Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- E.ON SE (ENAKF, Financial) reported H1 EBITDA of EUR4.9 billion and adjusted net income of EUR1.8 billion, in line with expectations.
- The company increased its investments by more than 20% year-over-year, reaching EUR2.9 billion in H1 2024.
- E.ON SE (ENAKF) is on track to meet its 2024 guidance and 2028 targets, with strong operational execution across all segments.
- The company has made significant progress in digitizing and automating processes, including the successful migration of half of its German grid customer base to a new meter-to-cash system.
- E.ON SE (ENAKF) continues to see strong demand for decarbonization solutions, with new partnerships and projects in the UK and Germany.
Negative Points
- The reported performance was dampened by non-recurring positive timing effects and one-off effects from 2023, leading to a year-over-year EBITDA decline of EUR800 million.
- The energy retail segment faced increased market activity, particularly in Germany, which required efforts to maintain earnings.
- The company experienced warmer temperatures in H1 2024, impacting volumes in the energy infrastructure solutions segment.
- E.ON SE (ENAKF) highlighted the need for improvements in the German regulatory framework, particularly in terms of return on equity, to justify further investments.
- The company faces challenges in managing the addition of renewables, with significant curtailment costs and the need for better synchronization with infrastructure expansion.
Q & A Highlights
Q: What is E.ON doing to prevent its earnings in retail given increased market activity? Which markets are affected, and can you quantify the weather impact for H1 for both retail and EIS?
A: We have seen increased activity mainly in Germany. We do not quantify individual effects like warmer weather but have been able to compensate for it. Measures include product development, good pricing, communications, branding activities, and digitizing processes. Market activity can also be positive, allowing us to acquire additional customers.
Q: Can you give an update on the accelerated depreciation in gas and its impact on cash flow generation and ability to invest? Also, what is your stance on the domestic allowed returns in Germany?
A: The accelerated depreciation of gas infrastructure reduces the risk of stranded assets. It allows us to depreciate assets faster starting in 2025, which is not yet included in our budgets. This will increase EBITDA but not necessarily net income. Regarding German regulations, discussions are ongoing, and we do not want to speculate on potential outcomes.
Q: What is E.ON's stance on equity as a source of funding versus headroom in the balance sheet and divestments?
A: Our EUR42 billion investment program is fully financed by internal and external financing. We do not see any need for additional equity. We have a headroom of EUR5 billion to EUR10 billion and a discretionary EUR2 billion disposal program for additional investments if regulatory conditions are adequate.
Q: Could you provide more granularity on the organic growth trend for EIS in the first half? Also, what is the outlook for net debt for the full year?
A: The EIS segment saw one-offs in Q1 2023 and was impacted by warmer weather and maintenance schedules in H1 2024. Underlying growth is driven by the metering business and new projects. For net debt, we expect it to be in the same ballpark as H1, with a cash conversion rate of around 90%.
Q: Could higher returns in Germany trigger a bigger portfolio rotation, and what is the current level of renewable asset curtailments?
A: We are seeing massive addition requests for renewables, especially PV, which is stressing the system. The bottleneck is the infrastructure, not the addition of renewables. We need to synchronize renewable additions with infrastructure expansion. Regarding portfolio rotation, we will invest more if returns are higher, but we do not want to start a portfolio discussion now.
Q: Can you provide some granularity on the one-offs recognized in H1 2024 compared to H1 2023?
A: For underlying performance, you would take out approximately EUR1 billion from our H1 results. This is not a pro-rata approach of the full-year run-offs of EUR1.3 billion but a lower amount in the second half.
Q: What is the status of data center connections in Germany, and what is the gigawatt pipeline?
A: We are planning connections of around six gigawatts in German networks by 2030, mainly in the Frankfurt area. This is a significant addition and is included in our plan. Further requests for mid-single digit gigawatts may not be realized before 2030 due to TSO connection requirements.
Q: What are the biggest challenges for E.ON from a CFO point of view?
A: The focus is on delivering on financial promises, enabling value creation within the growth plan, and managing the massive organic growth program ahead.
Q: How does E.ON plan to handle increased market activity in retail in Germany?
A: We are focusing on product development, good pricing, communications, branding activities, and digitizing processes to protect margins. Market activity can also be positive, allowing us to acquire additional customers.
Q: What is E.ON's view on the ban of acquisition tariffs in the UK?
A: We see the ban positively as it ensures market stability and prevents speculative behavior. Competitive markets are best for customers, and we support policies that ensure all players compete on the same basis.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
