Ladies and gentlemen, welcome to the EnBW Investors and Analysts Conference Call for the third quarter 2025 results. I'm Vicky, the call's call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Webcast viewers may submit their questions in writing via the relative field. For operator assistance, please press star, then zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Lenka Zikmundova, Head of Investor Relations. Please go ahead.
Thank you, and good afternoon, ladies and gentlemen, and welcome to our conference call on EnBW's performance over the first nine months of 2025. As always, I'm joined here by our Deputy CEO and CFO, Thomas Kusterer, who will walk you through the key finances and the developments. After the presentation, we will be happy to take your questions. Without further ado, Thomas, over to you.
Thank you, Lenka, and a warm welcome to everyone joining us on this call. We truly appreciate your interest in our company. Today, we are pleased to report that EnBW delivered a robust set of results, reflecting a continuation of trends already seen in the first half of 2025. Adjusted EBITDA at group level reached EUR 3.6 billion, nearly matching last year's level after nine months. This performance was supported by a strong contribution from our grid segment, which successfully compensated for lower earnings in generation and trading. Based on this performance, we reaffirm our full-year group earnings guidance. However, this comes with a segment realignment. We now expect higher earnings from our grid business and lower earnings from generation, reflecting the respective market and weather-driven development. Turning to our operational progress, construction of our 960 MW offshore wind farm He Dreiht is advancing well.
The project is moving steadily towards first power soon, with 26 turbines already installed. We expect commercial full-scale operation in summer 2026. It is currently Germany's largest offshore wind farm, and once fully commissioned, will be able to supply electricity for around 1.1 million households. Same with offshore. We are happy to report that our 1.5 GW Morgan offshore wind farm, jointly developed with JERA Nex bp, has been awarded development consent. Now, both of our projects in the Irish Sea, Mona and Morgan, have reached this significant milestone. This provides the certainty we need to move into the next phase with our supply chain and key stakeholders who have supported us to date. Securing the development consent order represents a major step forward in delivering the kind of low-carbon infrastructure the U.K. urgently needs.
At the same time, we are closely monitoring the development in the U.K. and the upcoming allocation rounds. Sufficient revenues in the form of viable CFD prices are a prerequisite for the economic viability of offshore projects in the U.K. and the further positioning of project owners. The recent initial budget proposal for the U.K.'s allocation round seven offshore auction is, from our perspective, too low and not a good sign, as it puts both the U.K.'s 2030 clean energy target and the future growth of offshore wind in the U.K. in general at risk. Switching now to onshore wind and solar, our expectations of these technologies are well underway year to date. EnBW has secured a record of more than 330 MW in German and French public tenders. In total, we currently have around 1.7 GW of renewables under construction. Let's move on to grids.
SuedLink, Germany's largest energy transition infrastructure project, has now received full approval. Our TSO TransnetBW was recently granted planning permission for the final remaining section. With this approval, our joint project with TenneT is now under construction in all six federal states. Finally, we are pleased to share an update on our sustainability commitments. EnBW has expanded its climate targets to include a comprehensive net zero goal covering all company-related emissions. We aim to achieve net zero greenhouse gas emissions for scope one and two by 2040, and for scope three emissions encompassing the entire value chain by no later than 2050. Our clearly defined and strategically aligned reduction path has been rated as set two by Moody's in their net zero assessment, the second highest rating on their scale. Importantly, Moody's confirmed that our path is aligned with the 1.5-degree climate target.
Let's turn to the financials on page three. As previously mentioned, our business continued to deliver a robust set of results reflecting the momentum observed in the first half of 2025, while also demonstrating the strategic strength of our integrated business model. Earnings remain nearly flat year on year, with adjusted EBITDA at group level reaching EUR 3.6 billion, mainly driven by the strong development of our grid segment. It offsets lower earnings in generation due to normalized margins, subdued trading results, amid lower market volatility, and a decline in earnings from renewables generation caused by weaker wind and hydro conditions, particularly in the first half of the year. Low-risk activities comprising our grids as well as renewable business contributed EUR 2.8 billion to adjusted EBITDA, accounting for 76% of our total earnings.
This represents a 5 percentage point increase compared to the prior year, given the growing earnings from our regulated grid activities. In light of this performance, we reaffirm our full-year group earnings guidance. However, as already mentioned before, we are adjusting on segment level. We now anticipate higher earnings from our grid business and lower earnings from generation, reflecting the respective market dynamics and the weather-related developments. Let's now have a closer look at the performance of our three business segments in more detail, starting on slide four. In sustainable generation infrastructure, adjusted EBITDA stood at EUR 1.6 billion after nine months, which is 20% lower than last year. While third-quarter earnings nearly reached last year's levels, the positive trend was not sufficient to fully offset the impact of normalized price levels and poor weather conditions in the first half of the year.
Looking first at renewables, adjusted EBITDA amounted to EUR 793 million. Earnings were impacted by weak offshore load factors and limited rainfall affecting run-of-river power generation. Conditions only began to normalize in the third quarter. Additionally, reduced availability of our pumped storage assets in the last quarter weighed on results. On the positive side, solar generation was better than in prior year, though not enough to fully compensate. Moving on to Thermal Generation and Trading, adjusted EBITDA was at EUR 796 million. Lower realized hedge margins and subdued market volatility impacted earnings. However, it was partially balanced by a solid LNG business and the initial contribution from our newly commissioned grid stabilization power plant in Marbach. Accordingly, we now expect adjusted EBITDA for sustainable generation infrastructure for the full year to be in the range of EUR 2.1 billion-EUR 2.4 billion, compared to the previous guidance of EUR 2.4 billion-EUR 2.7 billion.
Before we move to the next segment, let's take a brief look at our thermal power generation hedge levels for the coming years. For 2026, we are now almost fully hedged. For 2027, we have hedge levels between 50% and 80%, while hedging for 2028 is also well on track. The approach remains fully aligned with our established and proven hedging policy. Moving on to system critical infrastructure on slide five, which comprises our electricity and gas Transmission and distribution grids. Adjusted EBITDA of system critical infrastructure reached almost EUR 2 billion after nine months, representing a year-on-year increase of 12%. This strong organic growth was driven by robust earnings across all assets, supported by continued investment activity. Lower expenses for grid losses provided an additional positive effect. On the other hand, higher personnel expenses and increased operating and maintenance costs resulting from ongoing grid expansion partially offset these gains.
Reflecting this strong performance and underlying trends, we have adjusted segment guidance upwards for the full year and now expect adjusted EBITDA in a range between EUR 2.6 billion-EUR 2.9 billion, compared to the previous guidance of EUR 2.3 billion-EUR 2.6 billion. Turning now to the details on the development of smart infrastructure for customers, as shown on page six. In our retail business, adjusted EBITDA was at EUR 288 million after nine months, representing an increase of 24% year on year. Earnings were in line with the full-year guidance and driven by our e-mobility business continuing a profitable development, while B2C activities reported a stronger performance as well. Growth in our customer base, supported by successful new client acquisition, provided an additional positive boost. On the downside, increased overhead and personnel expenses weighed on results.
Furthermore, our solar home storage subsidiary, Senec, faced headwinds from ongoing battery module replacements and costs related to the launch of a new product. Moving on to the earnings drivers, down to adjusted net profit on slide seven. Adjusted net profit, attributable to EnBW shareholders, was at a solid level of almost EUR 1 billion after nine months. Figure was below prior year's level, mainly given higher financial expenses in the adjusted financial results relating to market valuation effects and slightly higher interest expenses resulting from increased financing volume. Overall, this reflects a similar pattern of value drivers as already seen in the first half of the year. Moving on to slide eight, with a brief look at our investments. After nine months, EnBW's gross investments totaled EUR 4.7 billion, reflecting a 21% increase in investment activity compared to the previous year.
This continued high level of investment underscores our commitment to driving the full-scale transformation of the energy system. 86% of these expenditures were attributable to our growth projects. Nearly 40% of our gross investments were allocated to sustainable generation infrastructure, primarily for advancing and constructing offshore projects in Germany and the U.K., as well as for our three hydrogen-ready gas power plants in Germany. Around 55% of our CapEx was directed towards system-critical infrastructure, focusing on the expansion and modernization of our Transmission and distribution grids. This includes major projects such as SuedLink and Ultranet, along with the development of the South German natural gas pipeline, essential for our fuel switch power plants and future part of Germany's hydrogen core network. The remaining share was invested in smart infrastructure for customers, supporting the continued rollout of our e-mobility charging network and related customer solutions.
Disposals were substantially higher year on year. This increase reflects portfolio optimization measures and capital inflows from our municipal participation model. In addition, minority stakes in selected subsidiaries were sold during the reporting period, supporting our disciplined approach to portfolio management. By contrast, co-financing contributions by partners, particularly for our transmission grid operator, TransnetBW, and our offshore wind farm, He Dreiht, remained broadly in line with last year's level. Now let's take a brief look at our retained cash flow on slide nine. Retained cash flow increased by 34% to more than EUR 2 billion after nine months. While adjusted EBITDA remained broadly in line with last year and at a solid level, the improvement in retained cash flow was primarily driven by lower tax outflows following refunds for previous periods. This resulted in higher funds from operations compared to the prior year period.
With that, let's move on to the development of net debt. As illustrated on slide ten, net debt decreased by 14% compared to year-end 2024 and now stands at roughly EUR 12 billion. This reduction largely reflects the proceeds from the capital increase executed in the third quarter. This benefit was reduced somewhat by increased investments during the period. Looking ahead to year-end, we expect net debt to come in at around EUR 15 billion, well below our original guidance of roughly EUR 17 billion. This is mainly due to project slippage across our portfolio, including some grid projects caused by supply chain. While this shifts part of our planned CapEx into the future periods, it is actually positive on a margin from a financial perspective, as it spreads investments more evenly over the coming years rather than peaking in the current year.
That brings me to the last slide and our guidance for 2025. Ladies and gentlemen, as highlighted at the beginning of the presentation, we confirm our full-year guidance for fiscal year 2025 at group level. This comes with a segment realignment. We now expect stronger earnings from our grid business and lower contributions from generation, reflecting market and weather-driven developments. Guidance for our retail segment remains unchanged. Now, let me hand back to Lenka.
Thank you, Thomas. Ladies and gentlemen, we will now start with the Q&A. Feel free to call us or use the chat tool for asking your questions. For more details, I will hand back over to the operator, Vicky.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone.
You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star, then two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Webcast viewers may submit their questions in writing via the relative field. Anyone who has a question may press star and one at this time. The first question from Andrew Moulder, CreditSights . Please go ahead.
Yes. Hi, Thomas. Hi, Lenka.
Hi, Andrew. Happy to have you on the call.
Oh, thank you. I've got a few questions, actually. If you haven't got a two-question rule, I'll jump in with all of them. Project slippage. You mentioned this before, and I think it relates to He Dreiht.
Could you perhaps give a bit more information about exactly what's happened there and sort of why you've got this? Is it particularly just related to that project, or do you expect the same sort of thing on some of your other projects? That's my first question. I also just wanted to ask about this thermal, the downgrade of your generation guidance. I mean, maybe I'm being naive, but it kind of strikes me that you ought to have kind of expected that you'd have normalized generation margins with power prices and gas prices and lower volatility. I kind of think you should have already incorporated that into your guidance.
I guess really what my question is, is the downgrade of the guidance in the generation segment really just due to these normalized margins that you did not anticipate, or is it actually mostly due to weather-related effects that you really could not anticipate when you had the guidance in place? I mean, you have no control over that. My final question, I just wanted to ask about your thoughts on this downgrading of the pot for AR7. I mean, it sounds very counterintuitive to me, given that costs have increased and the needs for the renewable capacity also seem to have increased. I just wonder, what do you think the U.K. government is playing at here?
I mean, do you think it's game theory or something like this where they're actually just trying to get you guys to perhaps offer lower prices for a CFD in the hope that you'll accept that just because the prices are higher than they were before in the previous rounds? I just can't really understand exactly what they're trying to do here. I wonder if you could add a little bit of color on that. Thank you.
Andrew, let me get started with probably the most difficult question, right? In the beginning, that's your last question regarding the EUR 900 million annual budget for AR7. Like yourself, we are a bit puzzled and not happy with that result. I think likewise all the other developers for the obvious reason you just mentioned. We have seen an increase in costs across the supply chain, and that's not just our project.
I think that's across the industry. I mean, when you look at the prior auctions unutilized, if I be kind, and the fact that even some projects were handed back even after receiving a positive auction result, you can clearly see that a CFD level that is at a level that we have an economic viable project in hand is crucial. That's why we are all a bit concerned in terms of what does it really mean for the transformation of the U.K. offshore wind business as such, because we all know we are talking about high CapEx, long-term investments. In such an investment, I think it's all about trust and reliability. Like you just mentioned, we are all a bit puzzled about this result. We do not have any clearer idea why this could have happened. I mean, one thing is clear.
A higher budget has an impact on end customer bills, and that's obviously a concern, and rightfully so. Affordability is something you have to be concerned about. Besides that, I do not see the logic and rationale behind this EUR 900 million budget. That's all I can say to you. I mean, we do not have more clarity than this. Okay. No, fair enough. I do agree with the concerns you were just raising. Regarding your second question regarding our generation guidance, of course, we did also assume when we looked at 2025 in 2024, we did assume that we are going to see a decline in wholesale market prices. However, when you look at the wind, the offshore wind performance, we are almost 20% below prior year, and that's really due to lower wind availability.
When you look at hydro, I think rain was 60% below average in Germany for a normal year. It is predominantly weather-related, what we are currently experiencing here in our generation portfolio. To the slippage, it is He Dreiht. To a certain extent, He Dreiht is going to slip more into 2026. For a couple of months, we are talking about three to four months' delay in installation. That is nothing serious. However, it does cost mid-double-digit million in earnings in 2025 and 2026. That is the downside of it. However, we also see some slippages and delays when it comes to our fuel switch project. There is nothing really concerning about it. It is, to a certain extent, late delivery of components. It is installations that take a bit longer than you would normally have expected or planned.
Some quality issues that have to be resolved, site-specific issues, but nothing serious and nothing that is out of the ordinary when it comes to projects of that size. That is the two main topics. On top, when you look at our TSO business, TransnetBW, also for the larger projects like SuedLink, you do see some delays. As I just said, nothing serious. From my perspective, from a financial perspective, it is not really something I am concerned about. I think I mentioned it during the presentation. It kind of evens our investment profile. Otherwise, we would have been quite front-loaded. It is not really a bad thing, especially not in a regulated business because we are reimbursed for any kind of cost overruns anyways.
Right. Okay. Thank you very much, Thomas. You are welcome.
As a reminder, if you wish to register for questions, please press star and one on your telephone. At the moment, there are no more questions from your telephone.
Thank you. We will start with the questions which we have received in our chat function. I'll start with Michael Charlton from Santander. He's asking on the new grid regulation in Germany. How do you consider the most recent signals coming from the regulator for the next regulatory period?
Yeah, Michael, thanks for asking the question. Actually, first of all, let me get started with the remark that we are in the middle of the process still, so we do not have full clarity how the ultimate regulation is going to play out. However, we still make the point that we do need an increase in equity returns. We are lobbying for 8% because I think that's what's needed.
Also, when you look at European regulation, we are currently, as you might be aware, lagging behind the European average, which is 2 percentage points higher than the current German regulation. However, having said that, I'm not that optimistic to really see a significant improvement compared to the current situation. I mean, the regulator indicated to increase allowed returns compared to the initial draft. However, I think we need to wait until we have all the components on the table to see what it really means from an economic perspective and what economic impact it really makes. I am carefully optimistic that we do see a significant improvement from what we currently see, however, by year-end we should have more clarity.
Thank you, Thomas. Let's continue with the second question from Michael. It goes towards the new gas-fired power plant. Are the conditions in Germany in place to encourage significantly more investment in CCGT?
I mean, Michael, we are waiting since, I think, it feels like three years, but it is at least two years that we are waiting to get the respective laws in place. I think it is currently held up still by state-aid discussions being had with the EU. We do hope that by the end of the year, that is clarified and we get the respective law in place, which would allow us to invest into more hydrogen-ready gas power plants. Before we do have the clarity on a potential auction next year, and secondly, how a capacity market is going to be structured afterwards, we do not have the framework in place to invest into more gas power stations as of today. Again, would hope to have more clarity in due course.
The third one from Michael goes on power prices. How do you expect German base load prices to develop given the EUR 36 per megawatt-hour lower price in France? You're talking about wholesale market prices, I would assume. We do not see the levels you are just mentioning here for France. When you look at future prices, we are currently between EUR 80-EUR 85 on base level in Germany. What we do expect is actually that it's going to be flat over the next couple of years. We do not expect a significant increase, but on the other side, also not a significant decrease. Of course, I mean, when you look at demand, demand very much depends, of course, on the recovery of the German economy. If demand is steady and on current level, we do not see any decreasing wholesale market prices. I hope that answers your question.
The last one from Michael is the sale of former power generation sites for data centers has become very trendy. What is EnBW's position?
I think our sites are extremely valuable to ourselves, given that we have opportunities for CCGTs potentially. We just made a point around the clarification of legal framework that is needed. Secondly, also battery systems to be installed. All the respective infrastructure is on the site available. The sale of our sites for data centers is something we can be looking into, but currently, we are happy to hang on to our sites by ourselves.
Thank you. Just asking our operator, are there any questions?
There are no more questions from the telephone. Good. We are done. Thank you. With that, we can come to a close. Once again, thank you very much, Thomas, and everyone online.
As always, if you have any further questions, please do not hesitate to reach out to our IR team for more details or further discussions. All the best and have a great rest of the day. Bye-bye. Ladies and gentlemen, the conference call is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.