, you already provided us some key figures, but I assume that you have many more.

Indeed, thank you, and I propose to start with the group's full year results, Marleen. So first, Elia Group's revenue amounts to EUR 2.9 billion. This represents an increase of 15.6%, and this increase was driven by higher revenues in Belgium and in Germany, which were partly offset by lower revenues from Elia Grid International as the International Consulting business was negatively impacted by the COVID-19 restrictions. The higher revenue in Belgium was due to a higher regulated profit following the increase of the hub and higher costs that are all passed through into revenue under the cost-plus regime. In Germany, revenues increased due to the higher energy revenue, which are also passed through and a higher investment remuneration due to asset growth. The EBIT decreased by 6.6% compared to last year, amounting to EUR 540 million. This is a consequence of 3 elements. First, the EBIT in Belgium decreased by EUR 10.4 million driven by lower financial costs and lower income taxes, which are fully passed through as a consequence of the regulatory framework. The EBIT in Germany reduced by EUR 67.2 million. This was the result of increasing staff and IT costs and a peak in the maintenance cycle. Then the contribution from associate was up by EUR 40.2 million, reflecting very good operational and financial performance of Nemo Link. Elia Group's adjusted net profit increased by 6.6%, reaching EUR 328 million. This result is driven by the very strong performance of Nemo Link and more than offsetting the decline in German result. With the net profit attributable to Elia shareholders of EUR 276 million, Elia Group realized an adjusted return on equity of 7.56%. Let's now turn to our regulated asset base, which is like a major driver of our remuneration. Year-over-year, the hub of Elia Group increased by 6.2%, amounting to EUR 10.3 billion at the end of 2021. For Belgium, the hub increased by 5.2%, while in Germany, it increased by 8.8%. And as you see on the graph, the hub of Elia group was increased considerably over the last few years. Over the next 5 years, we are confident that we will be able to pursue an anticipated hub growth of around 9.5% on average on an annual basis. Let us now turn to the net debt of Elia Group. We carried a total net debt of around EUR 4.9 billion, which represents a decrease of 34.5% compared with last year. This decrease is primarily attributable to the fluctuation of the EEG cash balance, the renewable support mechanism in Germany amounting to EUR 2.1 billion at the year-end. The EUR 2.1 billion will have to be paid back to consumers. As mentioned earlier, the group invested roughly EUR 1.2 billion in infrastructure. These investments were mainly financed by cash flow from all operating activities. Additionally, ETB issued commercial paper for EUR 60 million. And Eurogrid took advantage of favorable market conditions to issue a EUR 500 million bond, securing its liquidity for the upcoming investment program. Following this issuance, the average cost of debt of Elia Group reduced by 22 basis points to 1.67%. This is largely to the benefit of society as the cost of debt is mainly passed through. Today, Elia Group only has fixed related debt outstanding, and its standard in post rating remains unchanged at BBB+ with a stable outlook.

Okay. That's for the group, Catherine. Let's zoom in on the Belgian segment. Halfway through the year, we reported that Belgium was well on track to reach its performance targets. And earlier, we saw a solid increase in the regulated asset base, as you explained, how does this translate into the year-end results.

Belgium continued to perform in line with expectations, Marleen. Let me take you through the key figures. Revenues increased by 19.4%, totaling almost EUR 1.2 billion. As to the adjusted net profit, it increased by 5% to EUR 131 million. What were the key drivers of this increase? First, higher fare remuneration, up by EUR 6.2 million to EUR 105 million. This was driven by an increase in the regulatory asset base resulting to higher equity. Second, the contribution from incentives and efficiencies increased by EUR 5.1 million, reaching approximately EUR 31 million. This increase reflects a strong operational performance. The net contribution of the incentives also increased as a result of the lower average tax rate. Finally, the result was positively impacted by lower damages to electrical installs. Those positive elements were offset by lower capitalized borrowing costs and higher employee benefit and tax provision. The lower capitalized borrowing cost is due to a lower average cost of debt and a lower asset under construction compared with 2020. The employee benefit and tax provisions increased since last year's provision benefited from a one-off change in plan set of defined benefit plan of EUR 3.9 million and the reversal of a tax provision of EUR 1.8 million, in line with the regulatory framework. This resulted in a return on equity of 5.36%.

Okay. We mentioned earlier that good progress was made on major infrastructure works. In Belgium, we invested more than EUR 370 million in the grid. What was the impact, Catherine, on the financial position of Elia?

Well, Elia continues to have a solid capital structure. It has an equity portion slightly above 40% of the hub. Equity rose by 8%, mainly due to the reservation of the 2021 profit the revaluation of post-employment benefit obligations linked to an increase in the discount rate and lower allocation of equity towards Nemo Link. The company's liquidity position remains robust. The sustainable revolving credit facility is fully undrawn while also EUR 240 million of commercial paper remains undrawn. The ETB credit rating from Standard & Poor's remains at BBB+ with a stable outlook. Finally, ETB has a well-balanced debt maturity profile with a weighted debt duration of 6.4 years and an average cost of debt of 1.91%. And also, I'm pleased to say that it be progressed further along on its sustainable finance journey. After sustainability linked RCF in 2020, ETB published its green finance framework at the end of 2021, paving the way for further green bonds in Belgium.

Earlier, we mentioned that Germany remains a core entity of the group, contributing to around 50% of the group results. What were the drivers, Catherine, behind 50Hertz performance in 2021?

Yes. So starting with the top line. Revenues increased by 18% to reach EUR 1.7 billion. This was driven by higher energy revenues, which were passed through and a higher investment remuneration from asset growth. The adjusted net profit came in at EUR 165 million, down by 14% compared with last year. And the key drivers of the results were the following. First, higher operational costs, which increased by EUR 35 million since 2021 marked a peak in the maintenance cycle and increased costs linked to the further expansion of our business and digitalization efforts to manage increasing complexity in system operation. The growth of our activities and the increased complexity of our operation also led to higher personnel costs, increasing by EUR 14 million. Secondly, the ongoing investment program led to increased asset remuneration, which was up by EUR 9.6 million. At the same time, depreciation cost increased by EUR 10.6 million. Additionally, on the plus side, the financial result improved by EUR 19.5 million, driven by lower interest expenses as high interest rate bond was refinanced with more favorable conditions in the second quarter of last year. Moreover, we had lower interest cost and provisions due to increasing forward interest rates. Finally, the result benefited from higher regulatory settlements and related provision, up EUR 3.6 million. And it is important to mention that in 2021, 50Hertz benefited from important one-off regulatory settlement amounting to EUR 29.6 million. This all resulted in a return on equity of 9.85%, excluding hedge accounting, which I will comment on when we move on to the next slide. If we wait to exclude one-off effects linked to regulatory settlement and clawback, the return on equity would have been 8.23%. And if we now turn to the balance sheet, we can see that equity increased by 18.2% due to a change in our accounting policy. Hedge accounting is applied as of 2021 on the contracts entered into by 50Hertz for hedging risks of fluctuation in the expected amount of grid losses. This change, which took place in the context of strong energy prices, resulted in a hedge reserve after tax amounting to EUR 250 million and recorded in other comprehensive income, so increasing the equity. However, as the cost for grid losses are almost fully passed through to the tariffs, the fair value of those future contracts has no relevance for the current or further profitability of the company. And therefore, the hedge reserve is excluded from the regulatory return on equity reported for the German segment. Coming to the liquidity position of 50Hertz, it remains very strong at EUR 3.7 billion, with all revolving and override facilities fully undrawn. In the EUR 2.8 billion cash position, like I already mentioned, the amount of EUR 2.1 billion of [indiscernible] cash is included and has to be given back to the consumers. The maturity profile is well balanced with a weighted debt duration of 6.4 years. There has been no change to the rating of Eurogrid. This remains at BBB+ with a stable outlook.

Yes. That was financial information about the regulated activities in Belgium and Germany. We also have nonregulated activities like Nemo Link, like other activities. What are the results in 2021?

Well, it performed very well. The adjusted net profit came in at EUR 31.9 million, and the key drivers were as follows. First, the contribution from Nemo link rose significantly up by EUR 39.7 million. The overall availability in 2021 was 99.1%, making it one of the highest performing assets in the world. In addition, the market price spread increased compared with last year by EUR 8 by megawatt. This followed from the strong nuclear availability in Continental Europe and increased gas and carbon prices in the U.K. And consequently, Nemo Link's total contribution to the Elia Group's result increased to EUR 47 million. Second segment results benefit from negative regulatory settlement following the 2020 [indiscernible] and also reduced operating loss of [indiscernible] , reflecting tight cost control measures and initial fee income. Finally, our holding cost increased by EUR 1 million due to higher operating costs driven by business development activities.

Okay. Last element before turning to the outlook. Elia Group's dividend policy, what can we expect there?

Yes, we will propose an increased dividend amounting to EUR 1.75 per share to the general assembly. This represents an increase of 2.34% in line with inflation and takes into consideration our CapEx plan and our commitment to executing our organic growth strategy. .

Okay. we still need to cover the outlook for 2022. It's your last slide for today, Catherine.

Yes, indeed. And we can say that Elia Group is confident that it will be able to realize an adjusted return on equity of between 6.25% and 7.25% for 2022. This return depends on the return on equity of the regulated activities in Belgium and Germany, but also of the nonregulated activities included Nemo Link. So let's look at the 3 segments. In Belgium, we remain confident about being able to achieve a return on equity of between 5% to 6% while investing around EUR 425 million. In Germany, we aim to achieve a return on equity of between 8% to 10%. As mentioned earlier, this return excludes the effect of hedge accounting and further contract for grid losses, which are accounted through the other comprehensive income. In 2022, 50Hertz intends to invest approximately EUR 850 million. For the third segment, we expect it to make a contribution of between EUR 10 million to EUR 15 million to the group's result. This will strongly depend on the performance of Nemo link given its contribution to this segment. On a final note, I would like to point out that this guidance obviously doesn't take into account any potential M&A transaction. It's now back to you, Marleen and to you, Chris, to conclude the presentation with some investment guidance.

Okay. Thank you, Catherine, for your comprehensive presentation of the annual results. We want to enter this section with a video message from Lutz-Christian Funk, the Secretary General of KFW Banking Group, the German Investment Bank, our partner with whom we own 50Hertz. The following is also a statement recorded for the 20th anniversary of Elia, which we celebrated last year. [Presentation]

It's time to go to look at the long-term outlook. The Belgium CapEx program for the next 5 years is now on screen. Chris, what big trends are likely to appear?

Well, what you can see is that we have a CapEx plan for the next 5 years of EUR 4 billion in that is in the first period mainly replacement and reinforcement. As we have shown before, we are reinforcing the backbone, and that's an important part of the investment. What we see as of 2023 is a second wave of important investments. What is in there? First of all, of course, the island we talked about it but also Ventilus and Boucle du Hainaut, two projects, which are very important for the energy transition in Belgium. And they will be there for [indiscernible] of this project will be EUR 620 million over that period. And the Boucle du Hainaut project will be in there for EUR 565 million, of which EUR 250 million in this period.

That's for Belgium. And then the long-term outlook for Germany?

Well, in Germany, you see as well an increase of the CapEx, it amounts now to EUR 5.6 billion for the 5-year period. That has to do with the SuedOstLink corridor where we will start the building of that corridor and therefore, an important investment program in this biggest project we ever had in Germany will happen. Second thing is we will also start the SuedOstLink plus project, which is what we call before the empty pipe. The empty pipe will be filled with a cable of 2 gigawatt. It will not be fully in the 5-year period, but it's an important project as well for the future. And then we see in offshore, the Ostwind 2 project that will be finalized in this 5-year project and as well the connection of the Ostwind 3 project. But even more importantly, the [indiscernible] project, which was not on the map a few years ago, will be fully delivered in that period. It's a 900-megawatt new offshore investment and therefore, having an important contribution in the coming period.

To briefly summarize the outlook, Elia Group's CapEx plan amounts to EUR 9.6 billion for the next 5 years. I would say, Chris, busy times are ahead of us.

Yes. I'm very, very happy when I look what we have done over the last couple of years and what we have ahead of this. We have positioned ourselves more and more as a central player into this energy transition. We already have done many things. We went more international. We have refurbished the group into a group that is a real group now, integrating much more the different TSOs that we have, but also the new activity that we are developing now. On top of that, we have invested massively into digitalization. Also, we are ready for that more complex future. So you see here a very proud CEO because I have a very competent team, and we feel confident about the future that we have ahead of us.

Yes. A proud, but also a very enthusiastic CEO. Thank you, Chris. . Ladies and gentlemen, we've shared a lot of figures with you and have received a lot of clarification from Catherine and Chris. I suggest we now move on to the Q&A session. Yannick Dekoninck, our Investor Relation Manager, will guide us through this. And Yannick, could you share the first question with us, please? .

Thank you, Marleen. I will now give the floor to Olivier Vandewoude from KBC that can maybe ask already his first question after this presentation.

The first one is about Belgium. There is a discussion recently going on that the nuclear production facilities might stay open. If that would be the case, eventually, could that impact your investment plans going forward, given that a lot of the investments are based on the fact that electricity production would actually be more decentralized than centralized. So what are your views on that? And what could be the impact on the investment plans from Belgium?

Yes. Okay. So the overall impact on the investment plans will be quite limited because anyhow, in this energy transition, we have to prepare for a future with more renewable integration. And so those projects will happen anyhow. You might have some slight changes, of course, because if you look at the plan of the nuclear exit, there is a number of replacement capacities that need to be integrated into the grid, and therefore, of course, also some grid investment need to happen. So those change depending on the scenario that the government will choose in the end. But in the end, this is a very small part of the overall investment program that we have ahead of us.

Very good. The second question, if I may, is...

[indiscernible]

Yes. But wind grids. So the press release states that you are looking 2 projects in Europe and beyond. You mainly mentioned it in the presentation. But do you also have other regions? Because why is U.S. so important apart from the fact that offshore wind capacity will increase a lot there, so that's also affecting other regions. So are there advantages in the U.S.? Or do you make that you have certain advantages in U.S. over all the region, for example? Or why is the U.S. so important?

Yes. So if you look at the U.S., it's at its starting point to go into offshore wind, and it has the combination of the typical U.S. large plants. So the right way go into the hundreds of megawatts, even the gigawatt kind of renewable offshore wind farms that they want to integrate, combined with a relatively weak onshore grid. So you need to have somebody that is able to have the full integration of this renewable energy into the system. So it's not only about laying cables at. It's not only about building platform, but it's also understanding how you integrate that into relatively weaker systems that we are used to have in Europe. And therefore, of course, the expertise that we have as an operator of an onshore grid into different countries with all the complexity that it has given us an advantage compared to players that are purely on the project execution. So that is one. And of course, as we are at the start of this, the earlier that you are, the more, of course, yet you are able to take benefit on building that position, do learning in the early phase and then scale it up later on. That's why we have this additional focus next to Europe on the U.S. as we speak because most of those standards will already be happening in the coming months and years.

And maybe to add the, let's say, more financial aspect to that. Olivier, there was also a fact linked to stability of political and regulatory framework that we want to have in the countries where we potentially invest, and in that context Europe and U.S. perfectly fits with this requirement for sufficient stability, protecting the value of the investment over the longer term.

Okay. That was actually part of my third question as well. I would like to ask have you been looking at projects and preparation of wind grids? And why did those projects not go through, for example? Just a bit of flavor why you decided not to participate in certain tenders or do you have certain criteria that you need to match for projects?

So what we have done so far is we have basically done more exploration, trying to understand how the dynamic of different process working, seeing what kind of role that we play can we play a separate role in infrastructure? Do we have to partner with other places? And it depends a little bit on the market that we're looking at. So that was an important part of the preparation work that we did. And we did scouting, which is still continuing these days about what is the potential of the U.S. market as well, and could we do a potential partnership or M&A over there to have really boots on the ground as well because we think that is absolutely necessarily once we start to invest. And so this was really more the preparation phase. Now, we will have or new CEO coming in first of April, and that will, of course, that accelerate the speed in which we will develop in those projects. Of course, being said with that, those projects still needs to be built. So don't expect a huge CapEx outlay in the next year or in the first years afterwards, it is first, making sure that we win projects or that we shape projects to our hands and that based on that, of course, then can later on, do the execution of those projects and potentially then operate or sell them off at the end.

Okay. And then maybe last question to finalize it. It's mainly about transition, interconnectors and the transition of energy from offshore to the coast. I know you can't be involved in energy production anyhow, but that you look at storage, can you be involved in there? Or is that not something that you will do projects related to that?

No. So storage as well is excluded, especially in the European framework. I think that in the U.S. framework, we haven't analyzed yet, but it's not part of the project today. So today, the focus is really on integrating the energy into the onshore grid, having then the submarine cables that bring it to shore and as well, and then the platform is comparable to the month platforms that we have in Germany to bring the different wind mills of a farm to that central point and then bring it to shore.

Thank you, Olivier, for those interesting questions. We may now give the floor to Juan Rodriguez from Kepler Cheuvreux. Please, Juan, go ahead.

I have a couple on my side. First one is on guidance, more specifically on 50Hertz. We see that you're signaling an 8% to 10% return on equity, which seems broadly in line with your 2021 performance. But can you please walk us through the bridge from '21 to '22 and more specifically it seems below the 9% to 10% -- 9% to 11% that you were targeting for the period at CMD last year. Is this why the group guidance is below the 6.5% to 7.5% target? So this will be my first question on 50Hertz.

Okay. So I will take both the question on 50Hertz and the overall question on the guidance. I think if you want to compare 2021 with the 2022 guidance, there are 2 elements to have in mind. The first one is indeed on 50Hertz. First, in 2021, we had a peak in the maintenance activities, but we had also a number of one-offs, approximately EUR 30 million regulatory one-off that, of course, we don't expect to come back into 2022 or to come back in the same magnitude in 2022. The 9% to 11% guidance that we gave is the guidance on average on the 5 years period, and then we guide more specifically year-on-year when the time comes from -- for it. Second, more generally on the overall guidance. Nemo Link has had a very exceptional year in 2021 with the performance of EUR 47 million net profit, Elia shares. So 50% of the total net profit of Nemo Link. And you know the mechanism of regulation of Nemo Link. There is also a cap mechanism, which is a cumulative cap over 5 years. In 2022, we could possibly reach the cumulative cap. And so the EUR 47 million that we had last year, we don't expect to repeat it to reiterate it in the same magnitude in 2022. And so because of the accumulated cap, and so those are the 2 elements which explain the guidance for 2022 compared to 2021.

Excellent. Quite clear. A second one on my side, if I may, is on your inflation adjustment within the tariff mechanism. Will you be, we have seen the recent movements that we've seen in inflation over recent months -- will all of the upside take that we see in inflation will be adjusted to 2022 tariffs? Or we can see some of it to be passed on to 2023 in terms of tariff adjustments?

Yes. There are 2 things to have in mind. The first is what is the impact on the net profit, and the second is what is the impact on the tariffs. And so on the cash, in the presentation, I gave some explanation on the impact on the inflation and higher -- possible higher interest rates on the CapEx, on the OpEx, on the cost of financial debt. And from this presentation, you can conclude that it's [indiscernible]. So there was really a mechanism by which the cost of the company, the OpEx costs are inflated year after year in Belgium, in Germany. CapEx, they are taken into consideration in the hub from the first euro cent which is spend, so in case there is inflation being applied in CapEx as well, it will be covered by the hub mechanism. So from net profit perspective, it's immediately passed through. From a cash flow perspective, basically, the tariffs, they are not modified every year. They are modified according to a schedule, which is defined by the regulator, which is not the same in Belgium and in Germany. In Belgium, we have a reset of the tariffs every 4 years. So in order to have the cash impact compared to the budgeted amount, you will have to wait for the reset of the tariff. And in Germany, the mechanism is a little bit more complex. It might be depending on the type of cost 1 year, 2 year or even a little bit longer. So net profit for cash depending on the timing of the reset of the tariff, which can be indeed a little bit longer than just some months.

Okay. Excellent. Quite clear. And last one on my side, not to take too much time on the floor as I see the number of questions coming, is on the net debt and especially on the EEG mechanism in Germany. We saw that there was a positive one-off as well on 2021 from the additional cash seen from higher prices on top of the reimbursement. So in 2022, can we expect some of these to be paid back? Or how do you expect this for 2022?

Yes, I see that, yes, you need to see the cash linked to EEG as not being part of the cash of the company. So it has to be seen as being completely neutral from a cash perspective, but also from a rating perspective. So the EEG, let's say, balance is not considered for the credit metric sensor for the rating of the company. So in case there is an excess, let's say, of cash, it has to be paid back to the consumers. In case there is a deficit, which happened in 2020, it has to be recovered through the tariffs of the next period.

So just to follow, we can imply that this will be paid back in 2022?

Yes, so the EUR 2.1 million that you see has to be paid back. Of course, in 2022, there will be a number of fluctuations compared to the budget and we'll see at the end of 2022. What is the situation? Is this is an excess or is it a deficit, but that's completely neutral for the value of the company and for the rating of the company.

Thank you, Juan, for the interesting questions. Maybe Quirijn from ING. Do you any have any pending questions left?

Yes. Can you hear me?

Yes.

That's fine. That's fine. I have a couple of questions. First question was a remark from Catherine on the regulators and the net debt treatment or, let's say, is can you maybe elaborate on that, what you mentioned there? What the regulatory framework impact will be on the net debt treatment? That is my first question. Then with regard to the...

Could you be a little bit more explicit. Yes, sorry, Quirijn. Could you be a little bit more explicit, impact of regulators on the debt?

Exactly. You said something about 2024, the new regulator situation there. And that might also have an impact on the treatment of the net debt. Some -- there was a remark. There was something in the presentation. So maybe that's my question, yes.

So I would take the question -- yes, I will take the question then immediately. So what we have in terms of evolution of the financial cost and the way the financial cost covered by the tariff and especially in Germany, you have a situation where today, for offshore, it's a cost-plus mechanism. So in case of changes in the financial conditions of the debt with a full coverage for onshore, there is a mechanism, which is so that for, let's say, the debt, which is included in the financing of the base year it's covered, it's a kind of pass-through. And for the debt, which is linked to investment measure, this debt has to be let's say, concluded at a level of interest rates, which is below a given reference by the regulator. So the regulator sets a reference, and we need to conclude the debt below this level of reference if we don't want to suffer from negative impact. That's what I meant by this regulatory elements. So it's not at the -- on the net debt as such. It's on the financial cost and the coverage of the financial cost by the regulation.

Okay. Then about the market in Germany. So [indiscernible] 2023. So what is the idea about this progression here? Because it looks to me that, let's say, the Germans are behind the schedule. So maybe there's -- maybe to tell something more about what is the progression impact and progression there? And then my final question is with regards to the EUR 9.6 billion CapEx, that excludes in my view, Nautilus. Is that correct?

Okay. Maybe that I take first part on Germany. So what you see is we are for the projects that were approved by the government, we are on schedule. So we have no delays that we speak, but it's true that if you look at the overall energy one and especially now the targets that they have put themselves for 2030, 2035, let's not yet look at 2045, a lot of new investment needs to happen. And so we expect that in the acceleration of the [indiscernible] combined with then the targets that they've put themselves in terms of reaching this Net Zero by 2045, that indeed that they need to further accelerate. And we've seen that by the indication that they will put more weight on looking for additional offshore zones into the Baltic Sea, it is one of the things that we see happening now. What we expect as well that more is there to come, but it's, of course, very difficult for us to say at this point of time, the government is just in place working on the plans and seeing how they move forward with that in the coming period.

And then on -- if it answers your question, which I believe I will take the last one on Nautilus, Quirijn. So Nautilus is well included in the plan. The fact is that Nautilus is expected to be commissioned, let's say, of course, beyond 2026. And so the portion of the CapEx linked to Nautilus in the plan that we present might be relatively minor, but I will come back to you with the exact figures we have in those 5-year time horizon regarding Nautilus, which is not in -- yes, sorry, go ahead.

No, no, no, go ahead. Sorry.

No. The only thing I wanted to say is that the Triton cable on which we gave more information is not included in the 5-year plan. So Nautilus is included, but Triton is not included.

Because it looks to me that Triton is a very expensive one. That is a 600-kilometer length, I think. Is that correct? Or is that not correct?

Yes. No, it's indeed. So we're still studying on what is now the exact trajectory that we will follow. This is a discussion that we will have the cable between the 2 artificial islands, the one on the Danish side and the one on the Belgian side. So that would connect for the first time those 2 islands. It's about 600 kilometers between those 2 points. And so therefore, we estimate, but it's a very early estimate, we're still working on, let's say, very early plans of that, is a little bit more than EUR 2 billion, so EUR 2.3 billion to EUR 2.4 billion. But very, let's say, hard to really, let's say, make a precise figure because a lot depends, of course, about, first of all, what are the landing points? Are they on the island? Are they on land that will make a difference in the length of the cable as well the kind of infrastructure that we need to develop for that. So these things are a little bit early stage. The reason also why we don't have them yet in our plans is we have not yet talked about them in our federal development plan, and that's typically what we do to get some assurance as well from the government, that is the direction they want to go. We now have this covering element where the government has this bilateral with the Danish around the energy collaboration that we will have. But of course, it needs to be made concrete to the projects, thanks to the study work that we do together with Energinet as we speak.

And on the amount that you mentioned, Chris, and like you said, it's still very preliminary. I think the entire CapEx amount for the cable, not the Elia share.

It's not the Elia share. Typically, we will have 50%. But of course, depending then where you take it. Is it the island? Is it the on-land point that is integrated in that 50% that we have, that could change in the amount that goes to Elia.

Are there still any pending questions from one of the analysts? No. I think then, Marleen, that we can close the analyst call and thank you everybody for having participated.

Yes. Thank you. Yannick. If there are indeed no further questions, I suggest that we bring this presentation to close. Thank you, Chris, Catherine, for your contributions. A recording of the presentation along with the slides will be made available on our website later today. Thank you for being with us, and stay safe.

Thank you. Bye-bye.