Electricite de France's (ECIFF) CEO Jean-Bernard Lévy on Q2 2016 Results - Earnings Call Transcript

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Electricite de France SA (OTC:ECIFF) Q2 2016 Results Earnings Conference Call July 29, 2016 3:00 AM ET

Executives

Jean-Bernard Lévy - Chairman and CEO

Xavier Girre - CFO

Dominique Minière - Group SVP, Nuclear and Thermal

Analysts

Louis Boujard - Oddo

Andrew Moulder - CreditSights

Damien de Saint Germain - Credit Agricole

Ahmed Farman - Jefferies

Harry Wyburd - Merrill Lynch

Cosma Panzacchi - Bernstein

Martin Young - RBC

Julie Arav - Kepler

Sofia Savvantidou - Exane

Philippe Ourpatian - Natixis

Jean-Bernard Lévy

Thank you. Good morning, ladies and gentlemen. Welcome to this Conference Call dedicated to our Half Year results. First of all, I will review the progress made on the main issues that have kept us busy over the past few months, quite busy. And after me Xavier Girre, CFO of EDF Group, will present the results in more detail.

May I start by reminding you that after our Board of Directors’ meeting on April 22nd, we defined a new Group’s -- our Group’s new financial trajectory. May I remind you that it includes an asset disposal plan of €10 billion through 2020. It includes a strengthening of our savings plan, with the objective of reducing OpEx by at least €1 billion in 2019 compared to 2015. And it includes a reinforcement of our equity, mainly based on a capital increase of €4 billion, which the French state has announced it will participate to the level of €3 billion. The French state has also committed to receive its dividend in shares for fiscal years 2015, which is now behind us, 2016, and 2017. The action plan related to this trajectory is now operational. It enables us to continue our development and complete future investments.

Regarding asset disposals, yesterday we announced that we are entering into exclusive negotiations with a consortium of Caisse de Depots and CNP Assurances for a long-term partnership with RTE, which will include the sale by EDF of 49.9% of RTE. We would also like to highlight that our cost control ride has been very productive. In the first half of the year, our operational expenditures went down by 1.6% when compared to the first half of 2015, that means a reduction of our cost of €167 million. Regarding the reinforcement of our equity capital, the Extraordinary General Meeting of July the 26th, last Tuesday, authorized the Board of Directors of EDF to increase the capital. Also yesterday, further to our Board of Directors meeting, we have embarked on a new decisive stage for many strategic subjects. Now, I mention the restructuring of the nuclear sector first. This constitutes an essential goal for our future. It includes updating of the memorandum of understanding, covering the strategic partnership with Areva in the nuclear reactor area, it includes the amortization over a period of the 900 megawatt plant series, except at Fessenheim, which is now in our books, amortized over 50 years and no more 40. And it includes the final decision to invest in the Hinkley Point C project which we have made.

The Board of Directors has also been notified of the principles we have reached to be compensated for the closing of the Fessenheim nuclear power reactors, two reactors. This compensation will be based on a fixed initial portion, corresponding to the anticipated costs associated with the closure of the plant first, and second, a variable portion to be determined based on trends in market prices and volumes which would not have been generated.

In due course, these arrangements will be submitted to the employee representative bodies for approval. And the meeting has been called for September 14 to discuss the matter. These principles fit in with the schedule laid down by the government for the decree which will annul the Fessenheim operation permit. All this demonstrates how EDF really fosters its transformation, in compliance with our Cap 2030 strategy. This will be continued in the coming months and year with the support of our employees.

Regarding the results after this general introduction, may I present now a few key figures and highlights for the first half of the year. In the first half of 2016, our results demonstrate a good level of performance in our regulated activities, a strong development of renewable energies and sustained efforts to contain operational expenditures. OpEx is virtually stable, despite the unfavorable context caused by the combination, first, of continuous development of competition, particularly fierce in France with the end of the yellow and green regulated tariffs as of January 1; and, second, the sharp drop of 30% in wholesale market prices, especially at the start of 2016, when we had reached €26 a megawatt hour, before recovering slightly on the French wholesale market to €32 as of March.

EBITDA fell slightly to €8.9 billion when compared to the first half of 2015. This represents an organic change of less than 0.7%. In the UK, despite difficult market context, operational performance of our nuclear fleet was excellent. And organic decline, compared to the same period in 2015, was 8.9%. But, on the other hand, recovery of the margins related to the renegotiation of the price formula for the Libyan gas contract has enabled strong organic growth in Italy, with an EBITDA increase by 36.2%.

Net income, excluding non-recurring items, went up by 1.4% whereas net income Group share fell by 17.2%, mainly due to loss of value. Regarding the debt, the Group upheld a ratio of net financial debt to EBITDA of 2.1. This includes a drop in debt of just over €1 billion and, as you all know, our goal is to maintain this ratio between 2 and 2.5.

I would like to spend a few moments on the two pillars of our low carbon energy mix; nuclear and renewable energies. I am absolutely convinced that, for us, the way forward is based on the complementary nature of nuclear power, the basis of our generation mix, and renewable energies, which strengthen our foothold on energy transition and whose development we will speed up. Regarding the nuclear power, the Board of Directors has decided to extend the depreciation period of 32 units in the 900 megawatt nuclear fleet to 50 years. This decision is an industrial strategy decision. It results in the development of the Grand Carenage program, which principle was approved by the Board of Directors just after I joined. That was on January 22, 2015. This industrial program is estimated at €51 billion current over the period of 2014 to 2025.

The purpose of this program is to extend, subject to the approval of the nuclear safety authority, fleet operating lifetime beyond 40 years, while improving the safety level. We will indeed be able to ensure long-term generation of low carbon and competitive electricity in France with this program. Concerning industrial safety, this program is consistent with international operating experience. It implements the additional requirements laid down after the Fukushima accident to replicate, as much as possible, the safety level of the EPR. We will continue to work very closely with the nuclear safety authority on preparation of the fourth ten-yearly outages for each and every reactor in our 900 megawatt plant series. And we have confidence in our capacity to fulfill the requirements which have been laid down by the regulator in April.

I’d like now to speak briefly about updating of the memorandum of understanding governing the strategic partnership with Areva which our Board approved yesterday. My priority has been and will be to defend the interests of EDF and thus protect us against several risks, including the risk related to the achievement of the Olkiluoto EPR and those related to the ongoing audit at the Areva forge in Le Creusot. In this context, we have modified the memorandum of understanding signed in July 2015. The purpose of this project is to guarantee a more effective integrated model for the French nuclear sector, mainly based on the acquisition of Areva NP by EDF. We will be more effective, more coordinated, both on the domestic market and for export initiatives.

The updated MoU is non-binding and will be submitted to the employee representative bodies for validation. It includes the acquisition of all of Areva NP assets, except those related to the achievement of Olkiluoto EPR, which will be transferred to a new company called NEW NP. EDF will have exclusive control of this new entity with a holding of at least 51%. The second part of the partnership, already announced in July 2015, is the set-up of a dedicated company, also controlled by EDF at 80% and, grouping together the project engineering, design and management activities in France and outside France, in charge of design and construction of new reactors, more competitive and better tailored to customer needs. We have decided with Areva to set up this company independently of the acquisition of Areva NP. The role of this company is to optimize the management of such projects as Hinkley Point and the future updated EPR.

And also within the MoU with Areva, we have confirmed our resolve to enter into a comprehensive strategic and industrial agreement in order, in particular, to improve the efficiency of our cooperation in such areas of research and development, international sales of new reactors, storage of spent fuel and dismantling activities. The indicative price for 100% of Areva NP equity capital has been confirmed with this updated agreement. The amount is €2.5 billion, which corresponds to eight times the EBITDA forecast for 2017. As I have already said, we have guarded against exposure to any risks. That is why, on top of guaranteeing total immunization of EDF, Areva NP and their subsidiaries against the risk and costs of -- related to the OL3 project, the cooperation agreement also protects us against any risk incurred by ongoing audits on the components manufactured at the Le Creusot, Saint-Marcel and Jeumont plants. I will just finish off this part on Areva by providing a reminder of the next stages in the process. Specific due diligence regarding the manufacturing process in Le Creusot and other plants is currently run. We will also implement a supplemental due diligence effort to the one carried out last year. And our objective is to sign binding agreements before the end of November 2016. We plan to close the transaction before the end of 2017, subject to customary approval from the relevant merger control authorities.

May I now turn to renewable energies. I really would like to stress that we now invest as much in the development of renewable energies as in the development of new nuclear build. This shows our determination to make very significant progress in renewable energies. In line with our Cap 2030 strategy, we have obtained excellent results in the deployment of renewable energy projects. And just a few examples, we have commissioned the largest wind farm in France during the second quarter, the Ensemble Eolien Catalan at the end of June. We inaugurated this facility. It is powerful; it is highly innovative, as it is equipped with stealth wind turbines to reduce their footprint on the radars operated by the met office for the French government.

On the international scene, we now operate through EDF Energies Nouvelles in 21 countries. Two new breakthroughs have been implemented in the wind power sector, one in India, one in China. Related to the hydropower sector, our fleet in France recorded a good level of performance, with a 65 -- 6.5 -- sorry, 65 would have been even greater, but it’s only 6.5% increase in generation against the same half year period in 2015. We are now also embarking on a new stage on the international scene with the Nachitgal dam project in Cameroon. We have set up the joint venture in charge of construction, which included in the project the Cameroon state and also the World Bank. We plan the final investment decision in this project in 2017. We believe in the strategic importance of Africa. Africa was a major focus in the Cope 21 discussions and obviously Africa’s energy needs and potential are immense. We are part of that.

In terms of our financial performance, EDF Energies Nouvelles EBITDA rose by 48% in the first half of the year. And that reflects an increased generation of 16% against what we generated in power in the first half of 2015. Renewable energies are of course a major field of technical innovations. The first half of 2016 was very fertile, with a few highlights, as I will say now. We successfully immersed two turbines off the coast of Brittany to form the world’s first grid connected tidal array once the connection will be completed. We also implemented very innovative storage solutions for the Reunion Island in order to better integrate its renewable energies to its grid.

Presenting the Group’s main developments in the renewable energy sector, we can observe that hardly a month goes by without us developing and laying down a foundation of a new, major project. And contrary to what is commonly thought, there are just as many such major projects located in France as there are abroad.

And a few words now on our downstream activities, one of the top priorities in our Cap 2030 strategy. As we all know, one of our priorities is to support customers and territories in their energy transition. Within the context of continuous development of competition, we have demonstrated a very solid level of resistance when regulated tariffs in the yellow and green tariffs went off. We have kept more than 75% of customers benefiting from yellow and green tariffs have opted for EDF. And I would like to take this opportunity to thank the teams for their commitment, based on their expertise and their proximity towards customers.

In the first half of the year, we have innovated directly for our customers in such areas of -- as control of their electricity bills and their carbon footprint. To these ends, we have launched renewable energy self-sufficiency program known as Mon Soleil & Moi. Such innovations are part of our new social trends, as we all know consumers now want to participate and consume their own, carbon-free electricity generation. Digitization of our customer relations has also been speeded up. The digital offer, equilibre, which we already announced a year ago, it’s now been adopted by 1.6 million customers, whereas the application EDF et Moi has recorded more than 2 million downloads.

Our collaborative platform, the EDF Pulse & You for retail customers, and EDF Connect Enterprises for corporate customers are now enabling us to jointly build tomorrow’s offer with many start-up companies.

Our energy service subsidiaries, I want to mention Dalkia and TIRU, Citelum and Sodetrel specialize in many areas of energy services, and are deployed for our industrial customers and local authorities. And I would like to point out the very good performance of Dalkia. We recorded a net portfolio growth of 3.5% in the first half of the year. And we won several very major contracts such as the one in North Sea, the one for Centre Pompidou in Paris and many others. In the first half of this year, we also reorganized and today Dalkia owns 75% of TIRU. This enables Dalkia to better achieve its energy transition goals by combining its district heating expertise with that of TIRU specialized in the recycling of waste.

A few words on the OpEx reduction. Our initiatives have been productive. Our costs have fallen by 1.6% against the first half of 2015, which means a decrease of €167 million. This shows we are in a good pace to reach our operational expenditures target of a decrease of €700 million by 2018 and €1 billion by 2019 when we compare it to the base cost of 2015. This is a confirmation as what was announced after the Board of Directors meeting on April 22. Successful cost reduction is essential; it’s one of the key elements of the action plan announced in April.

A few words about Hinkley Point, as you know, the Board of Directors decided yesterday to invest in this major project, which paves the way for our future. The next stage is now to sign this investment with our Chinese partners and the British government. The project is now mature; the risks have been identified and managed. The two reactors at Hinkley point will be the fifth and sixth EPR to be built in the world. We have support by the authorities in Great Britain, as Hinkley Point occupies a central place in energy security and global warming policies. HPC will be built on stabilized design, benefiting from operating experience from Taishan 1, Taishan 2 and Flamanville 3. All the contracts are ready; the contract for difference guarantees, the stability of consumer prices for 35 years and stability of revenues for the nuclear operators. HPC is a good project. It is funded; it is a very valuable asset within a regulated framework.

Total financing requirements amount to £18 billion up to commissioning. This will be funded with equity capital by each partner; EDF Group share amounting to £12 billion and CGN, our Chinese partner, amounting to £6 billion of funding. The provisional rate of return on this investment after tax is estimated at around 9% every year over the next 70 years. HPC is one of EDG Group’s essential investments. It is part of our new financial trajectory, which I have already described. The decision to commit to Hinkley Point project is a decision for the future. It is part of the revival of nuclear power in Europe. It will give a new impetus to the nuclear industry in France and in the United Kingdom.

Today eight of the most powerful countries in the world deploy nuclear power to generate their electricity. The most powerful countries by GDP, when I look at the USA, China, Japan, the UK, France, India, South Korea, Spain, eight of the top ten countries in the world deploy nuclear power. So we know competition is and will be fierce on the world’s case. If the French, British and European nuclear sector does not plan to build HPC, then others would step in. Winning the contract to build the first two EPRs ordered since Fukushima is a great victory for EDF and for the nuclear sector in Europe. It will be also an international showcase for the knowhow of EDF Group, of Areva, and all the companies belonging to the sector. Let me remind you that construction of Hinkley will be carried after the Flamanville 3 construction has been completed and before the start of the renewal of the French nuclear fleet in the early 2020s. Through Hinkley Point, EDF will play its full role of leading inside an effective, competitive and proactive nuclear sector, the best and most secure opportunities for nuclear generation in the world.

With this, I will now turn over to Xavier Girre for his presentation with more details around our half year results. Xavier.

Xavier Girre

Thank you Jean-Bernard. Good morning. I will now detail and explain our 2016 half year results. First, you already know the key figures in this first half. Jean-Bernard Lévy has just shared his comments on them with you.

As regards sales, they were down 4.6% at €36.7 billion, reflecting the market environment of this stressed half marked by lower power prices and increased competition. In this environment, the EBITDA performance was robust. Group EBITDA came to just under €9 billion, nearly stable in organic terms versus the first half of 2015, supported by the positive evolution of our regulated and renewables activities, as well as our continued efforts to control costs. Recurring net income was up 1.4% and benefiting from the positive impact on D&As of the life extension to 50 years of the 900 megawatt series in France. Net income, Group share was down 17.2%, reflecting impairment in some of our international businesses. Looking at the structure of our balance sheet, two points, first, net debt was down €1.2 billion, thanks in particular to slightly positive free cash flow and favorable ForEx. And, second, net debt to EBITDA remained at 2.1, at the lower end of our target range.

Before reviewing these results in more details, I wanted to give you an update on the implementation of the plan announced on April the 22nd, to enable EDF to achieve its strategic development within the Cap 2030 framework. First, our efficiency plan is being implemented and we are making progress on all fronts. Regarding CapEx, over this first half, net investments were down almost €0.9 billion compared to H1 2015. They stood at €5.6 billion, including Linky, new developments and disposals. The main contributors to this reduction were EDF Energies Nouvelles, the UK, Italy and Poland. This includes some favorable phasing effect, however, the trend is a positive one. You heard from Jean-Bernard Lévy that our cost control plan continues to deliver savings. Group OpEx are down 1.6% organically over this first half of 2016. As you can see on this slide, our three largest segments, France, UK and Italy, delivered reductions.

Lastly, cash flow benefits from the positive effects across the Group of our working capital requirement improvement plan. The plan yielded €0.4 billion positive contribution over the first half of 2016, on top of the €0.7 billion delivered in 2015. Secondly, as regards our disposal plan, we have decided to enter into exclusive negotiation with Caisse de Depots and CNP about RTE to consider a 49.9% disposal of RTE. This deal would be based on an indicative 100% equity value of €8.450 billion and, including last year €0.7 billion disposals, our plan would be achieved at almost 50% when achieved.

Next slide, as Jean-Bernard Lévy just explained, over the first half of 2016, the necessary conditions to allow the amortization period of the 900 megawatt reactors to be aligned with the Group’s industrial strategy are met. The Group’s consolidated financial statements as at June 30, 2016, first, include the extension from 40 to 50 years of the amortization period of the 900 megawatt reactors except Fessenheim. This accounting change, implemented as of January 1, 2016, carried certain impact on the Group’s P&L and balance sheet.

First, looking at the P&L impact. With depreciation spread over a longer period, and a lower asset value related to the reduction in nuclear provisions, I’ll come back to that, depreciation charges were down €445 million in H1 2016 compared to what they would have been with the depreciation period kept at 40 years. This was the main impact. Another positive element was the lower cost of unwinding the discount rate to lower provisions. Overall, combined effects of the extension had a positive impact of €472 million on profit before tax and of €310 million on net income.

Secondly, let me go back on the impact on nuclear provisions. With the life extension, investment of certain future charges relating to nuclear generation is pushed back in time. As a result, corresponding provisions went down by €2.1 billion, out of which nearly €1.7 billion are in the scope of dedicated assets. As a consequence, the coverage ratio of the dedicated assets reaches 105% as of June 30. This reversal of provision had no P&L impact, but, as I said, came deduction of the asset value. The reversal is nearly entirely taxable, which will trigger a one-off cash payment of nearly €0.8 billion. The effects I just described are explained in details in Notes 12 and 18 of our consolidated financial statements.

Next slide as regards the EBIT. It was almost stable at €4.5 billion, penalized by a negative evolution in IAS 39 volatility and other operating income and expenses. This was essentially offset by the €0.5 billion reduction in D&As linked to the extension to 50 years of the depreciation period of the 900 megawatt reactors. Impairments passed in 2015 on some of our UK and Italian assets also carried a positive impact on D&As in 2016.

Let’s focus now on post-tax effects of all non-recurring items on the next slide. They came to minus €887 million, down from minus €414 million in the first half of 2015. A number of elements that carried an impact in the first half of 2015 have no equivalent in 2016. This includes, on the one hand, the July 2015 EC decision on RAG which had a negative impact in 2015, as you know, and, on the other hand, items carrying a positive impact in 2015, such as the consolidation of the revenue before tax in Italy and the agreement with NG on the treatment of in-kind energy benefits. As a whole, these impacts more or less offset each other. So, in fact, a key driver of the negative evolution of non-recurring items was the higher level of impairments recorded by the Group in the first half of 2016. These mainly relate to our participation in CENG in the U.S. fand to coal units in Poland.

Looking now at the Group net income, starting from roughly similar EBIT level, the main drivers of the 17.2% decrease in net income Group share compared to H1 2015 were; first, a slightly degraded financial result. This was mainly related to the lower level of capital gains on dedicated asset disposals, which were partly mitigated by the absence of equivalent to the H1 2015 financial charges associated to RAG, but also the positive impact of fixed to variable swaps and ForEx on the cost of net financial debt, and by the lower cost of unwinding the discounts on nuclear provisions. The second main driver was the significant fall in the contribution of associates to net income, due to the impairment recorded on CENG. When excluding for the impact of non-recurring items, net income was up slightly at nearly €3 billion.

Let’s now review, in more detail, our operational performance over the first half of 2016 compared to the same period last year. As I said, Group EBITDA was almost stable in organic terms, at minus 0.7%, after taking into consideration particular negative impact on the ForEx. Looking at the main components of this EBITDA evolution, France was down €178 million, under the combined effect of lower power prices and the end of regulated tariffs for industrial and commercial customers. Our activities in the UK also faced challenging market conditions; EBITDA was down €117 million in this segment. On the other hand, EBITDA in Italy was up €89 million, as gas margins recovered, thanks to the positive effects on gas contract renegotiations. And performance in the other activities segment was up as well, with €105 million increase in EBITDA, driven by strong growth at EDF Energies Nouvelles.

Finally, EBITDA in other international grew by €41 million, supported by a good performance across all areas. Looking at the distribution of Group EBITDA across the segments, the UK remained the largest contributor outside France, closely followed by the other activities segment, where growth of EDF Energies Nouvelles has been a strong driver. In France, the contribution of regulated and quasi-regulated activities in distribution and islands represented 44% of this segment’s EBITDA. Looking now at the performance of each major segment, starting with France where EBITDA decreased by 2.8% in organic terms at €6.2 billion. Market conditions were the main driver of this evolution, carrying a €633 million negative impact on EBITDA. This was mainly due to the end of yellow and green tariffs for minus €410 million and, on the other hand, the combined effects of the decrease in market prices and enhanced competition in all segments with €308 million negative impact. The market competition triggered an increase in our market exposed volumes in the context of decreasing power prices.

Nuclear output over the first half is down 5.2 terawatt hours. The corresponding EBITDA impact is a negative €161 million. This was partly offset by the higher hydro output. I will come back to nuclear and hydro generation in the next slide. France EBITDA benefited from the change in tariffs, especially the increase in the energy component of the regulated sales tariff implemented on August 1st, 2015. And some external factors also carried a positive effect; for example, we had one additional day of activity in this leap year. And weather also had a positive impact. But the lower spot power prices of the first half of 2016 enabled us to meet demand at a lower cost during the high consumption period of this past winter compared to 2015.

Operating expenditures, and this is an important point, were down, as our cost reduction plan delivered savings, in particular in our supply and thermal generation activities. Finally, EBITDA in this segment benefited from the positive impact of reduced fuel costs on margins in thermal generation and gas sales. If we consider now the upstream/downstream electricity balance, the customary balance on this slide shows a 38 terawatt hour increase in volumes sold on wholesale markets in the right part of the page. This mainly corresponds to [RN] sales during H1 2015, which no longer happen during the first half of 2016, as well as a decrease in demand from end customers, in line with the evolution of our market shares with ex yellow and green customers. Considering now French nuclear output, you’re probably familiar with these numbers as we disclose them on a monthly basis. And nuclear generation was down 5.2 terawatt hour at 205.2 terawatt hours. The mild weather carried a negative impact, as the dispatch of available units was adjusted in times of reduced demand. But the main driver of this lower output was increased volume of outages, corresponding mainly to extended planned outages linked to additional controls.

This does not reflect the strong industrial and safety performance of the fleet, in particular the low level of unplanned outages and an historical low for automatic reactor shutdowns over the first half. Based on the nuclear output at the end of June and on the extended outages now expected in the second half of the year, we revised our 2016 nuclear output target from 408 to 412 terawatt hours to a new 395 to 400 terawatt hours, as announced on July 19. Some words about hydropower generation in France. Output was up 6.3% to 25.5 terawatt hours, as hydro conditions have been more favorable than in H1 2015.

Looking now at the UK segment, EBITDA came to €1.1 billion, down from €1.3 billion over the same period last year. This included a negative ForEx impact of €77 million. In organic terms, EBITDA was down 8.9% versus the first half of 2015. This was due first to the impact of lower wholesale market prices on realized prices for nuclear generation. This was partially offset by a continued good underlying operating performance in nuclear generation, with output up 1.8% to 30.9 terawatt hours. Competition in the UK B2C market continued to be fierce. EDF Energy’s average number of product accounts was down 1% and average pricing was decreasing as well. In that context, EDF Energy further strengthened its cost control efforts across all parts of the business.

Turning now to Italy, EBITDA was up 36.2% in organic terms. This strong growth reflected the positive evolution of our long term Libyan gas supply contract with ENI. This follows on from the arbitration end of 2015 and the review of the price formula last June.

Gas margins recovered markedly as a result. This positive effect was partly mitigated by the impact of lower brand prices on E&P activities, lower hydro output in the first quarter of this year and a negative evolution of power prices and of margins in summer generation. In this context, EDF confirmed its expectation of an EBITDA of about €650 million for 2016.

Moving to the other activities segment and starting with a focus on EDF Energies Nouvelles. EBITDA came to €554 million, up 48.3% in organic terms, including DSSA, against the first half of 2015. This strong growth reflected, first, the positive impact of the capacity commissioned in the course of 2015, with a net installed capacity increasing by 1 gigawatt in EDF Energies Nouvelles’ portfolio. Output increased by 16% compared to H1 2015 as a result. Growth in EDF EN’s EBITDA over this first half was also supported by DSSA activities skewed to the first half of the year and by a disposal gain under the new agreements signed with Enbridge for the three offshore wind projects off the French coast. EDF EN’s pipeline of capacity under construction amounted to 1.6 gigawatts at the end of June, which should further support continued growth objectivity.

Looking now to the next slide, at the entire segment, where EBITDA was up 12% in organic terms. Dalkia faced unfavorable price conditions, and its EBITDA was down 6.7% organically at €135 million. EDF Trading’s EBITDA came to €188 million, down from €311 million in H1 2015. This reflects in particular the transfer of regulated purchases of renewable injections to France segment, which has no impact at Group level though. In addition, EDF Trading’s performance was impacted by an unfavorable environment in its different markets.

And moving finally to the other international segment, all areas contributed to the good operating performance, resulting in an 11.6% organic growth of EBITDA to €363 million. EBITDA in Belgium was up 22.7%, supported by the restart of Doel 3 and Tihange 2. EDF Luminus wind generation output increased on the back of the capacity commissioned last year, comforting]its leading position in onshore wind in Belgium. Continued strong activity in ancillary services continued as well to this strong performance. In Poland, EBITDA was up 19.8%. Electricity and heat volumes grew under the effect of a more favorable weather than in H1 2015, and the improved availability of units whose modernization was nearing completion. Increased heat tariffs also boosted EDF Polska’s performance. Brazil’s EBITDA was up, supported both by the annual price review under Norte Fluminense’s PPA and by low-power sourcing costs on the market during maintenance outages. EBITDA of the segment also includes the negative impact of the end of the Figlec concession in H2 2015.

Turning now to the cash flow, operating cash flow came to nearly €8 billion, up €1.2 billion compared to the first six months of 2015. This was mostly linked to the reimbursement of excess advance tax installments in France in 2015 following the decrease in 2015 of the Group’s taxable income. Lowered investments of net financial expenses also had a positive contribution. Working capital requirement increased by €1.7 billion over the first half of 2016. The negative evolution the change in working capital requirement was mainly linked to milder weather in France at the end of 2015 and an increase in the CSP]operating receivable. These negative drivers were partially offset by the improvements on stocks and customer receivables unleashed by our working capital requirement plan, improvement plan, with a positive contribution of €0.4 billion overall.

This impact on cash flow was partially mitigated by the reduction in net investments, which I will comment in the next slide. Cash flow after net investments hence comes to €670 million, positive €670 million, improving significantly from the negative €295 million registered over H1 2015. Taking into account the positive cash effect of the payment in shares of a large part of the 2015 dividend balance, Group cash flow came to a positive €107 million. The Group cash flow and the scope of our 2018 ambition, which excludes Linky, new developments and disposals, stood at €485 million. Considering net investments, they amounted to €5.6 billion, an €0.9 billion decrease compared to the first half of 2015. This is in line with CapEx selectivity efforts implemented under our plan to reduce net investments. This reduction also includes the significant impact over this first half of EDF EN’s European portfolio streamlining. Considering the change in net financial debt over the first half of 2016, net financial debt was down €1.2 billion to €36.2 billion, under the positive impacts of ForEx on our sterling-denominated debt and of positive Group cash flow. Based on these results and as already stated on our July 19th communication, the 2016 financial guidance is maintained. We are aiming for Group EBITDA between €16.3 billion and €16.8 billion. We continue to target a net debt ratio within the range of 2 to 2.5 times, and our dividend policy remains unchanged. We intend to have a payout of net recurring income adjusted for the hybrid coupons of between 55% and 65%. Lastly, our 2018 ambition remains to generate positive Group cash flow after dividends, excluding Linky, new developments and disposals.

For this last slide, I’d like to share with you the key components of our roadmap to delivering this 2018 ambition. First, control of our investment trajectory, net investments on the existing scope, meaning excluding Linky, new developments and disposals, is targeted at €10.5 billion level in 2018. Maintenance of our existing assets would represent around half of those investments for the main part in nuclear. Regulated businesses will make up about 30% of these investments, mainly at Energies. The development projects already decided today will represent about 20%. These include in particular Flamanville 3, EDF EN projects and Dalkia’s investments. Second, our OpEx reduction objectives are unchanged. 2018 OpEx target is €0.7 billion below the 2015 base, and 2019 OpEx target is €1 billion below 2015 base. Third, we continued to aim for cumulative working capital requirement improvement plan contribution of €1.8 billion between 2014 and 2018.

I thank you, and let’s now open the floor to your questions.

Unidentified Company Representative

Operator, we are ready for the questions, but just before we go through the Q&A session, let me remind our participants that as is standard market practice, we simply ask you to limit yourself to two questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions]

Unidentified Company Representative

Thank you, operator. We’re going to start with Internet questions before the telephone questions, and the first Internet questions are coming from Louis Boujard at Oddo. First question is you have been able to increase the lifespan expansion of the 900-megawatt fleet despite the PPE. Could you give us more flavor on the specific items included in the draft multiyear energy plan that enabled you to take this decision? That’s the first question on the PPE.

Second question is on the asset disposal program. Could you give us an update on the remaining asset rotation program and its expected schedule?

Jean-Bernard Lévy

Thank you. On the first question, I will only refer you to the PPE, which as you know calls for some reduction within some range, a range of reduction in the nuclear output in France by the end of the PPE period, which is 2023. And the Company, its Board, have looked at this situation and consider that there is -- this is consistent with our decision to make an accounting change, which is the one you know.

Regarding the asset disposal program, when we close hopefully -- of course, this is still pending a few important steps, that when we close the disposal of 49.9% of RTE, we will have achieved within roughly one year 50% of our 10 billion objective for disposals. So we are in very good shape and we are very happy with the pace of disposals within this target. We have other assets for disposal in many areas, thermal assets, minority-owned assets, non-essential assets to our business, but it is the Company policy not to make any comments related to any specific asset until we have a clear and strong decision for announcement. Thank you.

Unidentified Company Representative

Thank you. Other questions from Andrew Moulder at CreditSights. First question is, after the impairment, what is now the book value of the CENG stake? Second question from Andrew Moulder, what is the average age of the operating fleet? You have depreciated the 900-megawatt fleet to 50 years now, but what about the other plants, so what is the average age of these plants?

Jean-Bernard Lévy

Xavier?

Xavier Girre

Thank you for your questions. As regards C&G, the book value, as stated in our consolidated statements, is roughly €2 billion. As regards the average fleet, the average age -- sorry, of our nuclear fleet, in the reference documents, you can find that first, as regards our 900 megawatt, the average age is 34 years. As regards the 1,300 megawatt, the average age is 27 years. And as regards the N4 fleet, the average age is 15 years.

Unidentified Company Representative

Thank you. One question from Damien de Saint Germain at Credit Agricole. On the back of the price on RTE with CDC and CMP, will you also revise up the value of the 50% stake included in the dedicated assets?

Jean-Bernard Lévy

Yes, Xavier?

Xavier Girre

Yes, if we achieve this deal, the stake, the 50% stake which is in our dedicated assets will be reassessed on the basis of the deal.

UnidentifiedCompany Representative

Thank you. Two questions from Ahmed Farman at Jefferies. First question, on nuclear output, It appears that the recent issues related to steam generators has raised some safety concerns at 18 of your reactors. However, you have only cut output by 12 terawatt hours. Can you please help us understand how we will reconcile the two? Can this impact 2017 output? Second question from Jefferies, in total, how much tariff catch-up is reflected in your EBIT guidance and how much of it will drop away in 2017?

Jean-Bernard Lévy

Please, Dominique, for the first question.

Dominique Minière

Okay. So, we are -- in fact, we are facing several technical files concerning mainly components or maintenance works, like replacement of steam generator in Paluel Unit 2, some of them we have revised reminding at the beginning of the call. For these different files concerning several units, we have to demonstrate that these files are not preventing some components, mainly steam generators, to go and to be operated safely. We are doing it file by file, reactor by reactor concern. We know that this demonstration and nuclear safety authority restrictions will lead to delays for the reactors concerns to connect back to the grid after normal outages. That’s what we are taking into account. These delays are mainly a few weeks.

Concerning one of the files, carbon segregation on steam generators that could potentially affect 18 reactors, as you said, we are assessing the situation during normal outages. Some of these outages have already begun. The last one will be next year. Not all the reactors are at the end affected. Some of the reactors concerned have already been restarted. In the meantime, for the other outages are not affected by any of the files I have pointed out at the beginning, the outages are going very well and the first [loss weight], as said by Xavier, is very, very low, demonstrating that our fleet is in very good status. We can expect that 2017 nuclear output will also be affected by extended outages in some extent, but not as much as 2016. We will need to monitor the next six months and analyze the feedback to see how it will affect the 2017 nuclear output. At the time of full-year results, we will be in a better position to provide an annual nuclear output target.

Unidentified Company Representative

Thank you. So I’m just introducing Dominique Minière, who just spoke. He answered the question on nuclear output. He’s a member of the Executive Committee and is in charge of our nuclear and thermal activities. Dominique Minière. The second question for Xavier.

Xavier Girre

As regards tariff catch up, of course we have internal scenarios that we obviously do not disclose, but I’d like to tell you that in our 2016 EBITDA range of €16.3 billion to €16.8 billion, we had taken into account a portion of the tariffs catch-up, as described in 2015 by the CRE, the French regulator. As you know, the CRE deliberation on the minus 0.5% tariff move, as of August 1, 2016, does include a portion of 2012 tariff catch-up. When you combine the CRE tariff catch-up and the decision taken by the Conseil d’Etat, which has urged the government to set tariffs catch-up for the period August 2014 to July 2015, we estimate that the total will be above our assumption and will more than offset the downside from lower nuclear output. This is what we have taken into consideration when maintaining our target of €16.3 billion to €16.8 billion EBITDA for 2016.

Unidentified Company Representative

Thank you. I think we’re going to go to telephone questions now, please, operator. Thank you.

Operator

Thank you. We’ll take our first question from Harry Wyburd from Merrill Lynch. Please go ahead. Your line is open.

Harry Wyburd

A couple of questions for me, please. Firstly, in EDF Energies Nouvelles, you mentioned a couple of times in the presentation that the EBITDA increase was due to disposals, so could you let us know what the contribution from capital gains on disposals was in the EDF EN EBITDA number? And then secondly, just looking at the press release, I can see your pension liability, or at least the non-current portion, remained flat in spite of a very sharp decrease in rates. And your nuclear provisions were down 3 billion. I know that 2 billion of that came from the depreciation and life extension. So what is it that led you to keep your pension provision flat and what’s the extra 1 billion reduction in nuclear provisions come from? Thank you.

Jean-Bernard Lévy

Thank you. Xavier will respond to both your questions.

Xavier Girre

As regards the capital gain, we do not disclose the specific part of the capital gain. As you know, this activity of DSSA is part of our business model for EDF EN, and it is particularly significant during this first half thanks to the disposal of activities in Portugal and -- this is what contributed to this organic growth. As regards the second question?

Unidentified Company Representative

Second question was on pensions. Harry was referring to the almost flat pension provisions, despite the decrease in discount rate. It’s explained actually, Harry, in the consolidated statements. That was an effect on the CSB reform.

Harry Wyburd

Okay, and on the nuclear provisions, there’s a 3 billion decrease and 2 billion of that’s explained by the accounting depreciation life extension, but what was the other 1 billion?

Unidentified Company Representative

Say that again. We didn’t get your question on nuclear provisions.

Harry Wyburd

So the noncurrent nuclear provisions in your balance sheet reduced by €3 billion between December 2015 and June 30. 2 billion of that you’ve identified as coming from the extension of the accounting lives on the fleet. That leaves 1 billion, which is still reasonably material relative to your market cap, so I wondered where that extra 1 billion reduction came from.

Unidentified Company Representative

Sorry, Harry. We don’t have the answer to that one right now. We’ll get back to you, okay?

Harry Wyburd

Sure, okay, thanks.

Operator

Thank you. We’ll take our next question from Cosma Panzacchi from Bernstein. Please go ahead. Your line is open.

Cosma Panzacchi

The first question regards Hinkley b Point C. Wasn’t the decision of the UK government to open a review on Hinkley Point C expected and can you explain which impact it could have on the timeline of the project? The second question is on the plan of disposals. Without entering into discussion on single assets, talking about the criteria behind the disposals, given the importance of customers and services in your new strategy, would you confirm that the disposal of any major retail operation is ruled out? And is Italy still strategic? Thank you.

Jean-Bernard Lévy

Thank you. I will take both your questions. On the first one, I will just refer you to the British government. I have no further comments to make, as I believe that we can have a lot of confidence in the decision by the British government, but any comments on their own statements should obviously be made by the government themselves.

Regarding the second question about criteria for disposal, I will be very clear with you. No, we do not intend to sell assets from Italy. We believe Italy is a very important part of EDF long-term asset portfolio. We have a strong generation and retail assets in four Western European countries, from North to South, UK, Belgium, France and Italy. More than 200 million Western Europeans are served by EDF generation and retail assets, and this is a core part of EDF’s Cap 2030 strategy. So this answers I guess both your questions regarding retail operations and Italy. Thank you.

Operator

Thank you. We’ll take our next question from Martin Young, RBC. Please go ahead, your line is open.

Martin Young

Yes. Good morning to everybody. First question relates to the change in depreciation as a result of the life extension of the 900-megawatt series. Previous comments on these calls had guided to a depreciation impact on a full-year basis of extending the whole fleet of about €400 million to €500 million reduction in depreciation. Obviously, what you have reported this morning on part of the fleet is already double that amount. So I just wondered if you could shed some light on why this is the case, and if you were to extend the operating life of the remaining nuclear assets what the additional reduction in depreciation would be. And then the second question relates to Hinkley Point. I guess it came as a surprise to everybody that the UK government has asked for more time to review this. They could say yes, proceed as normal. That’s easy to understand. They could say no, we don’t want to do it. That’s easy to understand, as well. But what happens if they went for the middle ground and wanted a change in the price of the contract? In that case, would EDF walk away from the project? I think it’s a simple question. Thank you.

Jean-Bernard Lévy

We’ll let Xavier respond to the first question and take the second one.

Xavier Girre

As regards the impact of the change of depreciation for the nuclear fleet, we consider today the impact of the extension of the 900-megawatt series, and our estimate for the full-year impact is in the range of €960 million for the net result and 630 million, in this range for the net income Group share. As far as, as of today, we have no estimate to share about the other series.

Martin Young

Why is that significantly different though to what has been mentioned before?

Unidentified Company Representative

Sorry, Martin. I think what we mentioned before exactly was the market assumption on the impact on net income. It was not our own assumption. It was the market expectation that was included in the consensus net income. This is how you had this €450 million mentioned at the last call I think in February this year. And most likely, the reason why this number was smaller is because since 2013, this number is in the consensus. So consensus has not updated this impact since 2013.

Jean-Bernard Lévy

Regarding your second question, I will only refer you to my previous comments. We will not make any comments on hypothetical scenarios and we remain very confident on the decision to sign the contract for Hinkley Point.

Operator

Thank you. We’ll take our next question from Julie Arav from Kepler. Please go ahead, your line is open.

Julie Arav

Yes, good morning. Sorry, all my questions have been answered and I’ve been unable to remove from the line. Thanks.

Operator

Thank you. We’ll take our next question from Sofia Savvantidou from Exane. Please go ahead. Your line is open.

Sofia Savvantidou

Yes, good morning. Thank you for taking my question. First of all, I was wondering whether you can give us any estimate on depreciation going forward now that you’ve done this life extension in terms of given the CapEx program that you planned how you expect depreciation to be evolving year on year. My second question is whether you can give us any color on the EBITDA contribution during the full year 2016 from prior hedges you have made, either in the UK or in France so that we can try to get a cleaner almost mark-to-market number to use as a base for 2017. Thank you.

Unidentified Company Representative

Sorry, Sofia. We didn’t quite get your second question, please.

Sofia Savvantidou

Yes, sorry. My second question is if you can give us an estimate of how much of your 2016 EBITDA is benefitting from power generation hedges or customer contracts that you’ve signed at higher power prices, both in the UK and in France, so that we can try to get a little bit of a clean number going forward once these hedges are rolling off and once you’re re-signing French customers on the lower market price.

Unidentified Company Representative

Thanks, Sofia. That was a nice way to put the question. Thank you.

Xavier Girre

On these two questions, as you know, we do not give details about our hedging policy. As you know, we start each year with a high level of hedging, but we do not give more detail about that. And secondly, as regards the depreciation, we will consider the impact for the next years in our next communication. Today, we have given the impact for this year, 2016.

Unidentified Company Representative

Thank you. We have other questions actually on the Internet, but they are the same that have been already asked. So maybe, operator, you can just -- we can take maybe a last question from the telephone, last two questions from the telephone please?

Operator

Thank you. [Operator Instructions] We’ll take this question now from Philippe Ourpatian from Natixis. Please go ahead. Your line is open.

Philippe Ourpatian

Just two follow-up questions. One is concerning the impairment you have accounting for the semester. Could we have the spread between C&G and the Polska, EDF Polska contribution, or how you share the €731 million? That’s the first question. And the second one, looking one, your figure on the first half and the consensus expectation for the full year in terms of net profit, which is based on the figure I’m showing on my screen, somewhere around €3.4 billion and the accounting merger you have already announced and included in your first half figure, do we have to expect looking also the outages of the H2 plus some market trend, which seems to be a little bit better on the second half? Do we have to sharply increase this figure or are you still comfortable with the 3.4 billion currently expected by the consensus?

Xavier Girre

As regards the impairments, so the total is €731 million, and as regards EDF Polska, it’s €195 million impact on the net result Group share. And as regards CENG, the impact on the net result Group share is €458 million. As regards your question about the consensus and recurring net income, first, I stress once more that we do not have any guidance about our recurring net income. We don’t have any target. We’ll just answer your question about my view on consensus, which is today at €3.5 billion for 2016. For most of the analysts, it includes a change in the depreciation policy from 40 to 50 years, with a corresponding impact which is assumed to be marked -- sorry, which is assumed by the market to be around €450 million on net income impact.

However, as you have seen in our slides and as I just said, the impact is rather, or should be rather in the range of €600 million or €630 million. And the consensus may probably adjust upward, everything else being equal, of course. On this basis, we are obviously comfortable, very comfortable, with the consensus on the recurring net income for the reasons I have just explained.

Operator

Thank you. There are no further questions over the phone at this time, sir.

Unidentified Company Representative

Thank you, operator. We will close then this call. We are available obviously for any further questions, and hope to see you at the next conference call. Thank you. Bye, bye.

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