Dear ladies and gentlemen, welcome to the analyst and investor conference call of Unita. At our customers' request, this conference
will be recorded. As a reminder, all participants will be in
a listen only mode. After the presentation, there will be an opportunity to ask questions. May I now hand you over to Stephan Hughes, who will start today's meeting. Please go ahead.
Good morning, dear analysts and investors. A warm welcome to the Uniper Interim Results Call for the First Half of Fiscal Year twenty twenty one. Thank you for participating in our conference call Our CEO, Claus Dieter Malbus and our CFO, Tina Turomela, will lead you through the interim results presentation today and answer all of your questions. Claus Dieter will start with the key highlights and Tina will then focus on the financial data. Claus Dieter, please.
Thank you very much, Stefan. Good morning, everyone, and a warm welcome also from our side. I would like to briefly outline the key highlights of the first half of twenty twenty one and shed some light on our major developments The portfolio before Tina will go into the details of our financials. What are the highlights of the first half of the fiscal year? As you can see on the slide, The half year results are under the heading Sound Results.
Operationally, business at the half year point Fully met our expectations. Already with the Q1 call in mid May, we had communicated that Isolated adjusted EBIT in Q2 would carry a negative sign. In the end, the well known Carbon phasing effect, which resulted from the sharp increase in CO2 prices towards end of June Was even more pronounced than anticipated. Accordingly, adjusted group EBIT in H1 half year one twenty twenty one decreased from €691,000,000 to €580,000,000 compared to previous year. For the full year, we confirm our previous outlook, which we raised in the Q1.
Turning towards our strategy and portfolio development. When I entered office more than 100 days ago, I made clear that Accelerating Uniper's decarbonization strategy would be at the top of my agenda. Back then, I did not expect how strongly the upcoming weeks Would further highlight the urgency in this regard. Governments and courts are increasing the pace with its FIT455 Plan EU Commission has set the frame to make Europe the 1st carbon neutral continent. Germany itself has just increased its reduction targets for 2,030 from 55% to 65%.
The recent extreme weather phenomena inside and outside of Europe make one thing very clear. Whatever the costs of decarbonization are, Such transitioning will lead to even higher costs for society. With regard to the recent floods in Germany, Luckily, Uniper employees, our activities have not been affected. We are supporting the people who are affected both financially and directly at the locations of our customers and partners. Long term, it is our portfolio transformation that contributes The most in the fight against climate change, which brings me to the next slide.
The phase out of coal fired generation is the most visible sign of how we at Uniper are moving forward with our decarbonization strategy. At the beginning of 2020, we set for the first time a concrete phase out schedule for coal fired power generation in Europe. As you can see on the slide, by now we are making even faster progress than originally planned. Compared against the original plan, we saved more than 5,000,000 tonnes of CO2 with our accelerated coal exit. In Germany, The plan was to end coal fired power generation at 4 of the 5 sites by the end of 2025.
We have now been awarded in all of the first three German hard core exit tenders. The Heiden power plant involved in the first auction ceased commercial operation at the beginning of 2021. However, this power plant was declared system relevant by the TSO. After approval by the Federal Network Agency, the power plant is now to be kept ready as a backup solution for 2 years until September 2022. Since going into the reserve scheme, Heiden Has been requested several times by the TSO, which highlights the issue of security of supply and system stability.
The Willeshaven power plant, which was successful in the second option, will cease operation in December 2021. Given its Port access to the North Sea, we are working intensively on solutions to establish a commercial hydrogen hub there in the medium term. Now in the most recent auction, Schulffen Power Plant Unit C was selected. Accordingly, it was ceased commercial operation at the end of October 2022. We want to push ahead with the coal phase out not only in Germany.
Of course, We also fully support the ambitious national cold phase out plans abroad and even deliver above those In the case of the UK, we announced just last week that we'll bring corporate the closure of 1 Of the 4 Ratcliffe coal units to the end of September 2022, 2 years ahead of the date Announced by the UK government for the coal phase out, power generation in the remaining three units of the 2 gigawatt power plant Is scheduled to end by the end of September 2024 at the latest after the power plant has fulfilled its obligations under the UK capacity market scheme. With respect to the Redshift side, Juniper is making progress in the development of an energy recovery facility to be known as the East Midlands Energy Regeneration Emerge Center, An anchor project for a 0 carbon technology and energy hub for the site. DAFN 4 will be the last Our European coal fired power plants to be taken off the grid by the end of 2,000 and 38 at the latest, which is in line with the German coal phase out act. Power Plant has been almost completely marketed to our customers. Recently, in its new climate protection law, the German government Materiality increase the greenhouse gas reduction target for 2,030.
For the energy industry, this means the old reduction path from 257,000,000 tons in 2020 down to 175,000,000 tons in 2,030 Has now been decreased further even down to 108,000,000 tons in 2,030. If a new German government wants to talk about the coal phase out again in this context, then we are prepared to talk. Of course, such talks need to cover the question of compensation as well. The second lever for decarbonization, decarbonizing the portfolio is getting the growth projects on the road More quickly, as you know, we have earmarked €1,500,000,000 to spend on growth investments over 3 years. Renewables Will be a key element in improving Uniper's energy mix.
At the same time, we will leverage Uniper's existing Expertise and platform in many areas of the gas value chain to offer lower carbon products and services. Green gases are therefore the 2nd pillar of our transition story. I would like to share with you a few examples of how we have been ramping up new business areas in 20 21. As part of our one team approach, we have bundled Fortum's and Uniper's capabilities in the renewables area. The joint organization with around 100 employees in the future will be developing our onshore wind and solar activities In Europe, the plan is to jointly build between 1.52 gigawatts of new capacity in the most attractive European Markets by 2025.
I'm optimistic that we will be able to On the one hand, we use our experience from the trading and optimization business and act as an enabler for developers. On the other hand, we will increasingly address medium sized and small commercial customers in order to structure long term carbon free Energy supplies according to the individual needs of our B2B customers. New contracts signed in Spain and the USA Have recently further increased our CVA portfolio. At the top of our agenda is also to leverage the gas business The opportunities that arise in the transition of the energy industry. More specifically, this involves the further build out of our already existing green gas portfolio.
From a mid term perspective, we will continue to utilize and Uniper's joint capabilities to position ourselves as a major player in the rapidly increasing hydrogen economy. The initial focus here is on launching major pilot projects, which need to be supported by public funding and developing concepts through cooperation agreements. The green methanol project AR in Sweden is one step further towards concrete implementation. This project is being planned by the Swedish chemical group Perstorp together with Uniper and Fortum. Having already qualified for the next stage of evaluation under the EU Innovation Fund, the project recently received Financial support of €30,000,000 from the Swedish Energy Agency.
Moreover, further cooperation agreements were concluded to improve our market entry opportunities. Uniper and Shell Gas and Power Developments recently signed a MoU to drive forward joint cross border projects. The focus is on exploring future opportunities for the large volume transport of hydrogen from the ports of Rotterdam and Willeshaven To Germany's core industrial region of North Wales failure. For Uniper, as a major European gas midstream supplier, Creating import channels for green hydrogen or alternative fuels such as green ammonia for Europe is a core story. A few days ago, Uniper signed a cooperation agreement with a project company, High Porch Oman, representing Oman's National Petroleum Investment Company And Dimi, a world leader in the highly specialized fields of dredging and solutions for the offshore energy market.
Project foresees building both an electrolysis planned for 250 megawatts to 500 megawatts And there is corresponding renewable power assets by 2026. Unova will provide technical services. However, the main focus is on drawing up an exclusive offtake agreement for green ammonia, which we intend to import via our plant, Wilens Hafenhauppen. And not to forget Uniper's commitment to expand mobility solution For heavy duty transport, Uniper with its subsidiary Liquids has been in the process of establishing a liquefied Natural gas fitting station network for long haul transport in Germany since 2017. The small energy station network in Germany is slowly expanding and sales grew by about 75% in 2020.
Following the successful completion of a trial run on of Bio LNG with a major logistic company in the truck manufacturer Iveco, Liquids will now also offer a carbon neutral product at an attractive price for the first time from 2022 onwards. The use of bioenergy results in greenhouse gas savings of around 96% compared With conventional diesel fuel and now over to our key performance indicators in the first Starting with the global commodities business, storages have been close to their peak in Half year 1, 2020 following a mild winter and decreased demand due to COVID-nineteen. Meanwhile, A colder winter with ample withdrawals from our storages was covered with a global economic recovery and supply shortages. In light of this market environment, European gas prices showed a volatile development and have more than doubled since the beginning of 2021. These combined factors brought our storage levels to around 66% which is still above the currently observable market average.
As recently announced, the upcoming COD of Nord Stream 2 in Q4, 2021 may help to ease the current tightness on the gas market. Building up on our Q1, the European generation segment achieved again a remarkable increase in power generation volumes of 19%. Hydro volumes decreased by 9% year on year. This development is mainly related to a normalization Nordic generation volumes as we faced extraordinary high precipitation and snow melt during the first half of twenty twenty. In contrary, German hydro output has risen by 5% following strong precipitation.
Nuclear output declined by around 2%, which mostly resulted from the closure Of the minority owned Rijals I power plant by the end of last year, gas and coal fired power generation continued the Q1 trend and has risen by almost 50% year on year, which can be explained by several interconnected developments. Firstly, a significant decrease in renewable supply, e. G. Due to less wind as well as additional power demand due to colder weather across Central Europe and UK. Secondly, the higher volumes are also driven by the COD of DAFN 4, which has Only been producing since June 2020 and the gas fired power plant, Yersin 45 Being back in the merchant market since October 2020.
The Russian Power segment continues to deliver performance above plan with an increase of roughly 4%. This development can be mainly explained with the withdrawal of COVID-nineteen related restrictions for businesses, Higher demand on the Russian market and also beneficial weather conditions compared to the very warm winter in 2019 2020. As can be expected from the group wide rise in fossil generation volumes, carbon emissions show a plus of about 19%. This development is in line with the overall market this year and highlights today's relevance of fossil fuels to ensure security of supply and the need to change that going forward. From Uniper's perspective, Given the broader fossil asset base, we expect this trend to continue for the full year 2021 and even 2022 as already highlighted back in May.
Starting with this quarter, we will also report our group Carbon intensity to provide further transparency on our decarbonization progress. Our specific carbon intensity remained at Prior year's level with approximately 440 grams CO2 per kilowatt hour produced after the 1st 6 months, Even though the percentage of fossil volumes increased, this is mainly attributable to the high efficiency Looking forward, we will drive the emission intensity of our fleet down. Unifin is actively taking decarbonization across the organization and along our entire value chain. Throughout the next month, We will be more specific when it comes to providing proof points on our strategy execution. Having said that, I'm handing over to Tina, who will lead you through our key financials.
Thank you very much, Klas Tidjie. Overall, looking at Uniper's financials after the 1st 6 months, We can see, as expected, mostly a decrease in the relevant metrics compared to for the year. However, there are 3 key messages around those numbers that put the development in perspective. 1st, while we see a decreased compared to prior year, the absolute level of our metrics are healthy. 2nd, the negative earnings development year on year is driven by phasing effects, which reflects The recent carbon price rally.
The underlying business development is actually stable and solid. 3rd, we are fully on track to reach our communicated full year guidance. Having said that, let's go through the KPIs on this chart. Both adjusted EBIT and EBITDA are down by around €112,000,000 compared to the previous year. Accordingly, economic D and A remains Stable at around €320,000,000 in the first half of the year.
In comparison, the adjusted net income decreased only by €42,000,000 year on year. As taxes and minorities remain stable at about €25,000,000 €150,000,000 The reason for the comparatively better development of the adjusted business income is the improvement Improved economic interest results. Here, we have a positive impact from revaluation of our hydro provision due to higher interest rates. The unadjusted or reported net income shows a very So decline compared to prior year. This results mainly from mark II market effects on unrealized derivatives.
The main driver here are our power hedges, I. E, short deals at the exchange That loss in value as prices increased. Economically, this is offset by a higher value of our assets. However, those assets are not accounted for on a mark to market basis This mismatch highlights the usefulness of adjusted earnings metrics to assess our actual performance. Economic net debt increased somewhat compared to the end of last year, in line with the usual seasonal pattern.
Finally, on the operating cash So we actually see an improvement year on year. As usual, I will now get into details of those KPIs, Starting with the underlying earnings drivers on the next chart. This slide breaks down the year on year development on the adjusted EBIT into main effects. The overall negative delta of €111,000,000,000 can be fully explained by carbon phasing. This means that in the 1st 6 months of 2021, we have more than €100,000,000 of Additional carbon phasing compared to prior year.
Like in the past, this effect will fully revert in Q4 and we therefore have no impact on the full year results. It stems from the fact that we hedge our carbon Exposures with products that settle at year end. Accordingly, in times of increasing CO2 prices, We record higher expenditure within the year for higher 2 provision, while the offsetting gains On the hedges are not yet realized in adjusted EBIT until they settle in Q4. The magnitude of the compensation effect can be explained by the CO2 price increase of more than EUR 20 since at the beginning of 2021. Looking at the underlying business performance, should see overall a flat development year on year.
European fossil generation is up almost €100,000,000 compared to the already strong prior year. Here, we see additional contributions from DASL 4 under Gas Fire's existing power plant, all of which were not in commercial operation for the most part of the last year's half year. Additionally, we received higher U. K. Capacity payments in 2021.
Our outright generation business is down by about €30,000,000 due to the lower volumes and prices. On the volume side, it is mostly due to the normalization from high water levels last year. Price wise, the decrease is mainly driven by lower achieved prices for the nuclear side. Moving over to Global Commodities, which shows a higher double digit decrease year on year, primarily to the Gas Midstream Business. As mentioned in the last call, we see here a normalization of earnings after an extraordinary result in half year last year.
This swing in gas is only partly compensated by the positive development in the international commodities portfolio, which benefited from the market environment in Q1 2021. Our Russian Power Generation business showed a decrease of roughly EUR 10,000,000, mainly driven by FX development. Business wise, the negative impact from Saryngskajah and Yavynskajah moving from the CSA To the Comms team, has been compensated by additional contribution from Perestoskaya 3. Category Other sums up all remaining effects, adding up to a single This is positive number that is mostly reflecting a lapse of expenses in the outright generation area. On Slide 8, you can follow the reconciliation from the Group's adjusted EBIT to operating cash flow.
Even though adjusted EBITDA decreased by €100 €12,000,000 compared to prior year, we see the operating cash flow before interest and taxes actually increased by roughly the same amount. Accordingly, the cash conversion rate improved from 35% to 50% year on year. Then let's go through the waterfall, starting with the EBITDA on the left side and moving to the right. The EBITDA is adjusted for non cat effective items. Those are primary additions and revaluation of provisions, in this case, mostly workforce related Provisions.
In the next, effects reflect the provision utilization, I. E, The actual payout of provisions that have been built up in the past. As usual, this Considers primary 3 categories of provisions: nuclear decommissioning, workforce and onerous contracts, mostly related to our global commodities business. Next, change in working capital. And here is one of the main reasons why the gas Conversion is significantly higher compared to last year.
As Claus Dieter mentioned, Our current cat inventory levels are significantly lower compared to prior year due to the colder winter and the current market environment. Accordingly, our net increase in working capital is about €170,000,000 lower compared to prior year, which explains the swing on the OFC side. The next element called other includes mainly the net effects from CO2 related provisions and working capital movement. Here, we also see a significant positive driver due to the higher correction for noncash effective additions to CO2 provisions. Then let's go over to the development of The economic net debt on the next slide.
After hitting a low in Q1 At €2,500,000,000 the economic net debt amounted to 3.2 €1,000,000,000 at the end of June 2021. Compared to the beginning of the year, this is in an increase of roughly €100,000,000 Looking at the underlying drivers from the left to right, We see that the OCF fully covers our group investments. The dividend of €501,000,000 was paid out in May after our virtual AGM. All else equal, this would have pushed the economic net debt significantly higher. However, on the provision side, we see a relief of more than €400,000,000 due to higher interest rates and therefore lower pension and asset retirement obligations.
When it comes to pension, interest rates increased for Germany from 0.8% to 1.2% and for UK from 1.5% to 2%. Overall, when it comes to our credit rating, we remain in a very comfortable position. This is further underlined by the recent S and P decision to change the outlook of our BBB rating from negative to stable. When it comes to our full year outlook on our financial KPIs, the outlook which we raised Following strong Q1 results is left unchanged. We expect adjusted EBIT to end up between €800,000,000 €10.50,000,000 at the year end.
For adjusted net income, we see a range of €650,000,000 to €850,000,000 on a full year basis. While Q2 turned out somewhat lower than indicated during our Q1 analyst call, We remain fully confident in our guidance for the full year, mostly for two reasons. First, the lower earnings in Q2 were primarily driven by phasing effects, which per definition will reverse in Q4 and have therefore no impact on our full year results. 2nd, looking at the business forecast over the next 6 months, we see already significant contribution materializing, especially in the global commodities area. Looking at the remaining 2 quarters individually, You can, as usual, expect a negative adjusted EBIT in Q3 and a strong positive contribution in the last quarter.
As of today, we expect a negative isolated third quarter, better than previous year's Q3. However, please note that the earnings split between Q3 and Q4 Depends on the further development of commodity prices, especially carbon and gas, as just witnessed in Q2. This brings me to the end of my presentation today. So Stefan, back to you.
Thank you, Tina. And speaking of commodity price development, May I remind you that our IRF energy. Universe is the perfect tool to stay up to date on all relevant commodity prices. This is underlined by the very positive feedback we received since its release last summer. With the recent update, it now includes the daily European utility newsletter provided by Bloomberg.
And of course, it's free of charge. We neither take your money nor your data. And if you have any questions on this app, please go to our IR team. For questions related to Q2 And today's presentation, however, I'm happy to open the Q and A round now. So operator, please.
Thank you very much. And the first question is from Louis Schumacher, Societe Generale. Your line is now open.
Yes, good morning. 2 or 3 questions from my side or many related to gas prices. Normally, you tend to benefit in a strong environment for fuel commodities and Q2 has been extremely strong. Gas optimization, there was a lot of optimizing to be done. Why can't we see this in the numbers?
You actually showed a negative The impact there, were you sort of positioned the wrong way? Or can you maybe explain why you unlike Other big trading houses, Waffenfar, RWE, they had an absolute storm in Q2. Why did it not quite work in your favor? The second one is just your general view on gas prices. We are now 25% For the TTF front month above the previous high in 2,008, there's of course a big squeeze.
You referred to Nord Stream 2 in your presentation, do you think that this coming online will sort of ease the squeeze and the tightness we are seeing In European gas markets at the moment? Or could there be a prolonged squeeze simply because gas storage can't be filled up And the last one is just a technical one. When you mentioned your carbon intensity on Page 5, Does this refer to all of Uniper or is this just Europe?
Thank you, and good morning, Lueder. Thank you for your questions. I think the general one on gas prices, that's One that Klaus Dieter will answer and then Tina will comment on the gas optimization. On the carbon intensity we're checking that quickly And Rick, first of all.
Yes, maybe I start with your second question on the kind of general outlook of gas prices. Obviously, it's a little bit about kind of speculating for the future. What we see is that A number of factors I would better say, we monitor a number of factors. One of the factors we have mentioned in our presentation, this is The filling of the gas storage facilities across Europe, We mentioned that as far as we know, we are ahead of our competitors in terms of that With a 66% filling so far, on average, I think it's 50 something percent, Which is again, if you compare it to previous years rather on the lower end of the averages that we have So that is one factor clearly going forward. The second factor, as you rightfully pointed out, is about kind of Gas import infrastructure and availability of gas import infrastructure, We received recently news on congestions due to an incident in Russia, which is still unclear How the mid to long term effect would look like?
So I think we can't speculate on this one. And The main driver for that would be simply what kind of winter do we have to anticipate. If it was a winter like the last one from 2020 to 2021, I think that would rather support high gas prices. If it was a warm winter, we would rather expect lower prices. So there what I'm saying is there are a number of factors obviously playing To that price development going forward when it comes to in particular the price developments over the next say, I don't know 12 months or so.
So on gas optimization, maybe Tina?
Thank you. I continue. So as mentioned, so of course, very significant increase in the gas prices. But in our operations, so we would say that there is no direct impact on our profitability as we do not have a few long positions here. I think for us, it's more question about the volatility And summer winter spreads.
And as usual, our margins are mainly made during winter. So to say, last quarter of the year, Q1 of the year, when we withdraw from our storages. Then what comes to the relevant spread, so we can say that the gas have not improved so much. What comes to our, in a way, performance, so however, we can see that the first half year overall forecast It's on the stronger side, so maybe impact a bit more than €200,000,000,000 EBIT. And we expect it also to be a good warm year.
And on the last question
on the carbon emissions, yes, that's referring to the group. So that's the program on
Page 5.
Excellent. Thank you.
The next question is from Alberto Gandolfi, Goldman Sachs. Your line is now open.
Thank you and good morning. I want to ask a couple of questions, if I may. The first one is, if you can share please your thinking Regarding the gap between German power prices and Nordic power prices and if you expect The gaps widened narrow or remain stable and if you maybe can tell us why that would be great. The second question is If you can give us an update on your new businesses. You basically are you eloquently explained On Slide 4, the ramp up you expect in renewables and in green gas.
I was wondering if you can give us an update as to Potentially, what uplift to EBITDA you would expect from these, given changes in cost of raw materials, given the In commodities, or perhaps if you can tell us maybe the invested capital and the return that you are targeting in light of the new scenario that we are living in?
Thank you. Yes, good morning Alberto. Great questions.
Good to
have you on the call. The first one on the German and Nordic power prices that goes to Tina and the second one on the new business will be tackled by Klaus Dieter then. Tina, over to you.
Okay. Thank you. Thank you for the question. So we agreed there is a massive gap in a way between the Nordic and German prices. But in our view, It could come down over the time.
And the reasoning why we believe that's Possible is that there are new interconnections between the different marketplaces. So already last year, there was an Nord Link between Norway, Denmark. At the end of this year, North Sea Link is planned to go online at the end of this year. And then further, we can link 2024 and more to come even following years. Also what We have seen in the Nordics, so there have also some restrictions between the different areas, particularly between the Swedish Area 2 and Area 3, which are easening up.
At the end of the day, I think it's also Question about the supply and demand pattern. And as there is a strong need for decarbonization and Electrification is the one key. So we expect industry heavy users of electricity to use and in a way take the also the demand side up and In a way, balancing the very big differences what we currently see. And over to Hugh Castit to ask another question.
Yes. Thank you. I mean, I'm building on what Tina said clearly there's one big unknown effect that we have also seen in ConTe Europe And that is obviously also something that we do need to fully understand and notice and see additional renewables power generation that comes on How does that have an impact on kind of prices? This is very difficult to predict. We've seen that also in terms of Europe.
But back to your second question On our growth ambitions, number 1, I would say we have 2 areas as we try to highlight renewables and And Green Gas, Hydrogen. Now if we look short term, which means I 1, 2, 3 years That I would rather expect us to spend most of the money that we have Available for growth investments, we indicated would be €1,500,000,000 over the next 3 years. I would expect more money to be spent on the renewable side, not on the green gas side, since we have more, I would say, tangible and large Projects already in our pipeline on the renewable side, that's number 1. Number 2, difficult to predict how the returns For this investment will look like, I mean, it depends on a number of factors and I cannot Kind of give you any number on our calculation on internal rates of return because obviously our return expectations expect We expect are dependent on a number of factors. It's a country factor.
It's the technology, wind or solar, because It's more volatile than solar. It's about the maturity of the projects that we are embarking on. Is it an existing or kind of Already producing wind farm that we are looking at or is it a greenfield investment, which would carry then as a project a higher risk. So our return expectations depend on also the projects and the number of factors That come with a certain project. So there is no nothing that I can even if I wanted to disclose that number, it would be difficult to do that.
Got that. Thank you for your answers.
The next question is from James Brandt, Deutsche Bank, your line is now open.
Hi, good morning. Thanks for the presentation. I have 3 and I now have 3 questions or is it 2? Some people have been going for 3. So I'll try for 3 and if you anyone wants to answer 2, that's fine.
So the first question is, you still haven't outlined a kind of updated dividend policy. When should we expect 1? Will we have one before year end or should we anticipate waiting until the end of the year? The second question is on hedging. So I know you don't disclose the hedging after 2023, but You obviously have a very high level of German forward hedging out 2022 At almost 100%.
How should we and obviously at levels quite a way below where the current forward curve is. So when we're thinking about the upside potential for your earnings from that business and thinking ahead to 2024, It's useful to have some kind of indication as to how much you might have hedged. But I'm sure you don't want to disclose an exact percentage, you haven't formally disclosed that. But when we're thinking about 2024, have you hedged kind of very little or A moderate amount or you're pretty hedged for 2024 as well on German Power? And then the final question, Doctor.
Klaus Dieter, you made some quite strong comments at the beginning around the green transition and that we need to kind of pursue Alignment with that kind of whatever the cost or I guess I know it's done, maybe you didn't quite say it's in that exact And I was wondering whether you could just elaborate a bit on that, how we should think about that. Is it When you say whatever the cost, should we expect you to kind of close profitable stations or make disposals of assets below what What you think they might be worth just because it kind of aligns with the green agenda? How should we think about the kind of trade off there between pursuing that whatever the cost and maximizing shareholder value. Well, maybe they do go hand in hand. Thank you very much.
Good morning, James, and thank you. And I think I didn't mention this time the 2 question rules. So I think it's perfectly fine
if you have Three questions.
The first one on dividend, but also the last one on green transition, that will be too far across detail. Then Tina will take the Hetman question afterwards.
I would like to say thank you for the 3rd question because I felt kind of listening to your first question I received today all the questions from the participants, which I have to kind of push back and give almost no answer And so I'm grateful for your last question. We'll come back to that in a second. On dividend, I have to admit that we're not ready to comment, even not ready to give any kind of Outlook on Oren to come back to this dividend questions. We're working on this. Clearly, The number of things that we have to figure out going forward, some are kind of Connected to our business to the volatility of our business.
Some are also connected to the growth story that We're trying to outline since there are obviously a number of things that we have in our pipeline, which could have also an impact on that one. So No, we can't say anything on dividend today. And unfortunately, no, we cannot even To any outlook on when we are going to come back to this topic. Your last question, the third one On decarbonization, I think you rightfully pointed to a discussion that we do actually have internally. And it's clearly a trade off between our ambitions to decarbonize our portfolio and our business and at At the same time also maximize shareholder value.
This is constantly a discussion that we have. It's very concrete whenever we have internal discussions and decisions, for example, to participate In German coal exit tenders, because we have to submit a certain price level. That price that we know the Cap, the maximum cap for example when we kind of discuss that in the boardroom and then we make a decision on how to position ourselves And to do that in a way that on one hand, we are not kind of leaving Money on the table, if you like. And on the other hand, that we're also pursuing our decarbonization strategy. Radcliffe is another good example for that.
We made a decision to earlier close 1 unit as of end of September 2022, as I mentioned. So that is 2 years earlier than originally planned and clearly that again was also A discussion that we have, to what extent are we not capturing maybe a remaining value with that Unit and to what extent is it supporting our decarbonization strategy. And finally, we made the decision To announce this earlier closure of Unit 1, I think it will continue to be a debate that we will internally have On this kind of trade off between our ambitious plan to decarbonize our portfolio in one end and at the very same time Also creating shareholder value for our investors and shareholders.
Then moving to the other question about our hedging. So in overall, we could say that Our portfolio is not very sensitive to the price changes for the reminder of this year, next year, 2023. And the reason being that when we look at our position at the year beginning, we were and widely held. Also, the overall, we could say that The price level is the one thing. The other thing is that what is the liquidity in the market.
And in our view, the summer liquidity has been also fairly low. So what has also impacted our hedging possibilities. Then When it comes to the further years, so of course, the direction is very, very promising. At the moment, we will not yet disclose our hedging levels at 2024, but we are coming later to us in the quarterly report.
Great. Thank you very much.
The next question is from Sam Arie, UBS. Your line is now open.
Hello. Thank you. Good morning, everybody. Very helpful presentation as always. And listen, I wanted to ask a question, if I may, on the bigger picture around Carbon prices.
And I think the way I'd put the question is as follows. Correct me if you say it differently, but a few years ago, I think it was consensus that if the carbon price went above A level of about €30, and there would start to be some fairly intense lobbying From industrial groups, consumer groups and so on because of the impact of that on power bills. But Now we've been at a carbon price over $50 for a while. And I don't know what surprises me is that we don't seem to hear a lot of complaining so far from the people paying the power bills. So I just I suppose my question on carbon is, given your position in the market and what you see, Do you think carbon at this level is politically sustainable?
And specifically with reference to, I guess Germany and Sweden that you must know very well. Do you pick up any discussion of potential or clawback measures Similar to what we've seen in Spain this year or anything equivalent. And then I do have a second question, if you forgive me on Russia, but perhaps I'll let you I'll come back on Russia in a moment.
Okay. Thank you, Sven. Good question.
Well, indeed, I mean, I agree with you that we had a total different discussion on carbon pricing a few years ago. Now we are constantly above 50 and we should acknowledge that at the very same time also have very high gas and also coal prices. We've seen pretty high prices for the wholesale market for the next winter. What I would say is that when you were kind of coming to this topic of power build, I think my major concern That I would have is in particular how that led to not so much the knowledge because they have different price level obviously these days, In particular to kind of the power market in Continental Europe, how industrial customers Can digest this price peak. I mean, what we know from our customers, industrial customers, they have The input prices not only for power and gas, but also for other materials are Pretty high and have increased over time.
So they have they do face a number of price increases That they have to digest and kind of turn into increased prices going forward. So that is in my view something We as an industry should be concerned about because that basically has an impact on the competitiveness of our industrial customers. When it comes to retail customers, I mean, let's wait and see how the price development will look like Mid to long term, that will depend on a number of factors. We should Acknowledge that, for example, in Germany, higher wholesale prices would have a compensating effect on the What we call EEG, EIGITZULAGER, which is kind of the compensation on the renewable side. So that's difficult to judge How the residential prices would look like?
Carbon pricing, I think obviously It's very much different also by political agendas. I mean that we should also expect and I mean you know that we have elections Coming in Germany, we have an election coming in France, which is also very important for Europe. So I don't see that there is any appetite to intervene from the political side In a way that carbon prices are going down. Let's wait and see Whether governments will even push it into a direction in which they Still rise. So that's somewhat difficult.
But in a nutshell, my main concern would be With our industrial customers that are exposed to very high power prices meanwhile.
Yes. Well, sorry, just a quick follow-up on carbon, but just on the specific point about We get this question all the time if we think there's a risk that other countries might introduce some kind of clawback theme similar to the one that the Spanish government is looking through at the moment. And have you heard any discussion of that that we should be aware of? Or do you think we can rule that out in other Countries outside of Spain?
I think I would be careful in ruling that out. But at least what I can say honestly is that I have not seen any debate that we actually had so far for the time being around that Or any risk that we would have identified in that sense. I'm not aware of that.
Okay. Okay. Very clear. So just quickly, my other question was on Russia. And it's very simple, but I suppose it wouldn't be a Uniper results call if I didn't ask you guys a question on Russia.
But can I just ask, is there any update on your thinking about UniProt Whether this remains a core asset in your planning or if we should be thinking of the holding in UniPro as more of a financial asset now, which Could be up to disposal at
some point? Now on Russia situation is unchanged. Now first of all, I'll Come back to what we've said earlier, we are very happy about the fact that our Russian team As successfully put on stream a value 3 which is an important unit also when it comes to capacity payments That we received now starting from May 2021 onwards, obviously, so that's very helpful, great achievement of Our Russian team, when we look at Russia and our activities there, it's more that we also kind of see this as an element Part of our portfolio and as I said before also Russia, we look at Russia and then ask ourselves how can also our Russian business contribute to our Decarbonization strategy, which is clearly something that is very challenging also for this for our Russian power business, But there is nothing new from that end when it comes to Uropro or things that are speculated in the media around our kind of A future divestment or something like that.
Okay, very clear. Well, forgive me for asking, but thanks for your very helpful explanations.
The next question is from Vincent Ayral with JPMorgan. Your line is now open.
Yes. Hi, good morning. I will come back a bit to the beginning of the call regarding the Commodity price and what seems to have been a missed opportunity potentially. So I'd like to just in the data. So you're saying like 66% of gas storage in June at small end markets average.
So that that makes the question why do you have a high gas surge when gas prices are high? Did you have an opportunity to sell at higher price and a lot more profit in Q2? Or you're talking about Nord Stream 2 coming in Q4. Is it that you sold forward some gas volume for to not summer winter spread towards the end of the year? So On the gas storage side of things, is it that actually you had an opportunity and you locked it and we just don't see it in Q2, but we'll see towards the end of the year.
It will be interesting for us to understand that. The second thing is on the power generation. So I'll say, Like usual, I'd say, as before, it's almost impossible for us to assess the trajectory because of the quarterly marks market of this year to provision and release. Uniper is the only one to do that and it makes things very difficult for either sell side or investors to get a clear assessment. So Hopefully, one day we'll get obligations like peers in this respect.
But coming to the outright, It's in fact you've seen the price slightly down. You are hedged a lot out, and that was a point raised by So what was the reason to be hedged that much It's question number 1. And question number 2 is, when you start the year, normally you still got 5% to Usually, we would say 10% to 20%, but maybe in this case, 5% to 10% at least of open position. And the pulp price went up 50%. So Why weren't you able to capture this opportunity?
If I were to put things, just 2 questions I rephrase it. You're saying you're not long, Gaz, absolutely understand, but that's physical. You have a trading desk Like competitors, so you don't have to be physically long. It's a trading position. So what is different in your trading department from peers?
I do not mind having lower volatility and profitability to be there on that, but it's something we need to understand. Thank you.
If I start on your first question on the commodity The filling in our strategy behind that and then maybe I don't know whether hopefully TNS Get this question around CO2 trajectory and also all the hedging strategies you may then kind of try to answer the questions that you had on this one. Let me start with this gas and filling. Well, number 1, I don't know why our kind of competitors do follow a different strategy on fulfilling their gas storages. I don't want to speculate on that one clearly. So what we do see, it's just a fact that the average Filling in our sector is lower than our gas storage filling.
And Clearly, we are trying to kind of trying to understand that and also the rationale behind that. As Tina already said, we are in particular also after Kind of understanding summer winter spreads that are key driver for our profitability. We're trying to kind of adapt that, trying to understand that and trying to benefit from that. And hence also kind of trying to make the right decisions on our gas position. And I would add there are a number of things in Our long term gas purchase strategy and also in our long term contracts that I would not like to disclose, honestly, That have impact on the way we are trying to kind of hedge our position, but also trying to Purchase and also fill all gas storages.
So that may also be different It will be a factor that distinguishes us and our strategy from the position that our competitors do take. So it's a little bit of speculation and I don't want to go so far on speculating. I don't know why others do pursue Different strategies in the way they are dealing with a similar challenge, yeah.
If I continue about the hedging and outright It's percentages. So it is very true that the percentages are high. It's always easy to, in a way, look backwards and see that's what could be the optimal position. But I think that If we think about last year, we were in the middle of the COVID situation. We didn't know how to How the demand and the economy will develop.
So I think the okay, in hedging, we in a way, that's Also risk management, but also securing our cash flow. So I would say that this is probably the one One background reason for the if we look at from the past. From the past and the reasons why the hedges are fairly big. Then about our commodity business and what and how we are doing. So I think it's good to, in a way, see the overall profitability of our commodity business and just Thinking about our last year's cash results, so it was around the €600,000,000 EBIT With a very, very difficult winter.
And this year, we see more kind of the normalization. And after 6 months, so we have already gained €200,000,000 So this is significant result. Also, I think one reason is kind of the parameter is the timing. When the results will realize, When we take our position, usually we also hedge on these how they turn to our
Okay. Thank you very much.
So the next question is then from Deepa Venkateshwar and Bernstein. Your line is now open.
Thank you. I think some of my questions have already been asked. I'm going to have a go at the Russia question again, but in a slightly different way, which is that currently you're not dominated by Fortum. Do you think that if Fortum were to dominate you, that is what is needed for clarity on how you would look at Russia? Or do you think that the outcome is completely independent of Fortin's ownership on what you do with Uniqlo?
Sibar, good morning. Good to have you on the call. Is that your only question? Then we close the data.
Yes, we are not dominated by Fortum. Yes, we don't we still don't know how Fortum is going to Cannot take any decision if at all. I think I cannot comment and will not continue to not comment on I speculate on what Fortum is going to do with their shareholders in Uniper. And hence, We are discussing our Russian power business activities totally independent from the discussion that Fortum might have. So I don't see any kind of connection between kind of Fortum's ambition Our ambitions around the Russian business and our ambitions we have to take our decisions and our strategy implementation clearly Independent from that.
What I would stress though is that is important and I can kind of confirm that again That the strategy that we have defined and that was defined in early 2020 was confirmed by end of last year It's still the strategy that we are implementing and that is still clearly supported by Fortum. That's important to say. So we feel absolutely comfortable Our strategy implementation path clearly supported by our main shareholder.
Okay. Thank you. The next question is from Pierre Diou, Citibank. Your line is now open.
Hi, good morning, everybody. Thank you for letting me ask the questions. I have 2, maybe small ones. First, can you maybe tell us what's the impact of the CO2 hedging provisions on your cash flow cycle throughout the year? Do you build the cash upfront and then you release it in the April or and then what's the Based on the current carbon pricing, what's the kind of magnitude of annual cash flow difference if there is a swing like this?
And second, I'd like to ask you about the issue in 4 and 5, which you brought in the Q4 last year online. And clearly, the market condition changed somewhat. So I just wanted to ask you, What is the position now? Are they in the money? And what's the margin there?
What's the kind of contribution you would expect from these two plants on a forward basis. Thank you.
Good morning, Pierre, and thanks for your question. Good to have you The first one on the CO2 provisions will be answered by Tina and the second one on Eisheng Point 5, that's close to
you. Are you doing first? Yes.
All right. So what comes to the CO2 In a way, cash flow and also in accounts. So basically, we are building the provision during the year, And we are hedging the our CO2 position and using the yearly Product was available at the year end and settled then, so then the cash flow impact Then the what was the other question?
The question was on Nxing 405. I can take that. I mean, what we have disclosed, you know that because you will follow also kind of the market developments. Clean spark spreads Our, in my view, positive. So we have seen a number of months In positive territory, we have clearly hedged our position on Erxing back then.
So that was very helpful for us. Clearly, I would see for the time, the months ahead of us that ERC105 will obviously be Key to the German power market and the Continental European power market. I mean, what we have to acknowledge that we have very, very High CO2 prices and high gas prices now. If that continues to be on that kind of level, Then we have to see how prices will kind of develop over time because obviously Very high gas prices, very high CO2 prices are not in favor of our gas fired units, but rather The coal units would then benefit from that. So recent developments have shown that for example, clean dark spreads I've made quite a turn and that is something that our that we're trying to follow and trying to understand Whether this is something that is only a short term development or whether we should anticipate that There is a kind of almost a comeback for the clean dark spreads.
It's difficult to judge and I don't want to speculate on that one. But I think so far looking back, I would say the decision to bring Eirchim 4 and 5 back on stream was the right decision to take And we're kind of producing on-site nicely I would say.
Okay. Thank you very much.
The last question is from Justa Okay. So far then, no one is answering. We have no further questions. I would like to hand back to the speakers for some closing remarks.
Thank you very much. And yes, and thanks everyone for participating in today's call. We I conclude the call now and wish you all a nice day. Thank you very much.