E.On Se S/Adr

Hello, everyone. Dear analysts and investors, welcome to our nine-month results call. Thank you for taking the time to join us. Today, I'm here together with our CFO, Marc Spieker, who will give an update on our financials. As always, we will leave enough room for your questions after the presentation. With that, over to you, Marc.

Thank you, Iris, and a warm welcome to everyone from my side as well. With our nine-month results, we continue to deliver strong earnings in both our businesses, energy networks, and customer solutions. On top, we have progressed very well on the execution of our CapEx acceleration plan. Let me take you through the highlights of the third quarter step-by-step. First, we are successfully ramping up our delivery capacity in our energy networks business. In the first nine months of this year, we invested 40% more year over year. And with that, we are ahead of our own delivery targets for the first three quarters. This outperformance enables us to increase our target for the full year. We now expect to invest €300 million more in our energy networks business compared to our originally communicated target. More importantly, This achievement sends a very strong signal. We are ready to scale up our CAPEX program even further and meaningfully in the coming years if regulatory conditions set the right economic incentives. Second, organic growth and operational excellence have been the cornerstones of our strong earnings delivery also this year. The solid execution substantially de-risks the delivery also of our mid-term targets. Third, we grow based on an increasingly healthy balance sheet. As promised in our H1 call, we managed to lower our economic net debt to around €34 billion in the third quarter, based on seasonally strong quarterly operating cash flow. Our strong balance sheet provides one of the preconditions for further organic investment acceleration in the future. Finally, we confirm our 2023 earnings outlook while increasing our capex guidance. We keep a cautious stance on our assumptions for the remaining winter month, or maybe I should say weeks, maintaining a sizable earnings buffer. For our investors, this means we will deliver financially whatever comes. And if nothing comes, we will deliver more. Let us now look at the details of our nine-month earnings on page three. Our adjusted EBITDA came in at 7.8 billion euros, roughly 2.5 billion euros above the prior year's nine-month core EBITDA. In our energy networks business, growth came mainly from capex-driven RAP expansion in all countries. Additionally, in Germany, we're still seeing temporary upside from lower than expected redispatch costs and other timing effects. As explained in the past, all of these effects, economically neutral, will turn back over the future years, as explained. In Europe, we observe the continued recovery of network losses, which has been only partly offset by lower than expected volumes in some of our Central Eastern European markets. In the customer solutions business, we achieved an adjusted EBITDA growth of around 1.6 billion euros. This significant year-over-year increase contains both recurring and non-recurring elements. When it comes to the recurring effects, we observe an improved market environment throughout Europe. Our fast adaptation to volatile commodity markets, including our energy procurement optimization activities, is changing the way we operate in retail. Supported by churn rates that remain well below pre-crisis levels in most of our markets and a slower market reopening, our nine-month EBITDA looks distinctly strong. From a non-reoccurring perspective, we also see certain positive one-off effects that we do not deem sustainable. Back in March, when we shared with you our midterm ambition to gradually expand our earnings in our energy retail business in an environment of higher and more volatile commodity prices, We guided for a mid-term EBITDA level of 1.5 to 1.7 billion euro. We are seeing now that a material part of this expected earnings expansion is happening much earlier. Our energy infrastructure solutions business is slightly ahead on a year-over-year basis despite unfavorable foreign exchange developments. We remain excited about the underlying growth path of this business. Especially the current momentum in the heating transition will lift energy infrastructure solution to the next level. This is a sleeping giant that will now gradually wake up. We are ready to deliver on the promised growth rates with a fully packed project pipeline. Consequently, we aim to further improve the transparency of this business activity. From 2024 onwards, energy infrastructure solutions will become a standalone reporting segment and will represent our third strategic business pillar next to energy networks and energy retail. Adjusted net income is essentially driven by the positive EBITDA development, resulting in a year-on-year core adjusted net income increase of more than 88.0%. Below EBITDA, there are no special items. For the full year, we expect interest expenses slightly above €1 billion. Bottom line, we achieved an adjusted net income of around €2.9 billion in the first three quarters, which is already at the upper end of our full year guidance. Turning over to economic net debt. First, the strong Q3 operating cash flow should not come as a surprise. It reflects the usual seasonal pattern in our business model. Overall, we still expect a cash conversion rate of close to 80% for 2023 before we will go back to around 100% in future years. Second, we accelerated our investments into the energy transition. Our group is ahead of plan by having invested roughly 40% more after the third quarter on a year-over-year basis. Due to seasonally high investments in Q4, we still expect economic net debt to slightly increase until year-end. Yet, given the strong outturn in nine months, we now narrow our full-year economic net debt expectation to around €36 billion. In that guidance, we keep an ample buffer for margining effects, and we continue to manage our working capital tightly. And in that sense, it should not surprise you that all of our businesses are extremely eager to even beat the €36 billion END by year-end. To summarize, we have sufficient debt capacity and market access to fund our growth plans. Our solid balance sheet can be translated into an expected debt factor of around 4.1 times at year-end. Additionally, Over the years, our debt capacity will further increase in absolute terms due to our growing EBITDA. These are some of the reasons why Standard & Poor's speaks about, quote, ample rating headroom in their rating report from July. This makes us confident. If regulatory conditions do set the right economic incentives, we will be able to further scale up investments well within our current credit metrics for a strong BBB BAA rating. Finally, let's turn to our outlook. Three messages. First, we are expecting to be at the upper end of our already upgraded guidance, but we are explicitly not upgrading our earnings guidance at this stage. Second, We maintain a sizeable buffer for the start of the winter, which, as you may have noticed, has not yet arrived. This buffer relates mainly to our customer solution segment and now stands at around 300 million euros to cater for a potential reoccurrence of the energy crisis. Third, fundamentally, we are turning more and more positive on the mid-term performance capacity of our energy retail business. We are confident that at least half of the 500 million euro guidance uplift from first half can be regarded as sustainable from this year onwards. With this, we will be operating in an earnings range of 1.5 to 1.7 billion euros in energy retail from next year onwards. In my view, this is one of the most important and comforting messages for today. Moving on to our capex forecast for this year, we have been very successful in ramping up our capex in networks. We now expect a total capex spending of 6.1 billion euro for the full year 23. And finally, we are ready to further scale up our capex program in the coming years if regulatory conditions are set at the right level and set the right economic incentives. I know that all of you are waiting for concrete updates on the regulatory development, specifically in our main markets, Germany and Sweden. We promise to give a comprehensive update on the regulatory packages with our full year update in March next year. This timing is unchanged. Thank you very much for listening, and over to you, Iris.

Thank you very much, Mark. And with that, we will start our Q&A session. Please let me remind you briefly as every time to please stick to two questions each so that everyone or most of you have a chance to ask questions here. Let us start. The first question comes from Michael Becker from HSBC. Michael, please go ahead.

Thank you for taking my questions and congratulations on these strong results. I think I will stick to one question as it has some sub-questions attached to it. I believe your normalized Q4 net income could usually be around 200 million. Could you narrow it down, the moving parts for us here, why your full year guidance basically implies a close to zero Q4 net income? What are the negative effects that you might be expecting? What are your expectations on minorities perhaps? And why did you choose to retain the risk buffer as it is? Thank you.

Yes, Michael, thanks for those questions. Let me start with the last point. So we, I'm not sure whether I got you specifically wrong, we did not decrease, we further increased actually our risk buffer and basically we now just didn't change our guidance. It's six weeks to go. Let's see where this winter goes. As I said, that's the size of a buffer, and if nothing happens of extraordinary nature, you should assume that this will feed through to our alternate income line in the last year. I think that also gives you the answer to why is now the remaining four quarters somewhat different if you look at our guidance or our nine-month delivery versus the remaining year. I think you're ballpark right that typically you should assume a contribution of another two or 300 million in the fourth quarter. And what we implicitly guide for now is basically a negative contribution against kind of a normal level of 600, 700 million. It's pretty straightforward. We have the 300 million odd buffer, which we simply have included. Again, if nothing happens, we will see a different performance in the fourth quarter. And secondly, we were clear in our H1 communication that, you know, we take responsibility for our customers and will implement price decreases with wholesale prices coming down. And, of course, when we then do these price adjustments, we do not only look at a single quarter outcome, but obviously we take a look at our procurement position also already for 2024. as we don't want to kind of continuously run into price decreases, increases, and so on. And so to a certain degree, you do see a compression in margins, specifically in Germany in the fourth quarter, which is simply a reflection of price increases. If you take a look at our procurement position for 24, you come back to what I also then said in my speech, that our sustainable margin level going forward will be significantly higher earlier than we expected back in March. So in that sense, Q4, I would say it comes across a bit technical, but fundamentally, sustainably, the margins in energy retail look really good. Not sure what I missed out. Minorities. Look, relatively high is of nine months. They will come down. It's a bit technical issue of earnings composition across businesses. So we expect that one actually to come down by full year.

Thank you so much.

Thank you, Michael. Next question comes from Harry Weibord, Exxon. Harry.

Hi, everyone. Thanks for taking my questions. Firstly, on customer solutions and retail, so you talked about bringing forward effectively an improvement in EBITDA there, but is it really only bringing it forward? Because presumably in your plan you had initiatives to improve margins, add services and so on structurally over the next few years. So maybe to challenge you a little bit on it, is this really just bringing it forward or is the actual long-term impact? you can get your EBITDA to, by say, 2027, actually improved here. And then secondly, I just wanted a bit more of a long-term question. I think on past conference calls, you mentioned that the strategic review that you do for the results, you might look at the dividends. And I guess you just mentioned or highlighted the hedge room that you think you've got and what S&P said and so on. Are you still thinking about the dividend or do you need to do anything on the balance sheet to accommodate higher growth in a high growth scenario if you do get the returns you want? You know, should we be thinking about whether you need to trim the dividends or look at finding equity somewhere or make disposals or do you feel fully confident you can fund a high growth trajectory without any disposals or balance sheet action? Thanks.

Thank you, Harry, for the questions. Let me start with the second one. Of course, we always think comprehensively when it comes to our financial framework, but we are also crystal clear with regard to one commitment, and that is A, to annually grow our dividend per share, i.e. every year our dividend per share will grow. And yes, we kept the growth outlook at 5%, so it will not grow more than 5%. But our investors can rely on that this commitment will stay untouched. And otherwise, we are looking at everything and should the economic incentives be right for further capex, of course, that would rather favor than capex. If not, that will then pose other questions and from us then definitely also responses by March in terms of how we will then allocate capital. But the answers to that then, as I said, will come in March. And I can't now speculate and deliberate more on that as we are still awaiting for the final determination also of the regulatory parameters in both Germany and Sweden. For today, you should kind of take what I said, that is that this margin improvement will come earlier. Again, I just want to put things in context. At the point in time where we articulated that ambition in March, we still, you know, were in an environment of high volatility, you know, high uncertainty about how would price caps be continued or not, when would markets actually reopen or not. And so while we were clear about the fundamental opportunity to expand margins in that environment, you know, there was a high degree of uncertainty about the timing. And I think that's the strong and positive message for today. There we have much more visibility that will come earlier, and whether that will give room for more that will come in March for today, you know, the message is it will be earlier. I guess that covers your two questions.

It does. Thank you very much.

Thank you. Next question comes from Alberto Gandolfi from Goldman. Hi, Alberto.

Thank you so much. Hi, Alex. Good morning, and hi, Mark. Thanks for taking my two questions. I'm not trying to be confrontational, but I'm trying to understand here how cautious E.ON is being right now. So going back to 2023 guidance first. I actually figure out the normal quarter, given the current condition, from a bottom line perspective, is more 350 to 650 million. So I think, Mark, what does the buffer you talk about relate to? Is it against, again, energy crises and high gas prices? And if so, we have just seen half of the quarter. So... And we have pretty good weather forecast for the next two weeks with 99% storage fill rate. So if you were to give a probability-based approach to this, what do you think is the probability that actually you need to use in the second half of the quarter this buffer? And was I right on the 350 to 650 assessment, please? That's just the first one. Thank you for your patience. The second question, thank you, Mark, is... I know there's a lot of moving parts in 2023, you know, dispatching profits, some one-offs from the UK, just to name a couple. But E.ON is broadly achieving its 2027 target four years ahead. And this is remarkable, so in my opinion, but also, is E.ON now going to be an ex-growth company? no growth to 27, or are there perhaps levers that you're going to discuss the full year results? CAPEX could be one, allow returns. Are there levers that we, as a community, should be thinking about so that we do not consider E.ON as an ex-growth company? And thank you for indulging.

Yeah. I don't perceive this as confrontational, so I can take away your worries. It's a fair question. So, look, on the second point, of course, as a management team, we are not running with the ambition to have an ex-growth company. Of course, we are looking to continually grow our company. However, our investors can also rest assured about that we will be very disciplined when it comes about the efficiency of our capital allocation. And in that sense, yes, that's a segue to our full year results where we will then release. But, of course, you should assume and the market should assume that we will not just kind of sit and relax and looking at an ex-growth company but want to achieve more. And with regard to the first question, look, I wouldn't now over-analyze and overthink our guidance and communication in that respect. What you can rest assured about is that we are very transparent, and so you have the 300 million euros, and we will then tell you in March where it ends up. I think, again, where – and what the market should take away from today – whatever is now going to happen in the fourth quarter, it should be from an aggregate financial outcome, it should be regarded as a one-off. So this will not change the tectonics of our sustainable margin delivery beyond what I said, that the 1.5 to 1.7, so this 300 million lasting increase in margins will be delivered much earlier. And in that sense, I will not overcook now and overthink now. Take what we communicate. And as you said, it's just six weeks to go. So you can observe the marketplace as well, and you will probably then understand before we communicate even what likelihood is where the $300 million should end up. I think that's what I would say about the Q4.

Thank you so much.

Okay. Next question comes from Bartek from SockGen. Hello, Bartek.

Hello, good morning. Thank you very much. Two main issues to discuss. Firstly, on the CapEx guidance, I just wonder how much of this 300 million is coming from just inflation and how much is coming from a real sort of amount of work being processed. And consequently, how does it look from a regulatory perspective? Is all the increase in capital going to be included in the wrapping? There's no issues to include it, or there are issues to include the capital in wrap, or there are delays in it. And then, secondly, on maybe your hedging in the supply business, I just wonder how hedges have been performing so far in the nine months, given the fact that probably the power demand around many countries is significantly below last year's. So consequently, you may be a seller of your hedges on the market. So maybe you can comment on this one, whether this is indeed the case and whether you are actually gaining money on this or losing money on this. Thank you very much.

Bartek, thanks for the questions. On CAPEX guidance, is it now nominally real? It's all real. So the 300 million is real assets and not an inflationary effect. And, yes, it's all going to be WRAP effective. This is how our various regulatory regimes work. It's kind of with one-year time lag. So from next year on, what's then also earnings effective? On the hedges, you know that we don't like to talk about our hedging activities, and that's why I'm a bit limited in what I can say about that. I think what you will understand clearly is that against higher prices and increasing volatility, flexibility in how we manage our procurement portfolio is much more important than it was in the past. And I guess that background, I'm very confident that with, you know, the excellent performance that we have demonstrated during the last 18 months in managing and handling that volatility and to flexibly adjust end-to-end our portfolio from procurement to the way how we price and acquire customers, that we will continue to manage that very well. I can't make it more specific. Sure, thank you.

Okay, turning to the next question, which comes from Piotr from Citi.

Hi, good morning everybody. I have two questions. Firstly, I wanted to ask you about your supply business. To what extent do you want to go to your customers and maybe change the terms of the contracts and there's a willingness on the customer side to extend kind of a contract event right here, right now with the high margins into more like a longer duration contract and potentially spreading the next year margin into more like a three-year contract and that's the way you could maybe shift a bit of a margin into the future periods. Is there any process like this going on among your customers? And second, when you talk about the structural change of the supply market, I just wanted to ask you about uh you know what is different when you go into attenders for smes or larger customers in a sense that uh competitors don't have a balance sheet there's less of a competition and then how that translates into a a margin per megawatt hour or a margin percentage in the current contracts versus let's say free crisis level yeah um thanks for um

For the questions on the supply market, your second question, our general view is unchanged. If I look at what the value is that we can create for our customers, from that we derive that across the board, a 3% to 5% revenue margin is something which you have kind of to demand in order to make it actually a reasonable risk adjusted business case. And that's what we expect across the markets to materialize over time. Because some markets are not there yet, some are there. And at what stage markets will be trending rather to the upper end or the lower end is in a very specific discussion. On the other side, I would also say that in the current configuration where it is only about providing basically a commodity solution, there's also a certain limit to what margin you can ask for. That said, we are, of course, working on solutions which provide for a higher margin potential while we are focusing on e-mobility offerings, while we are looking at and what we call future energy home offerings, where we do see that margins, that customers are A, stickier, and B, where revenue margins go up to 10%. And so our view is kind of strategically we are working on beyond kind of normalization of retail margins, of course, in expanding the average margin, but that will require that we will also expand over time the complexity and value of our offers. On energy, retail context, terms and context, it's not – I understand where you're coming from. That's not how the business works. So it is about being very agile and receptive in the markets about what is it that our customers want. And it's not at any point in time that our customers want three-year contracts, and there are certain phases after reopening of the market where actually you have a lot of customers that are asking for a one-year contract. And then you're actually better at focusing all your sales activities at serving that demand instead of trying to sell a three-year product, which no one wants. And you basically need to invest too much into acquiring the customer, which then may look like nice on a commodity gross margin. But if you look at the cost to acquisition, it's actually not a great deal. And this is kind of this end-to-end optimization. It's not only about kind of – and that's where I understand your question comes from. If your procurement position now would be great to lock it in for three years, well, that may be the case. But if I don't have a customer and acquisition channel open for that at reasonably attractive rates, I'm not going to play that product. And this dynamic optimization of our procurement position, channels, products that we put in, and the relative pricing of one or three products to each other – it's much more dynamic than I would just be looking at a procurement book and then say, well, now it would be a good time to sell it for your product. Okay. Thank you very much.

Thank you. Next question comes from James Brand, Deutsche Bank. Hi, James.

Hi. Hi. Well done. The good results. A couple of questions. Don't take them as gloomy questions. It happens to be hours I want to dig into. The results are great. The first one is on the buffer guidance. So you're now saying 300 million buffer, but you were previously saying low to mid triple digit millions, and you've had a great Q3, certainly ahead of all of our expectations and possibly ahead of your own. So maybe you could just explain the moving path there, because it would seem like there could be more upside to guidance than 300 million buffer. And then secondly, on EIS, VAT delivered 4% growth in EBITDA at the nine-month stage in spite of quite a big investment program. So maybe you could just discuss the kind of movement parts there and whether you expect growth to be picking up from this level going forward. Thank you.

Yes, James, fair question. On the buffer, yes, it has been another successful third quarter. I talked about that we have now implemented price decreases in our most important market, Germany, so there will be a margin compression in the fourth quarter, so keep that in mind. And secondly, we are not changing our – risk appetite when it comes to other factors. We talked about, you know, our approach to debt provisioning and so on. So we continue this cautious prudent stance on those elements which we haven't now addressed because we've been talking about those not-for-quarters. But we continue to do, to manage all those elements with the same risk appetite or level of prudency. On the 4% EBITDA growth in our energy infrastructure solutions business, The 10% annual EBITDA CAGR stands. So underlying, that growth rate, which is larger than built on our investment program, continues to play out also this year. We have just two factors that are partly overlaying this. Number one is that This is not actually on growth, but we have an existing heating business in Sweden. If you look at the Swedish krona relative to the Euro, so we have some FX losses on a year-over-year basis relative to our Swedish position. So that's kind of non-operational. It doesn't worry me. It's underlying the same dynamics. Secondly, and we talked about that in previous quarters, You know, we are running in this business thousands of flexible assets, and there is a certain flexibility that basically is – which doesn't belong to our customers, but where we have an opportunity kind of to manage and monetize that flexibility. And, of course, there's been a great window of opportunity to do that during last year in the extreme volatility and high prices. And that's why this part of earnings is coming off a little bit this year. So we're making less optimization earnings on this part of the flexibility which we have, which from an investment point of view also, if you look at our IRRs, it's just upside. So we don't bake this and assume this in order to achieve the 7% to 10% IRRs that we have as a hurdle rate. But if it happens, like last year, it's great. But then it looks kind of on a year-on-year basis like lower income, but underlying the 10% growth is intact. Our project pipeline, by the way, for the delivery next year is fully loaded. So basically, we have locked in the growth for next year at this stage more or less completely. Great. Thank you so much.

Thank you, James. You're welcome. Next question comes from Sam Ari from UBS. Hi, Sam.

Hi, everybody. Thank you. I've got two questions, if that's okay. One is relatively straightforward, one just a follow-up on the prior questions about Q4 and, you know, your comment about whether something, you know, if something bad happens in Q4. And as you also mentioned, we're kind of halfway through Q4 already, so without wanting any sort of detailed commentary on the quarter, just a high-level question is, can you say whether something... bad has already happened in the first half of Q4 and you're waiting to see if it bounces back or there's nothing bad happened so far and we're just being conservative about the second half of the quarter. I think that would be really helpful. And then my second question, if that's all right, I just wanted to dig into a bit of a wider topic and I hope this isn't too abstract, but it feels to me that we're on the edge of a debate coming into the sector about CapEx and balance sheet and looking at next year. And I'm just thinking about where we are in results so far. We had four of them last week. They cut their CapEx plan by a third, even though they've got no leverage at all. People are wondering about Enel and Endesa, what the CMD will hold if they're going to dial back CapEx a bit as well, just to be cautious. Engie yesterday was kind of in the middle. They said they reconfirmed their CapEx, but they had flexibility to reduce it if they needed to. And so I'm just wondering if, as a management team, this is a debate that you're actively having at the minute, you know, thinking about the economic uncertainties for next year. What happens if rates come off again? What happens to the economic debt? Water fever is a bit lower, maybe due to timing effects and so on, and capex is a bit higher. I mean, I suppose if I summarize, what I'm asking is, are there any scenarios next year where you would imagine having to dial back the capex rather than ramp it up?

Yep. All right, Sam. First question on the buffer, I can make it, it's a buffer, it's not a stretch, so nothing has happened, period. Otherwise it wouldn't be a buffer, I would fall in the stretch. Then on the second one, look, I take this as extremely positive that, you know, you're wondering about and are eager to understand what the next March communication will bring about, so that's good, stay tuned. You know, generally, first of all, the energy transition is a huge investment opportunity for us, point number one. Point number two, yes, of course, as always, it's also about the economic returns and incentives that are being set to do this. And this is then ultimately also what's going to be decisive for our decision-making about what is then the right timing of investment. So I think instead of portraying, you know, whether there is an opportunity or not, the opportunity is there, it's huge, and it's more a question about what is the phasing and the timing. And in that sense, I think we are demonstrating that we are ready, we are making extremely good progress, and that's why we are stressing that so much in increasing the delivery capacity, of our organization. That's a huge optionality that we now have. And we will come back in March to what degree we will then make use of that optionality. But for sure, if we make use of it, the option value will be positive.

Okay, forgive me, just a very short follow-up. Should we take away then that the CapEx planning is really independent of the economic backdrop? You don't see any economic scenario in which you might get nervous about, not about capability or returns, incentives and so on, but just about balance sheet capacity?

Look, as many or most things in business, it's multi-causal, multi-factorial. If I tell you the unbroken boom in network connection requests which are coming from the solar side, which are coming from the heating side, Then, honestly, the last thing that I'm worrying about is that there is a lack of customer interest for what we have on offer. But, of course, the general question then about affordability and, you know, how fast you deploy certain things, that's a relevant question. But this does not put a question mark under our fundamental growth opportunity and in that sense, I'm It's a relevant topic that you are touching upon, but if you look at what we as a company propose, it's certainly not going to put a question mark about what we committed in the past. It's only about how much more can and should we be committing for the future. And with that, I refer you to our March communication next year. Thank you very much for that.

Thank you.

You're welcome. By the way, has the bottle of wine arrived? Because Sam was so nice to talk to our finance executives a month ago, and you got a gift of a bottle. Has it arrived? Yes.

I hope so.

We hope so.

Okay. We will follow up.

This was not a bribe. This was a thank you for delivering that speech for us, as others did before. We follow up with you. Let's leave the marketing for anyone else to raise their hand if you want to talk to our executives.

Exactly. Next question comes from Louis Bouchard. Hi, Louis.

Hi. Good morning. Good morning. Thank you for taking my question. Congratulations on the release today. Maybe two topics, a bit of detail on some geographies, notably on the retail business. Going into the UK market, I would like to know in the Q4, we know that we have some seasonal effect that could hit a little bit the performance here. At the same time, the performance over the last nine months was pretty strong. How do you see the Q4 evolving, and do you see the competitive pressure having some impact as well going forward, namely in 2024, compared to what you achieved this year? Also, on Romania and Hungary, and more specifically in the other business that I see Romania and Hungary as maybe being quite a good driver of performance in this division in the retail, it has been a pretty good year until now compared to last year with some, of course, one-off effect and reversals. But at the same time, I would like to know if you have some... forecast to share with us at this point in time, considering the price adjustment that you can see and the competitive pressure or political pressure that you can see on these markets, which have been a bit tricky in the past. Thank you very much.

Yes. Thank you, Louis, for these questions. On the first one, kind of the nine months, Q4 and 24. I think it is what I said in the speech. You know, we have an extremely strong deliver at nine-month stage. I talked about the margin compression in the fourth quarter in Germany, and there was buffer. I don't need to repeat that. And for 24, against the backdrop of current competition and stage of market opening, we do expect a margin expansion earlier. More I can't really say. We cannot go into the different markets, but I guess generally it's enough to say that across the markets, churn rates are below crisis level, and I think the U.K. essentially is the last market which still hasn't really opened up. But if I take the evidence from other markets, the expectation also will be there. that churn rates will not go back to the levels we had pre-crisis. On Romania and Hungary, I think it's important to keep the context right. We had, and this is true for both networks and customer solutions, a weak performance last year in networks driven by network losses and in customer solutions partly driven by also extraordinary unfavorable environment. And so this year, as we promised and guided for, we are seeing largely recovery, so normalization of margins. And in that context, I think that's as it should be. So both of these countries are moving back where they should be operating in a normal environment. And on top of that, we do see that regulators honor their commitment to also ensure a faster recovery of network losses. So there's a certain element of abnormally good performance this year, but that's just the recovery of the losses last year. So I think that's just the context for Eastern Europe. So I think this is largely as it should be, and it shouldn't come as a surprise. All right.

Thank you. Thank you. Next question comes from Vincent J.P. Morgan.

Hi. Thank you for taking this question. Thank you very much. I'll ask the key question regarding 23's been asked. I'll come back on the angle of the growth and the founding of the growth. So you say quite clearly that you will stick to a growing dividend, understandably. And the question will be, how much growth do we have and how do we finance it? Is it auto-financeable? Yes, no. And if not, do we need a capital increase? Or the other alternative is non-core assets. So I'd like to have a bit of an update on that one. A few years back, you were saying that district heating assets, which are long-term contracted, capital-intensive energy networks, were non-core, which was somehow surprising to me, at least. and supply was core. How do you look at it? You've still got a couple of assets in Turkey, but what about Eastern European assets? Would you consider a refocus, geographically speaking, and what is updated to you on basically district heating assets and the supply activity, which in a way brings some volatility here? to your earnings and some discount to the way you trade. Thank you.

Yeah, that's all. Thanks for all the questions. It's tempting, but you need to understand that at nine-month stage, we're not now giving kind of the strategic update. That is for March, and that also includes anything with regard now to portfolio measures and so on. We have the two to four billion... balance sheet optimization target that stands. I think if you look at our rating metrics, if you look at our target that we have now given, 4.1 debt factor, there is ample headroom, ample headroom not just in our perception but also in the perception of the rating agencies. to deliver further growth and to what degree we then will deliver this growth or not will come in March. So it's all fair questions. But against the strength of our balance sheet, the least thing that I'm right now worried is, you know, are we able to fund or not. I think that is the least concern I have. And the rest then in March.

Thank you. The next question comes from Rob Pullen from Mong Stanley. Hi, Rob.

Hi. I'll just have one question. Apologies, by the way, video is not working. The one question just following that theme is we've seen finance costs increasing each quarter. Could you please, A, give an update on where you expect it to land for the full year? And also, Mark, could you give an indication of where you can issue funds It seems to be trading quite well, but I'd love to hear your perspective given obviously the financing needs for this growth going forward. Thank you.

Rob, a fair question. So first of all, in terms of guidance on the interest, it's going to be slightly above $1 billion, so no change to what we communicated. The run rate is of nine months, looks a bit kind of that we're ahead of that, but that's It technically affected the – I said the fourth quarter contribution or addition will be somewhat lower again now. So we'll end up slightly at $1 billion, so that's all on track. That issuance, I think, first of all, in terms of market capacity, there is ample of capacity for us in the Euro market alone to cover our funding needs going forward. So I think that's the first message. The second message is, if you look at our new issuance premium that we show in our emissions, they're extremely, extremely thin. So that shows that, I mean, it underscores that there's a lot of capacity for us in the market. but it also means that we are highly competitive if you look on a like-for-like rating basis with other utilities and definitely other corporates. And in that sense, and last point, actually, as most of our funding is dedicated to cover investments in regulated networks, the lion's share, i.e., German, Swedish regulation is not fully reflective also of moving interest rates going forward. And in that sense, our exposure to interest rates from an earnings point of view is actually neutral. So wherever rates now go, that should have any – it should actually only have a very minor impact on our sustainable profit level. Of course, with the regulator formulas, we have these dynamics. But generally, we are set up in an interest-neutral way. Thank you.

The next question comes from Ahmed, from Jeffrey.

Yes, hi. Thank you for taking my question, and congratulations on a great set of results. Maybe just to start out with, it would be very helpful if we could get an update from you on the German regulation. I think in the past you've talked about, you know, various key moving parts, cost of debt, equity, efficiency factor on old and new asset base. It just would be helpful what visibility do you have, which parameters have now been locked in, and any potential comments on how they compare versus your original expectations. Then my second question, I just want to clarify the comments around margin expansion or potential sort of potential margin expansion in the customer solution business. Is that sort of – you used the words of timing alongside it a little bit. So is that just sort of a specific timing, or do you do see potential upside to your longer-term customer solutions EBITDA target as well? Just to clarify that, and – Is that, I mean, I was trying to think what are the fundamental factors you mentioned a little bit, churn rate, a little bit of cross-selling of products. Are these the main factors that have led to this better outlook on the customer solution business? Thank you.

So, Armin, on German regulation, just very briefly transparency on the status quo. So, cost of debt and with that the second return on equity component that's kind of ticked off. So, formally announced and clear. And that means that there is no interest rate exposure for upcoming investments. On the return on equity side, still no kind of formal announcement, but a key expectation and high confidence that for new investments it will be the 7.1%. Treatment of legacy investments, you have seen that the German regulator now has appealed against the positive core decision for us. And so I guess the market risk premium and whether legacy assets will be adjusted is something which will be clarified in the court. And on the efficiency side, which, as you all know, is highly relevant, yes, we have gone through the individual cost audit, so we know that. What we do not know yet is the general efficiency factor, and that's on the efficiency side the one thing which is still outstanding. And as said, by March, our expectation is We are on track time-wise. By March, we'll have all things in place, and we'll then be able to update our financial framework on that. Maybe that's a segue to our customer solutions. Look, as I said, take it as a positive for today that we will be achieving this margin expansion earlier. Again, that is largely a reflection of that – higher commodity prices and higher volatility compared to pre-crisis. So I'm talking about the years 18, 19, 20, before we ran up into this gas price-induced price rally. If those prices are certainly higher, in order to be on a risk-adjusted basis, if an S good business, you need to increase your absolute margins to bring it back to the same relative margin. It's all about commanding a revenue margin which compensates you for the risks which you are transferring. And so this is something which, honestly, you should anyhow be expecting from us to do, and the message is not simply we are doing this much faster. And again, I said that When we gave that commitment, I guess you all can imagine that the uncertainty back then was still very high. And whether it's going to be more or not is a different discussion and theme, which, as I said, has to do more than about how can we then transform, transition our pure commodity retail business into a business which takes into account customer flexibility and offerings about e-mobility and so on and so forth, where we see our CS very well positioned. This is a very digitally-led – these are very digitally-led offerings, and I think that's where our strategic focus and strength in terms of digitalization has the potential to pay off over time.

Good.

That's it.

We come to the last question now. The last question. Okay. From Deepa, from Bernstein. Deepa, so if there are then any remaining questions, please, the IR team is there to answer those. Please reach out to us. So, Deepa, you have the last word.

All right. Thank you. Thank you. And a lot of pressure for this last question. So, I have two for them. So, one is on the German regulation. Is there expectation that, you know, once the process is done with the BGH, you might gravitate towards that 7.09, which is being allowed for the new assets, or is this going to basically be some different type of formulation? So, you know, where would you expect the outcome to be? And then the second one is obviously, you know, the retail earnings are tracking well ahead of your expectations. That's great to hear. But we're also seeing a softening of the wider economy, you know, with consumer sentiment being weaker and, you know, maybe bad debt. So how are you thinking about that risk while on the other hand, obviously, you've seen the lower churn rates and disappearance of irrational customers. So how are you weighing that probably more into 24? Maybe it doesn't change too much for 27, but I'm just thinking that's the other risk which might be sitting on the horizon, which is not obviously manifested this year yet. Thank you.

Yes, deeper. Second one, it's a fair observation. Affordability, of course, in terms of recession, gets a different weight, and of course it has to. I think on the other side, we need to look at how variables get in sync for households. We do see that commodity prices are coming down. We do see that energy prices, for that reason, are coming down. We have seen huge wage inflation. During this year, we do see that saving rates go up. So in that sense, net spendable income may not be affected as much as if you just look at some variables. And I think we need to put all this together. And this is coupled with what I said before, from what we can observe, an unbroken demand from customers to basically say, you know, I do it now on my own. I want to have more solar. I want to have a battery. I want to have a heat pump. And although the demand for these products due to the legislative kind of ping pong in Germany has come off from the very high levels last year, it's still, if you take a holistic view, it's a very robust growth, what we will be seeing of energy infrastructure, which will be added to the networks. So I think you – it's a very relevant point. And that's why I would not ignore it. We need to deal with it. But it does not automatically mean that this has a significant impact on how we will be and can deliver next year. And on the ROE question, look, it's very simple. everything what the German regulator up until now has done with regard to new investments is to adjust for a higher interest rate environment, i.e. a higher risk-free rate. This court case is not about the risk-free rate. This court case is about that even if we hadn't seen a change in the interest rate environment, that the initially announced ROE of 5.1%, It's far too low. It's far too low. So we are talking here about something which actually, you know, needs to come on top of the 7.1%, which are now earmarked for new investments. And this is why also there the messaging towards the regulator is unchanged. If you want to send the right incentive for growth, yeah, We need to talk and we'll have to talk about further expansion of the allowed returns going forward because otherwise the required demanded growth that we shall deliver, I can't see how that shall be justified from an investor point of view. And so this is why this court case for us is of high relevance. And again, this is not about addressing now the risk-free rate. This is really about addressing in any interest rate environment what's actually the reasonable and sensible spread that we should be able to earn as long as we are an efficient operator and we are an efficient operator.

Thank you very much, Mark. Thanks, Deepa. With that, we come to the end. Thanks to all for participating in the call. And if there are any further questions, please reach out to the IR team. Thank you very much and take care. Bye-bye.

Bye-bye. Thank you very much.