Engie Sa Ord

Good morning, everyone. It's my pleasure to welcome you to Engie's FULIA 2023 video webcast. Catherine McGregor and Pierre-Francois Riolacci will present our FULIA performance and our medium-term outlook, following which we will open the lines for a 45-minute Q&A session. And with my polite request of limiting your question to one or two only, please. With that, over to Catherine.

Good morning everyone. I'm very pleased to be here today and to share with you our presentation on our 2023 performance and medium-term outlook. In a constantly shifting environment in 2023, I am very happy to report another year of strong performance for ENGIE. We reached the middle of the earnings guidance range that we upgraded in November, in fact, beating the earnings in 2022, which was already an unprecedented year. We maintained a strong pace of our renewables rollout and we had a pivotal year in batteries, both through acquisition and organic growth. We made further good progress in major aspects of our ESG targets and net zero trajectory. And we fundamentally de-risk our group as we signed the final nuclear agreement with the Belgian government in December. I want to thank all of our teams for their instinting efforts in executing our strategy and delivering the energy transition. The results of your commitments are there to be seen in this presentation. Summarizing a few headlines 2023 numbers, the EBIT excluding nuclear grew by 18% organically to 9.5 billion euros, contributing to a 3% rise in net recurring income group share to 5.4 billion euros. Cash flow from operation was up sharply by almost two-thirds, in fact, to 13.1 billion euros, boosted by higher earnings and working cap improvement. And growth capex, which I repeat is always selective, always disciplined, is up by almost a half, in line with our 23-25 business plan. And I should add that in 2023, if I take the year in isolation, 72% of our gross capex is eligible and 66% is aligned with the EU taxonomy, and both these numbers are up versus 2022. Consistent with our payout policy, we are proposing a dividend of €1.43 for shareholder approval at the AGM later this year, and this corresponds to a payout ratio of 65%. Moving to the next slide, focusing on our performance in ESG, starting with the greenhouse gas emissions from energy production in 2022, in 2023, sorry, they were 52 million tonnes, down from 60 million in 2022, and that is a big improvement, underpinned, of course, by our decarbonisation journey, but also helped by lower load factors at our CCGT units and soft demand in Europe. The share of renewables in our total power capacity was up to 41% at the end of December, which is fully on track towards our 2030 targets. In terms of gender diversity, we have reached 31% in the proportion of women at management level, and we stay focused and committed to our aim of managerial parity between men and women in 2030. We are committed to net zero carbon by 2045, and I am proud that Moody's recently aligned our ambition with a 1.5°C trajectory with a solid level on the implementation of these objectives. This demonstrates our progress and compares favorably with the SBTI certification of well below 2°C that we received at the beginning of last year. And then looking at the coal phase-out, we're continuing on schedule for a complete exit by 2027, as we announced disconnection of two of our Chilean coal-fired power units and the conversion of a third one by the end of 2025. The rollout of our strategic plan continues apace and across the board. I'll just provide some details on renewables and battery storage in a moment, some highlights on the other GBUs. For example, in networks, where in Brazil, we won a further power transmission concession, whilst in Q4, we sold part of our stake in the gas network operator TAG. We sharply boosted our flex-gen activities with a breakthrough year in battery storage. Notably, in Q4, we commissioned a significant amount of batteries in the United States. And in energy solutions, we had another strong year in district heating and cooling with an order intake of 2.7 billion euros. Some details on renewables and battery. First of all, starting with renewables, where we have now become a substantial renewables player globally and across all the major technologies. In renewables, size matters. It makes a difference. It makes us more competitive. It makes us more influential. And you can see that we made particular headway in North America in 2023. also adding significant capacity in Europe and Latin America, and we also expanded our platform in South Africa. At the end of 2023, we had 60 projects ongoing with 6.3 gigawatts of capacity under construction. Of course, growth is good, but always execution is fundamental. So I am especially proud that we have delivered our projects under budget and with an average delay of less than two months. In PPAs, where we are ranked as worldwide leader by BNEF, demand is strong. Prices remain supportive, especially in the United States. We signed 2.7 gigawatts of green PPA in 2023, and we are succeeding in differentiating ourselves through the sophistication of our offers. We notably concluded the PPA recently with Amazon, which will be taking 473 megawatts of the output from the Moray West offshore wind farm of our JV Ocean Winds, and this is the largest green PPA that was signed in the UK. Moving to battery and energy storage as they are clearly a key element of our strategy because it is so crucial to absorb the volatility of a power system where baseload is rapidly giving way to peak load. 2023 was a pivotal year. The acquisition of Broadridge Power was the standout event, providing us a growth platform and also an early mover advantage on two key U.S. energy systems, ERCOT and CAISO. Multiple other countries are also making strides in battery storage, and we are seeing this trend towards more hours of usage per capacity. Amongst our major 2023 highlights was the commissioning of our so far largest unit at the Hazelwood site in Australia and also the award of a permit to construct a 200 megawatt of battery in Villeborde in Belgium. Staying in Belgium, turning to the next slide, we achieved a fundamental de-risking of our company by signing a nuclear framework agreement with the Belgium government. It is worth repeating because it is really fundamental for our group. The agreement removes all of our nuclear waste liabilities and it sets up a joint venture with the Belgian government to extend two reactors by 10 years to what we call a flex LTO operating under quasi-regulated conditions. We are on track in the process of the discussion. We expect closing by the end of this year. A word now on our 2024 outlook. The market environment has normalized faster than we would have anticipated, although geopolitical tensions clearly are ever present. But the energy transition still continues to accelerate. And at Engie, we are well served because we have this integrated structure and this adaptability provided by a flexible asset mix. In 2024, we now expect net recurring income group share in the range of 4.2 to 4.8 billion euros, which is higher than our previous guidance. And our dividend policy stays consistent at between 65% and 75%. And now I will hand it over to Pierre-Francois for details on our financial performance.

Thank you, Catherine, and good morning all. As just discussed, clearly another strong year for Engie in 2023, on the back of an abstract execution and also beyond market conditions. I'm not going to dwell further on these numbers, just highlight that we propose a dividend of €1.43 per share. Of course, not all of it is easily repeatable, but you know that we are committed to a sustainable and healthy growth of the dividend going forward. Let's now dive into the numbers and start, of course, with the EBIT growth of 18% organically. That's plus 1.5 billion year on year. It's driven by gems, by retail and by renewables. I think it's worth to note that despite the mild temperatures that we had in Q4, and especially in December, we are landing the full year midpoint of the guidance. We have overall observed in the year positive impacts from volumes and prices. We have a contribution from commissioning notably on renewables and the result, of course, of the strong delivery of the performance plan. I'm going now to be a bit more granular. In the key variations per business and starting of course with renewables, which stands slightly above 2 billion euros. The scope impact is positive due to acquisition in South Africa, in Europe, albeit late, rather late in the year. Looking at organic growth, we achieved a positive 19% increase. We see a continued positive price effect, notably due to a favorable comparison against last year. We had some buybacks for more than 100 million. However, better capture prices were largely offset by taxes, notably for hydro in France. We had some positive volume effects, again, resulting from a better hydrology in France. We had commissioning of a renewable capex for 167 million euros in-year, which is, of course, great. Performance is positive, albeit a bit limited due to the G&A, which are reflecting some high inflation that we had in the year. And, you know, we take everything in our G&A variation. Now, negative others is mainly due to significant DBSO margins that we had in 2022 and that we don't have anymore in 2023, in line with our strategy as announced in the previous years. So, again, a record year for renewables, all variables being basically favorably aligned. Networks EBIT is down 107 million organically. It's a 5% decrease, mainly driven by lower volumes in France. Indeed, in France, volumes were down, especially in distribution networks, as a result of energy sobriety, but also another warm winter. It's very important to highlight that we are protected by the French regulation against these lower volumes through a clawback mechanism that will actually apply from the start of the new regulation, that is, this year, 2024. In addition, the regulated French business benefits from an inflation protection, inflation indexation of the regulatory asset base, which mitigates over time the impact of inflation on cost. It is worth to highlight that in 23 or so, GRT Gas received additional revenues from capacity subscribed between France and Germany. Abroad, our business has been performing well. In Europe, we saw some positive tariff increase, as well as higher margins for storage activities in the UK and in Germany. And in Latin America, we have posted a chunky 22% organic growth due to the full commissioning of Novoestado power lines in Brazil, but also increased performance, especially in TAG in Brazil. As you can see now on the graph on the left side, energy solution was significantly impacted in 2023 by two one-offs in the US and in the Middle East. You remember that we are facing indeed cost overruns for the construction of combined heat and power production plants in two universities in the US, two contracts. We have booked a provision for Onero's contract of 150 million euros in H1. A remediation plan is on track. We have threatened our project management capabilities to bring this project under control and also make sure that it does not repeat in the future. The second one of 38 million euros relates to the recognition of a deferred tax liability in our TABRID participation because there was a corporate tax that was actually created in 2023 in the UAE. Aside from these not recurring items, of these two items, Energy Solutions is doing well across the board, posting a healthy 10% organic growth in EBIT. Operational performance translates into EBIT margin improvement, that's plus 63 basis points, notably on energy performance and management. commissioning impact on local energy networks, and sustained commercial development with increased selectivities are also contributing. This leads us to be confident for the delivery of our ambition in the coming years. For FlexGen, In Europe, we were significantly impacted by the market normalization during the year with a steady and fast decrease of prices. CCGTs have been often out of the market and generation volumes have accordingly significantly decreased. Our locked positions from the past hedging have helped us to capture higher spreads, but offset by a lower level of ancillaries from a record high in 2022, while at the same time our CRM activities saw significant growth. Market volatility is reducing and as such we have captured less value from our flexibility assets in Europe. Those headwinds in Europe were somewhat mitigated by the situation in Chile, which has improved in 2023. And the year-on-year variation benefits also from the negative impact that we had in 2022 due to the tax contribution, extraordinary tax contribution in Italy. Overall, it's a strong year for flexion in 2023 after a record year in 2022. Retail EBIT is up 587 million euros organically year-on-year, including a significant timing effect. You remember what we said in October, the fourth quarter would remain strong compared to last year, as the latter suffered from a substantially negative impact of timing effect. We had again some timing impact on Q4 23, but to a far lesser extent. So that timing effect explained half of the strong price performance that we achieve year on year. This plus portfolio management resulting in better margins compared to 22, where you remember we were loss making. Then comes a negative volume impact due to the mild winter, but also the customer sobriety, which is partially offset by some sourcing optimization. All in all, significant recovery year for retail despite a mild winter. Let's move now to our nuclear activity. where we see a strong decrease of the contribution, 0.6 billion, stemming from the same drivers that we have discussed throughout the year. You can see here the comprehensive impact of the closure of the two units, DOL3 and TIANCH2, for more than 500 million euros. And for the sake of clarity, this is including the nuclear tax impact of these two units. then the positive price effect over the period is actually fully offset by the increases in inframarginal tax rent cap and the specific nuclear tax that we have in Belgium. Volumes are positive on the back of very high availability in our Belgium operation. And last but not least, depreciation and amortization as a result of the 22 trillion review of the provision is increasing. So a good year from an operational standpoint, but contribution getting lower. Let's move now to our last business line. We go to other activities, mainly gems, which have delivered 1 billion organic growth year on year on the back of good market conditions, but also great execution. These results are coming from the performance drivers again that we have commented during our H1 presentation. I'm not going to come back on that. And as expected, the second half for GEMS was negative year on year, mainly because of this unfavorable comparison basis. You remember the second half in 2022 was stellar, but also some timing effect. It is worth to notice as well the progress made on the cost structure that translates into higher EBIT in the bridge. That is the plus 71 million that you see in green and a lot of hard work but good to see that it is coming through. Let's now look a bit deeper into GEM's financial performance and what it means for the future. We've shown here some details on activity, geography, and commodity, both for 2022 and 2023. And you can see that that split is balanced and, of course, in line with Engie's portfolio and his footprint. One, client risk management and supply represent about 40% of GEM's total EBIT, an increase versus 22%. And this part is actually less subject to market variations than the asset management and optimization. Two, most of James' EBIT is coming from Europe, in line with our footprint. However, geographies outside France and Belgium had an increasing contribution in 2023. And three, as for commodities are concerned, 42% of the EBIT arises from power and 58% from gas and other. A bit more exposed to gas then, but rebalancing towards power. Now a quick word on the results facing in-year. We faced unprecedented market conditions in 2022 and 2023 with significant cross-year and intra-year effects. As expected, GEMS had a very strong first half in 2023 and the second half decreased due to market normalization but also with large variations of technical results and timing effects. Winter-summer seasonality is embedded in some contracts which benefit to H1 for a couple of hundred millions and that is reversed in H2. For 2024, we expect the underlying EBIT contribution close to 2 billion euros based on strong performance of our client risk management and supply activities and also high margin contracts which are locked in. On top of that, we expect also continuation of provision reversal, both being somewhat related. Last but not least, bear in mind that there will be, as usual, some seasonality in the year. So not all quarters are the same. A few words on the performance plan. As you see, we achieved about 700 million gains on performance over 21-23, above our initial target of 600. Main contributor remains operational excellence from standardization and industrialization of our processes, procurement gains and savings, and also contract renegotiations. Continued improvement is now the bread and butter of our GBU organizations. Overall, it's a great performance knowing that high inflation has negatively impacted our performance on GNA. We will continue to simplify and optimize our GNA cost structure. We have further identified, for example, new reservoirs of productivity addressable with new technology. We have, for example, 15 generative AI projects dedicated to that in a secure environment. Last point. turnaround of our loss-making entities is a bit below our expectation and we are very attentive that all necessary actions are taken to improve the situation. Let's now look on the main items on net results. No mention of EBIT. Net financial expenses are up 0.2 billion due to higher cost of debt but also higher discount expenses on long-term provisions, mainly nuclear. albeit better than expected, with limited cost of carry and also higher returns on cash. Income tax is up by half a billion euros and the ETR is set at 27%. Taking all this, the net recurring income stands at 5.4 billion euros. On the right side, You see that the net income is 3.2 billion below the recurring net income, and this is due to three main items. The first one is, of course, the impact of the Belgian agreement that we signed, which is 4.4 billion negative. We have also booked impairments for 1.3 billion euros, notably on coal power plants in Chile and on specific portfolio of renewable assets in the U.S. Third, we recorded a profit of 2.4 billion on mark-to-market of energy derivatives net of tax. Let's move to the cash part. The cash flow from operation CFFO amounted to 13 billion, up 5 billion compared to last year. One methodology point is that the impact of the GEMS market reserves is reflected in both the operating cash flow and the working cap. It's offset in the working cap, so it's a wash on the CFFO. And therefore, when you look at the year-on-year improvement, it comes primarily... From the reversal of the 22 high level of net working cap, you can notably see the reversal of our gas inventories, but also in the odd bill revenues, which is, of course, driven by market normalization. This was expected, but it's even better when you see it in the numbers. The negative impact on EUC is mainly related to the G2 taxes in Belgium that were paid. Net financial debt increased from 24.1 to 29.5 billion with significant maintenance and growth investments, high dividends paid in 2023 and also the funding of a nuclear phase-out. The economic net debt is also increasing, mainly due to the increase in the nuclear provision on the back of the agreement signed with the Belgian government. The leverage ratios remain strong, with economic net debt to EBITDA at 3.1, well below a 4.0 threshold. Let's now conclude with our guidance for 2024, which is based on the market prices at year-end 2023. You will find in the appendix the details of the assumptions. 2024 is of course marked by uncertainties in market environment. and downward pressure on energy prices, but remember that we have hedged a large part of our open position this year. We expect a range of 4.2 to 4.8 billion euros of net recurring income in 2024, below 2023, but well above 2021, which is a better basis of comparison in terms of price environment. With that, I turn back to Catherine to present a short outlook for the next three years.