Engie SA (ENGI) Earnings Call Transcript & Summary

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. Clamadieu, I now hand over to you.

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 thought it was useful for this community to have a quick introduction by myself to keep you abreast of the development that will 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 are fully mobilized and aligned to move forward on ENGIE's transformation path, and we want to make the best choose over the next months. I confirm our strategic ambition to make ENGIE a leader in energy and climate transitions. We have some very simple priorities: bring more innovative and high value-adding solutions to our customers to help them execute their energy transition, and we want to capitalize on the high-skilled teams and their competencies to reach this ambition quickly and efficiently. And I'm absolutely convinced, and so are my colleagues at the Board, that this 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 on a path of transformation. As from this date, the Board has decided to appoint a transition management team made of 3 complementary and very experienced profiles to collectively manage the operation of the group. I name Paulo Almirante, our COO; Judith Hartmann, our CFO; and Claire Waysand, our General Secretary, who has been nominated CEO for this period. And I would obviously like to greatly thank them and congratulate them for this -- the role they will be taking in the next few months. We are confident in their ability to run the company and ensure the success of this transition period. I would also like to thank 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 maintain the strong engagement of all of our employees, which is absolutely indispensable for us to continue to create a 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 in our organization processes and way of working. We want to be an agile and efficient organization. We need also to make some progress in the prioritization of our choices to make sure that we allocate resources, human and financial, to the right project; provide further clarity and focus to our employees, shareholders, suppliers and customers. And last but not least, I would like this transition team to help us set up a road map to clarify ENGIE's strategic services and boost our business model. The Board and myself have a very clear vision on 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, including the 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 sustainable contribution to the P&L. And finally, on Customer 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 we'll be able to execute it. The Board asked me to support the transition management team in order to ensure a smooth period, thus, I will dedicate extra time and attention to my mission as ENGIE Chairman in the coming months to coordinate and ensure a close cooperation between Board and the management team, and obviously, ensure sustainable value creation for all of our stakeholders, which is the 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 this 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. And Claire, the floor is yours.

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 interacted before. But it is, in any case, my pleasure to be here with you today as 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 complementary profiles and 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 strength of the company, an 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 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 3 pillars: renewables, energy efficiency and gas becoming progressively greener. First, renewables, with, of course, decades of growth ahead and you will see significant investments 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 cost for the customer and -- for the customers and the companies, making the transition affordable in short. And we already have 2/3 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 3 key objectives to our regular reporting. These key objectives are: first, greenhouse gases emissions from production of our electricity in line with the Science Based Targets certification. We intend to reduce these emissions from 149 million tons in 2016 to 43 million tons in 2020, which is minus 71%. Second, gender diversity. We commit to increase the share of women in management from -- of the group from 23% in 2016 to more than doubling by 2030, 50%. Lastly, our ambition is to increase the share of renewable energy in our electric capacity mix from 20% in 2016 to already 28% today and 58% in 2030. Finally, we are happy to share with you that ENGIE has recently been certified SBT, being the first multiyear energy company to receive this certification. This demonstrates our commitment to respect the Paris Agreement and to lead the development of the new world of energy. With these words, I hand over to Paulo.

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 (sic) [ University of Iowa ] 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 a population of 33,000 students. Similar projects but with different scopes have 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 asset-light companies to densify our operations in specific markets. The examples are Conti in the U.S., OTTO and Powerlines in Europe. These 3 acquisitions represent a total turnover of EUR 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 the objective to provide clients with integrated solutions from design to execution with options for financing and supply of renewables. 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 are also under development. In 2019, we added in Brazil 1,800 kilometers of greenfield concessions in addition to 1,000 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 2/3 of that capacity is wind and 1/3 is solar. Important to note that this is 4x more than the capacity we commissioned in 2018, and this 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 renewables 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 EDPR for offshore wind. 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, the nuclear fleet achieved an availability of 79%, significantly above the 52% level of the previous year. The objective to phase out coal 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 exiting subscale positions to improve margins. Expand organically is a key priority for us. We have a backlog of over EUR 10 billion and around 70% is secured for 2020. For Renewables, we have 5 gigawatts under construction. This is the highest ever had in the group. Out of this, 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, of our first-generation units will be carried out in 2020. The works are complex, but so far, they are progressing in accordance with the plan. In 2020, we also expect clarity from the Belgian authorities on the extension beyond 2025 of 2 nuclear units, Doel 4 and Tihange 3. A timely 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.

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 announcement. Our 2019 results show, as expected, an acceleration in earnings growth in the second half. Our 2019 results are aligned with our guidance ranges. I would like to take this opportunity to also thank all of our ENGIE employees who have helped drive these results, not just for our success 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 EUR 0.80 dividend on 2019 earnings, up 7% versus last year's ordinary dividend. We also expect an increase in net recurring income in 2020 between EUR 2.7 billion and EUR 2.9 billion. Let's now have a look at our key numbers for 2019. EBITDA and COI were EUR 10.4 billion and EUR 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 EUR 26 billion, showing a gross increase of EUR 2.7 billion versus the end of 2018, mostly due to growth investments. Our CFFO improved significantly from H1 level, 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 2.5x financial debt-to-EBITDA ratio target. Beyond the solid financial performance, I'd like to come back on some value levers that I discussed with many of you during 2019. Indeed, this past year, we improved visibility on some fronts and continued to enhance our growth profile. On the regulatory front, we received more visibility on 2 crucial aspects. First, after the French gas network's regulatory reviews concluded early 2020, we gained visibility over the next 4 years on the financial outlook for these important activities in our portfolio. Second, towards the year-end, a constructive arrangement on Belgian nuclear provisions and their 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 activities in Belgium, 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 a record 3 gigawatts of new generation capacity. This is 4x more than was commissioned in 2018. Moreover, we announced the acquisition of a large and promising hydro portfolio in Portugal, which will add 1.7 gigawatts to our renewable capacity. On top of that, we strengthened our position in Networks and Client Solutions through key acquisitions. In Brazil, we acquired TAG, a significant gas transmission pipeline, which has already begun to generate meaningful earnings contribution in 2019. And in Client Solutions, we made important acquisitions that already added EUR 800 million of annual revenues in 2019 and will add EUR 1.5 billion of revenues on a full year basis. Now turning to our performance by business line. First, Client Solutions. Our Client Solutions activities finished with a strong fourth quarter. And as you can see, this is slightly higher than we expected at our Q3 call, driven by the action plans we had put in place. Full year revenues were up 11% and COI increased 7% on a gross basis while roughly level organically. The 7% COI growth excludes the net positive impact of all 2019 SUEZ one-offs. 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 results also included contributions from the 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-offs experienced in 2019, and you will learn more about this later in 2020 as we reinforce our selectivity 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 continued 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 were partially offset by French gas distribution. GRDF profit was indeed slightly up, benefiting from a tariff increase, the commissioning cost provision reversal and additional smart meters installed. Our smart meter rollout is 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 were 2.6 terawatt hour lower year-on-year, mainly because of warmer temperatures. At average temperature, this volume decrease amounts 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 results presentations. 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 led 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, GRTgaz 2019 revenues are subject to smoothing, a delayed true-up mechanism to limit the magnitude of tariff evolution while remaining neutral over the period. As a result, following 2 years of favorable smoothing, the April 2019 annual revenue revision only partially covered the additional operating and D&A costs incurred by GRTgaz. 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 move to Renewables whose COI was up 5% on a gross basis. At constant foreign exchange and normalized hydro 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 volumes 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-on-year, and we have now entirely secured our 2021 target of 9 gigawatts additional renewable capacity over '19 to '21. As an example of our momentum, I'm really pleased to note 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 sites totaling 450 megawatts. Our sell-downs slightly decreased versus last year as 2018 DBSO margins were exceptional, particularly in France. We had mentioned this last year. This was broadly in line with our expectation of roughly EUR 200 million sell-down gains for 2019. We also made further progress in establishing strategic partnerships concerning renewable 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 posted 11% gross COI decrease for the full year, predominantly due to the large scope effect of the Glow disposal in March of 2019. The expiration in April of the Baymina PPA in Turkey was also a negative factor. Partly offsetting these headwinds, we benefited from the ramp-up in Latin America PPAs contracts and positive price conditions in Chile. Indeed, a very good commercial progress in that country. The reinstated U.K. capacity market retroactive to Q4 2018 was a big factor and the favorable impact of the gas spreads in Europe with 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 a very challenging 2018. The hard work of all the teams have definitely paid off. As expected, nuclear COI was indeed up 70%, over EUR 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, it was mentioned by Paulo, from 52% to 79%. The second effect was better achieved prices, up EUR 2 per megawatt hour. On the other hand, on a much smaller scale, of course, as expected, our German drawing rights contract 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 EUR 36 per megawatt hour. And over the next 2 years, the achieved price is set to further increase with current Belgium forward power prices standing at approximately EUR 40 to EUR 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 cost accrual reversal, positive one-offs 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 suppliers during the French market opening from 2007 to 2016. Likewise, a symmetrical accrual was booked for our B2C Supply activities in France. Recent legal decisions led us to reverse these 2 bookings, creating a negative financial impact in Supply, as you can see, and a positive one-off in Networks, thus being 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 continued to increase our B2C retail power customer base by 0.2 million, it's up 2.4%, as well as our recurrent service customers by 0.4 million, up 15%. On the other hand, we lost 0.3 million customers in gas, so down 2.2%, mainly on regulated offers in France. As you can see, the Supply business line has been strongly impacted in 2019 by the margin 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 effects 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 GEM has improved over the last 2 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 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 costs of the Link 2018 employee shareholding plan. On the other hand, we have the impact of future-oriented investments for the development of digital platforms and hydrogen. A quick word on lean as we implement our Lean 2021 plan. We continue to improve efficiency in operating leverage, thanks to a very extensive basket of cost enhancement opportunities, mostly around procurement and digitization, but also shared service centers. And we also continue to leverage revenue enhancement opportunities, mostly around industrial asset performance improvement as well as improved service offerings, especially targeted pricing actions. We achieved Lean 2021 with a COI improvement of approximately EUR 330 million. This is about 30% higher than our initial target and it helps us to reinvest. Indeed, we have reinvested about 1/3 of this amount in organic business development and into digital. So we're confident in our delivery plans on the program in the coming years. 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 the description of the nonrecurring elements. First, from EBITDA to net recurring income, starting with the small variations for D&A, financial costs and minority interests. 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 EUR 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%, and 2019 showed a 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 group share and net income group share, which reached, again, EUR 1 billion in 2019, stable year-over-year. The main drivers here were 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 EUR 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 9-month presentation, CFFO did significantly increase in Q4 and at EUR 7.6 billion was almost stable year-on-year. The slight decrease was due to the working capital requirement evolution, down EUR 1.3 billion. This working capital requirement evolution was mainly driven by commodity-related margin calls and financial derivatives 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 EUR 900 million, in line with the EBITDA evolution. And we also benefited from EUR 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 EUR 10.5 billion to EUR 10.9 billion range, our COI to be in the EUR 5.8 billion to EUR 6.2 billion range and our net recurring income to be at EUR 2.7 billion to EUR 2.9 billion. As in 2019, the quarter development of the financial delivery will not be linear, but rather weighted 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 EUR 0.80, up 7%, versus the 2018 ordinary dividend, evidencing our confidence in increasing earnings. Regarding our financial policy, we remain firmly committed to strong investment-grade credit rating, and as such, continue to target a leverage ratio of below 4x economic net debt-to-EBITDA. Following our recent commitments to fully fund the nuclear waste provision, indeed, the economic net debt ratio becomes the most relevant leverage indicator. Note that the financial net debt-to-EBITDA ratio will now incorporate the effect of the nuclear funding 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 sheets in the sector. This year, instead of providing precise CAGR ranges, we will speak qualitatively as to our expectation for each global business line. The expected 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 enacted 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, hydro volumes and prices in France should have a positive effect, and we expect the positive decision in Brazil on compensation for past losses due to lower hydro dispatch. Wind and solar contributions will also increase, thanks to DBSO and commissioning of assets. On Thermal, we continue to reduce and optimize our thermal generation portfolio with a disposal focus on coal plants and some merchant assets. Additionally, spreads have decreased, putting pressure on the business line. Nuclear. We expect contribution to 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 its range margin recover and -- on the assumption of temperature normalization. Let's now move to our indicative expectations for the 3 coming years. As announced last year, we decided to provide each year a rolling guidance for the next 3 years, so 2020 to 2022 for today, and before that, a short comment on the 2019 to 2021 guidance we provided at the CMD 1 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 EUR 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 as 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 comprise EUR 4 billion of financial CapEx over 2020 to 2002 (sic) [ 2022 ]. And I already mentioned, no impact on our economic net debt. Disposals are expected to amount to EUR 4 billion over 2020 to 2022, primarily driven by further decarbonization 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 EUR 8 billion over the period. So based on organic revenue growth, efficiency gains and macro assumptions and returns on reinvestments, our 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 drive a higher return by 2022. Net recurring income group share is expected to grow annually between 6% and 8% for the new 3 years. That is to say, to reach a range of EUR 3.2 billion to EUR 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 Instructions] We'll take our first question from Vincent Ayral from JPMorgan.

So a couple of questions, as guided. One is on the guidance, just to understand the impact of a mark-to-market in 2020 and 2022 -- in 2021 and 2022 guidance, that would be highly interesting. So we're talking commodity ForEx on the guidance as well. Could you confirm this includes indeed the dilution from the [indiscernible] disposal you've been talking about? So that's regarding the guidance. And the second thing is on the 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 your thought there? And could you confirm that you're not contemplating large M&A?

[Foreign Language] Thank you for your questions. On the guidance, indeed, there is, of course, the mark-to-market effect from -- as our -- as the prices and FX included are the December 31 numbers. The impact isn't that big on -- when I look at the 3 years. I would say roughly 25-ish for 2020, 35-ish on 2021, and on 2022, an impact of roughly EUR 75 million and that is helped by slight positive FX. So nothing to worry about. This is -- 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, as always, work to keep those as limited as possible. And there are good strategic reasons that I've mentioned, the decarbonization but also the simplification -- continued simplification of the company that will lead to these disposals. On the strategy, in fact, indeed, we have -- we confirm we are 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.

Maybe just to complement on the strategy, totally in line with what Judith just said. Indeed, no drastic change in the strategy and a strong focus on delivery and selectivity.

We'll now take our next question from Peter Bisztyga from Bank of America.

It's Peter Bisztyga from Bank of America. So you're talking about no drastic changes to strategy. So I'm just wondering what specifically do you think has been wrong with the strategy to date? And for example, when you say you want to sort of simplify the group going forward, what does that mean? 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 EUR 11 billion to EUR 12 billion, that's now sort of dropped to EUR 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?

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 simplification that was mentioned will be around 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, EUR 10 billion that we are projecting. 2019 was an excellent year in terms of investment opportunities. You've seen it. So we have -- we mentioned -- reiterate a few: about EUR 1.5 billion on TAG, a very significant investment into Networks; about an additional EUR 1 billion that we did last year on Renewables; and then, of course, we announced also the hydro, which is not yet in the 2019 numbers. But the DBSO is already included in this EUR 10 billion. So I would say, we had a big increase in 2019, so the EUR 10 billion is more of a normalization for the 3-year period.

Just adding on the strategy, that we feel that we have the right strategy and so that's consistent with no major shift. It's not wrong. 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, it's both simplifying our internal processes and also looking at different businesses as is normal for a company.

Our next question comes from Emmanuel Turpin from Societe Generale.

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 mention the word Networks too often in your introduction speech. You did mention gas, but it was more of a general term. So would you mind clarifying for us whether Networks are still as core to your strategy as they have been in the past few years? Do you, therefore, intend to retain control of 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 a clarification, please, on Networks. On Renewables, I think you listed the question on how -- or what Renewables growth model you should have or how to maybe make it work better as a topic to be discussed by you or 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 on a pretty thorough description of your business model. Is it more of the same? Or is it a genuine review of the way you want to do things in Renewable? Maybe a question on guidance numbers. Judith, would you mind sharing with us your main assumptions as you have done in the past regarding tax rate and maybe a direction of financial expenses? And maybe quantify for us the positive contribution of the gas contract renegotiations on partial sale of a gas supply contract booked in '19? How much was that, and therefore, how much will disappear from that EBITDA contribution in '20?

Well, Emmanuel thank you very much. And as you directed the question to me, I will obviously answer. Generally speaking, I try to withdraw a bit and let the management team answer. But on strategy, we recognize what has been done in the past 4 years. And indeed, Isabelle 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 items: delivery, shareholder value, simplification, focus. 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 are trying to do too much in too many places. As you've asked a very specific question, let me give you a very specific answer. 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 role 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 role of gas in the energy transition. Brazil, quite obvious and kind of a blue sky horizon as far as gas development is concerned. In France, we realize that there are still a number of things to do to make sure that all the stakeholders understand that, indeed, gas has a role to play, the gas that we know today, but also the greener gases on which ENGIE is very much focused. So Network are part of our strategy. There could be some adjustment in our optimization of our exposure, linked to the flexibility that we have now to do so. But no question on whether gas will be -- or if there is a question, the answer is a strong yes on whether infrastructure will continue to be part of our strategy. On Renewables, I think the key question, you probably understand that, is really the DBSO approach. And we recognize that DBSO is important in a number of situations, both to optimize the impact or to manage the impact of our development on 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 -- or how you balance these divestments or the -- and the long-term impact of these activities on our P&L is something that needs to be fine-tuned. And as I'm talking about focus and prioritization, we need to figure how much capital we are willing to allocate to these Renewable activities.

And on some of the assumptions going into the guidance. On the tax rate, I mentioned the 28% in 2019. You can assume it's going to go up in 2020 roughly to 20%, 21% and then come back down at the end of the period at the -- yes, in 2020 roughly to 31% and then come back down over the 3 years to -- by 300 basis points roughly, again, in line with 2019. You have asked the question on the financial expenses. So those were roughly EUR 1.3 billion in 2019, EUR 1.28 billion to be precise. And they're going to go up by -- and we're assuming they're going up, not quite by EUR 100 million, but something slightly below that. And on your question on the gas contract, which was indeed one of the big successes of 2019, the partial sale of one of the gas supply contracts, it was just below EUR 100 million in 2019.

We'll now take our next question from Aymeric Parodi from UBS.

Congrats on the results. My question is on Renewables. You added 3 giga last year, 100% of capacity by '21 are now secured. Looking forward, what kind of [ final weight ] of addition should we expect? And then Iberdrola are talking about 4 to 5 giga. And looking at your balance sheet, do you think this is something you could achieve?

So indeed, we have added 3 gigawatts, which is a great success in 2019. It's 4x as much than the year before. This is a good run rate for now for the next couple of years, which is why we're very confident on the 9 gigawatt. I would add, though, that, obviously, the teams have continued to work. So stay tuned on this one. We are going to do a quarterly series again with the Investor Day later this year on this and I'm sure, by then, 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 close to 2 gigawatts 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.

Our next question comes from Meike Becker from Bernstein.

I have two, one goes to the strategy and one on the returns for Renewables. On the strategy, we are -- you've mentioned the role of gas in transition and making it greener. How do you think about the role of gas after the transition, so to speak? What is the role of gas in France in 2050? And how do you think about, I don't know, 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 changed on the returns you're making for -- in your Renewables investments? Ideally, if you could comment on it, the returns you're making or [ bidding ] the project return you are getting before the DBSO, that would be great.

Okay. Thank you. On the role of gas during the transition and beyond, my first point would be that gas, natural gas, is on the critical path in a number of geographies 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, as much as nuclear is 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 gas during -- these years, gas is clearly cheap, easy to transport and a very useful complement to other energies, in particular, as a source of production of electricity. Going ahead, we feel that gas is going indeed to become greener and greener, and that's the condition 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 has very much varied over time. If you look at the price of PV or the price of nuclear, obviously, they have moved in different directions. So it's very difficult to know today if you think about 2050, which was your question, it's very difficult to know what will be the relative costs of the 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 of -- 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 at a larger scale because that's about competitiveness of the economies at the end of the day and purchasing power of customers. So indeed, we feel that gas becoming greener should be given its chance to be at the final line. We are very happy about the support we received from the government in terms of green hydrogen. This -- and by the way, we have started to scale up our projects in terms of green hydrogen in a country like France, in South of France, with other major actors. And also, I mean, 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 this perspective.

Indeed. Thank you, Claire. And we are the biomethane leader in France, which is awesome. You had a question, Meike, on Renewables returns. So we look at each of the projects the same. As you know, we've mentioned this many times, we always expect a WACC plus 200 basis points or a cost of equity plus 4. We will flex the DBSO depending on the situation in the market and go higher or lower. The ROCE typically is in the high single digits and we are expecting, indeed, if anything, a slight increase between 2019 to 2022, but still staying in the high single-digit range. It's also important to note that our DBSO margin, obviously because they're depending on some of the sell-downs, they might fluctuate a little bit in the -- during the years, in the various years. But roughly EUR 200 million is something that we are comfortable with and that you can expect also for the outer years.

And if you don't mind, just for me to be clear and understand. When you say you expect a WACC plus 200 basis points, this is including the DBSO transaction?