Uniper SE (UN0) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the analyst and investor conference call of Uniper. At our customer's request, this conference will be recorded. [Operator Instructions] I now hand you over to Udo Giegerich, who will start the meeting today. Please go ahead.

Good morning, the analysts and investors. Welcome to the Uniper Interim Results Call for the first half year of 2020. I'm sitting here with our CEO, Andreas Schierenbeck; and our CFO, Sascha Bibert, in our headquarter in Düsseldorf. Looking at today's agenda, Andreas will start with the key highlights and give an overview where we stand on our strategy execution when it comes to hydrogen and the coal exit. Afterwards, he will go through the latest developments on the commodity markets and the respective impact on our business. In the second half of today's call, Sascha will dive into the details of the financial interim results and provide an update on the full year outlook for 2020. Right after the presentation, you will have the time to raise your questions. Having said that, Andreas, the mic is yours.

Thanks, Udo, and good morning, everyone, and welcome also from my side. Thank you for participating in our conference call today. And let me start with the essential topics of the first half of 2020. First, I'm very satisfied with our financial performance in the first half. As we saw already in Q1, the gas business is a strong earning driver this year, bringing our overall adjusted group EBIT to EUR 691 million, which is more than double compared to prior year. Adjusted net income increased even stronger to EUR 527 million. This means that we are on track despite the considerable macroeconomic and commodity headwinds. The negative impact of COVID-19 on production and energy supply volumes had limited impact on our operating results in the first half of our 2020 fiscal year. However, we do see some impacts around project delivery. Based on this overall strong performance, we feel confident to narrow our full year guidance already at this point in time. Sascha will provide you further details a little bit later. Secondly, on our portfolio optimization and strategy plans. We continue to ramp up our business initiatives in the hydrogen area. As part of this, the hydrogen business line has been set up within Uniper. The new team is structured in a way to be more efficient than a conventional leader or silo organization as it enables us to pull more resources together and then take access a wider range of group-wide expertise, which is key to push this topic ahead. We're also involved in various activities to be part of upcoming sector projects, supported by the EU and national government. In order to become carbon-neutral in the European generation business by 2035, we need to find technical solutions to make our gas-fired power plant hydrogen ready. For this, we have formed alliances with our 2 major equipment suppliers, General Electric and Siemens. Coming to the coal-related business. The concrete implementation of the planned phaseout of German coal-fired power generation continues to gather pace. The binding law is in place since the beginning of July. The first option for hard coal-fired power station is earmarked to take place on September 1. Here, we are working to implement the best options for Uniper to exit from coal-fired power generation as quickly as possible and in a way that preserves value. The coal-to-gas conversion has accelerated due to the low prices for natural gas and the rising prices for emissions allowances in the EU. Consequently, the Irsching 4 and 5, our 2 most efficient German gas-fired power plants, will exit the German grid reserve mechanism as standby power plants and will be allowed to operate on the merchant market again from October 2020. Now coming to our 2 legacy growth projects. The Datteln 4 coal-fired power plant was successfully commissioned at the end of May 2020. The coal exit act has confirmed Datteln 4 permission to operate. At the same time, it also enables the option to accelerate the phaseout of older, more efficient -- inefficient hard coal-fired power plant. When we were able to put our Datteln 4 power plant into operation earlier than planned, we are facing COVID-9 (sic) [ COVID-19 ] related delays at Berezovskaya 3 lignite fire-powered plant in Siberia. Corona cases at the construction site required a temporary shutdown of the repair works and to take further precautions. Hence, the remaining work here is currently only continuing with a limited skilled workforce. This has postponed the start of Berezovskaya into the first half of 2021. With regards to megaprojects, we cannot ignore the unfortunate development around Nord Stream 2, which continues to be a point of contention between the U.S. and Russian governments. Overall, the pressure on Nord Stream 2 has been further intensified by the U.S. government, but the sanctions have not been implemented yet. Germany and Europe has reassured the political support for Nord Stream 2, given the security of supply awards. On July 15, the U.S. government has updated its public guidance on the CAATSA sanctions. And based on that update, the guidances on so-called grandfathering has been adjusted. According to our understanding, investments into Nord Stream 2 are now also targeted, but only those taken after July 15, 2020. Uniper as well are closely monitoring and analyzing the situation. Finally, coming to the shareholders here. Our first successful virtual Annual General Meeting with high approval ratings for all agenda items confirms that we're on the right track. We can now focus even more on strategic development. The 5 new supervisory Board members elected at the Annual General Meeting bring a high level of sector and specialist expertise. With the process of the H1 reporting, Uniper and Fortum teams worked already intensively in order to enable Fortum to smoothly incorporate Uniper as a consolidated entity within Fortum's half year financial statements. To set another milestone to strengthen the relationship with Fortum, let me congratulate Markus Rauramo on his new role as CEO of Fortum. Over the upcoming weeks, we will be intensifying the exchange between both companies through a strategic alignment process with the aim to bring the strategies of Uniper and Fortum closer to each other. One of the major strategic issues that Uniper can apply is expertise and future growth investments in the area of hydrogen, which I'll describe in more detail on the next page. The production of green gases, especially hydrogen as a supplement of renewable energies for electricity generation, is a missing building block to lead Europe to a sustainable energy supply by 2050. EU and many national European governments have given the issue an enormous political boost in recently. Thus, the German Federal Cabinet in June and the EU Commission in early July presented their road map for the implementation of a hydrogen strategy. The EU Commission economic recovery plan, Next Generation EU, highlights that hydrogen technology can become an engine of growth in Europe, create local jobs and enable Europe to play a technological pioneer renewal in a global market. Currently, 75% of fossil fuel still dominates Europe's primary energy mix with 33% still based on oil, around 25% based on natural gas and 15% on coal. It will be a challenging task and a great opportunity for the next decade to replace fossil energies with renewable energies and carbon-neutral hydrogen. Currently, hydrogen is mainly being produced from natural gas in a process that release carbon dioxide. That, therefore, is usually referred as gray hydrogen. If the CO2 is captured, stored or reused, it is considered blue hydrogen. Green hydrogen is produced through electrolysis using green electricity. In our view, we need both green and blue hydrogen in order to reach the given carbon targets. We anticipate that green hydrogen will play a substantial role in the energy transition at some point in time. However, until green hydrogen is economically viable, blue hydrogen can be a great addition to help develop the hydrogen economy and provides the commercial framework needed to trigger the necessary investments into infrastructure. The transition process is now ramping up to enable commercially viable business cases around hydrogen. The EU political road map provides for the implementation of the policy in 3 steps. Phase 1. Policymakers promote technology development through European economy scale factor projects and create a reliable regulatory framework. From now to 2024, the EU will support installation of at least 6 gigawatts of renewable hydrogen electrolyzers in the EU and the production of up to 1 million tons of renewable hydrogen. Phase 2 between 2025 and 2030, hydrogen needs to become an intrinsic part of Europe's integrated energy system. The EU ambition is to 10-fold production until 2030, up to 10 megatons of renewable hydrogen backed by at least 40 gigawatts of renewable hydrogen electrolyzed. Germany has had the scores to contribute at least 5 gigawatts for that call. Phase 3. From 2030 on, renewable hydrogen could be deployed at a large scale across all hard-to-decarbonize sectors. As you can see on the slide, Uniper has the ambition and the capabilities to occupy many fields within the value chain in the hydrogen economy. Uniper targets are all non-CO2 emitting forms of hydrogen production. Uniper brings project development, partnering, integration capabilities as well as the strong customer-supplier relationships. Depending on the market prerequisites and concrete regulations that are about to develop, we will choose our engagement according to the potential. In order to identify the future potential of the different market segments in the hydrogen value chain, we need concrete framework conditions and guidelines from European and national political decision-makers. This is the Uniper that I can help, for example, in my role as a member of the newly founded German National Hydrogen Council. The council is tasked to advise the federal government on the concrete implementation of the national hydrogen strategy in Germany. We will be able to significantly contribute to the work of the council based on the expertise that Uniper had acquired in a series of hydrogen pilot projects over the last year. Our current project initiatives are based on R&D partnering, endemic commercial pilot plants in Uniper's core market: Germany, U.K., Netherlands and Sweden. We focus to be part of flagship electrolyzer project in order to operate hydrogen technology on a commercial scale for the first time. Aside from the mentioned cooperation with technology providers to convert our gas power plant fleet, we are also working on further developing existing coal generation brownfield sites, such as Wilhelmshaven on the North Sea, which could become a future hydrogen plant. Due to its location, this site offers a variety of options for sourcing an electrolysis plant ranging from offshore wind to transport [ fashion ]. For example, we have signed a letter of intent to conduct the feasibility study for [indiscernible] on the production and handling of environmentally friendly [ sponge ] islands with upstream hydrogen electrolysis. In addition, we see an evolving international hydrogen economy to provide supply, trading and optimization opportunities. Uniper, with its commercial power and gas business, is well positioned to play a leading role, not only on the operational but also on the commercial side of midstream for future hydrogen industry. Our goal is to become CO2-neutral in our European power plant production by 2035. In Germany, the Coal Phase-out Act was passed on July 3 after long and controversial discussions. This law does not only end coal-fired power production by 2038 at latest, but it also provides the necessary legal framework for our planning over the next year. According to this regulation, German hard coal and lignite fire power plant capabilities are to be reduced by 40% by the end of 2025, delivers significantly more [ additional ] centers. In fact, we are almost twice as ambitious, given our commitment to reduce our German coal and lignite capacities by 78% in the same period. As we will also reduce our capacities outside of Germany after 2025, Uniper -- the only operating 2 most modern hard coal-fired power plants in Europe, Datteln 4 in Germany, and Maasvlakte 3 in the Netherlands. The steps in the decommissioning of German hard coal-fired power plant as the first coal exit auction taking place as early as September 1. As a result of the first tender, 4,000 megawatts of capacity will be taken off the German grid by the end of the year. 7 more auction rounds will follow afterwards until spring 2025. While the price cap in the first tender is set at EUR 165,000 per megawatt, and this will decrease gradually over time with only EUR 89,000 per megawatt in the last tender round. We are currently analyzing which is the best exit option for our hard coal-fired power plants in the upcoming auctions. There are quite some factors that needs to be taken into consideration aside from the communicated price caps. Among others, we need to consider our contractual obligations towards customers and, of course, the needs of our employees. In order to be able to focus on this multitude of strategy development issues, it is helpful that our operating business is in steady waters. And this performance has been achieved against the background of a difficult commodity price environment, as you can see on the next slide. Slide 6 illustrates how our market environment has been influenced by COVID-19 and weather in recent months. Starting with gas. Prices have fallen significantly during the first month of 2020, and that remained low since March. The forward 2021 price, which is shown on our slide, even temporarily fell below EUR 12 per megawatt hour during July. This is mainly due to a depressed outlook for the gas market, characterized by LNG oversupply and very high storage level. The expected economic situation might be also weighting on the gas demand outlook, and therefore, dampening forward prices. One of the few supporting factors are increasing concerns about the impact of potential sanctions on the completion of Nord Stream 2. Moving over to carbon. In mid-March, the carbon price collapsed in line with reduced emissions from the power industry and the aviation sector on the back of the COVID-19-related lockdown. After the significant drop, carbon increased steadily and surpassed pre-crisis levels, breaking through the EUR 28 per ton barrier beginning of July. Most of the rally seems from cash from the fundamentals, which would imply a more bearish picture. Even increasing concerns about the resurge -- a resurgence of COVID-19 do not impact the positive carbon price development so far. Instead, a key driver seems to be trading strategics fueled by cheap money, combined with expectations about an early COVID recovery and accordingly, rising demand in the foreseeable future. Finally, the recent demand in EU via EDS auctions has indeed picked up from the historic lows in May, providing at least some fundamental support. Accordingly, the utility prices in Europe and especially in Germany also showed a recent uptick. In those markets, the price-setting power plants tend to be fossil, which explains the level of correlation. The Nordics in that sense is a different story. As fossil generation does not play such a big role and interconnection towards Central Europe are limited, the Nordic outright prices did not follow the carbon running to the same extent. Rather, it's a stronger driver here. Nordic power prices are still suffering from a sustained period of high hydro levels and relatively high temperatures since the beginning of the year. The importance of weather could also be seen in June and July. Their dry phase first lifted frontier prices, and then the subsequent wet phase led to a price reversion towards lower level. Accordingly, a dry phase beginning of June lifted frontier price. This upward movement reversed when the dryness predicted for the summer disappeared from the forecast. Looking into the outer years, the sentiment is further affected by questions around demand recovery, potential delays in interconnector projects as well as an ongoing build-out of renewables. Those aspects combined with the fact that the outer years are typically more of a buyer market, with the market price for delivery year '22 and '23 currently below the EUR 26 mark. How do spreads develop? Generally, dark spreads have decreased and spark spreads have increased since the beginning of May. Coal and gas generation costs increased almost equally for coal and gas-fired plants. The increase in carbon has a naturally stronger effect on coal generation. Beyond, spark spreads remain heavily supported by the low gas prices. As you can see, the peak spark spread has been in the double-digit area now for quite some time. This development was the base for bringing back Irsching 4 and 5 back into the merchant market. However, while spark spreads have increased in the forward market, the opposite was true in the spot market of 2020, as reflected in Uniper's power production volume shown on the next slide. On Slide 7, you can see how our operating KPIs developed during the first half of 2020 compared to 2019. Let's start with the global commodity business. Looking back on Q1 2020, we had already high filling levels back then of 71%. Since then, further gas was injected giving the very low gas price during the summer season. Overall, this results in a storage fitting level of 89% as of June 30. That means the storages have been already close to their peak at the end of H1. From a financial perspective, storage has been ahead of the usual filing schedule means that the cash flow in the first half was burnt. However, the cash for H2 benefits from that as there will be less working capital build are needed to reach the maximum filling levels. Second, our European generation volumes have fallen by 25% year-over-year. You can see. So it's not only in the graph, but also in the appendix of today's presentation, where we incorporated a detailed table with Uniper power production volumes split by country and technologies. Starting with H1, we will provide this overview on a quarterly basis going forward. When it comes to our hydro power plants, the production volumes remain overall on the same level compared to the first half of 2019. But we had additional hydro volumes in Sweden related to higher precipitation and snow melt. Those positive effects were compensated by lower hydro volumes in Germany. Nuclear was down by around 24% mainly driven by the closure of Ringhals 2 and extended outages at Oskarshamn 3 and Ringhals 1 and 3. Gas and coal-fired production was down about 35% volume-wise, mostly due to a lower power demand caused by the COVID pandemic and the greater availability of renewables, especially in Germany. However, the decrease in gas-fired production was also significantly affected by the disposal of the French business, which has contributed to last year's supply and production. Last year, our business segment, International Power, or Russian Power Generation as we record it going forward, delivered a strong performance. This year, Uniper's production volumes were burdened by an abnormal warm winter, very good hydro conditions at the beginning of the year and the lower demand due to COVID-19 in Q2. Thus, our Russian project business produced 14% less electricity during the first 6 months compared to 2019. Finally, Uniper made 22% less CO2. Of course, this development is purely driven by the decrease of terminal generation. Nevertheless, this is the direction Uniper's driving for, producing less emissions and focusing on more environmental-friendly technologies. This brings me to the end of my part today. I would now like to hand over to Sascha for the financial part. After which, Sascha and I will be ready for your questions. Thank you very much.

Thank you, Andreas, and good morning also from my side. I'll start with the usual overview of our KPIs on Page 9. What you see here is a picture comparable to the first quarter. However, less pronounced as Q2 stand-alone has been, as indicated, positive but not extraordinarily positive. Adjusted EBIT and adjusted EBITDA are roughly twice as high as compared to the prior year. You may remember that the first half 2019 was not only showing a muted business performance but was also affected by significant negative intra-year phasing effects. This year is better in both categories, as we will see in a minute. Consequently, the first half earnings are quite close towards the lower end of the full year target range, as I mentioned in our last conference call. OCF is up by EUR 600 million compared to the first half 2019, and therefore, showing a significantly higher year-on-year swing compared to EBITDA as the cash-effective EBITDA was materially higher. Still, the cash conversion of roughly 30% is rather low, however, relates to the first quarter. This is expected to revert to a more normal level towards the end of the year. Adjusted net income is fully in line with the adjusted EBIT development as economic interest and taxes showed the expected linear development throughout the first 2 quarters. In contrast to the other KPIs, reported net income is down compared to H1 2019. It does include about EUR 90 million of asset impairments on our fossil generation assets. Moving on to economic net debt. After the first 6 months, it is at EUR 3.3 billion and, therefore, above the level at the beginning of the year. However, please keep in mind that economic net debt tends to have a somewhat seasonal pattern with H1 reflecting the cash out for the dividends, while the majority of operational cash flow is still to come in the second half of the year. From a credit rating perspective, our metrics for BBB flat continue to be rock solid, and I have no concerns with respect to our planned investments and dividends. Now let's break down the earnings drivers on the next chart. Looking on the year-on-year effects, the picture is in line with what we showed you at Q1 stage. Please note that the goal of this overview is to provide transparency on the underlying business drivers for the Uniper Group. Usually, the effects shown here fit nicely to the segmental breakdown in the appendix. However, this time around, there are quite some shifts and consolidation effects at work between the operating segments and the admin consolidation line. Hence, if one would start from the segment split, one would need to adjust for a couple of effects to get to the true performance. Overall, we are up EUR 380 million versus prior year. Commodity optimization, mainly in the form of our gas midstream business, continues to be the main driver, contributing already EUR 315 million to the positive year-on-year development. However, if you compare this effect to Q1, you realize that it came down as the isolated Q2 EBIT contribution from gas was negative in 2020. Such a Q2 in the gas business is not extraordinary if you look back to 2018, for example. Further, as we have mentioned in the last call, the very high margin in Q1 came partly at the expense of somewhat lower margins in future quarters and this affected already Q2. As you may remember from our Q1 call, one of the key successful strategies of our gas team is to use the flexibility in the assets and rather leave the storages full. However, full storages limit the flexibility, the room for optimization, and finally, the earnings potential going forward. This was already reflected in the second half of H1 and will also have an impact on the earnings distribution in the rest of 2020. I will pick this up later in the guidance section. Moving to our outright fleet with an effect of roughly EUR 50 million. As expected, we saw a strong increase in the achieved prices of about EUR 5 on average. Volume-wise, we have higher hydro volumes in Nordic, but those were largely compensated by lower hydro volumes in Germany. Overall, you might have expected higher earnings from the Nordic water situation, but as the excess volumes in the Nordics were largely unhedged, they faced very low spot prices at that time. Finally, we saw lower nuclear volumes due to the closure of Ringhals 2 at the end of 2019 as well as due to some extended outages in Oskarshamn 3, Ringhals 1 and 3. The next earnings driver is the U.K. capacity market, which amounted to EUR 60 million in the first half of 2020 and is, therefore, up EUR 60 million versus the prior year as well as 2019 did not reflect earnings from the U.K. capacity market until Q4. The intra-year carbon phasing effect is also well-known to you. In times of rising carbon prices, we need to increase our provisions, while the offsetting positive hedge effects only realized at the end of the year. Hence, this is an effect that burdens the first quarter and will revert in Q4. So why is it a positive effect here? Because the negative impact from carbon phasing was about EUR 50 million more negative last year than it is this year. The significantly lower CO2 emissions that Andreas mentioned before are the main reasons for this. With lower volumes, the overall phasing is less pronounced. Russia is further down with now EUR 50 million compared to H1 2019, with FX only playing a minor role. The main reasons were significantly lower electricity prices in the day-ahead market driven by a slowdown in demand due to the COVID-19 pandemic and higher availability of cheap hydro generation due to higher water inflows. The category other, approximately negative by EUR 40 million, summarizes a series of effects across 3 categories from more negative FX effects, unallocated consolidation effects and expenses related to our generation business. So to sum it up, overall, strong H1, not only in terms of earnings quantity, but also in terms of earnings quality, as also can be seen in a minute when looking at the cash-effective EBITDA. Secondly, even though the overall power production came down by 25% in Europe, the financial impact has been limited, which documents the successful hedging and optimization activities around our fleet. Now over to operating cash flow on Page 11. Here, we -- you can follow the reconciliation from adjusted EBIT to operating cash flow. The picture is basically unchanged to the Q1 call. Cash-effective EBITDA amounts to almost EUR 1.2 billion, up 23% from the prior year. Hence, my earlier comment regarding earnings quality. Second, the low cash conversion is driven by changes in working capital based on high inventory levels. Compared to Q1, we saw only a comparably low working capital increase based on the high filling level that we had already at the end of March. As usual, the working capital effect related to the gas inventories will largely normalize over the course of the year. Third, provision utilization was comparably lower. The overall EUR 221 million of provision utilization is almost evenly split across provisions for decommissioning, gas and LNG infrastructure and other, including pension and personnel-related provisions. Finally, there is a rather high others, with plus EUR 159 million, out of which around EUR 130 million are the cumulative CO2 impact. What do we mean by that? This is the net effect of all reconciliation items related to CO2, i.e., the correction for CO2-related provision buildup, provision utilization and the related changes in working capital. In the past, we used to show those effects on a gross basis in the individual buckets, which ultimately pumped up the individual effects and blurred the view of the overall impact. From this quarter onwards, we will show the net effect within other. This has the positive impact that the different reconciliation items are now much easier to interpret as they are not overlapped by large CO2-related effects that, in the end, net out to a much smaller amount. On the next page, the adjusted net income developed fully in line with expectations since Q1. The economic interest, which is structurally positive for Uniper, as we have explained in the past, an increase from EUR 6 million in Q1 to now EUR 16 million, and is driven by interest income from Nord Stream 2 as well as the capitalized interest from our legacy growth projects. While we did not publish the adjusted net income KPI last year, the like-for-like economic interest result in H1 2019 would have been minus [ 36% ] as there was a strong negative revaluation impact on the hydro asset retirement obligation, stemming from a step down in discount rates. The other 2 elements are either tax rate and the minorities are straightforward. On the tax side, we generally expect a tax rate between 20% and 25%. Just like in Q1, we ended up once again at the lower side with 22%. The minority interests are largely driven by Unipro, where minority shareholders hold about 16.3%. Given the higher financial performance of Unipro last year, the total minority interest for H1 2019 would have amounted to minus EUR 29 million. Slide 13 summarizes the changes in our economic net debt. It reached EUR 3.3 billion at H1 2020, EUR 650 million above the year-end '19 level as the operating cash flow covered investments but not the dividend. Investments were marginally higher than last year, given the increase in growth CapEx spend. The dividend of EUR 421 million was paid in May, following our AGM. Further, there is an increase of pension provisions from EUR 1 billion to EUR 1.1 billion due to lower interest rates. Asset retirement obligations are broadly unchanged. And finally, the category other, which reflects an increase in financial leases, mainly related to storage contracts in our headquarter in Düsseldorf. Now over to the last slide today addressing the outlook. As briefly mentioned by Andreas at the beginning of the call, we narrow our guidance range for EBIT and adjusted net income by moving the lower boundaries up by EUR 50 million. In case of adjusted EBIT, this means that the old range of EUR 750 million to EUR 1 billion is now replaced by EUR 800 million to EUR 1 billion. This implies a new midpoint of EUR 900 million which is EUR 25 million above the old one of EUR 875 million. Accordingly, the adjusted net income range is now EUR 600 million to EUR 800 million with the midpoint being EUR 700 million, replacing the old one of EUR 675 million. Why are we doing this now? After Q1, we already had a strong start into the year. However, back then, the level of uncertainty around the remaining months was simply too high not only in respect of COVID, but also regarding the business performance outlook for the commodity business, mostly the gas area. Even though COVID is far from being defeated as of today and concerns about a second wave are rising, we feel confident that the financial short-term risk for Uniper in 2020 are manageable. Additionally, with now only 6 months left, we have a better picture of the expected business performance, which shows us that the old range did not fit anymore. Now following the young tradition that we have from the last 2 calls, I would also like to give you an idea on how to think about the earnings distribution across the upcoming 2 quarters. When it comes to the next 2 quarters, you can expect Q3 isolated to be negative in absolute terms like it has been in the last 2 years. This time, the seasonality might be even more pronounced, more comparable to the year 2018, where we recorded an EBIT loss of more than EUR 200 million. Additionally, Q3 will also be affected by the mentioned back swing effect in gas, i.e., the fact that the high earnings in Q1 came also partly at the expense of margin in Q3. Based on our full year guidance, you can, therefore, expect our earnings in Q4 to then be, again, significantly positive. The dividend target for the financial year 2020 remains EUR 500 million, as does the ambition to grow it further in the new years to come. Now I can hand over to Udo, who has a short announcement before the start of the Q&A session.

Thank you, Sascha. I would like to take the opportunity today to introduce to you our newly developed Uniper.Energy (sic) [ Energy.Uniper ] app. We are aware that Uniper is not the company with the easiest business model in structure. Our aim was, therefore, to come up with an app that helps external stakeholders to understand our business better. It specifically aims at investors, you, the analysts and your clients. With this app, anyone can stay updated about all the relevant aspects of Uniper's business, power and commodity price developments, stock behavior and consensus for both Uniper and its peers and all Uniper news channels in one place, including press releases, social media, blog's post, reports and upcoming events. Not to forget, the direct link to our financial reports and presentations. It's available for both Android and iOS platforms and is free of cost. We will never take your money nor collect your data, no strings attached. We encourage you to try it out and give us your feedback whether you think it is helpful and investors can appreciate it. After this -- from a short commercial break, let's start with the Q&A session. [Operator Instructions] Operator, please.

[Operator Instructions] The first question is from Alberto Gandolfi of Goldman Sachs.

I'll stick to the 2-question rule. The first one is on earnings, please. Can you please elaborate if, in your holding cost which look like EUR 220 million negative for the first half, there's something nonrecurring that may also normalize for the rest of the year because it looks like this is partly offsetting the strength in the global commodities. And thanks for clarifying the pattern in Q3 and Q4. That actually has answered a lot of questions. The second one is a bit of a bigger picture. You spent quite a lot of time at the beginning trying to, in a way, position Uniper across the hydrogen value chain. I guess, the question here is, is this the main, let's call it, green focus of the company? Or can you envisage something more profound? We're even seeing all majors like BP right now, for instance, talking about 50 gigawatts net of renewables, which is almost an invasion of your typical backyard and territory power generation. So wondering, is this it? Or are you contemplating at some stage down the line, maybe a more profound asset rotation, like we are seeing, for instance, Engie, even recently announcing to try and also develop other types of green power generation activities.

So Alberto, this is Sascha speaking. I'll take the first question, and then Andreas will develop on our ambition in the renewal space. You're asking a good and important question. Nothing has changed compared to what I think we have discussed in the past, i.e., on a full year basis, you should think of about EUR 200 million admin expenses in -- also in that line item, full stop. And that admin expense is usually split reasonably evenly across individual quarters. However, as the name of the line implies, it includes admin as well as the consolidation line. The consolidation in the second quarter is particularly negative. That is a random path, and it has offsetting effects in the segments. So I think when you model that, you have to model EUR 200 million negative on a full year basis, and then you have net effects for the group. But I think whether they then show up in the segment or in the group consolidation line from a valuation perspective is irrelevant. So think about EUR 200 million on average.

Yes. Thanks for the question. It's Andreas speaking. If you look at our hydrogen strategy where we are coming from and where we want to go, there are a few things to mention. First of all, we are not completely new to the hydrogen sphere. We started already 2012 with the first hydrolysis in [ Freienhagen ] in Germany to produce hydrogen out of wind power not on a commercial scale but just to understand the technology. And the whole thing was coming together as we announced our new strategy. We want to -- we are striving to decarbonize our portfolio. Of course, it means switching off the coal-fired plant and switching to more gas units like the Irsching 4 and 5 out of the reserve. But something very clear, if we really want to go to a decarbonized world, we have to do something with gas units as well. We have to reduce their CO2 footprint. Yes, it's happened quite a lot. Switching to natural gas or to LNG, but still there are CO2 emissions. And the natural solution for that is using hydrogen. Most of the gas turbines can burn hydrogen. And with that, on the other hand, it would be too easy to just think that would be the solution of all our problems. If you look at Germany, 75% of the CO2 emissions are coming from industry, from transportation and from buildings, and they have not contributed so much. So hydrogen, especially produced from green sources taken via PPAs or whatever, is much too expensive and much too valuable to really burn it immediately in a gas turbine and generate energy again. Using it for the chemical industry, using it for transportation would help tremendously to decarbonize these sectors. On the other hand, in our strategy, we highlighted that we said, yes, hydrogen is a good solution for that, and we want to expand that. But of course, we have a kind of contradiction here. Germany wants to expand their renewable generation of energy with wind and the solar. We have not reached that in Germany. On the other hand, we want to produce hydrogen out of that. That will not work really because it's just a contradiction. On the other hand, 75% of the primary energy used in Germany, for example, is imported. So I would say there is no way that all the hydrogen Germany or the other countries are needed -- are needing really needs to be -- or can be produced in their respective territory. So it needs to be imported. That's why we are betting on our strategy as well on trading hydrogen, transporting hydrogen, storing hydrogen and using exactly as the business models we have. But in the global commodity business, for us, it doesn't make a big difference if you're trading LNG or liquid hydrogen or if you're trading natural gas or hydrogen. If you're storing it, if you're optimizing it, it's the same kind of business mechanics. So from our point of view, it will not be so much like asset rotation, it will be developing the assets gradually and over the time into hydrogen environment. And of course, using the capabilities we have in our global commodities to just use that. Of course, we will invest into growth projects. But at the beginning, I see that hydrogen is not a complete good business case that we develop over the time. But for us, it's substantial to invest in all parts of the value chain at the moment to find out where the whole journey is going. And just to highlight a little bit the complexity, if you just look at the color codes, so that has developed in the last, say, years from gray, white, green, blue, turquoise. There's another one coming up from a color, as far as I know. You'll see that there's a lot of centers here and there, but it is for us not a drastic move. It will be consequent development and steps which we can digest, which makes our business model sound. Okay, Alberto? Questions answered?

Yes.

The next question is from Deepa Venkateswaran of Bernstein.

I had a follow-up question on hydrogen as well and then one on your coal closure, so maybe first with the coal closure. Could you clarify how much does the coal [ play ] -- how much is the coal EBITDA that you're expecting for this year within the fossil division? Is it basically loss-making right now so obviously, the financial impact will be positive? Or actually, is there any positive contribution to be aware of? Apart from, of course, your new Datteln plant, so aware of that. Second question on hydrogen. I think you mentioned that you see both green and blue play a role. And you see blue playing a transitionary role. But I think one question is we've not really seen any big large blue hydrogen projects. CCS hasn't really been done at large scale. There's really no CCS store -- carbon storage or transportation. So how confident are you that blue hydrogen is going to fill the transitionary gap? Might green not overtake it already? And would you be interested in directly participating in the supply of green hydrogen by building wind farms or solar parks or whatever, more directly rather than sourcing it from someone else?

Let me start. I'll give Sascha a little bit more time to dig up in the numbers. Hopefully, it will be enough time. But if I continue to speak very long while that he is still looking at my face and looking for the number, but I'm just talking. If you're coming to hydrogen, I really believe that blue hydrogen or turquoise hydrogen will play a role because the easiest way to generate hydrogen is really using the natural gas. It's done already with the gray hydrogen, where you just release CO2 to the atmosphere. So it's the cheapest way to produce hydrogen at the moment. So if you're adding up some complexity to capture the CO2 or in case of the turquoise hydrogen, we're using a kind of pyrolysis to just take the C out of that, so the carbon, and not generate any CO2. Then, of course, I think it's a natural expansion of the technology. Price-wise, we just have to say the gray one, which is releasing CO2, is the cheapest one. Turquoise and blue one is a little bit more expensive but still much, much cheaper than green hydrogen because green hydrogen is coming with a hefty price stack because it's generated out of renewables. At least I see the price difference by more than 30% or even 40%. And just this price gap will probably play in most of the economies a role that you would play with both sources or try to cover the gaps with technology jumps over time and so on. For us, for Uniper, I think we probably will not look intensively to build solar farms or wind farms on our own but probably playing with PPAs to taking the power market that use it for hydrolysis or optimizing the power flow. But I see for the first point of view, especially in Germany, a good potential to harvest this ghost electricity, which we can't use if you have too much wind. We cannot transport it in Germany because we don't have the interconnectors, so we are paying actually around EUR 1.2 billion, EUR 1.3 billion every year in Germany for wind farms for not generating energy. To compare that to -- or to use that energy and that amount of money to produce hydrogen, it's probably a good starting point. It's not enough volume, but definitely the right way to start with. I hope that answers your question. And so now I will hand it over to Sascha.

Who is digging himself out of the hole. So with respect to your question, are we going to make money with the coal-fired generation in 2020. The answer is, yes, most definitely. However, as you probably would expect, Deepa, the money generation is quite dedicated to certain generation facilities or countries. Certainly, a big part of that money generation comes from Germany related to the Datteln plant, but also to the Netherlands, Maasvlakte, but quite possibly also to the U.K. So it is dedicated to certain stations where the contribution of other stations that may be more exposed to the coal exit at certain points in time is more limited.

The next question is from Vincent Ayral of JPMorgan.

Just to bounce back a bit here on the coal closure again. So the auctions are coming. Basically, you made a few comments there. It's a bit difficult for me to hear everything. But what do you expect in terms of compensation there, especially through the years, early years and the following couple of years as you got more, I would say, units -- profitable unit to basically your [ consequence ]? And so that would be interesting for us to understand the part of the equation of what we could expect in terms of compensation for closure. I think that's what Deepa was looking at as well here, in a way. And the second question was more related to the CCGTs. You're putting back Irsching 4 and 5. We have seen a tightening of the power markets. And so the clean sparks are improving. On the other hand, we got the outright, which has basically been weakened by lower gas prices. Is it a fair assumption to assume that you are net positive in this situation for the longer-term outlook? How do you see the overall evolution of the commodity market for your specific portfolio?

This is Andreas speaking. Vincent, thanks for the question. Let me start with the first one. It's a more -- it's a little bit complex to answer that because, yes, we have a coal exit law, but it has not passed all the levels. So it needs signatures from the Chancellor Merkel, from the President and it has to be published. On the other hand, the [ BNSR ] has not produced a complete set of rulebooks how the auctions are running, which and so on. The European Commission has to approve the German coal exit law as well. So there's still a lot of noise about those nitty-gritty details how this would work. The only thing what is clear is the amount of gigawatts they want to take out with the auctions. They have put a clear price cap, a maximum price cap on the auction. So if you're starting earlier and bidding in the process, you cannot go over that price gap. You can go under that price cap, that which sparks some competition, some readiness considerations and so on. So it will be kind of thing we have to model from game theory, what we are doing, who is participating and not. Of course, if you're winning, you're getting some benefits for your employees, you get some payments. So at the moment, we're really looking at that and trying to understand how the process will work.

Vincent, on the CCGT profitability, I'm not 1,000% sure that I got your question in full. But let me try to start and you can specify, i.e., the upcoming change of -- at Irsching 4 and 5 from reserve into the merchant market is a earnings positive versus the prior status and is also an earnings positive versus the prior year, let's say, medium double-digit million. I'm not sure whether you then put that into the perspective of changes in the outright position. If so, maybe you want to just reiterate that part of the equation or that part of the question.

Yes. My question was indeed this one basically. Irsching 4 and 5 back, profitability seen increase. So it's positive for bringing back these 2 units, on the whole, for the rest of the fleet. So we had a positive on one hand of the equation. But we got a negative on the lower power prices. So net-net at a Uniper portfolio level, is it a positive or a negative? And on the call auction, my question was a bit sneaky. It was -- we have a cap, but we don't really have a floor. So is it fair to assume it's -- it could be 0 basically here?

Yes. But you're describing it completely right. You're flexible at which price you put up in the auction. But I think you would understand that I would not give you any details what is our strategy on that because it's a competitive process. The government has just made sure that the prices cannot go sky high. And of course, you put an incentive and then you auction as early as possible because your incentive to getting high prices is going away over time. But everybody in the market has now to run their own numbers, what are the benefits and what is the right strategy. And of course, depending on customer contracts and so on, because we cannot tender in structures where we have maybe to deliver energy or we have talked to customers. And it's a highly competitive project process. And on the other hand, you still have the [ BNSR ], which can tell you where you can auction, but you're not allowed to perform because you consider U.S. system relevance. So it's -- that will be an interesting couple of months going forward with that.

And going back to the CCGTs, the comparison depends on the starting position, i.e., if outright is pretty much hedged, then I think the CCGT contribution could be higher. If you're comparing the Irsching 4 and 5 delta contribution with an unhedged outright position of Uniper, then certainly, the swing factor in the outright position is higher. And then just a small add-on to the items Andreas mentioned on coal exit, I just want to remind you that in our March presentation, we have illustrated a few positives and negatives that we think will influence our earnings in the period '22 to '20. And from my memory, there wasn't a box that said compensation for coal closures. That may tell you something about the base planning. Can we have the next question, please?

The next question is from Peter Bisztyga of Bank of America Securities.

Yes. So first one, just circling back on to hydrogen. If you still -- if you could highlight whether any of the green or blue hydrogen opportunities that you highlight on Page 4 are already economic without any kind of government support? And also I realize it's sort of difficult question to answer, but over what sort of time frame do you think hydrogen could start to make a meaningful or noticeable earnings contribution to Uniper? And then second question, I was just wondering if you could describe in a little bit more detail why Berezovskaya is delayed again. Apologies if I missed your comments on that at the start of the call. And what is the risk, I guess, aside from a sort of COVID second wave that there could be any further delays? And have there been any delays at your other projects like Scholven and Irsching 6, please?

Okay, thank you for the COVID question. In regards of hydrogen, I think it's a complex question at the moment. We are a little bit color blind on hydrogen. We don't really care what color it is as long as it's CO2-neutral and not releasing CO2. The price taxes, the cost for that and the technology jumps, which we will see, will really be decided by the customer, the [ NTSI ] and the government, what kind of framework they are setting in. At the moment, we are cautious about the time line of profit contribution. I think that's the right thing to say. We are investing into projects. We want to -- we get some subsidies in some countries. So we are really playing with these projects and so on. I think we are a little bit cautious with earnings projections. On the other hand, we are quite optimistic that the earning projections could be very much faster than we think because if I believe that you could see the same kind of technology jump like renewables, then nobody would have forecast that the technology in renewables would develop that fast and rapidly. So I would say, horizon of 5 to 10 years, we're having some contributions at the moment, realistic. If it's getting earlier, it's fine. It really depends how this market is developing. In regards of value about the delays, I think it was your second question in that about COVID. Actually, it's very hard for us to say. We were on a good track. But COVID is a nasty thing as we see. Russia is a complex environment. We have the workers on the site, and we have normally more than 1,000 coming from Kazakhstan and other areas. So first, they were blocked for leaving their countries and then they opened the border and they came in, then we got the virus there. Then we have to contain them, quarantine them, test them, so if there's a second wave or third wave or another outbreak, then of course, it's very hard to get a statement from that. On the other hand, the good news is we have made very good progress on the technical side. I think the hairy parts are all over. We are now doing insulations and decorative paintings, some fire protection. So it's a mixed picture. It's very unfortunate that the COVID-19 has impacted our project schedule. But I'm afraid I'm not -- can guarantee anything about COVID at the moment. There's probably nobody in the world can say about a second or third wave.

There was at least another question, I think, with respect to potential delays of the other projects, including Scholven and Irsching 6. Personally, COVID is not making it any easier. That's obvious. But we are very closely working with our contractors. And so far, we are well on track. So nothing to report on the negative side from that perspective.

The next question is from Sam Arie of UBS.

I just wanted to come back to a question, I suppose, on longer-term portfolio strategy or group strategy. And you've clearly, in the earlier part of this year, been involved in your approach to coal and carbon overall. But obviously, a large chunk of your fossil footprint is in Russia. And if you look at it from the Fortum Group point of view, I think something like 2/3 of the CO2 in the group is now in Russia. And so just given the way that Fortum and your strategies are evolving, I'm just trying to figure out how sustainable is that big carbon footprint in Russia. So my idea is, if you don't mind, can I ask you very directly, do you see Unipro as a long-term core part of Uniper? Or would you at least consider scenarios in which Uniper and Unipro might 1 day go their separate ways? And I guess, I don't know, if you can't comment on that directly, I might have some sort of other ways of asking the question. But let me pause and see if you can -- happy to comment on that directly.

Of course, you can -- sorry, yes. I'm taking this one. Yes. So thank you for the question. I think you can rephrase the question as you want. You will not really get a clear answer from me because it's a stable earnings provider, so as we've always explained, Uniper is sitting on a 3-legged chair. We have the European generation. We have the commodity trading, and we have international right now, where we are calling it after divesting Brazil and France as the Russian generation. At the stable earning procedure, we have to -- it's supporting our rating, our BBB rating in a very essential way. So at the moment, I cannot imagine having the situation without -- from my point of view, we know what we are doing in Russia. We're decarbonizing the portfolio as well. That's why, so we have -- represents our strategy there as well. The modernizations at Berezovskaya, of course, it's a lignite-fired plant and we understand that. But it's a complex world, Russia has signed the Paris agreement and has committed to reduce their CO2 footprint. It's up to them to regulate how they want to do that. And if accepting power generation from lignite, from us or from whatever sources and they are fulfilling the Paris agreement, then I think we should live by these rules. One -- different countries, different rules. That's the way it is and that's how I see it.

That's a very interesting and helpful answer. I think -- do you mind if I just -- as a follow-up, just to reconfirm. So is it right that what you're saying is if you didn't have the Russian holding that the implications for the credit rating would be negative? I suppose there will be a trade-off between not having the stable cash flows from Russia, but also having less subtle exposure and less different international sovereign backdrop and that might be treated differently in the rating formula. And the other thing, I was just wondering if you could comment on -- I mean, I know in your position, companies are often approached by potential buyers. Are you ever approached by potential buyers for your stake in Unipro? Is it something that's ever -- did people ever come to you over? And I'm trying to sense if there would be an active market there or not?

I only confirm that we consider Unipro as a central part of our strategy and of our portfolio. I think I will hand over the rating issues for more detailed answers to Sascha. But as I explained, it's 1/3 of our income. It's very stable. So on that point of view, if you're looking at rating issues, you're always looking at good stable income streams. And as I understand, if you're selling something, the income stream is going for that as well, right? So from that point of view, if you look where we are coming from, how hard Uniper has fought to get the B -- BBB rating confirmed and stabilized by divesting assets, which were valuable to creating that situation we have there, I can hardly imagine how that would work.

Sam, just to add to that. So our participation in Unipro is certainly not an obvious negative in the rating equation. As you know, the agencies, they usually look at business risk. They look at financial risk. And I think Andreas commented on the positive aspects of the financial risk, i.e., it is largely a regulated earnings stream. Yes, it does come from a country with a higher country risk that somewhat works against it. But still, it's quite an important piece in the Uniper puzzle.

The next question is from Lueder Schumacher of SocGen.

2 questions from my side. One, Andreas, I'm not quite sure if I got this right in the beginning yet again on hydrogen. You said there will be a separate business line. But given that I'm not sure if I really understand what -- it seems to me that your view on the economics of hydrogen are such that it's not very profitable, not much money. But you're willing to help with your existing trading and storage operations. So this pretty much just falls on the gas optimization. So is that the hydrogen strategy for now? Use your existing assets and trading capabilities and going to development and other stuff once the economics justify that? And the second question is on Nord Stream 2. There is some confusion, I believe, as to what and who, more importantly, sanctions currently apply to. Is it existing partners? Is it new partners? Can you enlighten us where we are? And the -- can we actually go ahead with the project? And what is the worst-case scenario for Uniper if the project failed to be completed? What would be the impact? Is it just a simple impairment on the financial -- of the loan you've given? Just to show some scenarios there.

Coming to the hydrogen structure. And I think you -- already in your question, and thank you for that, you highlighted the complexity of what we have. We have activities on the asset side of our house with the hydrolyzers with some pilot projects we have in Germany and in other places. And of course, we have the global commodity, which are looking forward to optimize these things, import that, transport that and store that. So as we found out, as we're looking into that hydrogen, we found out that there are so many touch points in Uniper because there are so many groups which have touched hydrogen, which have an interest on hydrogen. And at the moment, not clear if the balance will swing into assets means production of hydrogen or going into global commodities, trading it, transporting it and storing it. That's just too early at the moment. Nobody knows in which direction that goes. So that's why we created a virtual [ P&L ] and a virtual group, so not to decide is it an asset-driven thing and then they neglect commodities? Or is it a commodity-driven unit, and it's neglecting the assets on the production side? So this unit is reporting to me, we -- getting the data together, we're driving the project, and then we observe where is the right place for that virtual organization and the right point of time. On the other hand, I'm a strong believer you should start the P&L. If you have a significant size of the business, if you're creating money and if you see that it is running, because all the overhead, all the red tape we have in big companies, always are normally killing small projects. And you are right, hydrogen is starting, it's taking off. There's a lot of fantasy in the market, a lot of subsidies, a lot of plans. But to really make money with hydrogen, except gray hydrogen at the moment, from my point of view, without subsidies and without regulatory health and investments, quite a stretch. In regards to Nord Stream 2, I don't know if I understand your question completely. We are just a financial investor. We have paid in our financial commitments full since March this year, I think. That's enough money and funds to finish the pipeline from our point of view. From that, the contractual things -- that, I'm not really able to comment on that. There seems to be some progress on the pipeline. But actually, given the sanctions and order environment, we're not hearing too many technical details in any way. It would not for me to speculate what they are doing at the moment and when they're going to finish. I assume and we are believing it's the right project. It will be finished. We are always believing and balancing our strategy with LNG terminals and with Nord Stream 2 because we are standing for supply, the security of supply. But the worst-case would be, of course, if the thing would never be finished. And then, of course, the question is, can we get our money back or not. But that's a thing to be seen at the moment. I don't expect that scenario. And I think we underlined that probably with all the other financial investors of that project.

We have to close Q&A now. Of course, the Investor Relations team is happy to answer any outstanding questions during the day. Thank you very much for your participation in this call and looking forward to hear you in the Q3 call in November.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.