Uniper SE (UN0) Earnings Call Transcript

Dear ladies and gentlemen, welcome to the Uniper Analyst and Investor Conference Call First Half Year Results. At our request, this conference call will be recorded. [Operator Instructions] I now hand you over to the Executive Vice President, Investor Relations, Sebastian Veit, who will start the meeting today. Please go ahead.

Thank you, operator, and good morning, everyone. I'm pleased to welcome you to our first half results for fiscal year 2026. Next to me on today's call are Michael Lewis, our Chief Executive Officer; and Christian Barr, our Chief Financial Officer. Michael will present an update on our key developments in the first half of 2026, and Christian will walk you through our first half financial performance and our financial year outlook for the remainder of this year. And as usual, we will wrap up with a Q&A session at the end. And now let me hand over to Michael Lewis, please.

Thanks, Sebastian, and good morning, everyone, from my side, and thank you for joining our call. So let me start with the key highlights, and I'm very happy to confirm that Uniper delivered solid financial results for the first 6 months of 2026 and is fully on track to meet our financial guidance. We continue to navigate steadily through the increased volatile markets in reaction to the conflict in the Middle East. And whilst our operational business has not been directly impacted by the conflict, we had some operational challenges nonetheless in the first half of 2026. The weak hydro conditions in Germany and the Nordic region, together with an unforeseen outage at Oskarshamn 3, weighed on earnings in Green Generation. This was partly offset by higher Nordic power prices, stronger U.K. capacity market earnings and improved hedge results for our flexible generation. The main positive driver in this first year comes from Greener Commodities, which rebounded from negative territory compared to last year when the segment was still burdened from past optimization spillover effects. So putting all this into numbers, group adjusted EBITDA reached EUR 711 million, nearly doubling year-on-year. And group adjusted net income came in at around EUR 388 million. Against this background, we've narrowed our financial outlook for 2026, reflecting what we said in the beginning of 2026 that Uniper today is more focused and more balanced. And we now expect adjusted EBITDA to range between EUR 1.1 billion and EUR 1.3 billion, and adjusted net income is expected to come in between EUR 500 million and EUR 600 million. And Christian will provide additional details on the financials and the outlook shortly. And let me add here, we continue to work on strengthening our portfolio, and we are making progress step by step. Just recently, we added another element to the rebuilding and diversification of our gas portfolio by concluding a gas supply contract with Ksi Lisims Canadian LNG project for up to 20 years. And our efforts to strengthen our portfolio contribute to security of supply, increase sourcing flexibility, and reduce exposure to individual regions and market disruptions, and it's also being recognized by our credit rating agencies. Notably, we received for the first time an issuer rating by Fitch of BBB- with a stable outlook. Also, S&P and Scope reaffirmed their investment-grade rating and stable outlook for Uniper with BBB- and BBB, respectively. And with the resumption of shareholder distributions, we added another missing piece to bringing Uniper back to capital market readiness. The EUR 0.72 per share dividend paid in May reflects both our confidence in the sustainability of our business model and our commitment to shareholder returns. Let me now turn to our home market in Germany. We're well positioned to participate in the upcoming StromVKG auctions with around 1.7 gigawatt of hydrogen-ready new gas-fired power plants. Our existing infrastructure and advanced permitting underpin our sound preparation, and we're confident to be able to execute and deliver our projects in the event of a successful award in the auctions. In summary, we are ready. And looking beyond capacity mechanisms, we also see attractive growth opportunities in the expanding development of data centers, where our sites, our grid connections, and energy expertise provide a solid foundation for future value creation, and I'll discuss this in more detail in a couple of minutes. Now let me highlight how current market trends fit into our broader strategy. So over the past 12 months, we further sharpened our portfolio and investment priorities to address the key trends shaping Europe's energy future. First, strengthening security of supply; second, enabling decarbonization; and third, supporting electrification and meeting growing power demand driven by digitization and AI. And we've systematically strengthened the foundations of our business. Our gas procurement portfolio is more diversified today, both in terms of suppliers and geographic sourcing. And combined with rigorous risk management and a strong balance sheet, this has significantly enhanced the resilience of our company. As a result, Uniper stands today on a stable and sustainable foundation. We operate from a fundamentally stronger position with a business model that is better equipped to navigate uncertainty while capturing the opportunities arising from Europe's increasing electricity demand. And taken together, our strong performance and the progress we've made in transforming and strengthening the company give us confidence in our ability to continue creating value for our customers, for society, and for shareholders alike. And this brings me to the next slide concerning our sharpened CapEx plan. Looking ahead, we continue with our plan to invest around EUR 5 billion in growth and transformation by 2030, building on our core strength in flexible and low-carbon generation. In the near term, more than half of our planned growth and transformation CapEx are expected to be deployed in Flexible Generation. The key enabler is the progress on Germany's power market framework. With the legislative approval of the so-called StromVKG, a key prerequisite has now been established to support investments in new dispatchable generation capacity and strengthen long-term security of supply. As I mentioned earlier, we stand ready. The first capacity auction is scheduled for September 8 with 4.5 gigawatts to be tendered, followed by a second round with another volume of 4.5 gigawatts envisaged for December this year. And this brings us closer to executing on some of our major growth investments. With our planned hydrogen-ready gas-fired power plants at Scholven and Staudinger. Uniper is well positioned to contribute to Germany's future security of supply while creating sustainable long-term value for shareholders. In parallel, the German government continues to advance plans for a permanent capacity market from 2031 onwards, providing a long-term framework to support system stability and investment in reliable generation capacity. We also see attractive growth opportunities arising from the increase of data center demand. It's expected that this trend will drive substantial growth in power consumption across Europe, creating additional demand for reliable and low-carbon power solutions. At the same time, Uniper is well positioned to benefit from this trend, and I'll come back to this in more detail shortly. For Green Generation, we continue to grow our renewables business, backed by a well-filled project pipeline. Projects totaling 570 megawatts are currently in execution, and we signed several long-term power purchase agreements across offshore wind and solar in Germany and Poland. And our aim is to bring around 500 megawatts of renewable projects to Final Investment Decision annually going forward. And this supports our objective of creating sustainable long-term value while further strengthening future earnings resilience. And finally, we have a clear road map for rebuilding our gas and LNG business and to capture emerging opportunities in renewable and low-carbon gases. Moving on to the next slide, I want to share with you how we're positioned to benefit from the growing demand for data centers. The rapid growth in AI is driving unprecedented demand for data center capacity. At the same time, access to power, sites, and grid connections is a critical bottleneck. For Uniper, this represents a compelling growth opportunity. Our portfolio includes strategic brownfield sites and existing infrastructure in some of Europe's most attractive future data center locations. We can offer hyperscalers and data center developers an integrated infrastructure proposition, combining strategic brownfield sites and support for securing power capacity and grid connections. This enables us to participate in one of Europe's fastest-growing markets. Valuation -- value creation starts with site development through land sales or land leases and selected co-investment opportunities. Beyond site development, we see future upside earnings potential through long-term power purchase agreements. And as of today, we've identified more than 10 locations with the potential to host data center developments. These sites across Germany and the U.K -- Three sites across Germany and the U.K. are already progressing through more advanced development stages. Now, before I hand over to Christian, let me share our key priorities for the remainder of the year 2026. For the second half of the year, our priorities are clear. First, Uniper will support the reprivatization process, for which we are well positioned. Over the past years, we significantly strengthened our balance sheet, reduced risk, improved our operational performance, and established a clear and consistent equity story. Second, with regulatory clarity now in place through the StromVKG, we are well prepared for the upcoming auctions. The outcome of these auctions will shape the majority of our planned growth and transformation investments through to 2030. And third, operational execution remains key and is the focus delivering our results for the second half of the year. In this context, we will also complete our leadership team, and Christian Ohlms will join us as Chief Commercial Officer effective October 1. And finally, we're on track to complete our cost savings program by the end of 2026, unlocking around EUR 100 million in annual savings from 2027 onwards. With that, I'll now hand over to Christian, who will guide you through our numbers for the first half of the year. Christian?

Yes. Thanks, Mike, and a very warm welcome to all of you also from my side. And as Mike mentioned, Uniper delivered a solid first half performance despite several market and operational factors that weighed on earnings during the second quarter. Group adjusted EBITDA increased by EUR 332 million year-over-year to EUR 711 million. And in addition, group adjusted net income improved by EUR 253 million to EUR 388 million. The improvement was primarily driven by a significantly stronger contribution from our Gas Midstream business, following the well-known substantial earning burden recorded in the prior-year period. This overcompensated for somewhat lower contributions from Green Generation and Flexible Generation. Overall, the generation businesses were impacted by lower generation volumes for both Green and Flexible Generation segments, which were partially offset by higher Nordic prices, stronger U.K. capacity earnings, and improved hedge results in Flexible Generation. However, we are seeing supportive market developments across parts of the portfolio as we move into the second half of the year. Importantly, we have already secured close to 60% of the midpoint of our full year earnings outlook, providing a solid foundation for the remainder of 2026. As a result, we remain confident in achieving full-year guidance, which we are now able to narrow both for adjusted EBITDA and adjusted net income. With that, let us now take a closer look at the reconciliation of group adjusted EBITDA from the first half of 2025 to the first half of 2026 to understand the key factors shaping Uniper's operating performance. As the waterfall chart shows, the most significant positive change came from Greener Commodities, which delivered an adjusted EBITDA of EUR 260 million compared with a negative contribution of nearly EUR 300 million in the first half of 2025. This development was largely driven by past optimization measures in the Gas Midstream business, where the earnings were affected -- where the earnings effected that weighed on the prior-year period were no longer present. In addition, our LNG business continued to deliver earnings at an elevated level, albeit below the exceptionally strong contribution recorded in the first half of 2025. Green Generation delivered an adjusted EBITDA of EUR 302 million compared to -- compared with EUR 420 million in the prior-year period. German hydro earnings declined due to less favorable hedge positions following an exceptionally high price environment in the past embedded in the prior-year result. Generation volumes weakened modestly, reflecting another year of similarly weak precipitation conditions as in 2025. The favorable pricing environment in Sweden that we discussed during our first quarter results call continued to support earnings in the first half, particularly through stronger realized prices in January and February. Despite lower hydro volumes, earnings from our Swedish hydro operations were higher in the first half of 2026 than in the comparable period last year. However, the stronger hydro contribution was not sufficient to fully offset the impact of reduced nuclear generation, primarily due to the earlier start and longer duration of the outage at Oskarshamn 3 relative to the prior-year period. Following completion of the necessary remedial measures, Oskarshamn 3 has been ramped up again and returned to normal operations in July. Following the increase in Swedish power prices captured during the first quarter of 2026, forward hedge prices remained largely unchanged between the end of March and the end of June. At the same time, we continue to build our hedge position by locking in additional volumes across the 2026 to 2028 delivery periods. Turning to Flexible Generation, the segment generated an adjusted EBITDA of EUR 286 million compared with EUR 333 million in the first half of 2025. Improved market conditions in Germany and the Netherlands translated into stronger hedge results, while higher U.K. capacity market earnings further supported earnings during the period. These positive effects largely offset lower generation volumes, mainly reflecting weaker U.K. power spreads, lower availabilities at Irsching, and a smaller asset base following the disposal of Datteln 4. In addition, the positive contribution from legal dispute settlements recorded in the prior-year period did not recur in H1 2026. Finally, the year-over-year development in Admin and Others largely driven by foreign exchange effects. The next slide shows adjusted EBITDA reconciled to adjusted net income. The development in group adjusted net income largely followed the strong year-over-year improvement in adjusted EBITDA. Adjusted net income increased to EUR 388 million in the first half of 2026 compared with EUR 135 million in the prior-year period. Depreciation and amortization of almost EUR 260 million remained broadly stable year-over-year with only marginal change compared with the first half of 2025. Below operating profit, we continue to report positive economic interest result of EUR 56 million, albeit at a lower level than in the prior-year period. The year-over-year decline primarily reflects the valuation effects on the provisions and lower interest income on cash balances as market interest rates continued to decrease. These effects were partially offset by lower commitment fees following the termination of our KfW credit facilities at the end of 2025. Last, the tax rate on operating earnings is 25.3%. Let us now move to the next slide and look at the development of operating cash flow. Slide #12 shows the reconciliation from adjusted EBITDA to operating cash flow, which remained at a very strong level. Please keep in mind that this elevated level is primarily driven by the seasonal working capital effects and therefore, does not reflect the normal cash conversion characteristics of our business. Provision utilization included cash payments to the German federal government related to previously realized attachment proceeds, which had a negative impact on the cash flow during the period. Working capital requirements were substantially lower, mainly reflecting seasonal gas withdrawals and only moderate gas storage refilling in the second quarter. In addition, operating cash flow benefited from a stronger seasonal cash inflow from wholesale customers and power-related receivables, resulting in a positive working capital contribution overall. Other was positively influenced by a non-operating compensation settlement of EUR 165 million received from the Dutch government. This payment relates to restrictions on coal-fired power generation imposed by the Netherlands in 2022. As a result, operating cash flow amounted to almost EUR 2 billion in the first half of 2026. As we already indicated earlier this year, we continue to expect operating cash flow to be front-loaded in 2026. The planned rebuild of gas inventories plus the seasonal increase in wholesale and power receivables, and associated with working capital effects in the second half will weigh on cash generation, meaning that full-year cash conversion is expected to be below 100%. With that, let us now move to the latest figures on Uniper's economic net debt. At the end of June 2026, economic net cash increased to EUR 4.5 billion compared with EUR 2.8 billion at year-end 2025. The main driver of this development was the strong, seasonally driven operating cash flow generated in the first half of 2026. At the same time, capital expenditures remained comparatively low. Previously indicated, we expect investments to be more weighted towards the second half of the year, reflecting potential awards from the upcoming German capacity market auctions. During the period, we also resumed dividend payments and distributed EUR 0.72 per share or EUR 300 million, to shareholders in May following approval at the Annual General Meeting. In addition, economic net cash benefited from lower -- from overall lower asset retirement and pension provision compared with year-end 2025. The latter reflects strong returns on planned assets during the first half of this year. Overall, our financial position remains very strong and provides a solid foundation to fund future growth investments while maintaining substantial financial flexibility. As cash generating -- generation normally over the course of the year, normalizes over the course of the year, we expect both our net cash position at year-end 2026 to be below the exceptionally strong levels reported today. Nevertheless, we continue to operate with significant liquidity reserves consisting of cash, fixed income and committed credit facilities, providing ample flexibility to execute our strategy and respond to changing market conditions. With that, let me conclude my presentation by turning to our outlook for the financial year 2026 on the next slide. For the full year, we remain firmly on track. As we said earlier this year, Uniper is on a solid footing and continues to navigate more volatile markets steadily, including the effects of the ongoing Middle East crisis. At the same time, our 2026 earnings profile remains front-loaded. With greater visibility for the second half 2026, we are narrowing our 2026 guidance while lifting the lower end of the range of EUR 100 million for group adjusted EBITDA and by EUR 150 million for the group adjusted net income. We now expect group adjusted EBITDA of EUR 1.1 billion to EUR 1.3 billion and group adjusted net income of EUR 500 million to EUR 600 million. As said before, 2026 marks our new baseline, reflecting a more focused portfolio also following completed asset disposals. In a nutshell, H1 2026 performance was solid despite operational headwinds in our generation business. We are well positioned for the remainder of the year, supported by a more resilient portfolio. Strategy execution is progressing with H2 expected to provide clearer visibility on the development of our CapEx plans. This concludes today's presentation. And with that, I would like to hand back to Sebastian to open the Q&A session. Sebastian, over to you, please. Thank you.

Thank you, Michael and Christian. We can start the Q&A session now. And operator, I'm handing it over to you, please.

[Operator Instructions] Our first question comes from the line of Anna Webb from UBS.

First question on the CCGT tenders in Germany. Can you just give us some detail about how much you intend to tender, how many gigawatts you intend to bid into the process? And also where you are on the supply chain? Obviously, as we know the gas turbine market is very tight. So have you secured your production slot and pricing for that? Any detail you can give us there would be great. And secondly, I appreciate it's a difficult topic for you to comment on, but anything you can factually say around where the government is in their sale process? I think there's been quite a lot of reports around the potential buyers and the kind of private sale route. I just wanted to know if the IPO is still on the table or if we have any detail, anything you can comment kind of factually on that process? Just to give us a bit more clarity would be really helpful.

Thanks, Anna. I will answer both of those questions. First of all, on the StromVKG tender process, which is, as you say, hydrogen-ready CCGTs. We will bid in 1.7 gigawatts. That's 2 projects, Scholven in North Rhine-Westphalia and Staudinger in Hessen, both of them very good sites where we've already done a lot of the prework. And I've said it before, we believe we have very good sites, and we believe we have a very competitive position. In terms of our sourcing of plant from the OEMs, yes, we have a strategic relationship with Siemens Energy, which we've had for some time. And so we have secured the relevant plant and equipment for those projects. So we're very confident we're in a good position to enter those auction processes. As far as the reprivatization is concerned, I can only restate what the government has already said, namely that they -- which they announced in May in the Financial Times, they are pursuing 2 options, one of which is a private sale, one of which is a potential IPO. And any other questions about that, I'm afraid, must be directed to the German government.

Sorry, can I just ask one very quick follow-up on the first question. You said you secured the supply chain with Siemens. Is that a fixed price already? Or is that to be negotiated at a later date?

No, that's all -- we have already locked in prices.

Your next question comes from the line of Peter Crampton from Barclays.

Two, if I may. One relates to -- we're obviously seeing quite poor hydro conditions across Europe. Yesterday, you raised your '26 guidance. So, is the assessment kind of correct that given kind of your integrated conventional kind of generation operations, you're able to offset that kind of weakness? And then the second question relates to Oskarshamn 3 in Sweden. We've obviously seen a general outage, some extra outages on top. Are you now kind of projecting the plant properly returning back to service? Or is there risk of further outages?