E.On Se S/Adr

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.

Hi there. Good morning. I had the two questions. One is on the German regulation. Deepa, we can't hear you. Oh, sorry. Even now?

I will try to... Sorry, Deepa, just one second.

Okay.

Deepa, could you try again?

Yeah, can you hear me now?

No, unfortunately, we can't hear you. I'm not sure whether the others can hear you. So maybe something which we need to solve technically here. Just give us some seconds. I'm looking at our technicians. Okay.

Okay.

Can you hear me now? It seems like I can't hear you anymore.

Okay.

Technical support has a lot of buttons. But we still don't hear anything. So it's a lot of options to solve. Pretty sure we will make it.

Now?

Otherwise, if anyone has it on your computer, why don't you turn off your voice? It's on. Can you hear anyone else? I can still not hear people.

Okay. It's on. Deepa, can you maybe repeat your question?

So my two questions without any delay. One is on the regulated returns in Germany. Mark, I think you raised a great point raising it with the regulator now. Because clearly that's a point. So I just wanted to understand how the... Because obviously last October they gave the draft. You've appealed that in the court. But what might be this mechanism where they may be able to still make changes ahead of 2024? Because otherwise then you're stuck with a low rate till 2028. So what exactly might this mechanism work and how... How robust is it? And do you have sufficient support maybe, I don't know, from the TSOs and others who are also needing to invest? So that's the first question. Secondly, on the bad debt provisions you've made in the year, can you clarify what's the revenue that we should multiply it with? Is it the 63 billion revenues in the customer solutions or is it a different number? Because I'm just trying to see how much your EBITDA has been burdened year on year. by higher net debt, sorry, higher bad debt provision, but wasn't very clear what the revenue to multiply it with would be for this year and last year.

Yeah. So I hope you could hear me now. Okay, great. I just want to double check now. Okay, so I'll start with the second question. The revenues to compare it to essentially our customer solutions revenues and here largely the energy retail related ones. The contribution from our solutions business for the full year will be at around a billion euros. So you can subtract about 1 billion and then apply the customer's revenues. In terms of EBITDA in-pay, I can also just give you straightforward the number. The debt-to-charge in our P&L stands at about 400 million euros. Just comparing this to last year, this is about double the amount which we have seen last year. That's where you see where our steeply increasing revenues obviously then also feed through to rising death costs. That's why it's essentially so important to look at the relative metric, which tells you which has gone up 0.1 percentage points. That's kind of the buffer, the prunes we are putting in. On regulated returns... You know, the point which we are making here is essentially first that when the German regulator announced the framework back in October and November, they were already highlighting that, you know, if rates should rise, then they would have to intervene, given that in the German market there is no automatic mechanism. So unlike in other markets where we have an automatic inflation and interest rate protection built in, In Germany, this is not an automatic adjustment. So this is now a discussion with the regulator. There are mechanisms already existing. If you think about, for example, our equity return, which is composed of two different equity returns. in equity one and equity two return. If you are now familiar with the details of German regulation, then one of these equity components, for example for TESOs, is being automatically adjusted to changing rates. And this is, for example, something which we are now discussing with the regulator, given that we are, alongside the TSOs, heavily facilitating the energy transition in Germany. You know, we should be benefiting from the same automatic interest rate-driven protection on equity returns as the TSOs are. And so in that sense, We're not the only ones. We're very aligned with the TESOLs in that respect. But the message is also there are mechanisms which are already existing. They are just not automatically applied. And that's not a discussion with the regulator and why we expect, but are also confident that we will get to timely decisions in that respect.

Thank you. Okay, next question comes from Peter from Bank of America. Peter?

Yeah, good morning. Can you hear me okay? Yes. Excellent news. Good. Can I just ask a couple of questions about on your gas position. So I was reading that German household gas demand was down something like 40% in October versus normal. So I was wondering if you could quantify the benefits of gas sellbacks that you baked into your folio guidance, because I would imagine that those would have been pretty significant in the last month. And then looking ahead to 2023, I was wondering how much you could tell us about your hedging position for your gas customers. Are you already fully hedged? What assumptions about demand destruction have you baked into that hedge profile? And maybe if you could sort of indicate whether you bought a lot of gas forward for 2023 during the very high-priced period, I guess, during Q2 and Q3 this year. Thank you.

Yes. Hi, Peter. Thanks for your questions. Let me start with the Guest demand question. So indeed, we have seen in October significant reduction in demand, but for our customers, i.e. households and SME, this is predominantly related to lower temperatures. So we cannot at this point say what the underlying non-temperature driven heating behavior actually is because essentially the heating season hasn't started. So many customers just haven't turned on their heating. That's therefore not really a lot more visibility on how household customers do actually behave specifically in Germany. Secondly, in terms of economic impact, given that in this specific temperature-driven reduction at the beginning of the heating season, essentially what we have seen is that storage levels are full and lower demand has led to a significant reduction in spot prices. And so the impact from now adjusting our position during October has at the margin actually been slightly negative. It hasn't been actually positive. But actually, so far, nothing which creates any major concern. And keep in mind that we still have an unusually high contingency for the year. And we didn't have to touch that contingency yet. But it's not that now October has been a great benefit. Going forward, we now see that storage levels are coming down. And with that, we expect also further temperature-driven reductions. We'll not have this. same significant impact on spot prices, so that those dynamics will look different now in the remaining month of the winter period. On 23 and hedge levels, you know that for commercial reasons, we are not providing any details. We had told you earlier this year that for 22, we are fully hedged. I think the only thing which I would highlight is, you know, increasingly need to look market by market as we do see now the hedging behaviors in the different markets to also dynamically develop. Regulatory driven in the UK, we are on a shorter three months tracker. We've seen in the Netherlands market development to significantly shorter hedge positions and so on. For us, it's not so much the absolute hedge level, but it's how we are positioned relative to what we see in the markets. And you should rest assured that we will closely manage that relationship and hence we'll always make sure that's the ambition to turn out better than the rest of the tech in the market in the way how we manage our portfolio. That's great.

Thank you very much. Okay, next in line is Vincent from JP Morgan.

Hi, good morning. Can you hear me?

Yes, fine.

Okay, excellent. So, coming back from a couple of questions which have been asked, that's it. One, regarding the gas position into the winter, you say it's not getting short into the winter. If you were to clarify here, actually, is it that you have contracted above normal weather on demand for the winter just in case it gets cold and what type of volume should we be thinking of if that is the case. The other question would be related to Romania. It's interesting, we saw a cab extension in Romania which was a money issue in Q1. Now, we see another type of cap on wholesale, which seems to be an issue. And if I heard properly, you talk about high double-digit, million loss year-to-date. Could you give us a bit more color to understand the situation, especially, say, the expecting the government to intervene? So, more color on this specific one would be a good question. And... Finally, how does that relate to the bad debt division? We don't see customer behavior change at this stage. That is fine. But actually, we may be facing some negative margins. The government, in the case of Romania. I'm not talking all the governments. How do you deal with that?

Thank you. Yeah, Vincent, hello, and thanks for those questions. On your first one, the guest position, we're not going to be more precise to say that we are kind of not entering this winter period with a short position. And otherwise, obviously, it's a question of not swiftly adjusting positions depending on how customers demand. be it weather-driven or non-weather-driven, develops. And that then leads to, for every week and every month during this winter, to very specific views we take, which, for commercial reasons, I can't share. Sorry, that's repetition to what I told Peter, but I treat you fair, fair and equal. On Romania... So indeed, the Romanian government introduced earlier this year a cap on gas, and that cap worked out for us reasonably fine. And then at the end of the second quarter, they proposed an electricity price cap and implemented this then during the third quarter. It's about this electricity price cap now, which has kicked in, where the The same way they did it for gas. But unlike to what they did in gas, they, I would say, forgot about also then capping the wholesale price. So that in the current proposal, we would be running into a situation where over time our average procurement cost would be higher than the cap to retail customers. This is not something which is endangering Q3, but we're piling up now in Q4. And this is something where we have been fiercely opposing and expect the Romanian government actually in due course, actually expect that to happen next week, to bring up an adjusted ordinance which recalibrates what they've done on electricity to a more rational setup where electricity prices will be kept for end customers, but where there also will then be an effective wholesale price cap or compensation for the suppliers. And that leads me to a third question. We see all governments across our markets, and also the Romanian government has been very open to those points, and all other governments are very clear that any intervention shall not and must not lead to a situation where supply margins start to get negative. And in fact, if we see at interventions in the UK, in the Netherlands, in Germany, And in other countries where those mechanisms are still in discussion, the governments are all in the same direction. It's about providing relief for customers, but not fundamentally messing up with a competitive retail setup. And hence, what we do not see is kind of unfair intervention when it comes to retail margins, which can and should be earned if you want a competitive marketplace to stay in place during and after the crisis. So Romania, in that sense, what has happened now in the third quarter for us is an isolated view, while we also now have raised that specifically. It's something which is a red line for us, and this is the way how we've also been approaching this with the Romanian government.

Okay. Next question comes from Piotr from Citibank.

Hello, everybody. Can you hear me well?

Yes, fine.

I have two questions, please. So the first one will be on the UK supply. I remember like two years ago, you were struggling with profitability and gave a hundred million British pounds EBIT target. And now you are after three quarters at over 400 million. So I just wanted to understand what went better than your original expectation and how you think about sustainability of this margin going forward. Maybe there are some sellbacks, but you know, thinking about 2023, where, you know, would you expect this to increase, stay flat, or decline? And on Swedish disposals, is there any update on this one? It's a second question. Thank you.

Yeah, so on Swedish Disposals, no new update. We are specifically looking at adjusting the portfolio on isolated specific assets. That process is ongoing. We will inform you as usual once we come to a signing. And should we come there, you will immediately, of course, see that we will inform the markets. When it comes to the UK business, the target, which you mentioned, is absolutely right. It was a very important milestone, but that was an EBIT target for last year. And the business was expected to dynamically develop forward. Specifically, we highlighted that last year that was just the benefit from restructuring the Empower business. And we always said that we continue then to restructure also the legacy platform of the Aeon legacy operations. And so you see this year another significant improvement from restructuring efforts of our legacy Aeon platform, as we have beginning of the year successfully migrated all customers onto the new platform. And you also have a relevant amount of depreciation also in our UK market. I just was trying not to look that up in full. Maybe the colleagues can help me out with that throughout the call. So essentially, the 100 target on EBITDA level probably was about a 200 target already last year on EBITDA level. And what you see this year is, first and foremost, continued restructuring successes from replatforming. Keep also in mind that the fourth quarter in the UK historically had been a loss-making quarter in isolation, and we expect the same to apply to this year's fourth quarter. And given that prices are significantly higher, that seasonality of negative earnings will also be more pronounced. So just be a caveat on when you extrapolate now what's going to happen on a full year basis. In the UK, earnings for the full year are expected to come down and actually more meaningfully than they came down in Q4 last year.

Can I just ask if you can comment anything on the, not specifically on valuation of your disposal, but on what you see in the markets. We've seen more In the last two, three years, some of your competitors were selling at a crazy multiple of some of the assets. Let's not mention names, but these were over 20 times CDFDA. When you think about your assets, do you see the level of devaluation in the market among the buyers somewhat moderating, or you could still require a rich valuation from your asset? I'm not asking about specific values. benchmark or anything like this, but just whether the market is lower now compared to what it was two years ago.

And it's an absolutely fair question, and I'm very happy and willing to discuss the questions if and when we come to signing and with that to concrete results. And then I'm happy to discuss with you our decision whether or not to do something. I hope you understand. Okay.

Now we have Louis from Adobe AF in line.

Yes, thank you very much. Good morning, everyone. Can you hear me?

Yes.

Thank you. Two questions on my side. Indeed, maybe a follow-up on the UK and also on the Benelux regarding customer solutions. Indeed, these two regions have posted pretty nice returns for this year in a difficult environment. my question would be there what could be considered to be recurring and eventually what could be extracted from the energy infrastructure solution on these regions uh and if there is something that could be seen as a bit recurring in the longer terms for this uh quite nice performance that we have seen until now i understand that the q4 is going to be tougher for the uk but i'm more looking a bit a bit later on on these uh and these elements but A second question would be on the guidance 2026. I know it's not time to revise it, but we can't refrain to see that the financing cost is rising more likely. We see that there is the equivalent of 10 billion of debt that will have to be refinanced by 2026. If we take a normal assumption of current interest rate, it means that At the financial cost level, we're going to be at 300 million euros more likely of additional cost that was not expected in your previous guidance after tax, maybe 250. That means 10% of EPS 2026. So negative impact. And you have confirmed your 26 guidance EPS. So my question would be the following. Considering that you don't have yet the information on what is going to happen on the German silent network aspect, do you feel comfortable enough to confirm this guidance? Because the other drivers of performance and the normal optics that we will see with inflation at the EBITDA level in the network is going to provide enough room to confirm this target, at least at the net income level. And eventually, if you could have even room to eventually improve it, considering what we see on the inflation trend. Thank you very much.

So we, as I said, we will come back with the full results then with a new target set. And so I can't now preempt it and say we confirm or don't confirm. But what I wanted to note is that there are parts moving. That is clear, and you also now mentioned specifically the interest rates, and I think your broad-back assumption is not so far off from what we see. If you look at our bond portfolio maturing and refinancing, if you then just do the simple net, But on the other side, we also see considerable positive effects from regulatory mechanisms where the income side is immediately reacting also, i.e. we're getting higher allowed returns, which has a compensatory effect. And beyond that, it's also a question then whether and when we want to invest additional capex, i.e. how we want to make use of the additional financial leeway which we have now thanks to rising interest rates on our economic net debt. And I think the message which you should take away is that the components may look different. The outcome may just be the same. But it's not that I, from today's point of view, confirm or not this is what we will be doing in the full year. What I can just tell you is the components will look different. economically maybe the same outcome. First question was on recurring level in customer solutions. Well, indeed, so you should not be looking at our UK operations as just being energy retail. We have already today a relevant energy infrastructure business and we also actually have a relevant and very successful services business in that. The earnings contribution, which have therefore a recurring nature, out of my head, are a low three-digit million euro EBITDA contribution. So I would say we're happy to confirm that subsequently. But I would say it's about 25% of our UK earnings. 25% to 30% is not associated with our B2C retail business. Thank you very much.

Next one is John from RBC. John?

Yes, morning everyone. Morning. Two questions for me as well. So on bad debts, you did mention that there are no significant changes as yet, but you were ready to take, I think the phrase was appropriate, countermeasures if needed. Can you perhaps give some colour on the measures that you have in your arsenal at the moment? Yes. And then secondly, not wanting to get any change to longer-term guidance, but given the demand reduction targets that are in place from various governments across Europe, it could be that they end up with some stickiness around lower demand from consumers over time. And have you at least started to think about what that may mean for your customer solutions business?

Yeah, if I start with a second, John, welcome. I think it's too early to say, but given that our portfolio is also in the customer solution side, is significantly molded to the electricity side, we first of all continue to look at a clear trend of rising electricity demand. So we expect gas to be substituted with electricity and electricity will be on the rise. Secondly, Historically, from a household point of view, at this stage, we do not expect once prices normalize that there will be significant change on customers' price elasticity. So once prices come back, I do not expect actually lasting change in behaviors on customers, except for where people are now economically incentivized to change from gas boilers, oil boilers, to heat pumps, covered with solar PV, which again for us is business in our solutions, is growth in our solutions business. So net growth this acceleration of the energy transition for us will be a positive earnings contributor. It's something which is a positive framing even with a changing mix. And on that, I think you should not underestimate, we are following these changes in regulation day in, day out, and you will most likely also. For many consumers, this sometimes becomes a jungle. So if you ask, what is actually, what is the pre-domain focus and preparation? With every change in regulatory framework, we significantly need to educate and retrain our call centers. We also are then preparing proactive communication to our customers because very often, Customers are not even aware of what the help mechanisms are. And quite often we have inbound calls. People have a question, but the solution is actually that they are being redirected to an offer which is already there by governments or social institutions which provides relief. I hear now some beeping here in the line, which may have come from somewhere. I wasn't sure if it was just me.

No, no, no, we can hear it too. Sorry for that.

That's okay. Thank you for your answers.

So next one is Sam from UBS.

Hi. Good morning. Thank you for the presentation. Let me check you can hear me. Good morning, Sam. Hey, good to see. And thanks for the presentation and some very good clear messages today. I just have two questions. I guess one is easy, one is maybe a bit trickier. The easy one is, Coming back to, I think, the question Deepa asked about just the quantum of sales in the retail business. And I think if you add up the nine months, it's about 60-something billion. So I guess maybe on a full-year basis this year, heading for $85 billion direction. And then I'm just wondering if prices sort of stay at the end-year level through next year, what would you be expecting on total sales? sales from the retail division. Are we going north of 100 billion next year? I'm just trying to get a sense of that number. And hopefully that's easy. And then the second question I wanted to just check your thoughts on is this very interesting comment you made in the release about the extra profits you might have made in generation and recommitting those back to energy transition investments. And I just wondered if you could say a little bit more about How are you going to manage that and present that? I suppose the idea is that that might protect you against governments trying to claw back those profits. But will you be kind of hypothecating generation profits against specific projects that you want to do? Or will there be a sort of one-time increase in the CapEx guidance based on how much more money you make in generation? I'm just wondering how you're thinking about that. And then anything else you could tell us, that'd be really helpful. Thank you.

Okay. So, let me start on revenue audit. Honest answer is That depends, and it mostly now depends on at what level will price caps be implemented as they will effectively then also keep our revenue line. And whether or not therefore our sales will turn three-digit billion or not is a question which will depend from where will price caps at the end be calibrated and for how long will they be applied next year. That's that.

Sorry, the second question was on... Sorry, Sam, your second question.

Sam, you made a comment about any extra money you made in the non-core activities in generation, basically. You said you'd put that towards extra capex in energy transition stuff, which sounded like a good idea. We heard something similar from SSE. I think it's a good logic for the sector as a whole, but I'm just wondering how you're going to present or manage that. Are you going to allocate specific projects to the extra cash flow? How will we see that?

I think it's obvious that any return which should be coming from that end will be reallocated to it. It should not come as a surprise, and then you would see this as an increase in capex. But secondly... You should be realistic about that with the current discussions, which in Germany are about a win-for-profit tax, i.e. taxation of excess revenues for low marginal cost generation, that this will also apply to nuclear operations. And so while we are clear in the agreements with the government that extending the lifetime or the operation by some month should not expose us to any losses, I would also not expect that we will see an enormous positive impact from that on the next line, just given that there are clear initiatives now to address the topic of excess earnings for low-margin production technologies. So I think you would see it in CapEx, but the impact may, from that end, not be too big anyhow.

Okay, so if I may, just a quick follow-up, because I suppose the reason I'm asking is, I mean, you've reconfirmed guidance today, but with a sort of different mix, a bit more from non-core and a bit less from core for this year. But then if there is extra cash flow from the non-core, it goes towards CapEx. So does that suggest that there's a little bit less there to fund the dividend growth for this year? And consensus is a little bit optimistic about the dividend growth.

As I said, I think there is... Forget about any of this kind of thought, which you're following there, in the sense that from whatever we say on non-op, what we basically say is, our non-core will only be non-op. And regardless of that, there will not be any material financial impact coming from that end anyhow. And so all speculations in that respect, I think, are completely... In that respect, you can make your life much easier. Okay, very good. Thank you.

Thank you, Sam. So next one is Ingo from Kepler.

Yes, hi. Sorry, morning. I have two questions. First, it's been answered before, Mark, and I don't know if you can really answer that, but I'm giving it a try. We have a 76 to 78 billion guidance for this year. We have a very similar guidance for 2006, and I guess We can only give a 26 guidance if there's an idea of the intermediate stages of the development. I was just wondering if you can give us, I don't know, a kind of clean plate figure for 2024. Best guess, without all the recovery mechanisms, we do have some recovery from the coronavirus pandemic, not from network losses. It's all mixing up. So what I want to say is between now and between 26, there's so many moving parts meanwhile. But I think for us, it's very hard to work with that and get to whatever we think then might come out for 2026. I understand the complication of giving a precise answer, just fine. My second question would be on your CapEx program of 27 billion. Has anything here changed this year since your capital markets day with regard to the volume, different equipment prices? or also the general return environment, which in some areas of the sector is actually distracting interest in some investments because just alternative returns are starting to be better elsewhere. Just wondering what you think about that CapEx budget in the context of the changing environment we're in. Thanks.

Yeah, so on the first one, I then have to disappoint you. I cannot provide you more transparency on the CleanSlate 24 number, but what I can tell you is that actually in 2022, despite of all turbulences, we are actually delivering, you know, bang in line with what we expected. And if you kind of, for that you just need to ignore these temporary effects in networks, which will come back in future years and We also talked about customer solutions, where we are now at nine-month stage, we're fully in line and have even increased our risk contingencies for the final quarter. It usually just takes a lot of comfort that even in those turbulent times, we are able to deliver on our targets. I think that is that comfort you should take away from today's call. Otherwise, as I said, the components, how to get there may change. Secondly, on the 27 billion euros, this year, no impact. So we have been able to manage kind of on a unit basis our CapEx plans that we had. So there is no impact, materially from any shortage or not yet any significant price increases. That's something which we're obviously looking forward to. And that's what I talked before. This is a question also about what is the allowed return framework, which we see. You know, where is it that we want to pursue the same unit framework? Well, do we want to increase, actually, the units installed and invested? And where we want to increase in real or decrease in real versus then times inflated prices achieve a certain euro amount of capex. And this is something which we are looking right now at, and that is part of the changing component. It can be changing mix and where we invest, when we invest. and to what that will ultimately mean. You should be rest assured that we will strictly optimize all those questions with a clear eye on that we have a commitment to grow our dividend. And that is where we feel committed to.

Thank you, everyone. Unfortunately, we are already at the end of our one-hour call, so we will come to a close. I can see that there are some questions remaining, and we will get back to you from the IR team on these further open points. Thank you, everyone, and have a good day.

Thank you very much. Take care. Stay healthy. Bye-bye.