E.ON SE

Welcome to our E.ON site as Leo is here with me personally and Mark is joining us here with this video stream. We are starting with Leo who will give you an overview of E.ON's positioning in the current situation together with the business highlights of 2022 and Mark will follow up with our financial performance including the outlook for 2022. As usual, you will have enough room for questions, enough time for questions. With that, over to Leo.

Marina, thank you. Good morning, everyone, also from my side. Actually, we have delivered very successful results for the fiscal year 2021. The numbers look good. We have performed operationally well, and that despite many challenges that we have already faced in the last year. This would actually be a perfect basis for a very satisfying results call. But we have to acknowledge that these days, obviously, this becomes all far less important given the tragedy which we're observing in Ukraine. Obviously, for the sake of completeness, Mark and myself will run you through the results of 21. And we will focus on all the important items. But first things first, We need to give you our assessment of what has happened. And so let me first start with the current situation. I have expected a lot. But what has happened really left me speechless. This is a war of aggression against Ukraine, which marks a break. This is not how societies should actually treat each other in the 21st century. This is a throwback to dark times which we thought are over. And we at E.ON, we condemn the war and the violence which we are observing in the strongest possible terms. And we fully support the sanctions imposed by the EU. What we are witnessing is a catastrophe. It's the worst humanitarian catastrophe since World War II, and that in the middle of Europe. And this consternation of ours is not abstract. Many of us at E.ON We have actually Ukrainian colleagues, friends, relatives. We do not have operations in Ukraine, but we have locations in Slovakia, in Poland, in Hungary, in Romania. Actually, some of the border areas in these countries are our supply area. Warsaw, where more than 100,000 refugees each day are arriving, is our supply area. We see what is happening directly. So it's not abstract. It's personal. So the Ukraine can and should expect solidarity of Europe. And as a truly European company, we also want to contribute to this solidarity. In a first step, E.ON has made available 2 million euros for relief measures. We've also set up a central donation platform for our employees. And actually, as of yesterday, more than 190,000 euros have been donated by our employees, and we will obviously double the donation of our colleagues. And on top, our operational units provide very direct assistance on the ground. I'll just give you some examples. In Romania, our colleagues are building energy infrastructure for refugee accommodations. In Poland, they actually help to build facilities. camps to provide beds for kids. Half of the refugees, more than half of the refugees arriving are actually kids. In the Czech Republic, we are actually accommodating the families of colleagues in the Ukraine in premises of ours. So we have taken the families of DSO operators in Ukraine and put them into homes of ours, premises of ours, whilst the colleagues are still working in Ukraine to keep the energy supply up. So these days, the priority needs to be about the people of Ukraine, and that's the top priority also for us as E.ON. On the other hand, we have to acknowledge this is also about Europe. It's about Germany. It's about our energy supply today and in the future. And we have now to make some fundamental decisions how we want to proceed, and we have to differentiate between And that's the key point about the solutions which we have in the long term and the solutions which we have in a two to three year short term perspective. Let me be very clear. In the long term, we must and will terminate our energy dependency from Russia. There's absolutely no way around it, even if President Putin would end the attack in Ukraine immediately. In the long term, We need to diversify our energy imports, and also you have seen that Germany has now decided to build two of its own LNG terminals. In the long term, these LNG terminals could also be used to import hydrogen, and Chancellor Scholz expressly mentioned this in his announcement. But we also need a hydrogen infrastructure that goes far beyond these terminals. And by the way, just one side remark, our focus now must be on not having hydrogen 100% green right away from the beginning. First of all, we should make sure that we have enough energy in the system at all. In the long run, the path of the energy transition is the right one. The crisis shows now that the expansion of renewables is important for our independence in Germany and Europe. And that also applies to the expansion, modernization, digitization of our power grids, because otherwise the renewable energy will not reach the customers. So all in all, we have long-term answers. More diversification of supply, more energy infrastructure, more hydrogen infrastructure, more renewables, more network infrastructure. And all of that is a confirmation about the underlying of our strategy, which we presented to you in the Capital Market Day. So if anything, the long term supports our journey. But it's not only about the long term. These long term solutions which I just presented will not help us to get through the next winter and through the next two to three years. In the short term, we have to keep the consequences of the war for our energy system, for our economy, for households as limited as possible. Now, short term, the solutions are scarce. We see limited production increases in indigenous gas production in Europe, with the exception maybe of the honing and gas field. Short term, we obviously need to attract as much destination flexible LNG as possible. However, I'm wondering that at current price levels, we are probably doing that already. So the additional relief from that lever is probably small. Short term. We are talking about reactivating reserve assets, postponing the coal phase-out, and short-term, we are talking about, as a last resort, possible forced reduction in demand. And let me be crystal clear. In the case of a short-term lack of Russian gas, full lack of Russian gas, the reality is that we can go through the next winter only with drastic measures, and they will include demand curtailment in the industry. But this is now all about security of supply. In the short term, we also have to consider affordability. The procurement prices on the wholesale market for electricity and gas are extremely high, will probably remain high as a result of the crisis on whatever level. Nobody really knows the level right now, so it's all speculation. But it's probably safe to say it's probably higher than in the past. And so in the short term, we need to provide relief for customers. And it should be obvious that, for example, the reduction of taxes and levies on energy is the right first step, and it has been a request of E.ON already over the last years. So we at E.ON welcome the early abolition of renewables surcharge as a first step, and we will obviously implement it according to the rules being put in place. Now, Let me, however, talk about E.ON and our achievements in 2021. Already in the last year, the market was turbulent. It was a stress test. And we can be, however, proud. We have proven once again we are resilient. We are well positioned. So if I look back over the last three years, I have three messages. Message number one. we have closed 2021 successfully and above expectations in all area. And that we have managed to do despite extraordinary difficulties. So again, the numbers came out above the guided ranges for 2021. And this despite the fact that we were in the second year of lockdowns from the pandemic. And this was also great numbers despite the fact that we had successfully to manage disasters. We had severe storms in Germany, Sweden, and Eastern Europe. Everybody has forgotten them already. We had a devastating flood in the R Valley, which was mostly our supply area. And under the most adverse conditions, we kept the power outages to a minimum. The speed at which our colleagues have rebuilt the damaged infrastructure was really a testimonial to their commitment and capabilities. And so... This is an IR call, but nevertheless, let me thank my employees for their determination. It was really a great performance. And actually, we have delivered the numbers, finally, despite being forced to be the safe haven for around one million customers that were stranded from untrustworthy providers that had stopped operating. We have absorbed them. And that was not to the benefit of our numbers. Nevertheless, we came up with good numbers. So we, and whilst we have done that for other people's customers, our customers were well protected from short-term price adjustment through the long-term and forward-looking hedging and procurement, which we did. So an unbelievable achievement by the entire organization. Again, many thanks. And so that was my message number one, great delivery despite big challenges. Second message is not only did we deliver despite extraordinary challenges, we have on top pushed ahead with our growth strategy, which we communicated to you in the Capital Market Day, leading to growth, more sustainability, and digitization. We have ramped up our energy investments, infrastructure investments, and we will invest also more than $5 billion in 2022 and, as we said, around $27 billion until 2026. We have integrated more renewables in the past into our power grids, but also into new customer connections like the Salzgitter battery factory, data centers in Frankfurt. And I might add that we have also been working on getting the connection to the Intel facility, which was announced yesterday in the area of the Stadtwerke Magdeburg, which is a subsidiary of ours, a minority participation. And this connection will be managed by our daughter, Avakon. So all of that further drives our targeted wrap growth of at least 6% in power grids. We've also seen strong momentum in our future energy home business as the demand for storage and photovoltaic as well as e-mobility is unbroken. And I might add, will probably significantly increase as the economics of all of those solutions will actually become better with the current price levels. And again, I reiterate by 2026, We want to increase our revenues in these areas by a factor of 10. We have also been the partners for decarbonization for our customers. And this includes also hydrogen solutions, which have an enormous potential for the European industry and will become a growth driver for us. I want to add one proof point here. Compared to last November, we made an investment in Horizon Energy that is an investment that fits into our plan. What it really does, it complements our decarbonization offering for industrial customers. With Horizont, we can offer European-wide carbon capture storage of CO2 and the production of clean hydrogen and ammonia. And therefore, it gives us the opportunity to offer fully decarbonized cycles to industrial customers. The same time, we've also continued our path towards increasing sustainability. We have reduced our customers' CO2 footprint by more than 100 million tons per year now with our energy solutions and network infrastructure. And we have reduced our own carbon emissions in 2021 by 7%. Actually, we have reduced scope one and two and scope one, two, and three. In total, all of them by almost 10 million tons. And as a pioneer, and we told you that already last year, as a pioneer in ecological network management, we have also continued to create biotopes under our high voltage lines. So what that means is we're dedicating ourselves full steam towards the long term target that I've described and the restructuring of our energy system. So great performance despite Extraordinary difficulties. Great push ahead in our capital market story. And now my third message is, on top, we are an anchor for the stability of our energy system. We, as E.ON, do our homework and we deliver. We have reached the final phase of integrating energy. Obviously, you take that all for granted, but this year we will achieve all promised synergies by the end of the year. We are continuing to make significant progress in digitization, especially in the context of the UK, where we continue to deliver the turnaround, even in the current market turmoil. And you all remember what happened already in Q4 last year. By now, we have migrated around 8 million customer contracts to a digital platform. And we are following suit in other markets. Also in Germany, we have now moved 7 million contracts to a new digital platform. The same applies to the digitization of the networks, which includes, for example, the successful launch of the smart meter rollout in Poland and also in Germany. We have been always on the record very critical about the rollout. We have at least achieved 100,000 smart meters. And even if this sounds small, it's actually significantly more than our competitors. Also, we have made strategic investments into the digitization of the energy system by acquiring Envalio and GridX. These are two companies that strengthen our digital network solutions and will become part of our eHub of the future. eHub is the basis for a new digital ecosystem that will power the entire future energy world, including, for example, cloud-based sales platforms, charging management for electric mobility, management of grid connection services, and so forth. And by integrating all of that, E-Hub will ensure further profitability through digital energy solutions and will be another growth area for us at Eon. So let me summarize again the three points. We deliver our results despite external shocks. That is what we have seen in 2021. We have continued to drive the energy transition in networks and customer solution, and obviously we continue on that one. And we do our homework on an anchor of stability. And if you allow me... This makes me actually quite proud about my company, about my E.ON. Now, we have to make sure that in the decisions that are being made right now, we use our influence in the best interest of Europe, in the best interest of Germany, especially given the difficulty of the current times. So what we will do is we will continue to drive the energy transition forward. and to ensure a stable and as much as possible affordable energy supply for the benefit of our customers. And it's absolutely clear that we have to do that in a market environment that will not calm down overnight. Russia's attack on Ukraine has changed the rules in Europe, also in the energy markets. And finding the right answers will actually take time. But one thing is clear. A part of the right answer is that the energy transition must and will gain further momentum, and we will benefit from that. It's clear this will be extremely demanding. But we as E.ON, we have a clear route. We have a clear growth strategy, and we are on course. And therefore, today, I want to close with confirming our long-term ambitions to 2026, which we have communicated to you in November last year. We will propose a dividend of 49 cents per share to the annual general meeting for the past financial year. And that is the seventh increase in a row. And at the same time, we are also confirming our target to increase our dividend by up to 5% until 2026. Now, I will, as a CEO, stay focused on delivering the best possible outcome for U.S. shareholders. We cannot exclude any short-term, especially temporary, effects. I think in this current environment, nobody really can. But we are as good as one can be operationally and structurally set up, and we are confident that the current crisis will not have a sustainable impact on our financials. And with that, thanks for your time and attention, and I hand over for more detailed numbers to Mark.

Thank you, Leo, and good morning slash afternoon to everyone from my side. Leo has already elaborated how we as a company are meeting the challenges from the war in Ukraine. Not to mention how touched I am personally by the whole situation. It's tough to return to normality in these times. I will hence try to keep my speech crisp and focus on the main topics. Let me first address the elephant in the room. I would like to elaborate why we feel comfortable with our new 2022 guidance, even in these turbulent times. I start with a big picture for business segment before I provide more color on the detailed exposure in each of them individually. First, We experience temporarily negative earnings effects in some of our energy networks markets from increased costs for network losses. However, these losses will be recovered in subsequent years on the basis of well-defined existing regulatory mechanisms. Second, we are confident about our customer solutions earnings output. mainly due to our stringent risk management and the focus on B2C and SME customers. And thirdly and finally, our non-core earnings are positively geared to higher electricity prices with almost two terawatt hours of our nuclear generation not yet hedged for 2022. So overall, most of the negative effects are temporary in nature and subject to establish recovery or pass-through mechanisms, and any remaining effects should largely balance themselves out. Let me now provide you more detailed color on the impact on our energy networks business. The price-driven increase in costs to procure energy for network losses are part of the regulatory formula for each of our energy networks businesses. These cost increases are hence a pass-through item This means either these costs are fully reflected in advance in the network tariffs, or in case there are differences between actual and those assumed in the tariffs, any price-driven variation will be recovered or reimbursed in subsequent years. Let's look at the individual markets. In our biggest network operation in Germany, as well as the Czech Republic, we do not see even a temporary impact on earnings. In these markets, energy for network losses is procured in advance on the forward market, and both the German and Czech regulators allow the inclusion of these hashed forward costs into network tariffs. In contrast, in several Central Eastern European countries, current network tariffs only allow for the recognition of costs for network losses based on actual realized energy prices. Therefore, network operators in these countries experience temporary earnings effects in case of material price movements on energy markets as we see them nowadays. Of course, these price-induced earnings effects are part of the regulatory formula. We are eligible for recovery in most countries in T plus two already. Finally, to Sweden. Here, the cost for our own network losses are treated quite similar to Germany or Czechia. However, the transmission system operator costs that are part of our network tariffs as well are volatile as the TSO has to procure network losses on the spot market and passes these actual costs on to us. The positive side now, Sweden offers a higher flexibility with regard to the timing of the recovery. There it can actually already start in T plus one. What does that mean for our financials? In 2021, our energy network segment earnings were temporarily negatively affected by roughly 150 million for additional cost for network losses. Sweden accounted for roughly 50 million, and Central Eastern Europe in aggregate was affected by around 100 million. For 2022, given current wholesale prices, we have to assume that cost for network losses in Sweden and Central Eastern Europe will increase even further. we have already reflected higher energy price levels in our guidance range for 2022. The estimated total impact amounts to slightly more than 100 million euros, which are incorporated into our guidance. We have also validated our outlook reflecting the most recent peaks in energy prices. This refers to the scenario two, which you see on chart 11 of our presentation. According to our analysis, this peak in energy prices would lead to an additional temporary impact of about 100 million euros on our energy networks EBITDA in 2022. So even in case of sustainably high prices, it would still remain within our network's guidance for 2022, albeit then at the lower end. And again, any variation is of temporary nature, will be recovered in future years starting in 2023, the latest. With this, on to our customer solutions business. Most important message first. For 2022, we have already procured the expected energy volumes for our entire portfolio. Thus, we are, from an economic point of view, fully hedged. To remind you, in the absence of specific regulated trackers, such as in the UK, we started to procure energy up to three years in advance. Thus, the procurement cost of our current portfolio is well below current energy market levels. As we are an energy retailer, sustainably higher energy prices have already been and will continue to be translated into higher end customer prices. Next to the topic of generally increasing energy prices, I would also like to address our direct exposure to Russian gas. We do not have any long-term contract directly with Russian gas producers. Our contracted volumes are sourced in the European wholesale markets via more than 100 active counterparties or directly via energy exchanges on the basis of standard wholesale trading arrangements such as EFIT. We apply strict counterparty credit limits and focus on the most credit-worthy market participants who equally appreciate to do business with a very robust counterparty like us. Of course, we immediately stopped trading with European subsidiaries of Gazprom when the Russian-Ukrainian conflict escalated. Still, we have a legacy position of around 16 terawatt hours contracted under standard wholesale trading terms with Gazprom subsidiaries these 16 terawatt hours will roll off to a large extent already during 2022. So any remaining exposure will disappear very quickly. Let me also remind you in this context that our business focus is on B2C and SME customers. We have already significantly reduced our B2B volumes and will continue to do so. Moving on to page 11, we also see a limited impact from the current situation on our liquidity. Sourcing via exchanges generally ties up capital via margining, that's known. To reduce our exposure now, we actively steer our sourcing position also from a liquidity point of view. For year end 2021, the economic net debt effect from margining was fairly limited to a positive net balance of just 0.4 billion euros. As we receive variation margins, that overcompensated paid initial margins. At year end, we also experienced a working capital increase of around 500 million Euro as higher prices could not instantly be reflected in customer installments. This buildup of receivables will, however, be fully reversed once installment payments are adjusted and customers are fully invoiced. For 2022, We expect a similar negative working capital effect from further price increases so that effectively our liquidity position should be back to normal by 2023. So the 500 million increase from last year will reverse most likely in 2023. So the magnitude of this temporary effect is well manageable for us. The debt levels at year end 21 were on prior year levels, even though energy prices already increased significantly in the second half of 2021. I would also like to remind you that we have secured funding early on in the year, well ahead of the current escalation of the crisis, with the issue of 1.3 billion euros of bonds in very attractive terms, covering a major part of our guided annual funding needs of 2 to 4 billion. To conclude, even in the currently extreme situation, we see ourselves well positioned to withstand short-term headwinds, and as Leo laid out, are ready to exploit the long-term opportunities. As they also mentioned, we've seen a very strong business performance in full year 21. Essentially, we ticked it all off, not only keep our ambitious growth promises, we even exceeded them and delivered at the top end of our guidance. As promised, we were also able to significantly reduce our debt factor. Based on the strong results for full year 21, I also confirm our dividend proposal of 49 cents per share. Now let me move to the details. Year-on-year, we have significantly increased our group EBITDA by 1 billion, came in at 7.9 euro above the top end of our guidance. This achievement was driven by a very strong earnings momentum in our customer solutions business with a year-on-year EBITDA growth of 45% to 1.5 billion euros. Our energy retail business benefited mainly from the restructuring of our UK business, leading to a low triple-digit million euro EBITDA improvement. In addition, across the markets, weather and COVID-19-related normalization of volumes was supportive. As mentioned before, we pursued a prudent hedging approach across all our energy sales markets, That's why we weathered the extreme energy market situation very well. Of course, certain negative effects couldn't be avoided, such as taking on customers due to supply of last resort duties. However, these events stayed well in the range of our calculated risk margins. While our energy sales business has proven its resilience, our growth business within our customer solution segment also performed extremely well. The energy infrastructure solutions business fully delivered on its growth path and contributed an EBITDA of €480 million. Compared to 2020, this is an increase of 40%, driven by organic growth and high availability of our heating solutions. Furthermore, our B2C retail solutions business grew revenues by 25% year over year to 900 million euros with an EBITDA of around 65 million euros. Let me now turn to our energy network segment. Our energy network's earnings were mainly driven by normalized weather conditions, the non-reoccurrence of negative effects from the pandemic, the anticipated regulatory developments in our German business, And as I elaborated on, the higher cost for network losses. Another significant earnings driver for 2021 was our non-core business, the strong operational performance on the basis of high availability of our plants and high energy prices. In addition, you know that the business benefited from the successful solution for our nuclear production rights, which contributed to an additional EBITDA increase of approximately 500 million euros. Our adjusted net income came in at 2.5 billion for 2021, up 53% versus 2020, and 100 million above the top end of our guidance range. In addition to the increase in our operating results, we are seeing expected positive effects in the economic interest line and a lower tax rate of 23%. Onto our economic net debt. Compared to full year 2020, economic net debt decreased by almost 2 billion euros to 38.8 billion euro. The improvement was mainly driven by the development of pension provisions, which benefited from an increase of pension discount rates and a strong plan asset performance. Our cash conversion rate came in at 80% for full year 2021. This is below our expectations and was driven by technical spillovers as well as by the temporary buildup of working capital that I explained earlier. Let me remind you that we are strictly managing our leverage in line with a strong BBBAA rating. This translates into our debt factor target of 4.8 to 5.2 times. Back by our performance in 21, we achieved a debt factor of 4.9. That's well within the target corridor. Let me now turn to 2022 and our group and core EBITDA outlook. We communicated at our Capital Market Day in November last year that we target a 2 to 4 billion euro portfolio optimization program until 2026. As indicated back then, we don't plan any major transactions, but rather smaller adjustments that then add up to the targeted amount. As part of this ongoing review of our portfolio, we have now decided to assess very specific strategic options, including possible divestment of our district heating and cooling businesses in Norrköping and Örebro, both in Sweden. We also have initiated a process to assess the option of partnering up with a co-investor to support the growth of WestEnergies, our biggest DSO broadband infrastructure business in Germany. We will update you on both assessments once they are complete. Currently, we do not include any relevant earnings impact from such portfolio optimization measures in our earnings guidance for 2022. Please note that we will technically adjust the outlook for 2022 group and segmental guidance ranges only if any material measure with relevant earnings impact should be signed, not earlier. All in all, we expect another substantial increase of our core segment earnings in the current year to 6.9 to 7.1 billion euro, up from 6.3 billion in full year 21. On that basis, we expect a group EBITDA of 7.6 to 7.8 billion euros. This strong momentum is mainly driven by significant organic business growth, which I will come into in a minute, and the delivery of the remaining 400 million euros of synergies in relation to the energy transaction. Our non-core earnings will decline substantially with only one nuclear reactor remaining in production until end of 2022. When it comes to our energy networks business, we expect a substantial year-on-year increase in our EBITDA in 2022 to a range of 5.5 to 5.7 billion euros. The growth is mainly driven by the realization of synergies and additional anticipated increases in efficiency, specifically in Germany. All efficiency improvements have either been already implemented or are backed up by clearly defined measures. On the other side, as pointed out earlier, higher costs for network losses will adversely affect the segment also in 2022. If we were to see elevated energy price levels as at the beginning of March, we will finish the year rather at the lower end of the targeted guidance range. Let me also spend a few words on inflation. Our network's earnings are well protected against rising inflation. In all of our markets, the OPEX allowances are adjusted in line with the CPI development, or sometimes even with industry-specific indices. In Germany, also the RAP-driven allow revenues are benefiting from yearly increase in line with CPI. In regulatory systems that are based on real terms, like especially Sweden, Hungary, and partly even Germany, The respective ROPs are also indexed with inflation, which leads to higher regulated asset-based driven revenues over time. And in addition, higher inflation will over time also be reflected in higher allowed WEX and allowed ROEs and in a steeper increase of the regulated asset base. Returning to customer solutions. We expect our energy sales business to grow mainly due to the realization of synergies, additional benefits from the UK restructuring and operational improvements across our markets. Our energy infrastructure solutions business grows organically to a range of 500 to 600 million euros from around 480 million euros in 2021. It thereby significantly benefits from the go-live of several projects. In our customer solution segment overall, we guide for a range of 1.5 to 1.7 billion euros. Turning to adjusted net income, our adjusted net income mainly follows the EBITDA development. On that basis, we see a strong earnings growth from our core business also on that income level. This positive development is further supported by lower refinancing rates in 2022, partly already locked in by our successful issuances earlier this year. Tax rate is expected to be at 25% this year. Our strategic direction of travel, as Leo pointed out, is unchanged. is unchanged to what we've presented our capital market day last November. And as promised back then, we will ramp up our capex to accelerate our earnings growth and remain confident about the robustness of our mid-term plan. We're targeting a 5.3 billion euro investment program for 2022, fully in line with our guidance of 27 billion euro for the period until 2026. More than three quarters of our 2022 capex will be directed towards energy networks. An additional double-digit percentage will go towards energy infrastructure solutions to further grow E.ON's resilient infrastructure footprint. We also update our target on EU taxonomy-aligned capex. It now stands at about 95%. Let me wrap it up with our financial framework and midterm guidance. Our five-year growth plan is fully on track. We have full confidence in our 2026 guidance of around 7.8 billion euros for the group. We update the growth rates based on our 2021 actuals. Until 2026, We expect to grow our energy networks EBITDA with a CAGR of 4% to a range of 6 billion to 6.2 billion of euros. Customer solutions will annually grow by 5% to 8% to a range of 1.9 to 2.2 billion euros. I also again confirm our dividend proposal for 2021, 49 cents per share, and also our commitment to grow the dividend annually up to 5% until 2026 and beyond. That's all from my side today. Thank you very much for your attention. And I hand over back to Verena for the Q&A.