E.On Se S/Adr

Good morning, dear analysts and investors. Welcome to our first quarter results presentation. Thanks for taking the time today to join us. I'm here with Marc and he will guide you through our Q1 results. Of course, we will leave enough room for questions after the presentation. And with that, over to you, Marc.

Thank you, Verena, and welcome everyone to our Q1. results call before i start with the actual presentation about our quarterly results let me dedicate some words of solidarity to the ukraine we continue to condemn the war which russia has brought about ukraine we see extraordinary moments of braveness and strength this is an example to all of us Our thoughts are with the people in the Ukraine and with those people who had to leave their homes. We hope that the war will end soon and that peace and freedom will return to Europe soon. Millions of refugees have crossed the borders of Slovakia, Poland, Hungary, Romania. All these regions are our supply areas. Many of our colleagues work there. E.ON thus assumes direct responsibility for this situation. We provide on-site assistance with energy, accommodation, sleeping bags, hospital beds, and so on and forth. We also support financially, standing today at over 3 million euros of donations from our employees and the company. It still feels difficult, but I now move to a normal financial results call. Looking at our first quarter results, let me highlight five messages. First, we are extremely confident on our 2022 guidance. We are fully hedged and will gradually pass on higher prices to our customers. Over the full year, our retail margins will prove to be stable. Second, visibility on potential political interventions in all our markets has significantly increased over the past weeks. We have seen very sensible adjustments in both regulated as well as fully liberalized markets. any risk of detrimental intervention has in fact diminished. This underscores my high conviction when it comes to our 2022 guidance. Third, our energy networks earnings are not only economically fully protected against rising energy prices, They are also protected against inflation in a more general sense. This is a key benefit in the current macroeconomic environment. Fourth, our implicit interest rate hedge works. If interest rates remain at current levels, we will finish the year at the bottom end of our guided range of 4.8 to 5.2 times net debt to EBITDA. On top, we have secured most of our funding needs for 2022 already during the first quarter. In a nutshell, we are in a financially strong position and rightfully are so. This brings me to my final message. It is time to invest into sustainable energy infrastructure now more than ever before. Accelerated plans for the energy transition in Europe will trigger more growth of distribution grids. They will trigger even more demand for sustainable decarbonization solutions. And this is exactly our business mix. with which we are best positioned to benefit from this extremely positive momentum in Europe. Moving now to our Q1 actual results. Looking at our year-over-year bridge on page 3, our Group EBITDA decreased by €360 million to €2.1 billion. Energy networks came in slightly below prior year. The anticipated significant earnings increase in Germany was overcompensated by energy prices temporarily impacting costs for network losses in Sweden and several Eastern European countries. This was well-flagged. We had indicated that in our annual results call. Just to remind you, Price-driven costs for network losses are part of the regulatory formula in each of our markets and will automatically and fully be recovered in the future. EBITDA of our customer solutions business is temporarily compressed by higher energy procurement costs within our energy retail business. These cost increases will be passed on to our customers during the remaining year. The important news here is that we observed almost no impact on Schoen for those price adjustments that we have already implemented by now. Our energy infrastructure solutions business grew its EBITDA by 14% year-on-year to around €200 million. This was driven by good availability of our decentral generation assets. Our performance in customer solutions was also supported by our retail solutions business. Future energy home revenues grew by 30% 3-0 year on year to now 250 million euros for the first quarter. E-mobility solution revenues grew by even 150%. And I'm particularly positive about this because we deliver these high revenue growth rates at positive, high single-digit EBIT margins. Q1 EBITDA of our non-core business is flat year-on-year, despite the shutdown of Gronde and Brockdorf at the year-end 2021. Our nuclear generation business benefits from higher realized market prices. The same is true for our Turkish upstream joint venture. Moving on to page four, our total economic net debt is largely unchanged. Three points that I want to highlight. First, we continue to benefit from increasing interest rates leading to additional financial leeway. For Q1, this significantly overcompensated for plan asset performance. Planned asset performance also includes a fair value adjustment of our Nord Stream 1 asset in the magnitude of about €250 million. Second, as I told you in previous calls, the impact of margining payments for sourcing energy via exchanges has diminished. Received variation margins fully compensated for initial margin payments. Third, we continue to expect a cash conversion of significantly above 100% for 2022. The negative operating cash flow in Q1 should not come as a surprise. It reflects the usual seasonal pattern in our business model. Everything else is fully on track. To summarize, The solidity of our financing paves the way for increasing investments and dividends in the future with ensuring a strong BBBAA rating. Sometimes people ask me about the catalyst for investing in our stock right now. Effective inflation protection is a very important one. I don't get tired of repeating that message. Our regulated energy networks business is extremely well protected against inflation. So how exactly does that protection work? In our biggest market, Germany, it is quite straightforward. Here, the total allowed cost base, including allowed OPEX and the RAP-driven return on capital, will be increased every year by the CPI of the current year at the beginning of the year T plus 2. full inflation protection with T plus two. So there is a certain time lag, but ultimately the complete allowed revenues are indexed with the CPI. For other markets, we must distinguish between the respective mechanisms for allowed OPEX and for the rub-driven allowed revenues. Regarding allowed OPEX, it's super simple. In all markets, OPEX allowances are inflated on a yearly basis, either with a CPI or sometimes even with an industry-specific index, like for example in Sweden. The time lag here is either T plus 1 or T plus 2. Regarding the RAP-driven allowed revenues for all markets outside Germany, the protection mechanisms vary from country to country. In Sweden, Hungary, Romania and Turkey, which all have regulatory systems based on real terms, the inflation protection works automatically by an indexation of the regulated asset base, either by a CPI or an industry-specific index. The applied time legs here are also either T plus one or T plus two. In Poland and Slovakia, which have regulatory systems based on nominal terms, The nominal allowed WECs are being adjusted every year. So also here, we have full inflation protection for the return allowances. Bottom line, in all our regulated networks businesses, we are protected against inflation with around 90% of energy networks EBITDA automatically being protected. On the customer solutions side as well, we see our earnings largely protected against rising procurement costs. This conviction is reflected along three dimensions. In the first dimension, our main markets are not restricted by any price cap mechanism that does not allow us to pass through higher costs. Current discussions in the political arena are not indicating that this picture will change. That allows us to reflect increasing procurement costs in the customer bill. For our regulated retail markets, such as the UK or selected Central Eastern European markets, regulators have acknowledged and constructively reacted to the current situation. Ofgem in the UK, for example, recognizes some key risks faced by suppliers. Ofgem intends to address these within the next SVT period from October. As always, Ofgem still needs to act faster on some topics, like the ongoing delay to introducing stricter rules around customer credit balances. But we are on it. In Romania, the historical price cap led to a higher double-digit million euro EBITDA burden in Q1. Quite constructively, a new support scheme was initiated on April 1st already. This scheme provides us with full visibility for the rest of the year and ensures a positive margin going forward. In addition, Fioren talks with the government about the recovery of any uncovered procurement costs from the first quarter or any quarter before. In Hungary as well, we found a constructive solution. We signed an agreement to transfer the roughly 2.5 million regulated customers to the state-owned utility MVM with effect of March 31st. So from April 1st also here, full visibility moving back to positive margins and positive results for the full year. Let me come to a second dimension. In all our markets, governments have decided to provide direct transfer payments to customers and especially to vulnerable customer groups. In a third dimension, there is on top a clear willingness of politicians to reduce taxes that still have a significant impact on the energy bill. Take the abolishment of the renewable surcharge in Germany or reduced VAT and energy taxes in the Netherlands as examples. I could add many more. For us, this is reassuring. We do see that the obvious challenge of energy affordability is being actively addressed and not avoided like a hot potato. This allows us in turn to do what we are best at, acting as a reliable energy partner for our customers. When other companies fail to perform, we step in also as a supplier of last resort. Finally, let me remind you of the structure of our operations with a clear focus on B2C and SME customers, segments that proved to be resilient during economic crises of the past and will prove to be resilient also in this crisis. All in all, The developments over the last weeks have significantly increased our visibility for 2022 earnings development in customer solutions. Let me close today's presentation reiterating our high confidence on the Group Outlook for 2022, which today we fully reconfirm. We also reconfirmed to invest around 5.3 billion euros in 2022 to deliver on our ambitious growth plans. Beyond 2022, we are very confident that E.ON's strategy will successfully unfold. The opportunity from increasingly decarbonizing our electricity, the heating, as well as the transport sectors will crystallize faster than anyone would have believed before. The elimination of Europe's dependency on energy imports is a huge effort and will only be successful if we have the right energy infrastructure in place. That's why we will continue to invest into our distribution grids and into sustainable, decentralized energy infrastructure solutions alongside with our customers. Thank you very much. And with that, back to you, Irina.

Thank you very much, Mark, for your presentation. And we'll now start the Q&A session. Just a little reminder, two questions per person so that everybody has a chance to ask a question. First question comes from Vincent. Please go ahead.

Yes. Good morning, everyone. Vincent from J.P. Morgan. So two questions. I'll go for the first one. clearly on supply, so thank you for this slide. I think it is very helpful to have this summary. Now, when we look at the message, the message is very supportive, saying, yes, you are able to pass through an increase in procurement costs, many things we've done in Hungary, for example, Romania, but we see quite some pressure in the QA numbers. You don't change your guidance or suspect it was already envisaged in the guidance you provided. So if you look at the slide, it's like if there are no problems. The Q1 shows there were problems. So we've been in negative margin. So how confident are we indeed that all the problems are solved going forward in the supply, especially if commodity prices remain high or could go higher? So that would be question number one regarding supply. The question number two is obviously regarding the Russian gas situation. So we have rural payments coming in the next few days or weeks. And you've made some comments regarding the state of emergency and the fact that Germany and Europe should deploy that in the Russian gas curtailment. But recently I've seen that there is some thinking going in Germany to, instead of prioritizing residential customers of our industrials, We'll go the other way around, so could you give us a bit of color on what is the current thinking to prepare for what is not a base case scenario, but still is a risk to be prepared for, which is a Russian gas container. Thank you.

Yeah, that's all. Let me start with the first question on customer solutions. The development in Q1 is quite as we expected it, keeping in mind that energy prices were on the rise throughout the whole of the second half of last year already. So in that sense, the dynamics, which obviously have been amplified by the outbreak of the Ukrainian war, the fundamental dynamics is by far not surprising. And that's why actually we don't see that really as a problem, as you phrase it. That's a natural part of our business. And I'm proud about our operational excellence in that sense that we are able to deliver these price increases on the basis of a strong risk management, very solid hedging strategy, and an excellent churn management. And so a large part of the needed price increases has by now already been implemented or announced. And that's why the visibility on the development there for the remaining three quarters is quite high. And it's also no reason, therefore, to deviate from our guidance. When it comes to the ruble payments, Please bear in mind that we are not having ourselves a direct relationship with Russian domicile operators via long-term contracts or so. So in that sense, on ruble payments specifically, I would refer you to those who are having those long-term contracts. Now, the second part in that question which you raised, Is it now becoming more likely that we will see a gas embargo in Germany? I still regard this as very unlikely. If you look at the position of the German government, it's crystal clear. A gas embargo would massively, massively and adversely affect the German economy. Actually, in a way that now three months into the crisis, no one still thinks has a clear plan what really the impacts would be if you look at the supply chain effects. So if you cut off one industry, what actually happens then to the next ones? And we also do not change our view on that anything which you can achieve on the B2C side, which indeed some people have been raising, is something which you can rely on if you should really run into this tail event of a gas embargo, because it's not something which you can actually control. of course, what you should expect is that also ourselves, we would then reach out to our customers and encourage them to save energy. But it's something which you can't control. And when it's about the physical balance of the system, you can't just rely on a pledge or a plea. You actually need to make sure that you are able to physically balance the system. And so I don't expect that the fundamental order and sequence and mechanisms would really change. But again, at this stage, I still regard, I guess, embargo as a tail event.

Does that answer your question, Marcel?

Yes, absolutely, it does. I mean, I think on supply it's quite clear why the guidance has not changed in the way it is. on Russia, yes, it's always good to hear what's the view in Germany regarding this, and it's still not to be considered as a base case, but rather a sort of black box on it, and so it's good to hear that. Thank you. Thank you very much.

All right. Thank you. Just a little reminder. So it would be great if you could turn on your camera when you are talking so that we can actually see you here. Otherwise, we just see a little bubble. That's obviously nice. So we're obviously very much looking forward to also see you here. Thank you. And if your questions are answered, then turn down your hand so that we can sort of organize the call accordingly. So Next one on the line is Peter. Peter, please go ahead. Bank of America.

Good morning. Thanks for taking my questions and thanks for a very clear presentation actually this morning. So two questions from me. One is just coming back to this full year guidance that you seem very confident in. You need... Corey Bittar to be up about a billion, 1.1 billion in the remaining nine months of the year, year on year to hit that. I was wondering if you could sort of help us bridge that a little bit just to avoid any confusion around whether that's achievable or not. And then my second question, sort of coming back to this gas issue, but maybe from a slightly different angle, I was wondering if you've been given any specific assurances, either directly by the German government or from what you've seen from plans that have been made thus far, that you, E.ON, will not be exposed to any negative financial consequences in the event that there is insufficient gas to supply your customers? Thank you.

Yes. Good morning, Peter. Let me start with the full year guidance question. That's actually extremely straightforward and also highly visible. So let me start with a thing which you should memorize now, you know, as long as you're having that job and covering Aon. That goes back to our capital market day in November. We will deliver this year and every year in the future at least 200 to 300 million euros of additional EBITDA from organic investments. We said that we ramp up our capex over time, so you will not see the full 300 million this year coming. But we will definitely see the 200, the lower end this year. And this is more or less as CapEx is being deployed quarter by quarter. So still 150 million to 200 to come from that this year for the quarters two, three, and four. Secondly, so on that high visibility. Second, synergies. In the remaining years, still €300 million to come, all measures implemented, high visibility. We have seen the developments in German networks, normalization against the backdrop of regulatory cycles. Also, that is unfolding as expected. You should assume that another 200 to 300 million euro will come during the remainder of the year. We have already talked about procurement costs. So that is, as of Q1, across the portfolio, a hit of about 250, 300 million euros. But as I said, a large part of the price increases has by now been either implemented or announced. So also here, high visibility, high visibility that those costs will be recovered during the remainder of the year. And finally, We have also shown the impact of network losses during Q1, but we already had increased network losses last year, and we will see the recovery effect from last year's energy network losses This year, and particularly unfolding during the remainder of this year, which also is a ticket of 100 to 150 million euros, also high visibility. And I think if I just add up all the stuff which I mentioned, I'm already beyond a 1 billion euro EBITDA ticket. And these are all developments. which are either already implemented or are of high visibility, so that just no doubt around that those things will be delivered spot on. And hence, from our side, no question mark, no doubt around our full year guidance. Now, on the gas issue, of course, and this goes back to what I elaborated on in my introductory speech about how politicians react, and this is not only the case in Germany, that politicians and regulators across the board do respect our role as a stable, reliable energy supplier. and are crystal clear about that this position will be reinforced and whatever the situation then will be, that we will be able to pass on, either pass on those costs to customers and then governments will step in with further support packages for vulnerable customers, or there will be another form of compensation. But there is no discussion or no sentiment whatsoever that you as analysts or our investors should be afraid of, that our margins will be negatively affected by any such development.

Great. Thank you, Mark.

Thank you, Peter. Next question comes from Deepa from Bernstein.

Thank you. So my two questions. First one on the German retail market, you don't have a price cap. So just wondering why you were not able to pass through the price changes earlier. I can understand Romania or the UK. So if you can just maybe talk about why in Germany you haven't, but it seems like in Netherlands you have been able to. So is there any particular rule or regulation that's impacting? And secondly, on the inflation-linked protection that the company has, is it... fail to say I mean overall network EBITDA you know what proportion of that is fully protected is that 80% 90% Hi Deepa sorry on the last one can you just say protection again I didn't get acoustic in the first part yeah you've given the table with all these different regulatory regimes but if you can just overall then summarize for the segment as a whole portion is inflation protected

Yes, so let me start with the second question because that's a short answer. Across the board, about 99.0% of our energy network's earnings are automatically inflation protected. This does not mean that the remaining 10% are not protected, but the remaining 10% either require then an interaction with the regulator or are subject to outperformance incentives where, again, we see ourselves in a position to actually outperform and make sure that We have an inflation protection here as well, just by the way how we operate. So effectively, I'd say 100% is protected, but kind of this automatic regulatory protection applies to about 90%. And that's an extremely strong message and good news for our investors. Now, timing of the price increases is very much related to the hedging strategies, which we apply in the different markets. And the hedging strategies are depending on the competitive environment. So there is no single truth about hedging strategies. Hedging strategies need to be optimized against how you see the competitive peg acting. And that's, if you compare Netherlands and Germany, just different. And in Germany, we therefore have a somewhat longer hedge path. And this just means, therefore, that the time lag, when we then implement that into price increases, is somewhat longer. But it still means that this transmission mechanism of increasing prices is fully effective. And that's why this recovery will come for sure.

Thank you, Deepa. Next question comes from James Brand from Deutsche Bank. James? Can you hear me okay?

Yes. Yes, very well. Thank you.

Yes. Okay, great. Firstly, thanks for the presentation. I had two questions. Firstly, on the retail business, you're obviously targeting stable margins and your guidance has a stable or slight increase in avatar in the retail business. I had a question on the medium term, because normally when people think about retail, they think about a percentage margin. And obviously, bills are going up very significantly. You saw 60% revenue growth in Q1 year on year. So when the crisis is over, assuming that energy bills stabilize at a much higher level, should we be thinking about you kind of reverting back to the 2% margin also that you've achieved in the past? Or... Should we be thinking more around stable margins in absolute terms? That's the first question. And the second question is a little bit of a geeky one, but thank you for the inflation slide on networks. That was very useful. But just in terms of kind of monitoring your RAB evolution, when we see what you're reporting at year end, so for instance, if we look at the RAB as you presented it at the year end of 2021, Is that already including inflation uplifts in the RABs, or is there a bit of a lag in terms of waiting for the regulator to recognize them before you reflect those in your RAB at year end? Just because your RAB at year end I thought was a little bit lower than expected, perhaps because of some lags in presenting. And if you'll allow me a kind of half question on the inflation topic, the Swedish inflation index

is that running how is that running compared to cpi is it below in line above cpi at the moment thank you yes uh good morning james um so on retail margins um you're spot on um of course of course we do expect that um you know once we are through this year where we would not expect that percentage margins um um will be stable so we expect at least stable absolute margins for this year, which will mean that percentage margins will most likely go down. But for the midterm, of course, we will be managing that business on a percentage margin from revenues. That's, by the way, the perspective which most regulators take as well. And so it would actually be nonsense to believe that our revenues increase by 50, 60, 70 percent and our margins actually just compress. No reason to believe that. While our midterm outlook on retail, given the current price outlook, is actually much more bullish. But I think all eyes are on this year. But we're extremely confident when it comes to the midterm. About inflation adjustment in RAB, the timing, as I said in my speech, is T plus one or T plus two. So you don't see anything of elevated inflation rates in our annual accounts as of December last year. So that's the first point. The second point, when you look at our year-end balance sheets, keep in mind that the balance sheet is being calculated based on FX spot rates. So in our regulated asset base, from time to time, you have just some spot rate fluctuation when it comes to translating FX into Euro. And a large part of the reason was the weakness of the corner that has reverted back. And so that kind of lower level is by now FX was already being recovered. So this is rather a topic about spot rates in FX translation than anything else. Um, and when it comes to the Swedish index, I actually, uh, um, it has to, uh, uh, park that one. We will come back to you or anyone in the room.

Um, well, actually it's not getting, or Doreen, do you have a, yeah, it's a Sweden is historically, um, um, a bit above, um, CPI. So just as a reference. Okay. Thank you very much.

You're welcome.

Yes. Next one on the line is Rob from Monzenlei. Rob, please go ahead.

Hey, thank you. Hopefully you can hear me. I have just one question, and that is regarding Gazprom's European subsidiaries with which you had relationships. Excuse me if I get this wrong, so please clarify. But I believe they're now under the custody of the German government. And if so, does that then meaningfully reduce E.ON's counterparty risk in the event of disrupted gas supplies? That's it. Thank you.

Very much so, Rob, is the answer. Yes.

Nothing to add. Thanks very much. It's very simple. I'll hand it over.

Thanks, Rob, for this straightforward Q&A topic. So next one on the line is Alberto from Goldman.

Thank you. And I'm going to ask two questions. They're not that straightforward, I'm afraid. So let me elaborate the first one. You know, Mark, thank you. The 1 billion EBITDA bridge, crystal clear. You probably could say 1.1 if you probably add or almost the cost cutting that also is supposed to come this year. So I take that. However, the 1 billion increase for the rest of the year applies if all the headwinds in Q1 were to suddenly disappear on the 1st of April. So I guess my question is, are we going to see some extra headwinds? And maybe to qualify that, what is the tariff increase you need to pass through in Germany in customer solutions for the headwinds to go away? And when do you think you're going to pass these increases? Because I think still April probably was quite challenging. My second question, sorry to go back to inflation. This is an incredibly important point. I think your slide was super clear. But just to be very, very clear, Germany after 2007, RAB is nominal, right? It does not update with inflation. What happens is that your TOTEX updates for inflation. Your allowed return updates for inflation within the regulatory period. So... there is a partial inflation protection, not full, then it's reset every time. Or am I getting this wrong? Just to be super clear, this is a very important point. Thank you for your patience.

Yes. So, Alberto, with your first question, looking at our procurement position and that we are basically fully hedged, I don't think that any further headwinds will have a material impact on this year's earnings. And we would, as we demonstrate now with our development between Q1, I hear some beeps here. Not sure whether that is in the total line. That's gone now. Great. It's not you, Alberto, it was someone here. So I don't expect new headlines to have a financial impact on this year's earnings and neither on future earnings because we will have to time to make the necessary adjustments, price adjustments and so on. Secondly, when it comes to inflation protection, the German system indeed is a nominal return one, but the return allowance until the next regulatory period for Power29 starts will be every year inflated with CPI. So we have until the next regulatory period full inflation protection in that sense. And then inflation protection is still then From 29 onwards, guaranteed by the fact that by then, then allowed returns will be readjusted to then take into effect a higher inflation and interest rate environment. So in that sense, it is in the total period fully protected as the mechanisms which are being applied are different. But at the end, net net full protection.

Mark, that is very clear. Thank you. May I just ask, when do you think the tariff increase in Germany may be implemented? I don't know if you want to mention maybe how much, but when do you plan to increase tariffs in Germany? On the network side? On the customer solutions.

I would say we start first of June. That has already been announced. Further details we cannot really share because that's of competitive nature as well.

I can't talk about no things which are still in the pipeline, but the large part has already been implemented with the price increase effectiveness of January already and another one now being announced with effective date of, as Verena said, 1st of June. Thank you. These are the ones which are implemented and announced and where we have full visibility. And by the way, no impact on churn.

Very clear. Thank you.

It actually gets to almost already 50% price increase here as well. So if you take the two steps, it's already quite... Okay, next one.

Next one is Piotr from Citi. Piotr?

Hi, yes, good morning, everybody. Thank you for the presentation. I have two questions. So first, I wanted to ask you about your guidance for this year and You explained the reasons how you can get to this guidance, but then I wanted to ask you how much of the headwinds in terms of network extra costs or the squeeze on the supply margin is embedded within the guidance that will disappear going into the next year. I was just trying to make a bridge more towards 2023 versus 2022 that some of these headwinds on the net basis, like Netherlands is a small positive, Germany is a small negative, But how much is the millions of euros you kind of have in these numbers that will be supporting for year on year bridge into the next year? And then I wanted to maybe extrapolate the questions of Alberto into the Eastern European inflation protection for the networks. I mean, CPI in Eastern Europe runs good double digit figures and some of the countries, different metrics of how they are supposed to be protected.

But this is actually... Piotr, we cannot hear you anymore.

Hello, can you hear me now?

Yes, now again.

Sorry. Sorry.

Can you... No, you're lost again. Is it better now? Yes. Yes.

Seems that your line is... Or maybe you're... No. We still cannot hear you anymore?

Okay. Then let's go with the first question only.

Okay, that one we understood now. But I answered the second one and maybe the line then improved. So on the impact of higher energy prices. So again, on the customer solution sides, we expect that margins will normalize with the price increases that we have implemented or announced. And so normalization there. Just with a small add-on to what I said before on James' question, that a normal margin will actually be an expanding margin going forward. So our percentage revenue margin will compress, absolutely stable, but relative compressed. And I would expect that going forward then also on a percentage basis to expand again. So absolute margins going forward should actually go up. um if we look beyond this year on energy networks uh we have based uh as we indicated uh already with our full year results call we indicate uh we included um you know the spike in prices uh in the beginning of march and on that basis said well you know if prices stayed on that spike then um we would probably deliver in the energy networks business At the low end, now prices have actually come down a bit, so you should take away full comfort that we will be able, you know, in a pretty wide bandwidth of energy prices to deliver on our guidance and that we've built this in. And then again, an absolute euro number is a bit difficult to say because partly then you have immediate protection in place. Partly it then is a timing issue. But there's high confidence in a high bandwidth actually of outcomes of energy prices that we will be able to deliver our guidance.

Is the line better now? Can you hear me?

Now it's better. So give a shoot on the second question again.

Thank you. So I just wanted to ask you, how do you feel about the risk on the regulatory side that some of this inflation protection measures in Eastern Europe will not work? Just to give you an example, you know, Polish 10-year yield runs almost 7%.

Now the line is broken again.

But that was just the example. So maybe...

Look, we have in the dialogues which we run across the markets, regulators are extremely constructive, no question doubts around these mechanisms. And keep in mind that a large part of the price increases is now in many markets already implemented. So it's not a reality which is still to come. the big shock in terms of energy affordability, you know, it is now already visible for any politician and regulator. And so what I don't share is this notion, oh, there's still a wave to come, which no one has seen as of now. It's not the reality in the discussions we have with regulators. And that's why my confidence, therefore, is high when it comes to these automatic inflation protection mechanisms.

Okay. Thank you. And apologies for this line. Oh, you're welcome. It's all of us.

We made it. We made it. So next one comes from John Musk from RBC.

John. Yes. Morning, everyone. Two questions from me. We talked a little bit about potential headwinds. One that we didn't go into much detail was bad debt. So just thinking around what you may have already built into your guidance for increasing bad debts and appreciate the bills have not necessarily gone up everywhere yet. So you may not have seen some of that hitting customers. And then secondly, just to get clarity on the leverage guidance, so lower end of 4.8 to 5.2 based on interest rates now, what does that mean versus the 1.4 billion we've already seen in terms of lower provision? So how much lower will they go based on interest rates now?

Yes, good morning, John. On BetDebt, we continue to take a very prudent approach, which is now basically the third year we're doing that. So, you know, we have been continually talking about that issue. We started with a very prudent approach when COVID broke out and have done so ever since. And basically we haven't seen any bad debt risk actually materializing since then. So I think from that you should just take a lot of confidence that we have taken care of bad debt issues in a very appropriate manner and that this does not pose a risk to our guidance. Of course, we are monitoring it, are gradually working on those markets also where we do not yet have a high direct debit rate share to gradually increase that. You know that in Germany we're 90-95% direct debit rate anyhow, so that's pretty safe territory. In the UK, we're at 60, 65 percent. And, you know, we continually drive it up. And so second message here is we're not just monitoring the risk, but we are actively addressing operationally that topic to further mitigate and minimize any impact. Now, on leverage. Fair question is, if you look relative to the spot rates applied to our Q1 accounts, interest rates have further increased by, if you look at the EU rates, 70 basis points relative to the spot rates applied in our Q1 accounts. um and we gave you the sensitivity already in the past that an increase um of about one basis point equals uh approximately 30 30 million euros of relief on pension provisions and based on that sensitivity um the 70 basis points as of today would mean about 2 billion euros of further decrease in pension provisions now this already assumes the sensitivity that plan assets in such an environment would not work positively, but that we would lose on the plan asset side, as we have also seen during the first quarter, that is the only part which may mean that sensitivity can be a bit better or a bit worse, depending on where the asset performance actually runs. But it's a quite sizable improvement on top of what we have accounted for in our Q1 accounts, for sure.

Okay, great. Thank you.

Thanks, John. Next question comes from Louis Bouchard from Oddo. Louis?

Yes, thank you very much and good morning to everyone. Two questions on my side. Maybe the first one, coming back on inflation, but a bit more regarding the long term. We understand that the energy network, of course, is a bit under pressure this year, but at the same time, most of the support that is going to kick in regarding inflation are going to come next year. Shall we expect that in view of this trend, we could see further improvement and maybe further CAGR growth on the EBITDA trend, in particular in energy network, compared to what you had in mind three months ago regarding the EBITDA that could be attracted in energy network by 2026, for instance, in your official guidance? Do you feel now more confident in this long-term guidance, more specifically? And maybe my second question regarding energy infrastructure solution trend, if you could give us a bit of a color regarding the actual commercial development of this business in the current environment where for sure you could have quite demanding clients for some solution on this topic.

Yes, so I can answer the first question, Louis, very shortly. The answer is yes. Yeah, of course, with rising inflation rates and if I talk about inflation protection, Cedris Paribus, our CAGR for energy networks earnings should go up. And Cedris Paribus will go up. And second, on energy infrastructure solutions, you know, I keep it short and crisp now for the sake of this call, although there's a lot of good things to tell about the business. And what we basically see is, during last year, extremely positive momentum, specifically on the city energy solution business, so where we are offering for city quarters, cities, specifically low temperature heating solutions. This has seen a tremendous momentum and we've been quite successful in signing deals with cities or probably large property developers across Europe. There is a second business in that which is the central energy infrastructure for industrial large commercial customers. Here we've seen an enormous momentum on renewable solutions. So the rate at which we are now selling PV based heating solutions for industrial clients is It's amazing. It's limited by the supply chain topics in global markets, which basically mean we could increase our growth rates even more if we had the supply at hand. Currently, gas-fired solutions are less involved, but if I look at the first two trends which I mentioned, this by far overcompensates for reduced demand for gas-fired solutions at this stage. and hence underscores our long-term very positive conviction on that business. And so also the long-term growth rates as part of our capital market day, investing 500, 600 million euros every year at mid to high single digit post-tax IRRs fully intact. Thank you very much.

Thank you. You're welcome. So, Sam from UBS actually wanted to pose a question. I'm not so sure whether this is still the case for Sam. Are you still online and want to ask a question? If not, then we move on to Martin Tessier.

Yes, good morning everyone. Thank you for the presentation. I have one question only on the customer solutions business. On the one hand, you say that there has been overall no negative dynamic in terms of churn. On the other hand, we understand that sometimes you are the supplier of last resort, meaning higher number of customers. But when we look at the page 17 of the presentation, we can see that the overall portfolio has decreased by 200,000 customers during the quarter. Seems like a bit counterintuitive. So any information on this dynamic would be very helpful. Thank you.

Yeah. So on supply of last resort, the biggest dynamic actually happened during the fourth quarter. So we saw last year. So we saw about one million customer accounts. or an increase of one million customer accounts due to supply of last resort events. During the first quarter, as churn numbers have basically across all markets crashed down, there's very, very little movement in customer accounts at all. So the 200,000, some here and there in some markets, is no major trend. Customer numbers are largely stable, and that's a reflection of very limited churn and also very limited, at this stage, active channel management on our side because it just doesn't make sense in the current price environment. I think the good news and important thing for the future is that across all markets, we do see competition structurally go down. So a lot of market participants exiting, regulators increasing the bar, the quality bar of what you need to comply with in order to actually be admitted as a supplier and be active as a supplier. And that actually calls for when churn rates will come back when price is kind of a level of at least somewhat, if you look at the forward curve, the competition also structurally going forward will be different to what we have seen in the past. And that means better for us basically across all markets. Thank you. All right. Thank you very much, Marta.

Yeah, I just saw that apparently Sam is not on the line again. So, Sam, please go ahead. That would then be the last question for the call. If that still doesn't work, Sam, then we are happy to pick that up after this call. Sorry for that, if there are any sort of connection topics in that case. Yeah, thank you very much for your interest and for all these relevant questions. I hope this was useful. And we're obviously looking forward to continue our dialogue. If there is anything else that we can help you with, we are happy. at your disposal. And thank you, Mark, for answering all these questions. Looking forward to seeing you all again and stay healthy.

Thank you very much from my side. Stay healthy and hope to see you soon on the road.