Engie Sa Ord

Thank you and good morning, everyone. It's my pleasure to welcome you to NG's 2021 full year results presentation. There are two parts to our presentation this morning. In the first part, Catherine and Pierre-Francois will cover a review of 2021. And in the second part, they will cover the outlook over the medium term. following which we will open the lines for Q&A, as usual, and with a polite request to please limit your questions to one or two only. Thank you very much, and with that, over to Catherine.

Thank you very much, Arti, and good morning, everyone. Very pleased to be on this call today with Pierre-Francois, who joined us last month, hitting the ground running, I have to say, already making a great contribution. In May last year, we announced a plan putting strategy into action, which was focused on three pillars, setting the foundations for long-term success. First, we wanted to simplify the portfolio by refocusing on our strengths and improving the business mix. Second, we wanted to significantly step up the renewables growth. Third, to increase efficiency to improve financial performance, of course, but also to enhance competitiveness so that we can capture the many growth opportunities that we see ahead through a returns-focused and disciplined approach. I am convinced that by consistently delivering on these priorities, Engie will realize its purpose of accelerating carbon neutrality alongside driving sustainable returns for shareholders. Engie is a responsible company. We are very mindful of our role in finding solutions with regulators and policy makers so that we address the growing need for investment for the energy transition while supporting affordability for customers. In 2021, our teams put tremendous efforts to translate the plan into action and the results, they speak for themselves. We made strong progress on the simplification program with the announced exits of non-strategic assets totaling 9.2 billion euros of disposals. The major of these being, of course, the sale of Equance, which will offer strong development opportunities for its employees. We signed or completed agreements to exit 18 countries, which means upon completion, We will be operating in 35 countries, well on track to be operating in under 30 countries by 2023. We also progress on existing coal, which now represents less than 3% of our centralized power generation capacity. And in renewables, we commissioned three gigawatts for a third year in a row, and of course I'll give you more color on this later. We revised the investment process to really sharpen the focus to increase our selectivity, which is also, of course, helping optimize development resources. Overall, 90% of our growth capex last year was invested organically, completely in line with our strategy. And we have also worked on key organizational levels. We've set up our four global business units We have renewed the group leadership with a healthy balance between internal talent and external experience, including Pierre-Francois. And we have updated our incentive schemes to be further aligned with the interests of our shareholders on both financial performance, but also ESG. Together with the new leadership team, we are committed to enhance our performance culture to make us more competitive and to drive growth, which will no doubt create exciting new opportunities for our people, further enhancing Engie's attractiveness to the best talent. Turning now to our financial results. We posted a strong performance with total EBIT including equants increasing 47% on an organic basis, leading to total net recurring income group share of 3.2 billion euros. This performance was not achieved by chance. Of course, we benefited from external tailwinds, but we were only able to post such strong results because we leveraged our integrated business model. We fully benefited from the federal price environment as our assets delivered high level of availability. And we captured opportunities from the flexible generation. And we actively managed our contractual positions. and we ensured strong financial liquidity. And all these results were supported by our performance plan, which delivered its first impact. We invested 4.3 billion euros in growth capex, return on capital employed increased to 9.1%, driven, of course, by higher profitability. On shareholders' returns, the board has reaffirmed the group's dividend policy and proposes a dividend of 85 cents per share, up 32 cents from last year. We remain focused on delivering a progressively growing, sustainable dividend for our shareholders. Tackling climate change is at the heart of our strategy. We are committed to achieving our net zero ambition, covering all three scopes by 2045. In 2021, Greenhouse gas emissions from energy production were reduced to 67 million tons, which is down 11% from 2019. And through, of course, growing investments and consistent delivery, we are increasing the share of renewables in our portfolio to 34%. On gender diversity, Engie had 25% women in management at the end of 2021, And here we have to work more. We have strong plans towards our ambition of reaching gender balance by 2030. Moving to our operational achievements, starting with renewables, a key growth engine for us. We have commissioned nine gigawatts of renewable capacity to our portfolio since the end of 2018, leading to now over 34, 34.4 accurately, of total installed capacity. And of course, this was primarily driven by very consistent three gigawatts of additional capacity commissioned each year over the past three years. Commercializing the energy from renewables is a competitive advantage for ENGIE. We signed contracts for 2.1 gigawatts of capacity, which is up from 1.5 gigawatts last year. And that is confirming ENGIE's top position as a green corporate PPA supplier. And that trend continues as we see very strong demand from a range of clients across consumer goods, technology, and all industrial sectors. In November, we signed an agreement in partnership with Credit Agricole Assurance to acquire Eolia, a leading renewable player in Spain, very compelling acquisition with attractive returns, strategically a great fit, adding to ENGIE's existing scale in Iberia, and very importantly, industrially, where we will bring value in delivering the pipeline and provide multiple services to operating assets. Finally, OceanWinds, our JV with EDPR, continues to progress in a very high-growth market. Turning to energy solutions, Our GBU is delivering decarbonization solution to customers through distributed energy infrastructure as well as energy efficiency services. A great example of this is ENGIE's selection alongside our partner RATP to manage the cooling network of the city of Paris. In this case, ENGIE's technical expertise was absolutely key to this 20-year concession. It covers the production, storage, transport, and distribution of the city's cooling energy with additional growth perspectives. In energy efficiency services, we signed a contract covering more than 100 sites worldwide with Foresia, a global leader in automotive technology, supporting them in their ambitious commitment to reach carbon neutrality. In energy solutions, our immediate focus is on performance improvement. to strengthen this platform so that we can capture fully the many long-term opportunities that we see in this business. And now I'm going to hand over to Pierre-Francois to review the 2021 financial performance.

Thank you very much, Catherine, and thank you also for the kind words. And good morning, all of you. Of course, I'm very pleased to be here today in this role at such an exciting time for Engie. And as you can see, NG is in a strong shape financially. And for sure, it's much easier when you join as a CFO to start with a solid set of results with good momentum, both on earnings and balance sheets. I will not elaborate on this slide on the left path, because I will dig in. I just mentioned that we account for equants as discontinued operations under IFRS 5. You had the 2020 numbers ahead of the release, so I think we are all set to go. When we compare our results with the 2021 guidance, which always was including equants, we of course take the total earnings. And as you can see, our 21 results are the top end of the guidance for all KPIs. Let's now move to the numbers. And starting, of course, with EBIT growth, which is quite significant, plus 1652 million euros. It does include a negative FX and scope for minus 163. FX is related to Brazilian Rios and to a lesser extent US dollars. And the scope negative is due to the sale of the 10% of GTT shares, which is partly offset by the sale of the 29.9% of Suez, which you remember contributed negatively in 2020. The organic growth is plus 42%. That is plus 1.8 billion euros. I will, of course, give some details on renewables, network and energy solution. Just a few words on the other components. Thermal is slightly down, 47 million euros. And this is on the back, of course, of a strong comparison base. 2020 was actually very good. The merchant activities were also very strong this year with high spreads and also ancillaries. which were captured by European flexible generation fleet, both cast plants and the pump storage units. But we were hit on the contracted activities, mainly by higher sourcing spot prices in Chile, and this is due to poor hydrology in particular, but also overall low production in the country. Supply was down by 12 million euros. This is the effect of lower margins in Europe, especially in Belgium, as well Romania, and also some reversal of 2020 positive one-offs. And this was offset partly by higher volumes, especially related to COVID recovery on one hand and colder temperature on the other hand. Nuclear, after three years of negative EBIT, has been posting an outstanding operational performance, with availability up from 63% to 92%, and this is a tailwind for us of half a billion euros in results, coming both from units in Belgium and the drawing rights in France. We are also able to achieve higher prices, which is a plus 700 million impact, partly offset by profit-sharing taxes in Belgium, which have been increasing and reaching a total of close to 150 million euros in 2021. On the others, the main driver of the increase is the strong commercial and trading performance of GEMS due to COVID recovery and also the exceptional market conditions. It's good to mention that the corporate costs were actually also lower than last year. Moving to renewables, it's great to see that we are up 92 million euros to 1185 million euros. There is a non-organic negative of minus 116 Roughly half of it due to scope, and this is a result of partial sell-downs that were completed last year, and another half due to effects, mainly Brazil. Without that, renewables have posted an impressive 22% organic growth, leveraging the price tailwind and also the contribution of the newly commissioned assets. The price impact is plus $335 million. It's coming mainly from hydro in France and in Brazil. And there was a negative volume effect that is reflecting the impact of the Texas extreme weather that we had early in 21 at about minus $90 million, but also lower volumes in hydro, both in Brazil, on the back of the drought, and in France. It's good to mention that there is some link between the volumes and the price, especially in Brazil, where we find some natural matching between the two effects. Last but not least, we have the benefit of the capacity that we have commissioned over the last year. That was in 2021 mainly in the US and Brazil, and this new capacity contributed to an EBIT increase of 102 million euros, while some assets are still in a ramp-up phase. Moving to networks, here we have a very limited impact from FX and Scope, minus 13 million, and then an organic EBIT increase of plus 13%, that is plus 267 million euros year on year, to a total of 2314. The French operations are actually up by 216 million euros, and this is on the back of colder temperature, as well as recovery of COVID impact in 20. And this was achieved despite lower transmission volume subscribed, and also lower tariff revenues, reflecting regulatory reviews that, as you know, were expected. Temperature had a tiny impact on P&L, and I think it's important that you remember that it will be recouped through the clawback mechanism. It is value-neutral for energy. On international, we are up by 51 million with a good contribution of organic growth in Brazil, with a strong performance of TAC, but also the progress in construction of power transmission lines. And that came on top of colder temperatures that we had in Europe, so a good year on the international part as well. We move to energy solution now. energy solution that benefited from a positive scope, and this is due to the disposal of the stake in Suez, which was last making last year. The effects impact is broadly neutral. With that, we are reporting an energy solution, a broadly flat organic EBIT variation. And this is reflected two positives and one negative. The first positive is the distributed energy infrastructure activities. which are increasing the EBIT by 14 million euros to reach 385. And this is on the back of strong operating performance as well as colder temperature for district heating in France. Good progress of energy efficiency services. EBIT is up by 74 million to 126, much better. And of course, benefiting from the COVID recovery, which was leveraged because we had also a strong operating performance Good to see we are back in a decent profitability. But these two improvements were actually offset by the higher cost that we had with the development of EZBox. Contribution of EZBox is down 90 million, nine zero, year on year. And it's fair to say that the operation in 21 were disrupted mainly due to the supply chain squeeze that happened in this market. The plan is to turn around the operations Gradually, in 2022 and in 2023, driving a significant improvement. We will, at some point, resume the process to monetize this asset, which is a good asset in a fast-growing market, when we are comfortable with capacity to achieve the full valuation now that we have terminated the agreement with TPG in December 2021. More broadly, I would like to highlight that the turnaround of energy solution is on its way, as evidenced further by the strong backlog increase and also the significant margin increase on EBIT excluding VBOX. Clearly, energy solution is lining up for growth. How do we convert these improvements in operations into net income? You can see that depreciation and amortization is stable, and we have a mature asset base which is offsetting the increase of depreciation in the gross drivers. The net interest expense was up. It was mainly driven by a higher cost of debt and driven itself by the higher Brazilian rates. So the average cost of gross debt was actually 263%. It was up 25 basis points compared to last year. The tax charges were 400 million higher, and this is, of course, on the back of higher profits, partly offset by a lower effective tax rate at 29.3% in 2021 versus 30.5% in 2020. And this lower tax rate is mainly due to the use of unrecognized tax losses, notably in Belgium, as well as the decreasing standard tax rate in France. And this is achieved despite significant negative one-offs Just to mention that minority interests were also slightly lower. All in all, we achieved a good conversion of EBITDA improvement into net recurring income. The reported net income group share is also positive 3.7 billion in 2021, that is 800 million more than the recurring net income. It does include a billion of impairment, which are mainly related to our operations in Latin America, but it does include as well 1.1 billion of capital gains coming from the sale of the 10% shareholding in GTT, including the revaluation of the 30% stake that we still retain, but also the earn out on the 29.9% shareholding in Suez. We add on top of these two items, commodity mark to market, which is positive for 700 million, which gives this 3.7 billion reported net income. How do we convert these earnings into cash flows? I think that CFFO being down at 0.3 billion, it could look a bit disappointing. But you really need to double-click. The operating cash flow is actually up 1.3 billion, slightly short of a BDA improvement, and this is due to the contribution of GFOM, which is actually so-called pay-to-us-for-an-extension of the concession, and also the contribution of U.S. tax equity, which are reducing investments. The real point that we had in 2021 was the working cap variation, which is negative by 1.4 billion. This is due to margin calls. which was a cash outflow of 2.2 billion in 2021 due to the higher prices, but also to most region cash collateralization rules which are imposed by the clearinghouses. I would like to highlight that excluding margin calls, working cap variation is actually positive plus 0.8 billion, and the CFFO would have been improving by nearly 2 billion year on year, This is an outstanding performance that shows the operational leverage of NG when it comes to cash generation. Now, let me spend one minute on the margin calls. You know what it is. It's a way to mitigate the counterparty risk on the hedging instruments through the cash collaterals. It's clear that there is no material, economic or financial effect overall as the margin costs, by design, they equalize over the life of the financial instrument. But there are timing effects on the CFFO, as you could see. And that's why good margin cost management is absolutely critical in the kind of market we have today. You need... strong balance sheets, so that, for example, you can use LCs or letter of credit instead of cash. You need a very strong risk control and liquidity framework, because you need to stay in control in this very high volatile market. And then you need excellent trading capabilities, because you need to be able to structure transactions in such a way that you minimize the cash requirements, for example, through liquidity swaps. All of that was actually excellent with Engie in 2021, and clearly is a serious competitive advantage going forward. Cash generation, how do we use that cash? Of course, through our capital expenditures, which I think in 2021 is also a good illustration of our capital discipline. The growth capex are running high at 4.3 billion, albeit lower than indicated, but it shows that there is no complacency when it comes to expected returns. Very focused on the core energy transition activities and net zero fully in line with our indication. Also, with a significant share, more than 90% coming from organic projects, and it does pay tribute to the strong pipe and its quality. The maintenance capex reached 2.4 billion. You know it's a key component of our performance optimization. Pleased to see that. And last but not least, we funded a nuclear provision for 1.3 billion as expected. How is this cash generation leading their balance sheet and credit metrics? You can see that the net financial debt is increasing by 2.8 billion to 25.3 from December last year. It does include the 2.2 margin call impact that I just mentioned. And of course, the proceed of equants are not yet part of this bridge. They will be recognized at the closing of the transaction, which is expected in the second half of 2022. The economic net debt is increasing by 0.9 billion as the increase of the net financial debt is partly offset by the decrease in post-employment provision and also, of course, because the nuclear provision funding is already accounted for the economic net debt. Therefore, we benefit of a slight improvement of our net financial debt to EBITDA on the back of the strong growth of EBITDA. But we have a significant improvement of our economic net debt to EBITDA ratio, which is set at 3.6, a significant decrease compared to 20, and comfortably within the guidance, which is below or equal to 4. Lastly, there is no recent change on the rating, which is in line with the strong investment grade we want to stick to. And with that, I will hand over back to Catherine. Thank you.