Electricite de France SA (OTCPK:ECIFF) Full Year 2016 Earnings Conference Call February 14, 2017 3:00 AM ET
Kader Hidra - Head of Investor Relations
Jean-Bernard Lévy - Chairman and CEO
Xavier Girre - CFO
Philippe Ourpatian - Natixis
Carolina Dores - Morgan Stanley
Vincent Ayral - JPMorgan
I think we are ready to start, so good morning to all of you here in Paris, and to those, who are joining us on the webcast and through the phone. We are here with Jean-Bernard Lévy and Xavier Girre for the 2016 Annual Results presentation. This presentation will be follow by a Q&A session, as usual.
So with that, I hand over to Jean-Bernard Lévy, Chairman and CEO of EDF Group.
Good morning all of you. Thank you for being here. Thank you for those listening on the phone. As you may understand, I have a broken voice, so I'll do my best. But anyway you have the numbers, which is of course the most important.
This opportunity to speak to you is due to the publishing of our 2016 results, after a year of a lot of obstacles to be overcome, but I believe we have demonstrated our ability to indeed surmount those challenges. And I would like to, first thank by - start by thanking our employees for the efforts in France and all over the world. What we have achieved I think is a very strong performance and it reflects the extraordinary level of commitment and efforts.
Just a few moments to reflect on the highlights of 2016, and then we will go through the figures. 2016 does show a very robust level of performance. Once again we are profitable. We are now through 18 months of having to bear the consequences of historical break in the European wholesale electricity markets, just when our exposure to these prices tripled.
Nevertheless we have successfully withstood the effects of this very rapid downwards change in 2016. We know that 2017 should be the low point in the cycle and 2018 will see the start of an upward trend, what we call, a rebound, and this is my personal pledge, 2018 will be the year of the rebound.
At one time or another in recent years almost each of our main European competitors has reported losses but not EDF, not us. It shows EDF Group has the strongest fundamentals on the European energy marketplace. This resilience is largely due to our nuclear business, which has given us self-sufficiency, competitive strength and industrial job opportunities.
In this quite stormy weather, we have a compass and our compass is CAP 2030. CAP 2030, our strategy sends out the clear goals for all our employees and partners. It is very effective in helping to get us through today's challenges and simultaneously to plan for the future. 2016 was a milestone year in the implementation of CAP 2030, and we made tangible progress on all three cornerstones of this strategy; innovation and customer proximity; development of a low carbon energy mix founded on nuclear and renewable capacity and growth of the Group's international business. The company's transformation plan, which guides us through our various business evolutions, changes. This transformation plan is also well underway.
I would also like to point out that the financial trajectory that we laid out in April is now followed in all respects; cost reduction, control of investment, disposal of assets and increase in equity. Plans are now in place for our €4 billion capital increase by the end of the first quarter, to which the Board of Directors committed as recently as yesterday - and you may have seen that French state has just issued a press release confirming that it will underwrite this capital increase to the tune of €3 billion, exactly as scheduled.
I will now take a few minutes to go through our key financial indicators before I hand over to Xavier Girre, our CFO, who will present the detailed figures for 2016.
In 2016, ours sales amounted to €71 billion; our EBITDA to €16.4 billion. This shows an organic decline respectively of 3.2% and 4.8%, which demonstrates our ability to manage the effects of the challenging market conditions we encountered.
You are all well aware that since I started at EDF a little over two years ago, I have emphasized my concerns about the Group’s debt. In 2016, we have stabilized the debt after it has been rising continuously in previous years. So we have exactly €37.4 billion of net debt reported at the end of last year, which means we have a net financial debt to EBITDA ratio of 2.3, which is within our guidance limit of 2.5.
Net income, excluding non-recurring items, essentially reflects the drop in wholesale prices, minus 15%. Net income Group share is on the rise because we had a much more favorable balance of exceptional items in 2016 than in 2015.
Key financial indicators are in line with our announced or revised targets. We delivered on the new target for French nuclear outputs with a great support of all the teams under Dominique Minière, output amounted to 384 terawatt hours, down by 32.8 terawatt hours as compared to 2015.
Regarding operating performance, as you know, notable event in year 2016 was the performance of additional inspections on some of our steam generators in the nuclear fleet. During these inspections, the units were shutdown. Some of the reactors have now been restarted, most of them indeed under the close scrutiny of French Regulatory Authority, ASN. These challenges should not overshadow that the performance of the nuclear fleet in France was excellent and this is especially highlighted by a record low in the number of forced outages, unplanned outages, and improving results in the area of routine plant operations is a historically low number of automatic reactor trips.
At the same time, last year our eight new power plants in the United Kingdom achieved their highest output since 2003 with 65.1 terawatt hours of generation. This shows excellent operating performance and also is in line with constantly improving nuclear safety results, so I really want to send a special message of congratulations to our British colleagues.
The Group is continuing to grow its renewable energy business in addition to strong hydro performance. Several facilities were commissioned in 2016. I would mention Ensemble Eolien Catalan, France’s biggest wind farm complex commissioned in the eastern part of the Pyrénées. Work began on our now very celebrated solar generation facility located in the middle of Atacama Desert. This is the largest solar facility in our portfolio. And just as a third example, we built and commissioned in Alsace, a geothermal power plant in a Rittershoffen especially built for single industrial customer, Roquette Group, part of the food chain - of our food chain.
Today we have almost 2 gigawatt of generation capacity under construction only taking account EDF Énergies Nouvelles.
In terms of commercial performance, EDF has maintained its position on core markets with close to 90% market share on the private customer market and around 65% market share on the business market. And a year ago, we would have spoken a lot about the end of the regulated Green and Yellow tariffs. But as many of you know, we have beaten our targets by retaining three quarters of our customer base instead of the projecting two-thirds.
We would also like to add that in the United Kingdom, in Italy and in Belgium, all three being core countries for EDF, our performance on the retail markets has been very strong. In Energy Services, which is a growing sector for EDF, Dalkia, is now strengthened through acquisitions and restructuring initiatives, and it is once again doing business in several countries outside France. Our growth is boosted by the success of our heating networks and by the greening of some existing networks. Among the numerous accomplishments that we had in 2016, I would like to highlight the agreements signed with the greater [indiscernible].
As you can see, we have a large number of assets and they are getting stronger as we continue to implement our performance plan in line with the financial trajectory announced in April last year. Throughout the whole of the year, we continued to deploy an intensive high our efforts to control the Group’s expenses and net investment. As you can see, our actual operating expenses fell by 1.3% €300 million over the period of 2015 to 2016, absolutely in line with our full-year goals of €1 billion.
Net investments are now under tighter control with the core portfolio, they stood in 2016 at €11.8 billion, €600 million less than in 2015. And Xavier will have the opportunity to come back to this point in a few moments. But I would like to say a few words about our ability to optimize working capital, which of course is key to secure our trajectory and this had a positive impact last year of €700 million.
Last but not least, the key aspect of our performance plan is based on the success of our asset disposal plan, remembering that we set the target of €10 billion to be reached by 2020, from 2015 to 2020, and indeed this plan is having great success because the disposal agreements that have been signed or completed to-date already amount to €6.7 billion. Of course 2016 was a particularly intense year as we signed the deal to sell 49.9% of RTE assets to Caisse des Dépôts and CNP Assurances.
Other examples include the disposal of our last subsidiary in Hungary called EDF DÉMÁSZ, which we completed a few weeks ago.
I have outlined that our financial trajectory. Although it includes our savings plan, our investment control plan, our disposal plan or the equity increase, is fully in line with what we have been looking for when we made this announcement back in April 2016.
But before I wrap up, at this stage, I would like to highlight a few of our key strategic priorities.
To begin with, we are multiplying the number of innovative services that we provide to our customers. 90 innovative services in all areas were showcased at the Electric Days event just three weeks ago. We had dozens of specialist laboratories, a burdening number of interactions with startup companies, universities, incubators whether external or internal and these are essential assets for our future. Our ability to launch a product like Savoie [ph] within the space of just a few months to show that we too can be agile.
Innovation is a mainstay of our digital transformation and is particularly strong through our subsidiary and it Enedis and it has just installed the third - the 3 millionth. The three millionth smart meter in France. This is the first building block in the chain of smart grid and smart proximity services, already making Enedis a big data operator for everybody to access this data in France.
Innovation also means being a pioneer in the area of self-generation. EDF Énergies Nouvelles offers today solar packs and batteries with great success. This promising sector we already have a foothold in France, but also in the United States and in West Africa for non-connected areas.
Our second key priorities to deliver the step change to our nuclear program after 40 years of continued success. We have many challenges that we'll just recall them quickly. And the first one is of course to deliver Flamanville - Flamanville, which will be the bedrock of the nuclear revival in less than two years now as we are on time.
Finalizing the acquisition of AREVA NP is also essential as we need to remain competitive by bringing together all the talents and all the efforts. Successfully completing the Grand Carénage, which is the fleet upgrade program, will enable us to secure energy sales efficiency and competitive strength for many years, so that we can continue to serve businesses and households in the best secure and competitive conditions, and as you know, Grand Carénage is now started for three years and is well in line with our objectives.
Successfully completing the construction of the two EPR reactors at Hinkley Point. This program is essential for maintaining our capabilities, but also is a highly profitable program and it places the foundation for long-lasting cooperation with our Chinese partner, CGN.
Last but not least, we are now working on a nuclear new-build program to eventually replace the existing fleet. It is in the national interest to keep a strong nuclear base in the future energy mix France, and upon the strong nuclear base, we will also build a bigger renewable energy fleet.
Our third key priority is the gradual restructuring of business activities abroad in order to reap the benefits of more dynamic economic and demographic growth. In the large majority of cases we are developing renewable energy projects outside Europe as a concrete proof of our commitment towards the fight against climate change.
We will focus and are already focusing strongly on the U.S. and on China, which are hubs for growth and innovation. We are also focusing on about 10 other countries, for which we have established detailed strategies. Thanks to the expertise we possess across the full range of technologies and applications in electricity, gas and energy service sectors, we are able to deploy an ever increasing number of projects.
I would now hand the mike to Xavier Girre for his presentation on the results. Thank you.
Good morning. I'm happy to share with you the highlights of our 2016 results.
First, as Jean-Bernard said, we are well on track to deliver our performance plan and I will share some details about it. And second, I will walk you through our financials. So starting with our performance plan, Jean-Bernard presented our disposal program in detail. I will therefore focus on the other items.
First OpEx. Our target is €1 billion cut in 2019 in comparison with 2015. And for 2016, OpEx were down €0.6 billion, which is a strong acceleration following a first cut in 2015. On a comparable basis, with 2015, excluding certain effects of service activities, OpEx was cut by roughly €0.3 billion. Developing energy services activities is a priority for the Group. It may require increasing OpEx. For 2016, this OpEx grew approximately by €50 million. Of course we will monitor closely this business profitability.
Savings have been delivered from throughout the Group, France, UK, Italy. Staff and purchasing costs are being adjusted in separate functions and commercial teams to adapt to new market conditions. Most businesses are putting in place specific operational action plans. Some examples. To have more Cash or capital, address OpEx reduction and efficiency in French thermal generation and hydropower activities. In the U.K. digitization plan is being rolled out.
Net investments are under control. Let me stress three points on this matter. First CapEx reduction. It's another key element of our performance plan. In this area, as well, we are well on track on our way to target €10.5 billion in 2018, excluding Linky, new developments and disposals. On this scope, investments are down €600 million to €11.8 billion in 2016.
Some examples of specific actions. Rationalization of maintenance investments in U.K. thermal generation, decrease in E&P investments or completion of the asset modernization program in Poland. Second point, overall investments in regulated activities and quasi-regulated activities including renewables and new nuclear build represented close to 40% of our total net investments in 2016. Clearly we intend to increase this proportion investing in Linky, Hinkley Point C and renewables.
And third point, as you know, we want to finance roughly Linky and new developments for disposals at least from 2015 to 2019. And you can see that we reach our target also on this item in 2016, even though the RTE deal will only be closed in 2017.
As regards to the working capital requirement optimization plan, the Group is also on track to deliver expected optimizations. Continue the efforts on receivables and inventories have produced further results. Since its inception in 2015, the plan delivered cumulative gains of €1.4 billion from all parts of the Group. We are well on track to reaching our €1.8 billion target in 2018.
Let me now come to my second point, 2016 results. Starting quickly with the key features again. Sales at €71.2 billion. EBITDA came to €16.4 billion, in line with the lower end of our initial EBITDA target and slightly above our revised target. Net income was down 15.3% to €4.1 billion. Net income Group shares stood at €2.85 billion, 2.4x the 2015 income. Net debt was stable at €37.4 billion. As a result, net debt comes to 2.3x EBITDA, fully in line with our target of under 2.5x.
These results show a clear resilience from our operations and our ability to react to adverse events.
Now starting the review of the Group operating performance. This chart presents five key points to understand that our 2016 performance and the 2017 outlook. First the positive but non-recurring tariff adjustment in 2016. Second point, issues in French nuclear generation, that will be progressively solved. This situation compelled the Group to buy on the wholesale markets to mitigate the lower generation output, and in 2017, meet again demand.
Third point, significant negative impact in 2016 of the end of Yellow and Green tariffs in France. Fewer customers, lower prices. This will be repeated to a lower extent in 2017. Fourth point, tough wholesale market conditions also in Italy and U.K. with lower prices and stiff competition. This trend is ongoing in 2017. And fifth point, our ongoing performance plan on OpEx.
Group EBITDA was down 4.8% organically to €16.4 billion. I will walk you through EBITDA trends for certain segments over the next slides, but here one new important point. To improve the information we give you, we split France into two segments. One segment for French generation and supply activities, and the separate one for regulated activities that includes distribution networks and it is French island activities and Électricité de Strasbourg.
This will help you analyze our results and outlook in these two segments driven by two different business models. For 2016, you can see on the right hand of this slide that French regulated activities represented 31% of Group EBITDA and contributed to the resilience of our performance.
Turning now to the EBITDA of the French generation and supply activities. Two main items. First generation. French nuclear generation saw about 84 terawatt hours was negatively impacted by outage periods linked to additional controls on carbon segregation carried out on 18 reactors. These outages draw roughly a 30 terawatt hour drop in output between 2015 and 2016.
However let me highlight that the French nuclear fleet reached record low levels of unplanned outages and the automatic reactor shutdowns. Hydro net output was up 9% to 42.4 terawatt hours as hydro conditions were closer to normal in 2016 compared to 2015.
Due to the unexpected drop in nuclear production, we had to buy electricity on the wholesale market at high prices, mostly during Q4. As a whole, this first item had an estimated impact of minus €1.6 billion.
Second key item, downstream, showed an estimated €1.2 billion negative impact. In the context of the end of Yellow and Green tariffs, we succeeded in keeping 75% of those B2B consumers. However combined effect of loss of customers and pressure on price led to an estimated €1.2 billion impact. These items were partly compensated by the retrospective adjustment of 2014 regulated tariffs with an EBITDA impact of plus €859 million.
The next slides show the nuclear generation and also the hydro generation in 2016 compared to 2015.
Considering now the regulatory activities. Regulated activities in France delivered a strong performance with an 8.1% organic growth to €5.1 billion. Weather and the leap year also carried a positive impact on this segment. Another positive driver of where there are reduced costs of covering network losses in a context of lower wholesale power prices.
Let's focus now on EDF Énergies Nouvelles, which is part of our business segment, other activities. EBITDA came to €861 million, up 6.1% in organic terms against 2015. The growth reflect, first, the positive impact of the capacity commissioned in the course of 2015 with net installed capacity increasing by one gigawatt in EDF ÉN’s portfolio. Output increased by 9% compared to 2015, as a result mainly from wind capacity and from the U.S.
Growth in EDF ÉN’s EBITDA in 2016 was also supported by a strong DSSAs activity. And EDF ÉN’s pipeline of capacity under construction amounted to 1.8 gigawatt at the end of December, which showed further support continued growth objectivity in selected areas.
Looking now on the U.K. segment. EBITDA came to €1.7 billion, down from €2.2 billion last year, due mostly to lower wholesale market prices. In organic terms, EBITDA was down 12.3% versus 2015. Nuclear output showed an outstanding performance at 65.1 terawatt hours, thanks to a high availability and a low-level of unplanned outages. In addition, despite fierce competition in the U.K. B2C market, EDF Energy’s market shares were quite resilient with a stabilized number of product accounts. And EDF Energy delivered also further cost savings with OpEx down 3.6% compared to 2015.
In Italy, EBITDA came to €641 million, down 50.6% in organic terms compared to 2015. You may remember that Edison’s 2015 EBITDA was lifted by the Libyan gas contract arbitration, leading to an €855 million positive impact in 2015, part of which was one-off.
In hydrocarbon activities, the Libyan gas contract renegotiation contributed to margin improvement and lower volatility. However lower rent and gas prices hit E&P activities. The performance in electricity activities was penalized by hydro conditions, which were less favorable than in 2015 and by the downward trend in electricity sale prices.
On the other hand, in Italy also, Edison delivered a strong OpEx cut program with a minus 4.7% decrease. In this context, Edison estimates that its 2017 EBITDA will be in line with 2016.
Now turning to Dalkia and EDF Trading, part of the other activities segment along with EDF ÉN.
With an EBITDA of growth growing by 8.3% in organic terms, Dalkia continues to grow. Beyond the impacts of cyclical drivers such as whether and gas prices, Dalkia displayed strong commercial activities in networks, industry and services. EDF Trading’s operating performance recorded a 56.8% increase, mainly due to the high level of volatility on European powers and gas markets over the second part of the year and also strong performance from our LNG trading desk.
Let's now move to the rest of the P&L. Starting with EBIT, which is up 75.6% at €7.5 billion. This change reflects, firstly, the lower level of impairments recorded in 2016 at €0.3 billion, against €3.5 billion in 2015. We will look at impairments on the next slide.
Secondly growth in EBIT was supported by €1 billion decrease in depreciation and amortization, mostly due to the extension to 50 years of the amortization period for the French 900 megawatt nuclear fleet excluding Fessenheim.
Considering non-recurring items, net of tax, post-tax effect of all non-recurring items for 2016 is a negative minus €1.2 billion versus minus €3.6 billion in 2015. This reflects first and foremost, the significantly lower amount of impairments recorded in 2016, especially with regard to thermal power generation and E&P assets. Note that the Group recorded an additional impairment charge of €462 million on CNG to reflect the latest prospects in terms of wholesale power prices in the U.S.
Compared to 2016, 2015 had also been penalized, you remember, by the impact of the EC decision and the lag [ph] and by the adjustment of our nuclear provisions to reflect the target cost of €25 billion set for Cigéo project.
Looking now at the Group net income. Net income Group share comes to €2.85 billion versus €1.2 billion in 2015. The positive evolution indeed driven by the significant growth in EBIT. Proactive debt management led to a decrease in financial cost, minus €167 million. However net financial result includes €680 million increase charge related to change in discount rate on nuclear provisions.
Income tax stands at €1.4 billion, €900 million above 2015, which is consistent with income level. And when excluding non-recurring items described in the previous slide, recurring net income comes at €4.1 billion.
Looking now at the first part of the cash flow and considering first operating cash flow. It stood at €13.1 billion. Two points here, that there were non-recurring income taxed disburse months in 2015, and second, net financial expenses, a downward trend also reflecting our efficient debt management.
Second, considering cash flow after net investment, it stood at minus €0.5 billion. Despite the gains delivered and there were working capital requirement improvement, the change in working capital requirement came to a negative €1.9 billion. This results mostly from temporary events. First, the retrospective adjustment to the 2014 tariffs at €0.9 billion recorded in the 2016 EBITDA but not yet fully cashed in. Second, effects on power consumption of the colder weather in Q4 2016 are not yet cashed in either [ph]. And third, CSPE, which also carried a negative impact on working capital requirement, mainly due to the change in collection mechanism.
After deducting the interest payments on hybrids and the share of the dividend paid in cash, and as a remainder, an option for scrip dividends was offered in 2016, Group cash flow stands at a negative €1.6 billion.
Net financial debt is stable on the next slide at €37.4 billion at the end of 2016. And hence control of our net investments and the option to receive the dividend in shares helped mitigate the slight drop in operating cash flow and the temporary negative evolution in working capital. The partial disposal of the CSPE receivable and the forex contributed also positively.
This ends my presentation. And I will now hand over back to Jean-Bernard Lévy for the outlook of 2017, 2018 and beyond. Thank you.
Merci, Xavier Girre. I will now turn to a few comments on our outlook and starting with 2017 French nuclear generation. Our projections take account of the outage currently on the underway in four units; Bugey 5, Fessenheim 2, Gravelines 5 and Paluel 2. They also include a number of planned outages as usual involving further work on Grand Carénage, as well the potential impact of tests being carried out in response to AREVA’s audit of Le Creusot manufacturing facility. So for 2017, the range that we set is between 390 terawatt hours and 400 terawatt hearts.
On the next slide, you can see our EBITDA targets to 2017 and 2018. We do expect, as we have already said, a challenging year in 2017. We will not be enjoying the positive effect of the tariff adjustment that we got in 2016. However this will be offset by the positive consequences of our performance plan and by a gradual improvement in nuclear power outputs.
So today, we commit to 2017 EBITDA in the range of €13.7 billion to €14.3 billion. We are forecasting an upward turn in 2018 with an EBITDA above €15.2 billion. This is essentially due the growth to continued implementation of the performance plan to slightly improving market conditions in France and the United Kingdom, and to the expansion of our business in renewables and in energy services.
2017 targets on the next slide, a brief recap. We will continue to maintain the same levels of financial discipline with a net debt to EBITDA ratio at - within 2.5x, less than 2.5x. We do have, for 2017, a stable dividend policy with a net income payout ratio including non-recurring items adjusted for the remuneration of hybrid bonds in the range of 55% to 65%.
The state has just confirmed that it will receive the 2017 fiscal year dividend in the form of EDF stock.
If I get to 2018, as I was saying a moments ago, all our effort and more specifically the reduction of OpEx tighter control of our net investment combined with an overall improvement in market conditions will help us to get back on a positive trajectory as early as at the beginning of next year.
Two comments about 2018. Our positive cash flow after dividends target remain unchanged but we are now giving some more details about the way we intend to operate on this metric, which is, as everybody knows, very important. And as you know, some macroeconomic conditions have changed significantly. Since we announced these targets we want to be more clear in terms of detailing certain key assumptions underpinning the target, and more specifically, to factor in the drop in interest rates and its adverse impact on our long-term nuclear provisions.
We will also note that in agreement with the French state, our majority shareholder, we are targeting a net income payout ratio of 50% for fiscal year 2018, excluding non-recurring items.
Beyond ‘18 and wrapping up on the subject of guidance, the final one, our operating expenses will continue to drop with the projected saving of at least €1 billion in 2019 compared with 2015. This is a confirmation of our OpEx reduction plan. Also a confirmation is the completion of our €10 billion asset disposal plan between 2015 and 2020.
And last but not least, and starting in fiscal year 2019, our net income payout ratio excluding non-recurring items will be within the range of 45% to 50%.
Brief conclusion before we turn to Q&A. And I would like to really share our conviction with you. We are a robust organization and we deliver solid performance. 2017 admittedly will be a challenging year. We are prepared for it. We will face them full on, but we can already see the upward trend happening in 2018.
Starting in 2018, this upward turn will be particularly distinctive, thanks to all the efforts, far-reaching efforts invested over the past couple of years to transform the Group. Currently we are laying the foundations for lasting success. This combination of factors gives me great deal of confidence for EDF. Thank you.
So we will now turn to the Q&A session together with Xavier Girre, who has the benefit on me of competence and voice. And let's please start. I see the first question here, and two very close by. Please you have the mike.
Q - Philippe Ourpatian
Philippe Ourpatian, Natixis. Two first question. One is concerning your guidance 2018. You mentioned that this €15.2 billion is taking into account some not hedged volumes at €38 per megawatt hour. Could we have an idea about the percentage of not hedged in 2018? I do suppose that the 2017 is fully hedged currently. And the second question is concerning the EDF Énergies Nouvelles. You mentioned some disposal of saturated assets quite strong in your figure. Could we have an idea about the impact on EBITDA? And regarding the volumes and the production, 9% increase, it seems that, one, revenues are below the just increase of the volumes produced and EBITDA goes to, where this difference is coming from?
So thank you for your question. As we get the EBITDA target for 2018, we have considered as an hypothesis the current forward for 2018 in front, so which is €36, not €38 - you said €38 but €36 per megawatt hour. And we will not disclose what the proportion of the volume which is not yet hedged, but this is on this volume that we have considered this hypothesis for 2018.
As regards the DSSAs for EDF ÉN, as you know, we do not disclose specific figures about the target. It's important to have in mind that both in 2015 and also in 2016 and the maximum was reached in 2016, this DSSA activity was very significant in the EBITDA and it will not - it is not expected at the same level for 2017, which is also part of the trend between 2016 and 2017.
Return to next question may be you have the mike.
Hello. It’s Carolina Dores from Morgan Stanley. I have two questions. First, looking at your EBITDA guidance, you're going from €16.4 billion EBITDA in ‘16, going down in ‘17 and even ‘18 you don't reach the same level and you pointed out in your guidance that you continue to see the discount rates being a headwind to earnings on the nuclear provisions. So my conclusion is that net income and therefore dividends are coming down. Do you have any positive effect on that could help your net income in ‘17 and ‘18 that I'm not considering? That's the first question. And my second question is on EDF on your - on EDF Trading, you have a very good result in ‘16, ‘17 especially the beginning of the year has been very volatile. Do you think that EDF Trading performance is sustainable in ‘17?
So on your two questions, first as regards to trading. No, 2016 was quite a very good year for trading due to the very high level of volatility, so we do not expect the result of trading to be as high in 2017, which is also part of the trend between 2016 and 2017.
Second point as regards to net income, you're right to consider that the downward trend of the discount rate would have quite a negative impact on our net income of course. No impact on our EBITDA. And so we have considered in our trend between ‘16 and ‘17, the impact of the lower level of prices, also the impact of the competition. And on the other hand the fact that we are continuing our performance plan and we are also recovering progressively as regard to nuclear generation in France.
Good morning. Emmanuel [ph] Société Générale. My first question would be to come back on the 2018 target, which is one of the news of the day, trying to see a bit clear about some of your assumptions. Looking at nuclear output, you don't disclose a target. I'm trying to think about encompassing on our estimates the planned outages, the maintenance we have that can vary from one year to the other. And also checking that you’re, I guess, assuming that all the current issues about unplanned outages, the extra checks are solved, should we be assuming something that is close to an unaffected production of the past maybe five years before we had the issues this year last, or is there anything specific that you want to bring to our attention? And the second part of that question is, you are not going to give us the hedge volumes for ‘18. You’ve said that. But in your budget, are you taking an assumption that you will have to sell some volumes at RN [ph] for considering that your market price assumption is below the RN price, are you just assuming really close to zero? That's my question on the target. On to my second bullet or question, disposal proceeds to be cashed in ‘17, ‘20, you’ve announced that a lot has been sold or pre-sold or announced €6.7 billion, but in terms of cash in, what we should expect on what's been announced since ‘ 17 on ‘18 and what is the implication it has for dilutions to earnings, i.e. reduction in EBITDA net earnings from these disposals? And what we should therefore I assume in terms of D&A for the Group considering these disposals, the investments you're making and the change in the depreciation pricing? Thank you.
Thank you. I will respond to the first questions, and Xavier will answer the rest going through the P&L to help you with your model.
On the first question regarding nuclear production in 2018 and what you should expect, is it going to be a standard year, is it going to be a year still affected by some of the quality issues? It's a very good question. We are not giving guidance, it's because we want to be cautious. Obviously we have today four units which are going through long outages, like Bugey, Paluel and so on and a couple more, which are going through shorter outages because they are the last part of the team or the last - the tail end of the JCFC carbon segregation issues and we still have a couple which are not in operation. So we are starting the year with quite a high number of missing units.
On top of these, we have the planned outages that we have to manage. In 2018, and I will only give you a qualitative response. We do expect, as usual, to have a number of planned outages, which should - we are not guiding you towards anything different from the end of the year from the planned outage perspective but we are being a bit cautious because we are of course targeting that all the units that today have been stopped for some reason or other, like Fessenheim 2, Paluel and so. Well maybe some of these four may have issues that will delay, we want to be cautious.
As you know, we have the dossier in nucléaire [ph] quality test and report still on the way at IVA [ph] with of course they are supervising this very closely and today we don't have any bad news because if we have a bad news we have to publish it immediately but we still have many months to go before we have finished because - before they have finished analyzing all the dossier in nucléaire [ph]. So we also need to be cautious that we may end up with the problem here or there.
So I'm leaving it with you that hopefully 2018 could be a standard year, like say 2015, I'm talking under Dominique’s control, maybe it could where we reached, if I remember well for ‘15 for ‘16. Thank you. Or maybe we still have the tail-end effect of the quality problems we have encountered. Now Xavier?
Yes, thank you. As regards the disposal, of course we expect to have a significant cashing in 2017 because we will finalize the deal about RTE. So this year will be very significant on that matter. This deal, as you know, will have no impact on our EBITDA. The impact will be linked only to or mostly to our Hungarian disposal and Polish disposal that we also target for this year.
As regards our assumptions for RN [ph] and market price, as we said, for 2017, we are quite significantly impacted by the necessity to buy significant volumes in order to satisfy the RN [ph] demand and so which has a negative impact on our EBITDA for this year. On the other hand for 2018, considering our hypothesis of €36 per megawatt hours, the part which is not hedged, you can consider which hypothesis we made up against the volume.
[Foreign Language - French]. No we have a mike two rows behind you and then you can have the mike please, if you can be patient. Thank you.
Good morning. [indiscernible] from Morningstar. I have one question. What evolution of Blue tariffs do you assume in your guidance for 2017 and 2018?
This is a very good question, which will remain unanswered for the time being. You know we have a catch-up this year but we have the EBITDA last year. Some of the reasons why the working capital is negative this year quite - sorry, last year quite significantly because we got the full benefit of the EBITDA last year and we had no revenues in front of this margin profit.
For this year, we expect that currently in this final calculations will reflect the upper five although it is contested, but at least there is a document which is now published on upper five, so we expect that the tariffs will reflect upper five growth in transmission and distribution revenues for us. But what will happen also that these processes and calculations, we don't make any comments or at least we lead or not to an increase in tariff in August 1.
And for the energy share or the Blue tariff?
Yes, it's what I said.
Vincent Ayral from JPMorgan. Just a quick question just to follow-up on the previous one here. The market share on regulated Blue tariffs. These are the volumes where you may have a better margin and retention is important. You talk about market share in B2C but that involves volume which are sold at competitive market prices and volume which are sold on Blue tariff with higher margins. I'm interested in latter one. So which type of assumptions are you taking here for 2017 and ‘18? And then I would have another question related to the consensus which is on your slide, published on your slides on the net income recurring. I see in 2018, you got €2.5 billion. I see your guidance does not include a guidance on net income. However for the dividend you provide a payout ratio, so just to see if you are comfortable with this type of level. And finally the last question would be related to the attempt we saw on CO2 last year. CO2 tax, it seems that it's been parked. We have here at EDF, a company which couldn't get any windfall profit due to the regulation years ago, however we see it does not have dependent which should be slower on its profitability, it's fully exposed here. Is it something you were discussing with the government in relation with the investment you have to do on life extensions? Are there schemes now being discussed? Obviously I don't expect you to say what, but at least if. Thank you.
Okay, some very specific questions. I'll try to respond to the Blue tariff and the market share erosion and to CO2 tax, something et cetera. And maybe Xavier will take the difficult question of making - answer, sorry, on making no comment on our consensus number which is on our site.
On the Blue tariff and the market share, we do expect some erosion. We have found - I have found very - I'm really happy with that and Henri Lafontaine and his teams are really doing a great job that French consumers are still very loyal to our Blue tariff regulated level because they trust EDF.
We have of course lost market share because the whole purpose of the regulation on the downstream area is that we lose market share. So it would be extraordinarily that we don't lose market share. And we are having slight erosion of our market share every year and we plan - and I of course I will not give figures on this, but we plan to see this market share erosion continuing to drop slightly every year.
Right now there are many numbers but let's say we are somewhere between 88% or 89% of consumers still, if I may, when we are very happy to keep them, 88% or 89% of households still with EDF and we see people of course going elsewhere, but we'll see lots of people coming back to us because of EDF brand, because of the service quality because we have a very good customer service relationship with people who are really doing their best to resist this secular trend, which we are facing but we are facing it very well.
Regarding CO2 tax, I like your word that it is parked because usually something that’s parked, let's say your car that’s parked. Will they move out of the parking lot and get them to the highway? And so our very strong hope is that indeed this attempt which has not been successful at this stage - this attempt will be successful at a later stage. We have had a significant plus recently that the capacity mechanism that was discussed in France for many years between the various power generators like us and others and the government and the commission has been agreed by the commission. The capacity mechanism auction was implemented at the end of last year and the mechanism started January 1. And this is good news for us. So the efforts we have to try and mitigate the very volatile market conditions and the very low carbon coal price, the very low coal price, these efforts can be successful.
They have not been successful yet on the CO2 tax, but obviously and we know there will be political events in France during the first half of this year. So obviously we hope that we will be able to drive the concept out of the parking lot and into very bright highlight drive for the next few years.
Yes, let's have another question.
Philippe Ourpatian, Natixis. Just one actual question. Could you just update us about where we are concerning the French dam concessions? It's a long - not end of the story, and if you just remind us what is your position and what’s the French government position too?
Yes, this is a long-lasting story, as you said [indiscernible]. We have, as you know, being summoned in France and EDF by the way, both of us have been summoned by the EU Commission to implement tender offers on these concessions that have expired. This was at the end of 2015. A lot of conversations have occurred in the meantime that include mostly the commission and the French government, but we are also supporting these discussions. And we have good hopes that we will assign the good solution that will meet several requirements.
Of course the one that France should apply the directive, which is now a long one that there will be obviously tenders for some of the expired concessions, but also some, I would say, complementary decisions that could be made jointly by the Commission and by the French government and regulator in order to implement win-win solutions with regard to consumers and with regard to the stability of the electric systems. So I cannot say too much about this right now. Just that discussions are well underway and we are confident that we can try - that we can reach an agreement whereby there will be tender offers but at the same time the electric systems would be more robust and the power generators will be incentivized for investment.
Maybe we have to [indiscernible].
No, it’s very difficult when you are discussing with the regulator to set any kind of target agenda, target date and so on and so on. I will abstain from this. Any more questions?
Thank you. Just to follow-up on the previous question. Should we assume that your ‘18 target assumes status quo on the hydro concession?
And the RTE transaction, could you tell us, Xavier, how you will book - how you will show the capital gains in the accounts? Will it be through the P&L or straight into through the equity? Thank you.
Well, so first, we will register it we hope at the end of the first half of this year when the deal is completed. And secondly, yes, we'll have positive impact on our consolidated P&L.
Okay. If there is one last question, we'll take it, if not, we will call the end. Yes, one last question please.
Vincent Ayral from JPMorgan. Just following on the previous question on RTE. So it goes through the P&L. Will it be considered as a non-recurrent because obviously the capital gain could be part of the dedicated assets and it could be considered either way?
Yes, you're right. It could be either way, so we'll consider that.
Okay. With this, we will call the end of this meeting, and we thank you very much for your attendance. Please apologize once again that my voice was not at its best but we hope the content was at its best. Thank you. Bye-bye.
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