Yeah. Good morning to the analysts and investors. Welcome to our first quarter results presentation. Thanks for taking the time today to join us. I'm here with Marc, and he will guide you through our Q1 results. Of course, we will leave enough room for questions after the presentation, and with that, over to you, Marc.
Thank you, Verena, and welcome everyone to our Q1 results call. Before I start with the actual presentation about our quarterly results, let me dedicate some words of solidarity to the Ukraine. We continue to condemn the war which Russia has brought about Ukraine. We see extraordinary moments of braveness and strength. This is an example to all of us. Our thoughts are with the people in the Ukraine, and with those people who had to leave their homes. We hope that the war will end soon and that peace and freedom will return to Europe soon. Millions of refugees have crossed the borders of Slovakia, Poland, Hungary, Romania. All these regions are our supplied areas. Many of our colleagues work there. E.ON thus assumes direct responsibility for the situation.
We provide on-site assistance with energy, accommodation, sleeping bags, hospital beds, and so on and so forth. We also support financially, standing today at over EUR 3 million of donations from our employees and the company. It still feels difficult, but I now move to a normal financial results call. Looking at our first quarter results, let me highlight five messages. First, we are extremely confident on our 2022 guidance. We are fully hedged and will gradually pass on higher prices to our customers. Over the full year, our retail margins will prove to be stable. Second, visibility on potential political interventions in all our markets has significantly increased over the past weeks. We have seen very sensible adjustments in both regulated as well as fully liberalized markets. Any risk of detrimental intervention has in fact diminished.
This underscores my high conviction when it comes to our 2022 guidance. Third, our energy networks earnings are not only economically fully protected against rising energy prices, they are also protected against inflation in a more general sense. This is a key benefit in the current macroeconomic environment. Fourth, our implicit interest rate hedge works. If interest rates remain at current levels, we will finish the year at the bottom end of our guided range of 4.8x-5.2x net debt to EBITDA. On top, we have secured most of our funding needs for 2022 already during the first quarter. In a nutshell, we are in a financially strong position and rightfully are so. This brings me to my final message. It is time to invest into sustainable energy infrastructure, now more than ever before.
Accelerated plans for the energy transition in Europe will trigger more growth of distribution grids. They will trigger even more demand for sustainable decarbonization solutions. This is exactly our business mix with which we are best positioned to benefit from this extremely positive momentum in Europe. Moving now to our Q1 actual results. Looking at our year-over-year bridge on page three, our group EBITDA decreased by EUR 360 million - EUR 2.1 billion. Energy Networks came in slightly below prior year. The anticipated significant earnings increase in Germany was overcompensated by energy prices temporarily impacting costs for network losses in Sweden and several Eastern European countries. This was well flagged. We had indicated that in our annual results call.
Just to remind you, price-driven costs for network losses are part of the regulatory formula in each of our markets and will automatically and fully be recovered in the future. EBITDA of our Customer Solutions business is temporarily compressed by higher energy procurement costs within our Energy Retail business. These cost increases will be passed on to our customers during the remaining year. The important news here is that we observed almost no impact on churn for those price adjustments that we have already implemented by now. Our Energy Infrastructure Solutions business grew its EBITDA by 14% year-on-year to around EUR 200 million. This was driven by good availability of our decentral generation assets. Our performance in Customer Solutions was also supported by our retail solutions business.
Future Energy Home revenues grew by 30%, year-on-year to EUR 250 million for the first quarter. E-Mobility solution revenues grew by 150%. I'm particularly positive about this because we delivered these high revenue growth rates at positive high single-digit EBIT margins. Q1 EBITDA of our non-core business is flat year-on-year, despite the shutdown of Grohnde and Brokdorf at year-end 2021. Our nuclear generation business benefits from higher realized market prices. The same is true for our Turkish upstream joint venture. Moving on to page four. Our total economic net debt is largely unchanged. Three points that I want to highlight. First, we continue to benefit from increasing interest rates, leading to additional financial leeway. For Q1, this significantly overcompensated for plan asset performance.
Plan assets performance also includes a fair value adjustment of our Nord Stream 1 asset in the magnitude of about EUR 250 million. Second, as I told you in previous calls, the impact of margining payments for sourcing energy via exchanges has diminished. Received variation margins fully compensated for initial margin payments. Third, we continue to expect a cash conversion of significantly above 100% for 2022. The negative operating cash flow in Q1 should not come as a surprise. It reflects the usual seasonal pattern in our business model. Everything else is fully on track. To summarize, the solidity of our financing paves the way for increasing investments and dividends in the future, while ensuring a strong BBB, Baa rating. Sometimes people ask me about the catalyst for investing in our stock right now.
Effective inflation protection is a very important one. I don't get tired of repeating that message. Our regulated energy networks business is extremely well-protected against inflation. How exactly does that protection work? In our biggest market, Germany, it is quite straightforward. Here, the total allowed cost base, including allowed OpEx and the RAB-driven return on capital, will be increased every year by the CPI of the current year at the beginning of the year T plus two. Full inflation protection with T plus two. There is a certain time lag, but ultimately, the complete allowed revenues are indexed with the CPI. For our other markets, we must distinguish between the respective mechanisms for allowed OpEx and for the RAB-driven allowed revenues. Regarding allowed OpEx, it's super simple.
In all markets, OpEx allowances are inflated on a yearly basis, either with a CPI or sometimes even with an industry-specific index, like for example, in Sweden. The time lag here is either T plus one or T plus two. Regarding the RAB-driven allowed revenues for our markets outside Germany, the protection mechanisms vary from country to country. In Sweden, Hungary, Romania, and Turkey, which all have regulatory systems based on real terms, the inflation protection works automatically via an indexation of the regulated asset base, either via CPI or an industry-specific index. The applied time lags here are also either T plus one or T plus two. In Poland and Slovakia, which have regulatory systems based on nominal terms, the nominal allowed WACC are being adjusted every year. Also here we have full inflation protection for the return allowances.
Bottom line, in all our regulated networks businesses, we are protected against inflation, with around 90% of energy networks EBITDA automatically being protected. On the customer solutions side as well, we see our earnings largely protected against rising procurement cost. This conviction is reflected along three dimensions. In a first dimension, our main markets are not restricted by any price cap mechanism that does not allow us to pass through higher costs. Current discussions in the political arena are not indicating that this picture will change. That allows us to reflect increasing procurement costs in the customer bill. For our regulated retail markets, such as the U.K. or selected Central Eastern European markets, regulators have acknowledged and constructively reacted to the current situation. Ofgem in the U.K., for example, recognizes some key risks faced by suppliers. Ofgem intends to address these within the next SVT period from October.
As always, Ofgem still needs to act faster on some topics, like the ongoing delay to introducing stricter rules around customer credit balances. We are on it. In Romania, the historical price cap led to a higher double-digit million EUR EBITDA burden in Q1. Quite constructively, a new support scheme was initiated on April 1 already. This scheme provides us with full visibility for the rest of the year and ensures a positive margin going forward. In addition, we are in talks with the government about the recovery of any uncovered procurement costs from the first quarter or any quarter before. In Hungary as well, we found a constructive solution. We signed an agreement to transfer the roughly 2.5 million regulated customers to the state-owned utility MVM with effect of March 31.
From April first, also here, full visibility, moving back to positive margins and positive results for the full year. Let me come to a second dimension. In all our markets, governments have decided to provide direct transfer payments to customers and especially to vulnerable customer groups. In a third dimension, there is on top a clear willingness of politicians to reduce taxes that still have a significant impact on the energy bill. Take the abolishment of the renewable surcharge in Germany or reduced VAT and energy taxes in the Netherlands as examples. I could add many more. For us, this is reassuring. We do see that the obvious challenge of energy affordability is being actively addressed and not avoided like a hot potato. This allows us in turn to do what we are best at, acting as a reliable energy partner for our customers.
When other companies fail to perform, we step in also as a supplier of last resort. Finally, let me remind you of the structure of our operations with a clear focus on B2C and SME customers, segments that prove to be resilient during economic crises of the past and will prove to be resilient also in this crisis. All in all, the developments over the last weeks have significantly increased our visibility for 2022 earnings development in Customer Solutions. Let me close today's presentation reiterating our high confidence on the group outlook for 2022, which today we fully reconfirm. We also reconfirm to invest around EUR 5.3 billion in 2022 to deliver on our ambitious growth plans. Beyond 2022, we are very confident that E.ON's strategy will successfully unfold.
The opportunity from increasingly decarbonizing our electricity, the heating, as well as the transport sectors, will crystallize faster than anyone would have believed before. The elimination of Europe's dependency on energy imports is a huge effort and will only be successful if we have the right energy infrastructure in place. That's why we will continue to invest into our distribution grids and into sustainable, decentralized Energy Infrastructure Solutions alongside with our customers. Thank you very much. With that, back to you, Verena.
Thank you very much, Marc, for your presentation. We'll now start the Q&A session. Just a little reminder, two questions per person so that everybody has a chance to ask a question. First question comes from Vincent. Please go ahead.
Yes. Good morning, everyone. I'm Vincent from J.P. Morgan. Two questions. I'll go for the first one, clearly on supply. Thank you for this slide. I think it is very helpful to have this summary. Now, when we look at the message, the message is very supportive saying, yes, you are able to pass through increase in procurement costs, and you explain what you've done in Hungary, for example, Romania. We're seeing quite some pressure in the Q1 numbers. You don't change your guidance. I suspect it was already envisaged in the guidance you provided. If you look at the slide, it's like if there are no problems. The Q1 shows there were problems. We've been in negative margin.
How confident are we indeed that all the problems are solved going forward in the supply, especially if commodity prices remain high or could go higher? That would be question number one regarding supply. The question number two is obviously regarding the Russian gas situation. We have ruble payments coming in in next few days or weeks. You've made some comments regarding the state of emergency and the fact that Germany and Europe should avoid having a Russian gas curtailment. Recently I've seen that there is some thinking going on in Germany to instead of prioritizing residential customers over industrials, we go the other way around.
Could you give us a bit of color on what is the current thinking to prepare for what is not a base case scenario, but still is a risk to be prepared for, which is a Russian gas curtailment? Thank you.
Yeah. So let me start with the first question on Customer Solutions. The development in Q1 is quite as we expected it. Keeping in mind that energy prices were on the rise throughout the whole of the second half of last year already. So in that sense, the dynamics which obviously have been amplified by the outbreak of the Ukrainian war, the fundamental dynamics is by far not surprising. That's why actually we don't see that really as a problem, as you phrase it. That's a natural part of our business.
I'm proud about our operational excellence in that sense, that we were able to deliver these price increases on the basis of a strong risk management, very solid hedging strategy, and an excellent churn management. A large part of the needed price increases has by now already been implemented or announced, and that's why the visibility on the development there for the remaining three quarters is quite high. Hence also no reason therefore to deviate from our guidance. When it comes to the ruble payments, please bear in mind that we are not having ourselves a direct relationship with Russian-domiciled operators via long-term contracts or so.
In that sense, on ruble payments specifically, I would refer you to those who are having those long-term contracts. Now, on the second part in that question which you raised, is it now becoming more likely that we will see a gas embargo in Germany? I still regard this as very unlikely. If you look at the position of the German government, it's crystal clear. A gas embargo would massively and adversely affect the German economy actually in a way that now three months into the crisis, no one still has a clear plan what the impacts would be if you look at the supply chain effects. If you cut off one industry, what actually happens then to the next ones.
We also do not change our view on that anything which you can achieve on the B2C side, which indeed some people now have been raising, is something which you can rely on if you should really run into this tail event of a gas embargo, because it's not something which you can actually control. Of course, what you should expect is that also ourselves, we would then reach out to our customers and encourage them to save energy, but it's something which you can't control. When it's about then the physical balance of a system, you can't just rely on a pledge or a plea. You actually need to make sure that you are able to physically balance the system.
I don't expect that the fundamental order and sequence and mechanisms would really change. Again, at this stage, I still regard a gas embargo as a tail event.
Does that answer your question, Marcel?
Yes, absolutely. It does. I mean, I think on supply it's quite clear why the guidance has not changed and why you de-risked. On Russia, yes, it's always good to hear what's the view in Germany regarding this, and it's still not to be considered as a base case, but rather a sort of black swan event. It's good to hear that. Thank you. Thank you very much.
All right. Thank you. Just a little reminder, it would be great if you could turn on your camera, when you are talking so that we can actually see you here. Otherwise we just see a little bubble. That's obviously nice. We are obviously very much looking forward to also see you here. Thank you. If your questions are answered then turn down your hand so that we can sort of organize the call, accordingly. Next one on the line is, Peter. Peter, please go ahead. Bank of America.
Yeah. Good morning. Thanks for taking my questions and thanks for a very clear presentation actually this morning. Two questions from me. One is, you know, just coming back to this full year guidance that, you know, you seem very confident in. You need core EBITDA to be up about EUR 1 billion, EUR 1.1 billion in the remaining nine months of the year year-on-year to hit that. I was wondering if you could sort of help us bridge that a little bit just to avoid any confusion around whether that's achievable or not. My second question, sort of coming back to this gas issue, but maybe from a slightly different angle.
I was wondering if you've been given any specific assurances, either directly by the German government or from what you've seen from plans that have been made thus far, that you, E.ON, will not be exposed to any negative financial consequences in the event that there is insufficient gas to supply your customers. Thank you.
Yes. Good morning, Peter. Let me start with the full year guidance question. That's actually extremely straightforward and also, you know, highly visible. Let me start with a thing which you should memorize now, you know, as long as you're having that job in current E.ON, that goes back to our capital market day in November. We will deliver this year and every year in the future, at least EUR 200-EUR 300 million of additional EBITDA from organic investments. Now, we said that we ramp up our CapEx over time, so you will not see the full EUR 300 million this year coming. We will definitely see the EUR 200, the lower end this year. This is more or less as CapEx is being deployed quarter by quarter.
Still EUR 150 million-EUR 200 million to come from that this year for the quarters two, three, and four. Secondly on that high visibility. Second, synergies. In the remaining years, still EUR 300 million to come. All measures implemented, high visibility. We have seen the developments in German networks, normalization against the backdrop of regulatory cycles. That is unfolding as expected. You should assume that another EUR 200 million-EUR 300 million will come during the remainder of the year. We have already talked about procurement costs. That is, as of Q1, across the portfolio, a hit of about EUR 250 million-EUR 300 million.
As I said, a large part of the price increases has by now been either implemented or announced. Also here, high visibility. High visibility that those costs will be recovered during the remainder of the year. Finally, we have also shown the impact of network losses during Q1, but we already had increased network losses last year, and we will see the recovery effect from last year's energy network losses this year, and particularly unfolding during the remainder of this year, which also is a ticket of EUR 100 million-EUR 150 million. Also, high visibility. I think if I just add up all the stuff which I mentioned, I'm already beyond a EUR 1 billion EBITDA ticket.
These are all developments which are either already implemented, or are of high visibility, so that just no doubt around, that those things will be delivered spot on. Hence from our side, no question mark, no doubt around our full year guidance. Now, on the gas issue, of course, this goes back to what I elaborated on in my introductory speech about how politicians react, and this is not only the case in Germany, that politicians and regulators across the board do respect our role as a stable, reliable energy supplier.
We are crystal clear about that this position will be reinforced, and whatever the situation then will be that we will be able to pass on those costs to customers, and then governments will step in with further support packages for vulnerable customers, or there will be another form of compensation. There is no discussion or no sentiment whatsoever that you as analysts or our investors should be afraid of that our margins will be negatively affected by any such development.
Great. Thank you, Marc.
Thank you, Peter. Next question comes from Deepa from Bernstein.
Thank you. My two questions. First one on the German retail market, you don't have a price cap. Just wondering why you were not able to pass through the price changes earlier. I can understand Romania or the U.K.. If you can just maybe talk about why in Germany you haven't, but it seems like in Netherlands you have been able to. Is there any particular rule or regulation that's impacting? Secondly, on the inflation-linked protection that the company has, is it fair to say, I mean overall network EBITDA, you know, what proportion of that is fully protected? Is that 80%, 90%?
Hi, Deepa. Sorry on the last one. I didn't get acoustically the first part.
Against inflation.
Against inflation.
Yeah. You've given the table with all these different regulatory regimes.
Yeah.
If you can just overall then summarize for the segment as a whole.
Yeah
... uh-
Yeah
Like, you know, proportion is inflation protected.
Yes. So, let me start with the second question because that's short answer. Across the board, about 99.0% of our Energy Networks earnings are automatically inflation protected. This does not mean that the remaining 10% are not protected, but the remaining 10% either require then an interaction with the regulator, or are subject to outperformance incentives, where again, we see ourselves in a pole position to actually outperform and make sure that we have an inflation protection here as well, addressed by the way how we operate. Effectively, I'd say 100% is protected, but kind of this automatic regulatory protection applies to about 90%. That's an extremely strong message and good news for our investors.
Now timing of the price increases is very much related to the hedging strategies which we apply in the different markets, and the hedging strategies are depending on the competitive environment. There is no single truth about hedging strategies. Hedging strategies need to be optimized against how you see the competitive pack acting. That's if you compare Netherlands and Germany, just different, and in Germany, we therefore have a somewhat longer hedge path. This just means therefore that the time lag when we then implement that into price increases is somewhat longer. It still means that this transmission mechanism of increasing prices is fully effective, and that's why this recovery will come for sure.
Thank you.
Thank you, Deepa. Next question comes from James Brand from Deutsche Bank. James?
Can you hear me okay?
Yes.
Yes, very well.
Thank you.
Yes. Okay, great. Firstly, thanks for the presentation. I had two questions. Firstly, on the retail business, you're obviously, you know, targeting stable margins and your guidance has a, you know, stable or slight increase in EBITDA in the retail business. I had a question on the medium term, because normally when people think about retail, they think about a percentage margin, and obviously bills are going up very significantly. You saw 60% revenue growth in Q1 year-over-year. When the crisis is o ver, assuming the energy bills stabilize at a much higher level, should we be thinking about you kind of reverting back to the 2% margin or so that you've achieved in the past? Or should we be thinking, you know, more around stable margins in absolute terms? That's the first question.
The second question is a bit of a geeky one. Thank you for the inflation slide on networks. That was very useful. But just in terms of kind of monitoring your RAB evolution, when we see what you're reporting at year-end, so for instance, if we look at the RAB as you presented it at the year-end of 2021, is that already including inflation uplifts in the RABs? Or is there a bit of a lag in terms of waiting for the regulator to recognize them before you reflect those in your RAB at year-end? Just because your RAB at year-end I thought was a bit, a little bit lower than expected, perhaps 'cause of some lags in presenting. If you'll allow me a kind of half question on the inflation topic, the Swedish inflation index, is that running?
How is that running compared to CPI? Is it below, in line, above CPI at the moment? Thank you.
Yes. Good morning, James. On retail margins, you're spot on. Of course, we do expect that, you know, once we are through this year, where we would not expect that the percentage margins will be stable. We expect at least stable absolute margins for this year, which will mean that percentage margins will most likely go down. For the midterm, of course, we will be managing that business on a percentage margin from revenues. That's by the way, the perspective which most regulators take as well. It would actually be nonsense to believe that our revenues increase by 50%, 60%, 70%, and our margins actually just compress. No reason to believe that.
While our midterm outlook on retail, given the current price outlook, is actually much more bullish, but I think all eyes are on this year. We're extremely confident when it comes to the midterm. About inflation adjustment in RAB, the timing, as I said in my speech, is T plus one or T plus two, so you don't see anything of elevated inflation rates in our annual accounts as of December last year. That's the first point. The second point, when you look at our year-end balance sheets, keep in mind that the balance sheet is being calculated based on FX spot rates. In our regulated asset base, from time to time, you have just some spot rate fluctuation when it comes to translating FX into euro.
A large part of the reason was the weakness of the crown that has reverted back, and so that kind of lower level has by now, FX-wise, already been recovered. This is rather a topic about spot rates in FX translation than anything else. When it comes to the Swedish index, I actually have to park that one. We will come back to you or anyone in the room, the crew. Well, actually.
Yeah.
Verena, do you have a?
Yeah, in Sweden it's historically a bit above CPI, so just as a reference.
Okay. Thank you very much.
You're welcome.
Yes. Next one on the line is, Rob from Morgan Stanley. Rob, please go ahead.
Hey, thank you. Hopefully you can hear me. I have just one question, and that is, regarding Gazprom's European subsidiaries with which you had relationships. Now, excuse me if I get this wrong, so please clarify, but I believe they're now under the custody of the German government. If so, does that then meaningfully reduce E.ON's counterparty risk in the event of disruptive gas supplies? That's it. Thank you.
Very much so, Rob, is the answer. Yes. Nothing to add.
Okay. Well, thanks very much. It's very simple. I'll hand it over.
Thanks, Rob, for this straightforward Q&A topic. Next one on the line is Alberto from Goldman Sachs.
Thank you, I'm going to ask two questions, and they're not that straightforward, I'm afraid. Let me elaborate the first one. You know, Mark, thank you. The EUR 1 billion EBITDA bridge, crystal clear. You probably could say EUR 1.1 billion if you probably add or almost the cost cutting that also is supposed to come this year. I take that. However, the EUR 1 billion increase for the next, for the rest of the year applies if all the headwinds in Q1 were to suddenly disappear on the first of April. I guess my question is, are we gonna see some extra headwinds? Maybe to qualify that, what is the tariff increase you need to pass through in Germany in Customer Solutions for the headwinds to go away? When do you think you're going to pass these increases?
Because I think still April probably was quite challenging. My second question, sorry to go back to inflation. This is an incredibly important point. I think your slide was super clear, but just to be very, very clear, Germany after 2007, RAB is nominal, right? It does not update with inflation. What happens is that your TOTEX updates for inflation. Your allowed return update for inflation within the regulatory period. So there is a partial inflation protection, not full, then it's reset every time. Or am I getting this wrong? Just to be super clear, this is a very important point. Thank you for your patience.
Yes. So Alberto, with your first question, looking at our procurement position and that we are basically fully hedged, I don't think that any further headwinds will have a material impact on this year's earnings. We would, as we demonstrate now with our development between Q1. I hear some beeps here. Not sure whether that is in the phone line. That's gone now. Great. It's not you, Alberto. It was someone here. I don't expect new headwinds to have a financial impact on this year's earnings and not neither on future earnings, because we will have the time to make the necessary adjustments, price adjustments, and so on.
Secondly, when it comes to inflation protection, the German system indeed is a nominal return one, but the return allowance during the next until the next regulatory period and for Power 29 starts will be every year inflated with CPI. We have until the next regulatory period, full inflation protection in that sense. Inflation protection is still then from Power 29 onwards guaranteed by the fact that by then allowed returns will be readjusted to then take into effect a higher inflation and interest rate environment. In that sense, it is in a total period, fully protected. It's the mechanisms which are being applied are different. At the end, net-net, full protection.
Mark, that is very clear. Thank you.
Yeah.
May I just ask?
Yeah.
When do you think the tariff increase in Germany may be implemented? I don't know if you want to mention maybe how much, but, when do you plan to increase tariffs in Germany?
On the network side?
On the Customer Solutions portfolio.
I would say we start first of June. That has already been announced. Further details, we cannot really share, yeah, because that's of competitive nature as well.
I can't talk about new things which are still in the pipeline, but a large part has already been implemented with the price increase effective as of January already. Another one now being announced with effective date of, as Verena said, first of June.
Thank you.
These are the ones which are implemented and announced, and where we have full visibility. By the way, no impact on churn.
Very clear. Thank you.
Yeah. It actually gets to almost already 50% price increase here as well. If you take the two steps, that's already quite.
Thank you.
Okay.
All right.
Next one.
Next one is Piotr from Citi. Piotr?
Hi. Yes, good morning, everybody. Thank you for presentation. I have two questions. First, I wanted to ask you about your guidance for this year. You explained the reasons how you can get to this guidance. I wanted to ask you how much of the, kind of, the headwinds in terms of, you know, network extra costs or the squeeze on the supply margin is embedded within the guidance that will disappear going into the next year. I was just trying to make a bridge more towards 2023 versus 2022, that some of these headwinds on the net basis, you know, like Netherlands is a small positive, Germany is a small negative.
How much is, I don't know, millions of euros you kind of have in these numbers that will be supporting for year-on-year bridge into the next year? I wanted to maybe extrapolate the questions of Alberto into the Eastern European inflation protection for the networks. I mean, CPI in Eastern Europe runs good double-digit figures, and some of the countries, different metrics of how they are supposed to be protected. This is actually the.
Piotr, we cannot hear you anymore.
Hello, can you hear me now?
Yeah.
Yes, now I can. Sorry.
Sorry.
Can you.
No, you're lost again.
Is it better now?
Yes.
Yes. Seems that your line isn't. No? We still cannot hear you anymore.
Okay, well, let's go with the first question only.
Okay, that one we understood now, but I answered the second one and maybe the line had improved. On the impact of higher energy prices. Again, on the Customer Solutions side, we expect that margins will normalize with the price increases that we have implemented or announced, and normalization there, just with a small adder to what I said before on James' question, that a normal margin will actually be an expanding margin going forward. Our percentage revenue margin will compress absolutely stable, but relative compressed, and I would expect that going forward then also on a percentage basis to expand again. Absolute margins going forward should actually go up, if we look beyond this year.
On Energy Networks, as we indicated already with our full-year results call, we included, you know, the spike in prices in the beginning of March, and on that basis said, "Well, you know, if prices stayed on that spike then, we would probably deliver in the Energy Networks business at the low end." Now, prices have actually come down a bit, so you should take away full comfort that we will be able, you know, in a pretty wide bandwidth of energy prices to deliver on our guidance and that we have built this in.
An absolute EUR number is a bit difficult to say because partly then you have immediate protection in place, partly it then is a timing issue. There's high confidence in a high bandwidth actually of outcomes of energy prices that we will be able to deliver our guidance.
Is the line better now? Can you hear me?
Now it's better. Give a shot on the second question again.
Cool. Thank you. I just wanted to ask you, how do you feel about the risk on the regulatory side that some of this inflection in inflation protection measures in Eastern Europe will not work? Just to give you an example, you know, Polish 10-year yield runs almost 7%. Your w.
Now the line is broken again.
Yeah. That was just the example, so maybe.
Look, we have in the dialogues which we run across the markets, regulators are extremely constructive, no question, doubts around these mechanisms. Keep in mind that a large part of the price increases is now in many markets already implemented, yeah? It's not a reality which is still to come. The big shock in terms of energy affordability, you know, it is now already visible for any politician and regulator. What I don't share is this notion, oh, there's still a wave to come which no one has seen as of now. It's not the reality in the discussions we have with regulators.
That's why my confidence therefore is high when it comes to these automatic inflation protection mechanisms.
Okay. Thank you, and apologies for this line breakdown.
No, you're welcome. It happens.
No problem.
to all of us.
We made it. Next one comes from John Musk from RBC. John?
Yes. Morning, everyone. Two questions from me. We talked a little bit about potential headwinds. One that we didn't go into much detail was bad debt. Just thinking around what you may have already built into your guidance for increasing bad debts and appreciate, you know, the bills have not necessarily gone up everywhere yet. You may not have seen some of that hitting customers. And then secondly, just to get clarity on the leverage guidance, lower end of 4.8%-5.2% based on interest rates now, what does that mean versus the EUR 1.4 billion we've already seen in terms of lower provisions? How much lower will they go based on interest rates now?
Yes. Good morning, John. On bad debt, we continue to take a very prudent approach, which is now basically the third year we're doing that. You know, we have been continually talking about that issue. We started with a very prudent approach when COVID broke out and have done so ever since. Basically, we haven't seen any bad deb ris actually materializing since then. I think from that, you should just take a lot of confidence that we have taken care of bad debt issues in a very appropriate manner, and that this does not pose a risk to our guidance.
Of course, we are monitoring it, are gradually working on in those markets also where we do not yet have a high direct debit rate share to gradually increase that. You know that in Netherlands, Germany, we're 90%-95% direct debit rate anyhow, so that's pretty safe territory. In the U.K., we're at 60%-65%, and you know, we continually drive it up. Second message here is we're not just monitoring the risk, but we are actively addressing operationally that topic to further mitigate and minimize any impact.
Now, on leverage, fair question is, if you look relative to the spot rates applied to our Q1 accounts, interest rates have further increased by, if you look at the euro rates, 70 basis points relative to the spot rates applied in our Q1 accounts. We gave you the sensitivity already in the past that an increase of about one basis point equals approximately EUR 33 million of relief on pension provisions. Based on that sensitivity, the 70 basis points as of today would mean about EUR 2 billion of further decrease in pension provisions.
Now this already assumes the sensitivity that plan assets in such an environment would not work positively, but that we would lose on the plan asset side, as we have also seen during the first quarter. That is the only part which may mean that, you know, the sensitivity can be a bit better or a bit worse depending on where the asset performance actually runs. It's a quite sizable improvement on top of what we have accounted for in our Q1 accounts, for sure.
Okay, great. Thank you.
Thanks, John. Next question comes from Louis Boujard from ODDO BHF. Louis?
Yes, thank you very much and good morning to everyone. Two questions on my side. Maybe the first one, coming back on inflation but a bit more regarding the long term. We understand that Energy Networks, of course, is a bit under pressure this year, but at the same time, most of the support that is going to kick in regarding inflation are going to come next year. Shall we expect that, in view of this trend, we could see further improvement and maybe further CAGR growth on the EBITDA trend in particular in Energy Networks compared to what you had in mind three months ago regarding the EBITDA that could be achieved in Energy Networks by 2026, for instance, in your official guidance?
Do you feel now more confident in this long-term guidance, more specifically? Maybe my second question regarding Energy Infrastructure Solutions trend, if you could give us a bit of a color regarding the actual commercial development of this business in the current environment where for sure you could have quite demanding clients for some solution on this topic.
Yes. So I can answer the first question, Louis. Very shortly the answer is yes. Yeah. Of course, with rising inflation rates, and if I talk about inflation protection, ceteris paribus, our CAGR for Energy Networks earnings should go up. And on ceteris paribus will go up. Second, on Energy Infrastructure Solutions, you know, I keep it short and crisp now for the sake of this call, although there's a lot of good things to tell about the business. What we basically see is, during last year, extremely positive momentum, specifically on the city energy solution business. Where we are offering for city quarters, cities, specifically low temperature heating solutions.
This has seen a tremendous momentum, and we've been quite successful in signing deals with cities or large property developers across Europe. There's a second business line in that, which is the central energy infrastructure for industrial and large commercial customers. Here we've seen an enormous momentum on renewable solutions. The rate at which we are now selling PV-based heating solutions for industrial clients is amazing. It's limited by the supply chain topics in global markets, which basically mean we could increase our growth rates even more, if we had the supply at hand.
Currently, gas-fired solutions are less on hold, but if I look at the first two trends which I mentioned, this by far overcompensates for reduced demand for gas-fired solutions at this stage, and hence underscores our long-term very positive conviction on that business. Also the long-term growth rates as part of our capital market day, investing EUR 500-EUR 600 million every year at mid- to high-single-digit post-tax IRRs, fully intact.
Thank you very much.
Thank you.
You're welcome.
Sam from UBS actually wanted to pose a question. I'm not so sure whether this is still the case. Sam, are you still online and want to ask a question? If not, we move on to Martin Tessier.
Yes. Good morning, everyone. Thank you for the presentation. I have one question only on the Customer Solutions business. On the one hand, you say that there has been overall no negative dynamic in terms of churn. On the other hand, we understand that sometimes you are the supplier of last resort, meaning higher number of customers. When we look at the page 17 of the presentation, we can see that the overall portfolio has decreased by 200,000 customers during the quarter. Seems like a bit counterintuitive. Any information on this dynamic would be very helpful. Thank you.
On supplier of last resort, the biggest dynamic actually happened during the fourth quarter. Last year, we saw about one million customer accounts or an increase of one million customer accounts due to supplier of last resort events. During the first quarter, customer numbers, as churn numbers have basically crashed down across all markets, there's very little movement in customer accounts at all. The 200,000 are actually some here and there in some markets. There's no major trend.
The customer numbers are largely stable, and that's a reflection of very limited churn and also very limited at this stage active channel management on our side because it just doesn't make sense in the current price environment. I think the good news and important thing for the future is that across all markets we do see competition structurally go down. So a lot of market participants exiting, regulators increasing the bar, the quality bar of what you need to comply with in order to actually be admitted as a supplier and be active as a supplier. That actually calls for when churn rates will come back, when prices kind of level off at least somewhat if you look at the forward curve.
The competition also structurally going forward will be different to what we have seen in the past, and that means better for us, basically across all markets.
Okay. Thank you.
All right. Thank you very much, Martin.
Yeah, I just saw that, apparently Sam is now on the line again. Sam, please go ahead. That would then be the last question for the call. If that still doesn't work, Sam, then we are happy to pick that up after this call. Sorry for that if there are any sort of connection topics, in that case. Yeah, thank you very much for your interest and for all these relevant questions. I hope this was useful, and we're obviously looking forward to continue our dialogue. If there is anything else that we can help you with, we are at your disposal. Thank you, Mark, for answering all these questions. Looking forward to seeing you all again, and stay healthy.
Thank you very much from my side. Stay healthy, and hope to see you soon on the road. Bye-bye.
Bye.