E.ON SE (PNK:EONGY) Q4 2023 Earnings Call Transcript

E.ON SE (PNK:EONGY) Q4 2023 Earnings Call Transcript March 13, 2024

E.ON SE  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Iris Eveleigh: Good morning, everyone. Dear analysts, the investors, a warm welcome from my side to our Full Year 2023 Results Call. I’m here with Leo and Marc, who will present our results to you. As always, we will leave enough room for your questions afterwards. And also, as always, please stick to the 2 questions through each. With that, I hand over to you, Leo.

Leonhard Birnbaum: Yes. Thanks, Iris. Good morning also from my side. I am here with Marc. Today, he’s still my CFO, and he will remain that until the 1st of June, but I’m very proud before I get to the 2023 numbers and our revised outlook that also we have been able to very smoothly figure out a great succession for Patrick Lammers with Marc, who happily will take over the new challenges, which a new job we’ll offer to him, but as I said, he will stay around for a few more months to come. So where are we today? Maybe 2 words. Today, we are actually talking to you from our brand-new testing lab in Essen. So for once, we have actually decided not to broadcast from a conference room, but rather from a real-life facility in which you see where all the investments are going to — which we are going to announce today and explain to you today.

This is one of the examples how E.ON is driving the energy transition forward. So let me now turn to my 4 key messages. First, 2023, we have seen a strong delivery, the strongest company performance since I took over as CEO, actually 3 years ago. And it makes me proud that we have not only delivered great financials, but also that we are able — and shown that we are able to grow. Second, we will emphasize today that this is the right time to step up to the next big investment cycle. And we will continue to deliver on a unique once in a lifetime, once in a generation growth opportunity. And for E.ON, this means that we are upping our investment plan to €42 billion by 2028, as you have seen. Third, I want to emphasize that we are not only delivering against financials, not only growing, but we are also delivering against our aspirational and sustainability targets, as well as against our claim to pioneer the digitization in the energy sector.

And fourth, we will actually fund this growth from a strong balance sheet and create significant shareholder value. I’ll touch on all these points a little bit, but Marc will then detail some of them more later. On my first message, 2023 was again a year full of challenges. War in Ukraine, interest rate turnaround, economic downward trend in Europe, a continuous rise of geopolitical risks. Nothing of that has changed the continued delivery, the continued performance of E.ON. With an adjusted group EBITDA of €9.4 billion, we delivered results that have significantly exceeded our expectations for the 2023 financial year. And actually, in both our segments, Energy Networks and Customer Solutions grew in most of our market’s year-on-year. Finally, our investment rose by around €1.7 billion to €6.4 billion from a starting base of €4.7 billion.

And this accelerated growth momentum underpins the validity of our strategy. This growth momentum I just mentioned stems from a supportive political environment for E.ON. And this environment becomes evident in the grid action plan of the European Commission. This grid action plan has put grid expansion at the top of the energy transition agenda, something that was unthinkable just a few years ago. The growth momentum also becomes evident in the constructive reform of the European electricity market design. All calls for more government interventions were met with a pretty clear signal. The key to a new energy future is actually more private investments. And all of that has translated into even more aspirational targets. And all of that, again, strongly supports E.ON’s investment case.

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Q&A Session

And we see the impact already in our day-to-day operations, not only in stated ambitions. For instance, customer connections request from customers in Germany have increased by 75% within 1-year to more than 400,000 following the increasing renewable trend. But I want to emphasize that we are seeing growth momentum not only in Germany, but in all our markets. Likewise, updated decarbonization targets in the industrial and housing sectors drive the need for further energy efficiency. They created an increased customer demand for tailored infrastructure solutions to decarbonize. And we are tackling this within our Energy Infrastructure Solutions business, investments in this area have increased by 30% year-over-year. And this growing relevance of the now stand-alone segment leads to our new 3 segment structure.

Energy Networks, Energy Infrastructure Solutions and Energy Retail. That’s all that is just as simple. Energy Networks contains our regulated business for the energy transition, which makes E.ON the leading DSO in Europe. Energy Infrastructure Solutions includes our long-term contracted activities such as district heating and cooling networks in urban areas, integrated energy infrastructure for industrial and for commercial customers. And in Energy Retail, we have proved to be the best owner when it comes to operating our customer portfolio for the commodity activities and for the solutions part of the B2C business, and we do not only manage this business as a strong cash contributor. We also seize the opportunity of leveraging our commodity portfolio to accelerate the growth of our solutions portfolio.

And now let me just briefly flip through these segments and our growth plan for all of them. In Energy Networks, it’s now all about delivery. The majority of the investments we are announcing today will be allocated here. And as the CEO, in many discussions, I’ve been asked whether we have the preconditions in place to deliver. And the clear answer is, yes, and to highlight that, let me just touch on some critical aspects and how we manage them that are always mentioned in the discussions. First, operations. Proof of evidence, we are successful in attracting a skilled workforce. In 2023, we have hired more than 5,000 new colleagues on a gross basis in networks only — 11,000 in total, 5,000 in networks only. And that despite tight labor markets.

And we are fully confident that we can attract more than 13,000 additional talents there by 2028. So we have the people. Second, supply chain. We are working on this topic already since years. Despite €1.7 billion higher investments, we have not encountered a single bottleneck in the supply chain in the last year, so much for us having this under control. How have we done that? Well, we have worked on standardization, on better demand forecasting, on process improvements in our energy asset management and we have worked with our suppliers to increase their resilience and increase their capacity. Third, permitting, and we see really improvements in several areas, and so we are confident that this will not be the crucial bottleneck. Because of that and many other improvements, which we have done in many other areas, we can assure you we can deliver, and we will deliver our accelerated investment program.

As responsible corporate citizens, we are also putting however, significant efforts on affordability when it comes to the energy transition. It’s not just any investment is good for us. We want only efficient investments. While we are seeing extended grid fee increases in Germany in 2024, we would, however, want you to keep in mind that those are not a proxy for future developments as they are driven by the reintroduction of redispatch cost to the network fees. Going forward, we expect more moderate raises for households, ensuring that the network tariffs and fees remain a manageable part of the total bill. So therefore, for all of these reasons, I’m confident to share with you one of the most important numbers today. We will ramp up our Energy Networks CapEx to a new target of €34 billion out of the €42 billion in the investment plan.

And with that, we have now increased our Network CapEx plan for the third time in a row, it now is twice as high compared to when I took over 3 years ago, and actually also the total investment volume of €42 billion is more or less twice as high as when I took over 3 years ago. You see me really comfortable with this run rate for 3 reasons. One, we have started to ramp up our spending already from ’21 to ’23, and we have over delivered the initial targets last year. Second, our annual investment plan is backed up with 110% of operational projects. So if something goes wrong somewhere, we will still hit the target because we are overshooting when it comes to investment. And then over the year, managing it towards the target picture, which one to achieve.

And finally, our long-term planning has further improved. We have a much better visibility until 2028 and beyond, and we will be able to keep this run rate into the mid 30s. And overall, all of this will actually boost our power RAB growth to an outstanding CAGR of 10%. However, we have deliberately not gone to the limit of what could be possible. We have kept a sense of proportion regarding the network investments. And let me explain to you why. While on one hand, the importance of networks for the clean energy transition has finally been widely appreciated across Europe. We have, on the other hand, seen constructive regulators and various improvements in regulatory parameters in different markets. And here are some examples. They needed return step-ups on new invest in Germany.