Over the past three years, the ENGIE Group has undergone a deep transformation, by focusing its development on three core activities: gas, renewable energies and energy efficiency, while firmly positioning itself in innovative activities (green mobility and smart grids in particular). This transformation has allowed ENGIE to return to organic growth and establish itself as a leader in the competitive energy transition.
At today’s capital markets day in London, Isabelle Kocher, Chief Executive Officer, will present ENGIE’s insights into the structural shift in the profile of global energy infrastructure. Decarbonization and digitization are continuing, while decentralisation is accelerating: local authorities and companies must now respond to climate change and the zero-carbon imperative. It is a complex challenge requiring cost-efficient, proactive investment to improve stakeholder quality of life, driving new demands on energy industry players to enable these transitions.
ENGIE’s customer transition roadmaps increasingly require a sophisticated integration of strategy, design, engineering, energy-efficient asset construction, digital platforms, operations management, financing syndication and outcome assurance. ENGIE believes that its unique capability to integrate all these solution elements “as a service” to its customers affords the Group a distinctive leadership position in the industry.
This approach lends itself to ENGIE’s leading portfolio of customer relationships and infrastructure expertise. This is highly relevant for the world’s top 500 global companies which, far more than in the past, seek global strategy and implementation planning to address their sustainability and zero carbon requirements. ENGIE is seizing industry leadership with comprehensive 360° programs that cater to these companies with an approach that is strategically focused, cost-efficient and subject to robust performance management.
Ms. Kocher will describe the ways in which each of ENGIE’s business lines is aligning to these customer requirements to enable the zero carbon transition: high value-added solutions which are tailor-made, technologically sophisticated, and often enabled by ENGIE’s leading access to bespoke syndicated financing.
ENGIE has deployed global digital platforms that strengthen our competitiveness, and will continue to scale up software content in ENGIE’s solutions to differentiate us as the leading energy software provider.
With an industry-leading flow of customer projects, a strong infrastructure investor relationship network and systematic, proprietary structuring capabilities, ENGIE designs financing syndication as an integrated part of our solutions, optimizing customers’ cost of capital and ENGIE’s ability to accelerate its growth with lower individual project capital intensity. This model has been utilized over time in ENGIE’s thermal and renewables portfolios, and will now be implemented across our Client Solutions and other innovation project pipelines.
To further align ENGIE’s organization with this strategy, four Global Business Lines will be created – Client Solutions, Networks, Renewables and Thermal – to support our local teams and accelerate cross-functional performance programmes. ENGIE’s financial reporting will be simplified, with fewer geographic segments and strategic visibility into the progress of each Global Business Line and our energy Supply operations.
Judith Hartmann, Group Executive Vice President and Chief Financial Officer, will present on ENGIE’s capital allocation strategy and criteria and will provide Group medium-term financial expectations and guidance.
ENGIE applies rigorous strategic and financial investment criteria, and has a clear perspective on attractive investment characteristics. Complex, innovative, integrated, longer-term, outcome-based customer programs are preferred to simple, commoditized, standard fee-for-service business. Investment will be differentiated over distinct time horizons, with consistent hurdles of 200 bps over ENGIE’s WACC, and 400 bps over cost of equity.
In a move to sharpen geographic focus and capital allocation, twenty countries and thirty major developing market urban areas have been identified as ENGIE’s top investment-led growth priorities, with an objective to build scale, top-3 positions and higher density of operations. ENGIE will also exit approximately 20 countries over the next three years in a move to enhance focus and economic returns.
ENGIE intends to invest approximately €4 billion annually in growth capital expenditures and smaller bolt-on acquisitions over the 2019-2021 period, while €6 billion of asset disposals are expected over the period. This €11-12 billion program is anticipated to be led by €4-5 billion for Client Solutions. €2.3-2.8 billion will be allocated to Renewables growth to fuel the c. 9GW of incremental capacity, while €3.0-3.3 billion of additional capital will be invested in our Networks business line.
A further 2019-2021 performance program has been launched, consisting of cost reduction initiatives (spanning procurement, digitalization and shared service centers) and revenue and margin enhancement opportunities stemming from optimization of ENGIE’s assets and customer offers. The aggregate operating profit impact of the program is currently targeted at €800 million, with delivery weighted slightly towards 2020 and 2021.
Based upon key assumptions1 to be described by Ms. Hartmann, an ENGIE Group EBITDA CAGR of 3.5-6% is expected over the 2018-2021 period. ENGIE Group COI is expected to accelerate to a CAGR of 6.5-8.5% over the same period, predicated on indicative business line COI growth expectations of:
Group net debt: the Group forecasts financial net debt of approximately €20 billion at the end of 2021 (ratio to EBITDA of < 2.5x) and economic net debt in the range of €35-37 billion (ratio to EBITDA of < 4.0x) at that time, and ENGIE reaffirms its current commitment to the retention of its ‘A’ debt rating. These debt forecasts assume no change in the existing Belgian nuclear provision legal and regulatory framework.
During the capital markets day presentation, Ms. Hartmann will provide ENGIE’s financial guidance for strong growth in Net Recurring Income (Group share) of a 7-9% CAGR over the 2018-2021 period. On the basis of this outlook, as announced with ENGIE’s 2018 results, the Board has set forth a revised dividend policy which targets an NRIgs payout ratio band of between 65% and 75% as the Group continues to make investments to drive its accelerating growth and transformation.
Summing up ENGIE’s capital market day, Ms. Kocher said: “ENGIE’s customers seek to design and execute their zero carbon transitions with increasing urgency. It is core to their strategic goals, but often not core to their operational capabilities. The integration of ENGIE’s infrastructure and customer management capabilities, with accountability for targeted outcome delivery, is now an aligned focus across ENGIE as we pursue our ambition to be recognized by all stakeholders as a leader in this field. Our transformation continues, and we look forward to accelerating growth, profitability and shareholder returns.”1Key assumptions: for FX, 1.23 $/€ and 4.42 BRL/€ in 2021; forward power prices as of end December 2018 for unhedged outright volumes; normalized climate conditions in France for gas distribution, energy supply and hydro production; improved hydrology conditions in Brazil in line with market expectations; pass-through of supply costs in French regulated gas and power tariffs; regulatory review on French networks in 2020-21; Belgian nuclear availability expectations in line with REMIT, with financial contingencies taken on Belgian operations; effective tax rate of 30% in 2019-20, 28% in 2021.