A Strong Financial Recovery in Q3 for Engie

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Strong recovery in Q3 following a significantly impacted Q2 and 2020 Guidance confirmed

Business Highlights

Progress at pace on new strategic orientation announced in July:

  • Sale of 29.9% of shareholding in SUEZ for EUR 3.4bn completed in October
  • Completed first phase of Client Solutions review, preliminary scope defined for. separation of activities

Continued delivery of major capital projects with EUR 3.3bn growth CAPEX(1).
Continued focus on minimising impact of new Covid-19 restrictions

Financial Performance

Strong recovery following a significantly impacted Q2, with Q3 COI(2) organically(3) up +2% versus last year, reflecting growth in Renewables and more than offsetting favourable operational one-offs in 2019
9M significant impact of Covid-19 mainly on Client Solutions and Supply activities, c. EUR 1.0bn total Group impact at COI level
Net financial debt EUR 0.2bn lower versus 31/12/2019; strong liquidity of EUR 22.5bn
2020 guidance(4) confirmed

Key financial figures as of September 30, 2020 (5)

Key financial figures as of September 30, 20205

Increased focus on renewables and infrastructures assets

ENGIE continues to grow its renewables portfolio and is on track to achieve 9 GW of additional renewable capacity commissioned between 2019 and 2021. In July, ENGIE announced the signing of an agreement to sell 49% of its equity interest in a 2.3 GW US renewables portfolio to Hannon Armstrong, while retaining a controlling share in the portfolio and continuing to manage the assets.

Similarly, the Group also continues to increase investment in infrastructure assets that benefit from long-term commercial arrangements. In July, together with its partner Caisse de Dépôt et Placement du Québec, ENGIE successfully acquired the remaining 10% of TAG in Brazil, following the acquisition of 90% in June 2019. This acquisition is an example of the attractive opportunities ENGIE sees for expansion in international networks.

In September, ENGIE and ArianeGroup announced the signing of a cooperation agreement in the field of renewable liquid hydrogen to speed up the decarbonisation of heavy-duty and long-distance transportation. This partnership is one of many projects ENGIE is developing to drive the long-term energy transition.

Focus on minimizing the impact of new restrictions
New restrictive measures have recently been announced in some of the Group’s key geographies. These new measures, however, are targeted, will have varied impacts on sectors, and Governments are focused on supporting economic activity. These measures could evolve depending on local Government views on their respective progress in tackling the pandemic.

In this context, ENGIE will take a pragmatic and flexible approach to minimise the impact of the crisis on the remainder of this year and beyond. Having taken a number of actions through the year that included establishment of new processes, variabilisation of costs, procurement of necessary personal protective equipment (PPE) and continuously adapting in a dynamic environment, ENGIE feels confident that it is well prepared to tackle these new restrictions.

2020 Outlook and Guidance

ENGIE saw a strong financial recovery in Q3 following a significantly impacted Q2.
There are new Covid-19 restrictions in some the Group’s key geographies, however as outlined above, ENGIE is well-prepared. The main activities where some impacts are expected are Client Solutions, in particular asset-light activities, and to a lesser extent, Supply activities. For the rest of the business, impacts are expected to be relatively limited.
Following the sale of 29.9% share in SUEZ for EUR 3.4 billion, Q4 earnings (COI and NRIgs) will exclude previously expected earnings contribution from SUEZ.
With respect to foreign exchange movements since July, deteriorations occurred compared to the rates assumed within guidance, in particular for the Brazilian Real.

ENGIE benefits from stability and good visibility for the majority of its operations. Networks have clarity through regulatory frameworks; Renewables and Thermal generation benefit from PPAs (Purchase Price Agreement) and long-term contracts; and expected merchant power generation output for 2020 is almost entirely hedged. Overall, ENGIE expects the resilience of these activities to largely offset the impact of the new developments outlined above. As a result, ENGIE expects to achieve results within the stated 2020 guidance range.

Enhanced divestment programme to fund future growth

The sale of a 29.9% shareholding in SUEZ for EUR 3.4bn was completed in October. As outlined in July, ENGIE is considering opportunities to divest non-core businesses and minority stakes, and as part of this ENGIE has initiated a strategic review of options for its participation in GTT in which the Group holds a 40.4% stake. ENGIE will consider selling all or part of this stake either to a third party via a formal sale process and / or selling via equity capital markets.

Strategic review of the Client Solutions activities

The Group initiated a strategic review of Client Solutions activities with a view to maximizing value, reinforcing their leadership position and seizing future growth opportunities, through a coherent perimeter and adapted organisation.
The Group has now completed the first phase of this strategic review. The preliminary scope of activities that will be retained or those where ownership could change has been defined, with each Client Solutions activity initially assessed on its alignment with the Group’s new strategic orientation, considering 3 main criteria: business model; nature of the activity and development potential in each geography. As a result of this strategic review:

ENGIE will retain activities in Client Solutions focused on low-carbon energy production, energy infrastructure and associated services providing complex, integrated, and large-scale solutions to Cities, Communities, and Industries. These solutions, based on long-term contracts, bring visibility, resilience, and attractive growth potential. Key activities will comprise District Heating and Cooling, on-site generation, energy efficiency, smart city, green mobility, and engineering. These Client Solutions activities remaining within ENGIE representing c. 35,000 employees, will build on positions in France(7) to develop in Europe and internationally. Based on 2019 results, these activities represent between EUR 7-8 billion of revenues and between EUR 0.55-0.65 billion of COI(8).

For other Client Solutions activities, a new entity will be created as a leader in asset-light activities and related services. These activities benefit from strong growth prospects and leadership positions, however, they are less aligned with ENGIE’s new strategic orientation. The new entity will be focused on two business models: design and build projects; and recurring O&M services. Key complementary activities will include electrical installation, HVAC as well as information and communication services, mainly located in Europe(9), including Benelux with further prospects notably in North America representing c. 74,000 employees, who are well recognized experts in these different fields. Based on 2019 results, the proposed entity will represent between EUR 12-13 billion of revenue and EUR 0.35-0.45 billion of COI(8).

Following completion of this first phase, the next steps include: the organisation design and appointment of future management teams for the proposed new entity; the preparation for separation of activities and the review of options for future ownership. ENGIE has already initiated the social dialogue with employees and this will be enhanced in the coming months and the consultation process with the appointed employee representatives is expected to start in Q1 2021.

Operational and financial overview by Business Line

Primarily due to the impacts experienced in H1, ENGIE’s results for 9M 2020 were down significantly with an estimated COI impact of c. EUR 1.0 billion from Covid-19, including EUR 0.15 billion impact in Q3. More than 80% of this negative effect is related to Client Solutions and Supply activities, which experienced a strong decrease in activity levels and energy consumption, especially at the height of lockdown measures in Q2, while Networks, Renewables, and Thermal demonstrated resilience. Warm temperature in France impacted results, mainly in Networks and Supply with a total negative impact of EUR 187 million at COI level.

The Group’s COI also reflects deterioration of foreign exchange with a total impact of EUR 193 million mainly driven by the depreciation of the Brazilian Real. Negative scope effect of EUR 33 million follows mainly the disposals of Glow (in March 2019) and coal plants in Germany and the Netherlands, partly offset by the TAG acquisition of 90% in June 2019 and with the remaining 10% in July 2020, together with various acquisitions in Client Solutions, mainly Conti in the US and Powerlines in Europe as well as in Renewables with Renvico in Italy and in France.

Q3 results, however, showed a strong recovery following a significantly impacted Q2, with continued delivery of capital projects and businesses returning to more normalized levels. Overall, Q3 COI was up 2% organically versus last year reflecting growth in Renewables and more than offsetting favourable operational one-offs in 2019 and Covid-19 impacts.

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