Engie SA ADR (ENGIY) CEO Isabelle Kocher on Q3 2018 Results - Earnings Call Transcript

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About: ENGIE SA ADR (ENGIY)
by: SA Transcripts

Engie SA ADR (OTCPK:ENGIY) Q3 2018 Earnings Conference Call November 7, 2018 3:00 AM ET

Executives

Isabelle Kocher - Chief Executive Officer

Paulo Almirante - Chief Operating Officer

Judith Hartmann - Chief Financial Officer

Analysts

Ajay Patel - Goldman Sachs

Emmanuel Turpin - Societe Generale

Vincent Ayral - JP Morgan

Vincent Gilles - Credit Suisse

Carolina Dores - Morgan Stanley

Meike Becker - Bernstein

Peter Bisztyga - Bank of America Merrill Lynch

Aymeric Parodi - UBS

Sam Ariel - UBS

Isabelle Kocher

Good morning and thank you for being with us today. I am very pleased to welcome you for this conference with Judith Hartmann, our CFO, and Paulo Almirante, our COO, and we will present our results for the first nine months of 2018.

Our financial results are good. They are again, showing a solid organic growth, fueled mainly by renewables and by networks. And, as already mentioned in September during the specific call made on Nuclear, the very good performance of our Energy Management business allows us to largely compensate the significant headwinds coming from Nuclear. And thus we confirm our 2018 full-year guidance with a net recurring income at the low-end of the range.

Our nine months numbers are in line with what we recently communicated. EBITDA showed organic growth of 5% and even better. COI increased by approximately 8% organically. Gross variation reported is impacted by significant foreign exchange headwinds and to a lesser extent by scope impacts, the disposals we made.

CFFO benefits from a strong operating cash flow generation, but is impacted, as expected, by a less favorable working capital requirement evolution, compared to 2017. And net debt continues to be reduced. This is a solid performance given the exceptional situation we are currently facing in Belgium with the temporary nuclear outages.

I’ll remind you that, on a full-year basis, we indicated also that we would be slightly below the range of the EBITDA indication given in March, as we have strong upsides compensating the impact of the unplanned outages. Our ability to compensate illustrates the strength of our vertically-integrated business model and our successful repositioning.

Let me now give you an update on the operational fronts. First, let’s look at our operational developments over the first nine months. In Client Solutions, B2C, we continued capturing clients in France on free-market offers in electricity, but also in gas. In B2B Services Solutions, we have a marked competitive advantage resulting in a very high order book, which has further increased year-on-year.

On Renewables specifically, we have become a significant player in this market. We are growing our renewable asset base at a fast pace. By year-end, we will have added more than 2 gigawatts and we have, to-date, 3.5 gigawatts currently under construction.

Finally, in Merchant, we are taking all the necessary actions to maximize the availability of our thermal generation fleet in Europe in particular, in the Q4, and Paulo Almirante will come back on this.

Looking now at the Group evolution since 2015, we have significantly reinforced our leadership positions on the activities that we decided to focus on. On this, let me just give you some salient elements. In Client Solutions, we have reached more than 24 million customers in B2C, a 7% increase compared to our position at the end of 2015.

And, in B2B, we have expanded our footprint. This has been achieved on the back of both organic development and acquisitions. In less than three years, we have added more than 2 billion revenues in B2B services through acquisitions.

On Networks, we have increased our regulated asset base in France by €4 billion, mainly following the new regulation of the Storage business from January the 1st, 2018. On the International front, we have now €2.5 billion on Network assets and we aim to further develop, as you know, possibly in Brazil.

We have accelerated in Renewables since 2015, notably in wind and solar, where we increased our installed capacities by 40% and our currently renewable pipeline now totals more than 10 gigawatt by 2023.

And, finally, on Merchant, we have deeply restructured our business. We know - you know that, I won’t develop and we are now greener, more flexible, and more profitable.

And, finally, we are, financially speaking, in a better position thanks to the deleveraging achieved €7 billion net financial debt reduction and the fundamental evolution of our performance culture and the investment program focused on activities enjoying higher returns.

The next slide, the Slide number 6 shows the divergence between Nuclear which goes through an exceptionally bad year in 2018 and the rest of the business, which is strong. On a full year basis, you can see that 2018 will be the trough with a negative year-on-year impact of approximately €700 million at the EBITDA level.

We expect this contribution to improve as soon as 2019, on the back of better availability and significantly higher prices, also.

And I will now hand over to Paulo for a specific focus on nuclear operation status and then Judith, you will take the financials.

Paulo Almirante

Thank you, Isabelle, and good morning, everyone. With Judith, we gave you an update at the end of September on the technical issues and the availability forecasts for our nuclear power plants in Belgium.

Since the summer, when we found additional defects in the concrete of the secondary bunkers, we significantly reinforced both project management and engineering resources. We are working on two fronts.

First, we carried out detailed inspections using advanced techniques and special tailor-made robots to detect the condition of the equipment, being it the concrete issues of the second-generation units or the piping in Doel 1 and Doel 2.

With that information, we than ran complex mathematical models to assess the actual characteristics and compare it with the original design. For example, 50 full-time-equivalent engineers are only performing modeling and analysis. This is very significant in our operations.

Second, we developed repair procedures and we have started the repairs. Our teams and subcontractors are working on a 24/7 basis, using large hydro-demolition tools, specifically made for these repairs. All these works are performed under the supervision of the Belgian Federal Agency of Nuclear Control. The Agency is informed continuously about the progress of the repairs, and we have to respect what is called Hold and Witness Points introduced by the Agency throughout the repair process.

We have deployed the best resources available in the industry. Nuclear design engineers, civil engineers, experts in structures, in seismic calculations, and foundations, very specialized labs and many other specialists. These are very complex projects and we have several happening at the same time.

I take, in fact, this opportunity to express our deep appreciation for the commitment and resilience of our employees and our suppliers on these projects. We are confident that the objectives established for each of the projects will be achieved.

Nuclear safety is our top priority and, with these works, we aim at restoring compliance to the initial technical specification, which, in fact, is unique in the nuclear power industry, as we have said before to all of you.

Let me give you now an update on progress of works. For Doel 1, the inspections are almost finalized, and the repairs are progressing in accordance with the plan. In fact, most of the inspections have been carried out and we have - what we have seen is as expected. The repairs at Doel 1 are finalized and we continue with repairs in parts of the reactor of Doel 1.

But, so far, we have no news on - or no bad news on these inspections. And, as expected, we return this reactor by mid of December.

Doel 2, the inspections are ongoing as planned. In Doel 3, the unit is back in service since July. At Doel 4, repair works are progressing as planned and all calculations were submitted to the Agency for approval.

At Tihange 1, we brought forward the start of the planned outages to have it back in operation in the second half of November before the coldest winter days. The refueling is progressing in accordance with the plan, again. At Tihange 2 and Tihange 3, inspections of the concrete structures are progressing and computational models are under development to assess the compliance of the structure with the original design. Repairs have also started and are progressing as planned.

So, in conclusion, besides Doel 3, which is already running since end of July, four other units, Tihange 1 in November, Doel 1, Doel 4 and Doel 2 in December are planned to restart by the end of this year.

Moving on now to the second subject of this slide. With these recent experiences and new contexts, we have started a full review of the Group’s nuclear operations at different levels, organizational review and the various internal and external interfaces, as well as an assessment of global performance. This should clarify the future options and the related organizational focus for this business.

Regarding generation capacity, we are implementing special measures to increase generation capacity in Belgium in order to support the security of power supply for the coming winter. On the supply side, we signed, a few weeks ago, a tolling contract to operate the 250 Megawatt Vilvoorde Gas Plant to ensure that it will produce power throughout the winter.

The first week of operations, at the end of October went well without any major issue. Power Generation business unit identified other options for several turbojets and diesel engines that could bring up to 200 megawatts of additional capacities.

On the demand side, we have the ability to use our existing portfolio of approximately 200 megawatts to manage the supply/demand balance at any time.

Finally, we can also take more measures, if necessary, for example over-firing, which could provide up to 100 Megawatts of capacity. In total, we are making available 750 Megawatts of additional capacity in full co-operation with the Belgian authorities and we can add another 800 Megawatts of own generation in neighboring countries, which in this case is dependent on transmission capacity.

This additional capacity requires several administrative processes, which are being implemented together with the Belgian authorities to secure power supply for the coming winter.

I now hand over to Judith for a focus on the financials.

Judith Hartmann

Thank you, Paulo, and good morning, everyone. Let’s look at the year-on-year evolution of EBITDA. The important message here, EBITDA is flat year-on-year, despite adverse ForEx and scope impacts and is up 5% organically.

On foreign exchange, the negative impact of €230 million is mainly coming from the depreciation of the Brazilian real and the US dollar. On scope, the negative impact of €90 million results from scope-out impacts, compensated by the contribution of last year’s transactions mainly the two hydro concessions, one in Brazil and to a smaller extent to read and keep note in Client Solutions.

Looking at reportable segments, excluding Benelux and Africa, Asia, which are impacted by one-offs, all the other segments are growing organically with North America and Latin America posting double-digit organic growth, and of course, GEM, with a very solid year this year.

As you can see, one of the most significant drivers of our performance is our Lean 2018 cost-saving program, which contributes to roughly €200 million at the end of September, leading to a cumulative impact of €1.2 billion in less than three years. These savings are spread out across all of our business units, which really is a testament of our performance culture and the development of digital.

Let’s now look at the main business trends in our activities. All of our key activities are growing and this is a strong achievement considering the significant foreign exchange headwind that I just mentioned.

In Client Solutions, nine months reported figures, which are up 1% year-on-year on a gross basis are still impacted by the temporary margin squeeze in French Retail B2C business.

As anticipated, the reversal of this effects starts to materialize in Q3 with a reported decrease of 7%, compared to a negative 13% in the first half. In B2B Service Solutions, we benefit from positive dynamics including the contribution from tuck-in acquisitions. The 4% reported growth is however, impacted by losses incurred on some oil and gas contracts and a lower activity in engineering.

I remind you that we expect a strong Q4 in Client Solutions, mainly driven by further improvements on retail margins, the ramp up of our tuck-in acquisitions in B2B Service Solutions and the additional contribution of our Lean 2018 program. We are also working on the restructuring of loss-making activities in oil and gas and this will start bearing fruit in the fourth quarter.

In Renewables and Thermal Contracted Generation, we continue to see a sustained growth level, as in H1, with 3% on a gross basis and a much higher level on an organic basis of plus 10%. This is mainly driven by an impressive performance of our hydro activities in France and Brazil.

In addition, our solar activities are ramping up in our core countries, United States, India, France and Brazil. This is slightly offset by a tough comparison to 2017, as well as litigations in gas activities in the Middle East.

Finally, on merchant activities, the headwind coming from the nuclear outages and lower hedge prices is largely offset by the very strong performance in our Energy Management and Generation business. As we have already seen during the first half, the performance of our Energy Management business is strongly improving this year, even more than we had initially anticipated.

This is the result of favorable market conditions, but also change in accounting for long-term contracts, process reengineering combined with a new IT system helping us to optimize the management of gas assets, and finally, continuous effort on the cost base reduction.

As already communicated, we will be significantly impacted on nuclear in Q4 with a very low availability roughly 25% and thus, compared to the end of H1, Merchant will of course be under pressure.

Let me now turn to our financial structure. As you can see on this page, we have significantly reduced our financial net debt during the first nine months to €20.6 billion. This result is driven mainly by the sound CFFO, standing at €4.7 billion and by the portfolio rotation program. CFFO, although down year on-year due to the working capital normalization, is benefiting from a solid operational cash flow generation.

The portfolio rotation program leads to a decrease in debt of €4.2 billion resulting mainly from the closing of three transactions E&P, LNG and Loy Yang B. It also includes the deconsolidation of glow net debt for €800 million, following the held-for-sale IFRS 5 treatment as of June 2018. On this operation, we continue to be confident to find a solution and finalize the disposal.

At the same, we have invested €5.7 billion in nine months, including €4 billion on development CapEx, of which 40% on renewable projects and 25% on Client Solutions.

Since the first half 2018, net debt financial – net debt on financial is stable and financial debt-to-EBITDA stands at 2.25 at the end of Q3 2018 remaining well below the 2.5 times target. Economic debt-to-EBITDA stands at 3.8, at the end of Q3 2018, in line with the end of 2017.

With that, I’m handing back to Isabelle for her conclusion.

Isabelle Kocher

Thank you, Judith. So, as you’ve seen, our nine month figures are solid with steady organic growth and we confirm our full year guidance at the low-end of the range for net recurring income Group share.

And we are now happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] We can now take our first question from Ajay Patel from Goldman Sachs. Please go ahead.

Ajay Patel

Good morning. Three questions, if I may. The first one is, if you could give us a little bit more granularity on the comment in the statement that stated an impact of change of management set up for GEM. Just is it a one-off? What exactly is happening here? And what kind of order of magnitude?

Secondly, if you could give us some guidance for the tax rate for the year. And, thirdly, on the renewable pipeline that you highlighted, the 10 Gigawatt pipeline, what’s the net capacity? Thanks.

Judith Hartmann

All right. So, I’ll start with GEM. So, there was a number of very good things and some of it, like I mentioned is related to good conditions. We mentioned this in the first half already. We were able to capture some really good margins in the first half when we had a cold snap in March 2018. And that really helped us to have a head start at the beginning of the year with about a €50 million impact already, at the time. I mentioned this in the first half already.

We did have a number of, on the contrary, negative effects, operationally, last year, in 2017, where there was a shortage of gas supply. You might remember this in the south of France and we had to secure supply. We had taken a hit of about €40 million last year, which creates, of course, a€ 40 million positive swing of this year. We also – I did mention the – an accounting impact. Last year, we took some onerous contracts, some hit at the end of the year and obviously that is helping us this year.

And then, last but not least, the optimization really is down to - we’ve put in place IT systems for the teams now to be able to really manage opportunities as they arise in the market on an hourly basis, when in the past, we would only be able to look at days or months. And so it’s really been an operational improvement that is really helping this year.

And that specifically has helped us this year on taking advantage of summer winter spreads and specifically on long-term gas contracts, which is quite significant. So that was your question on GEM.

On the tax rate, we mentioned that this year is of course, very positive. We are going to be below 24% for the total year in 2018 and it’s going to normalize - should normalize again next year to roughly 30%.

So what are some of the topics that are making it this positive for this year? I’d like to mention two things. One is, like we mentioned in the first half already, we were able to use tax losses in Australia. This is related to our Hazelwood restructuring that is ongoing. You know, we have a partner there. So we are obviously sharing the responsibility.

And so we excluded this from the tax organization – their tax consolidation that helps us to use the positive impact that we have from the other businesses to use our tax losses.

That’s one, and the second I would want to mention, which is really positive news for future cash flows, is DTAs that we are able to activate this year mostly in Europe related to an increase of prices also that we are seeing. No surprise here, you see this in the market. And I would mention, three countries here, The Netherlands, Italy and Germany.

And so it is a positive DTA impact this year. But, really it’s a reflection on positive cash flows that we are expecting with the increases of prices. So, very good there. And then, the third question was on the pipeline. Paulo?

Paulo Almirante

Okay, so, on the pipeline, we have, just to give you some figures, we have, under construction, 3.3 Gigawatts. We have a secured pipeline, but not yet under construction of 4.3 Gigawatts. And, not yet secured, another 2.7 Gigawatts of pipeline. And our model, as you probably know is develop, build, partially sell and own for most of the pipeline. So the capacities to be added are going through that process. Except in South America, where we normally fully consolidate and that accounts for around 25% of the pipeline that we just described.

Ajay Patel

Fantastic. Thank you.

Operator

And we can now take our next question from Emmanuel Turpin from Societe Generale. Please go ahead.

Emmanuel Turpin

Good morning, everyone. I will start with questions on Belgian nuclear, please. And first of all, I have to check with you my understanding of the article published in L’Echo, I think, overnight, saying that for Doel 1 and Doel 2, according to an interview of the Belgian Energy Minister, the inspection process was running a few days late.

The article says, that you do confirm your expected date of restart. But, nevertheless, I wanted to get your view about this delay. And another point in the article saying that at the moment, the planned restart date for these two units was assuming that you would not have to change some of the parts of the pipes linking to the core vessel.

Again, wanted to seek more details from you here, as well as trying to qualify or quantify the risk to restart date, in case you have to change this element of the pipe. How many days will it take? How many weeks maybe if you have to order the pipe? And I would appreciate a bit of explanation there.

Then, broadly speaking on Nuclear in Belgium, I would love to hear your view about the cash side of things and most importantly on CapEx. Could you help us understand how much is your ongoing maintenance CapEx for these units? And also, how much of the extension CapEx remains to be done, compared to the initial budget that you had quoted for this extension work?

And, lastly, I am intrigued by your comment in the introduction about starting a full review of nuclear operations in Belgium to study options. Could you explain to us what the scope is for this full review? Is it just about how to make the operations more efficient? Is it about how you structure these assets as part of the Engie Group? Or are you potentially also looking at a review of ownership structure? Thank you very much.

Isabelle Kocher

Thank you. So, Paulo on the last news regarding Doel 1 and 2, Judith, on the cash elements CapEx, in particular and Paulo again on the options you mentioned.

Paulo Almirante

Okay, so, I think I need to be a bit technical now to explain the Doel 1 and Doel 2 case. So, in these two reactors, we have detected some issues with two sections of pipe work. Two separate sections of pipe work. We call it Section A and Section B for each of the reactors. So, on Section A of Doel 1, we have identified a leak.

This part is- this leak is in a straight section of this pipe and we have removed it. We have analyzed the problem. This takes a long time. We have discussed this with specialized labs, with the authorities and, finally, we have decided to replace this part of the pipe. The replacement is approved by the FANC and the work is finished. Okay, so this part of the pipe has been replaced and there is no further issues there.

We also inspected in that same pipe work Section A. We also inspected the bend. And, we have not detected any other issues. So, for now, we believe that Section A is fine, despite still until the last minute, we need to confirm that the repair that has been carried out is fit for purpose. Okay, so there will be a final approval of this repair.

Then Section B of this same reactor, Doel 1. Section B of the pipe is being inspected. So the results of this inspection are not yet finalized. But, so far, we’ve inspected the straight part of this section and the bend of this Section B and the news are that, for the moment, nothing is of concern. But the inspections are not yet finalized. Okay, so - and, in fact, the repair methodology has already been approved by FANC.

This has been made public by FANC themselves recently. Make sure that there is no further delays introduced by administrative processes and confirmation of some of the proposals we make. So, for Doel 1, we confirm that we expect to return to service this reactor as originally planned.

For Doel 2, the inspections will start as soon as we finish with the use of the robot that carries out these inspections in Doel 1 and so the inspections will - are due to start in fact, by the end of this week and, depending on the results of this inspection that we might have to replace or not part of these sections. But it is important to note that this is exactly what we have planned by bringing Doel 1 earlier in December and Doel 2 only at the end of December.

So this is, as expected in the original planning and so nothing new from that perspective. So we confirm that what is in REMIT it’s still our objective and today, there is nothing that should prevent that.

Emmanuel Turpin

Can I just jump here? Just so that I understand well, so Doel 1 very clear.

Judith Hartmann

On the CapEx, there is - like we said, this year is of course an unusual year because we have a lot of maintenance going on. So, I would split it into, the lifetime extension, which this year is about €250 million. It’s going to be about €180 next million year and about €100 million the year after in 2020.

On the related outages on second-generation units that we’ve mentioned, with the concrete units, we’ve spent about €60 million this year and it’s going to be much less next year roughly €20 million. And so, on a regular, - on a regular year, I would say, on a maintenance CapEx if you look at 2020, it should be around €250 million.

Emmanuel Turpin

Thank you.

Isabelle Kocher

Go ahead, Paulo.

Paulo Almirante

So, regarding that, I think what we want to say is, that of course, we have had a significant change of the schedule for these reactors in terms of what we were expecting going forward. They are out of service in a long period of time and we are taking the opportunity to anticipate some works regarding LTOs, for example, which means that we have to assess all the circumstances in this new context and potentially revise the way we have be planning the LTOs.

And the way we will continue to discuss with the authorities the JCOs that we have also referred to you before the Justified Continuous Operations of some of some of the reactors.

Additionally, we need to revise our hedging strategy, because, if there are reasons to change the planning and to introduce modifications, we will have also to change our hedging strategy accordingly. So what we are saying is that we are carrying out a full review of the way we are operating these units in these context and, as such, we need to take actions to revise all the relevant areas that have consequences after this difficult situation we are facing.

Emmanuel Turpin

Can I ask a follow-up question?

Isabelle Kocher

Please go ahead.

Emmanuel Turpin

Thank you. Just to clarify on the first point. So, it appears that, for Doel 1, inspection on works is - are progressing exactly according to plan. And for Doel 2, you will start the inspections as soon as the robot is available. And as part of you planned restart at the end of December for Doel 2, does it assume that you have to change the straight part of the pipe, as for Doel 1? Or does it assume that the inspection gives you the go-ahead without changing the pipe?

Paulo Almirante

So, our plan assumes that we would have to replace the straight part of the pipe.

Emmanuel Turpin

As you did for Doel 1. Thank you very much. Very clear.

Isabelle Kocher

Exactly the same as for Doel 1 indeed, and that’s the opportunity to highlight one point is that, all these events we had in 2018 regarding our nuclear tranches. They have been also the opportunity for us to considerably reinforce our resources regarding both engineering capabilities in Belgium and we have really reinforced our capabilities in that domain, which is of course extremely important, building together the Tractebel engineering team, Electrabel teams and other partners and also, regarding project management.

These LTO projects are in fact huge, really. In the nuclear world, which is amongst the most complex things to manage and we see that opportunity to really reinforce, strengthen, our capabilities in this domain and I believe that it will be – It will have a positive impact regarding the years to come.

Operator

We can now take our next question from Vincent Ayral from JP Morgan. Please go ahead.

Vincent Ayral

Yes, good morning. So we’ve been in detail on the Belgian nuclear. I’ll change subjects. First, talking about Glow. So the whole disposal process has been put on hold. You still deconsolidate it. You say you’re confident. Could you give us some color on that the reason for this confidence? And what is your case there?

It would be of interest. So, I understand that the initial rejection was because local market share was 80%, maybe it’s about the definition of which market we should consider. And I would be interested in understanding this specific situation.

Then, on the GEM, you already gave some color, but I wanted to understand what exactly was the change of accounting for long-term contracts. What was that referring to? Is it what you already covered by saying that, at the end of last year, you may have assumed some loss there, which may not have happened. Basically, an arbitrage or a renegotiation would have been positive. Just to understand exactly the mechanics.

And, really to finish up I’ll try to go quickly. You do not plan to deliver on the initial EBITDA guidance: can you give us an estimate of what you think you’re going to land there? And, finally, on the CCGT, we saw CO2 prices going up materially. Not necessarily massive switching yet. Basically, in the current environment - and going forward if CO2 price remain solid, how do you see all of this evolving? And when will this fully benefit Engie’s CCGT fleet? Thank you.

Isabelle Kocher

Okay, so I will let Judith answering your questions regarding GEM and EBITDA indications. Paulo, you will answer the question regarding CCGTs. And one word about Glow. So, you effectively say the Energy Regulatory Commission in Thailand rejected the deal with GPSC. So that GPSC decided to appeal this decision. So, of course, we follow that closely.

Well, we have in fact a lot of options. Either this Plan A works or we have other solutions and you have to know that, since this decision of ERC happened, we already got several marks of interest coming from very credible buyers. So, I am very confident on our ability to dispose our stakes in Glow in very good conditions. And, besides, I remind you that, regarding our deleveraging, it’s very advanced. And Judith gave you the elements on that.

Judith Hartmann

So, on the GEM question regarding the accounting, we were quite detail on this at the end of last year. So, you can find all the details there. But it is what I said earlier, it is basically long-term contract that we relooked, that we are changing to a trading accounting, which meant at the end of last year, we had some onerous contracts that were booked. It was mostly related to capacity reservation topics and so, this gives us a positive impact for this year.

By the way, you know, some other peers have done this change in the past also. Then, I think you had a question on the EBITDA indication. We will be slightly below the initial indication, like we said and it’s also on the press release.

We should be around €9.2 billion for this year, which is – which will be a good story because, which means, basically flat over last year when of course, we had significant headwinds that we’ve mentioned and it really shows on how the very positive news that we had on some of the renewable businesses and networks that we mentioned on our presentation.

Paulo Almirante

So, on the CCGTs and the CO2 price, we’ve made a significant change on the way we operate the CCGTs back in 2016 and we, in particular with our hedging strategy and we are keeping around 30% of the fleet un-hedged. And that has proved to be the right way to manage this fleet. It’s a large fleet of about 15 Gigawatts and we normally achieve about 60 Terrawatt hours.

And so, we are benefitting from - last year we benefitted from the issues with the Nuclear fleet in France, if you remember. And this year, with the increase in prices, CO2 has significantly increased in price, which means that we are able to capture additional spreads in the market with the components of the capacity that is open.

So, I would say that we can - we are seeing very healthy spreads and we expect that for the near future as well.

Vincent Ayral

Thank you.

Operator

We can now take our next question from Vincent Gilles from Credit Suisse. Please go ahead.

Vincent Gilles

Yes, morning, everyone. Paulo, just coming back to you, I think you gave a number and I apologies but, like many people, I am jumping from one conference call to another. So I may have misunderstood you. But I think you said, the impact at the EBITDA level of Belgian issues is €700 million on a full year basis. Can you please confirm that number? And that will be consistent with what you said in six months, just to check.

And the second thing is, given all you said in the last 20 minutes on availability, that your answer on CCGTs a few minutes ago, can you help us quantify maybe the positive impact in 2019? I am not asking you for guidance for 2019. But, if you can help us understand how much you think of this €700 million will be offset.

That’s point number 1. Point number 2 is on, Judith, on working capital in Q4, you hinted a little bit at development, but maybe if you can develop a bit. I think my question is related to the fact that Glow will probably be sold but later. So, just to get a hint on where we will be year-end for the net debt? Thank you very much.

Judith Hartmann

Okay, so I’ll take the question on Nuclear also, since it’s the financials. So there is the page, actually, Vincent maybe you saw it. We said €600 million negative impact on EBITDA for the year. So versus last year, it’s negative €700 million, because it was positive €100 million last year. So that’s the swing and it is about €600 million versus the guidance.

So significant, very significant, no doubt. It should, of course improve next year. We will be at a availability rate or roughly 52% this year and that should go up to 74% next year and that you can see in the calendar, that is in the Annex and it’s the same calendar, by the way that we have already communicated a month ago. So, it should be a positive impact there, of course.

Then you had the question on Glow and Q4 working capital. So, Glow, again, we do feel confident that it’s going to go through. In reality, the cash impact, we will see it next year, though, because that’s probably how long it’s going to take to get it closed.

And so, we will - we do believe that, with that, of course, we confirm we will be at below the 2.5 times net debt-to-EBITDA that we have set out at the beginning of the year and we are confident that we can be there even with everything I’ve just mentioned.

Vincent Gilles

Okay. Can I come back? Can you hear me? Hello.

Judith Hartmann

Yes, we can hear you.

Vincent Gilles

Yes, sorry. Just can I come back on your first answer, no, thanks for clarifying and apologies again. It’s just too many conference calls this morning. But, just one thing, can you help us quantify the swing next year? I know we can all calculate it on our own, but it would be interesting to hear what the company has to say on how much of this €600 million or delta of €700 million will be probably offset next year, through - whatever, through just availability or maybe a hint of what you believe you’ll be able to achieve on power prices, whatever you can give us.

Judith Hartmann

Yes, so, on Nuclear itself I think it’s quite easy for you to calculate it. You know the availability and you know the achieved prices that are also in the presentation. Of course, it’s not going to be that straightforward, because there is going to - like this year, by the way, there was partial offsets in the portfolio.

This year, really what we are seeing some of the Nuclear pressure we are able to offset through generation. We have mentioned it and also through GEM. Of course that is helping in the portfolio effect. So it’s not going to be one-to-one. But it’s, like I said, the information is out there. When you look at our achieved prices in the Annex and the availability also – in that I’ve just mentioned and that is in the Annex, also you should be able to do a high-level calculation. And then, you need to take into account, like I said, the other effects on Generation and GEM.

Operator

We can now take our next question from Carolina Dores from Morgan Stanley.

Carolina Dores

Hi, good morning, everyone. Thanks for taking my questions. I have three. One, coming back from Client Solutions. You have, as part of the transformation plan, a target to increase EBITDA on this business by around 50% from 2015 to 2018, which was quite ambitious. Because of the problems that you explained on B2C and some slowdown in oil and gas and on B2B, you are not - likely not reaching that target in 2018.

How confident you are that you are going to get there in 2019 or 2020? And, if so, what do you need to do more tuck-in acquisitions or can you get there organically?

My second question is, can you give us an update on the negotiations, if any, on the gas pipeline from Petrobras in Brazil? Do you expect the injunction should be solved at some point and when? And, third, looking-forward, when should we expect an update on your business plan? Do you still expect to give long-term guidance in February next year? And what timeframe should we look in, three years, five years? That would be helpful to know. Thank you.

Isabelle Kocher

Paulo, on Brazil first.

Paulo Almirante

So, for tax, you know that we have an injunction which is preventing us to progress with the discussions. The information we have from Petrobras is that they are dealing with that in judicial system in Brazil. And they keep the process ongoing. It is a – this is a very formal process to go through. And as soon as this is lifted and they expect it to be lifted, we will restart discussions. We are now estimating that between now and the first quarter of next year.

Isabelle Kocher

Regarding Client Solutions, so we issue - you have all the elements to measure that. We will be roughly at plus 30% versus end of 2015, which is already in fact huge. That’s right. We are below the 50% we anticipated. The main reason for that is that, we have been selective regarding acquisitions. As you know, we are - our main goal was to restart the organic growth. We were in a situation where we had a continuous organic decrease over the last period.

So it was our first objective. It is done. Now we continue to believe that these Client Solutions they are extremely positive for us. It is really a room where we can make a difference. And I believe that the backlog, and all the positive commercial dynamic we have in a lot of countries now is demonstrating that. So, yes, we will continue to push and we will update you with our objectives over the next periods.

It’s a bit early to do so regarding long-term guidance. So, it will be done around our full year results, next February.

Operator

Next questions comes from Meike Becker from Bernstein. Please go ahead. Please open your mic.

Meike Becker

Sorry, can you hear me? I have a question on the Client Solutions business, as well on the organic growth of it. Can you elaborate a little bit more on the loss-making activities that you are restructuring in oil and gas and on the low activities that you mentioned in engineering? And also, if you can, a little bit more detail on the growth in the order book you mentioned and the acceleration in Q4?

Isabelle Kocher

Yes, a few words about that. So, the contracts we mentioned regarding oil and gas are contracts taken for big companies in the oil and gas activity, in particular in Canada. A contract taken by Fabricom, our subsidiary in Belgium and this is not fully unexpected because it is a sector that suffered over certain periods. And then, we have been impacted by that.

So it is - I mean, specific to this activity. We are currently restructuring this entity. So, it is not something that could lower the pace of our growth over the coming period. This is- again, this is a very dynamic field. We all see that the energy infrastructures are more and more decentralized.

It means that the B2B players, they are screening their options to develop local production infrastructures, local storage facilities. The pace of energy savings, the potential of energy savings is more and more seen also by big corporates as something that is strategic for them. So, all the drivers are here to continue to support the growth of these solutions for - in particular B2B clients.

True also for cities – what we call B2T in our Group, territories, cities but also airports, but also universities. All these big fields are also looking at the same kind of solutions to globally optimize their energy bills. And, again, coupling local energy production with massive energy savings and then, being able, at the same time to reduce the CO2 footprint, which is more and more something that is really very visible.

And all these players, they have a reputation to protect. So they are really looking at the way to be less CO2-heavy. And, at the same time to have a better competitiveness in fact and it means, concretely, lower costs. So, very strong drivers. It is clearly a field where - on top of that, Engie has a competitive advantage.

If you compare the solutions we are able to propose to our clients versus what our peers are able to do, it is really very different and it is probably where we have the most different capability comparing Engie with the rest of the energy sector.

Meike Becker

Thank you. Can you also come back to the lower activities in Engineering that had been mentioned in the press release?

Isabelle Kocher

This is a slight decrease of the pace of growth. It is very different from the situation I described for the Fabricom contract, which are loss-making and we are currently restructuring. Regarding Tractebel Engineering, it is a slight decrease in the pace of development. So, to be assessed further. But it is not massive.

Meike Becker

Okay. Thank you very much.

Operator

Next question comes from Peter Bisztyga from Bank of America Merrill Lynch.

Peter Bisztyga

Yes, good morning. Three questions if I may. Firstly, just rounding off on customer solutions. Could you just help remind us what you are assuming in terms of an organic growth rate for 2018 in your full year guidance? And, what would that growth have been if you’d been able to fully pass-through the higher gas costs this year?

Second question, oil prices are up around 20% over the last year or so. So I am just wondering has that triggered any requirement to renegotiate your long-term gas supply contracts? And is there any impact of that in this year’s earnings?

And then, thirdly, just interested in a comment on the new Chairman of Engie. How supportive is he thus far of the direction of the Group? And how involved has he been in the setting of the strategy that you are going to present next year? Thank you.

Isabelle Kocher

Our new Chairman is, of course, fully involved. He is the Chairman of the company since last May. But it is very efficient and no disalignment at all.

Judith Hartmann

On Client Solutions, your question was around organic growth for the end of the year. So, it will be roughly 14% for the total year. I want to come back to the question also that was asked earlier on some of the contracts we are renegotiating. I think, those are very important. But, again, keep in mind that we also have – and we mentioned this in the first half already.

Big pressure in the first half, in the first nine months on B2C and what we said at the time is, an increase in gas prices, an increase in certificates - on energy certificates, and that creates margin pressure because it takes some time for this to actually go through on the end prices for the customer. So, on regulated tariffs, it’s happened. It’s a 9% increase, which is very positive. It’s once a year, and then, on the market offers, it really goes through as you sign new contracts.

So, keep in mind, both of those, because both of them have an important impact on our capability of catching up for the fourth quarter. And so, like Isabelle said, we have really created a growth platform here that we are confident in and that we are going to continue to focus on.

Peter Bisztyga

Thank you. And then just…

Paulo Almirante

Regarding the gas contracts, so no renegotiation is taking place specifically linked to oil prices. In fact, most of our gas contracts are now indexed to the gas prices themselves. So, of course, we keep discussing with our suppliers on a normal basis, but nothing specific related to the oil price.

Peter Bisztyga

Right, thanks. Sorry, can I just clarify, did you say Customer Solutions’ organic growth for the full year would be 14%. And is that comparable to 1% in the nine months?

Judith Hartmann

So, the 1% is the gross growth. And so that is going to be more than that. It’s going to be, I would way 10-ish and an organic, which was your original question, it should be higher than that with around 14%, 15%.

Peter Bisztyga

Okay, thank you.

Judith Hartmann

And, again, a strong Q4 here expected. Like I mentioned, some of it is improvement in the retail margins that I’ve just mentioned, that we are going to go through. There is, of course, a ramp up on tuck-in acquisitions in services. Lean is going to have a ramp up. And, like we mentioned, some of the renegotiations of the contracts. Those are really the four big factors and like I said, we are quite confident about that it’s going to happen in the fourth quarter. So we will have a good year on Client Solutions.

Peter Bisztyga

Right. Thank you.

Operator

Next question comes from Aymeric Parodi from UBS. Please go ahead.

Aymeric Parodi

Hi, everyone. Thank you for taking my question. Maybe it’s a bit early. But, looking into 2019, should we be worried about gas margin contraction in France? And, second one is, we are expecting a CMD early next year. Can you tell us what the CMD is likely to cover? Thank you.

Judith Hartmann

So, on the gas margin contraction, we don’t expect any significant topics coming out of that at this stage. The power margins of course - power prices are going up, which is a good news for us and that’s going to be quite significant for next year on the Generation business. On the Retail business, of course, there will be continued squeezing, like I mentioned. And so, we are working on really relooking the cost base, quite frankly to offset some of the pressure coming from that.

And then, on the Capital Markets Day, of course, we will give an update on the strategy. It’s in all likelihood going to be, like we did recently, a three-year outlook on, you know what the strategy is. We will of course provide 2019 guidance and we are working to have some high-level guidance on the outer years. And, like you said, it will happen roughly at the same time as the result presentation, which is on February the 28th.

Aymeric Parodi

Thank you.

Operator

[Operator Instructions] We can now take our next question from Sam Ariel from UBS. Please go ahead.

Sam Ariel

Hi, thank you. Yes, I have two quick questions. The first is on the Renewable business. I understand you will have added 2 Gigawatts of capacity this year and you also talked about your sort of wider pipeline potential going forward. But, in terms of pipeline conversion, can you just remind us how much new capacity you’ve converted this year, i.e. the total amount of renewable projects where you took FID during 2018?

And then, my second question is on the UK. Actually, you have, you know, quite a large presence in the UK already and I note them from this morning, you are saying that growth from your new UK Retail business has helped numbers this year with only a year I think or so since you started that. So that’s good news. But can you comment a bit more broadly on how you see the UK at the minute?

Obviously, quite a complicated environment right now in terms of energy policy and the wider markets. So I am just interested to understand how you think about the UK, if it’s a possible expansion market for you, whether you consider further inorganic moves in the UK or perhaps the opposite? Thank you.

Isabelle Kocher

Regarding UK, as you know, probably, our main exposure is about Client Solutions. It is one of the countries where we really developed a very important footprint. We have roughly 20,000 people in this country. So, this is an activity that is not very capital-intensive in this country. So, it means that, the exposure we have is in fact an exposure to macroeconomics.

And so, here we could be impacted by a potential – if it happens, by the way a slowdown of the growth in this country. But, you know, it’s – I would say it’s marginal and the impact on us wouldn’t be very, very significant. It is a country where the outsourcing tradition is very developed. It is a country where the opportunities for Client Solutions are huge. That is the reason why we reinforced ourselves.

I don’t know if you remember, but we bought several companies over the last three years to reinforce our presence there. We are very happy with the result, by the way, regarding the growth, regarding the margins also, it is a very good activity.

So, no - really, a positive feeling about the activity itself and an exposure for our Group regarding Brexit. I suppose that is what is behind your question, that is not very, very important. On the Renewable, Paulo I’ll let you complete.

Paulo Almirante

So, on Renewable, to-date, we have added 800 Megawatts, of which, 300 acquired and 500 commissioned. We expect to commission on quarter four, another 1,200 Megawatts. To-date, we have under construction about 3,500 Megawatts of renewable capacity.

Isabelle Kocher

Maybe a complement on the question on the UK, you also asked us what – I mean, what happens regarding retail. So you’ve seen, effectively that we triggered a retail activity in the UK. In fact, this is an activity we started to support our B2T activity. When we work with a city, they are asking us to support their own strategic planning with an ability to offer to their citizens some, some options, regarding for example, better reshuffling of houses, ability to consume less energy or ability to implement rooftops.

So, that’s typically what we are doing in the UK. And the supply of energy is an additional option. It’s not where we intend to get margin, to be honest with you. It is a market that is not easy from a pure supply point of view. So, it is on top of services we are able to offer and it is very transparent. That is to say that we disclose everything including the price at which we buy the energy if we buy it and the margin we intend to do is on the service part.

So, it is a very specific positioning. And not per se, but to support the B2T activities we have in this country.

Sam Ariel

Thank you. That’s very helpful on the UK. I appreciate the long answer. And, on the Renewable side, can I just check that you’ve given me the total capacity where you’ve taken FID this year? So I am just trying to get a sense of the rate at which you are adding new adding new Renewables projects in 2018.

Paulo Almirante

The total capacity FID for this year would be 2 Gigawatts.

Sam Ariel

Okay. Thank you very much.

Operator

Ladies and gentlemen, there are no more questions and I will hand over to Ms. Kocher. Please go ahead.

Isabelle Kocher

Well, thank you very much for your time. We are happy to share with you these good results. I’d like to thank our teams, because it is a year where we effectively suffered from very specific negative headwinds and they have been able, as you can see, to compensate that. Absolutely amazing. So thank you to all of you and have a good day.