E.On Se S/Adr

Ladies and gentlemen, welcome to the webcast of Eon SD. At our customer's request, this conference will be recorded. After the presentation, you have the opportunity to ask questions via the telephone line. If you have a question for the speakers, please dial 0 and 1 on your telephone keypad to enter the queue. If any participant has difficulties hearing the conference, please press star key followed by 0 on your telephone for operator assistance. May I now hand you over to Martina Boger, who will lead you through this conference. Please go ahead.

Thank you. Dear analysts and investors, welcome to our H1 results presentation. Thank you for joining via telephone or webcast. Today, I'm here with our CEO, Leo, and our CFO, Mark. Marina can't join today in person as she is enjoying an extended summer break after the birth of her second child. She will be back with us in September. Leo will guide you through the highlights of the first half of 2021, while Marc will give you an update on our financial performance and the outlook for the remainder of the year. As usual, we will only highlight the main messages to leave enough room for your questions. With that, over to you, Leo.

Thank you, Martina. Good morning, and a warm welcome also from my side. This is my last conference call back in March. I've cast already my first one on the date, actually a little bit more in the office. And I can truly say that I took over a great company with great people. And I can say that not only because we have again delivered an operationally very strong quarter, but on top, we have mastered a huge challenge due to the floods in our German grid areas. And I will elaborate a little bit on that in a second. Actually, all of our businesses performed well in the second quarter based upon excellent operations, and the remaining impact from the pandemic is in line with our expectations, and we are well progressing on the Synergy delivery in the first half of 2021. On top, we are now including the already communicated effects from the adoption of the legal settlement of the nuclear production rights issue, We do not only see the majority of the financial impact in the sharp increase of our year-over-year development of EBIT and adjusted net income in the H1 figures, but we also adjusted 2021 full-year outlook today. The total 600 million EBIT impact brings our 2021 target now into the range of 4.4 to 4.6 billion euros. And we upgrade also our outlook on adjusted net income respectively and now target for a range of 2.4 to And Mark will elaborate on this topic later, and he will also explain how this translates into our mid-term outlook, which is basically not changed by this technical effect. With that, our mid-term delivery plan, the synergy target of 780 million by 2024, and our dividend commitment will not change. But now before moving to my standard topics, let me draw your attention on a very important topic on the next page. And normally, we do not include any pictures in capital market update calls, but this time we do. You all have, and we do, we have all heard, you have all seen how in mid-July, large parts of western Germany in the Rhineland and other European countries have been hit hard by heavy rainfalls that resulted actually in catastrophic floods. In Germany, many cities and villages have been destroyed, and 180 people actually lost their lives. I traveled personally to the affected areas, and I can only tell you that the TV pictures don't do the situation any justice. It's actually really shocking if you are on the ground. The war has obviously also destroyed gas and power lines, converters, substations, and other important energy infrastructure operated and owned mainly by one of our DSOs. We had around 200,000 people without access to energy in peak times. The reaction, however, was very strong. In overnight measures, we have mobilized more than 1,000 colleagues and a lot of devices across all our German entities who have all provided immediate aid in the affected areas. Our experience with weather events, our excellent operations, and our widespread reach across Germany proved to be a strength in crisis management. And let me take this opportunity despite this being an investor call again to thank all my employees who did such a stellar job and really went to the limit of what was possible. We have by now basically reconnected all customers somehow to the energy infrastructure with a few exceptions. But why is this maybe also important for you? Well, obviously first because it just shows again that access to energy matters. And one values more what one doesn't have. And so this is, again, what we have seen in the crisis. Infrastructure is now really valued. And this event is a clear signal also that E.ON is investing into important things that matter. And resilient and sustainable infrastructure is more important than ever. And obviously, it also shows that we are a good operator for such infrastructure with the skills to actually run them. benchmark way. And that brings me now straight to my strategic focus areas on the next page. When I first announced my top priorities, I focused on three themes that will have the biggest impact on the future of our company, i.e., sustainability, digitalization, and growth. And today, I can share that we are progressing on all three items. First, sustainability. Our sustainability footprint is continuously improving. We put a special focus on biodiversity next to climate action. We've decided to manage our grid corridors in an ecological way and we'll turn around 70,000 hectares along our 13,000 kilometers of high voltage power lines into valuable biotopes and habitats. The affected area is equal to the size of more than 100,000 soccer fields, so that's the target which we gave ourselves, 100,000 soccer fields of biodiversity. Also, E.ON became a partner of the United Nations Environmental Program, UNEP, which has proclaimed the Decade on Ecosystem Restoration. We have developed an online platform as part of this partnership with UNEP that gives the UN Decade a digital home. On this platform, initiatives from all over the world can present their projects, networks, and gain supporters for the protection and restoration of ecosystems. Being a partner unit fills us with pride, but at the same time, it's also an obligation to consistently implement sustainability in everything we do ourselves. Second, digitization. It's about to become the inherent DNA of our business, and we are creating digital-first mindsets throughout the complete organization. And together with partners, we are delivering on our digital roadmap, which we have defined in more detail, with focusing on cloudification. And the aim is to make IT processes more flexible to increase the operational efficiency and to accelerate the development of new solutions and services for customers and employees. Also, within the businesses we are constantly delivering with the help of digitization, we have accelerated our migration, which brings us now to 9.5 million accounts that are operated by our new sales platform in the UK and Germany, and this will help us to achieve our ambitious targets within the customer solution sector. Third, we see a strong political momentum which translates into future growth options for EU. In July, the European Commission released their plan to accelerate the energy transition within the EU. The FITCO 55 program is fully in line with our growth ambitions that puts our customer-centric energy infrastructure right in the center of its aspirations. Our activities are fully aligned with the focus areas of the FITCO 55, high ambitions on renewables, green hydrogen targets, energy efficiency, charging infrastructure, simplification of permitting procedures, et cetera, only to name a few of the 13 themes announced by the EU Commission. Let me just briefly elaborate on one of these areas in more detail, green hydrogen. I'm utterly convinced that green hydrogen will become the second pillar of decarbonization, especially with the shorter timeframe to achieve 100% climate neutrality by 2045. And I'm also convinced that hydrogen will be relevant much quicker than previously anticipated for the decarbonization of traditional industries, but also for midsize companies and for the heat transition. Therefore, E.ON, as an operator of gas assets and with a long-lasting history in the solution business, can play a decisive role to make this happen. And this is why I've joined the COO Alliance for Europe's Recovery, Reform, and Resilience to take responsibility in the cross-sector alliance to support the European Green Deal. So more to come for E.ON. And this is, for me, the conclusion. to the delivery amongst all our operational priorities, we are making excellent progress at our strategic review. I'm really looking forward to present the outcome of it to you on November 23rd. Now, let's leave the future and return into the present, and let me point out your focus again to the existing business. As many of you have noticed, the German regulator, the Bundesnetzagentur, or in short, BNSR, has published an initial proposal and started its consultation on the return on equity for the fourth regulatory date. The value that BNSR has announced, based on the conducted expert opinion, is a minimum return on equity of 4.59% free text, which is a decline of more than two percentage points compared to the return of the current period of A quite heavy reduction that will take the return on equity to a non-competitive level in comparison to international regulatory systems. Especially when comparing the numbers to similar decisions that were taken by other national regulators lately like in France or the UK, the proposal must be considered very low and more precisely significantly too low. As expected, the risk-free rate, the 10-year average of the German yield, has been significantly reduced. At the same time, the market risk premium and the risk factor beta have been marginally reduced as well, which, according to the latest economic research, makes no sense. From our point of view, the market risk premium has been set way too low. It should be set at a minimum at least the average of European energy regulation. For Germany, a market risk premium of 6.5 to 7.5 has been calculated by Value Trust on behalf of BDAW, which is a value that seems more appropriate. I can also point out positive development in that context. The consultation documents that were published by the BNSR do not propose a fixed actual value, but a minimum value, including some room for improvement. They actually mention a range of 25 basis points. But let me be crystal clear, 4.59% with or without additional 25 basis points is unacceptably low. A return at that level is not at all sufficient to support the investments that are urgently needed to support the energy transition in Germany. And at this point, I still trust in the BNSR that they will determine an appropriate level to support the energy transition, which is of the highest priority for German society. Let me point out also the process from here. The consultation will be held in written form only and is closing on the 25th of August. Consultation is public. That means any interested party, including investors and research analysts, can and should participate to send their opinion on the proposed value to BNSR. In two of the last three regulatory periods, the proposed number has been considerably increased after the consultation. That's why I'm still rather optimistic for the outcome. We expect the final determination to be published by BNSR most likely in October. So let's leave energy networks here, and let me now turn to the solution activities on the next page. We actually often talk in detail about our commodity retail portfolio. Therefore, today, I will share more details about our non-commodity business as a teaser for our Capital Market Day later in the year. Let me start with our energy infrastructure solutions business. Across our markets, we are targeting to invest around 500 million euros this year. On top of completion of our large growth initiative in Sweden, we will execute on small and mid-sized decentral energy solution projects mainly in Germany, Sweden, and the UK to deliver on our ambitious targets. All of this will translate to a strong earnings target north of 200 million in 21, which represents a 40% year-over-year increase. Post-21, we target a growth of around 15% per annum until 2023. Next to our infrastructure-like solutions, EIS, Mark highlighted in the Q1 presentation how our future energy home business is gaining momentum. As a reminder, this business is including all of our residential energy solutions in the area of home heating and home energy management, PV and storage, and on top, our e-mobility activities. Revenues have surged by 30 percent, 3-0 percent compared to the first half of 2020. Also, on the earnings side, increasing demand for sustainable solutions is bearing fruit, and we have recorded a surplus of around $30 million on EBIT level in the first half compared to the first half of 2020. In absolute terms, the earnings contribution might still look low, but it's actually very positive for a strongly growing business to show positive momentum at all and that in a positive territory. We have clearly entered a route now that is currently pointing only to one direction, further growth. So much for that. And now Mark will present the financial highlights of the period. Mark, over to you.

Thank you, Leo. And good morning, everyone, also from my side. Before elaborating on the continuously strong business performance of the first half of this year, let me make one introductory remark. The legislative proposal on the use of nuclear production rights was approved by the German Bundestag end of June. It is now adopted by all necessary legislative bodies. Therefore, we are able to book the majority of the positive earnings contribution already in Q2. For the first six months, EBIT came in at roughly 3.2 billion euro, which is an increase of 45% or 1 billion euros compared to the same period last year. Looking at the segments, earnings in energy networks are up by approximately $130 million compared to the first half last year on the back of positive weather effects and the non-recurrence of negative effects from the pandemic. Customer solutions earnings momentum was strong with an increase of almost $360 million year-on-year, which is an increase in EBIT of almost 80.80% compared to last year. The UK sales business benefited from the ongoing migration of our customers onto the new platform. With an EBIT of 163 million euro in the first half, we are already higher than our target of above 100 million pounds for the full year. Be reminded that especially in the UK, the seasonality is usually very pronounced towards the first half of the year. Part-year earnings of our non-core business are largely driven by earnings of roughly $500 million from the already mentioned approval of the legislation on the new tier production lines. Let us have a brief look what the earnings development means for our bottom line. Our adjusted net income came in at roughly $1.8 billion for the first half of 2021, up 86% versus 2020. In addition to the increase in our operating results, we are seeing positive effects in the economic interest line and a lower tax rate, 23%. Let me now turn to the development of our economic net debt. Compared to Q1 2021, economic net debt is largely unchanged, despite the ongoing high level of investments and dividend payments of 1.5 billion in the second quarter. As anticipated, the operating cash flow rebounded in Q2 after a seasonally weak first quarter. The cash conversion rate has now reached 49%, and we will see further strong improvements for the remainder of the year. Be reminded, we guide for an average cash conversion rate for 2021 until 2023 of 100%, but has approved the legislation. The resulting earnings impact of €600 million covers both the impact of the nuclear production rights granted for free and the compensation for frustrated investment. Consequently, we upgrade our four-year guidance for non-core. The impact on EBITDA level of €400 million leads to new guidance range of €1.2 to €1.4 billion. The impact on EBIT level of €600 million leads to a new guidance range where expectations the way how we treated our guidance was outlined with our full year results disclosure already. So what does that mean for our guidance on group level? We now expect group EBITDA between 7.6 and 7.8 billion and group EBIT between 4.4 and 4.6 billion euro. The effect translates into an increase of the adjusted net income line of roughly €500 million. Consequently, the new corridor is updated to 2.2 to 2.4. With the outlook for 2021 as updated, there is no effect on our mid-term earnings. Consequently, we have not adjusted our financial framework to reflect that we will operationally deliver what we have promised so far. in November with the capital market day. So today, full confirmation of all our midterm commitments. This also includes the synergy target of 780 million euros by 2024 and our dividend commitment of an annual dividend per share growth of up to 5%. That's all from my side today. Thank you very much for your attention. And back to Martina for the Q&A.

Thank you, Marc. Let's start the Q&A session now. Please be reminded of the usual two questions rule. Over to the operator for some instructions on the Q&A session.

Thank you. Ladies and gentlemen, if you have a question for our speakers, please dial 0 and 1 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial 0 and 2 to come to your question. If you are using speaker equipment today, please lift the handset before making your selection. And as a courtesy to the other participants, may I finally request that you limit the number of questions you ask to two at a time. One moment please for the first question.

The first question on the line is from Alberto from . Please go ahead, Alberto.

Thank you. Good morning. It's Alberto Gandolfi from Goldman Sachs. I'll stick to the two questions and plus an observation, unprompted, if you'll forgive me. The first question is about the fit for 55 goals. It seems to me that with the electrification of mobility and real estate that Europe is targeting already by 2030, we will probably need a different type of power distribution grid in Europe, which is like 60% of your business. So I was wondering if you can maybe elaborate with us how the network is going to look like and if your 5% annual rub growth in the medium term you presented in the previous slides presents some upside risk. Thank you for that. The second question is on um digitalization using i think leo's words are becoming part of eon's dna now you're a few months into it you have already been migrating customers onto one platform in the uk you are doing that in germany can you maybe share with us some of the early learnings regarding to cost savings from it um so you know what's the return on this investment are you actually making money out of it can we see more to come i appreciate you probably elaborate that at the cmd but just to see some early findings my observation which is not a question so i'm sticking to to the two rule um i mean your your second half implied ebit seems to be 1.3 1.5 billion if i'm not mistaken um last year in kobe you did 1.6 so it sounds to me incredibly conservative. Again, that's just observation. It does not require a reply, but thank you for your patience.

Alberto, I take the question. I struggled a little bit with my voice this morning. I hope you can hear it. My vocal cords have been under stress by, I think, Teams Conference 1005. But eventually, electrification. I think it Obviously, if you ask how the network will look like in 2030, we could go into details and I could tell fantastic stories until the end of this conference. But the net effect is it will gain dramatically in importance because there will be so much more load on it. E-mobility will probably penetrate faster than anticipated a few years ago. sector convergence towards industry is going to move faster with the Fit for 55 and the increased targets for industry. We will see further penetration of renewables probably in an even more aggressive way. We will have significantly more decentralized assets that need to be steered, and we will have higher volatility and less redundancy in the system, so which requires us not only to have a much stronger system, one that actually is much more resilient. We will require a much smarter system that allows us to understand the status of the system at any point in time, also on a very local level, and which allows us to influence the status of the system on a very local level at any point in time. So we need to invest more into aluminum, but we need to invest also more into silicon, so to say, and make the grid significantly smarter. In that sense, actually, if anything, I see more investment opportunities, and that is even without an increase on customer connections like data centers, battery production, et cetera, which I didn't even touch. So the electrification will actually support our business, and the Fit for 55 is a strong push towards electrification. And I might remind you that also hydrogen, in the end, is a form of indirect electrification. So that's a positive. Now, on your second question regarding digitization, I would like to correct, and we are not a few months into it. We are actually into it already for a longer period of time, but obviously we have a special focus on it right now in the context of strategy. I would like to prop in which we would also kind of like show how we want to actually digitize. But maybe only three learnings. You need to understand where you really want to go to. That's one item. The second one is not about testing the project. It's about enabling the project. And the third one is actually you will need just digitized in the setup as it stands today. Thank you so much for that.

So we can go to the next question from Vincent from JPMorgan. Please go ahead, Vincent.

Yes. Good morning, everyone. So I see the question regarding investment on the energy transition saving opportunity already been touched upon. So I'll ask a question related to a comment you made before on the rate of returns in the current review being too low. There is need for more investments. I have difficulties and there's trouble to understand that. So I'd like to get a bit of your color there. My view would have been you have a return on the existing assets, and there has to be a fair return for all. And if there is a need for new investments, an incentive has to be put in place, and the financing of it is up to the company, which can make disposals, capital increase, or else. So could you explain the specific element, because it's not the first time that I think it was raised as well at the full year result. I may be missing something here. I'd be interested in this point. Then the second question is we've seen the UK government plan to introduce opt-in switching on the UK retail market for 2024. Do you expect to lose customers in the medium term or does your recent restructuring mean actually you can keep numbers stable and grow customers? I believe E.ON is well positioned on the relative point of view versus peers, thanks to the work you've been doing on digitization. But what does that mean? Relative or much? And in absolute, probably still some pressure there. Could you give us some color on that? That would be very appreciated. Thank you.

Okay, that's all. This is Mark here. Let me take all your questions and one by one, and I'm not quite sure whether I got the point on the rate of return correctly. So, you know, just come back if you find that extra answer worth responding with your question. So, first of all, just for us in the first place, it's not about funding. You brought up a lot of ideas now about funding. It's essentially about getting a proper return for capital, which we then dedicate for 25 plus years. And that is a discussion which we're having with the regulator, that when you commit your capital for such a long time, plus when you, as storms, floods, ice storms, and so on, again and again show that this is not a risk-free business. It requires a high competency in maintaining, managing, and also troubleshooting in times of crisis, and that this is more than just a financial investment. That is the discussion which we're having with the German regulator. They are with a very clear position that Leonhard laid out, that the 4.6% are actually ignorant of all those things which I've just mentioned. And within the proposal on paper, not even suggesting a further side reduction in the market risk premium, that is irresponsible. So expect us to stand up in the current consultation period and to make our point as the 4.6% are not satisfactory.

Mark, if I may just add one point, just to underline what you just said. Also, the municipalities which are owned by the respective cities actually have exactly the same point. Clearly, they don't partly rely on capital markets. They rely on communal credit to actually finance themselves. So it's clear this is, for the whole industry, an issue. Every player in Germany is actually supporting our point. We are not alone because we are the capital market-based network player. All network players actually support this.

So on the UK government proposal 24, actually, it's, I can't give you now, I don't get the crystal ball, I can't give you the exact answer, but what I'm absolutely confident about, and with that I'm actually partly just echoing what you yourself said, we are very well positioned. And so the challenge in the UK is not now to rest on any achievement. We will continue, and you can expect us to continue to work on improvement in our UK setup during the future years. And that will mean that our ambition is to be in a pole position to whatever comes. And that's why we're not afraid of any change if that was to come. also in the market setup or regulation. It is about how we relatively stand to the rest, and then we should be able to defend a decent margin.

Thank you. Just to be sure I understood the last sentence you made. The fact that you're relatively well positioned means indeed, other question, you potentially could have an increase in number of customers under this more competitive environment. Is it a fair assumption?

Yeah, that could even be the case. But again, at 24, it's a long time span. And actually, you know, when it comes to retail markets, we are not running four or five years projections even as the market dynamics have proven to be much higher. So, you know, let's talk about that again when we're kind of a bit closer to 24.

Okay, absolutely understood. Thank you very much.

So the next question is from . Please go ahead, .

Good morning. Just two questions on my side, no observations. You listed the full year 21 guidance in line with the agreement on nuclear production rights, which means that you left the underlying outlook unchanged. Now, that's despite the high double-digit Euro million impact from the floods. Should we really look at this as an upgrade to the underlying guidance? And the second question is really on what's your view on the quite extraordinary wholesale price environment for power and gas prices that we are currently seeing? Is that a danger for supply margins in the future or could this actually be beneficial for the customer solutions business as presumably the competitive pressure is should get less. And so related to this as well, any comment on churn rates would be quite interesting.

So maybe I take the second question, Miri, and I start with it. Actually, your question has already given the answer. It can go both ways, yeah. Because on the one side, it clearly increases pressure or can increase pressure because prices go up in absolute term, and that might have an impact on churn rates. On the other side, especially smaller market entrants traditionally have hedged shorter, and they might actually get under pressure, so you might also see a certain consolidation of the pressure, which would move exactly in the other direction. We have to observe carefully how this actually plays out, but I would be careful to give a prediction at this point in time, and maybe it's actually also different market by market. But again, this just underscores also the point that Mark already made. You just need to make sure that in relative terms, you are ahead of your competition. And Mark, you maybe take the first question.

On the 21 guidance, indeed, our ambition clearly is that the impacts from the flood in Germany will have to be digested in our given guidance range. In that sense, you could say that the ambition level has increased. On the other side, I think what our investors should take note of, obviously, if something like that happens, that we set naturally an ambition that we're able to digest that and not adjust life for life for any impact which happens of that kind or guidance. With regard to the second half, it's now kind of the second observation, and I guess we will then quickly get a So be reminded that if you look at the dynamics this year, we have seen a lot of the recovery in the first half of this year. This is both due to the normalizing weather conditions, which had impacted negatively last year, quite dramatically in the first half, and also to the COVID impact, which was very much centered around also the first half. And so this recovery is actually now done. On the other side, keep in mind, and I guess a lot of you are aware of this, the seasonality in our customer solutions business is that the buy part of operating earnings is actually produced in the first half. If you look back at our records for years, this has been pretty much the case in every individual year. And also, don't forget, when it comes to our non-core business, That actually, you know, we are now getting ready and preparing also to phase out nuclear. And this means that a number of activities now need to be adjusted, and that will have ultimately taken our margins in the nuclear business. That is not just turning the button and switch the plants off. It requires a well-managed preparatory phase. And that actually starts in the second half, and that will also be weighing on the margins in our nuclear business. So just those points to keep in mind that the second half is not just an easy walk. It is a carefully calibrated guidance. And from today's point of view, we are confident to stay in that range.

Very clear. Thank you.

Thank you. So I can hand over to Sam from UBS for the next question. Sam, please go ahead.

Hi, thank you. Good morning, everybody. Thanks for the presentation and lots of positive messages today. Two questions from me on cost and then on gas. On the cost side, it seems like the integration synergies are delivering very well. It's great to see you reconfirm the midterm target there. But can I ask, when you sort of look around at the business, do you think there is a lot of potential for further synergies or cost savings. Mark, I think you said in the past that the business is, you know, already pretty close to the efficiency frontier, which sort of suggests there's maybe not much more to go after, but I'm just wondering if there's any further development in your thinking on the potential for cost savings and efficiency. And then my question, second question on the gas side, I mean, in recent weeks we've seen FSE and NG with stake sales on the gas networks. We've got National Grid now obviously planning a gas disposal next year. And it's interesting because all of the companies there talk about the importance of green gas and the gas networks in the future, as you do, and hydrogen and so on, but they're still divesting. So I just wonder if you could give us an update on your thoughts on the gas networks there and whether we think of them as a sort of long-term core part of the portfolio. Thank you.

So, Sam, I'll take the question first. Yes, indeed, on the cost synergies, on the cost and efficiency potential, yes, we are progressing quite well and to our satisfaction. Now, do I see further potential? I will not give you a number now, but it would just make a general comment. I just said that we're looking at a decade of growth. which we need to deliver to actually enable the energy transition. I think part of our aspiration needs to be that we make increasing cost efficiency and cost reduction a standard repertoire of our business rather than something that we drive through programs with one top-line number. So rather than giving you now another triple-digit million number, as you have in your mind already, I would rather like to come to the point that a certain efficiency So that's maybe something and we'll certainly come back to that point, but we don't have now fixed numbers that I would share at this point in time with you. Second, when it comes to gas, indeed, we are looking with high interest at all the developments there. I think there's a differentiation when you look at gas assets between TSOs assets and DSOs assets. and then also DSO assets, which are kind of like combined with local heat supply, district heating supply. But in any case, we see an upside for, we see both, again, it's a bit similar to the supply side, the question on the supply side that Luda just asked. We see an upside from the green gas development, and we see a downside from the, I would call it, fit for 55, gas the next carbon, the next coal discussion, so to say. And we are looking at that, but I think it's actually one of the questions that eventually we will need to answer, not only as companies, but probably as an EU, on an EU level, how we want to think about those assets, because that will be essential for how we will drive the energy transition over the next two decades. and what role actually hydrogen and gas will play in that. So again, a topic, a good topic to ask, but not one where you would get something that you can plug into models today.

Okay, understood. Well, listen, thank you for your answers, and we look forward to hearing more in G-course.

Thank you, Clem. So the next question is from Rob from Morgan Stanley. Rob, please go ahead.

Hey, yeah, good morning. Thank you. Rob Pullein from Morgan Stanley. May I ask, just back on the regulatory review, given your comments on the proposed minimum ROE and taking the point that it is a minimum, If the value creation opportunity between this return and your cost of capital is not sufficient, and then just hypothetically speaking, if the ROE does not improve by more than the 25 basis points you indicated, then how much would RAP growth be scaled back in that outcome? And the second one, if I can sort of change tack a little bit to something that hasn't been asked, is regarding this very exciting run in for the German elections where the polls are moving around quite a bit. Could you help us understand that the spectrum of outcomes that is possible for E.ON on the outcome of this election? And I think maybe speaking generically about what could happen rather than assigning policies to various coalition options. Thank you.

Rob, this is Mark here. Let me take over the first one. So the consultation process now just started, and I think there's no sense now in running hypothetical discussions about what happens if. I think we've made our point very clear that the 4.6%, which you can write, would be far from satisfactory, and our focus now lies on making sure in the consultation process that our arguments and the arguments actually, as Leo said earlier, of the whole industry in Germany, but also of investors and other stakeholders who would be raising their voice in that process that those arguments now will be laid out and heard. Be reminded that in the past, during those consultation periods, we have seen quite some market movements in the numbers as well. So that is our focus. Our focus is not more on speculating on what-if questions.

I take the question on the German election. I will put it this way. First, a utility needs to be able to work with any government. So if our business would be dependent on a certain outcome of an election, that should make you nervous, but actually we think at E.ON that in principle we can work with any coalition. Now, when it comes down to what are the likely coalitions, And today, like a few weeks ago, people would have told you we could see a black-green, a conservative green government. Now they're saying that's more unlikely now because the conservatives have lost somehow, so it's more liberal conservative green. I would argue that is basically, when it comes to energy, that's more or less all acceptable for us. Maybe the only item that is clear is it looks more likely than not that in any case a Green Party will be part of a coalition, that's number one, which will then actually, which could present an upside. For example, if we really think about the permit procedures, You know, like the Greens could be the ones that could most radically change that, because in the opposition, they would always need to most, you know, fiercely oppose it. So maybe there's an opportunity in that. And then it looks more likely than not, then the Conservatives will be leading the new coalition, despite the movement in the number. So personally, I'm looking forward to see what the outcome will really be. There's still some days to go, and right now the time is so hot, so it's so heated, that I would refrain from making detailed predictions. But any coalition that we can see as likely at this point in time would be an acceptable coalition for Germany anyway, because it's an elected one, but also for Iran.

Thank you very much for the thoughts. We will pay great interest to how this evolves over the remaining campaigning period. I'll turn it over. Thank you.

Thank you. So I can hand over to Deepa from Bernstein for the next question. Thanks, Deepa.

Thanks, Marina. So my two questions, sorry to come back to the allowed return. I would love to hear your perspective on why, despite I think a lot of lobbying already before the draft, why the regulator has kind of stuck to the same old methodology when they should fully be aware of the investment needs and so on. And is this more so that, you know, they can then improve it later, but what do you think is the regulator's thinking? And do you get the sense that, I mean, you highlighted this, that in two out of three occasions they have changed. So where would you put the odds and, you know, would it be only constrained to this 25 pips that the experts have highlighted or actually shouldn't it not be more? So that's my first question. And the second one on the CMD in November, Mark, I think you highlighted that you would upgrade the framework, but I just wanted to know would these be more mechanical updation or are you actually planning to also kind of maybe revise the numbers? And, you know, could you provide maybe a sneak review of what are the topics you might want to convey in the CMD?

All right, so I take the first question deeper. First, let me thank you for the open letter you wrote to the Bundesnetzagentur. It's very much appreciated. And even if it might not show in the proposal, it really makes a difference. You know, if many investors, analysts, et cetera, write to the Bundesnetzagentur, it leaves them there. So let me be crystal clear. We expect more than 25 basis points of improvement. That we would still consider an unacceptable to low outcome. Second, I don't want to speculate too much on, you know, what is really driving , you know, whether this is now positioning for negotiation and kind of like being very aggressive with the first, you know, with the first in which they do, just maybe showing us kind of like all their cards. But so in the end, that is not the really important thing. The really important thing is in the end what, you know, the final number that we get out, you know, not only on the interest rates, but also on all other items. But let's just focus on that one. 25 basis points on top, that would not be enough. And we are crystal clear on that one.

Yeah, people on the capital market, they think it's quite obvious that when we talk as in the past is completely in sync with our strategic ambitions. And so when we are talking about updating our financial framework, it is basically then that with a strategy you should be expecting that this will be tied to very concrete financial pledges, which will then be summarized in the financial framework. make sure that, you know, the points connect. One element, what I can say already today, what our investors should keep in mind is that we have, beyond the mid-term, a long-term commitment to annually grow our dividend per share. And so the focus around a growing dividend, that is something we should have heard us saying in the past. and that you can rest assured will be part of the framework. And then don't expect not too much kind of miracle that we produce completely new KPIs and whatnot. It will just be a proper reflection of our strategic ambition.

Okay. Thank you so much.

Thank you. And the next question over to John Musk from RBC, please. Please go ahead.

Yes, good morning, everyone. Sorry to come back to the regulatory situation. But I note you obviously highlight the fact that you believe the draft returns are not competitive in an international context. And we've had news flow in the UK today with the Competition and Markets Authority essentially saying that 4.55 is the right number for regulated returns. So perhaps you will be a little generous saying that the 4.59 is not competitive. Just wondering what your thoughts are on the comparison to the UK. And then secondly, just for clarification, when you were talking in the presentation around the the EIS business, and you mentioned the 15% EBIT CAGR. I just missed the time period for that, so can you just repeat that, please?

Maybe I start with the question around the allowed return and how competitive it is. When looking around, you need to make sure that you look for regulatory frameworks, geographies, which have reasonable similarities, AAA rated, and so on and so forth. If you compare that in Europe, countries like Norway, UK, Austria, and so on, those show, and if you then always normalize and levelize them on the same methodology, as the return numbers vary actually always, real versus nominal, pre versus post-tax, weight versus equity. So it's been normalized that even with the decision now on the 25 BIPs in the UK, the UK cost of equity, if you calculate that like for life, would be significantly above the currently proposed 4.6 BDIX nominal equity return, which the German regulators proposed. And again, one difference is being phenomenal versus the real number which is being used in the UK. So, it actually did submit the point why we not light-heartedly say that the proposal is irresponsible because actually this puts Germany completely at the back end of European regulators. And this is not what you need as an incentive for all those investments which are needed in order to carry out the energy transition. On that note, as you have said, again, we're not talking about a 25-bit improvement here, what the regulatory analysis proposed. Whether it's 4.6 or 4.5, that would not actually make any difference in our assessment of the return.

And on your second question, the 15% until 2023. Okay, thank you.

Thank you. And now for the next question is James Frank from Deutsche Bank. James, please go ahead.

Hi, good morning. Thanks for the presentation. I guess it's getting close to afternoon, almost afternoon in your time. Two questions for me. One is a bit of a follow-up from Luda's question on retail margins and the scope for higher commodity prices to put pressure on the retail business. To that end, I was wondering whether you could tell us how hedged you are, or give some kind of broad indication for how hedged you are in the retail business for the rest of this year, and potentially also into next year, if possible, given that over the winter period, a lot of commodities and power markets and gas markets are extremely high over the winter and running into Q1. That's the first question. And then secondly, on the future energy home business, which you highlighted had seen a 30 million increase in EBIT from H1 last year, I was wondering whether you could share your expectations for the full year for that business, and also whether you could just remind us what's in that business. There's what looks like a picture of a smart meter on your slide, but I don't think it's just smart meters. Maybe you could just remind us what you're doing there. Thank you.

Yeah, James, this is Mark here. So on your first question, you're completely aware of that in the dynamic retail market, the way how you hedge is a sensitive, competitive information, and so we can't and haven't in the past also laid out the details around our hedging for upcoming years. In general, what I can say, and what you should be assuming we're doing, is that on any B2B volumes, we strictly apply back-to-back hatching, so do not leave any open position for any B2B positions. and on B2C, that we apply a hedging strategy that can span between one up to three years, i.e., covering the liquid market horizon. And that, in that sense, makes our portfolio robust in the current environment, but I can't go into further details for commercial reasons. On future energy home,

Okay. I mean, you have two big products, kind of like, which is PV plus battery, plus in the second one is EV mobility services, kind of like mobility solutions. We have a number of smaller services and products which we offer, like heating installations, et cetera, and that is a big market dependent, obviously, on the different markets. Those are the main items in there. Okay.

And I think the important element about Future Energy at Home is, A, that it's actually now really gaining good traction when it comes to revenues. So we are actually approaching the $1 billion level that is in reach, not this year, but maybe next year. And with that actually comes, as Leo pointed out earlier, that it is already a profitable business. So it's a fast attractive.

Great. Thank you so much.

Thank you. And the next question comes from Piotr from CIGI. Please go ahead, Piotr.

Hi. Hello, everybody. Thank you for the presentation. I have two questions, please. The first one would be on the regulatory review, if I may come back to this one. Do the current stance on the returns from the regulator give any insight into how the cost benchmarking may look like? It's difficult because we only have access to IFRS data, but when one looks at the returns you achieve from the German regulated business, it's a big outperformance versus the returns that one can get such a conclusion. Do you understand the aim of the regulators is to cut some of this outperformance, or these are two separate things and the cost benchmarking will kind of consider next year? So that would be the first question. And second, I wanted to ask you about the smart meters rollout in Germany. I read on one of your pages you're going to roll out 2.5 million smart meters over the next 10 years. And my question is, why Germany is so much behind other countries when it comes to smart data rollout, and what's the remuneration framework on this program, and can you give the main parameters of this?

I think it goes first on your first question. No, you shouldn't think of those items connected. Those are two different reviews. And whether then somewhere hidden in the mind of the regulator there is a connection, I don't know, but these are two different topics. Number one, the cost benchmarking and the allowed return. Second, on the smart meter rollout, this is my highlight question. I think, actually, first, the smart meter rollout in Germany is a dismal failure. And because of permit and regulatory procedures, The remuneration scheme actually doesn't matter at all. It's actually not the issue. The issue is really kind of like the way how in Germany we have defined that we approve assets for rollout. I've been very vocal on every possible opportunity that this is an example of what needs to change to make the energy transition successful. If you ask me why this is the case, I think then the answer is I don't really know, but maybe my best answer is because the Germans have a tendency to try to make everything perfect, and sometimes fast is much better than perfect if perfect never materializes.

Okay. Thank you.

Perfect, thank you. So we have the last question from Louis from Oddo. Louis, please go ahead.

Yes, thank you very much. Hi, good morning and afternoon to everyone. Two questions indeed. The first one, just coming back on 2021 guidance, the first observation as well regarding What element eventually in terms of non-recurring factors we should take in consideration and specifically of the energy network division that seems to be pretty well oriented since the beginning of the year? Is there anything that we should take into consideration for the remaining of the year that would prevent you from being a bit more aggressive on this topic as soon as this earnings release? I think that you already gave some indication to customer solutions. That's why it was more on energy network that I wanted to spot the questions for this guidance 2021. And regarding the second topic, thank you for your slide, page six. Already a few questions on it, but just follow-ups on this one, because we feel that there might further growth to be expected clearly into this topic going forward. More specifically on future energy home, could you provide us with a kind of indication in terms of capex that have to be invested or even better in terms of capital employed that should be invested in this kind of business? And also if we could have an idea on the energy infrastructure solutions, if the trend that we see, which is clearly encouraging, is going to remain that strong in the future, or if there is something specific in 2021 that could explain the nice contribution of the division in that use button. Slide six. Thank you very much.

Yeah, so this is Mark here. Thanks for your questions. Let me start with the guidance question. As we see here, this has been now raised a number of times. We have upgraded our guidance now on EBIT level by the 600 million euro, which stem from the, so to say, technical effect from the agreement with the German government. And apart from that, our guidance is unchanged. If we had overwhelming evidence that we were, for example, at the higher end of our fundamental guidance, ignoring all the technical adjustments, you should expect that we would have been flagging that now clearly, and we are not. So expect us that we are solidly delivering against the expectations which we have laid out as part of our financial framework at the beginning of this year. With regard now to the individual businesses, and you asked specifically on energy networks, I would also suggest that you look at our segment guidance and that we will be delivering according to the guidance which we have set for the energy networks business, also including in the second half. And that includes that the positive performance which has been during the first half will reverse during the second half, as we have laid out and explained in our video conference. And that means that the positive upside from recovery versus COVID versus normalizing weather this year, that this is now a big boost for the first half, but the second half we'll see, relative to last year, the earnings will actually come down. which we've provided. On future energy home, if I got it right, essentially ask for the capex intensity. I can't share now the specific capex target. This is something which was in reserve for the capital market day. But in general, you should think about this business as actually pretty capex-light. So you have seen us in the past here and there doing some small M&A, and when I say small, we're literally talking about acquiring capabilities at one-digit million-euro amounts here and there. And apart from that, it's actually pretty much a capital-light business, so that the earnings and growth momentum, which we have been alluding to, It's not a momentum which is principally relying on massive capex, but it is principally about a customer, you know, increasing our revenue line. And we're doing that this year already profitably.

Thank you very much. I think that covers it.

Yeah, so there are no further questions on the line. Thank you very much for your interest. And as always, the investor relations team is there for your questions that you still might have. This concludes today's call. Thank you very much and goodbye.

Bye-bye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.