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

Page 2 of 11

The increase in regulatory WACC in Sweden. The WACC uplift in Poland. And on the other hand, we are also benefiting from existing inflation protection mechanisms in various markets. And especially in CEE countries with real RAB regimes, we have seen double-digit RAB indexation. All those uplifts and the various inflation protections in all our major markets allow us to ensure an attractive return on capital of 150 to 200 basis points in average overall markets above our capital cost. And we deem this value spread as necessary to successfully compete for investors in an international context. The regulatory achievements that we have seen enable us to step up our investment plan, but to make the clean energy transition a success, more investment would be needed, particularly in Germany.

And let me emphasize, operationally, we are ready. And we are equipped with the necessary strong balance sheet capacity for additional investments from the Easter package, but to invest even further, we require more substantial improvements, especially in the German regulatory framework. In particular, the rate of return must improve to further attain the required return for our investors and Marc will add more details on that later. Let me now continue with our second segment, the long-term contracted infrastructure activities in our EIS business. EIS has continued to deliver on its growth trajectory. 2023 was successful driven by strong operational and sales performance. Investments year-over-year increased by 30%, reaching close to €700 million, 80% of these investments were focused on growth projects and the expansion of our heating networks long-term and quasi-regulated business.

We are targeting for a total CapEx program of around €5 billion until 2028, maintaining our expected IRR rate of 7% to 10%. We are confident that we will be able to deliver here also looking at our pipelines, which is already today twice time — at 2x the size of our sales targets for the year 2024. And with that, let me turn to retail. Our energy retail business — sorry, delivered in a challenging market environment. We have shown again resilient returns and cash flows short and long-term. To protect these results, we have defined 3 areas to drive our operational excellence. First, we radically digitize and automate our processes. In Germany, we can now, for example, run 10 million price contract adaptations today in only 6 weeks compared to 14 weeks in the past.

And we will further accelerate this. We have included AI tools to improve our customer experience, and we are working diligently to be one of the highest quality energy supplier in Europe, also building on the reliability, which we have shown over the last years. Second, with our energy market departments, we manage a fully integrated portfolio optimization across all regions, more advanced hedging support — more advanced hedging supports customer price protection and enables us to actively manage retail commodity risks. And third, we continue to focus on high-quality customers, lowering our exposure to large B2B customers whilst focusing on high-value customers. And all of these initiatives will further improve our revenue margin profile in Energy Retail going forward.

Outside of commodity sales, our large customer portfolio is providing a strong leverage for E.ON to be the provider of choice also when it comes to new customer solutions. And we were able to continue to grow also this business both on capabilities and lead generations. I want just to highlight a few examples, like in the eMobility business, we have closed additional prime partnerships with BMW and became the strategic partner for Mercedes in Europe, and we are working on more to come. And this is only 2 — these are just 2 of the examples and successes — for successes, which we have seen. Our new solutions business will deliver 10% CAGR going forward. So much for the great 2023 financials and our updated €42 billion growth program with a focus on infrastructure businesses.

Let me now turn to our progress in becoming more sustainable and more digital. First, digitization. The systems of the future can only be operated fully digitally. And therefore, we are in the process of digitizing the core of our operations with market-leading technologies. We have by now moved 100% of our applications from our data centers into the cloud. We have no data centers anymore; we have ripped them out. By 2026, we will have massively improved and standardized how we steer and observe our grids. We are simplifying grid connection processes, minimizing connection times and increasing the stability of our system-relevant infrastructure and that is obviously a benefit for society overall. But also with regards to our customers, we are continuing our efforts to migrate all accounts to upgraded sales platforms.

We have shifted to a digital-first customer experience where — and already today, we have more than half of our customer interactions fully digital. This share will further increase, obviously, with benefits for cost to serve. We are also seeing an increasing number of energy companies putting trust in our software solutions, which are available to the third markets, not all, but some, and here, we generate additional external revenues in operator portfolio of start-ups that offer cutting-edge software technologies. And all of that, we have bundled in our E.ON One. One example is envelop, which is offering twin of digital grids of electricity grids. And already today, 30 million connection points in Europe are running on that technology. Now on sustainability.

We have helped with everything we do; we are helping our customers to become more sustainable. But that doesn’t stop us ourselves from becoming more sustainable. And we strive to continue this year-by-year and I would, however, without going now into all targets, like to emphasize one target, especially safety. For us, it’s of an absolute importance that every employee returns home safely and healthy every day. And we are operating grids and infrastructure, which is a potentially dangerous environment. And therefore, this is an absolute focus, and we have been able to reduce our KPIs in the health and safety area year-over-year to a significant amount, but we are never satisfied in that area because every single severe accident, which we have is one too many.

Page 2 of 11