Engie SA

PAR:ENGI

Earnings Call Transcript 2020-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the conference call ENGIE 2020 Q3 Financial Results. For your information, this conference is being recorded. Thank you for holding. I will now hand you over to Aarti Singhal.

[Aarti Singhal]

Good morning, everyone, and welcome to the ENGIE 9-Month Results Conference Call. The outline for our presentation this morning is as follows: our first speaker this morning will be our Chairman, Jean-Pierre Clamadieu. After his opening remarks, you'll hear from our management team Claire Waysand, Interim CEO; Judith Hartmann, Group CFO; and Paulo Almirante, COO. Following their presentation, as usual, we will open the lines to Q&A. And so without further ado, I'm pleased to hand you over to our Chairman. Thank you.

[Jean-Pierre Clamadieu]

Thank you very much, Aarti, and good morning to all. As you know, earlier this year, the ENGIE Board asked me to provide additional support to the group during this leadership transition period. We are now close to this transition phase. The Board has announced the appointment of our new CEO, Catherine MacGregor, who will join us on the 1st of January next year, although I can tell you that she's already very busy preparing herself for this date. I'm very pleased with the decision to select Catherine as our next CEO. She has indeed a very strong industrial experience and a very strong track record when it comes to execution. So I think she fits very well with the ideal profile that I shared with you in previous discussion. She will come on board with a very clear strategic road map based on the strategic directions that we have shared with you in July this year. And she will come with a very strong mandate to turn this strategic orientation into reality very, very swiftly and effectively. I would like to take a moment today to recognize the strong contribution of a transition management team, who are here with me today. Claire, Judith and Paulo. It has been an incredibly challenging year where, on one hand, the group had to tackle the pandemic operationally and financially, and on the other hand, we had to drive forward the new strategic orientation and the simplification of the group. As you've seen, we've moved also pretty quickly on some of this strategic orientation. The strategic review of our Client Solutions activities has been successfully initiated with the first phase already completed. This is indeed a key project for the group as it concerns several thousands of employees and a very large number of our customers. It will be managed with a thorough attention to the social as well as commercial aspect, and Claire will cover it in some detail in her presentation this morning. You've seen us exiting very effectively from our SUEZ ownership. You will hear today that we have decided to put our stake in GTT under strategic review. But our new strategic orientation are not just about simplification and divestment, it's also about growth, and you will hear in our Q3 results, that indeed, we have a very strong base to grow in our renewable business, and this is something which is indeed for ENGIE a key priority. So I think we have moved at pace in the past few quarters. And as we will hear today, the group is well prepared to minimize the impact of a COVID crisis and to capture opportunities for future growth. With that brief introduction, I would like now to give the floor to Claire, Judith and Paulo.

[Claire Waysand, Acting Chief Executive Officer]

Thank you. Thank you, Jean-Pierre, and good morning, everyone. So let me start by a few words on our main financial topics before moving to the implementation of our strategic orientations. So first message, I'm very pleased to share with you this morning the third quarter showed a clear recovery. It's up in organic terms, 2% year-on-year with a strong growth in renewable and a recovery in Client Solutions. We have talked a lot about Client Solutions being very affected by the crisis, they are 9% up on -- in organic growth in versus last year, so Q3 2019. The first point of satisfaction that I want to share. Second point, we have continued to deliver on our major capital projects with EUR 3.3 billion being invested so far in the 9 first months of the year. And as you would expect, we are strongly focused on minimizing the impact of the new COVID restrictions. We are now better equipped to face the current situation. And so in this context, we are pleased to be able to confirm our 2020 guidance under the current conditions, and Judith will come back to this. Moving to our strategic orientations. We had -- the Board had announced in July, new strategic orientations that were several fold: first, an increased focus on renewable and infrastructure. This is clearly in trade. Second, an increased -- well, some divestment of a number of asset -- financial assets to be able to reinvest in our priorities. As Jean-Pierre just stated, we have completed the sale of 29.9% of the capital of sales at the beginning of October, generating EUR 3.4 billion and a capital gain of EUR 1.8 billion. We have also completed the first phase of a Client Solutions strategic review, with a preliminary scope defined, and I will come back to this in a moment. And finally, we are launching today the strategic review of our participation in GTT. That's a 40.4% stake in GTT. And as you probably know, GTT is a very nice, very technological company, a leading global engineering company in containment systems for transport and storage of LNG. We've a very unique expertise and a strong commitment to innovation. So on GTT, ENGIE will consider selling all or part of the stake either to a third-party via a formal sale process or selling via equity capital markets. Let me go into a bit more detail on the strategic review of Client Solutions. So as was said by Jean-Pierre, and I just said also, we have completed the first phase. What is the first phase? The first phase was the definition of 2 parameters: Client Solutions that would remain within ENGIE and Client Solutions, which will be provided with a new leader, which will become a new leader in asset-light services and which could have a change in ownership. So when doing this work, defining what will stay and what would become an autonomous entity, we considered 3 main criteria: the business model, the nature of the activity and the potential development in each geography. We have done this work very thoroughly, examine each activity to ensure that it brings synergies and that it has the right environment for successful growth. In particular, we -- ENGIE Client Solutions will stay in countries where ENGIE are as a strong footprint and that are priorities for ENGIE and where we assess that there is a strong growth potential for asset-based services. The ultimate objective of this review are to maximize value, to reinforce leadership positions and to seize future growth opportunities for coherent perimeter and adapted organization and its own management. And in particular, we made sure in this work that no geographic entity would be a subcritical entity. So as you can see on this slide, the first phase of this strategic review is now complete, and we are now sharing with you what comes out of this work. The preliminary scope, which is defined, comprise the following: on one hand, Client Solutions remaining with ENGIE that will focus on decentralized energy infrastructure. On the other hand, the creation of a new leader in asset-light services, which could have a change of ownership. So what do we keep within ENGIE? What we keep within ENGIE are low-carbon energy production, energy infrastructure and associated services to be able to provide complex, integrated and large-scale solutions. From a business point of view, this would primarily service cities and communities as well as industries, with a focus on long-term contracts that provide visibility, resilience and an attractive growth potential. To be a bit more concrete, key activities in the Client Solutions that will stay within ENGIE comprise DHT -- DHC, district heating and cooling, on-site generation, energy efficiency, smart city, green mobility and engineering. These services activities that will stay in ENGIE represent around 35,000 employees, and they would build on very strong position in France, in particular, as well as in a number of other European and broader geographies. From a financial standpoint, this would generate around EUR 7 billion to EUR 8 billion revenue, this is based on 2019 figures, and a of around EUR 0.55 billion to EUR 0.65 billion. Turning now to the activities that would constitute the new perimeter and which ownership could change, they would become a leader in an asset-light services. This is mainly installation, maintenance and related services. These activities benefit from strong position and leadership positions, but we are less aligned with ENGIE's new strategic orientation. There is a strong expertise along the value chain of installation and related services, and the entity would be based on 2 business models: first, design and build project; and second, recurring O&M services for a wide range of customers. Key complementary activities would comprise -- will comprise electrical installation, HVAC as well as information and communication system services. This new leader will be mainly active in Europe, especially in France, in Benelux, in the U.K. with further prospects, in particular, in North America. It represents around 74,000 employees who are well recognized in their different expertise fields. From a financial standpoint, the proposed entity would generate around EUR 12 billion to EUR 13 billion of revenue based again on 2019 figures and between EUR 0.35 billion to EUR 0.45 billion of Let me now turn to the next steps concerning this entity. Well, so today, we are at a very early stage, where we have just completed the first phase. We are sharing this with you, and I would say, almost as importantly, or as importantly, we are sharing it with our employees. It's very important at this stage to give clarity to the employees of the group, and that's part of the social dialogue that we have undertaken on this project and that will continue in the next few months. The first -- the next phase for the project itself is to organize the new entity and to appoint the future management of this new entity. This will also be in -- this will allow us to continue preparing for the separation of the activities, and we will be able to review different options for future ownership. As I said before and as was also pointed by Jean-Pierre, this whole process is undertaken with a strong social dialogue underway that will lead to a formal consultation process with the appointed employee representative at the start of Q1 2021. With this, I now turn to Judith for the financial presentation.

[Judith Hartmann, CFO & Executive VP]

Thank you, Claire, and good morning, everybody. We have seen a strong recovery in our third quarter financial results from very low second quarter levels. As you will remember from our H1 presentation, ENGIE had been heavily impacted by COVID and to a lesser extent, but also significantly, by warmer temperature as well as by foreign exchange deterioration. Before reviewing our 9-month financial performance, I will start with an overview of our stand-alone performance in the third quarter. To show the third quarter separately is important in a year where no quarter looks like the other, in particular, of course, in a year where the second quarter was significantly impacted by COVID. On the left-hand side of the slide, you will see the impact of COVID in Q3 of roughly negative EUR 150 million, which is far less than the Q2 number, where it was roughly negative EUR 720 million. This major improvement is due to less lockdown measures, but also the fact that we were better prepared. In the third quarter, the French temperature effect was neutral year-on-year. Turning to the waterfall on the right-hand side, foreign exchange deterioration impacted earnings, but organically, the group delivered 2% growth, mainly due to a strong performance from renewables which is, of course, a key growth priority for us. This organic growth is noteworthy as it was achieved despite over EUR 100 million of favorable operational one-offs in the third quarter of 2019, and roughly EUR 150 million COVID impact in the third quarter of 2020. Looking at the organic evolution per business line in the third quarter, Client Solutions was up 9% with good asset-light performance despite COVID-19 impacts, implementation of performance actions contributed to an organic cost reduction of roughly EUR 180 million in the third quarter. Networks was up 4%. Renewables were up driven by commissionings in North America and higher power prices in France and Brazil. Thermal and others were down, but demonstrated a good underlying performance, driven by our European merchant fleet, market activities and GTT, which partly offset 2019 positive operational one-offs in these businesses. Supply was down, driven by COVID impacts, and nuclear was lower due to availability. On the next slide, let's now have a look at the key numbers for the first 9 months of 2020. Reflecting significant impact we experienced in the first half, EBITDA and COI at EUR 6.2 billion and EUR 2.8 billion were down 13% and 28%, respectively, on a gross basis. Organically, this evolution is slightly better. Year-on-year, the total COI decrease of around EUR 1 billion was mainly driven by a negative EUR 1 billion COVID impact, followed by pressure from foreign exchange and French temperature with negative EUR 200 million each. Despite lower operating cash flow, our CFFO improved by EUR 400 million year-on-year, benefiting as in the first half from dedicated cash action plans. Lastly, financial net debt at EUR 25.7 billion showed a gross decrease of EUR 200 million versus 200 -- versus 2019 year-end. Good cash generation, positive FX evolution as well as disposals were all positive factors here. We also invested EUR 5.2 billion in total CapEx with growth CapEx of EUR 3.3 billion. So continuous investing in a year, which is significantly impacted by COVID. Turning now to COI evolution by business line. Let's start with Client Solutions, which faced unprecedented headwinds in the first half from COVID-19. The expected recovery was clearly seen in organic growth in the third quarter, but Client Solutions experienced an additional COVID impact in the third quarter of approximately EUR 45 million, leading to a 9-month total COVID impact of roughly EUR 530 million, mainly due to loss of revenue, specific additional expenses and bad debt. The significant cost-cutting and variabilizing measures were not sufficient to offset the material decrease in revenues. The lower contribution from SUEZ is also mainly impacted by COVID. Positive contributions from acquisitions were offset by other smaller headwinds, including warmer temperatures in Europe, headwinds on some contracts as well as investments for the future and start-up costs. Excluding temperature, our district heating and cooling and on-site generation activities remained resilient. Let's now move to Networks, which demonstrated a resilient performance despite the pandemic, but have been impacted by warm temperature in the first half. In France, the negative temperature effect was indeed EUR 115 million with lower gas volumes distributed by GRDF. Besides this temperature effect, French Networks were also impacted by COVID, mainly due to lower volumes distributed, temporary suspension of maintenance work and gas smart meter installations during the lockdown, which meant we were unable to capitalize as many costs as in 2019. These negative effects have been partly offset by lower OpEx. I'd like to remind you that for these regulated activities volume effect impact the P&L in the current year, but are recoverable in the short to medium-term through the clawback mechanism and are thus value neutral. In Latin America, negative foreign exchange and volume effects in Mexico and Argentina were more than offset by the positive 6-month scope in effect of TAG as well as other positive developments in Brazil. Lastly, we had some headwinds related to price and temperature effects in Europe and Asia. Globally, the COVID impact was limited and mainly focused on distribution activities and especially on French Networks. And again, let's keep in mind that volume effects there will be recovered in the coming years. Turning now to Renewables on the next slide, which demonstrated continued progress with organic growth of 25% in the first 9 months. Starting with Latin America, which is our biggest contributor to Renewables COI. The region faced headwinds from foreign exchange due to the devaluation of the Brazilian real against the euro. In France, we benefited from both higher volumes produced by our hydro and wind assets and from better prices for our hydro power production. These positive effects were partly offset by the disposal of noncore legacy activity and by the effect of DBSO operations in 2019. In the U.S., we benefited mainly from commissioning of new capacity, which included the first effect from the Tax Equity Financing signed in spring 2020. In most European countries, we also benefited from better wind conditions. And globally, the COVID impact was minimal. On the next slide, you can see the 9 months of financial performance of our Thermal activities. On a growth basis, thermal activities showed a lower COI contribution mainly attributable to the disposals of Glow in Thailand and of coal power plants in Germany and in the Netherlands. The 9 months organic evolution was flat due to over 150 million -- EUR 100 million, sorry, positive operational one-offs last year, not repeating in 2020. You will recall the LDs received by a power plant in Brazil and Chile in 2019. Offset by 3 positive factors, a better performance of European merchant gas plants with very good results from our Italian assets, driven by high level of ancillaries received as well as higher spreads captured throughout Europe; two, the commissioning of Pampa Sul as well as higher volumes dispatched at higher margins in Brazil; and three, a positive, roughly EUR 30 million timing effect on capacity remuneration mechanism in the U.K. Globally, the COVID impact for our thermal activities was minimal with lower demand, mainly in Chile and Peru. Turning now to supply, where the Q3 headwinds were much lower than in the first half. You will remember the strong impact from COVID and warmer temperature in the first 6 months. Supply suffered an additional net COVID impact in Q3 of about EUR 45 million, leading to a 9-month total net COVID impact of EUR 280 million, mainly due to lower consumption, lower B2C services and bad debt. Warm temperature in the first half also weighed on B2B and B2C energy consumption, mainly in France for B2C gas volumes. Again, this caused both a negative volume effect with margin losses and a negative price effect with the unwinding of overhedged positions. Of course, we continue to minimize these significant impacts with dedicated action plans, of which OpEx reductions and G&A resizing as well as with financial derivatives. We also booked higher margins for gas retail in France and posted better results in our supply activities in Romania. Let's now move to nuclear and other activities. Firstly, nuclear improved organically by 35%, mainly reflecting higher achieved prices and lower OpEx. These positive effects were partly offset by lower availability of our Belgium assets, mainly due to planned maintenance and by higher depreciation. For nuclear activities, the COVID impact was minimal. Secondly, the COI for our other activities was similar to last year. Last year benefited from a positive one-off related to a partial sale of a gas supply contract in Q3, and 2020 was impacted by COVID, mainly due to credit lossesThese headwinds were almost entirely offset by the outperformance of activities due to market volatility, which is also partly related to headwinds in supply, and by the higher contribution of GTT thanks to strong order book intake last year. As just mentioned, for other activities, the COVID impact was globally limited. Now let's look at our cash flow from operations. Liquidity and cash remain at the heart of our concerns, given the current situation and are being closely monitored. We saw a year-on-year increase of roughly EUR 400 million in CFFO, in line with the H1 evolution. Operating cash flow reflects the impact of COVID. Lower working capital requirements contributed to an increase of EUR 1.5 billion. This was mainly driven by variance in commodity-related margin calls and financial derivatives from our energy management activities. We continued to successfully put in place a more dynamic CFFO monitoring to cope with unprecedented volatility in commodity prices. Secondly, we also benefited from an improvement in operating working capital, notably due to decrease in trade receivables partly due to COVID-19, but also better cash collection in Europe. Interest and tax paid were flat. With that, let me now hand over to Paulo for the operational view.

[Paulo Jorge Tavares Almirante, Group COO & Executive VP]

Thank you, Judith. Good morning, everyone. After a very difficult quarter 2, our operational activity recovered significantly in quarter 3. You can see on the left graph, the ramp-up of activity to levels that are back to normal, with partial unemployment nearly at 0. Our teams are now used to the new working procedures developed during quarter 2, and apply a full series of adaptive ways of working to prevent coped contamination. So far, we had no significant COVID clusters amongst our employees, and the number of cases are in line or below the levels in the countries where we operate. I remind everyone that we run a global business with 170,000 employees. If we now look at gas and power consumption, we can also confirm that over the past months, demand went back to almost historic levels in our main geographies. I say almost because we estimate that is a level of remaining demand reduction caused by the COVID crisis of the order of 3% to 4%, assuming average weather conditions. For quarter 4, new restrictive measures have recently been announced in some of the group's key geographies. These new measures are designed by the government to support economic activity to the extent possible. In most countries, construction and industrial activities have not stopped. These measures can evolve. However, under the current conditions, we believe that the impact on our activity will be significantly lower than the impacts we suffered in quarter 2. Moving now to the next slide. Let's look at Client Solutions. We returned in quarter 3 to a strong level of activity. Gross revenues for the quarter were 1.3% above last year, with many of our clients wanting to catch up on the work time lost during quarter 2. At the same time, we continued with implementation of performance actions to improve margins. In quarter 3, we achieved organic cost reductions of around EUR 180 million for Client Solutions. This has resulted in a COI of EUR 169 million for the quarter, which represents an organic growth of 9%. In the first half, revenues were down by 5%, and after quarter 3 recovery, revenues for the first 9 months are down 3% on a gross basis. The commercial dynamic was strong, both for asset-based and asset-light contracts. In Asia, we signed contracts for the design, build and maintenance of data centers. In Europe, we entered into installation and energy performance contracts in France, the U.K. and Italy for clients such as the Kingston University in London or the Hospital. For district heating, we won contracts to design, build and operate networks in France, the U.K. and Austria. The cumulative order intake for the 9 months is EUR 8.7 billion, which is 4% above last year on a gross basis. The backlog shown on the slide for the projects business model, is reflecting the larger order intake and lower execution in quarter 2. This level of backlog provides confidence for quarter 4 and visibility for next year. 44% of this total backlog is scheduled for 2021. In the other business models, we see a similar positive momentum. In our recurring services business, the net commercial development is up 3% versus last year. In asset-based, our district heating and cooling capacity is also up 3% over the last year. We are confident for quarter 4, assuming that the new restrictions will not stop economic activity beyond the level we see today and also assuming normalized weather conditions. Let's move now to the next slide and look at how supply business did over quarter 3. The commercial dynamic that we already saw over half 1 continued also over quarter 3 with net volumes sold increasing by 8 terawatt hours, which is 9% above last year. After taking into account the loss of 4 terawatt hours caused by the COVID crisis. The impact of gross COVID of EUR 61 million, shown in the middle graph, results from 3 components: the loss of margin on unsold volumes; the unwind of the hedges already executed in quarter 2 but accounted for in quarter 3; and the bad debt partially offset by a positive contribution of B2C services. We are continuing our efforts to mitigate this adverse circumstances. And so performance plans have been launched to reduce variable and fixed costs. On quarter 3, we achieved EUR 47 million of performance gains and portfolio effects on top of the EUR 80 million we already achieved over half 1. This, together with additional volumes sold, has resulted in a COI quarter 3, broadly in line with last year. We have adapted our hedging strategy for the winter 2021 and the unwind of the hedges are already executed. But impact on accounts takes place on the quarter when volumes were expected. We are monitoring very closely the impact of lockdowns on our most important markets. For quarter 4, assuming the current restrictions stay, we estimate an overall 6% to 8% demand reduction, so a significantly lower impact than quarter 2. Let's now move to the other business lines on the next slide. Despite the difficulties of this period, our teams have been in the front line working with our clients and suppliers to continue developing the business. I will not go through all the achievements per business line, but let me select a few highlights. Starting with Networks. An additional 1.3 million gas smart meters were added this year up to the end of September. The CapEx of smart meters is an important contributor to the growth of the regulated asset base. The gas transported outside Europe has increased by 63% year-on-year, benefiting from the contribution of TAG in Brazil. Regarding Renewables, we are proceeding with the construction of 5.4 gigawatts of wind and solar. We worked very closely with our suppliers during the COVID crisis, and we're able to avoid major disruptions of the supply chain. We are still on track to deliver the 9 gigawatts over the period 2019-2021. On quarter 3, a total of 250-megawatt renewable capacity has achieved commercial operation. And the construction of offshore wind is also progressing well, with almost 400 megawatts of capacity operational to date in the project in Belgium. On the first 9 months of the year, we have signed 1.3 gigawatts of PPAs, supporting the development and resilience of this business line. For Thermal and Nuclear, we have accelerated hedging for quarter 4, for 2021 and 2022, benefiting from spreads and increased forwards. The merchant gas fleet in Europe has captured good price levels of power and ancillary services, benefiting from a significant level of volatility and increasing security of supply concerns. The nuclear units are on track to finalize lifetime extension works as scheduled despite the challenges of COVID in these last months. By the end of the year, the full LTO program will be completed with operations and availability expected to return to normal. To conclude, first, this group of business lines have confirmed their resilience, both on business development and delivery of results. Second, our traditional focus on health and safety has resulted in the strong adoption by our teams of specific procedures and working practices adapted to the copied context. These are 2 important elements: that support a reasonable level of confidence to face the uncertain times ahead. With that, I hand over back to Judith.

[Judith Hartmann, CFO & Executive VP]

Strong operational recovery and significant focus on minimizing the impacts of the new restrictions, indeed. Thank you, Paulo. Let me now give you an update on our financial outlook for 2020. We confirm our guidance. We are benefiting from a strong financial recovery in the third quarter following a significantly impacted second quarter there are new COVID restrictions in some of the group's key geographies. However, as outlined, we are well prepared. The main activities where some impacts are expected our 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% shareholding in SUEZ for EUR 3.4 billion, Q4 earnings will exclude previously expected earning contributions from SUEZ. With respect to foreign exchange movements since July, deterioration occurred compared to the rates assumed within our July guidance, in particular, for the Brazilian real. ENGIE benefits from stability and good visibility for the majority of its operations. Networks have clarity through the regulatory framework, Renewables and Thermal generation benefit from PPAs and long-term contracts and expected merchant power generation output for 2020 is almost entirely hedged. Overall, we expect the resilience of these activities to largely offset the impact of new developments for Q4. Turning now to a summary of our presentation today. We are moving on the new strategic orientations at pace, making significant early progress with the disposal of 29.9% in SUEZ -- shareholding in SUEZ. The completion of the first phase of the Client Solutions strategic review. We showed strong improvement from the second quarter, both operationally as well as financially, with the third quarter organically slightly up on last year at the COI level. With continued focus on cost variabilization, sourcing of personal protective equipment and adaptation of our processes, we are well prepared to minimize the impact of the new COVID restrictions, and we've confirmed our 2020 guidance. With that, let me now hand over to the operator to open the lines for the Q&A session.

[Operator]

[Operator Instructions] We will take our first question from Vincent Ayral with JPMorgan.

[Vincent Jean Michel Ayral, Analyst]

Congratulations for a good set of Q3 numbers. I'm sure there will be plenty of question of Q3 themselves, but I'd like to focus on the strategic review, which tends to be moving at a fast pace. So like any asset rotation and the disposal are likely to generate some early earnings dilution at the beginning to be offset later through reinvestment, so it's quite key for the market to understand the earnings trajectory here. So my first question is related to that. Could you confirm it's realistic to see the symbolic EUR 1 per share adjusted EPS as a floor? When will you provide an update for this guidance? Can we expect that to do full year results in February? Second question is moving to Belgium, where a new government has been now in place since October. Could you update us on the discussion regarding the nuclear assets there? Should we expect a regulated investment framework for life extensions as we see likely to entrance? Or rather, are you considering potentially the option of a phase out? That would be it. And the last one is just a flag on the comment that Mr. Clamadieu made during his hearing 2 weeks ago, about a potential 10% stake sale in GOT gas. Do we have a time line on these projects? Have discussions already started there?

[Judith Hartmann, CFO & Executive VP]

Vincent, and thank you for these questions. On the -- on your question around the impact of the program and the dividend, we will come back in the first half of next year. Of course, we have in mind the topic that you have mentioned, we will work very hard to offset dilution. We believe that the announcement of today, though are really the right path also in terms of providing clarity and a simplification of the equity story. But yes, indeed, we will come back on this and on the dividend, of course, at the beginning of next year. On Belgium, Claire?

[Claire Waysand, Acting Chief Executive Officer]

Yes. Thank you, Judith, and so on Belgium on the nuclear question, as you have seen, I'm sure, the new government has taken office and has announced its decision, to complete the phase out from nuclear from 2025. It has also indicated that it's only if there is a risk of supply to Belgium that by the end of 2021, it could consider the extension of 2 nuclear units. On our side, we have communicated a number of times and including publicly, the fact that an LTO, so life extension of the central, would imply both for industrial and for regulatory reasons, a decision by 2020 -- by the end of 2020 at the latest. So we are now clearly not in this situation, and we are pursuing the dialogue with the Belgium government.

[Judith Hartmann, CFO & Executive VP]

Yes. Thank you, Claire. And on the third question regarding GRT. Indeed, we have talked about this potential disposal in the past. We had also mentioned it in July. There is no precise timeline on this at the moment as there is no ongoing discussions, quite frankly. So this is something that is not imminent. I just want to take the opportunity, though, to reiterate that we would not deconsolidate GRTgaz, and this will stay a very integral part of the portfolio.

[Operator]

We will now take our next question from James Brand with Deutsche Bank.

[James Brand, Research Analyst]

I had 2 questions. The first is on the potential kind of roots for Client Solutions and the businesses you're looking at potentially selling. Is there a preferred route there? You talked about an IPO in the past. You'd also -- obviously, today talked about keeping those businesses together. Does that mean that if you started to get offers for individual businesses within that entity that you would be averse to to selling them individually as there's a strong preference for either selling them all together and whether that indeed points you in the direction of an IPO? And then the second question is just on the hedging for your gas plants or merchant gas plants, could you remind us how you hedge forward those gas units, you gave a very clear profile for your absolute hedging and the prices that you've achieved? Should we look at that and see that as a reasonable indication of how you might be hedging the gas plants? Or is it a different profile?

[Judith Hartmann, CFO & Executive VP]

Thank you, James, for these 2 questions. On Client Solutions, very important, we will keep the assets together the way it was presented by Claire. Really, the idea is like you heard, this is already a leader. There's greater growth opportunities and a dedicated management will make sure that this company will have a great future. On your question on IPO or other options, we will look at this. We're not excluding any of the routes at this stage could be IPO, could be M&A. But again, the important message here, it is a great scope of businesses that fit well together and that will have a great future no doubt. And Paulo for the gas hedging?

[Paulo Jorge Tavares Almirante, Group COO & Executive VP]

Yes. Thank you, Judith. So what we have seen in this last months was a significant levels of spreads, both in France and Belgium, of the order of EUR 20, EUR 25 per megawatt hour in France and around EUR 15 in Belgium. So our hedging strategy adapts to the market conditions. So when we see that there are levels of spreads that are interesting, we will hedge our assets as much as we believe is important at that time. To give you a feeling, our European fleet for 2021 over these last months, increased their hedging from around 40% to over 70% today, and the same for 2022, of course, at different levels or we were around 10% for 2022, and we are now around 40%. This level of spark spreads are very healthy, very good. And we do not stay and wait just on a time basis, we implement actions to accelerate the hedgings.

[Operator]

Our next question comes from Emmanuel Turpin with Societe Generale.

[Emmanuel Philippe Turpin, Equity Analyst]

My first question is on the portfolio restructuring. You announced this morning that the stake in GTT was put up for sale. I was wondering if you felt you were under similar constraints than in the SUEZ situation a few weeks ago regarding potential new owners. After all, GTT is French born and bread and also is very appealing technological company. So I was wondering if you had in mind to keep it under French flag. My second question still on strategy is referring to comments by Jean-Pierre Clamadieu in a recent parliamentary hearing. Very interestingly, you said that -- you explained that you would like the company to develop and own more technology in house in the future as opposed to being what it has been historically more of an assembler. Could you develop on this idea a bit? Why do you see more value in owning more technology? And what sort of businesses did you have in mind? And I guess that if you develop and own more technology in house, you need to deploy a little bit more capital towards that goal. I was wondering if you could share with some order of magnitude there? And not a question, because I've done my 2 questions, but more of a clarification and an answer to questions earlier. Judith, I think you said that we would hear more in the first half about potential impact on dilution and stuff like that. Does it mean that you expect that a new CEO, Ms. MacGregor, would need a little bit more time to consider the midterm guidance or may not be ready to update us at the full year results in February? Or is it still the plan that we would get an update in February?

[Judith Hartmann, CFO & Executive VP]

Thank you for those great questions. I will start with 1 and 3 and then let, of course, Jean-Pierre answer the question that you have addressed directly to him. On the -- on GTT, again, it was important for us to be able to announce it today to really start the process. This is a great company, it really is a leading global engineering company, as you know, with a unique expertise and strong commitment to innovation and a very strong management team also. We're going to start the process now and be quite open in terms of where the -- on the potential transactions and of course, you will hear back more on the next update. On the -- on your third question, which was on the timing of announcements, very, very important, Emmanuel, of course. We -- what our commitment is, and I'm talking also in Catherine's name is, really to come back every quarter with updates. When I mentioned earlier -- so of course, yes, there will be a significant update also in the full year results. The full strategic update we are still debating on the timing of this, but it will be in the first half. But again, we are very committed to every quarter coming back with updates and like you have seen today, we are moving at pace here. Jean-Pierre for the technology...

[Emmanuel Philippe Turpin, Equity Analyst]

Sorry. Sorry to interrupt, Judith maybe...

[Jean-Pierre Clamadieu]

Don't overread my comments I've made at the hearing. I guess the Board believes that differentiation is key for ENGIE, and we have various ways to differentiate ourselves from our competitors in some areas. And I'm specifically thinking of green gases, biogas or hydrogen. I think there is for us to do a bit more research and development than what we do today. This could apply, by the way, on some very specific aspect of renewable where we can develop in-house, again, on very specific point solutions, which could differentiate us from our competitors, but don't expect ENGIE to turn into an equipment maker or developer. I think at the end of the day, most of our business model will be made out of assembling solutions coming from suppliers. But again, a bit more of innovation and differentiation could make sense. And this is one of the subject on which Catherine and the will have to work when she will be on board.

[Emmanuel Philippe Turpin, Equity Analyst]

That's very clear, Jean-Pierre. And Judith, just to be clear, so in February, we would likely have an update on full year guidance for '21, but in terms of midterm plan, you may want to take the time to consider to later into H1. Is that the right way to understand it?

[Judith Hartmann, CFO & Executive VP]

For sure, full year guidance in February, that's for certain. And then obviously, we will see if there is what the right timing is for the full update.

[Operator]

We will now take our next question from Rob Pulleyn with Morgan Stanley.

[Robert John Pulleyn, Equity Analyst & Commodity Strategist]

Yes. Thank you, and good morning, everyone. So I think the market will welcome these indications of a quick pace of change. And so to that topic, could we ask over what time frame you envisage the structural changes to the group to play out? Could we see further announcements, in particular, on client solutions by year-end? Could this all be done in the first half of 2021, full year 2021? Or will this spill over into 2022? The second question, if I may, is just a bit of housekeeping. May we ask what quantum of asset rotation gains are now embedded in your full year '20 guidance, and how you expect that to evolve for next year?

[Judith Hartmann, CFO & Executive VP]

Thank you, Rob, for these questions. On the quick pace, indeed, a very committed, of course. On Client Solutions, so it will -- I don't expect any new updates by the end of the year. The timing, we're going to work closely with the employee representatives, of course. So it's -- we will come back on a more specific time on Client Solutions. But it is a very significant move. It is a very positive move, including, of course, for all of our employees, and it will take some time to execute. On the asset rotation, since our guidance is on net recurring income based on an indication on COI, there is no gains that are currently -- that are in that piece in terms of capital gains. Of course, like you said in my -- when I presented earlier, we have assumed that we will not have the recurring results of SUEZ, and obviously, that's normal since the transaction is -- has been signed already in October. So hopefully, that answers your question.

[Claire Waysand, Acting Chief Executive Officer]

And if I may, Judith, just complementing your point on Client Solutions. We are at a very early stage of a process. What we have described to you today is the constitution of the new entity with its perimeter. As I said before, what lies ahead of us is really to appoint a management for the new entity to have an organization to work on the carve out. So that's a lot of work ahead. And I speak under the control of Catherine, who's been working on this in her previous life. So lots of work ahead to be able to complete the, I would say, the making of an autonomous entity that's one. And second, as also you understood, what's very important for us all along in this process is to embark our employees. This is a very sizable project, more than 70,000 employees. So we have started the dialogue early on today is part of the dialogue. It will continue, and it will take the form of a formal consultation process with the relative bodies at -- in the first half of 2021. So that gives you a first sense of timing. And then we will be able to assess the various options for evolution of ownership in this period. So no set calendar at this stage, but process well in pace and moving ahead in -- both in a fast way and taking on board the employees.

[Operator]

Our next question comes from Ajay Patel with Goldman Sachs.

[Ajay Patel, Executive Director]

I have 2 questions. I guess 1 is on the subject of the COVID virus. When I look at the 9-month results and back out what's implied for Q4 on COI, I get roughly at a 23% reduction in Q4-on-Q4 required to hit the middle of your guidance. And I just wanted to understand we started this guidance from a perspective of no further lockdowns, and clearly, now we are in that. I just wanted to understand is there any one-offs in the Q4 base here in 2019 that we should be or when we're looking in 2020? And what kind of impacts are you now assuming into the numbers for for COVID in the fourth quarter. Just because Client Solutions is quite a sizable number, I know it's far reduced, but there is potential for the virus to continue beyond maybe the turn of the year. So is there a chance of maybe getting something like a per month cost or impact or at least Client Solutions that we can sort of have in mind when looking at the business? And then the second question I had was more within the strategy you announced in -- on the H1, it spoke about a potential EUR 8 billion of disposals. And with that rotation, could you give us maybe a proportion of that -- of those disposals -- potential disposals that may go into acquisitions and what will be into organic? Just so that we have a sense of the balance between the 2.

[Judith Hartmann, CFO & Executive VP]

Thank you, Ajay, for these questions. Indeed, the first one on the lockdowns and what to assume on the impact. What I can reiterate is, we are very happy about our third quarter performance. You heard it in our presentation that we have put in place significant measures. On the one side improved, of course, the processes have protective equipment are much better prepared on lockdowns. Indeed, like you said, there is no lockdowns and we are in one in our biggest country, which is France. But again, like we said, the governments are very keen on making sure that the activity continues. That is the case, for example, for construction activities, which was one of the impacts we had in the second quarter. So when you look at the COVID impact so far, I mentioned it is about EUR 1 billion 150-ish in the third quarter, we had talked about EUR 720 million in the second. We're assuming some impact, but nothing at the size of the second quarter because of the 2 elements I mentioned: government's much keener to keep economies going and because of our much better preparation. So we are confident to confirm this guidance. We've highlighted some of the new developments. Of course, Q4 will exclude the contribution from sales. The Brazilian real is some headwind. And the restrictions that I've just mentioned. On your question on the disposal plan and the redeployment of the funds. Of course, a very important question, no doubt. It is part of the update of the beginning or of the first half of next year.

[Operator]

We will now take our next question from Sam Arie with UBS.

[Samuel James Hugo Arie, Managing Director and Research Analyst]

Yes, I've got the question on the Client Solutions side and then a quick one on nuclear. On Client Solutions, looking at my diary, I think it's about a year exactly since we had your Client Solutions seminar, and I remember you saying that a 6x to 10x EBITDA multiple was appropriate for the projects business and maybe 8x to 12x for the services business. So looking at the sort of asset-light carve out that you described today, maybe 9x overall would be the implication of what you said last year. So I just wanted to check if that's still a good benchmark in your view? And if you could just comment on what the EBITDA for that part of the business would be assuming some recovery from the sort of work COVID impacts that we've had this year? On my numbers, it looks like about EUR 700 million, but I'm not sure if that's right or not. So maybe can I let you answer on that one, and then I'll come back with another question.

[Judith Hartmann, CFO & Executive VP]

Yes, indeed, those were the -- hello? I think it's Sam actually who asked the question. Hello, and yes, indeed, those were the multiples that we talked about in the past. Now of course, we're -- it's very early days. You heard us explain the presentation. The multiples will, of course, depend also on business plans and on our -- and on the growth opportunity that we're seeing for this entity. But -- and so clearly, it is too early to give a specific benchmark on this one.

[Samuel James Hugo Arie, Managing Director and Research Analyst]

Would the EBITDA be about EUR 700 million or so, if you think about maybe we did the worth COVID impact this year?

[Judith Hartmann, CFO & Executive VP]

So the COI numbers you have seen and the EUR 700 million is probably not too far off, yes.

[Samuel James Hugo Arie, Managing Director and Research Analyst]

Yes. So I mean, look, thank you for confirming. And I suppose my comment there is just maybe 9x is good, maybe you could do -- maybe there's other issues to think about or maybe you could even do a bit better in the transaction. In any case, it looks like the bulk of your sort of EUR 8 billion disposal target H1 could be covered if you go ahead with changing the ownership, as you said on the slide of this asset-light business. So -- I mean, I guess you said EUR 8 billion was a floor in the ceiling, but I just wanted to check what it looks like it's quite a low floor for your current plan?

[Judith Hartmann, CFO & Executive VP]

So there's a few short cuts, though, in the logic that you have to use because, indeed, of course, a multiple depends on many things, including margins, growth perspective and those kind of things. So I wouldn't want to take to the bank, what you have just mentioned. But indeed, of course, those will be, again, part of the update. There's a lot of work still to do. Today's scope discussion is a huge step forward because it gives you from a strategic view on where we think this scope will be. But of course, there is a lot of work still to be done to take it forward. On the disposal plan that you're alluding to, again, we're at a very good pace here. You've seen, of course, the EUR 3.5 billion, EUR 3.4 billion of our SUEZ stake that was disposed. We have announced today the strategic review of GTT. So we will be moving at pace. But also, we will make sure, like we mentioned earlier on questions, to manage dilution and keep -- make a good mix of those 2 elements, basically. So hopefully, that answers your question. And then I think you had a question on nuclear?

[Samuel James Hugo Arie, Managing Director and Research Analyst]

Yes, I did. So thank you on Client Solutions. It's super helpful. And I should have said thank you for everything you set out today, which is also really, really valuable and useful. On nuclear, it's a quick one, but if I -- if memory serves me correctly use, still have a participation in 2 of the French reactors. So I'm sure you're tracking the developments with potential reregulation of the French nuclear fleet. And I'm just wondering when you look at your equity in those French assets, do you have a view on what kind of power price is going to be needed for the new French nuclear regime?

[Judith Hartmann, CFO & Executive VP]

Well, thank you for the question. We are actually following with attention what's going on in the discussions between the French government and the European Commission on the broader framework, which is indeed the nuclear regulation. Among other things, it's also the hydroelectricity in France. So we are looking at this both indeed because of our drawing rights in precast and shows, but also because, as you know, we are an important player in terms of having customers in electricity in France. So that's an issue, which we are following closely, but no update at this stage.

[Operator]

And we will now take our next question from Stefano Bezzato with Crédit Suisse.

[Stefano Bezzato, Lead Analyst on Southern European Utilities]

Yes. Two questions for me. The first one on renewables, if you can comment or if you had any further thoughts of -- on what is the right mix in the future for you between retained growth in terms of installed capacity and DSOs? And the second question, if you can comment -- you announced today we have signed 1.3 gigawatt of PPAs year-to-date. Can you elaborate a bit on what is your view on the current state of the PPA market? And what is the average duration of the contracts that you have signed?

[Judith Hartmann, CFO & Executive VP]

So on renewables, I'll take the first one, and then Paulo will talk about the PPA market that we're seeing. So on renewables, the mix, like we've mentioned in some of our previous meetings, is really -- the idea is really to have a better balance between DBSO and DBOO. So it's not very easy to give a precise number or percentage. But what I will say is the way we think about this is really in countries where we're still coming up the learning curve or where there is a specific country risk, we would go with DBSO. It helps us to limit risk. It helps us also to use, of course, the sell-down as part of the competitiveness that we're doing. And then the more that we come up on size in certain countries, the more you're going to see consolidation. That's certainly the case right now already in the United States. You saw us do a deal midyear on a partial sell down, where we're keeping the assets consolidated, with, of course, 2 very important impacts. One is financial, higher COI from consolidation; and the other one is, of course, operational in terms of really running these assets and optimizing them ourselves in the -- in -- during the asset life. And so that's how we think about it. And so you will see that gradually, over time, we're moving towards more DBOO. And again, this would be a great element to update you on in the first half of next year also. And then on the PPA market, Paulo?

[Paulo Jorge Tavares Almirante, Group COO & Executive VP]

Yes. Thank you, Judith. So we see significant interest from industrial clients from the gases, for example, on entering into green PPAs with us. Our ability to mix different technologies, in particular, in Europe, in the U.S., where we can bring wind, solar, hydro, provide us the opportunity to tailor-made the offers for some of these clients. So far this year, we have achieved 1.3 gigawatts of new PPAs. We continue to develop this as it is absolutely essential for supporting the development of renewable assets, both in Europe and the U.S. And just to complement, these PPAs normally are from 5 to 12 years in duration.

[Operator]

[Operator Instructions] We will now take a follow-up question from Rob Pulleyn with Morgan Stanley.

[Robert John Pulleyn, Equity Analyst & Commodity Strategist]

I rejoined to ask. Given your role as an independent supplier in France, may we ask ENGIE's perspective on the proposed nuclear reform to ARENH, whether you consider this as a negative outcome? Whether the company's feedback in the process has influenced the outcome? And if I also a second follow-up question, it's a bit less field, but let's see what the answer is. There was a media report in suggesting ENGIE, would be interested in a stake in EDP, could you talk to the attractiveness of this suggestion, if it's true, of course, in light of your new strategic direction?

[Judith Hartmann, CFO & Executive VP]

Okay. Thanks for the question. Well, the second one answer -- I mean, the second answer is is no comment on this issue. Moving to the first one to ARENH and our perspective on ARENH, well, several considerations. Clearly, the old system of ARENH was outdated, and there was a need to move to another system. As you know, we were discussing every year what was the ceiling of the volume that could be sold under ARENH. And there was usually some tension on the ceiling and the need to be able to sell higher volumes under ARENH, which were ongoing discussions with the authorities year after year. So clearly, an outdated system, that's one. And second, a system that wasn't looked at very favorably by the European Commission. So these 2 reasons clearly provided for the need for further discussions between the French government and the European Commission on the future mechanism that will come after ARENH. From our perspective, the first and foremost priority is that it's a system that's fair and that ensures a level playing field between all suppliers of electricity in France. So these are the 2 -- I mean, this is the main angle for which we will look at the future reform. But as I have indicated before, these are discussions going on between the government and the European Commission, and we haven't been updated yet on the results of -- nor have you, I'm afraid. If you have, I'll be happy to hear, but we haven't been updated yet on the results of these discussions.

[Operator]

It appears no further questions at this time. So I would like to turn the conference back to our host for any additional or closing remarks.

[Judith Hartmann, CFO & Executive VP]

Perfect. So thank you very much for calling in and for all of the great questions. Just to reiterate the 3 main messages, 3 quarter -- third quarter was great progress in comparison, of course, to the highly impacted second quarter. We are confirming our guidance is the second message. And I hope you saw all the strategic progress that is happening, and we will, of course, come back every single quarter to update you on both of those topics. So thank you very much, and have a nice day.

[Operator]

Ladies and gentlemen, this concludes this conference call. And thank you for your participation. You may now disconnect.