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] May I now hand you over to Adam Strzyz, Head of Investor Relations, who will lead you through this meeting today. Please go ahead.

Thank you very much. Good afternoon, everyone, and welcome to our investor and analyst call on the Uniper stabilization package. After weeks of discussions now about potential scenarios and fresh headlines, we can finally speak more concretely about the way forward for Uniper today. For this purpose, we have today, our CEO, Klaus-Dieter Maubach; and our CFO, Tiina Tuomela, on this call. Klaus-Dieter will lead you through the different elements of the stabilization package. In the following Q&A session, both Klaus-Dieter and Tiina then ready to take your questions. I'm handing it over now to our CEO.

Thank you, Adam. Ladies and gentlemen, dear investors, we would like to welcome you to this investor call, which was convened at short notice. Today, the German government, Uniper and Uniper's main shareholder Fortum signed a term sheet containing a comprehensive stabilization package. At this point, I would like to take the opportunity to expressly thank the German government for its support. The past weeks have not been easy for any of us. We are all the more relieved that we have worked out a solution in the interest of our shareholders, creditors, customers, employees, needless to say, Uniper itself. Securing the company is good news because we will continue to play our important role as a reliable energy supplier for Germany and neighboring European countries. The Uniper management and our employees can look to the future with renewed optimism as we work to build a stronger, more stable Uniper. As you can see here, the financial stabilization package is based on 3 pillars. First, to ensure a basis of business by limiting loss accumulation via a cost pass through by means of EnSiG, the German Energy Security Act. Second, to secure short-term liquidity via an extension and increase of KfW credit facility; and third, to secure investment-grade rating and thereby, structural financial stability via an equity participation by the state. As we have announced in the past, this is a cohesive solution that addresses all relevant aspects to ensure Uniper's financial stability. All 3 pillars are interlinked and only work in combination. I will outline those 3 elements, including terms and conditions in more granular detail on the next pages. But before I do so, I would like to put this support package in a larger context. Uniper is the largest gas player and gas import company in Germany and 1 of the leading power producers. Safeguarding Uniper as system critical energy provider was therefore key in order to avoid any critical chain reaction in German energy system. We have attached also great importance to find a solution that balances the interest of all stakeholder groups, even though in this case, this includes also the element of passing gas curtailment losses from Uniper towards its customers. Only by balancing the current burden, we can continue to operate as the reliable partner that you have known now for years. This would lead to higher costs for our partners. But at the same time, the solutions shall Uniper to continue to work on future solutions, businesses and sources of supplies that will ultimately lead to secure, affordable and overtime decarbonized energy for all of us. We are confident that Uniper will continue to make a decisive contribution to a secure energy supply in Germany and continue as a strategic partner in diversification and decarbonization of the European energy system. Now let's have a closer look at the first pillar. The cost passed through via EnSiG that the German government has explained to Uniper and that forms the basis for the other elements in the agreed term sheet. Since the start of the gas curtailment by Gazprom on June 14, Uniper has been required to replace the missing gas volumes by purchases on the day ahead market at significantly higher prices. This has resulted in mid-double-digit euro million losses per day for Uniper during the last few weeks. We have tried to limit the losses through optimization measures within our procurement portfolio, and we have had to take gas from our own storage facilities in the meantime to do so. Finding a solution to stop this financial bleeding is of utmost importance. The recently established amendments to the legal framework of EnSiG provide the necessary framework to stop the bleeding. The underlying assumption of the term sheet is the activation of the pass-through mechanism according to Paragraph 26 of EnSiG. This mechanism once decided on and implemented by the German government would then foresee the introduction of a new levy that would spread the financial burden from gas curtailments that Uniper has been incurring so far across all customers in the gas market. Starting latest from 1st of October 2022, 90% of Europe's losses resulting from higher procurement costs caused by the shortage of Russian gas supplies shall be absorbed via this pass-through mechanism. Hence, from 1st of October onwards, Uniper shall only continue to bear 10% of the losses. Potentially the cost path might become effective even earlier. In turn, Uniper shall bear the full economic loss from Russian gas curtailments from June 14 until the potential implementation of the levy. Based on current curtailment and price assumptions, this economic loss is estimated to amount to approximately EUR 6.2 billion, assuming that the levy is implemented on October 1, 2022. Please note that those numbers might change quite substantially depending on the further development of curtailment volumes and market prices. Given the dynamic situation, we cannot provide full certainty of what the absolute financial losses will be from curtailments. However, this element in context of the 2 other pillars can relieve Uniper from a significant financial burden and ensures the basis of our business by limiting loss accumulation. At the same time, Uniper would take responsibility for bearing a meaningful share of the burden and actively aims at restructuring its gas portfolio in order to ultimately fully mitigate the gas curtailer exposure going forward for ourselves and our customers. The second pillar of the stabilization package is the increase and extension of the existing KfW credit facility with a goal to secure Uniper's liquidity, short-term liquidity position and to provide us with the necessary financial headroom going forward. Over the last weeks, Uniper's liquidity position has decreased despite the full utilization of our existing credit facilities. This has been primarily driven by the accumulation of losses due to the ongoing curtailment and the requirement to purchase gas at significantly elevated prices in the spot market to fulfill our customer contracts. In addition, the elevated price as well as the rating downgrade to BBB minus led to increased margining requirements, which have put additional strain on our liquidity position. Given the uncertainty in the current market environment, we also seek to reestablish a certain headroom going forward. This enables us to be prepared if the curtailment situation deteriorates and also serves as a buffer until the compensation under the EnSiG mechanism becomes cash effective. Let us take a look at the key terms of the KfW facility. The existing EUR 2 billion KfW revolving credit facility, which we have established in January this year is to be increased to a total volume of up to EUR 9 billion. Thus, we increased the existing facility by up to EUR 7 billion. Like I mentioned before, there are still some points to be finally determined. This also applies to the maturity and the interest rate, but it's already clear that the maturity will be long enough according to our financial needs and the interest rate will, as usual, be market reflective. What is known already today, the KfW credit facility shall rank senior with respect to the equity-like instruments in the Fortum shareholder loan. The overall idea as of today is to use the KfW facility, primarily as a bridge financing tool until the equity instruments are in place in order to ensure long-term financial stability, especially from a rating perspective. Ultimately, this KfW credit facility would become again what it was before for Uniper, mostly a backup financing tool. The last pillar, the equity injection from German government is the cornerstone of this stabilization package and underpins the critical importance of Uniper to the government and overall society. In general, it is broadly in line with former COVID-linked economic stabilization fund packages that we have already seen in the market in the past 2 years. Rationale for the equity injection is threefold. First, it provides the necessary loss buffer to absorb realized and potential losses related to gas curtailment. Second, by replacing debt, it will improve Uniper's key rating metrics, which is a prerequisite to be able to keep an investment-grade rating. Third, it provides the basis for Uniper to be considered a government-related entity by the rating agencies. This may result in an uplift over Uniper's stand-alone credit quality, which again is crucial to maintain the current investment-grade rating of the company. As you know, Standard & Poor's rating for Uniper is BBB minus credit watch negative. And whilst we believe this package is supportive enough to maintain the investment-grade rating, any rating impact is still subject to Standard & Poor's view. The equity injection consists of 2 parts. The first one will be a straight equity component. Uniper will issue 157 million new ordinary shares at a nominal price of EUR 1.70 per share to the German government for an amount of EUR 267 million and an ownership stake of 30% in common shares. The number of shares outstanding will thus increase to 523 million ordinary shares. The second element is provided by means of equity-like capital in the form of a mandatory convertible instrument of up to EUR 7.7 billion, which will be structured with the aim to achieve full equity credit by the rating agencies. Conversion rate will be at discount to volume-weighted average price as follows. The discount is set at 25%, up to volume of EUR 4 billion, and then linearly increasing up to 50% if volume is EUR 7.7 billion. The form of such instruments allows to be scalable and for the size to cover losses on a forward basis as needed, hence reducing the risk of overcapitalization and keeping dilution as low as possible. Please note that Fortum can swap their current shareholder loan of EUR 4 billion with the German government in exchange for the mandatory convertible instruments, which is a transaction in the realm of shareholders and outside of Uniper's scope. As mentioned before, the equity will be used to reduce the KfW credit facility and to cover for losses stemming from curtailment, which are variable in nature, given the outside forces we are facing. This means that in extreme cases, we need to have the ability to recalibrate today's stabilization package. If gas losses that cannot be offset by other operating profits accumulate to more than EUR 7 billion, the German government stands ready for further support. In this case, it is understood that additional measures should avoid any further economic dilution of Uniper's shareholders. Let's move to the next slide. The last slide summarizes some overarching details of today's agreement. A lot is very similar to other support packages by the German government in the past. We will suspend dividend payments as well as variable compensation for myself and the rest of Uniper's management Board. Further, the German government as a new significant shareholder will receive adequate representation. As mentioned above, in order to reduce Fortum's financial dilution, an agreement between Fortum and the government would allow part of the government's share position to exchange for Fortum's existing shareholder loan. Furthermore, Uniper has filed a lawsuit last year on the basis that the coal phaseout in Netherlands does not foresee adequate compensation for our Maasvlakte power plant. Following today's agreement, Uniper will withdraw this lawsuit. Finally, Uniper has been already working on how to reshape its gas midstream portfolio in order to fully mitigate the curtailment risk on Russian gas volumes. Here, we are working on ways how to change our pricing approaches and contract conditions to relieve ourselves structurally from those risks. This ambition is not only fueled by the fact that Uniper is not able to pass on 100% of costs under the EnSiG, but also explicitly qualified in the agreement. Last chart for today, the way forward. When it comes to timing, there are 2 significant approval processes to go through, one, with our shareholders in the form of an extraordinary general meeting, and the second is the state aid clearance by the European Commission. We expect the EU approval to be taken between 1 to 4 months. Once we have this -- the indication that clearance is about to be granted, we will call the EGM, which is the prerequisite for implementing the discussed equity instruments. This does not mean that we won't receive any funds prior to such date. We expect the funds under the KfW facility will already be available in the short term. That concludes my presentation. We strongly believe this package will help to stabilize Uniper into geopolitical storm. Please keep in mind, in our case, this storm materialized in clear breaches of gas contracts and business relationships that go back more than 50 years. Today's joint agreement provides the foundation for Uniper and the energy system as a whole to weather this storm. Going forward, we'll keep you posted on further development. This brings me to the end of my presentation. Tiina and I are now ready to take your questions.

Thank you very much, Klaus-Dieter. We are opening the Q&A now. As usual, please limit yourself to 2 questions each. Operator, handing over to you.

[Operator Instructions] And the first question is from Wanda Serwinowska from Credit Suisse.

Wanda Serwinowska from Credit Suisse. Two questions from me. Would you be able to quantify the losses that you incurred year-to-date? Because I do appreciate EUR 6.2 billion that you may incur by the end of September, but it would be very, very helpful for us to run our scenarios if we know what is the actual loss. And the second question is on the mechanism on the cost absorption mechanism. I mean, you said 90% of the extra cost will be covered by the German government. How about the volumes that Uniper sold outside Germany? I think the number is pretty big. It's more than 100 terawatt hours per year. Would you be able to share what is the solution to stop losses there.

Maybe if I may start with the second question. Certainly, the German government will only cover losses for volumes that we are selling in Germany and not outside of Germany. I cannot -- I don't know whether I answered you correctly, we were talking about 100 terawatt hours. I cannot confirm that them by the way, but maybe this was my misunderstanding. Sorry for that. When you talked about the quantification of the losses. Now if you talk about our quarterly report, we will go out with that, i don't know. Is that already announced?

Delayed.

Yes, we're thinking about delaying the publication. So that -- we will certainly then cover them. But if you were referring to the losses we incur because of the curtailment, I think we tried to outline that and describe that in one of the charts. You may have seen that, I think it's EUR 6.2 billion in total until end of September. And we tried to kind of explain the EUR 4.5 billion starting from mid of June until end of August and then another EUR 1.7 billion coming on top in case this pass-through mechanism would only start at 1st of October.

I mean one of the -- not -- I mean, not on the first one because I think that in one of the past calls, Uniper disclosed that you have more than 300, close to 400 terawatt hours of OTCs and basically the German-based customers around 250, but then you are selling around 130 terawatt hours at the European level. I mean if I'm wrong in my number, maybe it was me a misunderstanding, but would you be able to quantify. Non-German volumes.

Well, we can certainly quantify non-German volumes, but I think not all the volumes are Russian gas volumes, by the way. The 400 terawatt hours consists of different sources. We are buying something between 200 and 250 terawatt hours from Russia, okay? And then again, we have some curtailments that we are suffering from. So it's a more complex picture, okay?

But would the general government allow you to put the majority of Russian volumes into the stabilization package.

Well, I think what we have not figured out here is not discussed and also not agreed on with the German government, how these losses will then be exactly calculated. It's -- that is going to be another important step going forward that we put in place a methodology how the losses are being calculated. Starting from 14th of June because obviously, we have a backstop with the EUR 7 billion, i.e., everyone will take a very close look on how we calculate our Russian gas losses. And so I would expect the German government to take a close look that we are not trying to pass through higher costs to German gas consumers that they see should be then covered by Uniper or its foreign customers.

The next question is from John Musk, RBC.

Yes. Two questions from me as well. Firstly, on the pass-through to German consumers under Section 26, can you maybe try and explain the timing on that and how quickly you would then receive any of the cash flows that might be coming back from those payments? Or how does that work with the government just going to cover that up front and then they receive the cash flows. I'm not entirely sure how that flows back to you? And then secondly, it's only a minor question, but I'm not clear why the Dutch lawsuit is tied into any of this and why you have to drop that as part of these conditions?

Yes. Let me start with the second question. I can tell you that we are -- we were pushing back on this one quite heavily, I have to say, to be honest with you, because we felt that we should not give up this. But this was clearly a kind of a condition that the German government has imposed on us. I think I can even say that we tried at the very last meet to again take this out or kind of have a different agreement in place, but there was no way to get this out of the agreement to take this out of the agreement. There was simply -- they were insisting on this one. And maybe a more general comment. This was not a what I would call a situation in which you had a symmetric negotiation power. I mean we were asking for a rescue package and obviously they insisted on putting this in, and we had basically to accept that. That was to your second question. And the first question, it's still unclear how this levy or pass-through mechanism will work. The so-called [indiscernible], basically an attachment to the EnSiG is still under preparation. We expect this to be discussed and basically then also to be put in place anytime soon, but it's still open. So your question around when will we get our cash back it's difficult to judge and almost impossible to answer because that is not yet defined how this exactly will work.

Okay. And sorry, just a quick follow-up. I saw separate Bloomberg headline of the government saying it might be around EUR 300 per customer. Is that a number that you have seen or can confirm?

Yes. I think it was -- the calculation was somehow an average household would then pay EUR 200 or EUR 300 per something. There were also former calculation that such kind of levy if then imposed on all German gas consumers would have a range between EUR 20 or EUR 30 per megawatt hour. That certainly depends very much on the gas curtailment situation, the price development and so forth. So that's a moving target, I would say. But that might be a range that we can also kind of see if we do our internal calculations.

The next question is from James Brand, Deutsche Bank.

On the convertible facility, my understanding is, and also this is what Fortum was saying on their call was that the concept behind that was to cover losses incurred rather than kind of short-term costs around trading. What I wasn't quite clear on from the Fortum call was when those losses kick in, whether you already have some capability to absorb losses from the package you've secured or whether the losses kick in straightaway because obviously, if they kick in straight away and at some point some billion, and you're expecting EUR 6.2 billion of losses by the end of September. That would suggest that you've utilized the vast majority of that facility pretty quickly. So I was just wondering whether you could clarify that. Are we starting kind of today in terms of using that facility? Or do you have some headroom before you need to start using it.

Thank you for the question. So basically, as we know that the convertible will require the extra general meeting decision. So we have been granted the KfW loan. And this is the main facility what we will use to cover the core losses. And when the convertible is available, we will take tranches depending on how big the losses, curtailment, the prices have been. So step-wise, we take that in. And with this money, the target is to repay the KfW loan. So this is the mechanism in a way, the short term. It is the KfW loan. Then in a way, longer term, to get the stability is to get a convertible bond in place. And in the future, the KfW is remained to be also kind of the backup facility.

The next question is from Deepa Venkateswaran, Bernstein.

I have two questions. One is the timing of the levy. Your assumption is October 1 at the latest. And then I think in -- when you were quantifying the losses, you also gave up to end of August. Is there any [indiscernible] to why not 1st of August, why wait till end of August or in the end of September. So if you could add some clarity. And secondly, I suppose maybe it's too early, but just thinking about the enormous amount of debt that the company is now taking on, would you be looking at restructuring some of your other portfolio -- some of the other businesses, such as your hydro assets or nuclear or any of this, but would such a measure kind of be required at some stage? Or would you rather keep those and keep those earnings to lower the debt burden?

Maybe if I -- I think I would like to take the second question to make maybe a comment more in general because I do think that it's not only around exactly what you were asking, which is an excellent question, by the way. But I think it should -- we have to look at not on the portfolio, but many other things. And let me make this comment. Now first of all, to be 100% honest with you, we have to fully understand the rescue package what it means to us as well, okay? We have our calculations. We have our view on this -- how this will impact P&L and so forth. So the price scenarios, we know a lot, but I think we have to still work hard in getting the full impact digested what it means to us, number one. Number two, we will certainly have to look at how we're doing business with Gazprom. I mean that's an important element. What we have to understand and have to look into. Obviously, this all is being needed because our long-term gas supplier is not delivering the gas volumes that they promised to deliver. And that will have, again, then an impact on our gas portfolio, and it might also have an impact of other elements of our portfolio. So there is a lot of work that we need to do going forward to fully understand how the businesses of Uniper will look like. That means, in my view, we have to have almost a full strategy update going forward. That will also then include elements of our decarbonization path. We know that there is a lot of coal coming back because we are asked to bring coal back in the U.K., in the Netherlands, but also in Germany. Hence, we also have to look at that. You see we have a lot of work to do going forward. And then we also have to take maybe decisions on our portfolio. So a long answer to your short question, if I may. Then to your first question about the timing of the levy. Well, as you can imagine, we had asked for not only putting this levy in place 1st of August, we have asked to get this levy and place retroactively starting from June 14. And it certainly, we have asked for getting 100% cost compensation, not only 90%. But there were obviously a number of, I would say, political topics that we just had to acknowledge. I don't know whether you've seen the press conference of Chancellor Scholz. But he had to convey that message to the consumers and the people in Germany and tell them that another price increase is going to come out of this basically package that we have signed. So they were not ready to sign off anything earlier than 1st of October or maybe 1st of September. We would have liked to see an earlier date, but unfortunately, this was impossible to be agreed with the German government.

Your next question is from Vincent Ayral, JPMorgan.

Yes. Thank you for this call. Bouncing back, actually, one of my question was why do we add on the 90% pass-through? I think I heard you saying that the current package is thinking, if there is further supported, it won't be dilutive for shareholders. So why not just stopping the leak rather than refill the bucket? That will be the question number one. The question number 2 is, ultimately, I mean, when we look at responsibilities, and this has been an energy policy to -- rather than a Uniper policy and to sources with Gazprom for decades. You didn't have much, much time to even readjust that. You had some trials and no political support there. Here, we end up in the situation. I understand you need a rescue so you don't have leverage. But further down the road, legally speaking, a, has everything been closed as part of this deal? Or are there possibilities, I don't know in 3, 4 years' time for shoulders through your all of that would be my question number two.

I have to admit that I didn't fully get your second question. Was this related to our LTC on gas LTCs...

Sorry, yes. My point there is basically the huge reliance of [indiscernible] your Russian gas has been ultimately a political decision other decades and not allowing Uniper to pass through the cost of what is a political situation and not allowing it to do a force majeure is basically putting the responsibility and the cost on the investors in order to protect the rest of the economy. So the question is, when you have this risky package, you don't have much choice you [ hand and applied ]. But as part of this rescue package, as all the legal work hours has been closed, or in due time, people can come back on this type of situation. We've seen, for example, I mean, the compensations for nuclear taxes, we've seen in the past in things like that in a few years later. So I just want to know if there is any hope on the.

Well, I mean, obviously, we -- I agree with you. First of all, we had a strong reliance on Russian gas in Germany, but also our company. It was basically for more than 50 years that we have bought gas from Russia. They have delivered a very reliable and we have paid also very reliable. And that is now a totally different situation. And I agree with you that was not only a business decision that Uniper has taken. It was also something that was clearly supported by governments in Germany. Now that's -- I was trying to make this point earlier referring to this question around what will happen in our company. I think we have to sit down internally first, think about how we're doing business with our Russian counterparts. Number one. And certainly, once we have a position, we have to approach the German government and talk to them because we cannot bear this situation mid- to long term, obviously. If you don't have a reliable partner any longer, but you have long-term contracts with minimum pay volumes than you are in a very difficult situation, and nobody wants this to be repeated short or midterm. And hence, we have to work on this one. I don't have a solution for that. But I clearly see that we have to get our act together, if I may say so, and also then have to talk to the German government on how a solution could potentially look like around our long-term contracts. Then your first question was 90% or why not 100%? Well, okay, we would have also liked 100% instead of 90%. But then you made a comment saying, why don't you stop the league? Well, if -- we've also looked into why are we not simply stopping this and not buying gas any longer. But I can tell you, this would cause even more problems, not only portfolio in Uniper, but also for the German gas consumer, that is not an option at least not at this stage.

Okay. When I talked about stopping the league, I was talking about the 10%. Not being back through. And basically, you're going to refill the balance sheet now that with a bit of cash. But -- so yes, you would have liked 100%. I'm sure. But what was the rationale for the 10%? Did you get any explanation? Or it was just like, okay, if you take it a little bit -- do you have any sense of why do we have it structured this way, basically?

Well, it's what incentives, isn't it? I mean if we have to cover 10%, then we are still incentivized to make this as low as possible and fight hard for taking the losses down. If we had a full coverage, there wouldn't be any incentive in place that was the logic and the rationale behind it.

Okay. And then for the other question, too, I mean, my question was slightly different, but we understand another one, which is the redeployment of your gas sourcing with Gazprom. But you have 20 years long contracts. What leverage can you have around that? So how many years does it take to do that? Because yes, things need to be done. We understand that for us, I would say, on the markets, and I started my career in the gas business that -- it's difficult to understand exactly what you can do and how long it takes. I mean, I doubt it's something you can do over the next 12 months. It will take probably a few years as I know.

Yes. Well, I think we certainly have maybe a horizon of 1 or 2 years, something like that. In that horizon, we have already started to sell, always started to sell volumes to our customers. Everything beyond that horizon is clearly something that we can look at. And again, we have to now understand how we can maintain our business relationship with Gazprom. I mean we are incurring losses, billions of euros. I mean that hasn't worked like that. We cannot maintain such kind of business relationship. And hence, we have to find a solution that may take a lot of time that may be a solution that will only come in then as of, I don't know, 2025 going and beyond, I don't know, I don't want to kind of now make any kind of commitment. But I can tell you and promise you, we will not just stand still and accept this kind of behavior by our main gas supplier.

The last question for today is from Piotr Dzieciolowski, Citi Bank.

I wanted to ask you what is that on this 10% of shortfall that you have to cover -- can you say how much that translates into terawatt hours of gas. So basically, when you look at the demand, forecasted demand from your customers and versus your delivery, assuming the flow of Russian gas as it is now in the 30%. So maybe in brackets, what is the basically terawatt hour shortfall that you have to cover. So that would be the first question. And second, why is the Dutch lawsuit on the compensation for the coal plant involved in the rescue package here?

To your second point, that was a clear request from German government. We have -- I said this earlier in this call, we've pushed back on this one because we didn't like this at all. We also told the gentleman, this is something that will be challenged by our minority shareholders. But they said, "No, go if you want the deal, you have to put this in. So that was the situation. On your first question, I don't want to disclose the exact numbers, but at least I can give you an indication based on the numbers that we have published. If you take our 250 terawatt hours that we max a buy from Gazprom and divide this by 365 days, you end up with 0.7 terawatt hours per day, okay, per day. And if you then assume that we have a curtailment of 60%, then our shortage would be 0.4 terawatt hours. And if you then take off that again, 10%, then you have a 40 million kilowatt hours per day and that you can multiply with an anticipated price spread between our kind of prices that we have signed with Gazprom and the then spot prices on the market, if that was a help to you.

Yes. What was -- what is one element meeting is how long you have -- because I understand if you're a new customer and I come to you, you give me totally different price based the market, right, right? So the duration of the hedge versus your customers, that's what I think is your liability from October. So do you have like a 1 year of this contract sort of multiplied by a daily shortfall or that shorter or longer?

Yes. I mean, what I can say, again, I don't want to disclose all the numbers that we have here in place. But over time, the volumes will certainly go down, and hence, also the losses will go down. That is, by the way, also something that the German government expects. The German government was crystal clear. They will cover these losses for some time, but not endlessly. So we have to look at our hedging strategy and the way we are doing business. I'm coming back constantly to that point with our Russian counterparts, because the German government is not willing to accept losses out of this situation beyond a midterm period. That is crystal clear. So we have to do it in a different way. We cannot count on this to be in place mid to long term.

Okay I understand. And just you are not willing to provide an estimate of the possible loss like you provided the losses up until October, [ 6.2 ] so on mark-to-market that amount as a liability?

We have to now -- in any scenario, we have to do this lab. We have to kind of culture that back from June '14 because, obviously, the agreement that we now have says that we have a EUR 7 billion cap, i.e., we have to, as quickly as possible, define how we calculate our losses. We have to then calculate them because we want to be sure that the German government always knows what were the losses that we have incurred so far.

We received another question. It is from Alberto Gandolfi, Goldman Sachs.

It's Alberto Gandolfi, Goldman Sachs. Forgive me, I couldn't listen to the first part, but I understand this has not been asked yet. And thank you for sharing with us all the developments in such a difficult time. Question is here, just trying to take very, very, very simple math. You are versus, let's say, mid-June. So let's say before, we had a reduction in flows and you started to incur in procurement losses. So you essentially are going to be asked by the government to endure to face a EUR 6 billion loss that I'm not even sure if it makes sense to think about is it tax-deductible or not probably this. But the point is, there's a EUR 6 billion loss, 10% of future losses if flows don't come up, although at some stage, you're going to reprice your portfolio. So I guess, let's say there's EUR 6 billion loss. And then there's a EUR 7 billion convertible that would be converted by people that are lending you money right now. So I guess, of course, you have no equity injection. So when I'm thinking about the situation pre mid-June, like really back of the envelope, should I just say the valuation has dropped by EUR 6 billion and then there's anywhere, EUR 3.5 billion to EUR 7 billion dilution from the convertible. Is this the right way to think about it? Because then it seems like, yes, you're being supported by the government, but pretty strong ask from the equity holders...

Well, they're pretty strong asked by the equity holders, I think that's a fair point. I think what you have not put into your calculation is that we have other businesses that are very profitable. As you can imagine, this basically very high prices that we do see in some parts of Europe, in the Nordics, in the U.K. and so forth. That means for us, given that we have a strong portfolio that some of our businesses are also clearly in positive territory. So I think that is something that you also to take into account. Yes, maybe that's the attempt to try and the attempt to answer your question.

I mean, as a follow-up, my -- I mean just a comment, not a question, if you don't mind me saying solicited. Thank you so much. Unsolicited comment is that I agree, your businesses are profitable and perhaps more profitable now in an energy crisis given higher power prices. However, the market was already in a way, valuing those businesses in mid-June. So what has really changed is really those trading losses and going forward. So that's why maybe it's a matter of time before the market appreciates higher profitability from these other activities, but to be seen. For sharing your thoughts and for being present with us throughout this.

So thanks very much to everyone. Maybe just as the last word today to echo what Klaus-Dieter has said. The package today in all these 3 pillars has been designed to ultimately ensure financial stability and also our rating. So if you look at each of those individually, the cost pass-through, the KfW and the equity instruments at hand, they work hand-in-hand. So therefore, if you have questions about this, as usual, please do not hesitate to reach out to the IR team. We understand that this is not the most easiest thing to understand, so please don't hesitate. And apart from that, thank you very much and happy weekend.

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