E.ON SE

Analysts and investors, welcome to our nine-month results presentation. Thank you for taking the time to join us today. I'm here with Mark. He will present our results, including a business update on key topics, our outlook for 2022, and some considerations about Aon's journey into 2023 and our financial framework. As always, we will leave enough room for your questions after the presentation. Now, over to you, Mark.

Thank you, Iris. And welcome, everyone. It's a cozy round today. 16 people have dialed in. I know the Eberdrola Capital Market Day runs in parallel. So I will keep it short and crisp. And of course, I will make sure that for those who have dialed in already now, you will get all information. No, just kidding. So let's start. I have four key messages for you today. First, Financial delivery in the third quarter was again very solid. As promised, the recovery of our earnings in our core markets is on track as announced as expected. Second, we see relief on energy affordability in most of our markets based on proposed and partially already implemented customer support mechanisms and price caps. Third, Group EBITDA guidance for 2022 is fully confirmed despite the temporary earnings shift in our energy network segment due to higher energy prices. Fourth and finally, the acceleration of the energy transition continues and with it the demand for our energy networks and energy solutions. To conclude, Our business model proves to be resilient. Our portfolio is set up for attractive mid- and long-term growth. Let's now have a closer look on our quarterly results. Let's start with our year-to-date operational performance. With a group EBITDA of €6.1 billion in the first nine months, we are on track to deliver the expected recovery pattern announced in Q1. Main drivers for this continue to be tariff increases in our energy retail business, as well as investment-driven growth and realized synergies across all segments. In our energy networks business, we were able to achieve an EBITDA of €4.1 billion. Synergies are on track, just as the expected recovery of network earnings in Germany. Continuously high energy prices led to continued high costs for network losses also in the third quarter. On top, we saw milder weather throughout the year, which also led to a low triple-digit million-euro burden year-to-date for our network operations across Europe. Both effects. reduce earnings in 2022, but as you should know and certainly will know, will be fully recovered over the next years according to the established regulatory mechanisms. This means these effects are economically neutral for our company. Let's move to our customer solutions business where the performance again was very solid and provided 1.4 billion euro of EBITDA. The main driver for this is unchanged. We were able to pass on the massively increased wholesale energy prices to customers. In the third quarter, we still benefited from slightly milder weather, and the UK delivered further cost savings from their IT replatforming and restructuring. Romania introduced rules for an electricity retail price cap this year. This decision has substantially affected our business in Romania, specifically during the third quarter, as the difference to the supply costs is not fully refunded for all customer groups, and in general only with a substantial time delay. To be very clear, this development during the third quarter is not acceptable. In essence, The market framework right now prohibits us to earn a positive margin in our retail business. You can therefore rest assured that we have been fiercely opposing these regulatory changes in our in-intense discussions with the Romanian government. You can rely upon that unprofitable retail businesses or any unprofitable business are a red line for us. The entire Romanian customer business has by now accrued a high double-digit million euro loss year-to-date. We now expect a negative earnings contribution for the full year, but we also expect government interventions in order to provide for a short-term mitigation and relief of that situation. All in all, our adjusted net income came in at roughly 2.1 billion euros following our EBITDA earnings developments. Let me now turn to the development of our economic net debt. Our financial position remains strong. Compared to H1, economic net debt has been reduced by roughly 4 billion euros down to 32.7 billion. This is largely due to our exceptionally strong operating cash flow, resulting in a cash conversion rate of 122% for the first nine months. The seasonal decrease in working capital was driven by the billing mechanism of our solar renewables connected to our journal network, where the high number of sunshine hours left its mark. On the customer solutions side, the expected positive effect was even higher, based on increased installment payments compared to previous years, and in addition, positive spillover effects from year-end 2021. the mentioned seasonal effects are temporary and will reverse in the upcoming winter months. For the full year, we expect the cash conversion rate to be at around 100%. The positive impact from increasing pension discount rates was partially offset by negative performance of our pension plan assets. In this context, please note that we have further reduced the value of our Nord Stream 1 shareholding to now roughly 100 million euros. This asset is held as a pension plan asset. The value adjustment has not and will not trigger any specific pension funding obligations nor be associated with any negative earnings impact today or in the future. We expect cash investments to increase strongly in the fourth quarter. Due to the good progress on our portfolio review, this will be partially compensated by proceeds from closing the announced broadband partnership with IGNEO, which has already occurred at the end of October. At year-end, we expect our debt factor to be at the lower end of the target range of 4.8 to 5.2 times economic net debt to adjusted EBITDA. Let us move some more financials to the latest developments in retail markets and what it means for our business. A lot of the proposed measures regarding security of supply and customer affordability go into the right direction. However, not all our markets are yet benefiting from comparable positive adaptions. Therefore, we continue to actively engage with governments to accelerate positive actions in all our markets. On security of supply, demand reduction targets have been introduced on an EU-wide level for gas and power. Overall, our generally prudent hedging approach remains unchanged, meaning that we are not going into this winter with a short position. As it is too early to quantify the impact of any demand reduction actions, we will adjust our hedging position dynamically once the demand patterns start to change. We are obviously monitoring these developments closely and are acting swiftly. On customer affordability, we are observing improvements in customer support schemes, especially in our largest markets. In Germany, material support packages for both power and gas are to be established. The Netherlands has already begun direct consumer support starting in November. and has introduced a price cap from January onwards. In the UK, the SVT price cap impact was limited to 2,500 British pounds until April 2023. From May onwards, any support in the UK shall be more tailored to individual customer groups. We expect a continuous relief when it therefore comes to energy affordability and impact on debt debt for us. Most measures will positively address payment behavior of residential and commercial customers. On top, energy supply companies will receive upfront government payments to reduce customer bills. This means all these measures come along with limited or no working capital effect for us. Let me now share with you more detailed information on our bad debt development. The most important message first, year-to-date, we do not see a material change in customers' payment behavior across any of the online markets. And this is true with regard to legging, but also leading KPIs. Our bed-debt allowance increased by €100 million in the last 12 months. The ratio of bed-debt additions to revenue was at 0.7%, only slightly higher compared to historical levels. whilst payment behaviour remained unchanged. This is reflecting our increased risk buffer against the potential worsening in the future. Going forward, we continue to have a very close eye on the payment behaviour of our customers and are ready to initiate appropriate countermeasures in case we observe any changes. Let me on this note move to our 2022 guidance. We confirm group guidance for EBITDA, adjusted net income, and CAPEX. However, the soaring energy prices experienced in the third quarter led to adjustments if you look at the segment level. For our energy networks business, we already mentioned during our H1 call that we will be at the lower end of the guidance range based on our assumed costs for network losses at that time. Considering how prices have developed during the third quarter, we adjust the guidance range for our energy networks business downwards by 200 million euros to now 5.3 to 5.5 billion euros. Our customer solutions business is well on track to reach full year 2022 guidance as announced. This guidance includes higher than average risk buffers for a potential volatile end of this year. Consequently, we adjust our guidance range for core EBITDA to now 6.7 to 6.9 billion euros and core adjusted net income to now 1.8 to 2.0 billion euros. On this basis, we also explicitly confirm our target to increase the dividend for fiscal year 2022 by up to 5%. For our non-core business, peaking energy prices in the third quarter had a positive effect. We hence upgrade our 2022 guidance for that business by about 100 million euro to now 0.9 to 1.1 billion euro. Any additional costs of preparing our last nuclear plant for the stretch operations until April 2023 are to be fully covered by the government. The discussion on possible clawbacks and their applicability to 2022 results is ongoing. We actively discuss with the government to implement reasonable mechanisms. With the start of 2023, our last nuclear reactor will be in operation for another three months. To fully reflect the strategic direction of E.ON, we will close the non-core segment by year-end 2022. Paulsen Electra will then be classified as non-operation. Our adjusted EBITDA in 2023 will thus not be affected by the additional roughly 2 TWh expected to be produced by ISAR2. So much on the short-term operational topics and our outlook for 2022. After a challenging but so far successful year, let me share some considerations regarding E.ON's journey into 2023 and our mid-term financial framework. First, we will continue to operate on solid grounds. We have seen that our earnings delivery can be impacted by temporary effects during a single year given macroeconomic swings. But from a pure economic standpoint, this has almost no relevance. We manage to deliver our targeted mid- to long-term growth despite short-term headwinds. Best example is the envisaged recovery from higher costs for network losses that will further unfold from next year onwards. In our retail operations, We have proven to operate a very robust business, and this will continue in future years. Market concerns on energy affordability have been addressed in our core markets by governments and regulators, with E.ON taking up an active role in corresponding discussions. The agility of our operations allowed us to react to the new market developments and interventions in a swift manner. In times like these, this agility is of utmost importance and a pivotal characteristic of our way to manage operational excellence. This makes us also confident to benefit from the strong free cash flow generation of our supply activities going forward. Second, our growth opportunities. our growth opportunities have further increased. The business momentum from decarbonization has been constantly growing since we published our financial framework a year ago. And this is not the only drive. We now also see that energy security and affordability are additional drivers to our growth. For our regulated business, regulated businesses Asset-based growth is the best indicator on how we are increasing the value of our portfolio in the long run. But also in our solutions business, we are experiencing a strong momentum. Demand for decarbonization solutions has significantly increased, and this is driven by market dynamics, not governmental pushes. I am very confident about our operational future growth, knowing that we have proven to be a champion in our operational excellence and our performance in our core business areas. This confidence feeds through to our current investment program. We do not see any major constraints from the supply side, which we cannot manage. Third, We currently observe an unprecedented interest rate reversal. Since our current investments are financed with fixed rates and the average maturity of our bonds is around seven years, the higher interest rate environment will only gradually feed through to our funding costs. In addition, The negative effect of gradually increasing funding costs in some countries will be largely dampened by quasi-automatic regulatory compensation mechanisms in others. For regimes with a real allowed return, this protection comes to a large extent relatively quickly via the yearly regulated asset base indexation. In nominal regimes, the protection will come over time, by a high allowed returns or needs to be discussed and modified by the regulator. Against this background, the question if or when we will step up our investment program will critically depend on how regulators will deal with the historical interest rate reversal in our various markets. It is clear that sustainable, secure and affordable energy can, in the long term, only be delivered with accelerated investments into the necessary energy infrastructure for it. This can only be achieved if the regulatory frameworks allow us to deliver competitive returns on capital employed. We are addressing this topic specifically in Germany, which is our biggest network market with a nominal rate regime. The success of the energy transition now depends on a determination of interest rates that are future-oriented and not backward-looking like the existing regulation. Static regulatory interest rates from periods of low interest rate levels do not fit into the current environment of rising inflation and interest rates. The German regulator itself announced in October 2021 that they will react to these changes in general interest rate environment even within an ongoing regulatory period. Due to the sharp increase which we have now witnessed, we expect the regulator to quickly come up with adequate and timely regulatory solutions. Fourthly and finally, we have seen that rising interest rates have benefited us substantially on the economic net debt side with pension provisions coming down significantly. This has significantly increased our financial leeway. All these factors, strong operational delivery in our core business, comfort on the debt factor, Increasing investment opportunities, as well as the net balance of rising funding costs and regulatory protection, need to be fully incorporated into our mid-term financial framework. We will provide an update on future capital allocation and all related targets in March next year, along with our full year results. All our commitments are centered around growing the dividend by up to 5% per year also in the future. For 2022, we show that despite of extreme market volatility, we will deliver what we promised. You can rest assured that we are driven by the same ambition for our mid-term targets. With that, back to you.

Thank you, Marc. We will now start with our Q&A session. Please let me remind you to stick to two questions each. Let us start with the first question. The first question comes from Deepa.