E.ON SE

Hello, everyone. Dear analysts and investors, welcome to our first quarter 2024 financial results call. Thank you for taking the time to join us today. I'm here with Mark Spieker, for whom this will be the last earnings call as CFO before he takes over his new role as Chief Operating Officer Commercial. Mark, thank you very much for our successful earnings calls together. At the same time, I'm excited to have Nadia taking over as CFO in June, and I'm looking forward to having her join the earnings calls from our H1 results onward. As for today's calls, as usual, we will leave enough room for your questions after the presentation. With that, over to you, Marc.

Thank you, Iris, and a warm welcome from my side as well. I will save my goodbye words for later. Let us straight dive into the Q1 results, and let me start with highlighting the key messages for today. First message, Q1 came out in line with our expectations for all businesses. Key drivers of our slight EBITDA and net income increase were investment-backed earnings growth and strong operational execution, more than offsetting the unwind of prior year one off and timing effects. Second message, our planned capex ramp up is progressing well. We have accelerated again our spending by almost 25% year over year and are well on track in terms of quarterly fill rates across all business segments. Third message, our Q1 economic net debt came in as expected, showing the typical Q1 cash flow seasonality and the final outflows related to the unwinding of the positive one of working capital effects that we have been reporting to you as of our 2022 results. And I'll come back to that later. And final message, we have a strong conviction in the relevance and long-term growth path of our energy infrastructure solutions business. To make our ambitions more visible, we are moving the business into a standalone segment from this quarter onwards, as announced. Finally, our guidance is fully confirmed. On to our Q1 EBITDA development. Our adjusted EBITDA came in at 2.7 billion euro, up 1% year over year, despite the lack of significant positive impacts from one-offs that we had seen in the prior year quarter. As expected, our energy networks business is slightly down in Q1 due to unwinding positive regulatory account effects of 2023, such as the benefit from lower redispatch costs, as well as slightly higher than expected costs from upstream networks in Germany. Additionally, we have changed the accounting for our Slovakian VSE business to an equity consolidation, which leads to a technical reduction in EBITDA in our Central Eastern Europe business. No impact on net income. All those effects are economically neutral, and they were largely offset by strong RAP-driven earnings growth across all regions and the positive uplift of regulatory parameters in Sweden. Regarding network losses, Sweden and Slovakia have now completed their recoveries, while additional recoveries are now only happening in Southern Eastern Europe. You may have noted that we have now split our reporting of the CEE and Turkey segment into Central Eastern Europe and Southeastern Europe. This shall give you more transparency on our geographically well-diversified portfolio of networks businesses. The Central Eastern Europe segment covers Czech Republic, Poland, and Slovakia. The Southeastern Europe segment includes our activities in Hungary, Romania, and Turkey. Moving on to energy infrastructure solutions. New project commissioning is leading to EBITDA growth, as you would expect, supporting our 13% EBITDA accumulated average growth rate target from 2023 to 2028. This development is masked in Q1 by the absence of a positive one-off effect from last year and by a changed intra-year maintenance schedule with a stronger focus on Q1 this year. With a change in maintenance schedule, we are partly mitigating also the negative effects from mild weather that we have been observing during the first quarter. In energy retail, the significant year-over-year EBITDA increase was primarily driven by positive price adjustments since Q1 last year. Additionally, we benefited from the improvement in our B2B segment in the UK, which is successfully continuing its margin over volume strategy. Those positive effects were partially offset by the lack of procurement optimization benefits that we had seen in Q1 last year, and it's a very favorable commodity price background last year, and lower weather-driven volumes in Q1. Corporate functions and other segments saw an expected slight EBITDA decline, driven by the lower results from our Turkish generation business due to the development of commodity prices also in Turkey. Moving on to our adjusted net income, which showed an increase of 2%, which broadly follows the year-over-year EBITDA development. All earnings elements below EBITDA have developed in line with our expectations. The share of minority income sits at around 19% for the first quarter, as expected, and with that, materially below prior year. We expect this share to continue to go down and be lower for the full year as we communicated in our full year 2023 earnings release. Looking at the development of our economic net debt, I would like to highlight three points. First, our promised capex ramp-up is being executed like clockwork. We increased our Q1 investment spending by close to 25% year-over-year. I can assure you that we continue to be fully focused on ensuring a frictionless ramp-up, managing closely our operations and supply chains. So far, we do not see any critical bottleneck on the horizon. We have seen the typical operating cash outflow in Q1, which is driven by our seasonal business patterns in both energy retail and energy networks, specifically energy networks in Germany. As expected, this outflow was slightly amplified by the final unwind of our 2022 one-off working capital benefits. It's a long time ago, not everyone may remember, but our 2022 full-year cash conversion set at a very benign 151%, significantly above the 100% we normally target. And as communicated in March, for 2024, we are foreseeing a conversion rate of around 90%. And with that, the final reversal of these positive working capital effects from 2022. After 2024, we expect cash conversion to then swing back to the guided 100%. Third message on E&D, our strong balance sheet position has recently been confirmed by two of our rating agencies. We have received a rating upgrade by Standard & Poor's and a full rating confirmation by Moody's. As communicated before, in line with our commitment to a strong BBBAA rating, we have additional balance sheet capacity to fund further investments needed for a successful European energy transition if regulatory conditions further improve. Considering the balance sheet, it is also worth highlighting that we have already issued €3.3 billion of bonds in the first quarter. With that, we have already fully covered our funding needs for 2024 and partially already pre-funded 2025. Moving on to energy infrastructure solutions, as announced, we will report this business as a standalone segment from this quarter onwards. Strategically and with a view to future growth, this segment is all about exploiting the huge business opportunities from decarbonization and to a large extent electrification of the heating sector. The segment comprises our activities in designing, building, owning, operating and optimizing sustainable energy infrastructure assets for cities and business customers. Our solutions are based on modular standard building blocks which are configured and digitally connected to fit specific customer needs. Technologically, our offerings include firstly renewable on and off-site generation assets like photovoltaic and wind. Secondly, gas or biomass fired heat and power engines. Thirdly, heat pumps and geothermal solutions. Fourthly, waste heat recovery technologies. And finally, high and low temperature heating and cooling grids. From a business point of view, we distinguish two clusters within energy infrastructure solutions. First cluster is district heating and cooling, which is about running low-carbon heating and cooling networks in urban areas. Second business area is our industrial and commercial solutions business, offering on-site energy infrastructure for industrial and commercial customers. We have decided to also include our UK smart metering business in this segment. While technologically obviously different in nature, it is a quasi-regulated business and hence of similar nature when it comes to financial visibility and resilience. Let me remind you of some more financial and business characteristics relevant for our energy infrastructure solutions business. Geographically, we are present in 15 countries, the key ones being Germany, Sweden and the UK. Our pan-European coverage and strong regional anchoring represent a unique advantage to address our customers' needs for locally optimized energy infrastructure. Our strategy to standardize our offerings in a modular way will allow us to scale our solutions. Therefore, out of the 5 billion capex plan for the next five years, 80% will be dedicated to growth investments. Through long-term contracts with customers, commodity price volatility and inflation are effectively passed through, for instance, via price escalation clauses. We ensure that any new project is targeted to deliver an internal rate of return spread over WEC of between 120 to 350 basis points. Furthermore, our rigorous focus on operational excellence ensures high asset availability. This is supported by digitalization, which helps to steer, monitor and effectively maintain and optimize a fleet of more than 6,000 assets. We expect annual EBITDA growth of 13% on average. Keep in mind that the municipal heat transition across Europe is still at an early stage, so there is more, much more to come, but too soon for us to quantify what the impact will be over time. Let me close today's presentation with slide 8, what you essentially should take away from us today. First, Our extremely solid Q1 outturn supports our expected earnings delivery for 2024. Second, our investment ramp-up is progressing well, which fully underpins the delivery of our mid-term organic growth targets. Third, our balance sheet remains very healthy. We will continue to focus on delivering an attractive total shareholder return based on value-creative organic growth and an annually growing dividend per share. With that, let me move to a personal note. We announced in March that I would be moving on to take over as a Chief Operating Officer the responsibility for our energy infrastructure and retail businesses from June onwards this year. We deliver what we promised, so inevitably today is my last results call as CFO. It has been close to eight years as CFO in the Board of Management of E.ON, hundreds of roadshows and exactly 30 results calls. I am not going away, but I will be focused on different things going forward. Great news for you is, our investors and analysts, that with Nadja Jacobi, I have the best successor I can think of. I know that with her, you, your interests, and most importantly, your investments, will continue to be in safe hands. Dear Iris, I would also like to express my thanks to the best investor relations team I can think of, And finally, it has been a privilege for me to represent our company in the capital markets. I'm extremely grateful for so many deep and thoughtful conversations during roadshows and other formats. And a big thank you to all of you for that. Before we get too sentimental, there's still business to be done. So let's move on to our Q&A session.

Thank you very much, Mark. And with that, we will start our Q&A session. Let me remind you all briefly, as you all do know, please stick to two questions each so that most of you have the chance to ask the questions. If there's anything we can't answer today, then the IR team is always there to also answer further questions from you. With that, the first question comes from Alberto from Goldman Sachs. Alberto, here you go.