Uniper SE

XETRA:UN01

Earnings Call Transcript 2021-Q1

[Operator]

Dear ladies and gentlemen, welcome to the analyst and investor conference call of Uniper. At our customer's request, this conference will be recorded. [Operator Instructions] I now hand you over to Stefan Jost, who will start the meeting today. Please go ahead.

[Stefan Jost]

Thank you, and good morning, dear analysts and investors. Welcome to the Uniper interim results call for the first quarter of fiscal year 2021. Thank you for participating in our conference call today. I would also like to welcome our new CEO, Klaus-Dieter Maubach; and our new CFO, Tiina Tuomela, who will lead you through the presentation today. After a joint introduction, Klaus-Dieter will take over the main highlights of the first quarter before Tiina guide you through the financials. Right after the presentation, you will have the chance to raise your questions. Having said that, Klaus-Dieter and Tiina, the floor is yours.

[Klaus-Dieter Maubach]

Thank you, Stefan. Good morning, everyone, and a warm welcome also from our side. I'm Klaus-Dieter Maubach, the new CEO at Uniper. And with me is Tiina Tuomela, our new CFO. We are pleased to introduce ourselves to you today in our new roads. Some of you may still remember me from my E.ON time, during which I have various board of management positions between 2001 and 2013. The last one as E.ON Board member, responsible for technology and major projects. However, most importantly, I'm not new to the Uniper world. Having served as Uniper's Supervisory Board chair and the Board member of the Fortum group, I am familiar with both organizations. This puts me in a good position to drive strategy implementation at Uniper, while ensuring that our affiliation with the Fortum group is clearly an asset in this context. Before I move on, please, Tiina a few words from you.

[Tiina Marjukka Tuomela]

Thank you very much, Klaus-Dieter. I would also like to welcome you to our Q1 results call. It has been a great start for me at Uniper, and I'm pleased to have the opportunity to introduce myself to you today. My name is Tiina Tuomela, [indiscernible] call, I would have introduced myself as Executive Vice President Generation at Fortum. I have been able to build and develop my management experience at Fortum since 1990. Within my previous role, I had the opportunity to participate in a handful of capital markets events. Therefore, I can say that I'm really looking forward to expanding this experience and most importantly, is getting to know you in the coming weeks and months. The IR team is preparing first meeting before the summer break, so please stay tuned in this regard. The onboarding in my new role as CFO has been very good so far despite the restrictions that COVID-19 virus has imposed on us these days. I see a lot of things spirit to drive forward topics that were initiated before my part within Uniper. Uniper's remarkable financial performance in the past was the result of a sound financial strategy being very well executed. I intend to continue this track record. Our motivated financing will provide one of the platforms needed to execute this strategy. Speaking of strategy, I would like to hand over to Klaus-Dieter now who will share his views here, followed by the main highlights.

[Klaus-Dieter Maubach]

Thank you, Tiina. Uniper recalibrated its core strategic course with the strategic and financial update in March 2020. Afterwards, Uniper and Fortum worked together to further align the strategies of both companies. The results were presented during Fortum's Capital Markets Day in December 2020. Aside from the joint value potential of up to EUR 100 million per annum for both companies, Uniper further refined its CO2 reduction targets back then. Let me be crystal clear. I fully support Uniper's strategy, which is essentially about taking the challenge of decarbonization into our own hands. It is ambitious, but it also takes into account where Uniper is coming from and where Uniper's capabilities and competencies are. However, while I fully agree on the strategic direction, we need to work on the speed of strategy execution. The news flow and the political actions from leading nations and institutions to move the decarbonization process forward more quickly and with more funding is a good reminder that we need to work harder on tackling transitional risks and opportunities that we have in our portfolio. In a highly competitive landscape in the middle of the energy transition, things are moving fast, both electricity and natural gas need to be decarbonized in Europe. Above all, Central Europe will be the center court when it comes to decarbonization and the corresponding changes in technologies, markets and regulations. Given Uniper's expertise and its strong presence in those markets, it is natural for Uniper to become the growth platform for the Fortum Group, especially if it comes to renewables, hydrogen and providing decarbonized flexible energy solutions, both on the generation and on the commodity side. The new Uniper management team, consisting of Tiina Tuomela, David Bryson and Niek den Hollander and me, will be working even stronger to capture the full value creation potential that lies in the joint Uniper-Fortum group. This includes a stronger focus on the 1 team approach where we create joint teams to bundle atoms and capabilities in different business areas, the benefit of all stake and shareholders. You can expect us to follow up on this topic over the coming weeks. I would like to leave it at these headline statements in today's call. At a later date, we will be happy to share more details on projects, timelines and financial perspective. Now over to Uniper's first quarter performance. Uniper's Q1 result is the strongest in its history since the Uniper's listing in September 2016. As already communicated in the ad-hoc announcement 2 weeks ago, adjusted EBIT reached EUR 731 million, while adjusted net income ended up at EUR 594 million, which is an increase by 12% and 19% year-on-year. If one to find a common theme for the positive Q1, I think the last winter has served as a good reminder of the importance of secure energy supply. Don't get me wrong. We are very clear about the path of decarbonization in the future, but it also became very clear once again that Uniper's mostly gas-based portfolio plays an essential role in providing stability and flexibility in the energy markets and will continue to do so for the foreseeable future. And this is what we did in Q1, both inside and outside of Europe. On the back of these strong Q1 results, we raised our earnings outlook for fiscal year 2021, i.e., for the adjusted group EBIT and the adjusted net income by EUR 100 million each. Let's now turn to the development of Uniper's portfolio and its strategic evolution. Our European coal exit plant is ahead of schedule. In March 2020, we had communicated our intention to exit 4 out of our 5 German hard coal-fired power stations until the end of 2025. After Uniper was already successful in the first German hard coal tender, with the Heyden Station. Now in April, also the 757-megawatt Wilhelmshaven power plant was awarded in the second tender and is earmarked to exit commercial operation by December 2021. As communicated before, our 900-megawatt lignite fire power station Schkopau based in Eastern Germany, will exit our portfolio by October 2021 as well. For me, it is particularly important that we do not only exit assets, but at the same time, expand into new businesses, having not only our shareholders but also our employees in mine. Accordingly, Uniper has now issued several press releases announcing projects in which we are working to leverage our existing sites to drive our hydrogen business forward. The most recent examples are the hydrogen hubs in Wilhelmshaven and Huntorf. A few weeks ago, we also communicated our hydrogen plants for Maasvlakte.Speaking of which, as you might have read, Uniper is now seeking for a ruling from independent courts on whether the Dutch law is legitimate, enforcing our coal-fired power station, Maasvlakte 3 to be taken off-grid by the end of 2029 without proper compensation. To be crystal clear on this topic, Uniper does not question or challenge the Dutch decarbonization ambitions. The opposite is true. We see ourselves as part of this solution, as documented by our plans for large-scale hydrogen production at the Maasvlakte site. However, unlike other countries, the Dutch Coal Phase-out Act does not provide for proper financial compensation scheme, which makes it, in our view, unbalanced at the expense of Uniper's share and stakeholders. For all European countries, the overarching story is not only on the stricter CO2 reduction targets for 2030, but also on security of supply in the context of the upcoming transition. This story has not yet been conclusively addressed in our view. One of the positive examples in this regard is the U.K. capacity market mechanism. The recent capacity auctions Uniper was successful with all participating power stations. For 2024 and 2025, Uniper has secured further revenues of around GBP 90 million for a spare capacity of 4.2 gigawatt. Finally, the Russian Berezovskaya 3 lignite fire power station, the last of Uniper's legacy growth projects, is back online. In April 2021, this power plant passed the necessary performance tests and is now entitled to capacity market payments from May onwards. I would like to express my congratulations to our Russian colleagues for bringing this complex project over the finish line. Now let's move on to our operational KPIs in the first quarter of fiscal year 2021 on the next slide. Let's start with the global commodities business. Our storage facilities showed normal fitting levels of 38% at the end of the 2020, 2021 winter season. At the same time last year, levels were unusually high after particularly warm winter. Tiina will pick this up later on, as this had a positive impact on our operating cash flow compared to the previous year. Looking at our European Generation segment, we achieved a significant overall increase in power generation of 20%. Hydro volumes were down 11% year-on-year. The Nordics generation volumes were down following last year's record precipitation, but remained above the long-term average. In Germany, generation volumes were also slightly lower. For full year 2021, we are on track for hydro volumes and slightly above historic average. Nuclear output decreased around 5%, mainly driven by the closure of Ringhals 1 by the end of last year. Nevertheless, we see catch up potential here in the course of the year as significantly extended maintenance outages during 2020 should not be repeated again. Gas and coal-fired power generation increased by almost 50% year-on-year. This was mainly driven by colder weather and less wind across Central Europe. Further growth in volumes resulted from the contribution of Datteln 4 power station, which has been producing since 2020, and the gas-fired power plant using 4 and 5, which have been back into the merchant markets since October 2020. Generation volumes in the Russian Power Generation business showed an increase of 7% colder weather. Fewer negative COVID-19-related economic effects and stronger electricity experts from Russia were supportive here. A strong revival in electricity generation and changes in the fuel mix towards the fossil side of our portfolio, ended up in 30% higher carbon emissions for the group. Looking at the full year 2021 and even 2022, there is a high likelihood that we will see somewhat increasing scope 1 emissions in total due to Datteln 4, Irsching 4 and 5, 3 being in the market. It will take some time until our new strategy materializes in the form of lower carbon emissions. We expect to be back on track on our carbon reduction path from 2022 onwards. This was something we anticipated when we set our targets, i.e., 50% reduction by 2030, carbon-neutrality by 2035 for Scope 1 and 2 emissions, within the European Generation segment at full group-wide neutrality by 2050. Now I would like to hand over to Tiina for a detailed presentation of the Uniper financial results.

[Tiina Marjukka Tuomela]

Thank you very much close detail. Looking at Uniper's financial performance in Q1 2021, I can closely think of starting point as the new Uniper's CFO. One year ago, Uniper has reported an adjusted EBIT of EUR 651 million for the first 3 months, which was considered extraordinary back then. This year, the Q1 adjusted EBIT amounted to EUR 731 million, which is even 12% above the excellent result last year. EBITDA increased in parallel with depreciation and amortization being stable at EUR 160 million. Just like last year, the strong earnings results are mainly due to the global commodity business. However, last year, is of the year ago gas midstream business and fallen strongly during a warm winter. This year, it is commodity business outside of Europe benefiting from all temperatures during the winter. I will call into the details of the earnings drivers on the next slide. As Klaus-Dieter explained, before the winter, it was significantly lower gas inventories, which explains why the increase in operating cash flows out to be even higher than the increase in earnings. The adjusted net income increased also stronger than the adjusted EBIT. While minorities and economic tax rate remains the same, it was a positive effect in the economic interest rate, stemming from a revaluation of our provisions on the back of the higher interest rate. The unadjusted or reported net income shows the strongest increase of all. This results mainly from mark-to-market effects on unrealized derivatives as well as lapse of impairments, which impacted negatively last year. Moving on to economic net debt, which significantly decreased since beginning of this year. Being a decrease in economic net debt in Q1 is nothing special given the somewhat seasonal pattern. However, the extent by which it decrease is noteworthy. I will pick up this later on. First, let's have a look at the underlying earnings drivers on the next chart. As usual, this overview breaks down the year-on-year development of the adjusted EBIT into business effects. Let's start with the main reason for the successful Q1 results. The contribution from global commodities, which increased by roughly EUR 120 million year-on-year. The underlying driver is the international commodity business which increased by almost EUR 460 million year-on-year. About half of this is related to our LNG and U.S. gas and power activities benefiting from market development in Asia and the U.S. in Q1, significantly stronger than anticipated. Looking at our LNG business. We were able to monetize the flexibility in our portfolio. Once price despite, it was sometimes even beneficial to unwind prior hedges in Europe and recent into Asia. In the U.S., we saw a comparable situation, but instead of LNG, especially our flexible gas portfolio that provides security of supply and helped to balance the markets during this extraordinary winter season. The second half of the EUR 460 million effect year-on-year is mainly driven by the fact that last year saw some significant inventory impairments, which negatively impacted Q1 2020 and is not -- is a positive effect now. This is more of a technical issue, but it needs to be mentioned. While the international commodity business saw a very strong increase of EUR 460 million, the European gas midstream, on the other hand, saw a decrease of roughly EUR 400 million year-on-year. However, this negative deviation more dramatic that it actually -- in absolute terms, the gas midstream contributed an adjusted EBIT of more than EUR 260 million. This is a remarkable result if compared to the first quarter in 2018 or 2019, which were both below EUR 200 million. However, as last year's Q1 2020 saw the extraordinary result of more than EUR 600 million, we see technically a negative year-on-year effect in such a magnitude here. Then moving over to Uniper's European Generation segment. The contribution from the European fossil fleet increased by roughly EUR 50 million year-on-year. This reflects, among others, the contribution from Datteln 4, which was not yet in operation during Q1 of last year. Further, positive impacts are coming from the gas-fired Irsching 4 and 5, which are back in the merchant market since Q4 2020. Finally, on competitive premiums in the U.K. also contributed significantly to the higher fossil results in in Q1. Next is power generation, where we see a negative effect of roughly EUR 50 million on the back of the lower prices and volumes. As mentioned by Klaus-Dieter, the generation volumes are down both in hydro due to the lower precipitation and snow melt as well in nuclear, mainly due to the Ringhals 1 going out of operation at the end of last year. Overall, average prices were down by roughly EUR 4 per megawatt hour year-on-year. The next effect is almost a unit per plastic. The so so-called carbon phasing effect, which is a pure intra-year effect in adjusted EBIT and will fully revert in Q4. As you know, Uniper SE is merchant fossil generation by selling power and buying fuel and CO2 in advance, often time more than 1 year prior to delivery. If carbon prices increase, so do the provision for carbon emission price, burdening our adjusted EPS within the year. However, at the same time, the corresponding carbon hedges gain in value into the money. The value of hedges, however, are all shown in the adjusted EBIT one the being settled, which is in Q4 of each year. Until then, the positive development of those hedges is only reflected in the unrealized mark-to-market results within our non-operating result.Last but not least, our Russian Power Generation business, which is down by roughly EUR 23 million versus prior year. While the underlying electricity market earnings are more solid than -- are more than solid, then negative deviation can be almost equally split in two effect. First, the lot of CSA payment; two, cost of generation assets, Shaturskaya and Yaivinskaya moved from the CSA team into the comp regulation beginning of this year, accordingly, decreasing the capacity income of those assets. The other half is the FX effect following the weak ruble. Now over the operating cash flow on the next slide. On the Slide 7, you can follow the reconciliation from the group's adjusted EBIT to operating cash flow. To make it more transparent, you'll find also prior year figures on this chart. As you can see, even though adjusted EBITDA increased only roughly EUR 80 million year-on-year. The increase in operating cash flow before interest and taxes is pre-time as high. Accordingly, the cost conversion in Q1 increased significantly from last year's 18% to now 48%. Focusing now on Q1 2021, let's go from left to right. As already mentioned, we had roughly EUR 160 million of depreciation and amortization, which brings the adjusted EBITDA to almost EUR 890 million. Noncash effective EBITDA items correct for things that have an impact on the EBITDA, but not cash relevant, which is mostly the addition and revaluation of provisions. It's largely net out with the next effect, which is the actual provision utilization, i.e. the actual payoff on provision that has been built in the past. Basically, half of it is related to our nuclear obligation. The other half is split across different categories, including our gas business and personnel-related provisions. The next item reflects the change in the working capital, which is heavily driven by the gas metering business. Despite lower physical gas inventories, we see an overall negative effect here, as operating receivables and liabilities and the way how the individual assets and contracts have been utilized is also reflected here. Compared with the previous year, the picture improved significantly in this area, which is one of the main drivers for the higher cash conversion. The 2 last items are tax and cash interest payments, the latter are structurally low given Uniper's net debt composition, it is essentially free of borrowed money. This is also highlighted on the next slide, which covers the development of the economic net debt. Uniper's economic net debt amounted to EUR 2.5 billion at the end of Q1, which is almost EUR 600 million lower compared to the beginning of this year. Half of the reductions, i.e., about EUR 300 million, are attributable to the net financial position, which decreased from EUR 520 million to roughly EUR 220 million. This positive development reflects the strong operational cash flow, but it also relieves to some extent, a seasonal pattern. In Q1, it is usually rather low in terms of expenditures. CapEx tends to be geared towards the second half of the year. Additionally, the dividend for the fiscal year 2020 has not been paid out. The AGM, we decide on the proposed amount of EUR 501 million on May 19. Just like net financial position pensions and asset retirement obligations decreased also by roughly EUR 300 million in total. This is mainly driven by higher interest rates on our pension provisions. Those increased for Germany from 0.8% to 1.2% and for UK from 1.5% to 2.3%. Given this low level of debt and the strong financial performance, it is clear that Uniper is in a very comfortable position when it comes to relevant freight in KPI needed to sustain the solid investment credit rating of BBB. Having said that, let's go over to the final chart for today, Uniper's updated financial outlook. As communicated in the ad-hoc statement last week, Juniper has updated its full year guidance for adjusted EBIT and adjusted net income. In both cases, existing rates has been adjusted upwards by EUR 100 million. Accordingly, we now expect the adjusted EBIT between EUR 800 million and EUR 1,050 million at the year-end. For adjusted net income, the updated full year guidance is EUR 650 million to EUR 850 million. Please note that we have not narrowed down the ranges yet as we are seen early in the year. The reasoning for the increased guidance is quite straightforward. Q1 adjusted EBIT turnout about EUR 100 million better than originally anticipated. Uniper expecting the Q1 adjusted EBIT decrease in the forecast of EUR 650 million. As its expected earnings as well as charges for the remainder of the year remained largely unchanged on the net basis. This higher Q1 results speaks more or less directly into the updated results. However, even though we expect a stronger full year 2021, the upcoming Q2 will most likely be less overwhelming. Given the seasonality pattern, Q2 and Q3 are traditionally the weaker quarters in the year. Last year, automated Q2 contributed only EUR 40 million to the group's adjusted EBIT. This year, we expect this amount to be even negative in the mid-double-digit area. Since Q3 is also usually negative, the gap to the full year's target will be widening until finally Q4 brings necessary forward. Thank you very much for your attention. I would like to hand over back to Stefan.

[Stefan Jost]

Thank you, Tiina, and we are now coming to our Q&A section. As always, the analyst and investors, please speak to the 2 questions through it. Operator, over to you.

[Operator]

[Operator Instructions] The first question is from Sam Arie of UBS.

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

Welcome to the new team. Congratulations on a very good presentation. Obviously, a nice set of results today. I think -- well, I hope you forgive me if my first question is a bit direct, but well, of course, we're delighted to welcome the new management team today, but I think everybody is also a bit surprised that, that's what we're doing. Certainly, if I look back at full year results, which was not too long ago, I think we will understood that cooperation between Fortum and Uniper was going well, Sascha and Andreas kind of quite settled into what they were doing. So I think my question is, could you help us understand a little bit more clearly what has happened here that brought about the changing team? And perhaps what specifically you guys and the new team will be able to do that the previous team wasn't doing? I think maybe that's actually a question, Klaus-Dieter, for your side. And then I think my second one, which is connected, maybe this is one actually for you, Tiina. But the last time we heard from Sascha and Andreas, they we're unable to give a forward view on the dividend, and they said that discussion with Fortum was still pending. I think that was the word. So I was just wondering if there's any update on those discussions? And if you're able to say anything looking forward about where Uniper might go now with the dividend policy? So those are my 2 questions.

[Stefan Jost]

Sam, thank you for your questions. I propose Klaus-Dieter will take both questions on the management change as well as on the dividend. Klaus-Dieter, please.

[Klaus-Dieter Maubach]

Sam, thank you for your questions. It's not a -- I have to say it's not a total surprise that these questions were raised. I hope this is fair to say. Now when it comes to your first question, I also understand and acknowledge that what's kind of published end of March, I think it was beginning of April that we have some changes to the management. It came to us as a surprise for many people, maybe also only outside, but also inside of the organization. What I can say is that -- number one is that back that I was on the Supervisory Board that we are grateful for the service of Andreas Schierenbeck and Sascha Bibert. I mean they have managed this company for almost 2 years. They were great in kind of dealing with the challenges out of the corona crisis. I mean, let's face it, this was a difficult, very difficult year 2020. So we're really grateful for that service. I'm also grateful for the fact that we have -- we came to an amicable solution to an agreement on how to terminate the contracts. And I think we should be respectful of that and grateful that we had kind of this way of transition. I mean what was basically clear is and that was a discussion that the Supervisory Board had to take up the question on how will the future look like? How is the way forward? It was not so much about kind of looking back. It was about how the future would look like and how the management board should look like. And in that respect, the Supervisory Board have discussed and taken the decision. And you know about the decision that Tiina and I have now an opportunity to join the management board, and Andreas and Sascha agreed to leave the management. I would like to leave it on this note. With regard to dividend, also a very good question. And again, not an easy one, maybe you can next time select some more easy questions for me kind of coming into this discussion, but I'm trying to kind of answer that question as well. I understand that Uniper has been seen as a dividend stock so far. And I do also understand that it was anticipated that management is clear on how the way forward would look like. But I have to say today that we are not ready, at least not today to talk about the dividend or the dividend policy or any dividend outlook for 2021, paid in 2022. I think what I can say though is that particularly that I have sort of understand the full situation, you've learned from the numbers that we have published that we had some tailwind from external factors, referring to a cold winter in Europe and also in the U.S. What we do know is that it can be the other way around as well. So the most important thing for us is protecting our executive business. And you know that global commodities of our business requires a certain rating. And this is the most important thing that we have to defend. Number two, as I said, we have high ambitions on growing the company into the renewable hydrogen space. So what are the funds that we need to have available for these kind of growth ambitions and number two things. And we still do not know and have not fully understood the consequences of the corona impact in the course of 2021. So when it comes to dividend, from my end, it's simply too early to tell. And I would like to ask your understanding that we're not going to release any indication on how the dividend would look like.

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

Okay. So my understanding from that answer, if I may, just clearly follow-up is that you're leaving it open whether the dividend might go up or might go down. Is that fair?

[Klaus-Dieter Maubach]

That's absolutely fair.

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

Okay. That's very clear. And thank you for your answer to my other question, too. I apologize to be so direct. But of course, as I said, welcome you guys aboard and look forward to more results and events with you.

[Klaus-Dieter Maubach]

Looking forward to meet you in person. Thank you, Sam.

[Operator]

The next question is from Lueder Schumacher of Soc Gen.

[Lueder Schumacher, Equity Analyst]

Two questions for me as well. The first one is going back to what Sam just raised, but in a slightly different way. In terms of the management change. I'm not really so much interested on why it happened, but I'm interested to hear what you will be doing different? What is the plan? I mean Fortum's press release that Fortum believes more benefits can be realized and achieved faster within the current setup through deeper integration. Can you maybe elaborate a bit on what this deeper integration could look like? Should we be looking at the synergy target that Fortum announced at the Capital Markets Day last year as quite conservative? Could this go up? What are you going to do different? That's the first one. The second one is you had obviously quite another extraordinary Q1. If you're not careful, we come to expect this from you from now on. But if I understand the trends you described in driving this extraordinary performance, i.e., the cold weather you've got fewer commodities. These trends, certainly in terms of temperatures for Northern Europe in terms of gas prices, they are up another 23% since the end of Q1. Carbon is up another 15% since the end of Q1. Could this super strong performance in Q1 also slip over into Q2? What have you seen there so far?

[Stefan Jost]

Lueder, thank you for your questions. The first one, the management change corporation with Fortum will be taken by Klaus-Dieter. The second one on the Q1 performance, will be taken by Tiina. But Klaus-Dieter, first over to you.

[Klaus-Dieter Maubach]

Now what -- you were basically asking the question, what will be different now since Tiina and I have taken over. I would say maybe a number of things that will be different. But the most important thing I would like to start with that is that the strategic direction that Uniper has decided on beginning of last year that was confirmed by end of 2020, that is clearly something that I can confirm. This is our strategic direction. So in terms of strategic direction, you should not expect major changes. When it comes to implementing the strategy and executing, our goal is to accelerate that. And when it comes to the cooperation with Fortum, you were referring to a target that was set out at the Capital Markets Day in 2020, EUR 100 million goal for both companies that I can confirm. I think we can do more and a little quicker to kind of survive at that target, number one, and we will definitely look into more opportunities beyond what we have already agreed. Too early to tell and put a number to that and too early to tell where we find that, but we'll clearly also kind of looking again together with Fortum on how we can strengthen our collaboration and always eyeing on where we can kind of do this to the benefit of both companies, and hence, also to the benefit of all shareholders for Uniper. The second thing is that we would like to look closer into growth opportunities. I said this before that we are looking -- we're expecting growth opportunities in the renewable and the hydrogen space. I should also say that the renewable business is something that Uniper is responsible for, and we are happy to take that role also as part of the Fortum-Uniper Group. And that is something that we are clearly targeting to find opportunities for organic and inorganic growth, in particular, also in the renewable space. So this would be my kind of response to your first question. What will be different it's not about strategic direction, but it's about the speed and the depth of our corporation and also about our growth plans.

[Tiina Marjukka Tuomela]

Thank you for your question. So first, your question related to the kind of the volatility of the market and big in a way swings. So I think this is the current market environment, what we more frequently see last winter, very warm. This winter, it was more kind of the normal winter, but also some very extreme peaks in U.S. and in Asia. I think the key that we capture this in a way moment and utilize our flexible portfolio, and in a way be on the nerves and in the market and be able to react to these changes. And I think this, in a way, show now repeatedly in last year quarter 1 and also shown this year. But then if we look at the forward, and then the question would this be repeated in Q2. So at the moment, we will see that Q2, Q3, those are the lowest quarters of the year. And we -- once we updated our full year account, so we also reflected the following on quarters. So of course, very happy to see if the market changes and we in a way, capture the value. But for the moment, we see more kind of the regular seasonality coming on and as indicated Q2 mostly to be slightly negative.

[Lueder Schumacher, Equity Analyst]

Very interesting. Just to clarify this. So despite gas prices going up, carbon prices going up and temperatures being unusually low for this time of the year, you do not expect the Q1 effects to go over into Q2?

[Tiina Marjukka Tuomela]

So as in normal cases, so even though the gas price is now going up. So this is usually the time when we put the gas into the storage, and the demand also during the summertime is not so high. So I think there is not a big opportunity. So injections and outcome is more kind of the neutral. So accordingly, we don't see big upside here.

[Operator]

The next question is from James Brand of Deutsche Bank.

[James Brand, Research Analyst]

I also want to express my best wishes for both of you in the new roles and good luck. Two questions for me. The first, Klaus-Dieter, you gave the impression that you were happy with Uniper's strategy, and it was more about the execution. Can I ask on a slightly different note whether you're also happy with the overall scope of the group. There's sometimes speculation around the Russian business, there's been kind of discussions in the past around whether Uniper could sell stakes in some of the pipelines. Are disposals something that's on the cards for Uniper or is it too early to make judgment on kind of strategic issues like that? And then secondly, on the growth opportunities, you mentioned renewables and hydrogen. On the renewables side, should we be thinking about a particular niche of renewables that you're going to be targeting? Or is it really just a case of building up a big pan-European renewables business? Because there's -- obviously, you're quite a late player to the renewables game in a kind of subsector where, particularly this year, there's increasing competition. Just wondering where you felt you could be adding the most value from a renewable development pipeline.

[Stefan Jost]

Thank you, James. Great question. For first, I will ask Klaus-Dieter to take the complements and question on the Uniper portfolio, but as well on the renewables.

[Klaus-Dieter Maubach]

Yes. Thank you for your question. I mean, again, you're right for the referred to the fact that there is, from our perspective, currently no need to revisit the strategic direction of the company, very clear on this one. Now when it comes to executing the strategy and kind of looking at what we could do and should do in future, the big headline for everything is decarbonization. I made that -- hopefully, I made that point clear in my initial remarks. And looking at the opportunities and growth opportunities in the future, we'll come back in a second to your point on growth in renewables. That means at the very same time that we have the intention to decarbonize our portfolio, it will mean that we also look at our existing portfolio. And I would not go that far to talk specifically about specific assets that we have in mind. But what I can say is that if we're talking about decarbonization, we will look into every business of our portfolio. I think there's room to look at that and also take action in every part of our business, and then making sure that we live up to the expectation our goals to decarbonize our portfolio. But I would refrain from talking about specific assets for the time being. When it comes to your renewables question, to be very honest, I mean we are newcomers almost to this business. We are, if at all, the new kid on the block. We have, as a group, including now also activities from Fortum, a number of things developed over time, but there is you can hardly see any portfolio that is on our balance sheet when it comes to onshore wind or solar. We are a strong renewables power generator when it comes to hydro. But with regard to onshore wind and solar, we're not playing a role. This is what we are targeting. It's more the, I would say, conventional part of the renewable sector. I think you can also expect us to look in particular, and first of all, 2 countries in which we are already present, also providing opportunities in countries, but also with regard to sites on which we are active, maybe have an opportunity to not only turn some of the sites into hydrogen sites, but also looking for opportunities to develop renewables on these sites. So it will be an approach looking into that space carefully, but not moving outside of Europe or doing something that goes beyond the, I would say, almost conventional renewable activities. So you should expect us to look for opportunities organically and inorganically in Europe and also with regard to onshore wind and solar. That's what we're -- what our aim is. And I should also say that we know that we will start with these activities in a way that we're trying to develop, build and then also sell projects that we have hopefully successfully developed. And then at a later stage, makes considered to keep those assets than on our balance sheet. So it will be cautious and that -- we have these targets, but it will be a cautious step-by-step approach that we want to take on renewables.

[Operator]

Next question is from Elchin Mammadov from Bloomberg.

[Elchin Mammadov, Utilities Analyst]

I have 2, please. The first one is on the carbon and decarbonization. You talked quite a lot about it. We've seen some headlines from Germany, more ambition, emission reduction target, the carbon prices keep going up. What does it mean for Uniper in the longer term? Does it create more opportunities or threat? And the second question is on the borrowing cost. I mean, we've seen an uptick in bond yields and inflation. If that continues, what does it mean for Uniper's borrowing cost in the next, I don't know, 3 to 5 years?

[Stefan Jost]

Thank you for your questions. And I think the first one on the decarbonization is one for Klaus-Dieter. And the borrowing costs, Tiina will take that. Klaus-Dieter, maybe give it a start.

[Klaus-Dieter Maubach]

I think when it comes to carton pricing, well, we all know that with our outright positions that we have in our portfolio when it comes to our nuclear production, also to our hydro production in the Nordics and also in Germany, clearly, every increase of carbon prices is helpful, I will say so that is usually something that has been reflected by wholesale prices and which we have a strong outside position, it is helpful, and we will benefit from that. When it comes to our spreads to the dark spread, it's more or less neutral, would expect much out of that. The other aspect that you mentioned when it comes to carbon pricing and the way it's -- the entire political debate is on develop. I mean, it's a particular of interest us to see how the decisions -- or political decisions are being taken in Brussel on the EU level, but also in Berlin. And there are obviously a lot of moving parts that are difficult to assess from our end. But what I can say, though, is that it's a pretty dynamic development. I mean you can see almost every day, politicians and governments coming together and trying to understand what they can do next. Particularly in Germany, we have federal elections coming up. It's also clear that a higher climate protection, CO2 reduction issue is one of the key topics for the upcoming election and thereafter. So it's really difficult for us to judge -- to make a final judgment on how this will impact our portfolio. What I did say, though, in a number of presentations and invitation for conferences is that if European Union or in particular German government would have any [indiscernible] time ask us to come to the table, talk about an acceleration of coal exit, we are ready to talk, we are ready to speak. I was also referring to the situation in the Netherlands. I'm not selective. We are ready at any point in time to discuss with Dutch government on the way forward when it comes to [ selecting ] 3. We understand that action needs to be taken, and we will not be a roadblock. We want to be part of the solution. Maybe that is what I can say to your carbon question.

[Tiina Marjukka Tuomela]

So coming back to our net debt position and the impact of the interest rate on price increases. So firstly, I would like to mention that actually, our net financial position is very small. So at the end of Q1, so EUR 218 million, so practically, nearly debt-free. Also, if we look at that, what is the impact of our cash flow, the interest payment Q1 was minus EUR 5 million. So basically, very, very small impact. However, what we have is the provisions, so both would come to asset retirement obligations and pensions. So there, of course, the interest rate will impact. And as we saw in this Q1 that when the interest rates came down, so discounting with the high discount rate. So the actual pension and provisions went down, for example, pensions by EUR 232 million so impact is coming from net debt and then going down.

[Elchin Mammadov, Utilities Analyst]

So the net impact from high bond is actually positive?

[Tiina Marjukka Tuomela]

Yes, that's correct.

[Operator]

The next question is from Vincent Ayral of JPMorgan.

[Vincent Jean Michel Ayral, Analyst]

Best wishes on your respective roles. My questions were submitting on the call already. So I'd like to take a slightly different angle on the dividend. I'm saying that it could go up, it could go down. It depends on the decision on the investment front, assessment of the COVID impact. I would say this is true for most, if not all of the companies in the space. Ultimately here, we had a special situation, and it's clear there is an agreement with Uniper and Fortum. So maybe we can look at it this way. Who -- if you can help us understand who of Uniper or Fortum is asking for a higher dividend than the other if you were considering the same dividend, there wouldn't be a disagreement to start with? So that would help us understand the dynamics there. Hopefully, you can shed some light for investors and analysts like on this topic.

[Stefan Jost]

Vincent, great to have you on the call. And as always, any question is appreciated. Dividend question, obviously, is one for Klaus-Dieter.

[Klaus-Dieter Maubach]

Yes, I understand that the our answer with regard to the dividends is not fully satisfying, obviously, with everybody around. I do fully understand it, but I would also be -- for your understanding that we don't want to go deeper into that topic today. And the question that you made, who would be interested in kind of higher or lower dividend? Would it be Fortum or Uniper? Again, I think part of the question you to ask our fellow colleagues what their views are. Well, so it's a wrong place, if I may say so. And when it comes to our view with regard to dividend, I try to outline and describe how we look at this. It's simply really too early to tell. I don't want to reiterate and repeat what I said before. We understand that this is an important topic to investors. We have to make up our mind clearly on this topic, but it's really too early to tell. I don't want to commit to any kind of outlook when it comes to dividends today.

[Operator]

The next question is from Pujarini Ghosh of Bernstein.

[Pujarini Ghosh, Research Analyst]

Congratulations again from my side for a very successful first 2 months. So my question, again, is somewhat on the strategy acceleration. So could you possibly throw some more color on maybe some specific initiatives that you're taking, especially in terms of inorganic opportunities that you might have already identified in Europe? And my second question is on the trading division. So you mentioned that a lot of the outperformance came from coal temperatures and especially in the U.S. So does this relate to the taxes scheme earlier in this year? So basically, what was disposes of the outperformance? And do you expect this to be repeatable in future?

[Stefan Jost]

The question on the strategic acceleration, that is one for Klaus-Dieter. And then on the trading business, in particular, the U.S. impact that will be taken by Tiina afterwards. Klaus-Dieter, acceleration.

[Klaus-Dieter Maubach]

Decarbonization leads the way in every aspect. So you can expect from our end that we are looking at our portfolio, whether we can kind of accelerate, for example, also some of our coal exit ambitions that we do have, number one. We are -- in terms of acceleration, we will look at synergies and corporate -- fields of cooperation with Fortum going beyond what we've already disclosed. And lastly, also this element that you asked for clearly, we are not only looking for organic growth opportunities, but also for inorganic growth opportunities, but we would not really like to disclose any specific targets that we have when it comes to inorganic opportunities, and I'm sure that you will understand that.

[Tiina Marjukka Tuomela]

So as said, our trading division, so very good excellent performance, capturing the kind of the opportunities in the market. And one part was also the access in a way called spell event. So from our -- overall, in a way, international commodity business also increased results year-on-year, EUR 460 million. And roughly, half of that is related to U.S. gas and power and LNG, we could say, in a way, whether -- or in a way, winter the impact. Of that number, roughly EUR 230 million is related to the Texas spell. So what actually happened is that market conditions in Q1 were very, very exceptional. So in February, as you know, there were roughly 10 extremely cold days. And it meant that, unfortunately, conventional power plants as well as wind and solar plant went offline. Also, some gas production fell more than 30%. And it is impacted that power and gas prices went to unseen very, very high levels. I think Uniper was able to utilize its flexibility. So we have a gas in the storage, so we could sell that to the market in a way advanced and we would also utilize our power optionality to bring the gas and power to the market and bring the security of supply. So I think this kind of cost, I really, really hope it will not happen because it's a very difficult situation for the people, also, our employees, everyone. So hopefully, we can fight against the climate change and have more stable situation. So flexibility, yes, we're trying to utilize, but we can say that, that would be repeatable.

[Operator]

The next question is from Deepa Venkateswaran of Bernstein.

[Deepa Venkateswaran, Senior Analyst]

Sorry. I joined the call slightly late, so apologies for asking another question from the same firm. My question is on the speeding up of execution. So obviously, one of the big aspects of the carbon footprint is your Russian division. So apologies if this question has already been asked. So I was just wondering whether as part of speeding up your decarbonization plan, an exit from Russia is on the card. I think the previous management team always looked at it. I think they called it the third leg of the Uniper strategy from memory. So I was just wondering whether you have a different view of how you see the Russian division?

[Stefan Jost]

Thank you, Deepa, for your questions. Good to have the full Bernstein team on. And the question on Russia is for Klaus-Dieter.

[Klaus-Dieter Maubach]

I think it's -- as I said before, every business segment that we are running needs to contribute to our decarbonization strategy, and that includes Russia. How this will look like and what we can do, but that is something that we need to discuss it particularly with Russian colleagues. Too early to tell how it will definitely look like, but we also expect from our Russian business that they will contribute to our decarbonization. That is what I can say. Everything else would fairly go beyond -- I don't want to speculate on how the outcome would precisely look like, but I expect also to Russia to contribute.

[Operator]

The next question is from Piotr Dzieciolowski of Citi.

[Piotr Dzieciolowski, Research Analyst]

Best wishes on your new roles. I have 2 questions, please. So the first one would be on the renewable targets. We actually learned the targets of Fortum Group, which are consolidated targets, which are EUR 3 billion CapEx spend by '25 and delivering of up to 2 gigawatts. How much of this renewable target would be attributable to Uniper? And can you achieve it organically or M&A of pipelines is not avoidable? So that's a first question. And second, on the Maasvlakte arbitration. What is your expectations regarding the timing of this process? And what are you looking to achieve? Is it just a simple plan compensation? Or there could be other solutions? I don't know what that could be, that extension of the pipeline or anything like this?

[Stefan Jost]

Thank you, Piotr. And I think that -- maybe we start with a second question on Maasvlakte, Klaus-Dieter, and then take the renewals afterwards.

[Klaus-Dieter Maubach]

Thank you, Stefan. On your Maasvlakte question, I mean, we don't know how an outcome could look like. We are ready to talk. We are ready to negotiate with Dutch government. What we're not willing to accept is the situation we are in, that we have a Dutch coal exit law in place, which is not compensating us. For an early retirement of MPP 3. I think we are ready to talk about kind of compensation, all kind of folks. And there is clearly some flexibility from our end and hopefully also from the Dutch government with regard to that. It could be also that we are developing something on-site and that is certainly aspect may be supported by Dutch government. There are a number of other topics that we need to kind of address as well about security of supply in the Netherlands and so forth. So maybe we need to be creative. But the first thing that we need to accept or they need -- effected for both sides is that the current situation is unacceptable to us, and we have to see, and hopefully, we'll see that also Dutch government will accept this. And this is a good starting point for us to talk and see how we can resolve the situation. The second question on CapEx. I think we have also -- start we are aiming for. Until 2025, I think our goal was 1 gigawatt of capacity that we're targeting. Clearly, this can be not only achieved by organic growth, but most likely also by inorganic growth of finding something that we can acquire a kind of platform, let's see. We -- as I said before, the starting point will come in almost from 0 from that one. And we have also said that we are targeting a higher number beyond 2025. And that is really beyond the next 3 years. In the next 3 years, we have said that we want to spend EUR 2.7 billion of CapEx, and thereof EUR 1.5 billion for growth. And that is basically generally what our framework looks like.

[Operator]

The next question is from Iiris Theman of Carnegie.

[Iiris Theman, Financial Analyst]

Yes. This is Iiris Theman from Carnegie Helsinki. I have 2 questions, please. So firstly, just a follow-up question on Germany's plan to achieve carbon neutrality by 2035. Would it be possible for you to decarbonize your cash portfolio by 2045? Or does it require more time? And then secondly, this year, we will have more power of gate or capacity coming between the Nordics and Central Europe and the U.K. So what do you think how this will impact the Nordic and German power prices? Is it going to be positive for both prices or an exact that the German price would decrease because of increased capacity?

[Stefan Jost]

Thank you, Iris, for your question. On the first question, the decarbonization, the 2035 as to probably one for Klaus-Dieter and the second one, the correlation between the German and the Nordic market, that's one for Tiina. And maybe that's I want to start with.

[Tiina Marjukka Tuomela]

Thanks for your question. So rightly, if we currently look at prices in the Nordic and in the Continental Europe, so there has been, in a way, pretty big gap so prices in the Nordics, EUR 25 to EUR 30 where in Germany or Continental Europe much higher to EUR 50 to EUR 60 per megawatt hour. I think it is very essential to get this new interconnection in line and even get to more. There was one important link already which was online last December, not from Norway to Denmark. We also expect this year this North Sea link from Norway to U.K. This is coming on the line, and then a bit later in 2024, the link between Denmark and U.K. So very important to get the different marketplaces connected. However, how this gap -- will it decline or what will happen? So we depend on the progress of the building of the interconnections, but also how the future supply and demand will develop in both markets, particularly in the Nordic. So we know there is a lot of building up of renewables in the Nordic. But then on the other hand, a lot of electrification is going on. Decarbonization industry is using more and more power. So all these, in a way, different elements will impact and it remains before that what is the space.

[Klaus-Dieter Maubach]

Shall I take the first question on carbon? Now we have set out a net 0 carbon target by 2035 for our European generation. I can confirm that. And I can confirm that this would include also our gas fleet. Clearly, this would mean that we have to take action on a number of things, in particular, also looking for opportunities to feed not only natural gas but also hydrogen in some of our generation units. That's still a way to go. You know that we're working on a number of initiatives together with our OEM manufacturers, gas turbines to see what we can do and what we should do in order to get them converted from natural gas to -- for hydrogen. But I would like to stress at this point that gas -- I'm absolutely convinced that it will become pretty clear in the next years to come. For Germany in particular, but also for Continental Europe, how important gas will be as the key transitional energy from that we need in order to run systems, power supply systems and energy supply systems in Europe with a very high and increasing share of volatile renewable power generation. And we feel absolutely best positioned to provide solutions when it comes to transitioning natural gas to hydrogen and hence, helping power supply systems to provide security of supply. Do we have all the answers today already? No, is there still a number of things that we need to do? Yes. But our target, our goal is pretty clear. We want to be net 0 -- we have a net 0 carbon target for 2035 and that's convinced that we can achieve that goal. That's maybe to your question.

[Stefan Jost]

Operator, to our understanding, there are no more questions, is that correct?

[Operator]

Yes, there are no more questions.

[Stefan Jost]

Thank you all very much for participating in today's call. Thank you very much. Have a nice day.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.