E.ON SE

So we'll start today's conference. Please go ahead, Madam.

Many thanks. Dear analysts and investors, welcome to our Q1 results presentation. Thank you for joining via telephone or webcast. Today I'm here with our CFO, Mark Spieker. We will inform you about the operational and financial development in the first quarter 2020 and our outlook for the remainder of the year. For the first time today, we will report on our combined operations as the energy activities are now fully integrated in the reporting lines of E.ON. As usual, we will only highlight the main messages to leave enough room for questions. With that, over to you, Marc.

Thank you very much, Verena, and a warm welcome also from my side. Before I provide you with some color on the current situation in the context of corona, I would like to draw your attention to the highlights of the quarter. Let me emphasize that our expected timeline for the merger squeeze out of energy being executed until autumn is unchanged. We are also making significant progress with the integration of the two companies. By now, we have appointed most management levels of the new Aeon, and most of the teams have initiated their work in the new setup. Today, I'll also reiterate the net synergy target of around €740 million by 2022, which remains unchanged to our communication just a few weeks ago in March. In accordance with the newly created legislation in Germany, we have set May 28th as the date for this year's Annual General Meeting. For the first time in Europe's history, this event will be held virtually without the physical presence of shareholders. The agenda includes the resolution on the dividend of 46 cents per share for the 2019 financial year, providing the prerequisite for the dividend payout to take place on June 2. Financially, the first quarter has developed in line with our expectations, apart from the impact of an extraordinarily mild winter. Please note that the COVID-19 crisis did not have any material impact on our Q1 results. Investment into our regulated networks, which feed the long-term growth of our regulated asset base, could even be accelerated in the first quarter. CapEx for the segment has increased by roughly €150 million on a like-for-like basis compared to 2019. This is in line with the commitments we presented at the Capital Markets Day. In our customer solutions business, we are continuously making progress as well. In all markets, except for the UK, we have again gained customers, 150,000 in total during Q1 alone, half of that in Germany. During the same period, in the UK, customer numbers were stable. Today, I can also confirm our 2020 full-year guidance. Please note, however, that the guidance only reflects impacts from the corona crisis as of what we know today. I will elaborate on this later in more detail. Let me now make a few comments on the current COVID-19 related situation and how this affects E.ONC. In addition to what we have already said in the context of our Capital Market Day, I want to give you an update on how we navigate through the crisis. Right from the start, we have implemented guidelines to support our staff with flexible ways of working, including a code of conduct for operations under crisis conditions. We were able to swiftly enable remote working for all employees whose work is not technically bound to a specific physical location. Of course, we are constantly reviewing location-specific concepts to also bring our people back into the office once lockdown regulations have been softened. Furthermore, we have taken very responsible measures in order to support and protect our customers. This starts with our no disconnection policy to support the continuous access to electricity and gas for all our customers across our markets. On top, we offered extensive services during the crisis to help customers with payment plans and tariff adjustments. Most important, we are a resilient partner in operating the system critical infrastructure of power and gas networks. I'm proud to say that we continue to deliver. Our networks are operating at the same reliability levels as normal. This is not a given in the light of social distancing requirements and also in light of an abnormal mismatch during the first quarter between renewables inflow on the one hand and lower electricity demand on the other hand. Given the current developments, politics, economy and society must prepare intensively and intelligently for the time after the crisis when everything will be focused on reconstruction and recovery. We are convinced that right now there is a huge opportunity to establish a sustainable energy system, even more than before. Climate change will still be one of our greatest challenges, but at the same time, we as a key contributor to the system can also benefit from it. The energy transition in Europe will only be successful if we create the right conditions for sustainable investments. For this reason, we continue to closely engage in the dialogue with regulators and government, but also with suppliers and customers. Especially at this front, we argue for a relief in power prices for all customers. A quick recovery after the crisis will only be possible if energy remains affordable. That's why we argue for a cap on the renewables levy in the German electricity bill, for example, which is supposed to see a massive increase next year. Another topic is to simplify and to shorten approval procedures for green investments. The result will be accelerated specific investments into modernization of energy infrastructure, renewable energy production, climate-friendly heating and cooling, and sustainable mobility. Those investments will create new local jobs and at the same time help to establish the new energy world. Our investment thesis is therefore unchanged. Aon's networks and energy infrastructure are essential for society and they are financially resilient. In this context, I would like to remind you of the protective mechanisms effective in the network regulation in almost all of our markets with regard to fluctuations in wheeling volumes. Page four gives you an overview of the different recovery mechanisms in our main markets. In our biggest market, Germany, for example, all volume-related revenue losses in 2020 can be fully recovered in the years between 2022 and 2024. For the total group portfolio, more than 90% of our network's EBIT is protected by these mechanisms and will therefore only face timing effects. We will leverage this resilience by keeping our investment levels up even during the current crisis. While we delivered our planned capex during the first quarter, we now see the opportunity to step up our network investment plan for the full year by shifting even more funds towards investments backed by regulated returns. With that, let's turn to customer solutions on page five. You all know that the ramifications of the crisis are directly impacting energy demand. We have seen almost all European energy markets suffering from the lockdowns and the measures that have been taken by governments. Lower volumes in the B2B segment are only partially offset by a stable or rising demand in the B2C sector. Consequences for retailers are obvious. Firstly, lower margins due to lower volumes. Secondly, sellback of energy that has been procured ahead of delivery at lower prices. And thirdly, an indirect impact due to a possible yet temporary change of client's payment behavior. I have already talked about the promising developments in our B2C customer account numbers across the markets. I will now focus on the two main drivers for short-term profitability during the times of crisis, demand-related sellback volumes and debt. Very early in the crisis, we have started to proactively manage our procurement position via sellbacks into the wholesale market. The full year impact that we locked in as of the end of April is a high double-digit million euro amount across all retail markets. With this, we feel that we are well prepared for the demand reduction in the remaining quarters. Please note that this effect is only partially visible in the Q1 numbers as the financial impact only becomes even effective with the settlement of the underlying contracts. The second potential financial impact intensively discussed in the market stems from bad debt. The good news is that so far we have not observed any material change in payment behavior due to Corona. There has been some minor adjustments in installment levels, but there is no material indication of delayed payments or even payment defaults so far. Let me be very clear. we are on top of those metrics. We have comprehensive lead indicator based dashboards in place across all of our markets. We have all payment and dunning related processes under control, and we are well prepared to optimally manage any deterioration in payment behavior. But of course, I cannot rule out that payment behavior will ultimately deteriorate during the course of this year. In essence, We are aware of the particular situation. We observe our markets very closely. We have set up a commercial task force that is now operating in full swing and supporting the businesses in navigating through the uncertainty that we are facing. Let me, against this background, provide you with more granular information on our Q1 financials on the next few pages. The EBIT developments on page six compare 2020 earnings relative to pro forma earnings of the same quarter in 2019. The pro forma 2019 EBIT figures entirely exclude the businesses that have been sold during 2019, like Energy's Czech gas grid or Slovakian operations, as well as businesses that are part of the remedy disposals, like the Energy Czech retail operations. Therefore, you can compare these EBIT numbers like for like. EBIT in the first quarter came in at almost 1.5 billion, which is a decline of 6% compared to pro forma earnings of the same period last year. Our financials of the period were mainly impacted by extraordinarily mild winter months compared to previous years. The first quarter in Germany was even warmer than the relatively mild first quarter of 2019. For example, February 2020 was the second warmest February since beginning of temperature tracking, with being 4.3 degrees Celsius warmer than the long-term average. As a matter of fact, lower weather-related volumes for our customer solutions businesses translated into low triple-digit million earnings impact on group EBIT year on year. In addition, weather-related lower volumes in energy networks result in a further mid-double-digit million decline. Note that lost earnings in energy networks can be recovered over the regulatory period according to the same mechanism that I have elaborated on earlier. Furthermore, we quantify the corona-related impact on our first quarter numbers at a low double-digit million euro amount. Let me now come to the segments in detail. Earnings in energy networks are down 8% compared to Q1 last year. In our German network operations, lower weather-related volumes resulted in the decrease in the operating results. The decrease in the Swedish WEC in the new regulatory period added almost another 50 million to the decline as expected. Slightly higher regulated earnings in Central Eastern Europe, especially in Hungary and Turkey, could not fully compensate for the decline in Germany and Sweden. EBIT in customer solutions also dropped by around 50 million compared to pro forma EBIT of Q1 2019. The decline is largely attributable to lower volumes as a result of the mild weather in all our markets. A further but much smaller negative impact results from the sellback of excess volumes at lower prices due to lower energy demand as an effect of the recent economic crisis. Cost savings, especially in the UK, could not fully compensate for these effects. Earnings of our non-core business increased by roughly 20 million year over year as a result of a higher contribution from our nuclear operations. higher hedged prices, overcompensated effects from the purchase of further production volumes. Let us have a brief look what the earnings development means for our bottom line. Our adjusted net income came in at almost $700 million for the first quarter of 2020, down 8% versus pro forma 2019. The financial line and minorities are largely unchanged compared to the previous year. Refinancing benefits and improvements in the minority line will have a more meaningful contribution in the last three quarters of this year. Let me now turn to the development of our economic net debt on page eight. Economic net debt increased by around 800 million Euro versus the year end of 2019. This is almost entirely due to an expected seasonally low cash conversion in the first quarter. In our retail sales business, as every year, high energy consumption during the winter period causes a negative cash balance for us in Q1, as the cash inflow from installment payments is equally spread across the year. In our networks business, likewise, the redistribution of feed-in tariffs for renewable generators with high renewables productions in the first quarter in Germany resulted in a further temporary increase of our working capital. As every year, we expect these seasonal effects to reverse during the remainder of the year. Pension provisions improved by roughly $300 million over the year in 2019. The decrease of the defined benefit obligations as a result of an increase of pension discount rates was largely offset by the weak plan asset performance as of the end of the first quarter. The transfer of Nord Stream 1 to our pension fund has been executed and has led to an economic net debt relief of roughly $1 billion in the first quarter. In the context of our net debt, I would also like to re-emphasize our comfortable liquidity situation. With the early funding this year, we have already covered all bond maturities in 2020. In addition, we have proven our continued market excellence even during market turmoil as evidenced with our last issuance, which settled early April. Given our liquidity on hand, the undrawn acquisition facility of $1.75 billion plus the undrawn syndicated credit line of $3.5 billion, we feel very well positioned to cover all of our payment obligations more than 12 months ahead, including the squeeze-out payment. Be reminded that for the remainder of the year, the economic net debt level will still be affected by some extraordinary effects linked to the completion of the energy transaction. Most prominent will be the already mentioned squeeze-out of energy minorities, which will only be partially offset by other counter-effects such as the remedy disposals. Let us now take a look at the earnings outlook. Today, I confirm the guidance for 2020 of an EBITDA between 7.1 and 7.3 billion, an EBIT between 3.9 and 4.1 billion, and an adjusted net income between 1.7 and 1.9 billion. With a sizable negative impact from mild weather during the beginning of the year, we now expect to come in at the lower end of our earnings and net income guidance ranges. Let me clearly point out again our approach with regard to guidance in times of this unprecedented crisis. This approach was already the basis for setting our financial framework for the capital market day back in March. As we do not have a crystal ball, we do not believe that it makes any sense to rely on a specific crisis scenario for the purpose of giving guidance for 2020. The reiterated guidance reflects the outlook for E.ON as of what we know today. We have reduced the outlook ranges for customer solutions by $100 million for both EBITDA and EBIT, reflecting the adverse weather conditions at the beginning of the year in Q1, as well as a warm April, but also the sellback losses on excess volumes for this business. Beyond this, be reminded that lower network earnings in 2020 as a result of lower distributed volumes will be recovered in subsequent periods. So even if the balance of the year would show a negative volume deviation in our network's businesses compared to prior year, then this negative effect would only be of temporary nature. Please also note that increased levels of bad debt write-offs cannot be reasonably estimated. At this point, we do not see a material uplift of bad debt. We cannot rule out that this will change to the negative Of course, we will provide you with updates at every reporting occasion, but above all, we are focused on managing tightly our billing and debt recovery activities. As I said, we have also enacted a wide array of countermeasures and will decide on further countermeasures depending on how the crisis unfolds. On this note, and in line with the confirmed earnings outlook, We have also enacted measures to reduce investment levels in the commodity sales part of customer solutions while increasing capex by almost 100 million in our German network operations. Let me at the end spend some words on our financial framework. As you know, this is the compass for our decision-making as a management team. The most important and overarching element of this framework remains the dividend and the commitment to an annual dividend growth of up to 5%, which I reiterate today. While the outlook on 2020 still bears a lot of uncertainties, certainly more than in any normal year, we do not have any indication that the corona crisis impairs the midterm robustness of our plans. For that reason, we continue to have a high confidence in our midterm financial plans for 2022. We continue to expect a 7% to 9% compound annual growth rate for our EBIT, translating into a 10% to 15% compound annual growth rate for our earnings per share. Based on an average cash conversion rate of roughly 95%, we continue to focus on organic deleveraging over the midterm. With a mid-term debt factor target of around five times, we again reiterate our capital structure commitment of a strong triple B, BAA rating. With these final remarks, I would like to thank you very much for your attention and hand over to Irena for the Q&A session.