Electricite de France SA

PAR:EDF

Earnings Call Transcript 2020-Q2

[Jean-Bernard Lévy, Chairman and Chief Executive Officer]

Good morning, ladies and gentlemen. Thank you for attending this first half 2020 financial results conference. In a few moments, Xavier Girre and myself, we will be walking you through these results and, of course, taking questions, but I would like to start with a general overview of the past six months and, of course, some outlook for EDF. Obviously, the first half of the year was deeply affected by the COVID-19 crisis. During this period, EDF was a bright example of what was referred to as a second line essential service, just behind health care personnel.

More than ever, we rose to the challenge of fulfilling our essential mandates in terms of power generation, supply of energy services and maintaining close ties with all our customers. We are inspired by the values of public service and solidarity.

EDF workforce, we stepped up to the plate. We exhibited total commitment and exemplary professionalism, for which I truly commend all our employees. We fulfill our duties, complying with public health measures to ensure that also our personnel would enjoy safe working conditions, whether they worked remotely or on site.

However, one of our responsibilities was to look further ahead and prepare for the post lockdown phase in spite of all the uncertainties, but maybe slowing the pace of the economic recovery even now. At the peak of the crisis, we managed to adapt our maintenance schedules and maximize the availability of our generation facilities for the coming winter. As soon as lockdown was lifted, we gradually stepped up the pace of our activities, once again demonstrating EDF Group's remarkable ability to adapt.

We established appropriate health protocols in agreement with our social partners, they were immediately assimilated by the workforce. This gives us a much clearer look ahead towards the future. It is hardly surprising that the effects of the public health crisis and more specifically, its most acute phase from March to June, would be reflected in our financial statements. However, let me state clearly that we consider these effects to be under control, which is an evidence of EDF's enormous resilience.

Let me now turn to the key figures. EBITDA for the first half of 2020 stands at €8.2 billion, which is a limited organic drop of 1.6% when compared with the first half of 2019. Excluding the COVID effect, it shows a 10% increase, demonstrating the strength of our underlying growth. At the end of June 2020, net income, excluding nonrecurring items, stood at €1.3 billion, slightly down, down by €135 million, when compared with the first half of 2019.

Net financial debt stands at €42 billion on 30th of June. This is a €900 million increase, Xavier will give more details later on. The public health crisis affected the group's EBITDA by around €1 billion during the first semester. This impact was essentially felt by three business sectors: first, by our customers and service sector to the tune of €436 million, due to the drop in power consumption, an increase in the amount of bad debt and a slowdown in projects and services supporting our customers.

Secondly, by France's nuclear sector to the tune of €253 million due to a reduced nuclear availability, impacting both in output levels and expected capacity revenues. Finally, the impact was on the distribution sector to the tune of €212 million, due to lower distributed volumes and less grid connection works. We should, however, note that in due course, this impact will be offset by the mechanism of the tariff adjustments.

Action plan, confronted with this shock, we have decided to implement a cost-cutting plan and a disposal plan. This will enable us to continue rolling out our strategy, CAP 2030, while keeping our debt levels under control. This action plan, firstly, entails reducing operating expenses by €500 million in constant euros when we will compare year 2022 with year 2019.

This also entails stabilizing our net investment at approximately €15 billion a year on average, over the period of 2020, 2021 and 2022. The reaction plan also relies on the continued disposal of nonstrategic assets, for which we have a new target of approximately €3 billion of assets to be sold from the beginning of 2020 to the end of 2022. All this will ultimately enable us to maintain the net financial debt-to-EBITDA ratio at approximately 3 times at the end of each year in 2020, in 2021 and in 2022.

These additional efforts are a follow-on from the performance plan and the disposal plan that we undertook in 2015. As you are well aware, both plans were completed to the letter and even ahead of the initial schedule. We have thus proven our ability to reconcile financial discipline with the growth of our business and the implementation of our long-term strategy.

Today, I am very confident that once more, we will be able to achieve this additional effort. In the longer term, though, in the longer term, EDF financial equation still depends on regulatory reforms to the existing RN mechanism. I have so many times mentioned the asymmetrical and unfair nature of RN. Discussions on the creation of an appropriate and more balanced new regulatory framework are still actively underway between the French state and the European Commission. If these discussions result in a successful conclusion, then the necessary conditions will be in place to start restructuring the group's activities in a way that will enable us to boost our investment capacities much quicker towards a successful energy transition. A few highlights in the deployment of CAP 2030. In spite of the pandemia and unprecedented circumstance, we have continued to CAP 2030 and achieved significant advances.

To beginning with, I would like to highlight the strong development of our renewable sectors. We are consolidating our positions, for instance, in the Middle East, which is one of our top priority regions. I am really pleased that we have been awarded in a consortium, the Al Dhafra project, which is no less than 2 gigawatts for a solar plant in Abu Dhabi. It will be the world's largest single project solar plant and the first one on such a scale to deploy bifacial module technology. That means that both sides of the photovoltaic modules do capture light in order to yield higher generation.

We see this as an acknowledgment of our expertise. Another illustration is the successful completed construction of the 800-megawatt DEWA III solar project that we have now achieved through a very successful partnership with DEWA from Dubai and Masdar from Abu Dhabi. We are also building very substantial wind farm projects in many countries, in France and China, let me just illustrate the construction of the Fécamp offshore wind farm in France for which construction just began.

In China, we completed the process of acquiring an interest in two offshore wind farms with a capacity of 500 megawatts. One of them is already running. The other one is still under construction. In the area of storage, we are continuing to expand our business in the United States, our key markets, as an implementation of our storage plan, which was released three years ago. For instance, we just signed a power purchase agreement for a 200-megawatt solar project, combined with 100 megawatt of storage capacity in the vicinity of Las Vegas, Nevada.

I must not look over hydro. Hydro will remain, for many years, the first of the renewable energy sources for the planet and for us. In this regard, I would like to highlight that we have, this year, excellent water conditions, with excellent rain and snow conditions in France. At the end of July, the amount of water that we have in our dams in France is very close to the record level over the past 30 years. And this is, of course, good safety for us for H2 2020.

Let me return with you to China and talk about the other cornerstone of our low-carbon generation capacity, which is obviously nuclear. First of all, I would like to highlight the excellent operational performance of our two Taishan EPR units built together with our partner, CGN. In 2019, the Taishan 1 reactor in its first full year of operations, Taishan 1 generated more electrical power in the world than any other nuclear reactor in the world, the output was approximately 12 terawatt hours.

Taishan 1, commissioned 1.5 years ago, has now completed its first full operating cycle, which demonstrates the quality and robustness of EPR technology. Right now, Taishan 1 has started its first statutory maintenance outage. As regards to the Hinkley Point C construction project in the UK, we have completed work on the common raft of reactor number two on time. Despite of the measures we deliberately took to adapt working conditions in light of the pandemic and the regulation regarding distances, this work was completed in full accordance with the initial schedule.

One of the main contributors to this success is the rationalization of work resulting from the construction of two EPR units on the same site. This achievement is also due to the lessons learned from other EDF projects in the rest of the world. As you are all aware, Hinkley Point C is a benchmark for the planned construction of two EPR units at Sizewell. Our teams recently applied for a development consent order with the British authorities. This DCO was accepted on the 24th of June. It is a key step in the development of this project before we consider a final investment decision.

In France, the scaling up of maintenance work since the lifting of the lockdown has led us to revise upwards our previous nuclear output estimates. The estimate now lies in the range of 315 to 325 terawatt hours for 2020. As we already mentioned when we presented Q1 results, the public health crisis resulted in a slowdown of nuclear construction and maintenance works in France and the UK. We are currently assessing all the effects of this slowdown.

As regards the international business, the second cornerstone of our strategy, I would like to highlight our progress in the hydroelectric sector. In Malawi, EDF and our partner, SL Power, we have just been prequalified as exclusive developers of the country's very first hydroelectric dam. We are currently working on the technical and sales proposal that should be submitted in the course of September. With the support of the World Bank, this infrastructure alone will, in due course, account for close to 80% of Malawi's currently installed capacity, a game-changer.

I have already spoken to you about a project involving the construction of the first pumped-storage facility in the Persian Gulf and more specifically, in the Hatta Mountains of the United Arab Emirates. Within the scope of this project, EDF will be providing assistance for engineering and project management; indeed, construction just started. You are well aware that EDF is a renowned supplier of hydro engineering services. We just won two contracts of this kind, and one is in Tasmania, the other one is in Karangazia.

Let me now come to the third cornerstone of our CAP 2030 strategy, customers and services. During the first half of the year, our B2C market share in France held up well. When we look at the loss of customers to our competitors, it dropped by more than 30% compared with similar numbers in the first half of 2019. For us, this reflects the recognized quality of our offerings and the efforts of our 3,000 customer advisers, all based in France, who have stood alongside our customers since the very beginning of the crisis. Our market offerings continue to attract new customers, 720,000 customers have already adopted them against 500,000 six months ago, almost a 50% growth in six months.

We also remain the leading alternative gas supplier, and we have more than 1.6 million residential customers in France in the B2B market. We supported the post lockdown return to business with an ad hoc solution called [Foreign Language] or restart package for businesses that have been closed, which was launched in record time. At the same time, we see the electric mobility sector expanding quickly. We just launched a large-scale experimentation of vehicle to grid, V2G, technologies in the region of Aksitania.

We expect to roll out bidirectional charging station, developed by our subsidiary, Dreev, as early as the fall of 2020. We opened the first Izivia charging stations for electric vehicles in the metropolitan area of Lyon where we won the contract 1.5 years ago. We have also taken over the operations of Mobiv which is a very large network of more than 1,500 charging terminals for all the province of Nouvelle Aquitaine.

Let me tell you that the first half of 2020 was also an important time for all EDF stakeholders because we adopted our raison d'etre, our sustainable development commitments towards environmental, social and corporate government – sorry, corporate governance, particularly regarding the protection of climate and biodiversity are now since we adopted our raison d'etre, which is now written into our bylaws and which states that we build a net-zero energy future with electricity and innovative solutions and services to help save the planet and drive well-being and economic development.

More than ever, we are determined to use all our skill sets in order to decarbonize the economies of the countries where we operate. Seeking carbon neutrality means responding to a dual priority. First, we need to fight against the global warming. Secondly, we need to reconcile with sustainable and inclusive growth.

We share this conviction with more than 150 businesses who, like us, have rallied around the initiative launched by the United Nations alongside science-based target and the business that we have already joined. We want to encourage global decision-makers to include climate protection goals in all their post COVID recovery efforts or plans. Because we want the post recovery efforts, to take in account of biodiversity, we have also signed up to two new commitments: one is with Act for Nature France and one is for Act For Nature International.

The crisis, obviously, is not over. Because we have uncertainties lying in front of us, we are not to be prevented from planning ahead and from acting for our common cause, that of a better tomorrow. All recovery plans, European, French, state that we will not, we cannot return to yesterday's economy. While tomorrow's economy and society still has to be invented, at EDF, we are all convinced that low carbon electricity will be one of its main driving forces. Isn't that a huge growth opportunity for EDF.

I will now hand over to Xavier Girre and a bit later, we will take your questions. Thank you very much.

[Xavier Girre]

Thank you, Jean-Bernard. Good morning, everybody. I will now present to you our H1 2020 financial results in more detail. Before detailing these figures, let me remind you that Edison's E&P activities are accounted as discontinued activities under IFRS 5, excepted the Algerian, Norwegian assets, which are not anymore in the scope of the transaction.

As already said by Jean-Bernard, the EBITDA decreased by 1.6% organically. The main reason of this decrease is linked to the impact of the COVID-19 crisis, which is estimated at €1 billion. Excluding this impact, the EBITDA will have amounted to €9.2 billion, which shows solid underlying growth of approximately 10% compared to last year. France generation and supply activities was down by €76 million, the COVID-19 effect and a decrease in nuclear output offsetting the increase in electricity prices.

French regulated activities suffered from lower distributed volumes, while the UK showed a strong increase, thanks to higher nuclear realized prices and the reinstatement of capacity market revenues. The Other Activities segment is impacted by a provision for onerous contracts due to the outlook for gas prices in Europe. Nuclear output came to 174 terawatt hours, a decrease by 29.7 terawatt hours compared to 2019. And the impact of the COVID-19 effect has been estimated at approximately 30 terawatt hours, a consequence of two main elements: first, the extensive modulation that to adapt to the drop in power consumption in France; and second, the extension of outages become – because of the sanitary measures and sites.

Beyond COVID-19 impact, other elements also contributed to disrupt the nuclear output for approximately 17 terawatt hours. First, the extended outages of Flamanville 1 and 2 and Paluel 2, which have been off-line during the whole semester; and second, the closure of Federline 1 in February and a few other elements. France hydro output raised to 26 terawatt hours from 20 terawatt hours in 2019 and increased by 29%. As you can see on the right-hand side of the chart, hydro conditions were slightly above normal for the first half of 2020, in sharp contrast with a below-average situation in H1 2019. As mentioned by Jean-Bernard, it is worth noting that the level of the lake France is currently close to record highs if we compare with the last 30 years average.

EBITDA of France generation and supply activities was down by 1.9% organically to €3.9 billion. Adjusted for the COVID-19 effect, the increase would have been up 10% thanks to strong positive price effects. The negative impact of the COVID-19 has been estimated at minus €482 million. It is linked to the decrease in electricity consumption in France to a loss of 13 terawatt hours of nuclear output as detailed before, and to an increase in bad debt. Lower nuclear availability also led to book a risk of potential penalties on the capacity mechanism for €137 million. By convention, the estimated COVID-19 impact does not include any price effect.

As detailed earlier, nuclear output was also down because of other factors not related to the COVID, while hydro output was up by 5.6 terawatt hours. The overall energy volume effect represents a decrease by €494 million. Favorable energy price effects contributed positively for €709 million. It reflects the two successive increases in the regulated tariffs on the 1st of June 2019 and the 1st of February 2020, including the catch-up calculated over two years.

It was somehow counterbalanced by market sales at lower spot prices. Downstream to final customers was up by €302 million, thanks to better market conditions for energy saving certificates and to the increase in the price of capacity. Customer losses represented minus 6.3 terawatt hours. Operating expenses decreased by €84 million.

EBITDA for the France Regulated Activities segment stood at €2.5 billion, an organic decrease of 4.6%. The COVID-19 impact has been estimated at minus €212 million. It is mainly linked to lower distributed volumes and the slowdown in the installation of new grid connections. It will nevertheless be compensated in the next years through the regulatory catch up mechanism. Changes in indexed adjustment to the Tier 5 distribution and transmission tariffs contributed to positive price effect of €223 million. The mild weather for the first half of 2020 had a negative impact estimated at €152 million.

EDF Renewables registered a strong organic growth of 14%. The COVID-19 effect is not significant. Output reached 7.9 terawatt hours, an organic increase by 7.4%, thanks to the commissioning of new assets at the end of 2019 and to good meteorological conditions. Let me highlight that EDF Renewables is accelerating its development with a level of projects under construction at a record high of 5.9 gigawatt.

If we look at renewable activities across the group, overall, EBITDA decreased by 2% organically. This reflects the convention we use to value hydro output in this group level KPI with a reference to spot prices, whereas hydrological conditions were much better and EDF Renewables performance also growing. Total net investments in renewables amounted to €783 million, a strong increase compared to 2019. This reflects the acceleration of our development in renewables as well as less subsidies booked in H1 2020 compared to H1 2019.

Let's now look at energy services. Dalkia's EBITDA was down by 15%. It was impacted by the COVID-19 effect for €39 million as less energy and services were sold during this period. Also most contraction – construction works had to be postponed as customers sites were closed during the lockdown. Heating networks and energy services activities have proven resilient during the crisis. Moreover, Dalkia helped ensure continuity of key essential services, such as hospitals, industries or data centers. At group level, the organic decrease by 20% was mainly linked to the impact of COVID-19 crisis.

Net investments were up following the acquisition in February of Pod Point a leading player in the field of electric mobility in the UK. Dalkia's investments were otherwise down given the postponement of construction works. Framatome's EBITDA, including the margin realized with other EDF group entities, established to €211 million, corresponding to an organic growth of 1%. Its contribution to group EBITDA increased by 28% organically to €98 million. The impact of the crisis has been estimated at minus €37 million. It has mainly affected the installed base business, but also the fuel and the project and component manufacturing businesses as some industrial facilities had to shut down.

The margin of the fuel business increased significantly, thanks to a better mix of production – of products as well as unfavorable calendar effect in H1 2019. Framatome's EBITDA also benefited from continued overhead cost cutting. The company acquired the nuclear services of BWX technology in the United States. No cash was disbursed as it was exchanged against the land owned by Framatome.

EBITDA of the United Kingdom grows significantly from €128 million in H1 2019 to €438 million in H1 2020, despite the negative impact of the COVID-19 estimated at minus €128 million, mainly linked to a decrease in B2B consumption.

Generation benefited from higher realized prices from nuclear power and the reinstatement of the capacity market, which had been suspended for the first part of 2019. Nuclear power output totaled 22.7 terawatt hours in the context of extended unavailability of Hunterston B and Dungeness B. It is a decrease by 1.8 terawatt hours compared to 2019 due to the schedule of maintenance operations. On the customer's side, the residential portfolio remained stable. The gross margin for our residential customers increased, thanks to a better customer mix.

Private power for storage and Pod Point electric mobility integrations are on track. The first two battery storages projects of private power are under construction, while the performance of Pod Point is ahead of plan despite the crisis. The EBITDA of Edison was nearly stable in organic terms at €380 million. The COVID-19 crisis had an impact estimated at minus €47 million, mainly because of lower gas and electricity volumes, in particular, in B2B and the slowdown of service activity.

In the power business, volumes sold were down because of lesser availability of CCGT power plant. Gas business was up, thanks to better optimization of long-term gas supply contracts. As for new power projects, the construction of the CCGT project of Presidano has been launched, and the modernization of the CCGT of Nagaw is progressing.

Looking now at other international segment. EBITDA was up organically by 32% to €208 million. EBITDA in Belgium showed an organic growth of 34%, despite an impact of the COVID-19 estimated at minus €29 million. Indeed, the sanitary crisis impacted the consumption in Belgium, led to third energy on the market at lower prices, decreased the activities of the services and increased the risk of customer bad debt.

Wind generation was up by 40% – 47%, thanks to the increase in installed capacity and to much better wind conditions. And nuclear power generation was also up in Belgium, and benefited from favorable realized prices. In Brazil, EBITDA was up by 3% in organic terms, thanks to the annual adjustment to the power purchase agreement in November 2019. The drop in nominal terms of the EBITDA is directly linked to the weakening of the Brazilian real against euro.

Lastly, the Other Activities segment contributed for €135 million to group EBITDA, a strong decrease compared to last year. This is mainly attributable to provisions for long-term LNG procurement contracts that became onerous in view of the downward perspectives of medium- and long-term spreads between the U.S. and the European markets. EDF trading delivered again a great semester after an exceptional year in 2019. The increased credit and counterparty risks in the context of the COVID-19 had a negative impact estimated at €31 million.

Before moving to EBIT, let me wrap up these different elements and show you the main building blocks of our H1 2020 performance. The main two negative drivers were the impact of the COVID-19 of the group and of lower production in France, mainly due to extended outages. The main positive drivers were the favorable evolution of energy and other prices, such as capacity inference and of realized prices for nuclear power in the UK. Another block is linked to the negative evolution of spreads in gas between U.S.A. and Europe; and last, continued OpEx cuts.

Let's now move to the other line of the P&L. The EBIT of the group came at €1.6 billion, a decrease by €2.1 billion versus last year. Volatility in commodities had a year-on-year unfavorable impact of €673 million. This element is recording the net changes in fair value on energy and commodity derivatives, excluding trading activities, on contracts, which do not qualify as hedge accounting, in particular, in relation with Edison's gas positions. The net depreciation and amortization increased by €0.5 billion. This is essentially explained by the growth in the asset base, namely within the French nuclear fleet and to a lesser degree, by accelerated depreciation of the French coal-fired fleet from the first of June 2019. [indiscernible]. Have been recorded in 2020 on the nuclear fleet of EDF Energy for €0.6 billion.

Other operating expenses include €146 million for the repairs of the penetration wells at the Flamanville 3 EPR. The financial results for H1 2020 corresponds to a financial expense of €2.3 billion, a decrease of €2.2 billion from 2019. This change is mainly explained by an improved cost of gross financial debt for €0.1 billion, thanks to better financing conditions. A positive change for €0.6 billion in the discount effect due to no reduction in H1 2020 in the real discount rate used for nuclear provisions in France compared to a 10 bps decrease in H1 2019.

At the end of June 2020, the real discount rate for nuclear provisions was 2.3%, incorporating an assumed inflation rate of 1.3%. But a €2.9 billion decrease in other financial income and expenses, of which minus €2.6 billion is due to the fair value adjustment of financial assets held in the dedicated assets portfolio in application of IFRS 9 standard. This reflects the depressed performance of equity and bond markets in 2020 in sharp contrast with 2019. This is why, excluding nonrecurring items, financial results improved by €0.6 billion.

Net income group share came to minus €0.7 billion versus a positive €2.5 billion in 2019, a negative variation of €3.2 billion. As detailed previously, the EBIT and financial results represented a combined decrease of €4.2 billion compared to 2019. The variance of the income taxes generated a positive €1.1 billion to establish at plus €42 million. This is a direct consequence of the deterioration of the result before taxes of minus €4.2 billion, slightly offset by the increase in the income tax rate in the United Kingdom.

The group's share in the net income of associates decreased by €0.3 billion, a consequence of a decrease of the net income of RTE with less transported volumes of CNG, also with a negative fair value adjustment of financial assets and of a lower income from the dedicated assets. The group's net income, excluding nonrecurring items, proved resilient as it stood at a positive €1.3 billion, down by only €135 million compared to 2019.

Just a quick word on the post-tax effects of nonrecurring items. They stood at a negative minus €2 billion versus a positive €1.1 billion in 2019. Impairment losses have been recorded for a total amount of €0.7 billion versus €0.5 billion in 2019. The main element here was a €0.4 billion depreciation net of taxes of nuclear plants in the UK and of the Edison E&P activities that are currently held for sale and treated as a discontinued activity for €0.1 billion.

Net changes in fair value of instruments and other items, including commodities volatility are accounted for in nonrecurring income and represented a loss of minus €1.2 billion post tax. As said earlier, this reflects the poor performance of equity and bond markets in 2020 in sharp contrast with 2019. The overall performance of our portfolio of dedicated assets was of minus 2.3% for H1 2020 versus plus 8.9% for H1 2019. The coverage ratio established at a resilient 101.9% at the end of June 2020.

Looking now at the cash flow. Operating cash flow stood at €0.6 billion, down €1.9 billion from 2019. The working capital requirement contributed negatively for €1.4 billion. On the – one of the main impact for €0.9 billion is linked to the CSPE, the compensation for public energy service charges, as the generation of renewables has increased more than anticipated in H1 2020, and that spot prices have decreased considerably due to sanitary crisis, increasing the amount to be temporarily supported by EDF.

The net investments, including disposals, HPC and increased slightly to €5.9 billion. This reflects the acceleration of investments in renewables as well as the acquisition of Pod Point. Group cash flow established at minus €1.9 billion, a negative variance of minus €2.9 billion versus H1 2019. In addition to the variance of the operating cash flow, we highlight that the fact that there were no disposals in 2020 versus the disposal of shares in H1 2019 for €0.4 billion. Second, the income tax paid stood at circa €400 million, a €0.6 billion negative versus H1 2019. And third, Linky and HPC investments remained at the same level as last year.

Let's now review the evolution of the net financial debt. This chart is summarizing the evolution of the debt by €0.9 billion. The box "others" for €1.1 billion includes a foreign exchange adjustment for €0.5 billion and the variation of the fair value of financial instruments, mainly derivatives used to hedge interest rate risks for €0.8 billion.

The net debt came as a consequence to €42 billion at the end of June 2020. This ends my presentation. Let me now hand back over to Jean-Bernard Lévy, who will present the group's new financial targets for 2020 and our ambitions for 2022 period.

[Jean-Bernard Lévy, Chairman and Chief Executive Officer]

Thank you very much, Xavier. As many, if not all, our other companies like us, we canceled our financial targets back during the pandemia. And the purpose now is to present the new financial targets that we have set for this year and for the medium term. We are aiming for a 2020 EBITDA in the range of €15.2 billion to €15.7 billion. Obviously, this includes the consequences of the crisis that we have already recorded or the consequences that we expect for the second semester, in particular, with respect to the level of nuclear output for the full 12 months of 2020.

So EBITDA between €15.2 billion and €15.7 billion. In the medium term, we are targeting a reduction in operating expenses of €500 million in constant euros in 2022 when compared with 2019. We are implementing a disposal plan of approximately €3 billion over the period of 2020 to 2022. And we aim at reaching a sustained net financial debt-to-EBITDA ratio of approximately 3 times at the end of each year, over the period of 2020 to 2022.

Final word about our dividend policy. The Board has decided not to pay an interim dividend in 2020. The Board has also decided that we are keeping a payout ratio unchanged at between 45% and 50% of the net recurring income. With the French state still being committed to opt for a scrip dividend for fiscal year 2020 and for fiscal year 2021.

This ends our presentation. We are now ready to take your questions.

[Operator]

Thank you. [Operator Instructions] Your first question comes from the line of Rob Pulleyn from Morgan Stanley. Please go ahead.

[Rob Pulleyn, Morgan Stanley]

Hi, good morning, gentlemen. Out of many questions, I will stick to three, if that's okay? Firstly, it would be really helpful on the reform subject, if you could outline the next steps that we should be expecting? And if possible, when we could hear news on those? And whether the start of 2022 is, for conclusion, is still feasible? That would be super helpful.

Secondly, maybe have some further details disposal plan? Namely, how much is incremental to the existing plan guided 2019-2020 in terms of how much has already been executed and how much is new?

And then finally, if I may just revisit a question I asked at 1Q, when I asked you on the need for fresh equity and for the avoidance of doubt, does the disposal plan now negate the need for additional equity in the foreseeable future? Thank you very much.

[Jean-Bernard Lévy, Chairman and Chief Executive Officer]

Thank you for your questions. So maybe I will take them in the same order. I mean, we will not have news in the very short-term because this is August coming up. And in August, there are no real discussions going on between the European Commission and the French state. But I can tell you that this reform, of which you know the basic elements, by the way, the French government published consultation, a new framework to hear from stakeholders, what their views would be about a reform of RN. And these conversations have been going on. We are not part of these conversations, although, of course, we are supporting the parties when they ask questions from us in order to fill the arguments to give them some data.

So it is indeed very difficult to say how much it will take. It is indeed also very difficult to guess whether there will be a positive achievement in these conversations or not. But we are, of course, strongly hoping that we will find a way to reform the RN and probably something that will look similarly to what the French Government consulted on earlier in the year.

Your second question in terms of disposals, we have very clearly stated that the new disposal plan will encompass what we will sell in 2020, 2021 and 2022. So it does not include what we sold before 01/01/20. And indeed, we had committed about five years ago to a €10 billion disposal plan that we have achieved and slightly – were slightly above the initial number by less than 10%, but I don't remember the exact number, the exact figure. But anyway, we sort of closed that initial plan of €10 billion. We are now reigniting, restarting a new plan with a €3 billion target.

And of course, as we did earlier, we're not going to name any of the assets, which could be disposed of. There is, I think, no better way to succeed than to keep our movements in a close circle in order to achieve a better value for money. But then when there is something significant that is indeed sold, we, of course, give a lot of details about what we have achieved.

And now your third question about the disposal plan and additional equity. This is a question about the strength of the balance sheet. And of course, the strength of the balance sheet to – for us has to be looked at. As we watch today, we anticipate tomorrow what will be the P&L contribution to the balance sheet, and there are many items going in and out of that contribution. We are very, very focused usually on our day-to-day operations, producing energy and selling it. And at the same time, we have a very large balance sheet. As you know, the balance sheet is, if I remember, well above €300 billion in total, and that balance sheet reflects a number of things from the past or for the future, such as some of what we have to provide for, for our long-term commitments. Some of them, for instance, are for pensions, other for nuclear waste and so on and so forth.

So looking at the balance sheet and looking at whether the equity of EDF is appropriate, is something that is very complicated. And yes, indeed, we see the P&L contribution, but we also are prone to various variations of provisions, of interest rates that will have a direct effect on the balance sheet numbers.

So right now, we consider that the dividend policy that has been decided by the Board, where the French state made a statement about a scrip dividend for its part for the next few years, is something that gives us a lot of comfort that we have what it takes to meet our operational requirements.

[Rob Pulleyn, Morgan Stanley]

Okay. Thank you for the detail and I know there is many other who’ve questions. So I’ll turn it over. Thank you.

[Operator]

Your next question comes from the line of Vincent Ayral from JP Morgan. Please go ahead.

[Vincent Ayral, JP Morgan]

Yes, good morning. I'll start with the first question related to – again. I understand that obviously, you cannot say, and you will see, like all of us, whether this project gets finalized or not. Would be interesting to have an update on whether it is still aligned? We saw head of Kikot, Mr. Karenko said that the Parliament that his teams were about to meet the European Commission on the 16th of July and articles fact that the discussion was about the cost of nuclear and basically, could you confirm if there is any additional information, which has been made public we could have missed, that would be very interesting in this respect?

Second thing would be related to the government reshuffle. We have a new Minister of Energy. Have you had initial contacts with the government and especially on the same topic of Hartfield. And third point, it's a very numbers question. I'm very sorry about that. But I noticed that the D&A increased by €500 million year-on-year for H1. Usually, we have an order of magnitude of our €600 million per year increase. So this seems to be a fairly high increase. Just to be interested [Technical Difficulty]? Thank you.

[Jean-Bernard Lévy, Chairman and Chief Executive Officer]

Thank you very much. I will let my colleagues give you some explanation about why is the D&A number such for the first half. Maybe I will answer your second question first, and this will lead to the first one.

Yes, indeed, we had some local elections at the end of June, which, by the way, had been postponed. They should have been at the end of March, but because of the COVID situation, these elections were finalized for electing mayors at the end of June, and there was indeed a government reshuffle. And at this stage, while, of course, I know I have met the people in charge of various EDF matters at government level, the members of the cabinet. I am not aware that there is any change at all in the government policy regarding EDF or regarding regulation in no aspect.

And so I believe this change of some of the people and indeed, in some areas some of the organization of the government is not having any effect on what we are implementing regarding the first point, which is the major reform, the reform of RN and the possibility for us as a consequence of RN that maybe we will implement a new organization of our assets, which we have worked on under the code name Hercules in France. And I am not aware that there is any change in the government policy.

And indeed, you were mentioning that there were some meetings between the French economic regulator for energy and people in the European Commission after the government reshuffle. And while I am not the person who can make any comment on meetings to which EDF does not belong, but if your information is right, this does show that the discussions on the reform have been going on in July after the reshuffle of the government. So the outcome of the reform is a big question mark for us. It is – I am totally unable to give you any comment regarding whether it will be successful or not. And, obviously, EDF is not in the driving seat of these discussions. But of course, we are strongly hoping for a positive outcome.

On the third point, Xavier?

[Xavier Girre]

Yes. As regards the D&A, there are two points. During this first half, as I highlighted, the first one is linked to the French nuclear fleet and the growth in the asset base in this French nuclear fleet, which contributes for €241 million. And the second one is the accelerated depreciation of the French coal-fired fleet, which started first of June 2019. So when you compare the first half of 2020 with the first half of 2019, you have a difference which represents €103 million.

[Vincent Ayral, JP Morgan]

Thank you very much.

[Operator]

Your next question comes from the line of Olivier Van Doosselaere from Exane.

[Olivier Van Doosselaere, Exane]

Yes, good evening and thank you for taking the question. I have three, if I may? The first one is, again, coming back to the reform discussions. As you mentioned, you would hope to get a positive response. But I guess at this stage, the commission might say two things, one they might say yes or I guess, they might say that after this preliminary discussion, they actually see a need to put in place a more in-depth investigation, a formal investigation, as they mentioned it, which I guess could to take about one year. Could you help us understand what will happen if they choose that second part? Can you still work in the meantime on [indiscernible] or is everything a bit up in the air depending on what the final outcome is?

And then a second question also a bit related to that, should the implementation of this reform actually happened after the next president election, do you have any feel today in terms of the wider political support for this election beyond the mass party?

And then my last question is just on the – coming back on the balance sheet. So you now target 3 times net debt to EBITDA over the next three years. I think in the past, you were at some point more like 2.5 times. So if 3 times is not a new sustainable level that you can keep maybe because your rating has dropped or do you see that beyond the medium term, you will actually have to come back down again? Thank you.

[Jean-Bernard Lévy, Chairman and Chief Executive Officer]

So once again, I will maybe respond to your two first comments, I'm not sure there are really questions, but – and Xavier will do his best to explain what a 3 times leverage company is when compared to 2.5 times – 2.7 times by the way, 2.7 times leverage company, which, I guess, will be interesting.

On the first point, I think, Olivier, your question is very much related to ifs and whens. We are, as I said, watching, supporting two parties and negotiating a new regulation frame for new market design, if you want to say, for nuclear generation sales on the French scene, on the French market. You are referring to legal decisions that can be made by the European Commission. I heard the word formal investigation, which, I guess, relates to a totally different set of discussions. I don't think there is – today, the kind of spirit that leads to formal investigation. There are discussions with France requesting a change in what has been agreed 10 years ago, which still should be operating until the end of 2025, which is the RN, and we see day after day on inappropriate [indiscernible] for many, many aspects, including, of course, it doesn't benefit really the customers, the clients.

So we hope these reform discussions will positive. There will certainly be, after a potential agreement has been made, a consultation phase because many stakeholders will need to be listened to based on the in principle agreement that maybe the EU commission and the French government will have reached and then we will see what happens and related to your second question, while this is, of course, being controlled and mastered fully by the current government, as you very rightly say, we will have presidential elections, and we are not aware at this stage that what we are discussing is a matter of political discussion at the national level.

So anticipating any effect of national elections on quite a technical matter, which is the new framework for regulation – of the regulation of the nuclear generation in France, is I think going a bit too far at this stage. And I'm sure you will understand that it is really too early to anticipate what would be the effect of changes or not on the political scene in France on something which is right now a work in progress and being handled outside the day-to-day political discussions from various parties in France.

[Xavier Girre]

And as regards to your third question, Olivier. Of course, the COVID crisis has increased the tension of the group, as we have described. Our goal is clearly to maintain our net financial debt as previously expected in our long-term plan. But we will suffer from less EBITDA than expected due to less nuclear generation, as we also explained, with the impact of the COVID and also heavy maintenance program during these years, 2020, 2021, 2022. And this is why we have set this new goal, net financial debt-to-EBITDA 3 times.

What's key, of course, is to implement successfully our action plan, as we already did during the last years. And as you know also always focus on our group's financial condition and balance sheet, which remains a priority. But this is why we have set this new goal, which we consider sustainable for the years to come.

[Olivier Van Doosselaere, Exane]

Okay. Thank you very much.

[Operator]

Your next question comes from the line of Emmanuel Turpin from Societe Generale.

[Emmanuel Turpin, Societe Generale]

Good morning, everybody. I have three questions, please. Coming back on the guidance for EBITDA in the full year. It looks like taking the midpoint of your EBITDA range, we would be looking at an acceleration of the decline in EBITDA year-on-year in the second half. I calculate roughly a 13% decline, one-three. Despite the worst of the COVID crisis being behind us, hopefully, would you mind helping us or share with us some of your assumptions for 2H as embedded in your guidance, especially maybe using Slide number 5, which is a great slide about the COVID impact in H1? So what are you assuming COVID-related or crisis-related in 2H?

The second question would actually stick to this Slide number 5. And if – we know your guidance for nuclear production for next year, so we can take care of the blue box. If we assume that energy – electricity consumption somewhat normalizes in 2021, should most of this €1 billion, well, except the blue bars, kind of disappears?

And last question, for your €500 million cost cutting over three years, would you mind sharing with us the timing of implementation? So how much would you expect to reach in each of the three years for the dilution €3 billion of disposals? And how much should we take out of our assumptions for EBITDA maybe over the – in the course of this disposal program – sorry, for the dilution related to disposals?

[Jean-Bernard Lévy, Chairman and Chief Executive Officer]

Thank you, Emmanuel. So as regards the guidance, clearly, our 2020 EBITDA will depend on the nuclear generation during H2. So here, as you understand, we have taken into consideration our last hypothesis, which is a range between 315 and 325 terawatt hours. Having already generated 174 terawatt hours during first half and on this basis, this should lead to a decrease of the negative impact on the nuclear generation in H2 compared to H2 last year in comparison with what we present today, H1 versus H1, minus 253. So during H2, we should have on the basis of these nuclear generation hypotheses, an increase of the negative impact for H2.

On the other hand, as regards to customers and services impact, clearly, the impact is very significant during this first half of the year. It should be less significant during the second part of the year. And during the last weeks, we have noticed that the business is coming back quite well. So it's the mix of these two elements that have led to this guidance, €15.2 billion to €15.7 billion. Very clearly, the key variable will be linked to the French nuclear generation during this first half of – during the second half of the year. And of course, the prices also impact, which will be – to be considered.

As regard the disposal plan as already said by Jean-Bernard, we will not give any detail today. Clearly, we have our own assumptions that we have taken into consideration in the ambitions that we have set as regards our financial ratios for the period 2020 to 2022.

[Operator]

Your next question comes from the line of Han Ari of EDF [ph]. Please go ahead.

[Sam Arie, UBS]

Hi. I think that's me, Sam Arie, UBS. I haven't moved over to EDF yet. Well, look, I wanted to ask some questions to follow-up on the discussion with the EU on the new nuclear regime. And if I may, my starting point is that it's a consultation earlier in the year, which talked about a fair return for nuclear and a price corridor, I think, of plus/minus €6 potentially, but did not say anything about what the fair return would be or the level of prices that, that corridor would be around. So my question number one is, I think I think CRE has written a paper for the government, which has been submitted to the EU, but which we haven't seen. So I just want to assume you've seen it, if you can tell us if that paper does include a concrete proposal for the absolute price level for the nukes or a specific allowed return in a regulated model?

And secondly, does it propose a new framework to replace RN from 2025 when I think is expected to come to an end? Or would it replace RN sooner than 2025 under the latest proposal of paper?

And then secondly, this is a broader question. I know you can't speak for the EU, but could you just spend a minute to share with us your understanding of what are the issues the EU is balancing here as they think about their response to these French proposals. My sense is that you would like to see the French nuclear fleet on a more stable regulated regime and that this has implications for energy security across the European region. But I wonder, do you share that perception of their priorities? And what else do you think they might be thinking about that would affect their decision on this?

And I suppose a very relevant question. If you think it makes a difference for them in any way, for example, from a state aid perspective, whether the EDF group has private shareholders or not? In other words, do the EDF parents listing – need to be delisted somehow in order for the EU to approve the kind of proposals that have been put forward? So sorry, very broad questions, but we'd love to hear any comment you can share on those.

[Jean-Bernard Lévy, Chairman and Chief Executive Officer]

Yes. Thank you very much for your question. And I'm sorry, I'm going to be some kind of a disappointment for you because we – you are not asking the right person. Your questions about some discussions between two parties of which EDF is not itself a participant is close to an exercise of guessing. So I am really unable to answer precisely the questions that you have raised.

We are not – we have been requested already some time ago to feed the government that includes the Cour with some numbers regarding our costs. And so obviously – and we have been told about the fact that the government had requested some advice from the Cour regarding what should be a fair examination of our cost and what should be a fair return on those investments that we are making. But of course, this is a discussion that is happening in closed circles.

And as you may expect and as being very much a party or involved in what could be the outcome of such discussions between the French state, the EU commission, the independent regulator, you would not expect us to have any part in the way that these parameters, these KPIs are being looked at and being discussed. So I am afraid that there is not much I can say about it.

The only thing I can say is that indeed, we are pressing the government. As you have seen, we've been downgraded once more. And you can see our debt level is growing. You can see, we are – have to implement new divestitures, a new saving plans. You see the tension that has been created on EDF's balance sheet over the years by DRL. So we would like the implementation of the new system once it's agreed, and if it's agreed to be indeed sooner rather than later.

And regarding second part of your comments, which is what do we think the EU – how do we think the EU is looking at it? This is even more second guessing, which are we in the EU choose and what would be the way to look at it, considering the importance of the French generation – nuclear generation for electricity availability in Central Europe, also for the lowering of the cost for the European economy and looking at the various concepts that you are mentioning. I heard you using the world state aid.

And yes, indeed, maybe the state aid concept is something that is also being taken into consideration. But while your question is obviously very interesting and we could have, I would say, a theoretical discussion about you know what was the market design was? What it's aimed at? What is the right trade-off between competition and customer interest, long-term investment based or friendly market designs and how does new technologies interfere with existing assets, this is certainly not a matter that I think conference is – conference call is really framed to organize.

[Sam Arie, UBS]

Okay. Well, thank you for sharing some of those anyway. On the last point about the shareholder structure of EDF, do you see any link between that and the potential EU decision? Or are they entirely separate?

[Jean-Bernard Lévy, Chairman and Chief Executive Officer]

Our advisers tell us that when they look at the EU former statements, the EU has never made a difference in the way that they look at the market operators. They never made the difference on the ownership. In other words, they look at the market operators with the market design, the market framework, the market shares and so on and so forth.

I understand that whether a company is fully listed, not listed, publicly owned or state-owned and so on. I am told by our advisers that in the past, ownership is not something that the commission takes into consideration.

[Sam Arie, UBS]

Okay. Well, that’s a very helpful comment. So thank you for your answers.

[Jean-Bernard Lévy, Chairman and Chief Executive Officer]

My advisers – I'm repeating what our advisers are saying. I'm not speaking on behalf of the commission, please.

[Sam Arie, UBS]

Of course, and fairly understood, and thank you for sharing what you can.

[Jean-Bernard Lévy, Chairman and Chief Executive Officer]

Couple more questions. We can take some more questions, please.

[Operator]

Your next question comes from the line of Erik Raman [ph] from Jefferies. Please go ahead.

[Ahmed Farman, Jefferies]

Yes. Hi, this is Ahmed from Jefferies. Just a couple of questions from my side, mainly on the guidance and the balance sheet. I think during the presentation, you highlighted, I think, the strong favorable position on the French hydro. So I just wanted to ask if you could share with us what's the volume that you see over the second half. And I guess, what's sort of assumed in your guidance on French hydro? But if you could share that with us, that would be helpful. Likewise, I think you also pointed out to sort of, I guess, the weakness in the UK nuclear volumes.

So I just want to see if you could give us your expectations of where you see that volume coming out for the full year? And then just, I guess, finally, could you just help us understand what is the impact of a rating downgrade for the group in terms of – I'm thinking here in terms of ability to refinance debt, cost of debt, any impact on collateral and trading requirements. It just would be helpful to have your thoughts of what do you see as the impact? Thank you.

[Xavier Girre]

Thank you for your question. As regards our guidance, concerning the French hydro generation, we consider in our guidance, what we call, a normal second half of the year. As you have noticed, the first half of the year is much better than a normal first half. As regards your question about UK nuclear volume, what you have in mind, we do not give specific hypothesis or targets for UK nuclear volume. What you have to keep in mind is twofold. First, the impact of COVID in the UK appears less material than in France because the fleet is not as large. And therefore, the domino effect that we observe in France in connection with the restructuring of the maintenance schedule are less pronounced.

And the second point you have to take into consideration is the fact that there are some risks today, in particular, as regards the Hunterston B Reactor as regards to the Dungeness Reactor, we have on different occasions highlighted these two cases.

Today, the expected return is during Q3, but there are some risks about these dates. And as regards Hinkley Point B, the two reactors had been halted in March and May and are expected back to the grid end of November and mid-December. And today, they have reached the same number of hours of operation as the one at Hunterston B and are, therefore, in the same situation regarding the safety cases, regarding graphic issues that we have already highlighted on different occasions. So there are some risks as regards the UK nuclear volumes trends for the months and years to come.

As regards to the rating downgrade. As you know, so we have been downgraded by S&P to BBB+ a few weeks ago. The immediate impact is quite limited on our debt cost. Obviously, this requires, as we always do, to be very reactive, very opportunistic and in order to optimize our balance sheet and any occasion. And with this current rating, there is no significant requirement for additional guarantee or quality in our activities, including trading. If we were once more degraded – downgraded, we could have to give some guarantees to our trading activities, but it's not the case today.

[Ahmed Farman, Jefferies]

Okay. That's very clear. And if I just may quickly follow-up on that. The 3 times net debt to EBITDA, do you see that as sort of consistent with your sort of current BBB+ rating?

[Xavier Girre]

Yes, definitely. Definitely, this is consistent, and this has been seen as such by S&P in this decision.

[Ahmed Farman, Jefferies]

Thank you.

[Jean-Bernard Lévy, Chairman and Chief Executive Officer]

Yes. This is the core financial strategy. Yes. Maybe, one last question.

[Operator]

Your next question comes from the line of Louis Boujard from ODDO. Please go ahead.

[Louis Boujard, ODDO]

Yes, hi, and good morning, everyone. Thank you for taking my question. I have three, in fact. Obviously, I'm not going to come back on the regulation because I think that most of the questions have been asked on this topic. But I wanted to have your view regarding notably what you mentioned in your press release and the range that you gave for the guidance of nuclear output in 2021 and 2022. I would have expected maybe that we could narrow a little bit that range, which is today 330 terawatt hour to 360 terawatt hour. But in the meantime, I see that eventually, there would be some risk because of the increasing willingness of the ISM regarding more CapEx on the VD4 that you mentioned in your press release.

Is it something that is related? So are you waiting for any answer from the ISM regarding the eventually more CapEx plan in order to adjust your guidance for 2021 and 2022 and the nuclear output? Or are there two separated stories at this stage?

My second question is regarding the very nice 2 gigawatt project that you earned a few days ago. It's completely impressive in terms of size and regarding the solar development and potential for EDF. The price as well is very impressive. Do you think that we could see some cluster to be developed with further investment to be made in this kind of countries in the future? And do you think that you could have a role to play in order to develop these kind of clusters of solar development going forward?

And my last question is more regarding our assumption for the second half of the year and more specifically regarding the gas activities related to the other activities. We see a sharp fall into the gas activities. I understand, and correct me if I'm wrong, that most of this fault that has been regarding the 1H should not be in the second half, meaning that most of the loss that we have seen in the 1H is going to remain, but is not going to deepen in the second half. So maybe some improvement to be expected since most of it has been already recognized in the first half? Thank you very much.

[Jean-Bernard Lévy, Chairman and Chief Executive Officer]

Okay. Thank you. I will take your three questions. First, as you said, are these two separate stories? The response is, yes, there are two separate stories. The first one is, we have to understand what we will – how we will be able to get a sufficient number of units back into on the fleet, back for operations on the fleet, especially the very important time of the end of the fall and through the winter. So we have maybe four months, where we really have to optimize the available capacity.

And at this stage, while we have been doing over May, June, July, slightly above what we had expected, this has enabled us to improve our outlook for 2020. So that's why we raised our projections from 300 to 320 plus or minus 5, okay? But for 2021 and 2022, on top of the way that we have under control, all the resources we need and all the planning we need to offset the long-term effects, the long-term domino effect of the COVID interruption of all the works and so on, we also have to take into account the very high load, very high load we have in some of the long outages that we have to work on, and especially the increase in the number of 40 year, what we call, VD4 40 year extensive maintenance programs. And we have a number of them in 2021 and in 2022. And this adds to the uncertainty that has been created by the COVID, I would say, long-tail effect.

So we are keeping our 330 to 360 outlook for 2021 and for 2022. It is quite likely that over time, we'll probably reduce the width of that range, but not today, not today. We still have too many uncertainties. Separately. And this is the second story to use your own word, separately. We have now gone a long way into the Grand Carénage. Grand Carénage operationally started in 2014. We set a first 12 year period for Grand Carénage, 2014 to 2025. So this is 12 full years. And we have been regularly reporting on this.

Now that we have almost gone to the seventh first years of this 12 year program and that is more than halfway and that we have succeeded in the first VD4 and that we are now working on two other VD4s and more to come. We have done quite a number of change of steam generators for the 1,300 range. We have done a lot of the post Fukushima things. We want to sort of put a light on where are we, where are we, how do we look at what we have done, how satisfied are we with what we have done, and I think we've done very well. And what is the outlook for the next few years? And aren't we really looking at something that will go beyond 2025?

And of course, yes, in 2025, 2026, 2027, 2028, we still have a lot of cost for the maintenance of the fleet. We will have to be prepared to VD5 for the first units. We will have to look at some of the lessons learned from all we will have done. So this is time for a larger review of our operations, our control over the project. And this is what is mentioned in the report that right now, Grand Carénage is under an internal review, which would have happened even if there was no COVID and so on, but which, of course, it so happens, it is at the same time as we have to manage a consequence of COVID. So that's why you're asking whether there are two separate stories or just one, and it is indeed two separate stories.

Your second question is how come we can do such huge and very positive developments in Abu Dhabi? Well, you do know, of course, in Abu Dhabi, there are very sunny uninhabited lands, which are, of course, very good targets for huge solar farms. So indeed, this tender offer, which we won, together with a partner from China, we are 50-50 with this Chinese partner. And of course, in the project company, there will be a majority-owned by Abu Dhabi state controlled company. This project is roughly over a land of 20 kilometers. So – 20 square kilometers, sorry, 20 square kilometers. So it's roughly like four kilometers by five kilometers.

So such empty spots are not easy to find in our countries. That's why we are very happy that we can demonstrate the value, the competitiveness of our solutions that we are also developing in more populated areas. I would say, and I don't exactly know what you mean by cluster, but that, first, of course, land planification and management is in the hands of the Abu Dhabi government. We understand that intend – indeed, they intend to go beyond such projects. But by itself, a 20 square kilometer project is probably already a cluster by itself.

And your third question, I'm not really sure I understood what you meant about our gas situation, the situation in our gas business. It is made of current operations, which are doing well. And I don't think we have any highlight to report in our current gas operations. But we also have to take into account some long-term gas contracts that we have signed already some of them a few years ago, which are linked to the need for us to get from some suppliers, the gas we need for our own usage because, of course, we do not produce gas by ourselves.

And so from time to time, we have to take into account one of the accounting decisions due to the way these contracts are structured and due to market conditions and among market conditions can be the price of gas by itself, but also the spread between various parts of the world or the cost of liquefaction or regasification and so. These are complex matters. We do not expect in H2 and at this stage, anything but current operations. We're not flagging any specific event for H2.

[Louis Boujard, ODDO]

Thank you.

[Jean-Bernard Lévy, Chairman and Chief Executive Officer]

I think this ends our conference for today. Thank you all for attending, and I wish you a good day and a good summer period. So all the best to all of you, and we will talk to you later. Thank you.