E.ON SE

Dear ladies and gentlemen, welcome to E.ON's Q3 2020 results conference call. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode, and after the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Verena Nikolaou-Kronberg, who will start today's conference. Please go ahead.

Anything. Analysts and investors, welcome to our Q3 results presentation. I'm here with Mark today, who will briefly guide you through the key topics. Afterwards, we are happy to answer any questions. With that, over to you, Mark.

Yeah, thank you, Verena, for the crisp introduction, and I will try to keep it equally crisp. Good morning and a warm welcome from my side. During this third quarter, we have achieved a very strong operational performance throughout all our businesses. This gives us a lot of confidence for the remainder of the year. We maintain our full year outlook 2020, despite an intensified COVID situation across our markets. We likewise confirm our mid-term targets, including our dividend commitment. What makes us so confident in the current situation? To start with, we now have ticked off all boxes relating to the integration of energy, which is actually beyond our own expectations. We have closed all remedy transactions with the sale of energy's check retail activities. To remind you, proceeds from remedy disposals amount to around 1 billion euro. This is more not only with regard to what you could expect in a pandemic situation, but even in a normal market environment. All the money is now in our bank accounts, Reporting wise, the bulk of it will be recorded on the balance sheet with our Q4 numbers. Further steps to integration included the successful rebranding in Germany. Two and a half million customers which were supplied under the energy brand are now happy Aeon customers. We managed this process without any material impact on churn. We have now also effectively merged the energy headquarter onto the Aeon platform. Against this background, I am happy to confirm our synergy target for 2020 of €120 million, as well as our total target of around €740 million by 2022 and around €780 million by 2024. In addition, the far-reaching IT renewal programs both in Germany and the UK keep on running smoothly. This week, we just surpassed the level of 1 million accounts migrated on the new platform in the UK, and we are also progressing with the migration of our German customers according to plan. Finally, the recently applied selective lockdown measures in various E.ON countries are not expected to have a significant impact on our performance and hence our full-year financials. In a nutshell, the energy integration has been successfully concluded. continue to see a strong resilience of the business in the context of the current pandemic. And there is even further upside from the European recovery program, which I will explain on the next slide. As we have already said earlier this year, we are currently assessing the opportunities for E.ON from the EU recovery program. Out of the total 750 billion euro funding, around 60 billion within the recovery and resilience facility, are earmarked for expenditures related to climate across the E.ON markets and which can be directed towards the energy industry. Within the areas that member states should address for EU funding, there is a list of potential investments that are focused on the green and digital transition. Most of these activities are matching the investment opportunities within our customer-centric energy infrastructure activities. On that basis, we see ourselves well positioned to access government funding with keeping our own capex level at least as planned. We already have identified 200 projects for execution representing a potential volume of several billion euros. To be on top of the process, we have set up a dedicated team to evaluate a project portfolio based on the criteria within the EU funding framework which is still under negotiation until the end of the year. We've engaged at EU level and in our market units early on after the historical agreement in the EU Council. In close collaboration with our local units, we are coordinating to follow up the initial positioning of key priority investments, such as in smart grids, heating and cooling, e-mobility and hydrogen, and in the next step, to place concrete projects in the pipeline across the member states. It is up to each member state now to define who is eligible, where and how to spend the recovery funds allocation to achieve a green reboot of the economy, something that E.ON has called for early on. And we will continue a constructive dialogue with governments to contribute to a sustainable and resilient economic recovery. Our unique positioning across the European member states is the ideal basis for maximizing the potential from the recovery program. This is backed up by our significant experience in securing EU funding already in the past. Our participation, for example, in the projects of common interest from the European Union include our smart grid initiatives across the Czech and Slovakian border or dedicated projects that are improving the security of supply in the border regions of Slovakia and Hungary. They will modernize the network, use new smart grid technologies, and improve the integration of renewable energies. With those activities, we have been able to access grants from 2020 onwards already in the magnitude of close to €200 million. Our activities on that front also support our recently increased mid-term power growth target until 2022 of 4% to 5%. Let me now move to COVID and how it affects us specifically in the third quarter and what the outlook for the remainder of the year is. With that, please turn to page four. The power demand recovery has clearly been above our expectations in the third quarter. Our main markets have been operating almost on pre-crisis levels. some even above. As a reminder, we anticipated a 5% volume decline year on year for the second half of 2020. The most recent demand data from last week shows that the selective lockdown measures taken so far during the fourth quarter will have a far less significant impact on energy demand than the previous lockdowns during spring this year. From today's perspective, The current selective lockdown measures in EON's core markets will not have a material impact on full year earnings. I can also reconfirm our confident view on the payment behavior of our customers as we do not observe any material increase in bad debt with respect to days of sales. In this context, we have only slightly increased our bad debt provisions for specific COVID reasons from the previously reported 35 million euro as of H1 to €45 million by the end of Q3. Be reminded, even though it is recorded in our earnings, this is almost entirely related to so-called expected credit loss, i.e. it has only provisional character. In fact, we have not faced any major default so far. In the UK, the level of overdue receivables is still higher than in 2019, but the overall position has stabilized during the third quarter. To proactively manage the situation, we have implemented measures such as shortening of billing cycles, offering pause of billing, or increasing late payment fees. In this context, we managed to recover already a fair share of the 100 million euro working capital increase seen as of the first half. As of Q3, this balance has consequently moved down to a level of only around 50 million euro. Of course, we still do not rule out insolvencies once governmental support schemes run out, but currently we have no indication for a significant bed debt buildup and feel comfortable with the precautionary measures that we have implemented. Now let me move to the financial performance of E.ON in the first three quarters of 2020, and with that move to page five. EBIT came in at 2.7 billion euro, which is a decline of 10% compared to the pro forma earnings of the same period last year. The reported year-on-year decline for the group is largely COVID-related. Compared to the second quarter, the negative impact from COVID has increased by about 50 million euro. The total year-to-date impact now stands at roughly 250 million euro. Adjusted for this effect, our earnings would actually have been on prior year's level. Looking at the segments, earnings in energy networks are down approximately 220 million compared to nine months last year. Roughly 120 million of that decline results from COVID-related lower volumes in our German and Central Eastern European operations. In addition, lower weather-related volumes in Germany resulted in a decrease of the operating result, which we reported already for the first quarter. Let me remind you. A decline from both COVID and weather will be almost fully recovered within the coming years. The lower Swedish WEC in the new regulatory period contributed another €100 million to the decline in the first three quarters. Our customer solutions segment is down only €40 million year-over-year, despite significant adverse weather and COVID-related effects. COVID effects in our customer solutions segment added up to roughly 130 million in the first three quarters of this year. This includes the realized loss from the survey of excess volumes at lower spot prices in the size of a high double-digit million euro amount, as well as debt debt provisions, mainly in the UK, of roughly 45 million euro, as mentioned earlier. In the UK, our bottom line was benefiting from our restructuring efforts despite our ongoing customer migration that obviously weighs on the profitability. Be reminded that especially in the UK, the seasonality is usually very pronounced towards the beginning of the year. For that reason, we expect the fourth quarter to be negative in absolute terms with regard to the operating results line. Nine-month earnings of our non-core businesses are slightly down year-over-year. The increased contribution from our nuclear operations resulting from higher hedge prices was compensated by negative effects from the purchase of further production rights. The result of our Turkish upstream joint venture was negatively affected by a write-off of certain legacy projects and an adverse FX development. Let us have a brief look at what the earnings development means for our bottom line. Our adjusted net income came in at around 1.1 billion for the first three quarters of 2020, down 15% versus pro forma 2019, reflecting the decrease in our operating results. Economic interest results and income tax rates are fully in line with our communicated expectations. Let me now turn to the development of our economic net debt. Compared to the first half of this year, economic net debt improved by roughly €1 billion to around €42 billion at the end of the first nine months. As highlighted during our H1 communication, the improvement is largely due to a very strong operating cash flow. As per the third quarter, the cash conversion rate improved to 87%. Relative to the first half, we have seen a significant recovery in our working capital by more than 2.5 billion euros. And this is in line with the seasonal expectation which we expressed as of H1 stage. On the back of this rebound, our net financial position is now back on first quarter levels as we indicated. Pension provisions increased again by roughly 600 million euros since the third half as a result of an increase in the defined benefit obligations in line with a further meaningful decrease in pension discount rates of 20 basis points in Germany. The performance of our asset portfolio in the third quarter was not able to compensate for the increase in the defined benefit obligations. For the remainder of the year, we expect a continuing strong operating cash flow. The closing of the sale of Energy's Czech retail operations will further improve our economic net debt position. We currently anticipate a level comparable to the first quarter, leaving aside any movements in our pension provisions. I will conclude my presentation with our outlook on page 8. I confirm all our targets for the full year and also for our mid-term plan until 2022. The updates we have given with our H1 communication stay fully intact. Let me repeat. The current selected lockdown measures across our market are not expected to have a significant impact on the full-year financials. Be reminded that when interpreting the accumulated average growth rates, the earnings increase will be back-end loaded. This is particularly due to the regulatory cycle and the corresponding implementation timeline of synergies in our networks business. The most important element of the mid-term framework remains the dividend and our commitment to an annual dividend growth of up to 5%, which I also reiterate today. We will specify the payout for 2020 with our full year results disclosure in March next year. With these final remarks, I would like to thank you very much for your attention and hand over to Helena for the Q&A session.