E.on Se (OTC:EONGY) Q2 2025 Earnings Call Transcript

E.on Se (OTC:EONGY) Q2 2025 Earnings Call Transcript August 13, 2025

Iris Eveleigh: Good morning, everyone, and welcome to our H1 2025 results call. I am here with Leo and Nadia, who will present our half year results. As with every occasion, we will leave enough room at the end for your questions. With that, I hand immediately over to you, Leo.

Leonhard Birnbaum: Thank you, Iris. Warm welcome to all of you also from my side. Today is a special reporting day. It coincides with E.ON’s 25th anniversary. We are really proud how we have successfully repositioned E.ON over the last years. We are a completely different company from what we have been 25 years ago or even 10 years ago. And as a result, we can credibly claim that we are the playmakers of the energy transition. But that said, we are not making a big fuss around this birthday because what truly matters, what truly matters to you is not the past, but what we deliver now and in the future. And therefore, let me get straight to my 3 key messages for today. First, during H1 ’25, we delivered both operationally and financially, and we remain fully on track for our full year guidance.

Second, we are in a crucial phase of the process for the upcoming fifth regulatory period for power in Germany. And while we acknowledge some positive aspects of what we have seen so far from the regulator, overall, we see the need for significant improvement. And third, our resilient growth story will continue well into the 2030s. And this is driven by the transformation of the energy system, not only in Germany, but across Europe. We see strong demand drivers also in our non-German markets, which all highlight the strength of our strategic growth story that we have also shown over the last years. On my first message. Our H1 results came strongly with an adjusted — it came in strongly with an adjusted EBITDA of EUR 5.5 billion and an adjusted net income of EUR 1.9 billion.

CapEx-backed growth continues, up 11% year-over-year. And with these numbers, we are fully on track for our full year guidance, and Nadia will later provide you with more details on our financial delivery. I would like to use the opportunity to highlight some of the outstanding examples of our consistent strong operational performance. We have to deliver against continued high demand in connection requests. For example, we continue to massively connect photovoltaics, PV. Today, and I’ve mentioned that number already in the past, 28 gigawatts of solar capacity are connected to the grids in the federal state of Bavaria only. And those 28 gigawatts are matching Spain’s total solar capacity or nearly matching Spain’s total solar capacity of 32 gigawatts.

And most of that solar capacity is again connected to the grids of our local DSOs in Bavaria, Bayernwerk and Lechwerke. But what is important, you can’t connect such an amount of renewables without upgrading and fundamentally changing the whole grid behind the connection points. That means we had to upgrade our whole grid with a priority on stability and steerability. We are also standardizing all connection processes in Germany and handle them with our proprietary digital platform. This is best-in-class and enables us to significantly improve the time we need to process connection requests for default cases from 22 days as in the past to under 24 hours. However, if we hit bottlenecks, which we increasingly do, then we can’t upheld the 24 hours.

Q&A Session

In H1, we also made great progress in the digitization of the German energy landscape. For example, we have now built a complete digital twin for our 700,000 kilometers power grid, which is based on one central data platform. And we have done this using our envelio technology platform. And envelio is clearly the market leader for smart grid software in Europe, and we can now calculate real time the capacity and the utilization of the low and medium voltage grid to define, for example, available capacities across all our German DSOs. And this is one of the instruments which enhances our ability to allocate resources and manage grid stability. Lastly, let me do one comment on supply chain management. We continue our journey of standardization and forward planning.

Most recently, we communicated a new procurement initiative for core grid components totaling EUR 6 billion. As part of it, we have entered into multiple capacity reservation agreements for transformers, which is one of the critical grid components and that we have done with suppliers of Hitachi Energy, Siemens Energy or Koncar. The agreements with these 3 companies alone secure deliveries worth up to EUR 3 billion with contracts up to 2033. Such agreements support our ability to make investments, they reduce cost and they dampen inflationary pressure, and they help actually the supplier industry to increase their capacities. Consequently, we currently see no major procurement barrier to a potential ramp-up in CapEx. So much for the operational performance examples in Energy Networks.

Let me add a few from the other segments. In Energy Infrastructure Solutions, we recently announced a strategic partnership with the data center operator, CyrusOne. We are designing a local power generation and cooling system to deliver up to 61 additional megawatts of power to Frankfurt campus, setting a new industry standard. So what it does is it allows CyrusOne to build a larger data center than they would be able to build based on the grid connection alone. In Energy Retail, the commodity business is performing as expected. Despite volatile wholesale price and challenging weather conditions, our risk management has ensured stable financial deliveries. And here, we have also continued to push forward with new customer-centric innovation, for example, our Home & Drive tariff in Germany, which allows EV owners to charge intelligently overnight integrated with the E.ON Home app.

It gives customers seamless control over their energy use and similar propositions are being rolled out across our core markets. To summarize, let me repeat the points of my first message — the key points of my first message for you. We are financially on track, and this is not by chance, but driven by operational excellence. And the examples also show that digitization is happening across the board at E.ON. And with that, let me turn to my second message for today, the regulatory process for German power distribution, starting 2029. In the recent months, the German regulator, the Bundesnetzagentur released drafts for important parts of the future regulatory framework for the RP5. We are still in the consultation phase, which will end within the next week.

Overall, we do see that the regulator acknowledges that we are in a different situation compared to 10 years ago. And we see some positive signs in the draft. For example, the WACC model is the correct approach towards simplification and a better linkage to the general market development for capital return also points in the right direction. However, we are not there yet. Unfortunately, the current proposals still fall short of both industry and investor expectations. They fail to create the financial conditions needed to attract additional capital, especially when compared to countries like the U.K. or the U.S. where grid investments is actively incentivized. And why is that the case? As you know, regulatory returns in Germany stem from the return on capital employed and the possibility to achieve operational outperformance within the incentive framework.

Nadia will comment in more detail on why the proposals on the cost of equity and the cost of debt are still insufficient. I would like to outline our key concerns regarding the proposed chances to efficiency benchmarking. And let me share our view and arguments on how the proposals could improve. One key concern is the breadth, the multiple changes of the planned simultaneous methodological changes. The reduction in benchmarking methods applied, a shorter period for addressing inefficiencies and an expanded comparison group disadvantage exactly those grid operators who invest heavily today in network infrastructure compared to those who do significantly less. The other critical issue for us is the inclusion of the redispatch costs into the efficiency benchmarking.

These costs are concentrated among a few DSOs, especially in the regions under the greatest strain from rapid renewables expansion. Including redispatch cost penalizes grid operators who are doing the most to advance the energy transition. And let me illustrate that between 2020 and 2024, our Northeastern German DSO E.DIS, invested around EUR 1.4 billion into its power networks and integrated nearly 4x as many generation units as in the last — in the 20 years before. E.DIS is not an exception at E.ON because E.ON predominantly operates in rural areas where demand for renewable connection is higher. As a result, in 2024, E.ON DSOs incurred approximately 80% of the redispatching costs across the entire German distribution grid. It’s obvious a municipality of Berlin has no redispatch cost because they have no renewables.

But we have the renewables, so we have the redispatch cost. They are the result of non-market-based build-out plans for renewables without due consideration of existing infrastructure. They are not the result of poor planning on our side and treating them as controllable whilst they are not — is economically and legally incorrect. As a last point, full inflation compensation for OpEx is essential. We cannot understand the proposed 2-year time lag, which lacks in our eyes, justification and undermines the credibility of the regulatory framework. Summarizing, to attract additional capital to increase our CapEx run rate, several aspects of the current proposals need to be amended to achieve an attractive regulatory framework. We trust that the Bundesnetzagentur will take both industry and our feedback serious.

And based on our long-standing experience with the regulator, we expect that also for the new regulatory period, an attractive and also internationally competitive general framework for network investments in Germany will be ensured. In light of the enormous growth potential and the need for further network investments, we remain confident that the regulator will apply its discretion in the right direction. And let me now move to my final key message and look at our non-German network businesses, which are performing ahead of expectations, driven by strong customer demand. In H1 2025, we increased CapEx in Energy Networks outside of Germany by 11%. It’s the same number as for total CapEx, so 11% in total, 11% in non-German business year-over-year.

Some examples to make it tangible. In Poland, data centers are ramping up in the Warsaw area, and this is where we are the supplier. We are already installing a new 220 kV line and have a pipeline of connection requests totaling 1.8 gigawatts of capacity from data centers alone in Warsaw. That’s actually spectacular. And for the non-engineers, this means that we are building in the distribution grids assets, 220 kV assets, which are normally only the topic that the TSOs are building. In Slovakia, 6 major car manufacturers have now reserved capacity totaling around 450 megawatts. In Czechia, we have received 18,000 new connection requests in H1 2025, half of them driven by solar installation, including households within the low-voltage grid.

And the list goes on and on for all the markets. What it shows is the growth is actually absolutely fundamental. There is no political driver. It’s driven by customer demand in the meantime and by innovation. But in addition, it’s fair to state that also the political background is overall favorable for us. The EU reaffirmed the 2040 climate target and set a renewed focus on grid expansion. Not renewables are the bottleneck of the energy transition infrastructure is. In Germany, the new government kept the ambitious target. It also signaled the need for better synchronization between the expansion of renewables and grid infrastructure, which we fully support. And both the European Commission and the German government have put more emphasis on cost efficiency of the energy transition.

And here, E.ON has actively provided thought leadership and used our system relevant positioning to support policymakers. In that sense, it is encouraging to see that 7 out of the 10 recommendations which we made in our E.ON Energy playbook, which considers a more affordable approach to net zero were actively considered in the German coalition agreement. So let me conclude with my — with a reiteration of my 3 key messages for today. We continue to deliver what we promise. Germany’s new regulatory framework must be internationally competitive to attract the capital needed. And finally, there is a continued robust growth outlook, not only in Germany, but also in Europe. And now over to you, Nadia, for a closer look at the numbers, please.

Nadia Jakobi: Thank you, Leo, and a warm welcome to all of you from my side as well. Let me start first by sharing our financial and operational development in the first half of 2025 before taking some time later in my speech to also comment on the current status of the regulatory process in Germany. First, E.ON continued to deliver strong operational and financial performance in H1, which puts us firmly on track to deliver our full year guidance. Our adjusted EBITDA reached EUR 5.5 billion, and our adjusted net income came in at around EUR 1.8 billion, which is a year-over-year increase of 13% and 10%, respectively. Our increased earnings were predominantly driven by investment-backed growth as well as strong operational execution and value-neutral timing effects in Energy Networks.

Second, we have accelerated our CapEx spending by around 11% year-over-year with the main share going to our Energy Networks business. Our planned CapEx ramp-up and EBITDA contribution are on track in terms of quarterly fill rates across all our business segments. Third, our economic net debt outturn of around EUR 45 billion in the second quarter came in as expected, reflecting the typical seasonality of operating cash flow for the first half of the year, the usual Q2 dividend payment and higher investment activity. Our strong balance sheet continues to provide a solid foundation for our investment plans. And finally, we fully confirm our short and midterm guidance, including our dividend policy. Let us move on to the details of our H1 year-over-year adjusted EBITDA development.

The EBITDA increase was primarily driven by our Energy Networks business due to accelerated investments in our regulated asset base across almost all of our business regions. In Germany, we saw timing impacts coming from stronger volumes as well as lower redispatch costs during the first half year. As already communicated in Q1, a substantial contribution to our earnings growth also came from network loss recoveries and volume effects in Southeastern Europe. As you know, these effects are all economically neutral given the regulated nature of our segment. We are providing the year-to-date pro forma figures as part of the appendix to this presentation as we did in Q1. Moving on to our Energy Infrastructure Solutions business. The growth in adjusted EBITDA was driven by higher weather-related volumes coming from normalized weather in the first 6 months compared to last year and improved asset availability, especially in the U.K. and the Nordics.

The commissioning of new projects and increased smart metering installations in the U.K. also continued to the growth. Our Energy Retail business is performing as expected. As indicated during the Q1 call, there were adverse temperature-related effects in April and early May. Record high radiation led to lower volumes delivered to our consumer customers. After a strong Q1, we saw the anticipated earnings normalization in the U.K., which was already fully reflected in our guidance. In our U.K. B2C customer segment, margins normalized as customers changed from SVT tariffs into fixed-term tariffs with lower margins. In our U.K. B2B business, the elevated margin from contracts made in the last years continue to roll off. Regarding our customer base, we continue to focus on value by prioritizing customer loyalty, supported by our continuously improving quality of service.

Customer satisfaction increased across all major markets as shown by improving NPS scores. We expect our customer base to remain at around EUR 47 billion by year-end. Our adjusted net income came in at around EUR 1.8 billion. All P&L elements below adjusted EBITDA developed in line with our expectations. As a result, we are well on track to meet our full year 2025 guidance, supporting the promised high single-digit underlying adjusted net income growth. Let me turn to the development of our economic net debt, which increased to EUR 45.3 billion from EUR 44 billion at the end of Q1 and EUR 41 billion at the year-end 2024. We have seen strong operating cash flow, which fully covered our Q2 investment spending. The seasonal uplift in END was driven by the usual dividend payment in May.

For year-end, we expect END to be slightly below EUR 44 billion, assuming current interest rates, representing a year-over-year increase of around EUR 3 billion, driven by our significant CapEx ramp-up. Following the rating confirmations from S&P and Moody’s earlier this year, we have now also received Fitch’s confirmation of our strong balance sheet position. With this, all 3 rating agencies continue to positively assess our funding and financing outlook. Let me now add some further remarks on the published RP5 proposals on top of what Leo has said. I would like to start on a positive note. In recent months, we have seen a constructive and much needed dialogue between the German regulator and the industry on shaping the future regulatory framework.

This is welcome, but also essential for setting the right course to achieve our common goal for a successful energy transition in Germany. We see that the regulator wants to better link the financial parameters with the general market developments and is running the process in a transparent manner. And we also appreciate that the regulator acknowledges our competence in managing the energy transition by introducing a dynamic factor for our cost base regarding the growing number of connection requests. As the energy transition will continue beyond the next regulatory period, this instrument is permanently needed or not only in RP5. In addition, the proposed adjustments to the cost of equity and cost of debt still do not create the attractive financial conditions required to remain competitive in the global ways for private capital.

Looking beyond Germany, we see that other countries are setting more attractive investment signals. The latest draft by Ofgem in the U.K., for example, proposes a nominal post-tax ROE of around 8% plus the prospect of higher remuneration through additional incentives. As we could see from latest announcements of other international network operators, this enables massive further investments into the necessary grid build-out in the U.K. While the shift to a more widely accepted and internationally recognized RAC-based remuneration system is a step in the right direction in Germany, it falls short of the required levels of 8% ROE, nominal post-tax as demanded by the industry and investors. For a truly more market-oriented reform, the interdependencies between the risk-free rate and the market risk premium must be taken into account and not just technical adjustments.

This would allow for a consistent application of the capital asset pricing model, which results in line with market-based observations. Same applies for the cost of debt, where we also need to have a more market-based approach. Since long-term infrastructure assets are typically financed through long-term debt, we need a dynamic rolling average approach to better reflect the recent interest rate levels instead of fixed cost of debt over the entire regulatory period using historical averages that include exceptionally low interest rate years. This approach fails to reflect actual financing conditions with the risk of slowing down investments. The mentioned aspects are crucial for the financial soundness and attractiveness of the German regulatory system.

Together with other industry players and our energy associations, we are advocating for competitive market-based regulatory system to achieve our shared goal of a successful energy transition in Germany. That said, I remain confident that the regulator will consider our economically sound arguments and ultimately ensure an attractive general framework that allows us to attract additional capital to increase our CapEx. Let me conclude today’s presentation with my key takeaways and outlook. First, the strong H1 outturn firmly supports our expected earnings delivery for 2025. Second, our investment ramp-up is progressing as expected, underpinning our midterm 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, supporting sustainable growing annual dividend per share.

And finally, on our full year 2025 outlook. In our Energy Networks segment, we expect to reach the upper end of the guidance range, driving — driven by the mentioned value-neutral timing effects. This brings us also to the upper end of our group EBITDA guidance range. For our adjusted net income, we expect to land comfortably within the guidance range as the positive timing effects, especially in Southeastern Europe are subject to tax and minority interest deductions. With that, we fully confirm our full year 2025 guidance and 2028 outlook, including our dividend policy. And with that, now back to you, Iris.

Iris Eveleigh: Thank you very much, Nadia and Leo. And with that, we would like to start our Q&A session. And today’s first question comes from you, Wanda, from UBS.

Wierzbicka Serwinowska: Hopefully, you can hear me. Congratulations on the H1 results. Two questions from me. The first one is on CapEx in Germany. There is a study commissioned by Germany’s Economy Ministry, which plans to assess whether the current scope of grid expansion is still needed. Does it pose a risk to your CapEx plan? How much of your ’25, ’28 CapEx in Germany is set in stone? And if the renewable targets occurred, what is the risk to your CapEx plan? And the second question is on — again, on CapEx. If the allowed returns in Germany fall below your expectations, how should we think about your mid- and long-term CapEx? Because I’m trying to figure out what is the alternative to spend EUR 5 billion to EUR 10 billion financial headroom. Can you accelerate CapEx in other countries? Or is there any M&A on the table? Any color will be appreciated.

Leonhard Birnbaum: CapEx in Germany, ’25 to ’28, there is no risk. Period. Let me maybe just illustrate a little bit why? Yes, there is a monitoring ongoing by the politics, and you know about that. You alluded to that. That might result in the fact that we see a lower increase of electricity consumption than anticipated 5 years ago, which might then turn into the conclusion that we need to build, for example, less offshore wind farms or less onshore wind farms or that we can reduce our expansion target on renewable side. That has no impact whatsoever on the ’25 to ’28 CapEx plans. Why? Because we are in a catch-up mode. We have so many bottlenecks that we need to still work against. We have an unbroken demand from customers, as I’ve alluded to in my speech.

Therefore, I cannot see that whatever comes out of the monitoring will really impact us. Also have in mind that the terawatt-hours are important for how much a kilowatt hour cost to the customers. But what really matters for the need of the grid is the megawatt demand. Capacity is what is driving the expansion need, not energy. And therefore, no, we don’t see the risk. The discussion that we are having is only how much additional investments do we need and what do we need after ’29. So no — but your question was specifically targeted ’25, ’28, I don’t see it. And I don’t want to speculate on a bad outcome for the RP5. We are clearly focused on achieving a good outcome because that would allow us to continue the growth path that we have delivered against in the last years, which was beneficial for our customers, beneficial for our shareholders and beneficial for the energy transition.

And so our current assumption is, as Nadia has said, as I have said, we will come to a conclusion, which will allow us to continue the growth trajectory. So no, this is not our concern or our key concern today.

Wierzbicka Serwinowska: Can I follow-up — sorry, go ahead.

Nadia Jakobi: Maybe just to follow on the CapEx from 2029 onwards. We have also shown 1 scenario, which aimed at a more affordable energy transition in our playbook scenario, which was also not that — which also said, okay, some of the elements like green hydrogen need to be reduced. And you saw from that, what we highlighted last time that there is still the significant ramp-up what Leo has just highlighted.

Wierzbicka Serwinowska: If I may, a very brief follow-up on the M&A because there was some press speculation that E.ON is looking to buy or sell some assets. Any comments on the M&A side?

Nadia Jakobi: Wanda, as you know, we don’t comment on M&A speculation.

Iris Eveleigh: And the next question comes from Alberto.

Alberto Gandolfi: I have 2 questions. The first one, as usual, very long. The second extremely quick. I put my hands forward, as you say. So the first one is in the previous call, you had mentioned that your request, your [Foreign Language] essentially to the regulator would be an after-tax ROE above 8%. Can I ask you, given what we know so far from the methodology paper, how far are we to get to the more than 8% after-tax return? And what do you think is needed to get there? Is it outperformance? Is it the OpEx update? Is it the actual risk-free rate methodology, the risk premium? I know what matters is not how you get there is to get there. But if you can give us any indication of where the conversations are would be fantastic.

Second question, super simple, because there is a creeping trend in the industry to finance growth or repair balance sheet through equity, can I ask you, do you envisage any scenario where you would need to raise equity to support growth over and above your EUR 5 billion to EUR 10 billion balance sheet headwind?

Nadia Jakobi: Yes, I can start with the first question. Thanks, Alberto. So we cannot give you a number on what the WACC calculation would mean when you take the current draft of the regulator. I think what we can say, and that is mainly due to the fact that when it comes to cost of debt calculation, we don’t know kind of what time series is actually included in the calculation. As I highlighted in my speech, when you take a certain assumption on when this is determined, that would include still very low interest rate years. But we don’t want to speculate on that now, and that’s why we won’t give you now a number on what would be a result of the WACC because we just don’t know from the current draft. You’re right, when it comes to the market risk premium with the new methodology, there is an increase.

So because we are going now to the arithmetic mean that would result in a market risk premium of approximately 4.6%. But as you know, in capital asset pricing models, you would come more to a market risk premium of more than 6%. So there’s a certain gap in there. That would be it. So then it comes — then maybe you…

Leonhard Birnbaum: And the other side, you know, Alberto, that first, we are pursuing a value-creating strategy that the growth is financed by an increase in earnings, which we deem to be the appropriate way given that we are not looking at a onetime increase of CapEx, but we are looking at a decade of growth, which again, I highlighted in today’s speech with all the examples that I mentioned, which are just an indication that this growth is real there. It’s not just something that we are dreaming about. So that — having said that, so we want to finance the growth from our balance sheet. We have kept some reserve in our balance sheet, and this is the way that we actually want to continue also in the RP5. So no, we are not speculating, and we are continuing to drive forward the value-creating way that we have driven over the last years, balance sheet growth, a balance sheet-driven and finance growth combined with great operational performance that then delivers superior returns.

Alberto Gandolfi: This is really clear. Can I just follow up? You still think that a fair after-tax return on equity in Germany, all in, it doesn’t matter if it comes from the return outperformance is — should be above 8% after tax?

Leonhard Birnbaum: We have not changed our position to the outside world, so no need to correct anything.

Iris Eveleigh: And the next question comes from Deepa.

Deepa Venkateswaran: This is Deepa from Bernstein. So I’m going to also unfortunately, labor on the German regulation, which is my favorite topic. So a little bit more clarity just on the timing. You said you’re expecting the final around Q4, but do we know when? Is it just before Christmas? Or is it October? And crucially linked to that is when will some of these parameters be frozen? And it will make a very big difference on something like the cost of debt for sure, because the 7-year period, when does it start, when does it end, will make a very big difference. So I just wanted to know what you think of the timing on the draft as well as like when some of these parameters will be frozen. And do you generally see that you will get adequate clarity by the end of this year on the benchmarking?

I think here you raised a number of points on why you’re not happy with it. And then Nadia, you talked about the post-tax ROE not quite being there. We compute that it’s got probably close to 6.5%, but it’s still below your 8% that you talked about. Do you think you will have clarity on these 2 elements and the cost of debt by the year-end? Or some of these things will only be known in maybe ’27 or whatever and so leaving you maybe with a bit more uncertainty on whether you can increase your CapEx?

Nadia Jakobi: Yes. So thanks, Deepa, for the questions. So first of all, we always highlighted that the regulator set himself his own timetable, which gives them until the end of the year if he follows his or their own timetable. They’ve got other things to do. They have got also gas regulation period coming up. So they have set themselves this own timetable by end of the year. So we wouldn’t expect anything early Q4 or something because normally, if you’ve got a time box, you usually use it to the last minute. That said, it can well be that the regulator doesn’t follow the timetable. So we are dependent very much on that because that’s not a firm law timetable, but a sort of a self-induced ambition that the regulator has given themselves.

Then what we said that normally, the methodology should give us ideally enough if you got a methodology framework, we will be able to narrow down not to the last digit, but we would be able to narrow down where the capital returns are. And we don’t know whether — now the inputs, our assumption would be that the methodology is that clear that we can narrow down the capital returns. But of course, also that we don’t know yet whether this is going to be the case by the back end of the year.

Leonhard Birnbaum: Yes. And for the OpEx values and the benchmarking there, the clarity on the final parameters will take longer. That’s clear. But so having said all of that, we’re still hopeful, but we don’t know.

Nadia Jakobi: Yes. And we don’t have any indications that the regulator sort of goes away from this anticipated timetable.

Iris Eveleigh: The next question comes from Harry.

Unidentified Analyst: So 2 for me. The first one is really an extension of Deepa’s question actually, which is, how do you risk manage that you’re not going to get the final return and the final cost benchmarking allowances and so on until a few years’ time? And if you assume that you do raise your investment plans in February, which I think most of us are kind of leaning towards you doing that. What do you do if then subsequently things aren’t as attractive as you had anticipated them to be based on the consultations you get at the end of this year? And what tools do you have to ensure that the regulator stays true to its word and they don’t pull the rug from under your feet later? And then the second one is actually kind of the opposite of Alberto’s question.

Given that your share price has been very strong, your yield below 4%. You’ve had this long-standing policy of up to 5% growth. You’re transitioning from being a yield stock to a more sort of growth profile on dividend yield. And I wondered how comfortable you were with that, whether you would ever revisit your 5% growth policy if you felt that having higher income would help support the shares. And also, although it’s marginal, I think you’ve done slightly less than 4% DPS growth in the last couple of years. Would you look to sort of move to the maximum growth to try and maintain your yield?

Leonhard Birnbaum: I might say that I’m very comfortable with my share price development. It’s like — clearly more comfortable with any — than compared to any alternative. If we reconsider or change, then we will actually communicate after we have reconsidered. Let’s maybe leave it there. But again, we are happy that not only the dividend yield has been attractive, but that also growth has materialized to the extent that we believed it would and actually that we have also been able to deliver against that. So in that sense, I think it’s a luxury problem that we are discussing here. On the CapEx plans, first, I think we should still remind ourselves that we have a clarity 3 years out, which for the 2 of us is a privilege that very few other executives have in other industries.

But I mean, you expect that being from a utility industry, but 3 years like clarity out there. What we are doing is we clearly understand that we cannot bank on the sky is the limit and more resources are better. And so we are very conscious, for example, on the increase in OpEx that we do in our operational units. The number of people that we hired. You have seen that we have hired, again, 2,000 people compared to last year, but we are doing this in a very conscious way in areas where we’re absolutely sure that we will need those resources going forward, also considering demographics, et cetera, et cetera. So we are conscious on the cost side, I think, and we try to keep as much flexibility as we can because that’s the way to react to unforeseen.

But having said all of that, we bank on being able to achieve a sufficient regulatory outcome because it’s in the interest of the customers, the energy system, the regulator politics and our shareholders. And we are confident that we will get there. But as I said, we are not blind and we are not naive. We work on being flexible enough to adjust if we need to.

Nadia Jakobi: Yes. Maybe let me add to what Leo has said. We are similar to the U.K. and some of the other countries, we are going into a decarbonized energy system. And there’s a big need to invest and sort of keep the energy system going. We are investing more than 2.5x of our depreciation. We are highly cash flow negative business also going forward for the foreseeable decade, we see this investment growth. I know that’s also part of the risk management that actually the regulator cannot afford not to give us the right regulation because then we wouldn’t be able to attract the capital and then we wouldn’t be investing. So it is not that we are sort of on the whim of somebody, but we are sort of clearly walking hand-in-hand together with the sort of the interest of politics, regulator and what our investors do.

Iris Eveleigh: And the next question comes from Louis Boujard from ODDO.

Louis Boujard: Actually, I have 2. So the first one would be regarding the, I would say, the neutral timing effect that has some consequences in the 1H that is going most likely to have also additional consequences in the second half at the EBITDA and the net income level. I was wondering if we take this into consideration to bridge 2026, what would be the magnitude that should be taken into consideration for next year? And also, what could be the actual landing point in terms of EBITDA and net income considering that next year is going to be a benchmark year for your OpEx activities into the German network activity. So do you feel comfortable with the current consensus expectation on this point? And what shall we take into consideration, I would say, in order to neutralize this different volatile effect into the earnings momentum from this year to next year?

My second question would be regarding the capital allocation. I appreciate that you already mentioned EUR 5 billion to EUR 10 billion of additional investments that could be eventually free up going forward, depending on the returns. You mentioned that eventually you could expect 8% return on equity. What if indeed you have this 8% return on equity and that in the end, you need eventually more investments in order to maximize your value to shareholders. Would you prefer a capital increase like Iberdrola and National Grid did in the past few months? Or would you prefer to go with something like additional disposals going forward, eventually in a heavy asset business in order to finance this additional need of capital in the future?

Nadia Jakobi: So I think we will sort of try to dissect that because it’s not really only 2 questions, I believe. So first of all, I fully appreciate you’re very interested in the year 2026. We are not guiding on this year now in today’s call, but we will do that as we always do, starting with the full year communication 2025. But when you now ask for sort of this OpEx effects, then I can shed a bit more light on that. So as you can see also from the backup on the appendix, we have currently approximately a low triple-digit million euro figure, sort of just shy of EUR 200 million as part of absolute OpEx effects that are included in H1. That is a bit higher than we had anticipated when we were giving the outlook. And now we expect another approximately EUR 100 million for the remainder of the year, which then as we highlighted in our guidance, that sort of brings us then to the upper limit of our networks guiding range basically due to this value-neutral timing effects.

Then we don’t comment on our achieved ROEs. What we always said is that we have our value creation spread, i.e., ROCE over pretax WACC of 150 to 200 basis points for our entire Energy Networks business. And in this current CapEx envelope, i.e., the 5 years’ time, we are achieving this value creation spread. And bear in mind, we have got approximately — take our entire Energy Networks business, pretax WACC of 6.5%. That leads us to approximately a ROCE from 8% to 8.5%, which we indicated in previous calls, and that’s still correct. With that, maybe I give back to you because I answered the question before.

Leonhard Birnbaum: Yes. I just repeat, we don’t expect a change in our funding strategy. We want to do that based on earnings-based growth. And we also have in mind that we have some headroom left. So if — and also, I repeat what I said in my speech, the demand is there. So if all the conditions are right, we could increase already starting 2027 and then continuing in the next regulatory period. Otherwise, we can continue on the trajectory in which we are on right now.

Iris Eveleigh: Thank you, Leo. Then we move on to the next question, which comes from James Brand from Deutsche Bank.

James Brand: I had a couple of questions. One is on the OpEx allowances. And it sounds like it would be pretty bad news to be including all the redispatch costs in there, but let’s hope that the regulator sees sense and realizes, as you correctly say that, that doesn’t make sense to include them. So let’s exclude that. How — is there any kind of metrics you could give us to assess how the switch to kind of an average of 2 versus the top of the 4 different metrics would impact you? How would that, for instance, have impacted you last time if that methodology have been applied? That’s the first question. The second one is on CapEx. So obviously, the hope is that you get everything you’re looking for from the regulator and then given all this demand for investment that you’re talking about, you can step up CapEx. Is there anything you can point us to that gives us an idea for how much we might be able to see CapEx going up if you were to get everything you want?

Obviously, the world doesn’t always work that way. So I’m sure you won’t get everything you want. But just anything that help us quantify it. And I was just hoping I could just sneak in — just a clarification because Deepa asked — it’s not third question, honestly. Deepa asked about when the market parameters would be set like the risk-free rate for the cost of equity and the cost of debt. I didn’t quite catch the answer to that. So maybe you could just repeat that.

Leonhard Birnbaum: Okay. I take the OpEx and then on the CapEx side, Nadia. First, no, actually, we can’t quantify that because what I said in my speech is what concerns us is the multitude of simultaneous changes without an impact assessment. So a new group, different methodology, et cetera, all at the same time without an impact assessment. So therefore, it’s kind of like this has created a big uncertainty for us. It’s obvious, we don’t know who will be in the comparison group afterwards. Will they really be comparable? And therefore, for us to quantify now the effect of 1 parameter in that, what is the 2 versus 4, that depends at the same time of who is the comparison group, who is included, who’s not included. So no, I can’t give you an answer on that.

But as I tried to highlight in my speech, that’s exactly the point. We would have expected an incentive — a change in the methodology to be followed, accompanied by an impact assessment. And if not, what we are struggling with is this might actually lead to the fact that even if you are efficient, you just become unefficient all of a sudden because you have changed the methodology and you’re still doing exactly what you have done before. And I thank you for the moral support on the redispatching cost.

Nadia Jakobi: Yes. So first, I’ll take the last question on the risk-free rate. So there are multiple things. So first of all, of course, for us, it will be good to know by the end of the year, which time series is going to be used. We always said that the actual fixing of the interest will be closer to sort of the start of the new regulatory period. We now sort of the uncertainty that comes out is now that we need to know, of course, what time series will be used in order to assess how attractive the cost of capital is. So we have never assumed that we will get sort of the finally nailed down number. But if we’ve got enough clarity of the methodology, then we can, of course, use that to compute every — compute it whilst we are going.

And currently, we don’t know yet which time series are going to be used. I hope that clarifies. And when it comes to CapEx, we said that we will say — talk about the CapEx our next full year communication. Currently, we don’t have the clarity yet in order to boost our CapEx, it would be required that the current proposals are being amended. That’s why we just need to ask you to bear with ourselves. We have in the current envelope, we have got EUR 35 billion associated with the European overall network spend for the 5 years. We have approximately EUR 26 billion out of that belonging to the German business, thereof approximately EUR 21 billion for the 5 years for the electricity RAB CapEx. And that is the only clarity that I can give on CapEx as of now.

And — if and how we would ramp up, we would only communicate when we know that the sort of our amendments have been made.

Iris Eveleigh: That brings us to the next question, which comes from Piotr from Citi.

Piotr Dzieciolowski: So I will have 2. So the first one, I remember 2 quarters ago, we were a bit excited about this EUR 500 billion infrastructure fund in Germany. And I wonder if there is any follow-up on this and possibly a discussion that some of these funds could be used to funding the development of the grid or the TSO, DSO level. And the reason I ask this is because we are now going through the regulatory review, whereby you, as an industry demand relatively high returns in order to mobilize extra capital, but maybe there is an alternative cheaper way to fund it via the subsidies. And therefore, trying to avoid the impact of the power bills and kind of make everybody happy with you not really being able to spend more money.

So just thinking about how to fund it, the CapEx. So there’s simply no details on it, if you can maybe clarify this. And the second question I have on your — I’m not asking specifically about the disposal of the Czech gas business, but there was a headline like this. But just more broadly on your — because over the quarters, you were saying that you are happy with your portfolio, but you continuously to review it. So can you maybe tell us what kind of a criteria? What is your current thinking like you don’t like the gas assets or you think this is the right time as we go into — you need to accelerate and spend money on power grid? Or directionally, why would you consider such asset as this one, not particularly, but then we could have a bit more your thinking like what could come next with your — all of the asset rotation?

Leonhard Birnbaum: Yes. On the EUR 500 billion first, we positively take note of the fact that the German government, when they actually set up this EUR 500 billion infrastructure fund, they have highlighted the importance of energy infrastructure for Germany as a place to be. And that is obviously supportive for us. We, however, do not expect like direct subsidies out of that. Actually, I mean, I get such questions in political debates. It’s the first time I get it like in a capital call. I actually — I mean, funds are limited. It’s like — and it’s not — I mean, what we are talking about is we can discuss whether we can shift parts of the bill into the state budget, but then the state actually needs higher taxes because I don’t see them actually cutting anywhere else in exchange, so to say.

So in the end, the customers pay via taxes or via the bills, one way or another. So therefore, the way to actually make energy cheaper is to do a better energy transition, which is what we have always been advocating and not just shifting inefficient spendings into the state budget. So — and I repeat what I also said earlier, we actually don’t want subsidies. We want a regulation which allows us to earn the money that we need to attract the capital that we need to make our investments. That is actually sustainable. It’s actually more sustainable than an insufficient regulation and subsidies, which in the long run won’t work given the amount of money that we need for the energy transition. The only exception where we have a direct impact is we are going to see some direct support of TSO grid fees via these facilities from the state.

That is, for me, an acceptable subsidy, I would say, given the huge magnitude of TSO buildup infrastructure in offshore, which is really somehow special. So — but apart from that, we are not expecting and we are not desiring direct subsidies. We actually want the ability to earn what we need to earn for the investments we make.

Nadia Jakobi: Yes. Then coming to your point on M&A, we have got our fully discretionary M&A disposal program of EUR 2 billion, where we realized some EUR 150 million last year. We have got a pending Romanian transaction when it comes to the supply business there. And what we always said is we are — and Leo highlighted it earlier, we are very happy with our portfolio. We are actually now in the strategic space where we belong. And that’s why we will not now say this or this part is noncore. There are some smaller transactions that we could foresee. And whenever we say we put this or this on the block, it’s not most likely to be a value-creative disposal for us. And that’s why we don’t do and apologize for that, but we cannot comment any further.

Iris Eveleigh: With that, we come to our last question for today’s call, and this is coming from Ahmed from Jefferies.

Ahmed Farman: Two from my side. I appreciate your comments that, look, there’s sort of a lot of sort of changes being proposed and it’s — the process is still in the consultation phase. But I do wanted to ask you, if you sort of take the proposals as they are, so on the cost of equity side, you have certain potential improvements, but it sounds like there are certain other changes on the benchmarking side. If you sort of take the 2 together, is there anything you can say directionally what — as the proposals stand, what do they mean for your value creation spread? Does it actually sort of the 2 changes today point to a better value creation spread, the same? Or is it even sort of slightly sort of a headwind for you? So that’s my first question.

My second question is just on the procedure from the year-end when you are expecting the methodological papers. Again, I take your point that you hope that this is going to be a constructive process. But in case it sort of does not sort of turns out to be the outcome that you hope to achieve, what is the procedure from there onwards? Is there a recourse mechanism for you? Is there sort of somewhere — is there a process where you can appeal this? Just wanted to understand that better.

Leonhard Birnbaum: Yes. I think I can actually combine the 2 questions. Number one is, I want to repeat, until 2028, included, we have a funding strategy that should allow us to continue on the growth path in which we are on with a 10% RAB growth on the power side, attractive growth of dividends, et cetera, et cetera, basically our framework, our financial framework. And now I don’t want — and now you’re obviously asking the question, what if everything would stay unchanged. I don’t want to actually embark on that speculation now for ’29 forwards. The process is not finished yet. And I think the facts are on the table. And I think we will actually — we will have constructive discussions how we can achieve a framework, which allows the continuation of the energy transition for the benefit of the energy transition of our customers and then eventually also of those who are actually supposed to make the investments, i.e., our investors.

And therefore, it’s like what if — what if everything else — no, actually, we are clearly focused on continuing the growth strategy that we have on the table. And we will not speculate on what might happen. If not, we will react to whatever happens, but that we will then do in due course. And until then, we are on the time line that Nadia has actually already laid out until the end of the year. And then we will take stock and then we will look forward. But again, no speculation now ’28 onwards.

Iris Eveleigh: So with that, thank you very much, everyone, for participating. Thank you, Leo and Nadia. And as always, if there are any sort of follow-up questions, the IR team is happy to also engage in bilateral discussions with you afterwards. Thank you all very much for participating in today’s call, and have a good rest of the day. Thank you very much, and bye-bye.