Engie SA

PAR:ENGI

Earnings Call Transcript 2021-Q3

[Operator]

For your information, this conference will be recorded.

[Aarti Singhal, Investor Relations Director]

I'd like to request, please, if you could limit your questions to 1 or 2 only. And with that, over to Catherine. Thank you.

[Catherine MacGregor, CEO & Director]

Thank you, Aarti, and good evening, everyone. I want to start today's presentation by highlighting the strong progress ENGIE has made on the execution of our strategic plan that we announced in May. This was a plan designed to build a strong foundation for long-term earnings growth and a sustainable dividend while maintaining a strong balance sheet for the group. As a reminder, under this plan, we are exiting noncore activities to build a simpler ENGIE. The disposal program is proceeding at pace, and the recent EQUANS announcement is indeed a major milestone, enabling ENGIE to reallocate capital into core activities and capture the many investment opportunities we see, particularly in renewables. We are also working to enhance the efficiency of the group through a rigorous performance plan. And very importantly, we are ensuring that all our actions are driven by ENGIE's climate ambition of net zero by 2045 across all 3 scopes. I am very pleased to say that we have made strong progress across each of these areas. And crucially, this has been achieved alongside a very strong 9 months performance. In addition to executing on the strategic plan, we are taking actions to maximize operational availability of our generation assets to capture the commodity price tailwinds. We are optimizing performance across our mix of assets, all of which have exposure to the power price environment. And where possible, we have accelerated hedging for outright production for future years, and we will give you a full update on this at the year-end results when we provide a 3-year guidance to 2024. Turning now to the announcement that we made last week where we entered into exclusive negotiations with Bouygues for the sale of 100% of EQUANS. Bouygues proposal was indeed the most compelling offer taking into account all criteria, including financial valuation. Thanks to the quality and strategic fit of the assets, Bouygues intends to create a world leader in multi-technical services anchored in France. And on the social front, Bouygues has agreed not to implement any forced redundancy plans in France and Europe for 5 years and to create 10,000 additional jobs over 5 years. We truly believe that this operation will offer strong development opportunities for all EQUANS employees. With an enterprise value at EUR 7.1 billion, this is among the largest carve-outs in Europe and a testament to our ability to deliver complex projects. The next steps include consultation with relevant employee representative bodies and the transaction is subject to regulatory approvals and customary closing conditions. In line with the plan that we communicated, it is expected to close in the second half of next year. Alongside the other previously announced disposals, such as 4 countries exit year-to-date, we have made significant progress towards exiting noncore activities. The speed of execution has been facilitated by the tireless work and commitment of our teams, and whom I would like to sincerely thank for their contribution. Turning now to the 9 months results. I am very pleased to report another strong quarter for ENGIE, continuing the trend of solid performance from the start of this year. EBIT increased to EUR 4.1 billion, up 57% on an organic basis. This strong performance was supported by measures that we put in place, enabling us to rebound rapidly from COVID in line with the progressive recovery in economic activity levels and by strong operational performance with high level of asset availability, in particular in Belgium, where nuclear availability of 92% led to much higher levels of output. Our results benefited from temperature and price effects. Our performance plan continued to deliver results across the board, underpinned by proactive management actions on loss-making entities, procurement savings and operational excellence. As a result, we have upgraded the 2021 guidance. ENGIE now expects to deliver higher earnings in the full year than previously communicated. This reflects a very strong performance in the 9 months, and the continued improvement in market conditions throughout the year for nuclear and French hydro production as well as a positive volume effect from the Belgian Nuclear assets. ENGIE now expects net recurring income group share in the range of EUR 3.0 billion to EUR 3.2 billion in 2021 based on indicative EBIT range of EUR 6.1 billion to EUR 6.5 billion. Moving to operational progress across the 4 global business units. In renewables, we have commissioned 3.7 gigawatts in the last 12 months, and I will cover ENGIE's progress in renewables in more detail shortly. Energy Solutions benefited from a strong recovery from COVID and activity levels are in line with expectations. In our network GBU, we started commercial operation at the 1,000 kilometer Gralha Azul power line in Brazil. And in thermal, we progressed on coal exit with completion of the sale of Jorge Lacerda in Brazil. In supply, where the French government announced the tariff freeze for regulated customers from the first of November until the end of June next year, the government has proposed an amendment to the 2022 budget law with a view to compensating ENGIE and other suppliers for loss in revenue due to the regulated gas tariff freeze. And this amendment, when voted through, is expected to keep ENGIE economically neutral while enabling the group to recognize revenues and margins. Tackling climate change is at the heart of our group strategy. ENGIE is committed to accelerating the transition to carbon neutrality with our target to be net zero by 2045 across all scopes. And in line with this strategy, I am proud to say that ENGIE is one of the founding members to join the First Movers Coalition, which was launched last week at COP26. By joining this coalition, ENGIE commits to buying low carbon equipment to help develop decarbonized supply chain, which is crucial to reducing global emissions. In the last 9 months, we have commissioned 1.8 gigawatts of renewables covering solar, onshore and offshore wind assets, and we are on track to commission 3 gigawatts in 2021. In France alone, we commissioned 27 projects in solar and wind, totaling around 300 megawatts reinforcing a leadership position in renewables with installed capacity of nearly 8 gigawatts. In addition, we signed green corporate PPAs for a total volume of 1.9 gigawatts in 9 months compared to 1.5 gigawatts for the full year 2020 to provide major industrial and technology companies with renewable power, supporting them on the path to decarbonize their own operations. So today, ENGIE has 33 gigawatts of renewables in operation with strong O&M capabilities underpinned by our expertise in commercializing renewables. We are accelerating investment in this area while bringing our industrial and energy management approach. And in line with our strategy, we will continue to invest in our key markets where we can develop complementary asset portfolios. In summary, our objective is to reach 50 gigawatts by 2025 and 80 gigawatts by 2030. And importantly, we intend to achieve this whilst maintaining a consistently disciplined approach and a strong focus on returns. And now over to you, Judith.

[Judith Hartmann, CFO & Executive VP]

Thank you, Catherine, and good evening, everyone. It's great to be here with you. I would like to start by highlighting the importance of the EQUANS announcement from a financial perspective. We are very pleased with the EUR 7.1 billion enterprise value. This now clearly reflects the value of this great business with opportunities for both growth and margin improvement. These activities were less aligned to our business model but will greatly benefit from being part of the Bouygues Group. On completion, this transaction will significantly simplify ENGIE. It will enable us to focus our management time and capital to core activities notably to renewables to drive long-term earnings growth and shareholder returns. I would like to thank the team for their tremendous work on this important step. Turning now to our very strong results for the last 9 months. EBITDA and EBIT have increased by 23% and 50%, respectively. I'm particularly pleased with an organic EBIT growth of 57%. The negative foreign exchange impact of minus EUR 106 million was mostly due to the BRL and USD depreciation versus the euro. The scope effect was limited at negative EUR 25 million. We delivered strong cash flow generation with CFFO increasing by EUR 1 billion. Net financial debt increased primarily driven by growth investments. Given the increase in earnings, this did not affect our credit metrics, which remain in line with our targeted rating. Let's now take a closer look at the last 9 months organic performance by activity. Except for thermal, all activities grew organically. Before I discuss the operational drivers, let me go through the following key favorable external effects. Firstly, COVID restrictions were less stringent compared to last year, and our teams have worked tirelessly to adapt to this new environment. This led to a very good rebound mainly in client solutions, other and supply. Secondly, colder temperatures in 2021 supported the contribution of networks, supply and others. In France alone, the total temperature effect was EUR 283 million, positive year-on-year. And thirdly, the price environment had mixed effect. On the positive side, higher power prices fueled higher contribution for nuclear and renewables. For example, outright power generation from nuclear and hydro in Belgium and France benefited from a price effect of over EUR 300 million. On the flip side, thermal was impacted by a negative timing effect due to market conditions for gas power plants in Europe and by a drop in energy margins in Chile. In addition to these external effects on the next slide, you will see how operational progress and other effects contributed to this organic growth. Renewables benefited from further positive GFOM rulings in the third quarter 2021 in Brazil, which allow us to recover past energy costs. These resulted from constructive exchanges with the regulator by our teams. Wind and solar assets delivered a good performance with overall higher volumes, in particular, thanks to the commissioning of new capacity. These positive effects were partially offset by the impact of the Texas extreme weather event in the first quarter of 2021. In Networks, results increased with higher contribution from power lines and from TAG in Brazil. This was partly offset by lower RAB remuneration rates in France. Client Solutions showed strong commercial progress both for Energy Solutions and for EQUANS. But their EBIT contribution was also impacted by some loss-making activities as well as innovation businesses with higher development costs. Thermal benefited from positive one-offs mainly in 2021 and from higher ancillaries. Our teams also reduced internal unplanned unavailability by around 10%, which is a noteworthy operational achievement. Supply was impacted by the reversal of 2020 positive one-offs and by lower margins in Belgium. For Nuclear, our Belgian assets reached an excellent availability of 92%, reflecting substantial operational improvements as well as lower maintenance works. G&A was lower following the 2020 impairment. In line with existing profit sharing agreements in Belgium, Nuclear contribution taxes increased. Activities reported in Others were impacted by the reversal of 2020 positive one-offs for GEM and by the lower contribution of GTT after a particularly strong 2020. Finally, our performance plan continues to deliver results across the board, allowing us to confirm our 2021 full year target of EUR 100 million EBIT contribution. Turning now to investments. Year-to-date, we invested EUR 2.9 billion in growth CapEx. This was focused investment in line with our net zero target by 2045 and with the framework we presented in May. 37% was allocated to Renewables, 33% to Networks and 20% to Energy Solutions. More than 90% was invested organically. Turning to CFFO, which was EUR 5.3 billion in the first 9 months of 2021. CFFO was up EUR 1 billion year-on-year, mainly driven by the following: first, operating cash flow was EUR 1.2 billion higher, reflecting the EBITDA increase; second, the overall change in working capital requirements was flat. There was a positive change from energy management activities, largely driven by rising gas prices, leading to a positive effect from margin calls. This was linked to gas net buyer positions and was partly offset by a negative impact from an increase in gas inventory. At the same time, the change in working capital requirements for other activities was negative. This was mainly because of margin calls in our French hydro affiliate CNR due to power selling positions with increasing power prices. Moving to our balance sheet. Net financial debt increased with gross CapEx and dividends exceeding CFFO and disposals for the period. On disposals, I should mention that we still expect the EUR 1.1 billion proceeds from the GRTgaz partial disposal by the end of 2021, which are not included in this bridge. In addition, the reduction in net debt from EQUANS is expected at closing in the second half of 2022. Regarding credit metrics. At the end of the third quarter, the net financial debt of EBITDA ratio was 2.4x, stable since year-end 2020. The economic net debt-to-EBITDA ratio stood at 3.6x, lower than at year-end 2020 and in line with our target ratio of below or equal to 4x. To conclude, let me take a step back and remind you of the value creation framework we presented in May. Over the first 9 months of 2021, we continued driving simplification, notably, of course, with the EQUANS announcement; improving our business mix with focused growth investment on our key priorities; enhancing performance by confirming our EUR 100 million net EBIT contribution target for 2021. We delivered a very strong 9 months 2021 financial performance. Lastly, we are, of course, very happy to upgrade our 2021 guidance given the very strong 9-months results and the tailwinds we are operationally able to capture. Before handing over to Catherine for the conclusion, again, I would like to take this opportunity to thank our teams for their tireless commitment in achieving this performance. Catherine, back over to you.

[Catherine MacGregor, CEO & Director]

Thank you very much, Judith. Before taking your questions, just a very brief summary of the key message. Indeed, we have posted very strong 9 months results. We are upgrading our full year guidance. We've made significantly -- a significant timely progress towards the execution of our strategic plan. And maybe as a last comment, just to reaffirm my conviction that ENGIE's core capabilities, assets, integrated business models, position the group very strongly to successfully navigate what is today unprecedented environment that the energy industry is facing with a very sharp focus to execute and to create value. Thank you very much for your attention, and we can now open the lines for questions.

[Operator]

[Operator Instructions] We'll take the first question from Vincent Ayral at JPMorgan.

[Vincent Jean Michel Ayral, Analyst]

Very strong results. We expected ENGIE to be very well on track to get the guidance but maybe -- and not having increased the guidance ahead of the election. So that shows quite a bit of confidence. So 2 questions as we need to refrain ourselves here. One is a very simple one, the asset rotation. It's a question that keeps coming. You had, I would say, a fantastic track record, whether looking at SUEZ, GRTgaz and now EQUANS. So the disposal program has been delivered extremely well. It's almost done a few extra bits. Now the question for the market is the investment. So here, you showed that you've done more than 90% of your CapEx organically. There are some news, for example, that ENGIE is looking at an area in Spain. But could you confirm again, if I understood properly, that's large M&A. Transformational M&A is not on the agenda. I believe that's an important message for the market and whether you consider large M&A. Give us a threshold, if you can. That would be great. If I have to pick and choose a second question will be regarding Nuclear. We're not talking vast Nuclear. We're talking about the life extensions. So you say that basically given the coalition position in Belgium last year, you decided that it was too late actually, to the investment for life extension. So we recognize that in the P&L. But the current situation is stressing to every government around that an energy transition that can raise secured supply issues. So what is the situation there? Are they potentially changing their mind or not? Would you stick to your guns? What is -- how do that work? And the key for ENGIE now is the capping of the liabilities on Nuclear, I would call it German star. So you've been discussing with them for a while. What is the update you can provide us on Belgium Nuclear, please? So that's question number two.

[Catherine MacGregor, CEO & Director]

All right, Vincent. Thank you for the questions. So maybe I will start by commenting on your first question, which is both on our disposal program as well as our reinvestment program. So you're right to say that we are progressing really well in our disposal program. We still have a few seams that are still not complete. And here, I would highlight our decarbonization plan. So we have a coal exit plan, which is going to take us a little bit more time. We have announced 2025 and 2027 for the rest of the world, 2025 for Europe. So we still have a bit of work to do, but you're right to say that we have moved that base. And indeed, we are very, very pleased with what has been achieved so far. In terms of reinvestments, our plan has not changed. We are very focused on indeed organic growth. We are very focused in investing in our global business unit, namely renewables and also energy infrastructure, decentralized infrastructure. And that has not changed at all. We want to reaffirm, reassert and increase the value we bring to this project by being an industrial and an operational actor in this -- particularly in the renewable arena. So that is some of the things we feel we have expertise, we have differentiation. And this is how we want to focus on bringing value as well, of course, as you know, Vincent, deploying our energy management capability, which is so important as the mix is diversifying and the energy systems are becoming more and more complex. Our ability to manage energy is frankly very, very differentiated. So we are putting all this together, focusing our growth indeed on organic capability on key geographies, which obviously doesn't exclude us to look in a very opportunistic manner at a bolt-on potential organic target -- inorganic target, sorry, which would completely fulfill the criteria that we have set, which is a complement to our strong geographical presence in a key market, which would help us build a complementary asset portfolio, for which both our industrial and operating -- operational capabilities would add value as well as, again, the energy management capability would also add value. And that would be some of the criteria. And to that, of course, I would add return criteria, which is very, very important. And there is a lot of discussions around renewables targets. Is it competitive? It's not competitive. But we would be looking at targets project-by-project in a very, very selective manner to make sure that if we go for one it fits all this criteria. So again, aligned with our strategy, we can fully play our role as an industrial and operational actor. It adds something to our portfolio, very important, energy management portfolios and, of course, meets our return criteria. And that will be some of the criteria that we would do -- the only criteria that we will go for if we were to do inorganic growth. But again, mainly organic growth, very selective inorganic targets. And moving now to your second topic, so switching gears a little bit on Belgium. So a couple of things. Obviously, our position on Nuclear is obviously unchanged. And we've always said that the time we need to go for a full-fledged extension program is about 5 years. The law in Belgium today is calling for the end of nuclear activities by 2025. And as we are getting into 2022 soon, that window of 5 years has basically expired. Now that doesn't mean indeed that the discussion around security of supply in Belgium is not going -- is not quite vivid. I'm sure that you have followed, for example, the CRM auction results, which were very positive for ENGIE, by the way, because we secured 2 projects, new gas projects, the ability to construct 2 CCGTs, which is very, very good news. But it is true that 1 of the 2 projects is still pending a permit. So there is a bit of a question mark about the ability to go ahead with that project. So we're dealing with this situation now. And then we also secured some CRM scheme under existing capabilities. So overall, the outcome of the CRM was very positive for ENGIE. But of course, the questions on permit is going to be very important to make sure that we can resolve that in order to move ahead with the project. Next question.

[Operator]

We'll now take the next question from James Brand of Deutsche Bank.

[James Brand, Research Analyst]

I'm moved from the very strong results. I'll start off -- there might be 3 questions, I guess. I'll start off with 1 that might kind of stretch into 2. Just following on from Vincent's questions on reinvestments. And I guess a lot of people are focusing on renewables at the moment. And I was wondering when you -- I guess, a couple of parts. When you think about your renewable business, do you see your ambitions as being regional or global because you have very strong renewable business in some markets, you're strong in the U.S., you're strong in France. There are other markets that you're strong in as well. Are you content with just sticking to a few markets? Or do you want to really be very big in a global way on Renewables? And secondly, if that is your ambition, do you feel like you can expand globally, organically? Or do you think it is important to do from bolt-on acquisitions to gain a kind of presence in markets that you're not in already? So that's the first one on reinvestment. And then I was wondering just in terms of the results, if you could focus [indiscernible] segment. Sometimes you kind of have some gas gains. I'm sure your gas business has done quite well in the current environment. So maybe you could just tell us, quantify for us if there are some gains coming through there or not?

[Catherine MacGregor, CEO & Director]

We need you -- sorry, James, you need to repeat the second question because we didn't -- we couldn't hear you well.

[James Brand, Research Analyst]

The question on the gas side. So the question is -- can you hear me okay now? The question on the gas side is did you make any gains in Q3 in the gas trading business? And if you could quantify those?

[Catherine MacGregor, CEO & Director]

Okay. All right. Thank you. So very, very clear answer. We are very focused for our renewable business in our key markets. We believe local presence is a level of differentiation and competitiveness, and we want to build on local presence. We think it's very, very difficult to be competitive in a market where you've not been before and to start developing one technology. We really believe in making sure that we have a diversified portfolio in our key markets, and that is very central to our renewable deployment strategy, if you like. So key markets, and we've listed them. So in Western Europe, Latin America, with strong focus on Brazil, a bit of Chile, Peru and then U.S. as some of the key markets that we're really focusing on renewables. Of course, offshore is a little bit different. Offshore is a little bit more global. So we almost consider offshore as a region to a certain extent. But for the typical onshore, wind and solar, think very focused key markets where we can really build on our presence, also our understanding of local constraints. As you know, renewables development is a lot about stakeholder management locally. Permitting, environmental assessment, social acceptance, et cetera, all of this, which is very, very local. And then, of course, managing constructions and activities of that kind also need to be -- I mean, are largely derisked when you have a local presence. So yes, very, very much key markets, local presence. And at the same time, we are deploying -- I'm very pleased with the way the GBU is doing this. We are an industrial machine. And so we want to be very global as far as expertise and relationship with procurement and industrial capability, very local in our approach to the projects, stakeholder management, et cetera. So I hope that makes sense. Okay. I suspect that it makes sense. So I move to the second question, which was around gas trading gains in Q3. So benefit from overall volatility, manage up -- okay. So in terms of CCGTs and the performance of our CCGTs, what has happened in this business is obviously ancillary services, which tend to be called upon in high volatility and also when renewables are a big share of the production are actually called upon. So CCGTs in general, did quite well in the first 9 months of the year. Obviously, in terms of power price and the tailwind that power price has given to most of our assets, CCGT gets a little bit less because, obviously, the clean spark spread are the drivers for CCGT results. And of course, with the gas price being very high, there was a bit of pressure there in terms of overall margin. But I'd say, in terms of ancillary services, they were called upon quite a lot, and this overall is a positive for CCGT's results.

[James Brand, Research Analyst]

Gas trading business, in the other line, sometimes you can get some big swings there when you have commodity price volatility. Have you seen any -- what did you see in Q3 in that business?

[Catherine MacGregor, CEO & Director]

Obviously, volatility. With the talent we have in our energy commercialization business, volatility tends to be something that is a positive. And so yes, we did some tailwinds from that as well.

[Operator]

We'll now take the next question from Ajay Patel at Goldman Sachs.

[Ajay Patel, Executive Director]

Congratulations on the numbers. Minor a little bit. My question is a little bit more granular, but it's just around one topic. So at patient slides, you highlighted and a GFOM ruling in Brazil, also a reversal of a 2020 positive one-off. And then I was -- wanted to ask, can you just quantify those numbers roughly? And then the second question is, what was the expectation for DBSO just so that I can get a better idea of just the moving parts, please.

[Catherine MacGregor, CEO & Director]

Yes. I'll just make a comment, right, on the fact that as you know, in Brazil, the regulation is very strong, and there is a mechanism that allows to compensate the operator for extension of concessions. So we have a bit of a positive tailwind in this year that Judith will give you a bit more color on. And the second question was on DBS and DBSO expectations. So while we don't necessarily give the granularity of the number, you can expect it this year to be a little bit less than 2020 a just because as we presented in May, our model is shifting to a bit more DBO than DBSO. And therefore, the margins of DBSO will be a little bit less than 2020. And if I remember from the top of my head, in 2020, I think we had said it was around EUR 100 million in terms of DBSO margin. So expect that to be a little bit less in 2021. And did you want to comment on GFOM?

[Judith Hartmann, CFO & Executive VP]

Yes. So on the DBSO, indeed, to expect about half of that, quite frankly, is a good assumption as we start to consolidate much more of our renewals, as you know, as per our strategy that was laid out. On GFOM. First of all, I just want to reiterate what great news this is because it really shows the constructive nature of the Brazilian regulator. And so this is to catch up on past costs and out of merit order basically production to safe water. So we're looking at a number in the third quarter year-to-date of roughly EUR 150 million. So it is quite a significant positive for us that we're very happy that we were able to get this together with the other energy companies in Brazil.

[Operator]

We'll now take the next question from Rob Pulleyn at Morgan Stanley.

[Robert John Pulleyn, Equity Analyst & Commodity Strategist]

I think my key question was just answered in terms of explaining the other line, so let's try a different tack. It appears that the Belgium supply margins were negative, and that's why the supply business was certainly -- the supply result was less than perhaps we had hoped for. I was just wondering what was driving that? And whether that's going to be recurring or how sustainable that might be? And given everyone is having a couple of bites of the cherry, may I ask on the disposal plan. It seems now largely complete in terms of your quantum of proceeds you're seeking with, as you said, a few more assets still to go. Is there scope to do more? And how would you think about the capital proceeds above the EUR 9 billion to EUR 10 billion targeted could be reallocated?

[Catherine MacGregor, CEO & Director]

Okay. Thank you. Thanks for the question. So in terms of Belgian supply, you have to remember that Belgium government has developed or deployed social tariffs to cope with the COVID situation and to help household the most in need. And the social tariff is a vehicle that they have extended actually to help those same households to be coping with a higher power price and energy price. So we -- as supply margins were a little bit affected by the social tariff extension during that period. In terms of disposal plan completed, more proceeds and what we are going to do with the proceeds to be -- we are obviously, again, very pleased with the way our disposal plan is going. As you know, we have put a plan together, announced in May of about EUR 9 billion to EUR 10 billion disposal with a EUR 14 billion to -- sorry, EUR 15 billion to EUR 16 billion investment program. What we will do in February, we will come back to you with obviously our new MTP with an horizon of 2024, and we'll update the numbers. Obviously, very pleased with the way EQUANS is -- the transaction is panning out. So we will update the numbers.But I think very importantly, the key principles that we presented to you are not going to be very different. They will not change that we are going to be investing to accelerate our investments, particularly in renewable, particularly in energy distributed Infrastructures business. About 40% to 45%, we had said for our EUR 15 billion to EUR 16 billion investment. And as we update our investment program over the next period, you should not see much -- a huge departure from the type of percentage, if you like. So yes, the absolute figure might vary.Also we'll take into account, obviously, a new outlook for 2024. Obviously, a lot of change in terms of commodity price, et cetera. So we'll give you this new outlook. We'll update our disposal program. But more importantly, our investment program. However, the key principles will not change.

[Robert John Pulleyn, Equity Analyst & Commodity Strategist]

That's great. And if I could just clarify, maybe we've viewed it. There's this other line. So at the half year, you were, I think, EUR 122 million lower year-over-year than first half 2020. And now at 9 months, you are EUR 194 million better than 9 months 2020. So there's about a EUR 300 million, EUR 320 million delta, which has occurred in the third quarter. Could you just quantify, and apologies if I didn't hear it before, how much of that $300 million delta is this Brazilian one-off or whether there's any trading benefit in there as well?

[Judith Hartmann, CFO & Executive VP]

No. So the -- thank you for that question. The Brazilian GFOM would be in the renewables line because it's related to renewables mostly or 100%, quite frankly, hydro. And so what you see in Other is indeed an improvement. Trading has performed well in the third quarter. And it was said earlier, of course, in a time of volatility is when you have the best impact. And that really is the bulk of that improvement.

[Operator]

We'll now take the next question from Peter Crampton at Barclays.

[Peter Crampton, Research Analyst]

Congratulations. I think one needs to go back many, many years to see 2 guidance upgrades in 1 year. Two questions, if I may, because there've been so many kind of questions around full year 2021 guidance. Can you maybe provide a bit more color what's driven the second upgrade? How much of this is power prices in Belgium Nuclear related? How much are kind of 2 one-offs? That would be the first question.And then the second one relates to your kind of midterm financial guidance, which you obviously provided the 18th of May. We've had 2 upgrade since. Can we expect for the full year results, kind of an update of your kind of midterm guidance? And would this be based on kind of a mark-to-market of kind of end-of-year power prices?

[Catherine MacGregor, CEO & Director]

Yes. And thank you for your question. So one of the key things you have to look at to understand the second revision for us is you really have to look at the power price throughout 2021. And you will see an extremely, extremely sharp increase. Unprecedented, I think, is the word that qualifies actually. And that all happened in H2. So very -- and that was towards the end of July, I think that was clearly end of July and then it's really peaked. So that explains to you why we have had such indeed dynamic -- very, very dynamic year indeed in a very specific timing situation that explains that.In terms of the guidance. So yes, we will come back in February. We will give you an updated outlook to 2024. So we'll go -- we stay on this 3-year rolling forecast type of approach. Obviously, we are already anticipating some tailwinds from the commodity price that we are seeing. We have given, by the way, as usual, hedging volumes, hedging percentages as well as captured price, which if you want to calculate using normalized volumes, you can and estimate that impact. But again, that would be the isolated impact of commodity price on the hedge volume. And of course, you would also have to take into account, as you know, that the Nuclear volume next year will be less given the fact that one of the nuclear tranche will be shut down in October 2022. So there are some -- but in general, yes, absolutely tailwinds there. And so yes, we will be redefining both our 2022 view as well as horizon to 2024 to take into account both that commodity price new reality as well as, of course, as we've mentioned, in terms of investment program, the fact that we've done well on our disposal plan.

[Operator]

We'll take the next question from Emmanuel Turpin at Societe Generale.

[Emmanuel Philippe Turpin, Equity Analyst]

My first question is on EQUANS. And it's going to be, to some extent, a backward-looking question as you very successfully are in the process of selling it. As a measure of the quality of your past investments, I was wondering if you could share with us the capital gain you are looking at booking on this transaction. We know the industrial capital employed at EUR 3.8 billion, but we don't have the book value. That would be an interesting data point to showcase past investments.The second question is on the reorganization of your operations along the global business units you mentioned in your expose. I guess the new management teams are in place for these global business units. And whether you use the GBU Renewables, which is very dynamic or another, are you able to share with us any real-life example of what makes this new organization better almost on a day-to-day basis? Any example would be -- putting any color on the new organization would be very helpful.

[Catherine MacGregor, CEO & Director]

Yes, of course, Emmanuel, but you need to give me a lot of time because I have actually a number of examples that actually comfort us in the fact that this GBU reorganization is paying off. And you quoted Renewables. I think it is where it probably is the most striking. But in Energy Solutions as well, where we are, for example, developing and defining very, very specific KPI for the different business and making sure that these KPIs are harmonized with our geographies. So we're able to have a much, much, much better granularity of the performance of each of the businesses, having benchmarks and emulation and being able to compare similar businesses between each other and therefore, drive improvement, which as you know, Emmanuel, when you had a multi-activity business unit, everything was mixed up, and we didn't have this granularity. And now we're doing a QBR, quarterly business review with each of the GBU. And we are looking at their KPIs, which are operational, specific to their global business units and that is now being standard for them. So I mean, huge difference.I would also add in one procurement. I know I talk a lot about procurement, but this is really where -- it's an area where I'm the most excited about in terms of almost quick wins. We are aligning our procurement organization with a global business unit. And we are able to work with our suppliers, for example, on wind turbine, on solar PV in an environment where there is a lot of talk about inflation and logistics, et cetera. So this very centralized, high-level engagement with suppliers is very, very, very important to derisk our operation. And that's some of the examples. And again, I could go on for ages so -- but I'm respectful of everyone's time this evening.And then you asked a question on capital gains. So we have not disclosed that information. I'm sure we will in due time. We -- it's a bit early for us to do that. I mean the thing that is most important about EQUANS is the value that the candidates have seen with EQUANS is high. And it is a testimony to the -- of the potential and the upside that EQUANS has both in terms of market alignment, capabilities and also performance improvement by having a very, very dedicated granular approach to the service business, which we've always said was very different and needed to have a very specific approach. So we're obviously very, very pleased with EQUANS. And the potential that candidates are seeing in that business is indeed very promising.

[Operator]

We'll take the next question from Louis Boujard at ODDO.

[Louis Boujard, Analyst]

Congratulations, of course, for increasing your guidance again. My first question would be maybe on [ Eolia ] because you are rumored to have one, but a new way, it's sure that you have made an offer on it apparently with a price which is close to EUR 2 billion. I would like to know how it fits with your strategy. Do you see the Spanish market as a core business for you after the acquisition of the Hydro dam concession 1 year ago? And if you see further development here, not only with hydrogen or eventually supply business that could be developed in this specific market, considering that it seems to be of interest to you. It seems to make a lot of sense with your general comments regarding the renewable development, but more specifically on this market. What are the key points that you would like to highlight regarding this operation?My second question would be regarding the thermal business and more specifically the sort of clean spark spreads, we have touched a little bit this a bit a few minutes ago, but maybe to have some idea on where we could go next year in 2022 because currently, it's clear that the clean spark spread are a bit more under pressure because of the gas market situation. It is possible that this year, you benefited from ancillary services, some one-offs as well in Thermal business, which have helped a little bit Thermal. And even in spite of it, Thermal was a bit under pressure. So what shall we expect for next year? Shall we expect that maybe your captured spark spread for the next few years might be a bit more under pressure, meaning eventually some downward pressure on the Thermals that could be expected? That's my second question.

[Catherine MacGregor, CEO & Director]

Okay. So let me start with the first one. Obviously, I won't comment on any rumor or any specific deal. But what I would say, though, is that in terms of approach to our key markets, we will be always, as I've mentioned earlier, looking at developing a renewable capability as part of an integrated platform where we can really leverage our skills and expertise in energy management. And in Spain and if I look at the Iberian platform that's actually quite an integrated platform. What we have done last year in terms of hydro, which is the transaction that you mentioned is giving us this very nice base load flexible assets that we can integrate to what we're doing already in terms of renewable developments in that Iberian platform. So that's a very interesting region for us. And whatever we do, we would always be looking at the integration of complementary assets as well as obviously bringing an industrial and operational role, which is very, very important in the way we want to develop our projects, whether new projects or inorganic opportunities.And then the second question was on the spark spread being under pressure. So look, we obviously will come back to you more precisely, right, in February 2022. Obviously, it's such a high volatility right now that it's very, very difficult to predict. So we'll give you a better visibility in 2022 when we come back. I mean the key thing and very fundamentally, the role of the CCGT in Western Europe is almost only gaining in importance, right? You have to remember in Europe this winter, in Germany alone, there will be 3 gigawatts of Nuclear taking off -- taken off and about 1 gigawatt of coal taken off the system. So there's going to be pressure on CCGT, which are very flexible assets can be dispatched, et cetera. So we expect that CCGT to continue to play a very, very important role. As you know, the whole European energy mix is being transformed.

[Operator]

We'll now take the next question from Peter Bisztyga at Bank of America.

[Peter Andrew Bisztyga, Head of Pan]

Two questions from me. So firstly, I was wondering if you could expand a little bit on -- you mentioned in passing supply chain and cost inflation issues. Can you just talk a little bit more about that? What you're experiencing on the ground at the moment in your renewables business? And in particular, have you had to delay or cancel any solar projects?Then my second question, I guess, kind of relates to that a little bit is what trends in PPA prices have you been seeing? And maybe if you can maybe kind of compare and contrast between regions, that would be helpful.

[Catherine MacGregor, CEO & Director]

Yes. Okay. So yes, a bit of logistic tension, I think across the world. I think no sector is immune to that. Our organization -- renewable organization is working through the logistical hurdle in a very, very nice manner. A couple of projects are affected. We are seeing a couple of delays, but frankly, nothing meaningful, nothing that make us think that our targets -- the targets that we've talked to you about are going to be put at risk. We're managing the situation very well. And again, here, this centralized organization is also able to make sure that we make the right trade-offs, that we make the right -- we take the right -- or we did the right priority to the right project. And this is happening in a very dynamic manner and in a very professional manner. So frankly, no meaningful impact. Obviously, we are strictly monitoring it. And I would leave it to that.

[Judith Hartmann, CFO & Executive VP]

And maybe if you allow me to add. For now, I think what's important to know also is on the 7 gigawatt of assets under construction, we have locked in the prices. And so that is obviously giving us a lot of confidence in the fact that at this stage, no major impact from inflation on renewables.

[Peter Andrew Bisztyga, Head of Pan]

And my question PPA prices?

[Catherine MacGregor, CEO & Director]

There is obviously strong support in green PPA these days for many different reasons. Decarbonization commitment from all of our customers and energy supply is one of their main and fastest way to decarbonize their scope. So obviously, have very high demand in green PPA. And obviously, PPA is also enabling customers to give more predictability and more stability to the energy price when today's volatility is for the people who didn't have the right protection is frankly putting some of their operations at risk. So if you look at that, we see a positive trend, good support and some increase in general, if I was to -- if we could generalize, we are seeing a bit of an upward trend in PPA price. And that as a reminder, obviously, at ENGIE, we are very, very active in green PPAs where we have signed this year 1.9 gigawatts for -- in the first 9 months. 1.9 gigawatt of green PPAs, and that is up even versus last year for the full year. So both demand and price is going in the right direction, and we're very pleased because we are so well positioned on that.

[Operator]

The last question of the day will be from Juan Rodriguez, Kepler.

[Juan Camilo Rodriguez, Equity Research Analyst]

Yes, our key questions have been answered, but I would like to come back again to the gas price freeze in France. Can you please walk us through ENGIE's neutral impact? Should we expect negative working cap for 2021, maybe in 2022? And especially, what is the compensation mechanism discussed for now or regulated tariffs in France as normally, they're expected to end on mid-'23. But normally, the catch-up tariffs is passed during the summer period. So it will be interesting to see this.

[Catherine MacGregor, CEO & Director]

Yes. So good to remind everyone that the government took this measure indeed to freeze the gas tariff in order to protect the -- obviously, the households from this high volatility in the market. And the government has been actually working very actively in defining the modality of how the suppliers and particularly ENGIE would be compensated from this tariff freeze. And a mechanism has been defined. In fact, defining great level of detail for an amendment, which is going through the whole approval process. It was voted at the assembly -- the lower house, I think last Friday. So it's moving along, which is fantastic.And the terms of the amendments are such that we will not see if voted, obviously needs to be voted, but we are very -- at this stage, because of that first vote being positive, we are optimistic and we are positive that it will get what voted through. So when voted through, we will be able to recognize revenue and therefore, no P&L impact in 2021, in 2022. So that's very good.As far as working cap is concerned in terms of cash reimbursement, the terms are actually still being worked out. So the modality of the cash impact is not quite completely clarified. Work in progress. But obviously, this is something that at ENGIE, we definitely can manage and will manage. I don't know, Judith, if you wanted to add to my answer, if I missed something on...

[Judith Hartmann, CFO & Executive VP]

No. I think it was very clear. And just to give you a sense of our confidence on being held whole here. We will be able to book a trade receivable on the French state and thus have no P&L impact this year. That's how firm this is now becoming. And on the cash flow, like Catherine said, we're still working out the exact mechanism. Of course, like you said, some of the regulated customers will go away. This is when the -- also the state will come in. So some of that is still being worked out. So I don't -- I think you need to assume there's some sort of spreading over the next couple of years, really. But on the whole, we're being kept hold, which is great news. That's really very strong assumptions that we have at this stage. And of course, if there was a working capital delay of sorts, then we have a very strong liquidity to work this out and make sure that it happens. It is not an issue for the company.

[Catherine MacGregor, CEO & Director]

Okay. I think that ends our call. I would like to thank everyone for participating despite the late timing and enjoy and have a very nice evening, everyone. Thank you very much. Bye-bye.

[Operator]

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