Delivering on CAP 2030

Transcription

1 Delivering on CAP 2030 Tuesday, 7 th March 2017

2 Jean-Bernard Lévy Chairman and CEO, EDF Group Good morning everybody. Thank you for attending. ( ) I will make a few comments. I will then turn to Xavier Girre, our Chief Financial Officer and then we will have a few minutes for questions and answers. Let me first turn to slide four. In a challenging environment we have set out a welldefined long-term strategy, CAP 2030, in order for EDF to transform itself and remain a leader in the future energy landscape. We can rely on our existing competitive advantages as well as unparalleled growth opportunities. We have five key investment highlights I would like to share with you on page four: First one is nuclear. We have a unique expertise in nuclear power. We are the largest nuclear operator worldwide. Our nuclear fleet has demonstrated its quality and reliability with proven track record both operationally and from a safety perspective. In terms of new development, we have a unique competitive position in nuclear new-build globally, offering EDF Group very healthy growth prospects. Our second key investment highlight is renewables. We are also one, if not the largest, but one of the largest renewable energy producers in Europe, with a leading position in the industry among our European peers. Together with our nuclear fleet both portfolios complement each other for us to be the undisputable low-carbon producer. We will successfully develop a very large pipeline of opportunities which will ensure a sustainable growth of our portfolio. Number three is on regulated activities. We have also one of the largest regulated asset bases in Europe. We provide not only stability and visibility of the return associated with the regulated asset base. We also have a visible growth given the amount of investment we do every year. Our fourth investment highlight is customer-driven innovation. We are a leading energy supplier in both power and gas across four major countries in Europe, and we supply innovative services, digitised and decentralised offerings which are core solutions in continuous development of our energy services offering. Finally, number five is our financial strength. We have set out an Action Plan which we described in detail on 22 nd April 2016 in order for EDF to strengthen its financial profile. These actions are key to delivering our CAP 2030 strategy and propose an attractive shareholder remuneration. ( ) Let me now turn quickly to page 11. You will find how we adapt to a very challenging and changing environment and what are the clearly identified targets to be reached by If I come back to the five investment highlights: 2

3 On number one, nuclear: 3 EPR should have been commissioned. The construction of Hinkley Point C will be well underway for both Hinkley Point C reactors. We will continue capitalising on the profitable re-investment on the existing fleet, what we call Grand Carénage. We will have acquired AREVA NP and integrated it into EDF Group. It will allow us to leverage on our combined experience and expertise in order to succeed on international growth opportunities such as India, South Africa and many others. In 2020 in renewables: We will have increased our net installed capacity in wind and solar by about 30%, accelerating the development of our 16.8GW pipeline through a targeted investment plan of 2 billion growth expenses per annum. We will also continue capitalising on our integrated capabilities to further increase our O&M activities. If I turn to point three, regulated and network: We will have continuously invested in the #1 electricity distribution network in Europe, our wholly-owned subsidiary Enedis, which grows at ~3% CAGR. By 2020 the full deployment of smart meters among customers will be almost achieved representing around 90% of the overall Linky investment with positive effect on consumption efficiency and collection saving. On customer-driven innovation, highlight number four: We will have continued our investment effort to offer our existing base of 37 million customers, innovative services and solutions based on key brands, the backbone of our success. We will continue to ensure a high quality of service to meet our customers expectations and satisfaction and keep at the highest level our brand reputation. 3

4 With a strengthened financial profile by 2020, thanks to the successful achievement of the action plan we communicated in April 2016 we will deliver our strategy: This 4 billion capital increase, together with The 1 billion Opex reduction and working capital requirement improvement, together with The disposal plan of 10 billion by 2020, and with A selective and prudent capital allocation with 50% of our Capex invested in regulated, contracted and renewable energy businesses by All this will fuel our return to growth and to an ever higher profitability. With this I now turn to Xavier Girre, Chief Financial Officer of EDF Group for his own part of the presentation. Xavier Girre Group Senior Executive Vice-President - Finance Thank you, Jean-Bernard. I propose to go to page 24, in order to analyse in depth this Action Plan. As you know in order to pursue our CAP 2030 strategy in the current challenging macro environment we have set a comprehensive Action Plan. First of all, we are cutting costs to increase profitability and cash generation. We clearly defined expected cost trajectory with a target of 1 billion in 2019 cut versus For 2016, Opex went down 0.6 billion, which represents a strong acceleration following a first cut in As you know, on a comparable basis excluding certain Opex of service activities, Opex was cut by 0.3 billion. Savings have resulted from efforts throughout the Group such as adjustments of staff and purchasing costs in support functions and commercial teams and specific operational action plans being set up by most businesses. At the same time, EDF is also accelerating its efforts in the retail and service activities, particularly in terms of innovation to offer its clients solutions and services that best meet their needs. We are well aware that this may require an increase of Opex and for 2016, it grew for instance approximately by 50 million. Of course, business profitability will be closely monitored. Let us now turn to page 25. The Action Plan is also reliant on the improvement of the Group s working capital requirement. We have an objective of optimising cash flows with a total contribution of 1.8 billion over the period The Group is well on track to deliver these expected optimisations and at the end of 2016, this plan has already implied an optimisation of the working capital requirement by 1.4 billion, which is the cumulative gain from all parts of the Group. In particular, we have worked a lot on receivables and inventory. On page 26 we focus on the optimisation of our investments which is another pillar of the Action Plan for us to ensure our CAP 2030 strategy. Investments should reduce gradually as significant projects are commissioned to attain a c billion in 2018, excluding new development and net of asset disposal. In 2016 for instance, investments went down by 4

5 600 million to 11.8 billion as a result of specific actions such as the rationalisation of maintenance, investments in UK thermal generation, decrease in E&P investments and the completion of the asset modernisation programme in Poland, just to name a few. On page 27, we show that we intend to clearly focus on regulated and long-term contracted Capex, and therefore we continue to rebalance our Capex toward these regulated and quasi-regulated activities in order to capture growth and predictable return. We aim at investing in these activities more than 50% of the total Capex by 2020, improving as a consequence the Group s earnings visibility in the longer term. For example, in addition to our ongoing investments in Enedis, these will be mainly driven by Linky which is fully regulated over 20 years, Hinkley Point C which is contracted on the basis of a selling price over 35 years, and renewables (85% contracted revenues with an average remaining contractual period of 14 years). Let us now focus on slide 28, on our main investments value creation. It is clearly in EDF s DNA to continuously invest for the future of the Group, and especially in this changing environment. We do have a well-defined investment strategy with strict investment criteria to ensure selective and targeted capital allocation. Our primary focus is to have a profitable growth and to secure value creation for our shareholders on this basis. For this purpose, the majority of our mediumterm investments will continue to be mainly contracted in the long-term, or based on secured returns. The life extension of existing nuclear, Grand Carénage, is one example, and is a clear evidence of the profitability of our operating nuclear fleet. We show that we expect increased IRR by the ten-year life extension, of course exposed to market prices but the risk is mitigated through integrated tariffs. The other investments presented on this slide fall under the regulated or long-term contracted umbrella, and will deliver healthier returns in the current macro environment. For example: Hinkley Point C, the IRR of which is c.9% on the basis of the contracted selling price over 35 years. We could refer also to our renewable pipeline which is very diversified with two third wind, one third solar and, as regards the geographic spread, one third Europe, one third US and one third other countries: 85% contracted revenues, and historical IRR spread which is in the range bps above WACC. Enedis also and Linky are well-regulated assets. Finally, on page 29, as part of the Action Plan, we have also committed to a disposal programme of 10 billion over the period. This allows us to reallocate capital towards new development projects, such as Linky for example, always with the purpose of sustainably transforming the Group in order to meet our CAP 2030 strategy. We have already signed or finalised 6.7 billion of disposals since 1 January 2015 within this 10 billion disposal programme over the period. You have here on this page 31 the key disposals that have been achieved in And now I give the floor to Jean-Bernard Lévy, on page 31. 5

6 Jean-Bernard Lévy Chairman and CEO, EDF Group Thank you, Xavier. To conclude this first part of the presentation, page 31 will summarise where we stand. Two years ago we initiated CAP 2030 strategy to position EDF Group as a leader in the future energy landscape, being an efficient, responsible company leading low carbon growth to address the global energy transition challenges. ( ) We are confident that we are living through a turnaround of our business starting in We are confident that the company with its good shape and strengthened balance sheet, A credit rating and stable outlook secured, development based on a significant proportion of regulated or quasi-regulated revenues; that this company will provide the results that it is seeking. ( ) We will have all it takes to grow the company in the direction that we have defined. Thank you very much for your attention during this first part of the meeting and we will now turn to Q&A session which we can now start. Q&A Martin Brough (Deutsche Bank): Hello, it s Martin Brough from Deutsch Bank. I had a question really around new EPR reactors and when you would expect to start ordering those. I notice in the presentation you have emphasised you are working on a new model of EPR. I think you said previously it is possible that you could order some of those even before When would you expect to be ordering new model EPRs for France and how do you intend to finance those? On a related issue, what is your plan for financing Sizewell in the UK? If you participate in the Bradwell reactor in the UK what would your plan be for financing that? Thanks. Jean-Bernard Lévy: Thank you. Your question relates to future EPR. Right now we have five EPRs in which we participate which are being built. We have two in Taishan, one in Flamanville and two in Hinkley Point C of a very similar generation. There is another one in which we do not participate which is being built in Finland. So, right now six EPRs are under construction. We are contemplating more EPRs in the future in various geographies, in various territories. We have, as you quite rightly mentioned, a prospect for the French market, for the British market and for overseas market. If we look at the French market we intend to present to the Board of EDF at some point in time in the future, not in the very short term, we intend to present the equivalent of a final investment decision for two EPRs which should be of an optimised generation in order for us to launch a series of new reactors that will, in due course, replace the existing fleet. However, right now we are modernising the existing fleet, as you know, through Grand Carénage and we are working on what could be that optimised EPR which should and will be launched on the French market in due course. At this stage we are not contemplating that such a final investment decision for new EPRs in France, new optimised EPRs and obviously we will be looking at a pair of EPRs, two EPRs. We are not contemplating that such a final investment decision could be made before It could be in 2020 or later, but we do not expect it to be 6

7 earlier than calendar year We will of course be working on this during 2017/2018/2019 in order to be prepared for that. If I look now at the British scene on EPRs, we have today through the final investment decision on Hinkley Point C simultaneously launched studies in order to be prepared for two EPRs in Sizewell, and to be prepared for one Chinese technology-based reactor of a lower capacity, in the GW capacity in Bradwell. At this stage we are in study mode. We are studying what will be the design, the local environment issues, and we do not intend to be prepared for an FID of Sizewell before 2020 and of Bradwell before 2023 as we have to go, for Bradwell, through more design phase with the ONR. EPR has been accepted as a reactor by the British Safety Agencies, but the Chinese technology not yet. This is why this will be delayed. Regarding the financing of such unit whether it is in France or in the UK, this is something that we are looking at but nothing can be said in detail at this stage. Obviously, we will be looking at a CFD or a similar mechanism in order for us to have a regulated asset, both in France and in the UK. If I now look into overseas, as watched from UK and France, we have some prospects for EPR orders coming from overseas countries which will be on the current technical definition of EPR. That is one corresponding to the six EPRs being built right now, which I mentioned a few minutes ago, and for which the financing will not be borne by EDF but by the end client. Martin Brough: Ok, thank you. Hugo Liebaert (UBS): Good morning, thanks a lot for taking my question, just a quick one on renewables. I understand from the presentation it is a key area of growth for EDF. What is your view on competition and the outlook in returns in that division specifically? What do you think are the key capabilities, competitive advantage or barrier to entry that EDF has that will allow you to maintain that bps spread against WACC that you mentioned in slide 30? Thank you. Jean-Bernard Lévy: Thank you for your question. I think it is a very good topic. I think what we can bring is our technology, our ability to anticipate technological breakthroughs. That is number one. And two, our ability to manage complex projects including in difficult environments far from our base. I think we have demonstrated that in the performance of our renewable project recently especially all those managed by EDF Énergies Nouvelles (EDF EN). Right now we do have a number of projects under development, which are meeting our criteria which is to be significantly above WACC in terms of return, and of course where we believe we can bring something. So, at this stage I have no doubt, because there are so many renewable projects all over the world, we will find the right opportunities for us whether it is in onshore wind, offshore wind, solar, concentrated solar and from time to time other technologies like biomass or others. I have no doubt we will find sufficient opportunities for us to win those projects with quite a comfortable return. What I see day after day, week after week and investment committee after investment committee is that our hit rate is quite good. We do win quite a number of those projects for which we are bidding. Of course, we lose some of them but we have quite a good success rate in this area. We of course follow that extremely closely. 7

8 Let me add that we are building up a very strong portfolio of assets for which we do the operations and management, the O&M capabilities. We have today I believe more than 13GW under management which give us a very solid base for our long-term performance. Dario Carradori (Goldman Sachs): Good morning, just one question on Capex. You have a target of 10.5 billion net Capex in I just wanted some more guidance on whether you expect gross Capex to reduce as well over the same period and how much? If you can give us some granularity in which divisions and which areas you expect a reduction in Capex. Thank you very much. Xavier Girre: Thank you for this question. As you know, we have different projects and some of them are coming to an end. For example, our EPR within Flamanville will be loaded at the end of 2018, and we will be in a position to reduce progressively the Capex on this project. We have also some other projects that come to an end. For example, we have also started the commercial operations about Dunkirk, our LNG terminal, so some projects are coming to an end. This is the first point. The second point is focused on the optimisation of the Capex, in particular as regards the Grand Carénage programme. As you know, we communicated upon these figures in current euro figures. The first assessment was in the range of 60 billion, the period Now, thanks to optimisation and also the management of the sequence of these investments, we shoot for 48 billion in nominal terms on the same period, This will also contribute to the reduction of our Capex till So, clearly we have two points: optimisation on the one hand, and the end of some key projects on the other hand. Dario Carradori: Thank you. Sam Arie (UBS): Hi, thank you for taking my question, and thank you for the time this morning to set out the equity story as you have done. I think you have highlighted a number of very clear positive angles in the equity story. I was just wondering from the management point of view if you could spend a moment to talk about what you see as the greatest risk to the equity story. I think for the purposes of the question we could set aside the external risk around power prices and bond markets and so on. I am interested in your view on the risks where management has some influence. Thank you. Jean-Bernard Lévy: Interesting that you raise the question and you say I do not want the answer to be the power price. However I am sorry, the answer is the power price, and I may of course give you a few more elements on what we believe are our key risks. Let me mention that obviously we are exposed to power prices and to mostly electricity prices but also other energy prices like gas, although the exposure is much less, and that obviously the leverage on the stock is huge, anybody can do the calculation. As we know, the market cap is roughly one fifth of what you guys value EDF in terms of enterprise value. So, the leverage on our stock value, on our stock prices is just huge when we see market prices growing which of course we hope, considering a number of regulations that are going in the right direction. 8

9 After I have said the number one risk is the one you did not want me to mention, let me tell you I believe the second largest risk we have generally-speaking is about execution. I think we have the defined strategy, we have the right financial resources. Are we going to execute, especially in terms of project management, as we should? Everybody is watching our ability to deliver on time and on budget our key projects. Everybody is watching Flamanville especially. Two years ago we defined a new roadmap, a new budget for Flamanville which leads us to fuel loading at the end of 2018, and I am proud to say we are exactly on budget and on time with that new schedule, with that new plan that we prepared in the first half of However, you never know, you always hope that all the management tools and the new executives in charge of the project will deliver what has been prepared. However, obviously, the right execution of our strategy, the right usage of our resources in a project-oriented company like ours is key. Let me tell you I might have said two years ago that the Grand Carénage management would have been a key issue, but right now and through many internal audits and many insights, I really believe this is well underway. As you may have seen, we have managed to deliver a 15% saving on Grand Carénage from what we had announced 2/2.5 years ago to where we are today. This is really due to good execution. Good execution can be a risk but also as an opportunity as we demonstrated on Grand Carénage. I guess that is my short answer to your very ambitious question. Sam Arie: Ok, thank you very much. Helpful. Peter Bisztyga (Bank of America Merrill Lynch): Hi, good morning, it is Peter Bisztyga from Bank of America Merrill Lynch. You mention ARENH reform as a potential upside scenario. Can you just elaborate on the current status of discussions between, I guess, French government and European Commission regarding this, and also what your preferred scenario would be? Thank you. Jean-Bernard Lévy: Thank you for your question. I see you read my interviews within the minutes when they are published. I did mention ARENH reform in this Les Echos interview this morning because I believe this a key opportunity for us. Right now ARENH, which was established seven years ago roughly, is an issue because it was established for our competitors to get access to power and to be able to grow. I think ARENH today has achieved this goal. Our competitors have enough access to power irrespective of ARENH because over the last three semesters ARENH has only been used twice. Whether they use it or they do not use the ARENH option they have, this does not create any shortage of power for them, so it means the market is liquid enough for our competitors to get access to power. When I look at market shares and the viability of our competitors, even the smaller ones that are really the children of the regulation, I see that these guys are doing very well and congratulations to them. It is good that we have competitors to stimulate us in this industry. ARENH has achieved its goal, but right now it is creating issues for us. It has been creating a short-term security problem at the end of last year which we, with a lot of determination, pointed out to the French government. Almost immediately we got a positive answer so we have now the benefit of having ARENH regulation changed. Our competitors cannot anymore use ARENH to speculate on a quarterly basis, and very shortly we should have an extension of 9

10 that new regulation so that our competitors cannot speculate either on a semesterly basis. ARENH will really be back to an annual commitment from our competitors to acquire power from us, and not to a situation where they could claim they need it for a year and then return the power back to us after a quarter or after a semester. This is a quite significant change in that regulation, but only the first step of what we believe is needed. We believe we need to revisit ARENH because the goals of ARENH have been met, and today it is creating an asymmetrical regulation against EDF and with no real benefit to market liquidity or to the viability of our competitors. This is something we claim should be changed. We have started to discuss it, I would say in Paris with Paris-based authorities and also some very early discussions will occur shortly with the Brussels authorities, with the prospect for us of having a less asymmetrical or a less demanding or a less detrimental mechanism in place at some point in time. It is too early to say what will be the outcome and when will be the outcome of this move by us but we do expect some changes in the mid-term, not in the short-term but in the mid-term. Roland Vetter (PraXis Partners) via internet: Can you share how much of your output is hedged for 2018 and 2019? How would your 2018 target change if power prices declined? For example, price per megawatt hour versus what is in your budget? Xavier Girre: Thank you for your question. As you know, we do not give too many details about our hedging policy due to the importance that we have on the market. However, we can tell you two things about our hedging policy. First, we start each year by being almost hedged, and second we start hedging 2-3 years ahead. On this basis you can analyse where we are in our hedging. Of course it is not necessarily purely linear between 2-3 years ahead and the beginning of a year. Second point, we have given quite a precision about our guidance for 2018, and we have said that we have taken into consideration price of France in the range of 36/MWh for the volume which is not yet hedged. This is what I can tell you today for these questions. END 10