E.On Se S/Adr

Good morning, everyone. Dear analysts and investors, a warm welcome from my side to our first quarter 2025 earnings call. I am here with our CFO, Nadja Jacobi, who will present our results. As always, we will leave enough room for your questions at the end. With that, over to you, Nadja.

Thank you, Iris, and a warm welcome from my side as well. Since our full year results, much has happened from a global macroeconomic perspective. With Liberation Day, a spiral of tariff announcement resulted in recessionary fears and high volatility in equity markets globally. But with the suspension of tariffs between the U.S. and several countries, a relatively quick recovery has started during the last days. In this period of uncertainty, we have seen that our business model proves to be very resilient and robust against these macroeconomic developments. In Germany, we had federal elections and the new coalition government was formed swiftly. They are encouraging signs of positive momentum for the German economy as well as the energy transition. On the regulatory side, we expect the framework and methodologies for the fifth regulatory period in Germany for power to be developed by the end of 2025. However, history has shown that timelines can sometimes slip. We expect the first regulatory consultation documents to be published in the coming weeks and months. We will then be able to provide you with our assessment. Let us now leave any further discussions on macroeconomic or political topics for the Q&A session later and instead turn to our business. I have four messages for today. First, E.ON delivered a strong operational financial performance in Q1, which puts us firmly on track to deliver our full year guidance. Our adjusted EBITDA reached 3.2 billion euro and our adjusted net income came in at around 1.3 billion euro, an increase of 18% and 22% respectively. Second, our increased earnings were mainly driven by investment-backed growth, strong operational execution, timing effects from network loss recoveries, especially in Southeastern Europe, and higher volumes from normalized weather conditions. We have accelerated our capex spending by around 13% year-over-year, with a predominant share going to our energy networks business. Our planned capex ramp-up and our EBITDA contribution are on track in terms of expected quarterly fill rates across all our business segments. Third. Our economic net debt outturn of around 44 billion euro in the first quarter shows the typical Q1 cash flow seasonality based on the working capital pattern of our business model. And finally, we fully confirm our short and long-term guidance, including our dividend policy. So let us move on to our Q1 year-over-year adjusted EBITDA bridge. All segments contributed to the earnings growth. Starting with energy networks, we saw an adjusted EBITDA increase driven by the accelerated investments in our regulated asset base across all business regions. In Southeastern Europe, a large contribution to our earnings growth came from the expected network loss recoveries and higher volumes. Moving on to our energy infrastructure solutions business, The growth in adjusted EBITDA was driven by higher weather-related volumes and an improved asset availability. The commissioning of new projects added to the growth. In our energy retail business, we also delivered a strong first quarter. Increased earnings came from year-over-year higher volumes due to weather compared to the record warm temperatures in Q1 2024. In addition, our UK B2B business continued its strong performance in Q1, which we expect to normalize over the course of the year. Moving to adjusted net income, which came in at around 1.3 billion euro. All P&L elements below adjusted EBITDA developed in line with our expectations. As a result, we are well on track for our full-year 2025 guidance, supporting the promised high single-digit underlying adjusted net income growth. As announced during our full-year reporting, we are now providing performer figures for adjusted EBITDA and adjusted net income, which will exclude value-neutral timing effects in our energy network segment. You may find the figures as part of the appendix to this presentation. For Q1 2025, our adjusted EBITDA contains in total a positive mid-double-digit million euro amount of value-neutral timing effects, mainly relating to network loss and volume recoveries in our Southeastern Europe segment. With our full year 2025 reporting in February next year, we will then also adjust our outlook for 2026 and the years thereafter. Looking at the development of our economic net debt, I would like to highlight three key points. First, our promised capex ramp-up is progressing well. We continue to be fully focused on ensuring a frictionless execution by closely managing our operations and supply chain. And so far, we are well on track. Second, the typical negative operating cash flow in Q1 reflects the usual seasonal pattern of our working capital. Third, our balance sheet remains solid and S&P and Moody's have recently confirmed our ratings. As communicated before, we have additional balance sheet capacity in line with our waiting commitment to a strong BBBAA, enabling us to fund further investments to support a successful European energy transition. However, as we have emphasized before, attractive regulatory conditions remain a prerequisite for that. Let me now conclude today's presentation with my key takeaways. First, the strong Q1 outturn firmly supports our expecting earnings delivery for 2025. Second, our investment ramp-up is progressing well, underpinning our mid-term targets. Third, our balance sheet remains solid. 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. Finally, we fully confirm our fully 2025 guidance and 2028 outlook, including our dividend policy. And with that, back to you, Iris.

Thank you very much, Nadja. And with that, we will start our Q&A session. Let me briefly remind you all, please stick to two questions each so that most of you can have a go. And we will start today with Alberto. Hi, Alberto. Let us please have your first question.

Thank you for taking the question. Good morning, Iris, and good morning, Nadja. I think the first one is... Thank you for pointing out the network losses and volume to recovery. But that number, I think in the appendix is 45 million and only 17 million of that income. So my question here is, you have delivered 45% of the midpoint of your guidance. I know it's relatively early in the year, but we are kind of close to six months. Why not having a more positive tone on full year guidance? You know, is there anything that worries you or is just simply not practiced by E.ON to amend guidance at Q1? Let's wait and see. That's discussed in August. That's the first question. The second question is, Nadia, you said something very interesting, which is the first regulatory document could be published in the next weeks and months. I was going to ask you, do you believe this document will include an explicit allowed return proposal for the next period? And what would be your mark-to-market calculation? Perhaps it's easier to talk ROE. I know the regulator maybe wants to go to a loud walk, but to make it comparable with the current situation, period, if you can tell us what would be, you think, a fair ROE level or what assumption you would be using, you would be suggesting the regulator to use, that would be extremely helpful. Thank you so much.

Thank you, Alberto.

Yes, thanks, Alberto. Thanks for the question. So you are absolutely right. We had a strong Q1. But then you need to be aware when you look at when I look now at my Q1 and what has happened over the first couple of months in the year, there is not that much that has actually changed. And, you know, we have communicated our concerns. a guidance a bit more than two months ago. So that's not that radical changes that you can expect in this two months. So when you look at what happened, which we didn't know before, the weather outturn is very broadly in line. Yeah, there might be a bit of an overall colder Q1 than normal. But when you then look at what happened now in April and May, that was also indicated by some of our competitors, there was an actually warmer. So I would say from a volume perspective, that is broadly aligned. And then as we've been highlighting, strong Q1, but we also experienced some slight customer losses because of rescheduling of our customer acquisition campaigns, which we have now more to the back of the year. So that's why we are comfortably positioned in our guidance range of 9.6 to 9.8, but no major changes that would now give the need to change that. So then coming to your second question. Second question, yes, we are expecting some of the consultation. We had the pre-consultation that was published in January. But that was not really the... official kickstart of the consultation process. We now expect the consultation paper on the overall framework new regulatory framework to be published in the next week and then we assume that some of the methodologies around the cost of debt and equity returns will then come in the next couple of months. And we have been always highlighting that what we are asking for is internationally competitive returns. We need... you know, we need to achieve our value creation spread of 150 to 200 basis points. We, you know, we clearly also phrase our ambition to have an ROE of at least 8% post-tax is something that we would raise as demands, you know, which is something which is internationally competitive. And when you look at what we When you look at the German capex ramp up that we're requiring here and the amount of capex that we want to spend, it is clearly no way why a German regulatory return should be any less than other European regulatory regimes would offer.

Thank you, Natja.

Very clear. Thank you.

And the next question comes from Wanda from UBS. Hi, Wanda.

Hi, Iris. Hi, Nadia. Two questions from me. The first one is on the German energy minister. There is a new person coming from E.ON. Where do you expect the energy ministry to put priority on? For example, she talked about the reality check for the renewables. Do you expect any slow in the renewables connections? Would it put any risk to your capex? So I know it's still early days. but any high-level comments would be appreciated. And the second question is on retail. Nadia, you mentioned April was pretty mild. Centrica flag, its British gas residential, was negatively impacted by warmer weather in April. Should we see it as a retail cross to EU? Is there any risk to profitability of the business of retail? Thanks a lot.

Yeah, thanks, Wanda, for your questions. So first of all, you know, we are, of course, exceptionally sad to see Katharina leaving on the one hand side because she's been a great manager to our business. But of course, we are also exceptionally happy for her and also for our country that we have such a strong person like her now in this new role. You know, I think what the new government has highlighted is exactly in line with our expectations. So there is a very clear commitment to both the German and the European climate goals. But then there's also a clear commitment to do that in a cost-efficient way so that we have a minimization of system costs. She has already highlighted that the reduction of price of electricity is important, i.e. the reduction of the electricity tax to the European minimum was already highlighted in order to force the electrification as the most attractive form of decarbonization. And there is overall a very clear commitment to the speed up of grid expansion. So to that question, there was a clear commitment to the targets. But of course, as we've been also highlighting, it only makes sense to build up renewables in a way that are actually helping and supporting the decarbonization. And sometimes we have been seeing also overbuild. So there is no contradiction in that. to your second question. I didn't want to highlight now any specific risk because as you know, we now have been implementing an approach to a sort of have also volume hedges in place to have a good portfolio optimization around our energy retail business. So that's why we by no means wanted to indicate now any specific additional risk. I just wanted to highlight, yes, there might be a bit of a positive impact in Q1. When you look at the weather conditions, but that is sort of... partially then compensated by what we have been seeing in April, so that we are overall in line when it comes to our weather condition assumptions and the earnings impact of that.

Thank you. So the next question comes from Harry Wybert. Hi, Harry.

Hi, everyone. Hi. So a couple from me, please. First one's on policy and specifically on grid fees. So there's been various proposals coming through about subsidizing grid fees and then reallocating who pays for them. So proposals to get generators to pay grid fees. So I wondered if you could help us by just in brief terms setting out what's been proposed Could you confirm the basic assumption that this wouldn't impact your overall revenues? And do you think this is a good thing or a bad thing for you? Does it make it potentially easier for you to invest more and not necessarily have the impact of that investment being fully felt by energy bill payers in Germany? And then the second one, also policy related, that there was a separate proposal to cut some grid fee subsidies for to certain power plants in Germany, and I believe that CHPs in particular potentially were going to be impacted by that. Is that something we should be caring about from the perspective of your CHPs in your ICE division? Thank you.

Thank you, Harry.

Yeah, so coming to your first questions, I think that is exactly how we've been highlighting that before. So I assume that is now regarding the subsidization of the TSO grid fees. And for us, that's clearly a positive. You know, it's a means of, you know, on top of the electricity tax topic that I've highlighted earlier, that is another means of actually reducing electricity prices. And that's why... And, you know, the reason why that's done over the TSO network fees is because it's sort of the easiest operationalization of that topic because then they have a direct feed-through of this lower TSO cost with the benefit to the customers. So we see that as a clear positive because sort of it fosters more electrification. It fosters this sort of virtuous circle of customers More electrification means that more shoulders can bear the increased overall cost for TSOs and DSOs that are factored into the customer builds. And with more electrification, that is then actually being leveled out. So exactly as we have indicated before, no change in that. And we see that as a very, very clear positive. Then there was an additional thing, and I don't know whether you will refer to that. There was a federal – so our BNASR published a first discussion paper on the redefinition of the grid fee system, which is sort of highlighting that also some of the grid customers, like, for example, the renewable operators should take a share in that. That's now very early stage, but we are in overall – you know, we are always supporting all, you know, all initiatives that bring grid fees to those who cause the increase in grid investments. And that's why we are sort of directionally positive on that. So then we have got the other topic on avoided grid fees. That is sort of equally very, very early stages. There might be a small impact in our energy infrastructure solutions business, but, you know, that has been just, you know... you know, first highlighted by the BNSR and is now in, you know, in discussion, that would be far too early to say what is exactly the outcome of that and what would be the impact from us.

Okay. Thank you. Thank you, Nadine. Just to clarify on the grid fee, do you know how much the subsidy is going to be and is it going to be funded through the Climate and Transformation Fund?

You know, We only know what has been, we don't know more than has been the political intentions. We have the political intentions to have the overall decrease by 5 cent per kilowatt hour. How exactly that's going to work and how much exactly of the climate transformation fund is going to be used up for this. is going to be part of now the political discussions in the next couple of months. It is clear that, you know, the first priority is going to be that the government needs to form a budget for 2025. And then I guess we will know more in the next couple of months how exactly that's going to pan out.

Okay, got it. Thank you very much.

Thank you, Harry. So the next question comes from Deepa. Hi, Deepa. Hi, thank you for taking my question.

So my two questions, it's a follow up on something you said earlier, Nadia. So could you, you mentioned the 8% ROE and then you mentioned that an update would come in the next week. So is it weeks or week? And then is the 8% post-tax, including outperformance, or is it just the base allowed? So that was the first question of clarification. Second one, where do you forecast your year-end net debt to be around, roughly, if the interest rates hold at the levels they are?

Yeah. So first of all, what we said is that the first start of the official consultation, which will only be related for sort of overall framework conditions, we supposed to be started in the next weeks. i.e. not week, but weeks, and that will be also only a part. So that's why we said in the next weeks and months. So we think that sort of the first part when it comes to the overall framework is going to be published sooner, i.e. in the next weeks, whereas things around the methodology for VAC system, debt and equity returns, that's going to be more towards the next month. And the expectation is still that we get more clarity around the ranges of the capital returns by year end, as this is the time schedule of the regulator. And as we also highlighted in the speech, of course, you know, these timelines can slip, but it is exactly how Leo and I highlighted that in our full year call. And when it comes to sort of what are the sort of requests, like also all the other DSOs and DSOs are highlighting the requests. That's what was my answer towards Alberto's question, that the request towards the capital return on ROE post-tax would be the at least 8% that I highlighted earlier. But that is nothing that is, you know, that is sort of, when you look at, there are sort of several, You know, that's what we assess to be a fair competitive return in comparison to other European infrastructure investments, but that would be related to the capital return.

Okay, so not the old performance. Okay.

And then I think the second question was on E&D.

So, E&D, yes. On the E&D side, You know, our cash flow seasonality brings us exactly to the point what we had expected. And, you know, we would assume that the economic net debt, you know, everything else being equal would be above the 44 billion, but approximately in the same ballpark that we've been seeing now.

Okay, thank you. Thank you, Deepa. So the next question comes from James Brand from Deutsche Bank. Hi, James.

Hi, good morning, good morning. A couple of questions for me. The first is on the grid charging review. And I read through the paper that came out on Monday. But I just wanted to ask, is this 100% focused on... the kind of end user charging, or is there any element of this review or the wider review of the government that will touch upon direct elements of the regulation as it impacts on your returns and cost allowances? It looked from that paper that came out on Monday that it was 100% focused on end user charging. cost allocation, or at least that's how it read to me. But just hoping I could get clarification on that. That's the first question. And then the second question, you mentioned the postponement of the customer acquisition campaign in Germany. I was wondering whether you could just give a few more details around that. Why was that delayed? Was it related to the competitive backdrop of And if so, what are you seeing at the moment as the competitive backdrop for retail? Thank you very much.

maybe let me start with the last bit so i think from a from a sort of competitiveness in the business environment um that is absolutely in line with our expectations and as we highlighted in some of the earlier calls for us it is you know positive that we have got a competitive environment because we are actually attracting customers in a in a competitive market um This is now more, you know, we are sort of making commercial decisions. We had some price increases at the beginning of the year, and we are making commercial decisions when our customer acquisition campaigns are best placed. We didn't have any higher churn than we had expected. We just shifted the customer acquisition campaigns where we deemed it more commercially suitable. But that is normal course of business. That is nothing that is against expectations, but how we do business. So... One thing to highlight, needless to say, that we are also sort of reviewing this publication of Monday, but that has no return effect. It is not impacting, it is just about the structural grid fees, i.e. how, what is sort of the fixed elements, what is the variable elements, etc. But the overall grid fees, the return elements and also outperformance elements are not impacted by that.

Thank you.

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

Hi, good morning. If I can ask just one question on retail and not about weather. There's quite significant margin expansion in the first quarter compared to 1Q24, especially in Germany, UK and Netherlands. I was just wondering if you could provide some kind of explanation and, of course, whether that's some kind of temporary timing there. effect, whether that's a new normal, whether it should normalize throughout the rest of the year, given, of course, you're quite ahead of the run rate from the 1Q contribution. Thank you very much.

Thanks, Rob, for the question. So a couple of elements to that. So one is the thing that we highlighted is that we have seen now normalization of weather conditions, which we are already affected in to our guidance. So that's sort of a mid-double-digit million-year amount when it comes to that kind of normalization. Then Second point, you know, some of the price increases that we did last year were only effective later in the year or later within Q1. So that's why we see sort of an over proportionate increase. in the results. And then a third element that I would highlight is exactly what we have been discussing now just before, that we've been pushing some of our customer acquisition campaigns more to the later part of the year than they were in last year. And that's why we will see some... cost increases with regard to that than coming in later. So that's why, particularly with what we have been highlighting earlier on sort of the overall weather effect up until sort of now end of April being more neutral in 2025, we think that sort of the guidance of 1.6 to 1.8 million is final. Maybe there's one element that is as well in there, you know, we've been still seeing a very strong UK B2B performance. And we have been highlighting before that some of the very positive margin contracts were sort of rolling off over the course of, that have been sort of contracted in the last year or years, rolling off now over the course of 2025. There's been still quite some positive elements in there in Q1, but some of that is going to roll off now over the course of the remaining year.

All right. Thank you.

Thank you. And then we have, I don't know, is it the last question already? But we have Peter Bistiger from Bank of America. Hi, Peter.

Yeah. Hi. Two, if I may. So one just following up on that points on. b2b uh just be sort of interested to understand why kind of the pricing or the contracts were particularly good last year and what's changed to to kind of make it worse this year so really just sort of trying to understand if um genuinely you're not going to sort of get that benefit for for the remainder of this year And then secondly, I was just wondering if there's been any updates on this German infrastructure fund. You know, have you been sort of doing any behind the scenes lobbying to try and get or to try and secure a share of this? Do you have any better sense now than you did a couple of months ago as to what aspects of your business could benefit from it? So just interested in your views there, please.

So thanks, Peter, for the question. So on the B2B side, we have been seeing a big expansion of the margins compared to the past. And part of that was also attributable that some of the sort of higher pricing and higher risk premium that we were able to secure sort of in the energy crisis or thereafter when we still were on a higher commodity level, sort of are now rolling off. But that is not leading us into a position where we don't think, you know, we are still the new normal of the B2B UK is still a very attractive business for us. So it is not now that we're saying, okay, that is now running down to a, to a too low level, but it's still a very attractive business, but part of the risk premia are rolling off now. Then, you know, On the 500 million infrastructure fund, there's equally not that much more than I can say about that than was actually said in our full year reporting. You know, we have got 100 billion earmarked for the Climate Transformation Fund. $100 billion earmarked for the 16 states, and there implicitly earmarked also for the heating transition. And I think the same applies, you know, and the same applies what we have been saying earlier. First, I think the budget is going to be the most important thing. And there will not be that, from our assumption, there will be not that much new on this 500 million infrastructure fund before the summer break. You know, I can just reiterate what we said earlier. It's, of course, very clearly positive that we have the subsidization from the Climate and Transformation Fund for the TSO grid fees because it's sort of takes away the push on affordability. It helps to get acceptance for the transformation. It is also helping for further electrification, both that sort of the industrial demand is coming back and even more sort of we see now further electrification, the growth in electricity demand kicking in. We, of course, heating transition has been always on our agenda. In our ice business, we are preparing for the heating transition. We have, you know, we have got this decentral setup in our German ice business where we are very well positioned to sort of to go into and to go into that. But there is not that much news that I can tell you now compared to what we highlighted two months ago.

Thanks very much.

Okay. Then we have a question from Piotr from Citi. Hi, Piotr.

Hi, good morning, everybody. Thank you for the presentation. So I will have two questions. So the first one, I wanted to go back to this ongoing regulatory review in Germany and ask you about the level of outperformance you expect. Basically, some of the people I talked to, they are a little bit worried that the benchmarking that was done and allowed E.ON to outperform the smaller DSOs in the country will be somewhat changed so that, you know, you will not be compared versus a smaller DSO. a little bit slower and undercapitalized entities, but there will be a benchmark for yourself or the more efficient ones, so you will be more compared with the faster-running peers. So that's the first question, how you think about this process, and are we going to see the supernormal efficiency kickers that you typically receive, or maybe that will be lowered. And the second question, I have more on the numbers themselves. I've noticed that on the energy retail other, which mainly comprises of the Eastern Europe, you reported significantly lower year-on-year contributions. So I wanted to ask what happened there as I look at some of the Eastern peers. They generally report very good margins on supply. Thank you very much.

Thank you, Piotr. Yeah, so when it comes to the benchmarking process, that is exactly part of this NEST process that is currently ongoing and where we sort of currently don't have the consultation yet. That hasn't been published yet and, you know, we just need to be there with us to make comments. We cannot make comments before that has been actually... published but of course we will do once you know as I highlighted in my speech we will let you know our assessment but answering it a bit more generally you know we We are the largest distribution company, and we are benefiting from large digitalization projects. We are the ones who sort of – we can really do an industrialization of the supply chain. So in overall terms, I would always see us with a – With our scale and with scale mattering more rather than less, and with our focus on performance management, I would always see ourselves well positioned in a benchmarking process. But how exactly that's going to pan out as part of the next process, we will need to wait a bit more until the consultation is coming out. So then, you know, we had on the other question, we had some, yeah, I would say some, you know, you're absolutely right. We have got a high profitability in that segment. We had in Poland a price cap that started in H1, H2 last year, which is now... sort of now kicking in negatively if you have the sort of the year over year comparison. And then we have got some fluctuations in our cost phasing in procurement in the portfolio management function. But there is no underlying negative read across about the profitability of that segment or sub-segment from the result.

Okay, thank you very much.

And then I think we already come to the last question, and this goes to you again, Rob. I think you only asked one, so that's then your second one, and that's then the last question for the call.

Actually, you're all covered, so I can give you some time back there.

Okay, good. Thank you very much. So thank you very much. Then we close the Q&A session. Thank you all very much. If there's anything... you would like to follow up with from the IR team side. We're happy to talk to you. Thank you very much for participating and have a good day. Thank you. Bye-bye. Thank you. Bye-bye.