ENGIE's (ENGIY) CEO Isabelle Kocher on Q4 2017 Results - Earnings Call Transcript

ENGIE SA (OTCPK:ENGIY) Q4 2017 Earnings Conference Call March 8, 2017 3:00 AM ET

Executives

Isabelle Kocher - Chief Executive Officer

Judith Hartmann - Chief Financial Officer

Analysts

Vincent Ayral - JPMorgan

Emmanuel Turpin - Societe Generale

Vincent Gilles - Credit Suisse

Olly Jeffery - RBC

Carolina Dores - Morgan Stanley

Isabelle Kocher

Well we start. Good morning to everybody. We are very happy to welcome you here at ENGIE headquarters. Thank you for attending this conference either physically in this room or by call or by WebEx because we have lot of analyst connected to this room. We are very delighted with Judith Hartmann, our CFO, with our colleagues from the Executive Committee to present our full year 2017 results. Full year 2017 results we are I have to say extremely proud of. However before doing so, I just would like to take a look back at where we've come from. You remember that we started two years ago, three-year plan in 2016. And we had very clearly defined goal in mind that is to make ENGIE the champion, the champion of the new energy landscape.

The new energy landscape is being inserted by two megatrends. The first one is, the strong willingness of our clients to invest in the improvement of their energy usage. And the second megatrends is the strong willingness of the countries to invest in clean energy production. And this two megatrends they have been made possible by as you know technological evolution of course, but they're triggering a massive flow of investment and they're also reconciling the energy sector with civil society at large. So our first conviction, we would like to share with you today is that, the energy sector is the place to be. So we started two years ago, where we are now. After two years, our three-year plan is 90% completed. So in other words it means that our strategic pivot is behind us. And it means also that we're now ready for growth. And that's what we'll now illustrate more in detail.

Strategic pivot behind us, what does it mean? How can we define ENGIE today? In very simple words; first we help our clients improve their energy usage and second; we produce and we distribute ever cleaner energy. In other words, we're now repositioned exactly at the core of the game. We are repositioned in the main areas of investment of growth and of value creation. I know, we're starting to harvest the foods of our labor. Our strategy is starting to pay off, you see that very clearly in that chart. Our new business portfolio is faster growing, we have now new perimeter of activity and embedded EBITDA growth of 5%. It was I remind you minus 9% when we started. We run the company with much less merchant risks and we refocused on risk we can more easily manage with our expertise. We are cleaner and we're more profitable. So this in depth [ph] work never less of course to reach our 2017 guidance. And Judith you will explain the dynamics of each segment, the dynamics at play.

In short 2017 is a good year, but more than that 2017 is tipping point. And we expect then 2018 to be a solid year, with strong EBITDA organic growth and for the first time a strong global EBITDA growth. Another consequence we have decided to increase our dividend policy earlier than expected and to put our dividend at €0.75 for 2018. I said that we passed the tipping point, how did we pass this tipping point? Basically three main effects; first, the dilution effect of the disposal program is I would say mostly behind, you see that at the top of this chart. Second, we restructured and we stabilized our merchant activities. They're even maybe I cannot be on that but expected to rebound on the future depending of course on the evolution of power prices. Thirdly and especially the business we boosted by our investment program are performing well and they're increasingly competitive, they grew by 2% in 2016, by 5% in 2017 and they're expected to grow by 6% in 2018.

So you see here very clearly that the portfolio which as emerged is designed for future growth. We have a good visibility on our growth perspective on our different activities, you see that on this chart. We gain momentum on all our businesses, normally because we reposition them at the core of the game, but also we worked and we will continue to work I would say obsessively on our capabilities on client-centricity, on engagement, on innovation and competitiveness. So you see that our company has profoundly changed. You see that we will have to manage to absorb the impact of disposal program on the net recurring income group on the next slide, please.

So that the bridge between the 2015 net income report and the 2018 expected, but especially we have built a stronger portfolio. It is really a different company which is refocused, which is deleveraged, which is strength and which is poised for growth. So Judith now will review our results for 2017 in further details.

Judith Hartmann

Thank you Isabelle. We indeed have a different company in front of us than we had two years ago, the strategic repositioning is also clearly translating in our numbers. We've successfully executed the bulk of our disposals program to-date and it is key to our strategic repositioning. We have thus reshaped our portfolio and have also strengthened our financial structure. At the same time we have been massively investing into our growth engines and these investments are starting to pay off, you can see some of this already 2017 but we're expecting an increase in 2018 and 2018 of this contributions.

Thankfully, 2018 we have improved our competitiveness. The savings help us to fund some more of our investments and we're creating a leaner, faster and more agile organization. The 2017 performance is a solid organic growth and like Isabelle said, we have managed to fully compensate the dilution from our disposals. Since we're recording major impacts from acquisitions and disposals the resulting accounting is rather complex hence I want to be very specific with you on the different elements for you to understand the underlying performance. This complexity by the way will be with us for a few more quarters and I'm asking you to bear with us.

So here you have the three different ways of looking at our net income. The reported figure of €2.7 billion includes €100 million on E&P amortization upside in line with the indication provided in July. This is due to the IFRS 5 accounting because we're selling a major line of business. Adjusted for this effect, but including the operational results of E&P is the result that is in line with the definition of our 2017 guidance as we presented to you a year ago. This corresponds to €2.56 billion and as you can see it's at the high end of the range €2.4 billion to €2.6 billion that we had initially guided. So in 2017, we still benefit operationally from E&P and you will see later that we will make up for this contribution that we're going to lose in 2018 with other businesses. So no matter how you turn it, we have managed to compensate the dilution from disposals. Excluding E&P the net recurring income from continued operations at €2.4 billion is close to flat, but up organically.

Let's now look on the year-on-year evolution of EBITDA. The important message here you can see the organic growth of EBITDA at is above 5% before I go into the different drivers by business let's quickly look at the non-organic elements. As you know as from 2017 the nuclear tax is booked at the EBITDA level instead of tax level. On FX, hardly any impact and then negative scope impact of overall about €500 million comes mainly from the disposals of the US merchant assets as well as the Paiton coal plant in Indonesia and is partially offset by a positive scope impact of approximately €60 million.

Now let's look at the different businesses starting with client solutions. Client Solutions clearly accelerated in 2017. In B2B merchant improved driven by the restructuring of the French supply business and the recovery of our Benelux services business. In B2C new power contracts in France mainly green by the way more than offset the erosion of the market share in gas contracts and we benefited from better power margins notably in France which were only partially compensated by lower gas margins and negative year-on-year temperature effect. Finally in B2T, we have benefited from an increase in production in cogeneration.

On the next page you can see our networks business which has showed resilient performance. Negative price effects for French LNG terminals transmission and storage activities have fully offset positive tariff effect in Latin America. Volumes were impacted by lower storage volumes marketed in France and a slightly negative temperature effect partially compensated by commissioning of new assets in Latin America. On generation, our primary focus namely renewable and thermal contracted activities showed good performance. The main driver is the positive price effect mainly coming from Latin America with much better spot prices in Brazil. Volumes were impacted by lower production on French and Brazil hydrogeneration because of the very poor hydrology which created a volume effect in France and in Brazil. This was partially offset by new capacities coming online mainly in Mexico, Peru, Brazil, Middle East and France.

Still on generation, but this time on our merchant assets. We have worked our optimizing existing assets in order to capture potential upside. We were affected by lower achieved prices on nuclear volumes and in the midstream gas activity partially compensated by higher spreads captured on our merchant generation fleet in Europe. Volumes drop mainly due to nuclear outages in Tihange 1 and Doel 3. Volumes were also hurt by the closing of the Hazelwood coal plant in Australia in March. Nuclear outages will impact again us in 2018, but we expect a return to higher availability from 2019 onwards. These negative impacts were partially offset by the great efforts of the team on lean. You'll see that this merchant activity is stabilizing in 2018 and so now let's look at lean 2018 more specifically.

Our performance plan aims of course at cutting expenses which will permanently decrease our cost base. It also helps us to offset dilution from the disposal plan and by the end of 2017, we have exceeded our target by nearly 11% with €950 million of savings achieved at the EBITDA level. Given the success we're upgrading our target for 2018 by another €100 million. Now a few words on the P&L with path from EBITDA to net recurring income as well as a description of non-recurring elements. At the COI level, D&A and others are slightly increasing because of higher dismantling provisions for nuclear power plants in Belgium. The net recurring income group share is benefiting from our efforts to reduce debt and lower the cost of debt. The net income group share of €1.4 billion results from on the one hand negative effects coming from impairments and restructuring cost mostly due to the effect Lean 2018 program on headquarters. On the other hand positive effects related to capital gains mainly coming from disposals are helping this result.

Our balance sheet and financial structure shows continued strength. We have further reduced our financial and our economic debt. Financial debt now stands at €22.5 billion as of December 2017 and even €20.9 billion adjusted for the E&P intercompany debt. Financial net debt to EBITDA stands at 2.25 improving versus the end of 2016 and thus remains below the 2.5 limit we had set for ourselves. This is resulting from the sound operational cash generation at €8.3 billion from the impacts of the portfolio rotation program booked in 2017 amounting to €4.28 billion and from about €700 million impact positive on foreign exchange. Note that, for the first time we're also presenting the ratio of economic net debt to EBITDA including amongst others operating leases, provision for asset retirement obligations and for pensions.

The cost of debt has continue to decrease as well and stands today at 2.63. This of course reflects the favorable market environment, but also the active liability management that we continuously work on to optimize our cost of debt. Regarding financing actions, we successfully issued to two Green Bonds in 2017 for €2.75 billion in January 2018, we issued our first Green Hybrid Bond bringing the total amount of Green Bonds issued so far to €6.25 billion. This makes ENGIE the largest corporate issuer of Green Bonds globally. This latest Green Hybrid Bond also sets a record with 5.25 years coupon at 1.38%.

Of course you remember that ENGIE is rated in the A category by the three main rating agencies Fitch assigned strong investment grade rating of A, with stable outlook in October 2017. S&P and Moody's have confirmed their credit rating earlier in 2017.

So a good 2017 now let's look at 2018. We see strong dynamics for 2018 at the operational level. I will focus here on the main earnings drivers. Client solutions will continue to grow at a significant pace mainly driven by a solid backlog that is obviously already existing efficiency gains and the contribution from acquisitions. Networks will benefit from the new regulation on French storage. Renewable and thermal contracted generation will benefit from the full year impact of our new Brazilian concessions and we're also expecting better hydrology and in France and in Brazil.

Finally merchant generation should stabilize on an organic basis, Lean efforts and long-term contract net renegotiations are compensating for lower nuclear achieved prices. Again we should benefit from higher hedged prices as of 2019. So this slide illustrates our positive outlook for 2018. We're planning a net recurring income group share excluding E&P and LNG contributions ranging from €2.45 billion to €2.65 billion up 8% year-on-year. And on the basis on the 2017 results and our confidence in 2018, we're very happy to announce that we have decided to raise the dividend to €0.75 a share.

I will now hand back to Isabelle for her conclusion.

Isabelle Kocher

Thank you Judith. Thank you for this very clear presentation. So we're very happy and very proud that the choice, the bet we made two years ago conscious choice to be a pathfinder and to ride the company ahead of the curve, appears to be the winning one. Really strategic pivot is behind, we're now repositioned on clear growth path and we re-profiled our Group to be in situation to benefit from that in the future. So we're then looking at the future with I would say healthily level of confidence and of ambition and now we're ready to take your questions. Yes.

Question-and-Answer Session

Q - Vincent Ayral

Hi, Vincent Ayral from JPMorgan. So before asking question, I'll give you the opportunity the comment once again on Uniper and the news also [ph] the rumors in the market which are somehow hurting ENGIE each time they appear, but to move to the question when your portfolio repositioning is now done as you said, their investment in organic growth seems to be able to help ENGIE to weather the recent FX headwinds and that is referring the market, you can see the share price is almost up 4%. So my first question will be on organic growth which seems to be exceeding market expectations there, could you give some color on EBITDA or net income from Tabreed, Keepmoat and Brazilian hydro some quantification will be helpful. That's question one.

And then question two, as the repositioning is now mostly done, looking forward what type of organic growth do you think that this company can sustain given the market opportunities at hand. And that is one and could you give us some color on strategy going forward? That will be key question on the market this year, another key question regarding strategy will be SUEZ obviously and will we have C&D later this year in order to provide some color on this specific issue? And I'll finish with the last one which is regarding government stake and useful again, there may be a project to change it all, in order to enable the government to lower its stake in ENGIE. I think that's probably something which will be welcomed by the market here, but something which could crystallize more value would be if the lowest change in order to enable partial listing of infrastructures. Is it something which would make sense or is being discussed with the government? Thank you.

Judith Hartmann

So very good. So you had a question on organic growth on EBITDA and some of the drivers and I think you saw it from the page I showed earlier that, what the big drivers are? You mentioned of course two of big ones on clients solutions being the additional results coming from Tabreed and also from Keepmoat. Tabreed about €40 million, Keepmoat about €30 million additional, but beyond that I really want to stretch the client solutions like I said benefits from a strong backlog as well as from the margin expansion that the team has been working on very successfully over the last few years.

The two concessions in Brazil are indeed a very important point also and that will drive on the EBITDA level. I would say close to another €80 million. So those are on the positives like I said earlier we're now in a position I really feel that we can offset some of the headwinds, first thing, you know I look at 2017 major headwinds on hydro and some of the availability topics we were able to offset this and going into 2018 yes, of course there will be some headwind for example foreign exchange like you mentioned but we're now well positioned to offset this kind of headwind. So we feel good confidence in 2018 and obviously that's why we're raising the dividend.

I think your first question, it was hard to hear you. But I think it was about Uniper probably energy [ph] rumors that you mentioned, so again I let Isabelle add, but she said it many times and I've confirmed it many times also that we're not looking in any M&A of that size. We're very happy with the portfolio that we have just created. M&A is of course is part of our toolbox, we have done 40 acquisitions over the last couple of years, over the last few years. a lot of them in clients solutions and so you know you've seen the type of things we've done, that's the kind of thing you can expect and we're like you said very confident with the portfolio that we have created.

Isabelle Kocher

Thank you, Judith. So you asked two questions additionally to what Judith just answered. First of all at strategy, so we just really find strategies, so you're not to expect a big change in our strategy in the future. As per that what you have in mind is more our ability to give more long-term view on ENGIE evolution, we just figured internally 2030 vision to permanently reassess the trends of the market and to try to project our group long run. So it will be our pleasure to come back, during H2 that is not yet fixed but we share that with you and to give you medium term goals in terms of industrial development. So be just little bit patient, we gave I believe extremely detailed indication about 2018 as far as growth is concerned as Judith just completed and we'll go back with longer view before the end of the year.

So Vincent, I won't surprise you. I'm afraid. As we're happy with the state. And I would like to help that our main expectation as the first shareholder, is that shares is able to come back with something which is effectively satisfactory for the shareholders. So of course the management is extremely focused on that, you've seen the first decisions made and recently announced. And to rebuild a growth story will be at the core of the work of the board, over the months to come. Just also to add that we permanently reinforce the industrial corporation, we have between ENGIE and SUEZ recently, we signed an agreement it was this week, to value the surfaces of some SUEZ fields in order to leverage that to install a renewable capacities on SUEZ site. So it is something, we will of course continuously reinforce.

As far as the French state is concerned so that's not secret effectively works have started to maybe change the law and you know that to make the French state able to diminish the stake, they would need the change the laws. So it's a long way, the product is even not yet fixed. So it's not something that could happen before the end of the year or before the or before the very last of the year. I've just - my posture is to of course to prepare ENGIE to any scenario. Fundamentally to increase the stake of floating with bigger I believe for the company good to accompany the transformation so that's something we see without any share. ENGIE you asked an additional, this is something which is again not yet fixed, that's effectively an option. That could maybe help our subsidiary to build partnership at European level and in my view it would be good for this activity, yes.

Emmanuel Turpin

Good morning, Emmanuel Turpin, Societe Generale. I'd like to start with guidance you've provided good details for 2018 and you've given some data for, some indications for 2019 if we read through the slides and I think this would be much welcomed by the market, by the way. And as you expect, as you've now given clarity on the 2018 guidance I'm going to go to 2019. And here I think there are quite a few things actually and that you said in your presentation and I would like to put them together. First of all you give us some contribution from the new CapEx okay and to cut it short in 2019 this will contribute €1.1 billion of COI on 0.55 of net earnings, could we have the same number for 2018 so that we're able to calculate the jump from 2018 to 2019, then I think of the increasing ARPU to Euros that should give you another €120 million of EBITDA. And Doel 3 I believe you said you expect that it comes back that should give us what an extra €100 million of net earnings, so these are the positive I can identify. I guess you would have assumed in 2018 average everything else hydro volumes etc. can you confirm that? And could you highlight to us other maybe incremental positives or negatives that we need to take into account and then we can all workout our numbers. On the same vein, customer solutions and that's my second question was, a very good provider of growth in 2017. It's probably the opportunity to revisit the target you shared with us to reach €3 billion of EBITDA at one point, as a run rate in 2018. When do you think you'll get that number in actual in fact, is it going to be a full year 2019 numbers? Is it going to be full year 2020 as far as we can see today?

And I would say, last points first on capital allocation the press is saying that you're looking to sell your coal power stations in Germany. Apparently there is a process started there and that allows me to come back on this big portfolio of thermal assets in Europe. Is the idea that you would look at selling them piece meal, you sold the UK, you may be selling Germany. So are you looking for the best buyers there or is there still an idea of maybe trying to optimize this asset combining with another portfolio of another operator on maybe hoping to get the rebound in earnings later on. On very last point, on energy policy in Belgium big year for you. Do you think there's possibly the government would be considering changing the law and extending the operating life of the nuclear plants, is that your preferred solution? And in any case, whether they extend or not? That would need to incentivize new CapEx, is it something you're discussing with them giving more visibility on returns on the new CapEx so that whether you need to invest to extend the life of the nuclear plants or investing thermal capacity. You would do that, having a better visibility on your returns. Thank you very much.

Judith Hartmann

So on 2019, we're obviously not giving any specific guidance on this. Again if I look at 2018 on what's impact and what could translate into 2019, you mentioned a lot of them already. So we do believe that hydro is going to come back to a normalized status in 2018, with a very significant impact in 2017 for all of sitting in France, you can see it has been raining. There is a lot of snow. This is going to be good news for us in 2017 and of course I don't have a reason to think, anything different in 2019. We've mentioned some of the acquisitions was specific questions, but frankly you could extend that question to what's your investments bringing in and I would say, additional contribution we were talking about roughly €400 million in 2018 and another €150 million or so in 2019. And so, we should see good upside there.

And then Doel [ph] of course I mean, we're hoping that this is going to stabilize the teams are very engaged. This is a construction site that is ongoing, we should be back later this year as you know we said in August and so I feel good about. You asked the question about customer solutions more specifically. In terms of the increase we had of course said that we were going to increase the EBITDA by 50% and excluding for adjusting for effects that's still what we're after, you will see something close to this at the end of 2018 and of course there is some FX pressure, but we're still working hard on this and the investments that we've done are going to really kick in, in fact most of the ones I've mentioned Tabreed and Keepmoat are obviously going to start to contribute at a much higher level.

You also had a question around coal plants in Germany. Again you've heard me say this many times when you do asset rotation program of this size. There's always going to rumors, it's also because we're testing the markets in different places we have not made a decision to sell these assets, but we're actively testing several ideas and in different places. It is I would say a very positive thing though about this entire portfolio generation. The team has done just an outstanding job in optimizing this portfolio. And we look at this collectively very differently then we looked at this let's say three years ago, it is now really positioned. We see it in 2017, by the way very significant increase of results and we now feel that we're positioned to capture upside when they come in terms of spreads and electricity prices. So it is really been a complete reshaping and what used to be pressure, now has become, has been turned into an upside potential. I would really phrase it that way.

Isabelle Kocher

And as far as, first of all I would like to really congratulate the teams for the work that has been done for European generation because you all remember if you were already following, ENGIE over the last years, that really they face, they pass through very difficult time and then now it is flexible asset, really able to capture volatility and to be positive significantly even from cash perspective, from an EBITDA perspective so really GEN [ph] is now an asset in our company. Belgium is as usual, a country, we effectively are extremely invested in. We're for more than and [indiscernible] the most important energy player in this country. The famous pact energetic and the discussion is really at the core of the political gain for the moment in Belgium. Discussions are not yet finished at all. There are and - different views in particular on the way to manage the nuclear fleet. As Group, we're of course we will commit with, comply with what will be decided. We believe from an economic point of view, it will really make sense to prolong the plans. But nevertheless we prepare Electrabel our subsidiary in Belgium to face in any scenario, in any case Electrabel is the key industrial player in the energy sector in Belgium, that's the point. And we continue to re-profile Electrabel to make it more and more competitive, client-centric, innovative Electrabel is extremely active on the innovation side in particular vis-à-vis the offers to the clients and we have as you know 17,000 people in this country, so we're - in any case we're at the core of that future. Too early to say.

It's clear that what I suppose you had in mind, asking this question is whatever the scenario is, it's not an option to invest on the merchant I would say profile. And as UK did for example, we're not only ENGIE would ask some frameworks that would allow us to invest, in nuclear fleet, if the decision to Poland is made or in thermal fleet because there are scenarios to build, the replace the plants, nuclear plants several six, eight maybe subsidiaries that's something which is under discussion. So what will be needed in this country to encourage players to reinvest is to set contract for difference like I would say regulation that would allow us to invest.

I like to highlight also that's for the power generation part, but I expect that Belgium will push as if we were in Europe and everywhere in the world energy services in this country as everywhere. It is a key part for energy transition and Belgium can do much more so we really ask very demanding pact energetic and we consider that we can help this country to be champion also in this energy landscape in Europe. Another question?

Unidentified Analyst

Coming back on the Belgium, so a regulated investment framework for life extensions does make sense in Belgium and in other countries. Last time you had life extension, you had semi sort of regulated frame work where it was not a hard flow on the profitability. So what is your stance there? Would you expect such a comprise or you would stand fair on basically having profitability for and a regulated frame work?

Isabelle Kocher

Little bit too early to say, as I said we're not yet there. But for everybody what we go last time is emerging which is fiscal scheme which is in proportion of margin, that is to say that we're back to something which is normal level of tax, where we illustration where we came from nuclear tax which was by far too high compared to what we, to the level of the profitability we had, with these assets, but that's still merchant. That's still merchant, that's impact to normal as far as fiscal scheme is concerned, but that's still is merchant. What we would need for the future is something which is regulated and wanted [ph].

Unidentified Analyst

Hence and following on Belgium, I think I asked the question last year, again what is your view regarding exposure to the current fleet. I think you were talking about the potential minority stake disposal, that are also options of IPOs or else or of deal with another generator player in Europe. Are you looking at these different options as of today? Thank you.

Isabelle Kocher

Again, a little bit too early - since it's always these discussions about the pact energetic and etc. and then the industrial scenario are not yet finished. But what is clear is that, if it is positive from a local and coverage point of view to welcome some partners, at the equity level. I always say that we would ready to do so, again the goal is that we're seeing in this country as the best asset for energy strategy and then to build the partnership would be effectively looked at from this angle. We can maybe take some question from the WebEx. If any?

Operator

We'll now take our first question from the phone from Vincent Gilles from Credit Suisse.

Vincent Gilles

I just would like to talk about the bridge between 2017 and 2018, you gave quite a lot, just trying to make sure I really understand how you go from the current level of 2017 EBITDA net income to your guidance for 2018. So essentially either at the EBITDA level or at the net income level, if you can do something very simple, it's part of your questions [indiscernible] which is scope in, scope out and anything else like organic or FX would be very, very helpful and maybe at both levels. In moving on as well you [indiscernible] Slide 13 looking back and also just to talk about the range of, in the guidance you gave €400 million between the bottom and the top of your EBITDA guidance about €200 million for the net income. What would be? And you explain to us all the moving parts, what may go better, what may go worse? Which is I would say the main elements you believe could actually dip you one way or another, so that would be one question, if you're nice enough to continue it as one question. And the second question is, coming back on Belgium. When you say you're prepared for any scenario looking at the debate in Belgium in the last three days [indiscernible] 2025 closure of nuclear plants etc., etc. it's nothing new there but your provisions would you say that the level of provisions you have today would make it possible for you to face an early closure of nuclear in Belgium. Thank you.

Judith Hartmann

Okay, great. So hello, Vincent. So the question was first on more details on the EBITDA bridge. For 2018, I think we had a page in the appendix, so foreign exchange is a pressure of €200 million on the EBITDA scope out €450 million, scope in about €200 million I've mentioned the drivers earlier already. And then like I said, there's good results from our growth engines that get us to an indication that is mentioned in the appendixes of 9.3 to 9.7 which is obviously corresponds to the net recurring income. So that would be on the bridge there, you've asked a question on the range recent opportunities basically how I took your question. And really I would say have mentioned most of them already, foreign exchange is of course creating pressure here. So that is something that we're going to look out for very closely. At the nuclear fleet, the way it is built in right now it's restarting in August and obviously the teams are very committed to get to that date. We have consciously build the plan around being able to offset these kinds of headwinds and so that's what we're, it's one of the reasons by the way why, given the success of Lean 2018 we felt that we could add another €100 million which is mostly related to purchasing effort that we've started, very significant effort and that is really going to help us to offset some of the pressure. As it might arise, if it does arise in 2018.

So no surprise here, we feel confident on the guidance that we're giving here, the middle of the range is what we're targeting right now and then obviously we'll keep you posted as we go along during the year. You've asked the question on the nuclear provisions. I mean people sometimes underestimate just how sophisticated this exercise is, when we do this there is a revision every three-year, there is many external experts including the regulator and the Belgium government, so all of this is very well thought through in terms of the industrial scenarios, in terms of the interest rates that are used and so, we are confident obviously in the provision as it is, the industrial scenario like I said is reviewed recently with the regulator and so we feel good about how it is, how it is now. We're assuming and this is in the detailed of the [Foreign Langue] or the annual report, we're assuming a partial extension only and like we said earlier quite frankly if it's that, then quite frankly we're happy to help the Belgium Government in whatever way we can, in supporting their energy needs and obviously we have all the tools available to us including the energy efficiency piece and of course renewable and gas. So we're really well positioned to work on the future of energy in Belgium.

Isabelle Kocher

And you mentioned the fact that, we say that we're ready to face any scenario but that's for after 2025 and then the earlier closure of the plants in my view is absolutely not a realistic option. You'll have in mind that 60% of the power in this country is supplied by the nuclear fleet. So even in 2025 that's really a challenge to replace that, so before frankly that's not realistic. Do we have other questions?

Operator

We will now take the next question from Olly Jeffery from RBC.

Olly Jeffery

So I've two questions. The first is around the client solutions growth that you're aiming for by the end of 2018. Previously when you're looking at this metric, you spoke about growing this in three equal measures one-third organically, one-third through cost saving and one-third through acquisitions. Has the makeup of that changed? And can you just please just confirm that you're still on per hit the 50% target? I believe you did, but just to confirm. And the second question is on return on capital employed. With regard to your overall strategy moving into customer solutions in particular it's been about looking to grow in areas of higher return on capital employed than in other areas. So thus client solutions having a [indiscernible] around 11% you mentioned previously, given that can you please just explain why you still maintain your one-third position within SUEZ, is the right solution? Because the return on capital employed within SUEZ as I believe is a bit lower around below 7%. And also on SUEZ, ENGIE increasingly focused on energy and energy services etc. so given SUEZ's footprint in more an environmental arena, how does that marry, we got over on strategy. Thank you very much.

Judith Hartmann

So first on the 50% target, like I said earlier we're going to be very close to this at the end of the year, adjusted for foreign exchange. We will in all likelihood be there, where is the mix? Where is the growth coming from? You mentioned the three levers acquisitions organic and lean. I always said it's about a third, a third to get us there. I would say, when you look at we're not going to be too far off that, maybe a little less on acquisitions given the organic results that we're seeing on acquisitions of course I've mentioned Tabreed and Keepmoat already very significant and that's already done and that's going to contribute next year. The teams' are really working very much on margin expansion, they have been very successful on this every year to increase the margin and so I'm expecting that to continue also for the rest of this year and beyond for that matter. So we'll be close, we'll be very close and like I said, adjusted for FX we'll be roughly around at the 50%, so which is great. And I know it's, it relays in line with the what the customers are wanting from us and we have a lot of value to add in this segment.

On the SUEZ question, I think we've already answered it. I don't know if we want to say any more to this, Isabelle.

Isabelle Kocher

Just to, I won't repeat what I already said. Just to highlight the fact that our conviction is that SUEZ can do more. SUEZ can do more in terms of growth of value creation, so that's our goal really to get that future growth and that future value creation. You still have one question I believe.

Olly Jeffery

That was all. Thank you.

Operator

We'll now take the next question from Carolina Dores from Morgan Stanley.

Carolina Dores

I've an additional question on the Customer Solutions business because you broke down, you expect around €300 million of growth, €200 million coming from acquisitions and then €100 million. From what I understand its margin expansion mainly in France and Benelux, which to add the business is performing well. If you can give a little bit more detail on what part of the business you see this margin expansion and why? Second, it's what is strategy on Hybrid? You've recently issue another one view expect just to add on the Hybrid's or payback what it's reaching the expiration which I believe is 2019? And third, it's more on the G&A effect the impairment of assets on PP&E, how that should help G&A in 2018? Thank you very much.

Isabelle Kocher

I will start with client solutions and then Judith will answer - your other questions. You're right the dynamic in Customer Solutions is extremely impressive and we're aware of Customer Solutions are more and more important. They are really at the core of the strategy and they're the most rapid level of growth, that's true for 2017 and it will be true again for 2018 and it will be true in the future. So it means that, proportion of that in our company will be bigger and bigger. So drivers for growth, yes. There are M&A and we will continue. I know if you're aware that we over the last two years, we bought 43 companies small or medium-sized. Totaling more or less €2.5 billion turnover, so that's relatively significant. We [indiscernible] progressively develop an integration capability and then we will probably continue to do that. But that's only part of growth levers of course, how are we progressing so fast in Customer Solutions.

First of all international expansion historically this activity is mainly European and we leverage the operations, we already have in Latin America, in the US, in Asia, in Africa to progressively build Customer Solutions in these countries. Country we know very well for long time, that's the first part and we have the ability to project some very I mean experienced managers coming from our Group, from our European service entities. And they are in charge to group these business abroad that's the first driver. The second one is that, we continue to increase our added value, more and more we take integrated solutions that's something we regularly highlight. The best example of that I believe is the contract we signed with in the US with Ohio State University campus where we manage now for 50 years, almost everything regarding energy in the campus cooling, heating, lighting, traffic. And we invest €1 billion over this 50 years so that's significant and we have something which is concession like contract. And doing that, we contribute to make our margins better and better and that's extremely visible in the elements we shared with you today not only we increased the turnover, but we also increase the level of margin because the level of added value is high and higher. So here basically the elements we're leveraging it's - I would say even more rapid that I would have expected and our assessment is that, there is there very important potential for growth forward ENGIE.

So now we're now at the end of this conference. I like to thank you to have attended this meeting. Have a good day.