Uniper SE
XETRA:UN01
Earnings Call Analysis
Q2-2023 Analysis
Uniper SE
Uniper addressed its strategic vision and the progress it has achieved in its transformation journey. The company is committed to shift from conventional energy sources to renewables, aiming for a mid-double-digit terawatt hour portfolio by 2030, and exploring carbon capture and storage as well as large battery solutions. They intend to invest over EUR 8 billion by 2030 in growth and transformation, leveraging their recovery without further state equity injections.
The company reported its highest ever recorded adjusted EBITDA and adjusted EBIT numbers for a first half-year. This financial resurgence has led to an upgrade in Uniper’s credit outlook from negative to stable, and they successfully reduced a substantial credit facility ahead of schedule. The performance was less driven by volume and more by effective management of a volatile market, leading to a downturn in in-house electricity generation and high gas storage filling levels.
Uniper outlined how its strategic hedging and optimization transactions affected their impressive earnings, and how carefully managed gas storage levels supported operations and financial stability. The company remained ahead of both EU and German gas filling thresholds and announced they are on track to meet further gas storage goals, despite potential supply risks for the upcoming winter season.
In an upbeat tone, Uniper's executives presented a plan focused on establishing a sustainable business model and investment strategy. The aim is to return to private ownership and regain an investment-grade credit rating, setting a stage for the company to be independent again. The German government intends to exit its stake by 2028 while formulating an exit strategy by the end of the current year.
During the Q&A, management was confident about acquiring enough regulatory support to implement their greening strategy for power generation. Questions focused on the timeline for privatization, Uniper’s strategy for green investments, and legal pursuits against Gazprom sparked insightful discussions. Uniper emphasized their robust financial foundation and the potential methods for returning bailout funds to the German government without impairing minority shareholder value.
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Dear ladies and gentlemen, welcome to the Uniper Analyst and Investor Conference Call First Half Results 2023. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. [Operator Instructions]
May I now hand you over to Stefan Jost, who will start the meeting today. Please go ahead.
Good morning, dear analysts and investors. A warm welcome to the Uniper interim results call for the first half of the fiscal year 2023. I'm sitting here with our CEO, Michael Lewis; and our CFO, Jutta Donges.
I'm glad that both are with us today, and especially a warm welcome to you, Mike, as this is your first appearance as Uniper's CEO in a results presentation. We will start with Mike, who will present to you our new strategy and will give you an overview of the key developments of the recent weeks.
In the second part of today's call, Jutta will guide you through the interim results presentation and our key financials. As usual, there will be a Q&A session after the presentation.
Over to you, Mike, please.
Thanks very much, Stefan, and good morning, everyone, and a very warm welcome from my side to this call. As Stefan said, I'm Michael Lewis. This is my first call as the new Uniper CEO, and it's a real pleasure to be here and to guide you through this call together with my colleague, our CFO, Jutta Donges.
Some of you may know me from my time at E.ON, where I served the last 20 years in various leadership roles, most recently as CEO of E.ON UK, where I led the integration of Npower and the digital transformation of the business.
But it also feels like I'm not entirely new to Uniper. As I've met many former colleagues here at Uniper again with whom I had the pleasure to work at Uniper when it was still part of E.ON. So meeting new colleagues again and diving into the various businesses that comprise Uniper was very familiar to me, and it made my start on June the 1st, relatively easy.
It also put me in a good position to get right to work in reviewing Uniper's strategy, being conscious of the extraordinary events that Uniper went through in 2022 and at the beginning of 2023. I can say that I'm deeply impressed with the resilience of the entire organization, the extraordinary level of expertise and the professionalism, all of which forms the basis for the next chapter of Uniper as we embark together on the way forward. And on that note, I also look forward to meeting many of you in person on future occasions.
So together with my colleagues, we've worked over the last weeks intensively reviewing Uniper's strategy and setting out a new course as to how we want to shape the transformation of the energy system towards carbon neutrality, and in so doing, also transforming Uniper. We will present to you today the results of this strategy review process, and we will also guide you through our half year financials, which marked nothing less than an extraordinary positive development, unique in our company's history and unique in terms of a financial turnaround and this forms the basis of our ambitious new strategic direction.
Jutta will explain the details of our financials to you, but let me already say, Uniper is back on track. We significantly de-risked the business, we stand operationally on very solid ground and we generate significant cash flows, which will allow us to focus on our future.
So let me now turn to the core of our strategy update under the mantra, accelerating the energy transition, flexible, balanced, bespoke. As the energy sector undergoes a transformation, also the supply and demand button for energy will shift fundamentally over the coming years. This is driven by the de-carbonization that Europe will experience and a significant growth of green electricity will be core to that.
And while electricity demand is expected to double by 2030, the share of renewable capacity in the energy mix in Europe is expected to increase to more than 70%. And along with the significant build-out of renewables, also the requirement for flexible generation capacity increases, capacity which is capable of balancing renewables, on which today, mainly run on fossil fuels, needs to be transformed into flexible greener capacity.
Not only will the electricity sector undergo this fundamental shift towards a greener future, but also gas supply will as well. And today, the gas market is based on natural gas. In future, it will increasingly consist of green gases and hard to abate sectors will heavily rely on the availability of green gases like hydrogen or biomethane to meet their de-carbonization targets. And already today, Uniper has these capabilities and assets and is ready to play a significant role in this transformation process right across Europe.
But this means that Uniper will also change. In 2030, Uniper will look fundamentally different than it does today. We will transform Uniper into a leading provider of green energy in Europe, whilst at the same time, continuing our traditional role of providing security of supply. We will predominantly produce green and flexible power and blend our gas with rapidly increasing shares of green gases and continue to serve our existing approximately 1,000 customers with bespoke energy solutions.
All of this is supported by a trading and optimization platform, which originates and trades energy projects across markets and provides high-quality services to grid operators to help them balance the energy system. Uniper set course to accelerate our transformation into a green company and we commit today to first a coal exit by 2029, eight years earlier than planned, and even more importantly, to become a carbon-neutral company for our Scope 1, 2 and 3 emissions by 2040.
And Uniper will set aside a total of EUR8 billion by 2030 for investments to achieve this green transformation. And this means we will triple, on average, our annual growth and transformation investments compared to the average of the last three years. And our investments in growth and transformation will perfectly support our ambition to become an independent company again and return to a stand-alone investment grade rating.
And to achieve the 2030 target, we will focus our activities on four pillars. Namely, first, we will continue to focus on customers. Our industrial and municipal customers form the basis of our services provided in transforming the energy system. Second, we will focus on our power generation portfolio and transform it into a green and flexible portfolio.
Uniper today safely operates one of the largest power generation portfolios in Europe with 22.5 gigawatts and we will invest with discipline in the transformation of our power generation portfolio to become a predominantly carbon-free generator. Third, we will reshape our gas supply portfolio to remain a reliable supplier and to make it increasingly green.
So we will remain a key gas supplier in Europe. And while natural gas will remain the basis of our gas supply well into the 2030s, the share of green gases in our portfolio is set to steadily increase until 2030 and indeed thereafter. And fourth, we will strengthen our role as a trader and optimizer through maximizing the value of energy across our geographically diverse portfolio of energy commodities, originating new products as the energy transition evolves, and also by providing system operators with the services they need to operate an increasingly larger and more complex grid system.
So now let me describe each of our four pillars in a bit more detail, and over to our first pillar, our customers. And our roughly 1,000 industrial and municipal customers form the basis for our services that we provide in transforming the energy system and we strive to remain the supplier of choice for those customers. We have the ambition to grow our sales of green products, both in gas and power, by expanding our product portfolio, for example, through adding biomethane to our portfolio or through growth in green hydrogen sales.
And on the power side, we aim to extend our current sales portfolio of roughly 30 terawatt hours to become a leading player in green power purchase agreements and to provide our customers with services to help stabilize grids, for example, with the provision of ancillary services and batteries.
We have an extremely strong sales team that supports our industrial customers to embark on their own de-carbonization journey, and we jointly develop de-carbonization road maps and provide them with bespoke energy solutions. We are committed to continuously provide our customers with reliable and sustainable energy supply as we have done so throughout the crisis, and we will do so in the future, whilst helping our customers move towards more sustainable energy supply by providing more sustainable energy solutions.
I'll now come to the second pillar of our strategy, which targets the transformation of our power generation portfolio. And in an energy world that is predominantly run on renewable energies, the role of clean, dispatchable flexible generation will play a vital role in the energy transition.
Today, we operate high-performance portfolio of 22.5 gigawatts right across Europe. And today, roughly 20% of Uniper's generation portfolio is carbon-free. Our hydro nuclear plants contribute significantly to a reliable and sustainable energy supply. And in this area of zero carbon generation, flexible zero carbon generation, we want to and will do more. So by 2030, 80% of our portfolio will consist of low-carbon or carbon-free assets. One element to achieve this target is to phase out our coal-fired generation by the end of 2029. This is already eight years earlier than previously planned.
The second element is our increased ambition to speed up the growth of our renewable asset base. Our renewable team has acquired a project pipeline at gigawatt scale and we will also grow our base of wind and solar power. Also, our portfolio of renewable PPAs is set to expand significantly to a mid-double-digit terawatt hour portfolio by 2030. The third element is to transform our existing assets step-by-step into low-carbon or carbon-free flexible, dispatchable power plants. Uniper has ambitions, for instance, to explore the potential for carbon capture and storage projects in the UK or to make gas-fired assets capable for a fuel switch.
And the fourth element is our preparedness to invest in new net zero capable flexible generation assets at gigawatt scale as well as in large battery solutions as we already do in Sweden today. These investment decisions are subject to the right regulatory framework conditions, which in some markets are yet to be defined. So it's important to note that all of this investment is predicated on achieving a rate of return in excess of our hurdle rate and it's therefore imperative that the regulatory environment in the markets in which we operate supports this transition towards zero carbon flexible power.
Over to the third pillar of our strategy, our gas business. As you know, Uniper is today a leading gas supplier in Europe and will remain so in the future, but with a different portfolio composition. We have a strong gas portfolio consisting of more than 200 terawatt hour B2B sales, and our supplies are served by contracted pipelines or LNG volumes as well as the wholesale market.
And Uniper is also a leading gas storage operator in Europe. And we will continue to diversify the supply of natural gas in our portfolio to ensure that we remain the supplier of choice for our customers. Our strong gas business is the basis for us to transform this portfolio and broaden it further over time into a greener portfolio, but without compromising our reliability as a supplier.
The crisis of last year has taught us many lessons and we need to ensure that we do not find ourselves in a similar situation again. And we will, therefore, de-risk our gas business model and further diversify our gas portfolio, for example, by gradually broadening our gas portfolio on the supply side and by adding gases like biomethane or hydrogen.
And we will ramp up our hydrogen activities with the target to achieve at least one gigawatt of electrolyzer capacity to become a significant producer of green hydrogen in the future. The first signpost for our commitment is the final investment decision, which we've taken together with our partner for the innovative hydrogen project at Bad Lauchstadt, Saxony-Anhalt.
Here we will showcase the successful piece of the energy transition by tackling the entire green gas supply chain. We will blend our current portfolio based on natural gas steadily and in line with market developments with green gases like hydrogen and biomethane to serve our customers with a broad range of sustainable products.
And we will further explore the potential to convert parts of our gas storage portfolio into hydrogen storage. And first test projects are already launched like our project in Krummhorn, Lower Saxony. So by 2030, Uniper strives for a similar size of our current gas portfolio, but will develop into a portfolio which consists increasingly of green gases and which will play a central role on our way to net zero in 2040.
So, now over to our fourth pillar, optimization. Here we see our role as pivotal in making the energy transition a reality in real time. So what do we mean by that? Well, as we decarbonize the energy system and electrify more and more of the economy, such as transport and heating, the electricity system will massively expand and the different parts of the energy system will become ever more tightly coupled.
As intermittent and inflexible renewables become the backbone of the energy system, as more and more distributed generation will need to be integrated into the system, as long-duration seasonal storage and short-cycle storage become increasingly important in balancing supply and demand and as gas to power becomes power to gas to storage to power and as flexibility moves increasingly downstream and demand side management plays an increasingly important role.
This means that the relationship between supply and demand will become ever more dynamic and this will be reflected in more dynamic and volatile pricing. And we'll use our cutting-edge commercial capabilities to trade energy products across time span and markets. And by maximizing the value of the energy delivered, we serve our customers' needs for a reliable supply of progressively lower carbon power and gas.
Our aim is to allocate power and gas and the future green gases to the highest value use at the right point in time and thus support the balancing sales and supply. And this will involve Uniper's recognized expertise in energy trading and origination and our capabilities in optimizing the energy system and the assets that supply energy into our system.
So let me turn now to our sustainability targets. Uniper's accelerated green transformation is underpinned by tightened environmental, social and governance targets, and our agenda encompasses increased environmental targets. And this means, as I already said, Uniper will accelerate the coal exit by eight years and close the last coal power plant by the end of 2029.
And the last coal plant to close will be Maasvlakte in the Netherlands, assuming that Uniper fulfills its obligations under the EU State Aid decision, including the sale of Datteln. Uniper also commits to a carbon reduction target of at least 55% of its Scope 1 and 2 emissions compared to 2019 by 2030. And we'll also achieve carbon neutrality for the entire group for our Scope 1 and 2 emissions by 2035. Our target before was only to deliver this for our European generation fleet.
And this sets the stage for us to deliver, by 2040, a carbon-neutral company with Scope 1, 2 and 3 emissions being delivered by Uniper as a carbon neutral company. And furthermore, we'll assess the introduction of a science-based target for Uniper. With regard to our social responsibility, we will continue to use our leverage as an energy company to engage with suppliers to minimize the negative impacts on human rights violations in our supply chains.
And as an operator of assets and infrastructure, safety will be at the core of our culture. We set our target of zero severe accident and a high safety standard culture is particularly important when we are driving growth. And we want to build on our history of high-quality health and safety manager in Uniper, so that we continue to make sure it's part of our DNA as we transform and grow.
And part of Uniper's transformation agenda is also a revision of our governance and steering of our sustainable investments. Uniper will develop a climate transition plan by 2025, which will define our strategy for our de-carbonization in more detail. And we'll continue with our stakeholder engagement, for instance, in the form of stakeholder dialogues with NGOs to ensure a just transition in our supply chains.
So after diving deeper into Uniper's portfolio, let's briefly summarize how we want to get to 2030, and what will be the driving forces to achieve our targets. As I said, Uniper has financially recovered after the critical year of 2022. We have stabilized and we have regained financial strength and this is the basis for delivering our strategy.
Uniper is ready to invest over EUR8 billion until 2030 in growth and transformation to deliver our strategy. Uniper has regained the financial capacity to finance this transformation with our own strength. And Uniper is fully capable, without any further equity injections from the state, to deliver this transformation and growth.
And as presented earlier, our transformation will happen predominantly in three areas. First, we will decarbonize our existing assets and stand ready to invest in new flexible net zero capable generation assets. Second, we will step up our efforts in building out our renewables portfolio, predominantly in wind and solar and by growing our PPA portfolio. And third, we will transform our gas portfolio towards a green portfolio without compromising on our reliability as a gas supplier by diversifying our supply base and by investing in assets like electrolyzers as part of our overall de-carbonization target.
This transformation will make Uniper a strong driver for the energy transition and make us more resilient in a fast-changing energy world. At the same time, the planned investments will deliver more predictable and greener earnings, thereby supporting our commitment to regain a stand-alone investment-grade rating and to become an independent company again.
So our transformation process is already well underway. After the successful stabilization, Uniper has regained financial strength throughout the first half of 2023. We've presented to you the results of our strategy review from the past weeks, and this is for us the starting point to set course for our strategy implementation.
As part of this, we'll continue to implement the EU remedy measures, and with the strategy implementation, also pave the way for a successful exit of the bond from Uniper in line with EU requirements. And this means that by 2030, Uniper will have achieved its strategic goals and will stand on a sound independent footing.
And Jutta will now present to you Uniper's financial results for the first half of fiscal year 2023, which demonstrates that Uniper has indeed regained solid ground.
Jutta, over to you.
Thank you, Mike. Also from my end, a warm welcome to all of you. After we presented to you our strategic plan, let us now turn to the highlights of Uniper's exceptionally good operating half year performance.
Starting with a key highlight in the first half of fiscal 2023, we were able to remove the greatest uncertainty for Uniper's current earnings development. We closed open sales positions for '23 and for '24 from missing Russian gas deliveries to hedging transactions with a profit before taxes of more than EUR2 billion. The gains from these activities have started to become visible in the second quarter.
In addition, we now have clarity that there will be no additional losses from gas curtailment procurement and thus there is no need for additional equity from the German government. The Group's adjusted EBITDA and adjusted EBIT numbers are the highest ever recorded in a first half of our financial years. As a result of the financial recovery, S&P Global has affirmed Uniper's credit rating at BBB- and upgraded the outlook from negative to stable.
Uniper's financing requirements improved significantly, enabling us to reduce the KfW credit facility from EUR16.5 billion to EUR 11.5 billion, ahead of schedule by midyear. And as reported previously, we also started implementing the remedy obligation for Uniper's financial stabilization with the sale of our shareholding in the BBL gas pipeline and the sale of the marine fuel trading business. Both transactions have now been closed in the second quarter of this year.
Now let's move on to the details. I will start with the overview of Uniper's main operating indicators. Overall, our key operating figures reflect that our business was driven less by volume effects and more by leveraging the business potential of the Uniper portfolio in very volatile markets.
Uniper's high gas storage filling and our lower level of in-house electricity generation follow the decline in demand in the European energy markets. In Germany, for example, gas consumption was down by as much as 10% and electricity consumption fell by more than 6% in the first half of the year.
Gas markets were well supplied, especially Norway and LNG imports continued to deliver at high levels. Uniper's gas storage filling levels reached a rate of 78% by the end of June and now further exceeded the 85% mark slightly ahead of the EU's gas filling levels.
Uniper is fully on track to meet the November threshold of 90% for the EU and 95% for Germany. We expect that volatility in the European gas market is here to stay. Despite precautionary measures, supply risk for the end of the upcoming gas winter season cannot be fully ruled out.
Uniper's electricity generation declined by a double-digit percentage. However, this was significantly overcompensated by higher realized outright margins and spreads, as you will see in the detail later when I discuss the operating results.
Our fossil power generation was down significantly overall with carbon intensity improving, especially on the back of reduced coal generation. Gas-fired power generation production volume was quite close to last year's good volumes, benefiting from falling gas procurement costs and flexibility to balance market. Uniper brought back plans onto the market last winter to support Germany's security of supply. Let me reiterate that this is only a temporary effect for our coal-fired asset portfolio and does not impact our strategic direction.
Our outright fleet continued to deliver solid, but a lower output overall. Our Nordic nuclear supply declined due to planned maintenance at our plant Oskarshamn 3 and unplanned outages at Ringhals. Nordic hydropower, which recorded less water inflow compared to the previous year, returned in the second quarter to its average historic production level. German hydro production figures benefited from temporary high precipitation levels in spring '23.
Let's now move on to our key financials for the first half of this financial year. Uniper has achieved exceptional results in the first half of 2023 with an adjusted EBIT of EUR3.71 billion. Our numbers are unique, both in terms of level and drivers, and this should be considered when benchmarking our performance going forward.
Our half year result was driven across the board from Uniper's strong business activities on the back of a very favourable market environment. However, in view of the recent price declines on the commodity markets, Uniper's earnings performance should start normalizing from here.
Nevertheless, the remaining business month for fiscal year '23, we see strong support from closed forward deals and from our hedged gas-related volumes. Adjusted EBIT and EBITDA both show a uniquely sharp rebound and the best numbers recorded ever in Uniper's history. I'll get to the key results drivers in a minute.
Operating cash flow in the first half of this year followed the strong development of operating earnings. Adjusted net income turned around from a significant loss into unprecedented positive territory. IFRS net results came out strong accordingly. To recap, Uniper's prior half year IFRS figures included a net loss totaling EUR12 billion. This year, we see, in addition to the underlying support from operations, the reversal of provisions for onerous mainly Russian contracts, which boosted Uniper's first year IFRS net profit results.
On the next slide, I will highlight the main drivers for Uniper's strong operating earnings development. The recorded very positive earnings trend of Q1 '23 continued at an even faster pace in the second quarter.
In gas optimization within the Global Commodities segment, earnings were significantly driven by gains for the procurement of Russian replacement gas volumes of around EUR1.2 billion compared to a EUR500 million loss reported in the first half of '22. Moreover, after gas optimization had started '23 with a loss in favor of additional future optimization results, the expected catch-up effects have started to materialize now in the second quarter.
The Global Commodities sub-segment International made a high contribution to earnings in the first half, also supported by the restart of deliveries from the US LNG hub Freeport. The commodity power business with optimization and power trading benefited from the volatile market environment.
Also, the European Generation segment delivered an impressive contribution to group earnings. As a result of successful hedging and optimization transactions, we locked in high spreads with our fossil power plant. The most significant contributors here were the UK CCGT power plant and the German steam field.
Our outright power portfolio increased its contribution to earnings despite lower production volumes. Price effects in Swedish nuclear power and hydropower have a positive impact with a letter additionally benefiting from lower price distortions between the system price and the Swedish price compared to the previous year.
Nordic Hydro was the main driver due to favorable spot market sales and a modified hedging policy to minimize the negative effects between Swedish area prices and Nordic system price. German hydro power benefited from temporary heavy precipitation, as mentioned, and additional sales on the spot market.
The outlook for the outright power portfolio is also to the positive overall. Nordic hedge prices have been material up compared to the previous quarter, reaching EUR40 to EUR47 per megawatt hours for the years '23, '24 and '25. The earnings block other reflects the lapse of last year's negative consolidation effects.
And I would now like to turn to operating cash flow. Operating cash flow came in at EUR4.3 billion, up from a negative EUR2.4 billion recorded in the first half of the previous fiscal year. Operating cash flow even exceeded operating profit, resulting in a cash conversion of above 100%.
The development of working capital again is very positive in the second quarter of this year. Due to the high gas filling levels with which we entered the current summer season and the lower gas procurement costs, the additional capital required was significantly lower compared to the previous year. The item Other mainly contains the net impact from carbon allowances.
And on the next slide, you can see that the balance sheet repair is in full swing. At EUR13.7 billion, the IFRS equity position is improving further. The need for cash for margining has reduced significantly as the downturn in commodity prices has eased as liquidity situation. The rise at mid-year is due to a temporary effect and is preliminarily related to our forward hedging of the missing Russian gas volumes. With the settlement of our gas supply obligations this effect will reverse very fast until the end of the upcoming winter season.
Uniper's financial headroom remains very healthy with undrawn credit facilities of about EUR10 billion, already considering the reduction of the KfW facility. Backed by a strong financial improvement, we agreed with the state-owned lender KfW to reduce the KfW credit facility of EUR16.5 billion early by EUR5 billion, now to EUR11.5 billion.
At year-end '22, economic net debt stood at EUR3 billion. Fueled by a very high operating cash flow, Uniper Group's economic net debt has now turned into negative. That means we now have a positive net cash position, even considering the structural indebtedness stemming from asset retirement obligations and provisions. Asset retirement obligations and provisions for pensions were slightly lower, the latter due to marginally rising discount rates. All other drivers for this development were comparable negligibly.
I would like to conclude my presentation with an update on the outlook for the fiscal year '23. Having solved the biggest unknown for earnings development by hedging the Russian gas replacement procurement gives us the necessary comfort to specify the outlook for fiscal year '23, while acknowledging that we continue to be in a volatile environment.
Uniper expects an exceptional financial performance for full year '23 and is adjusting its financial outlook accordingly. Uniper expects adjusted EBIT and adjusted net income in a magnitude of a mid-single-digit billion euro amount for the full financial year.
For European Generation and for Global Commodities, we expect a continuation of the positive development for the second half of '23. It is important to note that the expected '23 result is largely based on exceptional circumstances. As mentioned, this will not be repeated at this level in the years to come. But still we have a very solid financial basis in place to start implementing our strategy.
Our main message to wrap up with. We, as of today, completely established Uniper's senior management, including our new CCO, Carsten Poppinga, is now in full work mode to further specify and implement the strategic goals.
At the top of our agenda for the upcoming months are in particular the following topics. Translating the greater scope for growth investments into concrete projects, working for the remedy measures, in particular, the sale of specified assets and adjusting our long-term gas contract portfolio and establishing the necessary framework to become, again, an independent company and to enable the German government to exit from Uniper in line with the requirements from the European Commission.
This brings me to the end of our presentation today. I hand back to Stefan.
Thank you, Jutta. Thank you, Mike. We can begin the Q&A session now. So, operator, I'm handing it back to you.
Thank you. Now we will begin our question-and-answer session. [Operator Instructions] Our first question today comes from James Brand from Deutsche Bank. Please go ahead sir.
Hi. Good morning and welcome to all the new management team and good luck. I had two questions. The first was on the kind of greening strategy for power gen. So you have a target, obviously, to get to what looks like converting most of the gas-fired generation fleet to clean gas and derivatives. And I was just wondering whether you felt that there was enough visibility on the support frameworks at this point to actually kind of plan that out, because it seems like there's still quite a lot that needs to be worked out. So maybe you could just outline kind of what visibility you think you have at the moment and what you'd like to see from policymakers. And then the second question is, obviously, in the pre-release, you highlighted that you may have to return some of the bailout cash to the German government. And the method by which that happens could be very important for minority shareholder value. So I was wondering whether you have any visibility at this stage as to how that return of capital to the German government could be undertaken? Thank you very much.
Hi, James. Good to meet you. I suggest I pick up the first question and then I'll hand over to Jutta to talk about the second question. You're absolutely correct. A large part of the drive towards greening our portfolio will indeed be either the conversion of existing power plants to zero carbon or the build of new brands that are at least carbon-free ready. In the case of conversion of existing plants, that's not only potentially green gases, but also carbon capture and storage and there is already a framework in the UK for that. You're right that it will, however, require regulatory developments in order to build out all of the projects that we hope to do so, both in terms of the development of a capacity market in Germany and in terms of the implementation of the hydrogen and green gas strategy. We are, however, confident that we have enough projects in our pipeline across the different categories, whether it be conversion, new build, renewables across the different geographies and to deliver that EUR8 billion investment package. And that's the reason why we've quoted a range of gigawatt capacity for our portfolio in 2030, because it does depend exactly how the regulatory incentives progress across the different markets in Europe. But what I would say is this investment is absolutely critical to delivering the energy transition and flexible low carbon generation is absolutely critical for all of the markets where we are present. So we are confident that the regulatory structures will evolve to deliver the necessary investment, because it's absolutely critical to deliver the energy transition.
I take the second question and thanks for the question. That is a good question. That also helps us to clarify some of this -- to clarify this topic because there has been some confusion, I guess, when we had our statement last week. So just to make sure that the prerequisites that bring us to this are clarified. The European commercial approval regarding the issuance of State Aid requires the return of any potential overcompensation that Uniper may have received during the stabilization period. And this is mainly to avoid distortions on the competition law. Since the end of '22, Uniper has not received any further equity injection from the German government. And this is due to the successful hedging of missing Russian gas volumes as just reported. So since there will be no additional losses from Russian gas volume replacement, there's no further need, and we also cannot claim any further equity injection from the Federal Republic of Germany. And, as a consequence, we have started to assess how the obligation to repay any potential excess amount can be implemented in the context of the European Commission approval. We obviously, as with all remedies that come out of the State Aid approval consult this with the German government on this matter. However, it's too early today to comment on the amount of the repayment and also on the ways how to repay those potential amounts that come out of the obligation to repay potential overcompensation.
Great. Thank you.
We are now going over to our next question. And our next question comes from Anna Webb from UBS. Please go ahead.
Hi. Thank you very much for taking my questions. I've got two this morning. The first is if you can give any more color on the time line for return to private ownership or the criteria that you may need to meet to start this process. And then the second question related is on the legal process versus Gazprom. Obviously, investors may not put much probability on a successful claim given the current climate. But if the situation does change, can you explain what legal steps are being taken? And to what extent this process of chasing any potential claim is supported by the German government? Thank you.
Hi, Anna, and thanks for your questions. In relation to the first question, when will the German government exit? Well, they're required, under the provisions of the State Aid that the EU provided, to exit by the end of 2028 at the latest. And they have to reduce their shareholding to not more than 25% plus one share by that time. But they also need to work out an exit strategy by the end of this year, i.e., precisely how they will do that. From our perspective as the management of Uniper, our duty is to make sure that Uniper is ready to be sold back to the equity capital market. And that means, first of all, financial stabilization, secondly, delivering a strategy which we can implement to create a sustainable business, sustainable from both the financial and indeed an environmental perspective and thereby putting us in a position to receive an investment-grade credit rating. So today marks the first step of delivering that strategy and demonstrating that we have a long-term viable business with a long-term viable strategy and a series of investments that will create value for shareholders. So we're confident that we're doing our part of the necessary steps to bring Uniper back to the market. On your second question concerning what happens with the legal claim in relation to Gazprom. I mean at the moment, we do not see a high probability of gas being delivered, again by Gazprom export, and we certainly don't receive any today. We have, as you know, initiated arbitration proceedings with Gazprom Export at the end of last year. And we are asserting, among other things, that we want damages for the losses incurred by the company in connection with the gas volumes that Gazprom didn't deliver. And we have a couple of other things that we're claiming as well. However, the tribunal is not expected to rule until next year. So we won't be in a position to clarify the precise details of what will happen until then. And we don't want to speculate about how those proceedings might end. I would only say please be patient. We will, of course, bring to your full attention what happens as soon as we have any further information and we will pursue the legal avenues we have to the full extent possible.
Thank you.
We're now taking our next question and this question comes from Louis Boujard from ODDO. Please go ahead.
Yes, good morning. Thank you for taking my questions. Two questions, if I may. The first one with regards to the EUR8 billion investment plan. Could you elaborate a little bit on where this figure comes from? I understand from the first question that maybe part of it is because of what you see as a possibility in terms of pipeline. But in terms of financing, how did you make the competition and how do you feel comfortable with this EUR8 billion. I think that you say that it's a minimum target as well. So maybe you plan to have any more room for investment in green development in the future. Maybe my second question as well would be to come back on the EU remedy measure and on the cash back to the German government into the different measures that you will have to undertake in the second half of the year. My question would be the following. If you had to redeem some shares, could it be possible to imagine that it could be at a nominal value or nominal value plus premium? Or shall we consider that you would have to buy back the shares at the least, at the current listed value? Is there any start of discussion on this topic in the redeem process? Thank you very much.
Jutta, I would suggest you take those questions.
Yes. Very happy to do so. Thank you for that question. On the financing capabilities and the EUR8 billion, the question where the money comes from. Well, this is from cash flow that we will generate over the coming years based on our strong portfolio and the strategy to be implemented, as Mike described this morning. We at this point of time cannot give any more clarity on the CapEx split. But obviously the key buckets into which CapEx will go are those that have been described by Mike just a few minutes ago, that is green power, green air, and flexible power, and planning on our gas portfolio with green gases going forward and also investing into hydrogen along the value chain. I can also take the second question. Okay. With regards to redemption of shares, and you have been asking about at what price that would happen, if at all, nominal or so. I must say, I'm sorry, it's really too early to say. This is part of the process going on forward. And it's also something that is obviously in the fear of the German government. But as I said also, with regards to any obligation to pay back any money to the German government, this is something where we are in, obviously, close discussions. And as soon as there is anything that we can report, we obviously will reconvene and let everybody know.
Maybe just as a follow-up, could you just share with us at what point in time do you think that we might have a bit more visibility on this topic, if possible?
Yes, sure. As Mike also pointed out, the German government has to come up with an exit strategy by the end of this year. That is something that the German government has to define and that the German government has then to present to the European Commission. And I would assume that over the next coming of months, while the German government is formulating that exit strategy, there will be also discussions on the way forward and how to organize the exit of the German government. But also to put that into perspective, the European Commission has requested the German government to exit by the end of '28 down to 25% plus one share. There's still some time to go along this way. And I would assume that there will be more clarity then by the end of the year once the German government has defined the exit strategy, which is also something that will be published then.
Thank you very much.
We're now taking our next question. And our next question comes from Ingo Becker from Kepler Cheuvreux. Please go ahead.
Yes. Thank you. Good morning to all. I also have a question on the potential payback. Totally understand you cannot really give us details now. I'm just wondering that relevant equity threshold defined as pre-crisis equity that I think was around EUR11 billion that was mentioned before. Is that at all relevant in your eyes, because if it is, then EUR13.7 billion equity now would induce a payback amount of EUR2.7 billion. And I guess one can take different perspectives. It probably depends on whether you look at '23 in isolation or the combined, sorry, '22 in isolation or '22 to '23 in combination, and you'll possibly then come to a different conclusion. Just wondering if that in your eyes gives us any reference, because we will most likely need to make some kind of assumptions, in particular, if we then go on to think about your strategy. And on that, I also have a question on this EUR8 billion. Do you hold any IRR WACC or different return targets for that investment amount? And could you give us maybe roughly what kind of geographies you're planning for most of those funds. Thanks very much.
Maybe you take the first one, Jutta.
Yes. I do so. Well, we did not mention any equity levels, and I cannot confirm the number that you have just mentioned. As I said before, we are currently examining how this European commercial requirement can be implemented. And just referring to what I said earlier, today it's too early to comment on the means and the amount of the repayment. So I'm just asking you for your patience on this one. This is all in discussions and we will come back, obviously, once there's more clarity on this one.
Thanks, Jutta. And to your second question, Ingo, on the EUR8 billion investment. Yes, absolutely, we have strict financial criteria for these investments. And as I said in the main strategy presentation, we won't invest until we see the opportunity to invest at a rate which generates a return above our hurdle rate. The portfolio of investments is across the countries where we currently operate, mainly Germany, the UK and Sweden. But also for renewables, we extend that footprint out to other countries in Europe, for instance, Italy, Hungary, France and Poland. So we would see the opportunity to invest in renewables in a slightly wider constellation of countries. But since our flexible generation is largely based around our existing assets and our existing capabilities and locations, it's no surprise that we're focusing our investment on those existing countries.
Thank you.
[Operator Instructions] We're taking the next question now. And the next question comes from James Brand from Deutsche Bank. Please go ahead, James.
Hi. I thought I'd just come back for a follow-up if that's okay. Michael, you mentioned the German capacity mechanism as being an important development that would support kind of low carbon or zero carbon flexible generation. I was just curious whether Uniper have any views as to what form that capacity mechanism might take because, obviously, it kind of seems like the German government wants to have some kind of mechanism that's just available for new plants, but that seems to go against the current kind of State Aid rules, which seem very strongly to have a preference for universal capacity mechanisms. So just curious as to whether you have any insights in terms of how that may play out. Thank you.
Thanks, James. Well, at the time of speaking, we currently don't have any clarity on that. What I can say is a couple of general principles. Firstly, we know that there is going to be a gap opening up in the German market by 2030 of between 20 and 30 gigawatts of flexible capacity as we close coal capacity. So that means a mechanism is required to fill that gap, and we believe the capacity mechanism is the best way of incentivizing this investment, because given the expansion of renewables, these plants will obviously be running at a much lower load factor than the traditional base load that they would have run in the past. So that means a capacity mechanism is the right way to incentivize the investment. We would say that we think that all investment, whether it's a conversion or whether it's a new build, should be eligible, because in the end what matters is filling that gap in flexible generation. It's not about whether it's a conversion of an existing plant or a new plant.
Thank you very much.
And now going over to our next question. This question comes from Luis Amusategui from Cygnus Asset Management. Please go ahead.
Hi. Good morning, everyone. I had a question in relation to the coal phase out by 2029. I'm not sure if I infer from your comments of utilization of cash flows from your assets that you aim to be doing the disposals and the closures as late as possible, in particular with referring to the disposal of Datteln 4. Is there any time line you have set for that? Do you prefer to sweat the asset before you sell it or how you are contemplating that?
Thanks for the question, Luis. We are actually required to sell Datteln 4 by the end of 2026, under the EU approval. So that's the plan we are working to. The remaining coal assets will all be phased out Schkopau, Wilhelmshaven, Heyden, Scholven, Ratcliffe, Staudinger by the end of 2025. And 2030 or 2029 will be when Maasvlakte 3 in the Netherlands is phased out. So it's a relatively quick phase out of coal and the sale of Datteln is mandated by 2026 by the EU.
And we are going over to our next question. Hold on one second, please. And this question is from Ingo Becker from Kepler Cheuvreux.
Thank you very much for taking another one. I have two questions. First, on your global commodities segment, which apparently has been running at everything else, but normal. I don't know, it might be too early, but just checking if you could give us an idea of what a normalized EBIT level for the GloCo segment might be, maybe as of '24, without that being meant to be a guidance. I don't know if you can give us at least a rough idea. And secondly, regarding your other main segment, very interesting market in your view on energy markets, particularly. Maybe if you can comment on gas prices? Do you think if you look at forward curves further out, is that a sustainable level in the eyes of Uniper? And also possibly your views on C2 and power also maybe with regard to current forward price levels. Thank you.
On the question in relation to Global Commodities, we're not in a position to give any guidance on normalized earnings at this stage. We don't do that for any single business. In relation to our forecasts going forward, clearly, they are commercially confidential and we can't comment on future price expectations. I would only say that we are well positioned in the current market and we believe our portfolio of assets and our commercial positions are very attractive in the current market environment. But beyond that, I can't speculate on future pricing.
Can I just inquire with regard to market volatility, which apparently is benefiting you a lot, given your set-up, do you expect that to be increasing from here or still normalizing?
Again, I don't want to speculate on what may or may not happen. I would only say, long-term, structurally, as I mentioned in the strategy presentation, the more intermittent renewables are on the system, the more volatile prices will become as supply and demand needs to be brought together in real time. But that's a more longer-term structural point about the future of the industry. I'm not going to comment on short-term price developments.
Understood. Thank you.
We're now taking our next question. This question is from Louis Boujard from ODDO. Please go ahead.
Yes, thank you for giving the opportunity for follow-up. Two questions on my side. Maybe focusing a bit more on the second half on an operating point of view. You have a guidance for '23, which is quite strong and we can understand more likely than a large part of the profit has been managed as you've shown already in the first half, and maybe the spark spreads are a bit more difficult to capture in the second half of the year. What does that mean for us when we look at the guidance for 2023. Does that mean that most of the earnings should be expected to come from the Global Commodity business and more likely from the Gas division. Is it fair to assume that in our assumption for 2023? And my second question would be, if you can elaborate a little bit more regarding the economics of the carbon capture. Why is it now something that could be value accretive compared to other alternative investments that could be made in energy transition. It would be nice to have maybe some figures regarding the CapEx or just kind of investment. And why do you think that it's more accurate to do it now than as an alternative? Thank you very much.
Okay. I'll ask Jutta to come to the first question in a minute. On carbon capture, we do see this as a technology which can be used with existing power plants where the capital cost is sunk and where we think it can help decarbonize in the short-term. Longer term, we would look to have power plants with green gases, whether that's hydrogen, biomethane or other biogases. But certainly for existing assets, we see it as being one of the solutions we need, and we need to move quickly to decarbonize existing CCGTs. I won't comment further on the economics at this stage because, clearly, those numbers are commercially confidential. But what I can say is, we will not invest in those projects unless we are absolutely confident that we can deliver a return in excess of our hurdle rate.
Okay. Then I take the first question with regards to the earnings outlook for the remainder of the year and the visibility that we have on our results in both segments. Let me start with the Power Generation segment. On outright power, we have higher hedge prices markedly above the '22 levels, which gives us visibility, obviously. Hedge price now for Germany at EUR19, and for the Nordic region EUR40, I guess, I mentioned that before for the Nordic region, and Sweden EUR26. And we also have a better visibility on the availability of our nuclear power plants for the coming months. So that puts us in a position where we feel quite comfortable with the increased outlook. On the fossil power side, we expect strong spreads because we have more or less locked them in. So we will be benefiting from forward hedging and also assume that there is still room for optimization of supply. The trend on this is or the trend that we would expect that spreads are on their way down however. On the gas optimization side or the overall gas business, obviously, this depends on many factors, in particular, the demand at the point when -- depending on the influence of the weather and also the supply situation and whether supply inflows to Europe will be stable. So depending on those factors, any supply surplus could push prices down significantly, but if no other outlet exists because storages are full, that's only a very temporary effect that we would see obviously. For our business, we have already very good visibility with regards to the gas business, and similar to what I said for the fossil power business, we would expect that there's also some room for optimization and positioning effects. Overall, we feel quite comfortable with the outlook that we have given. Obviously, swing factors are still much higher than in years with lower volatility. So we keep in mind and that's what I said when I talked about the outlook and I can just repeat that here. We are confident with our outlook, but we recognize that we are still working in a quite volatile market environment, more volatile than we have seen in the past.
Thank you.
There are no further questions. I would like now to hand over the call back to Stefan Jost for the closing remarks.
Yes. Thank you, Operator. Thank you all, dear analysts and investors for participating and your questions. Thanks, Mike. Thanks, Jutta. And hope to see you all latest at the Q3 numbers. Thank you.
Ladies and gentlemen thank you for your attendance. This call has been concluded. You may disconnect.