Results as of September 30, 2018 demonstrate the strength of the ENGIE model. Despite negative financial impacts due to major unplanned maintenance on nuclear units in Belgium, adverse exchange rates and the dilutive effect of disposals, EBITDA is stable over the period and shows a solid organic (1) growth.
This 5.0% organic EBITDA growth reflects the performance across all the Group’s businesses. ENGIE confirms its 2018 financial targets for the net recurring income Group share (at the low end of the range), net financial debt / EBITDA ratio and dividend. This confirmation is based notably on the assumption of a restart of Belgian nuclear units according to the schedule published in REMIT (2) as of today and an EBITDA slightly below the EUR 9.3 and 9.7 billion initial indicative range.
Consistent with the transformation plan started in 2016, ENGIE successfully pursued the development of its main strategic activities.
Its positions have thus been strengthened in client solutions by targeted acquisitions in services in the USA, by an order book growth in installation activities as well as by an increase in the number of gas and electricity market offers sold in France. In networks, 2 million gas smart meters in France have been installed to date. In renewables, around 0.8 GW of wind and solar capacity has already been added in 2018 and a further 1.2 GW is expected to be commissioned by the end of 2018.
Through disposals and growth investments incurred as well as performance gains achieved since the start of the 3-year plan 2016-18, the Group is now reshaped and more profitable, with an enhanced growth potential.
With respect to nuclear activities, Electrabel, a subsidiary of ENGIE, updated its schedule of outages for several units in Belgium at the end of September 2018. Belgian nuclear power plants’ technical availability is now expected at 52% for 2018, inducing a negative EBITDA contribution from nuclear activities expected at EUR -0.6 billion for 2018.
Important actions are underway to solve these temporary technical issues in close cooperation with Belgian authorities, both to mitigate their negative financial impacts and to support Belgium in securing its power supply for this winter.
ENGIE’s net financial debt has been significantly reduced, chiefly from the increase in operating cash flow generated (6). The Group’s robust financial structure has been confirmed by rating agencies which position ENGIE as an industry leader on that respect.
During the presentation of the financial results as of September 30, 2018, Isabelle Kocher, ENGIE’s CEO, stated: “ENGIE is delivering a solid growth since the beginning of the year, apart from nuclear activities in Belgium. This good performance offsets the financial impacts stemming from the Belgian nuclear power plants which should gradually come back to availability levels achieved over the past years thanks to our teams’ efforts. ENGIE pursues the development of its main strategic activities, notably low CO2 power generation, networks and client solutions.”
Revenues amounted to EUR 43.0 billion as of September 30, 2018, up 0.4% on a reported basis and 1.0% on an organic basis.
Reported revenue growth was affected by an adverse exchange rate against the euro on almost all foreign currencies (mainly on US dollar, Brazilian real and Australian dollar) offset by an overall positive scope effect.
Organic revenue growth was mainly driven by a sharp increase in renewable power generation, mainly hydro power, in France and Brazil, and by the introduction of gas storage regulation in France. These positive effects were partly offset in particular by the lower contribution of nuclear activities in Belgium stemming from lower volumes due to higher unavailabilities and from lower achieved price. Furthermore, revenues are also impacted by the new accounting treatment of long-term gas supply contracts in Europe since the end of 2017, with no impact on EBITDA, and by less favorable market conditions for merchant power generation in Europe.
EBITDA of the period amounted to EUR 6.5 billion, down 0.3% on a reported basis and up 5.0% on an organic basis.
Reported EBITDA growth included an adverse exchange rate effect, notably due to the depreciation of the Brazilian real and US dollar against the euro. It also included a negative scope effect stemming chiefly from the sale of the Loy Yang B coal-fired power plant in Australia in early 2018 and of the thermal power generation business in the United Kingdom and Poland in 2017. This negative scope effect is partly offset by two new hydro power station concessions acquired in Brazil in late 2017 and by several acquisitions in 2017, including Tabreed, the leader in district cooling networks in the Middle East, and Keepmoat Regeneration, the leader in regeneration services for local authorities in the United Kingdom.
The organic EBITDA growth was mainly driven by the good performance from the energy management activities, due to favorable market conditions in Europe and to the impact of the change of management set up for some of GEM (Global Energy Management) Business Unit’s long-term contracts, by revenue-related developments and by the impacts of the Lean 2018 performance program. These impacts more than offset the outages at the Belgian nuclear power plants during the period.
Organic EBITDA performance varied across segments:
Current operating income after share in net income of entities accounted for using the equity method amounted to EUR 3.5 billion, stable on a reported basis and up 7.7% on an organic basis, supported by the increase in EBITDA and lower amortizations compared with 2017.
Net financial debt stood at EUR 20.6 billion, down EUR 1.9 billion compared with December 31, 2017. This variation was mainly due to EUR 4.7 billion of cash flow from operations (8), EUR 4.2 billion of impacts of the portfolio rotation program (including in particular the closing of the sale of the exploration and production business, of the LNG midstream and upstream business, of the Loy Yang B coal-fired power plant in Australia and of the distribution business in Hungary, as well as the classification as “Assets held for sale” of the interest in Glow, a power plant operator in the Asia-Pacific region), EUR 0.4 billion net change in hybrid bonds outstanding and a slightly favorable exchange rate effect. These items were partially offset by gross investments of EUR 5.7 billion in the period, dividends paid to ENGIE SA shareholders of EUR 0.8 billion and to non-controlling interests of EUR 0.6 billion.
Cash flow from operations (CFFO) (8) amounted to EUR 4.7 billion, down EUR 0.6 billion. The decrease stemmed chiefly from the return to a normalized EUR -1.0 billion level of change in working capital, partly offset by an increase in operating cash flow generated (6), by lower tax expenses and by a reduction in the cost of debt.
At the end of September 2018, the net financial debt / EBITDA ratio stood at 2.25x, below the target of ≤2.5x and slightly up compared to end of 2017. The average cost of gross debt decreased slightly compared to end of 2017, reaching 2.53%.
The net economic debt (9) / EBITDA ratio stood at 3.8x, stable compared to end of 2017.
On April 30, 2018, S&P upgraded its outlook for ENGIE from negative to stable, maintaining an A- rating.
On June 13, 2018, Moody’s confirmed its A2 rating with a stable outlook on ENGIE.
ENGIE successfully pursued its strategic repositioning:
This strategic repositioning is reflected in the Group's leading positions in renewable activities, which now represent around 24% of the Group's installed capacity and include a pipeline of projects of more than 10 GW. In networks, the Group holds more than EUR 27 billion in regulated assets in France and is pursuing important international developments, in particular in Central and Latin America. In client solutions, the Group has more than 24 million B2C contracts and has added more than EUR 2 billion revenues in B2B through acquisitions since 2015.
Furthermore, this successful strategic repositioning materializes by a higher profitability of the Group, with notably a ROCEp expected up 30bps over the 2016-18 period (11).
The presentation of the Group’s financial results as of September 30, 2018 used during the investor conference call is available from the Group’s website:
Group revenues increased by 0.4% on a gross basis with EUR +595 million of perimeter effects (EUR +1,159 million of scope in effects mainly due to the acquisitions of Keepmoat Regeneration in the United Kingdom, of Talen in the United States, of MCI in France and to the contribution of the Jaguara and Miranda hydroelectric power plants in Brazil and EUR -564 million of scope out effects namely due to the sale of thermal power generation activities in the United Kingdom, Australia and Poland), EUR -829 million change effect due to negative foreign exchange impact on almost all foreign currencies, mainly US dollar, Brazilian real and Australian dollar, and EUR +407 million of organic growth. On an organic basis, revenues increased by 1.0%.
Revenues for the North America segment were up on a gross basis due to the positive contribution of the acquisitions of the services activities of Talen in September 2017 and of Unity in March 2018 in the United States partly offset by the negative foreign exchange impact. On an organic basis, the increase was mainly due to favorable climat effects in the USA and in Canada for thermal and renewable power generation activities.
Revenues for the Latin America segment were up on a gross basis as a result of the contribution of the hydroelectric concessions agreement signature in Brazil at the end of 2017 and of the organic growth partially offset by the negative foreign exchange impact coming from the Brazilian real (-18%) and the US dollar (-6%). On an organic basis, the increase was due to higher contribution of hydroelectric power generation activities in Brazil, to tariffs increases in gas distribution activities in Mexico and in Argentina and to new long-term power purchases agreements (PPA) in Chile, partly offset by the expiration of long-term PPAs in Peru at the end of 2017.
Revenues for the Africa / Asia segment were slightly down on a gross basis but up on an organic basis. The gross variation was mainly due to negative foreign exchange (US dollar, Australian dollar and Turkish lira) with a non significant impact of scope effects (the negative effect of the disposal of the Loy Yang B coal-fired power plant in Australia in January 2018 being more than compensated by the positive contributions of acquisitions in Client solutions activities in South Africa, Morocco, Ivory Coast, Uganda and Australia). The organic increase resulted mainly from higher sales in the energy retail activities in Australia and from an higher contracted power production in Thailand, partially offset by the closure of the Hazelwood coal-fired power plant in Australia in March 2017 and by lower contracted power production in Turkey.
Revenues for the Benelux segment were decreasing both on a gross and organic basis. This decrease was mainly due to both lower volumes because of higher unplanned unavailabilities in 2018 than in 2017 (in particular Doel 3 from September 22, 2017 to August 5, 2018 and Tihange 3 since March 31, 2018) and to lower achieved prices in nuclear power generation. These negative effects were partially offset by higher volumes sold in energy supply activities.
Revenues for the France segment were increasing both on gross and organic basis. Gross growth was explained by the acquisition of several energy services companies (mainly MCI and Icomera). The organic increase was notably related to higher hydroelectric power generation and to higher electricity sales on the retail market.
Revenues for the segment Europe excluding France and Benelux showed gross and organic growth, mainly in the client solutions activities. Gross growth was notably explained by the acquisition of Keepmoat Regeneration (buildings regeneration in the United Kingdom) in April 2017 which was partially offset by the negative foreign exchange effect of the British pound, the Romanian leu and the Swiss franc. Organic growth benefitted from the energy sales retail business launched in June 2017 in the United Kingdom, from higher gas and power prices in commercialization activities in Romania and from the development of services in Austria, Romania and Spain.
Revenues for the segment Infrastructures Europe were increasing both on gross and organic basis mainly due to the introduction of gas storage regulation in France on January 1, 2018, to higher sales in storage activities in the United Kingdom and to a good commercial performance in LNG terminals. This increase was partially offset by an unfavorable temperature effect for gas distribution activities and by the negative impact of tariffs revisions also for gas distribution in France (-2.05% as of July 1, 2017 and +2.01% as of July 1, 2018).
Revenues for the segment GEM (Global Energy Management) were down both on gross and organic basis mainly because of the change in accounting method applied to the management of long-term supply contracts for gas, transport and storage capacities.
Revenues for the Other segment declined both on gross and organic basis. Gross decrease is explained mainly by the disposal of thermal generation activities in the United Kingdom and in Poland in 2017. Organic decrease in the period is mainly due to a decrease in gas sales to industrial clients in France and to less favorable market conditions in 2018 for merchant thermal power activities in Europe.
From January 1 to September 30, 2018:
From October 1, 2018:
From January 1 to September 30, 2018:
From January 1 to September 30, 2018:
From October 1, 2018:
(1) Excluding forex and scope.
(2) Regulation (EU) Nr. 1227/2011 from the European Parliament and the European Council on the transparency and stability of the European energy markets.
(3) Expected at around EUR 9.2 billion.
(4) Variations vs. 9M 2017.
(5) Including share in net income of associates.
(6) Cash generated from operations before income tax and working capital requirements.
(7) 2017 figures restated for LNG midstream and upstream activities classified as discontinued operations as from March 2018 and for IFRS 9 & 15.
(8) Cash Flow From Operations (CFFO) = Free Cash Flow before maintenance Capex.
(9) Figures restated for LNG midstream and upstream activities classified as discontinued operations as from March 2018 and pro forma provisions and leases.
(10) Cumulated impact from January 1, 2016 to September 30, 2018.
(11) Return On productive Capital employed (ROCEp), end 2018 (estimate) compared to end 2015 (actuals)
(12) These targets and indications exclude E&P and LNG contributions and assume average weather conditions in France, full pass through of supply costs in French regulated gas tariffs, unchanged significant Group accounting principles except for IFRS 9 & 15, no significant regulatory and macro-economic changes, commodity price assumptions based on market conditions as of December 31, 2017 for the non-hedged part of the production, and average foreign exchange rates as follows for 2018: EUR /$: 1.22; EUR /BRL: 3.89 and do not consider significant impacts on disposals not already announced at December 31, 2017.
The figures presented here are those customarily used and communicated to the markets by ENGIE. This message includes forward-looking information and statements. Such statements include financial projections and estimates, the assumptions on which they are based, as well as statements about projects, objectives and expectations regarding future operations, profits, or services, or future performance. Although ENGIE management believes that these forward-looking statements are reasonable, investors and ENGIE shareholders should be aware that such forward-looking information and statements are subject to many risks and uncertainties that are generally difficult to predict and beyond the control of ENGIE, and may cause results and developments to differ significantly from those expressed, implied or predicted in the forward-looking statements or information. Such risks include those explained or identified in the public documents filed by ENGIE with the French Financial Markets Authority (AMF), including those listed in the “Risk Factors” section of the ENGIE (ex GDF SUEZ) reference document filed with the AMF on March 28, 2018 (under number D.18-0207). Investors and ENGIE shareholders should note that if some or all of these risks are realized they may have a significant unfavorable impact on ENGIE.
We are a global energy and services group, focused on three core activities: low-carbon power generation, mainly based on natural gas and renewable energy, global networks and customer solutions. Driven by our ambition to contribute to a harmonious progress, we take up major global challenges such as the fight against global warming, access to energy to all, or mobility, and offer our residential customers, businesses and communities energy production solutions and services that reconcile individual and collective interests.
Our integrated - low-carbon, high-performing and sustainable - offers are based on digital technologies. Beyond energy, they facilitate the development of new uses and promote new ways of living and working. Our ambition is conveyed by each of our 150,000 employees in 70 countries. Together with our customers and partners, they form a community of imaginative builders who invent and build today solutions for tomorrow.
2017 turnover: 65 billion Euros. Listed in Paris and Brussels (ENGI), the Group is represented in the main financial (CAC 40, BEL 20, Euro STOXX 50, STOXX Europe 600, MSCI Europe, Euronext 100, FTSE Eurotop 100, Euro STOXX Utilities, STOXX Europe 600 Utilities) and extra-financial indices (DJSI World, DJSI Europe and Euronext Vigeo Eiris - World 120, Eurozone 120, Europe 120, France 20, CAC 40 Governance). To learn more: www.engie.com