Full Year 2019 Elia Group SA Earnings Call
Brussels Mar 27, 2020 (Thomson StreetEvents) — Edited Transcript of Elia Group SA earnings conference call or presentation Friday, March 6, 2020 at 9:30:00am GMT
TEXT version of Transcript
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Corporate Participants
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* Catherine Vandenborre
Elia Group SA/NV – CFO
* Chris Peeters
Elia Group SA/NV – CEO & Chairman
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Conference Call Participants
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* Bart Cuypers
KBC Securities NV, Research Division – Financial Analyst
* Bart Jooris
Banque Degroof Petercam S.A., Research Division – Analyst
* Olivier Pascal Michel Van Doosselaere
Exane BNP Paribas, Research Division – Analyst of Utilities
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Presentation
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Chris Peeters, Elia Group SA/NV – CEO & Chairman [1]
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Good morning, ladies and gentlemen. Thanks for being present or for participating in our webcast on the full year result 2019. Elia Group is represented by Catherine Vandenborre, CFO; and myself as CEO. Today’s program is as following: first, we’ll have a view on the achievements, then Catherine Vandenborre will present the financial results. And finally, we will give some conclusions and an outlook for 2020.
For those with a good memory, we slightly adapted the baseline of last year’s presentation from Time to Accelerate to Ready to Accelerate. Our business outlook shows sustained organic growth for the near future. Nonetheless, we are preparing the company for new challenges. In that regard, 2019 was a pivotal year with an upgraded strategy, a new corporate structure and the successful completion of an important capital increase. Indeed, we are ready to accelerate. This is also what society expects from us.
With the Green Deal, the European Commission is stepping on the throttle. Only a few days ago, the commission presented the first-ever European Climate Law. It puts in legislation the European target to reduce greenhouse gas emissions to net 0 by 2050. The shift to carbon-neutral society is sure to happen all the faster. As system operators, we are the front-runners in the decarbonization of the energy sector. Society expects us to cope with the changing energy landscape and to realize the energy transition in a timely and efficient way. As system operators, we are the front-runners in the decarbonization of our sector. Our #1 priority remains to realize the next phase of the energy transition in a timely, safe and efficient way with the maximum welfare creation for society.
At the same time, as a company, we are working on the improvement of our own sustainability, which is being embedded in the company’s strategy, and this yields to some positive results. In 2019, Elia and 50Hertz have once again improved their sustainability rating. In the latest addition of the Sustainalytics Environment, Social and Governance report, both system operators were classified as outperformers.
Looking back on 2019, I am proud of the extraordinary milestones that have been reached. We realized our ambition investment program and achieved strong operational and financial results. In terms of investments, I’m particularly thinking of our teams who have gone the extra mile for the successful realization of our first offshore project in Belgium. Also, in Germany, important steps have been taken in the realization of critical grid infrastructure.
In a moment, we will show an overview video with the most important achievements. First, I would like to show the disclaimer of this presentation.
As mentioned in the subtitle, you must read the disclaimer before continuing. I suppose you all did by now, I hope so. So let’s go immediately to the next slide and have a look at some important key figures.
2019 was once again an extraordinary year, both operationally and as an organization. We continued the acceleration of our investment program in 2019, with an increase of 7.4%, totaling to EUR 1.2 billion.
The big drivers in Belgium were the MOG, our first plug at sea, and ALEGrO, the first interconnector with Germany. At 50Hertz, we invested a lot in offshore wind connections like Ostwind 1 and Ostwind 2.
Our strong CapEx plan led to a further increase of the regulated asset base of the group totaling EUR 9.1 billion, a solid increase of 9%.
Adjusted net profit increased by 9% to EUR 306.2 million.
In the last 3 years, Elia Group continued an unprecedented levels of investment. In total, Elia Group invested more than EUR 1.2 billion, with an all-time record in Belgium of EUR 723.5 million.
Our investment program is mainly built on 3 pillars: the integration of renewable energy, the development of offshore high-voltage grid, and the construction of interconnectors to facilitate the integration of the European energy market.
As already mentioned in the introduction, an important highlight in 2019 was a successful completion of a capital increase of more than EUR 429 million. The capital increase is a health check for a company. It tells whether the market understands and believes in our strategy.
I also want to emphasize the importance of the new corporate structure to isolate and ring-fence the regulated activities of Elia in Belgium from the nonregulated activities and regulated activities outside Belgium.
As a result, Elia System Operator has now been transformed into the holding company, Elia Group, which remains the listed company. Elia Group holds shares in various subsidiaries, including the recently created entity, Elia Transmission Belgium, which has taken over the Belgian regulated activities and was recently designated as the TSO for the high-voltage grid in Belgium.
Elia Group will also hold shares in other subsidiaries, such as our international consultancy company, Elia Grid International and Eurogrid International, which controls 50Hertz. The new structure will enable us to get the right balance between local identity and the group dynamics.
We are increasingly carrying out our activities in an international context, and it is important that we integrate this in our way of working. Under the new corporate structure, our German subsidiary, 50Hertz is a business unit with equal standing. As a result, we have dual headquarters in Brussels and in Berlin.
As a group, we think European, but as system operators, we act local. To be successful, it is vital to understand the local market and have your finger on the pulse.
Together with our German partner, KfW, we are, therefore, delighted to have brought Stefan Kapferer on board, the new CEO of 50Hertz since December 2019. Stefan understands the complexity of our industry. He also has a deep understanding of societal and political developments in Germany and in Europe. He brings in a lot of local and international expertise. That is why Stefan Kapferer also joined the Elia Group Committee, a new corporate body that coordinates all activities of the group. Concretely, he will follow closely our interest at European level and will coordinate future grid developments.
Besides Stefan Kapferer, we recently welcomed Michael von Roeder as Chief Digital Officer to transform our company from a traditional towards a digital system operator. Michael is leading the internal digital transformation program. He is responsible for the Elia Group IT and digital departments.
With Stefan and Michael, the Elia Group Committee is now completed. The committee now counts 2 Belgians and 2 Germans, next to myself, as Group CEO.
The decision to take a Chief Digital Officer on board resulted from our upgraded strategy. One of the solutions to support our traditional business and at the same time cope with the increasing complexity of the energy transition is the transformation from a traditional to a digital TSO.
I would like to take the opportunity to give some deeper insights in our strategy. Let me walk you through this graphic.
In 2016, we developed the 6 building blocks of our strategy. You see them on the lower half of the circle. They are still relevant today. The energy transition demands lots of new infrastructure. It will remain the case for the next 10 to 15 years.
In addition, the fast-changing energy landscape makes our daily work more complex, and consumers expect us to deliver reliable services at affordable cost and at an accelerating speed. That’s why we added 2 additional dimensions to our strategy. The new guidelines allow us to investigate opportunities and the value they might bring to the group. Top left, you see a quarter circle focusing on increasing the relevance of the group.
The group’s organic growth is promising. At the same time, we are looking at new nonorganic growth opportunities that are critical to society. In particular, I’m thinking about the offshore grid and interconnectors that will need to be built and operated to increase the integration of renewables on a European scale.
The third strategic guideline is the upper right corner. It’s about the digitalization of the energy sector itself and empowering the customer. We want to make sure there is a level playing field where every actor is equal. By setting up a digital European energy marketplace of application programming interfaces, APIs, we want to facilitate the exchange and valorization of data and digital services. This will bring value to the European energy ecosystem.
Our European market platform named Re. Alto will lower the barriers by facilitating the exchange between all market parties in Europe. New business models will emerge more easily and freely. As observed in other sectors like banking, traveling, mobility, et cetera, many of the new business ideas will become concrete through digital solutions, new platform, new mobile applications, et cetera. It will help us to keep the system in balance, and the customer can make money out of it, which contributes to affordability.
Ladies and gentlemen, as a group, we have the honor to serve society in 2 countries. This gives us an interesting vantage point towards the sector. This is further reinforced by Elia Grid International. Their consultancy position enables to provide interesting leads for the group. They are an important part of the puzzle. This broad view on society is an important advantage in an environment that is ever faster changing, as we all can observe.
Before diving into our financial figures, we invite you to watch the video on the headline of 2019.
(presentation)
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Chris Peeters, Elia Group SA/NV – CEO & Chairman [2]
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So as you can see, a lot has happened in 2019. One highlight was not included in this video. That is a highlight which was not included because everybody who knows my sparring partner in this company, Catherine Vandenborre, is a very humble person. So she negotiated with communication to not include the fact that she was the CFO of the Year. But she forgot that I’m a very proud person. I want to mention that, that she was the CFO of the Year, and it was a highlight for me this year. So floor is yours.
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Catherine Vandenborre, Elia Group SA/NV – CFO [3]
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Thank you, Chris. And as you said, it has been a transformational year for the Elia Group on all fronts. The realization of the corporate organization and all progress to transform towards a digital TSO that empowers the customer are some examples of the important steps that have been taken.
I would like to refer also to the implementation of group functions in order to leverage synergies and to improve our services to the benefit of consumers. Concretely, we defined a number of common standards for materials used in our infrastructure project or IT development, and we could leverage synergies in purchasing through common technical specifications.
Operational, it was a strong year, too. In Belgium, as you have seen in the movie, Elia delivered major investment projects on time and on budget. And in Germany, the investments in the onshore grid infrastructure have further reduced the congestion issue and so decreased considerably redispatch cost by 29% in 2019.
On offshore, Ostwind 1 was realized for a total investment cost of EUR 1.3 billion. Ostwind 2 has made good progress, mainly on clearing the routes in shallow water. All of those operations often performed in difficult conditions are done with the higher safety standards.
The safety of everyone, everywhere, remains a top priority. And so in 2019, Elia Group continue to invest in safety. In addition to building a safety culture and implementing the goal for zero-accident initiatives, we roll out our safety program vis-à-vis our subcontractors.
Moving now on the regulatory frameworks. In Belgium, and as mentioned during the half year results, the license to operate high-voltage grids has been renewed until 2042. In addition, Elia Transmission Belgium has been designated as the national and local TSO following the completion of the corporate organization. Finally, the regulator has approved a tariff for the period 2020-2022.
In Germany, like you know, we started the first year of the third regulatory period covering the years 2019-2023. The regulator sets the return on equity applicable to this period on 5.64% post tax. This return was confirmed by the High Court of the Düsseldorf. In addition, the individual efficiency factor, the [XF], has been set to 100%. The general productivity factor for the energy sector was set at 0.9%. With regard to the offshore remuneration, you will remember that, already in 2018, the mechanism changed to a cost-plus. Regarding Nemo Link, it’s specific cap-and-floor regulatory framework started as from the commissioning end of January 2019.
Finally, the group delivered solid financials for the full year 2019, on which I will comment on the next slide.
In the first half of the year, we concluded a capital increase, issuing 7.6 million new shares and raising a total amount of EUR 429 million. On the debt market, Elia successfully refinanced EUR 500 million Eurobonds, locking in more favorable rates.
Before looking into the detail of the group results, I would like to point out the segment reporting that was introduced last year. And hereby, we already isolated the nonregulated activities in a separate segment, improving the transparency on the performance of Elia Transmission and 50Hertz compared to the regulatory framework. As such, this segment reporting anticipated on the corporate reorganization that was realized this year. And we remarked that the hybrid bonds that we issued in 2018 to finance partially the additional stake in Eurogrid has no profit impact and is directly accounted in equity.
Now coming to the details of the group result. Our adjusted net profit increased to EUR 306.2 million. This result is mainly driven by: first, a change in the consolidation scope compared to prior year; second, the execution of the investment program, both in Germany and in Belgium; third, a solid operational performance leading to incentives in Belgium and higher efficiencies in both Belgium and Germany; and fourth, the commissioning of Nemo Link. And all this was realized on the back of declining interest rates, impacting negatively the equity remuneration at Elia and 50Hertz.
Now if we take into account the adjusted items, the reported net profit rose to EUR 309.1 million. We recognized adjusted items totaling EUR 2.9 million, being mainly related to EUR 2.2 million linked to the group corporate reorganization, and EUR 5.1 million one-off regulatory compensation linked to acquisitions made the previous year.
Excluding the noncontrolling interest and considering the accrued coupon for the hybrid, the net profit attributable to Elia shareholders came in at EUR 254.3 million, leading to an adjusted return on equity of 7.66% for the year.
As you know, the comparison with prior year financials is still affected by the change in consolidation method since the acquisition of the additional 20% of Eurogrid. And therefore, and purely for comparative purposes, we have rebased the key figures of 2018 in order to present fully consolidated figures for Eurogrid in 2018.
Looking at the actuals and despite the one-off effects from the release of the easement provision in 2018, the reported EBIT increased by 13.4%, reflecting a solid operational performance in Belgium, the contribution of Nemo Link and higher EBIT in Germany as a result of the change in consolidation method.
On a rebased basis, the EBIT decreased by 5.9%. And as illustrated on the graph on the right, this decrease is almost entirely attributable to the lower EBIT in Germany, following last year’s release of the easements amounting to EUR 72.1 million before tax.
Excluding these one-off effects, the 50Hertz EBIT increased by 2.6%, and the increase in EBIT is realized on the back of a drop in the regulatory return with the start of the third regulatory period, but more than offset by higher asset remuneration following the realization of the investment and the higher cost base approved by the regulator.
Now looking at the evolution of the regulated asset base, first, let me remind you that the RAB in Germany for 2019 was affected by a change in regulation introduced with the start of the new regulatory period. In particular, the EEG and similar asset charge were no longer part of the RAB. And consequently, the opening RAB of 2019 has been adjusted. This change in RAB has no significant impact on the return as the EEG phase-out from the RAB is compensated by a specific remuneration scheme. Now considering this adjusted RAB, the regulatory asset base of Elia Group increased by 9% and amounts to EUR 9.1 billion at the end of 2019. This increase is driven by the organic growth, both in Belgium and Germany, following the execution of the investment program in order to deliver a reliable, sustainable energy system and accommodate the growing flow of renewable energy. For Belgium, the RAB increased approximately by 12%. While in Germany, the RAB increased by 5% compared to prior year. The RAB reported by the Elia Group does not include Nemo Link, which has its own regulatory framework and remuneration.
Looking at the trends of the last year. The RAB increased quite considerably, witnessing the continuous strategy of organic growth we are focusing on and that we are confident to be able to pursue over the next 5 years with an anticipated RAB growth between 7% to 8% on average.
Looking at the net financial debt of the group at year-end. It totaled EUR 5.5 billion, an increase of 20% compared to 2018, and this is driven by the execution of the investment plan in Belgium and Germany and even more by the decrease in EEG cash position in Germany. In Belgium, net debt rose by EUR 188 million, with the CapEx financed by cash flow from operating activities and the net proceeds from the capital increase. For Germany, the financing of the investment program and the decrease of the EEG cash position for EUR 429 million led to a rise in net debt by EUR 835 million.
Besides its public right offering, Elia Group also accessed the debt capital market in 2019, hereby taking advantage of the low interest rates. And we managed to decrease the cost of debt by 17 basis points. This is linked to the successful refinancing of EUR 500 million Eurobond at significant lower coupon, and this to the benefit of the consumers, the cost of debt being passed through in the Belgium regulatory system. Eurogrid issued no external debts in 2019.
Note, while the group put in place a new corporate structure to further develop our activities, the rating of the Elia Group remained unchanged at BBB+ with a stable outlook. The rating of Eurogrid GmbH was reconfirmed at BBB+ with stable outlook. And also, the new entity, Elia Transmission Belgium, was assigned a BBB+ rating with stable outlook.
Now looking at the underlying business segment and starting with Elia Transmission Belgium. The adjusted net profit — and formally, we were referring to the normalized net profit. So the adjusted net profit increased by 6.5% to EUR 122.3 million.
In more details, the key drivers of the increase are: first, on the positive side, the realization of the markup investment program, leading to a markup increase of EUR 6.2 million compared to last year; and second, a strong operational performance, leading to more incentive and efficiencies for EUR 4.9 million compared to last year. However, the drop in interest rates negatively impacted the fair remuneration, which decreased by EUR 5.5 million and also negatively impacted the valuation of provision, which increased, leading to a negative P&L impact of EUR 4.1 million. Finally, and as already mentioned, there was a one-off effect amounting to EUR 6.1 million from the tariff compensations of the financial cost linked to the right issues that are accounted through equity under IFRS. The net profit increased more pronounced by 8.8% to EUR 125 million. The adjusted items linked to tariff compensations for the financial cost linked to the push down of the regulated debt to ETB as part of the new corporate organization is amortized under IFRS. And as a reminder, the financial costs are fully passed through under the Belgian regulatory regime. This all resulted in a return on equity of 5.67% for Belgium.
Now looking at Elia Transmission balance sheet. We increased our equity, which is the basis for the calculation of the fair remuneration, by 22.8% at almost EUR 2.2 billion. This increase is mainly the result of the rights offering, of which the EUR 328 million was allocated to the Belgian regulated equity. And as such, Elia aligned its capital structure to the gearing ratio of the new tariff methodology that is applicable from 2020. Also, we have quite solid liquidity position, close to EUR 1 billion, consisting of different instruments being cash, undrawn commercial paper and backup facilities.
Looking at the maturity of the existing bonds and portfolio of loans contracted to finance the regulated activities in Belgium. We ensure to have a manageable profile, matching maturity years to the lifetime of our assets with an average debt duration of 7.2 years and an average cost of debt of 2.16%.
Now let’s have a look at the result of 50Hertz Transmission, which reached an adjusted net profit of EUR 177.5 million, down by 17.9%. As illustrated on the graph, the decline is almost fully attributable to the one-off revenues we had last year for the release of the easement provision that amounted to EUR 46.6 million post tax at the level of 50Hertz. Additionally, the lower return on equity as from 2019 has been offset by the asset growth and a higher cost-base remuneration in the revenue cap, following the commissioning of Ostwind 1 in 2018. We had also higher depreciations and higher financial costs. This last one mainly due to lower capitalized borrowing cost since the commissioning of Ostwind 1. This all resulted in a return on equity of 11.48% and illustrates the strong operational performance throughout the year.
From a balance sheet perspective, 50Hertz remains stable with equity increasing by 3.7% as results are partially reserved within the company to finance the future CapEx program. The liquidity position remains strong, partly linked to the EEG business. And in the EUR 1.7 billion liquidity position, an amount of EUR 430.5 million of EEG cash is included and has to be given back to the consumers. The revolving credit facilities and the bank overdraft facility remained fully undrawn. In 2019, no debt capital transaction has been taken place, and the investment program has been financed from operating cash flows and working capital. The average debt duration stands at 5.6 years, and the cost of debt amounts to 2.1%.
Now looking at the third segment, which regroups EGI, Nemo Link and all the nonregulated activities like the financing of our additional stake in Eurogrid. The nonregulated segments realized an adjusted net profit of EUR 6.4 million, mainly driven by the first year of operation of Nemo Link, contributing EUR 6.5 million to the group result. Also, we have EUR 2.7 million positive effect linked to tax credits on the interest charges linked to the hybrid security, but we had higher nonregulated costs linked to the incorporation of Re. Alto and other nonregulated expense, all this amounting EUR 3 million.
I would like to take a closer look at Nemo Link and share some highlights of the first 12 months of operation. First, Nemo Link has been available to import or export power more than 96% of the time in the last 12 months, making it one of the highest-performing assets of its kind in the world. Flows have been primarily flowing in the direction of the U.K., hereby contributing to balance the energy system. Now despite the very high availability, Nemo Link’s financial performance was negatively impacted by decreasing spreads of the electricity commodity price, driven by higher CO2 prices in Continental Europe and lower gas prices in U.K. due to the mild winter. The exposure to the volatility of the spreads is inherent to the nature of the investment. It needs to be considered throughout all the lifetime of the project. And in addition, we don’t expect spread to significantly increase in 2020.
And to wrap up, our dividend proposal. We will propose to the general assembly an increasing dividend amounting to EUR 1.69 per share. It represents an increase of 1.8%, higher than the inflation of 1.44% and which takes into consideration our CapEx plan and our commitment to execute our growth strategy.
Now the outlook for 2020. First, Elia Group expects to realize an adjusted return on equity between 6.5% to 7.5%. Elia Transmission Belgium has entered in 2020 a new regulatory period that will last until 2023, in which the markup on investment is being replaced by higher equity-based remuneration and higher incentives. For 2020, we are confident of achieving a return on equity between 5% and 6% and investing roughly EUR 340 million in further grid upgrades. In Germany, with the regulatory framework remaining stable until 2023 and in the light of major investments made over the last year, we are confident in our ability to achieve a return on equity of between 9% and 11%. 50Hertz Transmission intends to invest approximately EUR 680 million in 2020. With those investments in Belgium and Germany, but bearing in mind that the realization of the investment plan is always prone to certain external risk, we expect for 2020 a total RAB of EUR 9.7 million (sic) [EUR 9.7 billion].
And this concludes my section, and I will hand back over to you, Chris.
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Chris Peeters, Elia Group SA/NV – CEO & Chairman [4]
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Thank you, Catherine. I would like to end with an outlook of the investment programs for the next 5 years in Belgium and Germany. Elia Group is fully committed to give priority to the most critical parts of the grid that bring maximum welfare to society. We will mitigate any risk of delays.
We stick to our ambitious investment portfolio, both onshore and offshore. In Belgium, Elia plans to invest EUR 2.3 billion. By the end of this year, the first interconnector between Belgium and Germany, ALEGrO, is scheduled for commissioning. After a record year in 2019, the CapEx will decrease in the coming years. Investments will mainly happen in upgrading the existing grid. With the Brabo project, we strengthened the grids in and around the Port of Antwerp from 150 to 380 kilovolts. We also continue to reinforce the transmission capacity on the Mercator-Avelin line that runs from Zomergem into France over a distance of 110 kilometers.
In Germany, we have an important event in a few weeks. We take into operation the combined grid solution project, a first in the world. The hybrid interconnector between a Danish and a German offshore wind farm is new technology that will, for sure, help to play a role in unlocking the potential of the North Sea. Over the next 5 years, we plan to invest EUR 4.2 billion in the German grid. The investment program is driven by the Energiewende in order to realize the ambitious target of 65% renewables.
Offshore, 50Hertz is setting up the Ostwind 2 project to connect additional offshore wind farms in the Baltic Sea. To bring the massive wind production from the north to consumer centers in the south, 50Hertz is currently developing the SuedOstLink. This will be a 540-kilometer long HVDC connection between Saxony-Anhalt and Bavaria. 50Hertz is responsible for the northern part of the project. Work is scheduled to start in 2022 and last approximately for 4 years.
This brings me to the last slide of this presentation. We like to share the milestone moments for the financial communication in 2020.
Are there any questions? I start here. Can we maybe take the microphones so that people can hear you as well? All right.
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Questions and Answers
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Bart Cuypers, KBC Securities NV, Research Division – Financial Analyst [1]
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Bart Cuypers, KBC. You gave a nice overview of the CapEx in Germany, which is set to increase compared to what was guided last year. So is this CapEx from after — previously after ’23 that is being brought more closely — more earlier in time, like an acceleration but not an increase? Or is it really ramping up of the total amount that is expected within, let’s say, the next decade in Germany?
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Chris Peeters, Elia Group SA/NV – CEO & Chairman [2]
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It’s a combination of both. It’s mainly actually additional projects that you have. So what we have seen is that there are a couple of new projects coming out of the offshore wind auctioning, and so they are included now in the plans, which you will see in the end. And we have — based on the study that we’ve done for the coal phaseout, we need reinforcement of the grid and grid stabilization elements that need to come into the grid as well, and they are included as well in this plan that you compare to the one-off last year.
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Bart Cuypers, KBC Securities NV, Research Division – Financial Analyst [3]
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Okay. So it’s not like that it’s brought forward and that we would expect a slower acceleration after 2024, depending on how the grid development plan is growing?
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Chris Peeters, Elia Group SA/NV – CEO & Chairman [4]
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No. So what we have tried to do together with the government is to see at opportunities that we could put forward as much as we could. Some of the elements in the permitting process — as you know, we’re mostly, let’s say, constrained by permitting processes and local acceptance issues that we have. We try to collaborate as much as we can, given that those projects have, of course, enormous impact on social welfare. They have a direct influence on curtailment and redispatch costs, which are quite important in the German markets, around EUR 1.5 billion last year. And so if you have those commissions earlier, we can reduce some of that cost. So that is an important driver for us. But of course, there’s only so much you can do. So that is in months that we speak and not in years that we speak in that case.
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Bart Cuypers, KBC Securities NV, Research Division – Financial Analyst [5]
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Okay. And then maybe one last question on Nemo. You indicated that for 2020 you don’t expect the spreads and the delta to improve yet, probably included in the guidance as well for slightly lowering it. Just had a question on Brexit, if — I believe that previously, it was said that, when it was not known yet, that from a practical point of view, there would be some changes in how it is auctioned. But from a profitability point of view, impact to be seen, but I expect that it would not have a big impact. Is that still the case right now? Or has that changed now that Brexit has, yes, become more certain?
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Catherine Vandenborre, Elia Group SA/NV – CFO [6]
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Like you are mentioning, Brexit is becoming more and more concrete. Still, we have to wait on the precise agreement which will be defined and signed between U.K. and Europe and especially in regards with energy, energy policies.
What we can expect, if in case of hard Brexit, still, from an operational point of view, like you are mentioning, the allocation of the capacity will have to be organized differently moving from an implicit auctioning system to an explicit auctioning system. And the explicit auctioning system is basically the one that we had more than 10 years ago before the organization of the implicit auction on all the European borders. From this mechanism, we don’t expect — indeed, if it’s put in place, we don’t expect significant impact on the results. For this mechanism to be put in place, we need, indeed, to evolve towards a hard Brexit in case of agreements between the U.K. and the European Union. In terms of allocation of cross-border capacities on the interconnectors, of course, we’ll have to look to the precise term of the agreements in question, but then we expect to be in a position to keep a possible implicit allocation of the capacity. So from — first, look at the agreement, and then we will be able to precisely determine the operational impact. So financially, no big impact expected from the changes in — the possible changes in allocation capacity.
Last element in terms of currency risk, you know that we have a cap and floor in the Nemo regulatory framework. The amount of the floor and the amount of the cap might be influenced by big changes in the currency risk. Within the floor and within the cap, the currency risk is neutralized.
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Bart Jooris, Banque Degroof Petercam S.A., Research Division – Analyst [7]
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Yes. Bart Jooris, Degroof Petercam. If I can continue on Nemo, what was the capacity utilization over last year? And if you would have to attribute sort of RAB value to Nemo, what would it be?
And then maybe for Chris. You talked about Ready to Accelerate. You showed nice possibilities for organic growth. But what about inorganic growth? Are there any M&A files you’re looking at, I’m thinking, especially in Germany?
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Catherine Vandenborre, Elia Group SA/NV – CFO [8]
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So the total capacity of Nemo Link is 1 gigawatt flowing in both directions, depending on the price. And during 2019, the availability of the cable was 96%. So during 96% of the time, we had flows flowing through the cable. In terms of RAB value that we would allocate, that’s basically the investment that we have done, roughly EUR 310 million invested in Nemo Link. And from a regulatory point of view, I recall that Nemo Link is financed with 40% equity and 60% of debt.
And then Chris, on the inorganic growth.
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Chris Peeters, Elia Group SA/NV – CEO & Chairman [9]
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Yes, yes, yes. Don’t worry. So on the nonorganic growth, we had an approved update of the strategy last year in May by our Board, where there was an agreement that we could set up a concrete M&A department looking at those files. That has been organized meanwhile, and we’re still recruiting some of those members, but some of them are on board meanwhile. We’re looking at what we said before. So we’re looking in Europe at interconnector possibilities. We’re looking at potential new opportunities in the Baltic Sea and in the North Sea to connect more offshore wind. None of these files are yet in a mature phase where we could say something is going to become concrete very soon, but we are analyzing a number of different files, of which, at some point of time, we hope to see a successful file coming out.
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Catherine Vandenborre, Elia Group SA/NV – CFO [10]
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Are there questions on the phone?
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Operator [11]
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We have a question from Olivier Van Doosselaere, Exane.
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Olivier Pascal Michel Van Doosselaere, Exane BNP Paribas, Research Division – Analyst of Utilities [12]
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I had two. The first one is actually a follow-up on the question that has just been asked now on the M&A. It looks so much you say that the international investment that you might make there actually relate to possible new projects of interconnections of offshore wind connections. So I guess it’s — I don’t know if you could call that brownfield or — but it sounds quite different from the possibility of you actually acquiring existing transmission assets in Europe. So I was wondering if you could maybe come back to clarify exactly what you might be looking at. And could we consider, for example, you’re taking a stake of acquiring assets — transmission assets in other countries, like you had done in the past with 50Hertz?
And then the second question, I was wondering if you could clarify the guidance a bit of 6.5% to 7.5% return on equity. Would I be correct to apply that to the EUR 4.022 billion equity at parent shareholder level that you have in 2019, which would then give me a net income in 2020 that we could expect somewhere between EUR 260 million and EUR 300 million? And is that the one that I should compare with the EUR 254 million that you reported for — again, for ordinary shareholders at parent level in 2019?
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Chris Peeters, Elia Group SA/NV – CEO & Chairman [13]
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Okay. Thank you for the questions. On the first question on the M&A, we look at both at this point of time. So we both look at potential investments into asset owners that still have growth potential because that’s where we see an opportunity for us to monetize the skills that we have and to further help to realize the energy transition. Criteria that we would use there is, of course, that they would add value through the structure that we could make and, on top of that, that they would increase the relevance of the group over Europe.
Secondly, we look at concrete assets, typically assets to be built, where people are looking for a specific strategic partner that will add skills to the game, but where we then would be a partial equity investor together with partners that are local to ensure that certain projects would be realized.
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Catherine Vandenborre, Elia Group SA/NV – CFO [14]
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And in terms of guidance, I can confirm that your understanding is correct. Of course, we guide within a range, and you have to take into consideration this range. But the type of computation that you mentioned and the reference you did are completely correct.
Are there other questions in the room or through the webcast? No? If no, we can thank you all and close this analyst presentation meeting. Thank you very much.