Dear, ladies and gentlemen, welcome to the webcast of E. ON SD. At our customers' request, this conference will be recorded. After the presentation, you have the opportunity to ask questions May I now hand you over to Martina Boga, who will lead you through this conference. Please go ahead.
Thank you. Dear analysts and investors, welcome to our H1 results presentation. Thank you for joining via telephone or webcast. Today, I'm here with our CEO, Leo and our CFO, Mark. Verena can't join today in person as she is enjoying an extended summer break after the birth of her second child.
She will be back with us in September. Leo will guide you through the highlights of the first half of twenty twenty one, while Mark will give you an update on our financial performance and the outlook for the remainder of the year. As usual, we will only highlight the main messages With that, over to you, Leo.
Thank you, Martina. Good morning, and a warm welcome also from my side. Since my last conference call back in March, I passed already my And I can say that not only because we have again delivered an operationally very strong quarter, but on top, we have mastered huge challenge due to the floods in our German grid areas and I will elaborate a little bit on that in a second. Actually, all of our businesses performed well in the Q2 based upon Excellent operations and the remaining impact from the pandemic is in line with our expectations and we are well progressing on the synergy delivery in the first half On top, we are now including the already communicated effects from the adoption of the legal settlement of the nuclear production rights We do not only see the majority of the financial impact in the sharp increase of our year over year development of EBIT and adjusted net income in the H1 figures, but we also adjusted 2021 full year outlook today. The total €600,000,000 EBIT impact brings Our 2021 target now into the range of €4,400,000,000 to €4,600,000,000 And we upgrade also our outlook on adjusted net income respectively and now target for a range of €2,400,000,000 to €2,200,000,000 to €2,400,000,000 And Mark will elaborate on this topic later, and he will also explain how this translates into our midterm outlook, which is basically now changed by this technical effect.
With that, our midterm delivery plan, the synergy target of 7.80,000,000 by 2024 and our dividend commitment will not change. But now before moving to my standard topics, let me draw your attention on a very important topic on the next page. Normally, we do not include any pictures in capital market update calls, but this time we do. You all have we do. We have all heard and you've all seen how in mid July, large parts of Germany, the Rhineland and other European countries have been hit hard by heavy rainfalls that resulted actually in catastrophic floods.
In Germany, many cities and villages have been destroyed and 180 people actually lost their life. I I've turned personally to the affected areas and I can only tell you that the TV pictures don't do the situation any justice. It's actually really shocking if you are on the ground. The water has obviously also destroyed gas and power line, converters, substations and other important energy infrastructure operated and owned mainly by one of our DSOs. We had around 200,000 people without access to energy in peak times.
The reaction, however, was very strong. In an overnight measures, we have mobilized more than 1,000 colleagues And a lot of devices across all our German entities who have all provided immediate aid in the affected areas. Our experience with weather events, our excellent operations and our widespread reach across Germany proved to be a strength in crisis management. And let me take this opportunity despite this being an investor call again to thank all my employees who did such a stellar job and really went to the limits of what We have by now basically reconnected all customers somehow to the energy infrastructure with a few exceptions. But why is this maybe also important for you?
Well, obviously, first, because it just shows again that access to energy matters. And one value is more what one doesn't have. And so this is again what we have seen in the crisis. Infrastructure is now really valued. And this event is a clear signal also that E.
ON is investing into important things that matter Resilient and sustainable infrastructure is more important than ever. And obviously, it also shows that we are a good operator for such infrastructure with the skills to actually run them
in a
And that brings me now straight to my strategic focus areas on the next page. When I first announced my top priorities, I focused on 3 themes that will have the ability to impact on the future of our company, I. E, Sustainability, digitalization and growth. And today, I can share that we are progressing on all three items. 1st, sustainability.
Our sustainability footprint is continuously improving. We put a special focus on biodiversity next to climate action. We've decided to manage our grid corridors in an ecological way and will turn around 70,000 hectares along our 13,000 kilometers of high voltage power lines into valuable biotopes and habitats. The effective area is equal to the size of more than 100,000 soccer fields. So it's the target which we gave ourselves, 1 Also, E.
ON became a partner of the United Nations Environmental Program Unit, which has proclaimed the decade of ecosystem restoration. We have developed an online platform As part of this partnership with UNEP that gives the UN Decaturities a home. On this platform, initiatives The partner units filled us with price, but at the same time, it's also an obligation to consistently implement sustainability in everything we do ourselves. 2nd, digitalization. It's about to become the inherent DNA of our business and we are creating digital first mindsets throughout the complete organization.
And together with partners, we are delivering on our digital roadmap, which we have defined in more detail. We're focusing on cloudification. And the aim is to make IT processes more flexible to increase the operational efficiency and to accelerate the development of new solutions and services Also within the businesses we are constantly delivering with the help of digitization, we have accelerated our migration, Which brings us now to 9,500,000 accounts that are operated by our new sales platforms in the UK in Germany and this will help us to achieve our ambitious targets within the Customer Solutions segment. 3rd, we see a strong political momentum, which Fit for 55 program is fully in line with our growth ambitions that puts our customer centric Energy infrastructure right in the center of its aspiration. Our activities are fully aligned with the focus areas Let me just briefly elaborate on one of these areas in more detail, green hydrogen.
I'm utterly convinced that Green hydrogen will become the 2nd pillar of decarbonization, especially with the shorter timeframe to achieve 100 telephone. And I'm also convinced that hydrogen will be relevant much quicker than previously anticipated for the decarbonization of traditional industries, but also for midsized companies and for the heat transition. Therefore, E. ON as an operator of gas assets and with a long lasting history in the Solutions business can play a decisive role to make this happen and this is I have joined the CEO Alliance for Europe's Recovery Reform and Resilience to take responsibility in the cross sector lines to support the European Green Deal. So more to come for E.
ON. And this is for me the conclusion next to the delivery amongst all our operational priorities. We are making excellent progress at our strategic review. I'm really looking forward to present the outcome of it to you on November 23. Now let's leave the future and return into the present, And let me point out your focus again to the existing business.
As many of you have noticed, The German regulator, the Bundesnensagintur, or in short, BNSR, has published an initial proposal and started its on the return on equity for the 4th regulatory page. The value that BNSR has announced Based on the conducted expert opinion is the minimum return on equity of 4.59 percent pretax, which is a decline of more than 2 percentage points compared to the return of the current period of 6.91.
A quite heavy reduction
that will take the return on equity to noncompetitive level in comparison to international regulatory systems, especially when comparing the Binitar numbers to similar decisions were taken by other national regulators lately like in France or the UK, the proposal must be considered very low and more precisely significantly too low. As expected, the risk free rate, a 10 year average of the German yield has been significantly reduced.
At the
same time, the market risk premium and the risk factor beta have been marginally reduced as well, which according to the latest economic research Makes no sense. From our point of view, the market risk premium has been set way too low. It should be set at a minimum of at least the average of European Energy Regulation. For Germany, a market risk premium of 6.5 percent to 7.5 percent has been calculated by Value Trust on behalf I can also point out
The consultation documents that were published by
the BSR do not propose a fixed Actual value, but the minimum value, including some room for improvement that actually mentioned a range of 25 basis points. Let me be crystal clear. 4.59 percent with or without additional 25 basis points is unacceptably low. Return at that level is not at all sufficient to support the investments that are urgently needed to support the energy transition in Germany. And at this point, I still trust in the VNSR that they will determine an appropriate level to support the LNG transition, which is of the highest priority telephone.
Let me point out also the process from here. The consultation will be held in written form only and is closing on the 25th August. Presentation is public. That means any interested party, including investors and research analysts, can and should participate to send their opinion on the proposed value to Win itself. In 2 of the last three regulatory periods, the proposed number has been considerably increased after the consultation.
That's why I'm still rather optimistic for the outcome. We expect the final determination to be published by Vinitar most likely in October. So let's leave Energy Networks here and let me now turn to the solution activities on the next page. We actually often talk in detail about our commodity retail portfolio. Therefore, today, I will share more details Across our markets, we are targeting to invest around €500,000,000 this year.
On top of completion of our large growth initiatives such as Filpitorp in Sweden, we will execute on small and midsized decentralized energy solution mainly in Germany, Sweden and the UK to deliver on our ambitious targets. All of this will translate to a strong earnings target north of €200,000,000 in 'twenty one, which represents a 40% year over year increase. 'twenty one, we targeted growth of around 15% per annum until 2023. Next to our infrastructure like solutions, EIS, Mark highlighted in the Q1 presentation how our Future Energy Home business is gaining momentum. As a reminder, this business is included is including all of our residential energy solutions in the area of home heating and home energy management, and storage and on top our e mobility activities.
Revenues have surged by 30%, three 0 percent compared to the first half of twenty twenty. Also on the earnings side, increasing demand for sustainable solutions is bearing fruit And we have recorded a surplus of around €30,000,000 on EBIT level in the first half compared to the first half of twenty twenty. In absolute terms, the earnings contribution might still look low, but it's actually very positive for a strongly growing business to show We have clearly entered The route now that is currently pointing only to one direction will the growth. Thank you so much for that. And now, Marc will present the financial highlights of the period.
Marc, over to you.
Thank you, Leo, and good morning, everyone, also Before elaborating on the continuously strong business performance of the first half of this year, let me make one introductory remark. It is now adopted by all necessary legislative bodies. Therefore, we are able to book the majority of the positive earnings contribution already in Q2. For the 1st 6 months, EBIT came in at roughly €3,200,000,000 which is an increase of 45% or €1,000,000,000 compared to the same period last year. Looking at the segments, earnings in Energy Networks are up by approximately €130,000,000 compared to the first half last year on the back of positive weather effects and the non recurrence of negative effects from the pandemic.
Customer Solutions earnings momentum was strong an increase of almost €360,000,000 year on year, which is an increase in EBIT of almost 80 0% compared to last year. The UK sales business benefited from the ongoing migration of on to the new platform. With an EBITDA of €163,000,000 in the first half, we are already higher than our target of above 100,000,000 telephone for the full year. The reminder that especially in the UK, the seasonality is usually very pronounced towards the first half of the year. Earnings of our non core business are largely driven by earnings effect of roughly €500,000,000 from the already mentioned approval of the legislation on the nuclear production lines.
Let us have a brief look what the earnings development means for our bottom line. Our adjusted net income came in at roughly €1,800,000,000 for the first half of twenty twenty one, up 86% versus 2020. In addition to the increase in our operating results, we are seeing positive effects economic interest line and a lower tax rate 23%. Let me now turn to the development of our economic net debt. Compared to Q1 2021, economic net debt is largely unchanged despite the ongoing high level of investments and dividend payments of €1,500,000,000 in the 2nd quarter.
As anticipated, the operating cash flow rebounded in Q2 After a seasonally weak Q1, the cash conversion rate has now reached 49%, and we will see further strong improvements for the remainder of the year. Be reminded, we guide for an average cash conversion rate for telephone until 2023 of 100 percent, but has approved the legislation in June. The resulting earnings impact of €600,000,000 covers both the impact of the nuclear production rights granted for free and the compensation for frustrated investment. Consequently, we upgrade our full year guidance for non core. The impact on EBITDA level of €400,000,000 leads to new guidance range of 1 point to €1,400,000,000 The impact on EBIT level of €600,000,000 leads to a new guidance range or expectations.
The way how we treated our guidance was outlined with our full year results disclosure already. So what does that mean for our guidance on group level? We now expect group EBITDA between €7,600,000,000 and €7,800,000,000 and group EBIT between €4,400,000,000 and €4,600,000,000 After taxes, the effect translates into an increase of the adjusted net income line of roughly €500,000,000 Consequently, the new corridor is updated to 2.2 to 2.4. Our financial framework to reflect that we will operationally deliver what we have promised so far. We plan to properly update our financial framework in November with the Capital Market Day.
So today, full confirmation of all our midterm commitments. This also includes the synergy target of €780,000,000 by 2024 and our dividend commitment of an annual dividend per share growth of up to 5%. That's all from my side today. Thank you very much for your attention and back to Martina for the Q and A.
Thank you, Marc. Let's start the Q and A session now. Please be reminded of the usual two questions rule. Over to the operator for some instructions on the Q and A session.
Thank you.
The first question on the line is from Alberto from Goldman Sachs. Please go ahead, Alberto.
Thank you. Good morning. It's Alberto Gandolfo from Goldman Sachs. I'll stick to the 2 questions and class and observation. I'm prompted, if you You'll forgive me.
The first question is about the Fit for 55 goals. It seems to me that with the electrification of mobility and real estate that Europe is targeting already by 2,030, we will probably need a different type of power distribution grid in Europe, which is like 60% of your business. So I was wondering, if you can maybe elaborate with us how the network is going to look like? And if your 5% annual RAB growth in the medium term you presented in the previous slides Present some upside risk. Thank you for that.
The second question is on digitalization using, I think, Leo's words are becoming part of E. ON's DNA now. You're a few months into it. You have already been migrating customers on to one platform in the U. K.
You are doing that in Germany. Can you maybe share with us some of the early learnings regarding the cost savings from it. So what's the return on this investment? Are you actually making money out of it? Can we see More to come.
I appreciate you probably elaborate that at the CMD, but just to see some early findings. My observation, which is not a question, so I'm sticking to the 2 rule. I mean, your 2nd half implied EBIT seems to be €1,300,000,000, 1,500,000,000 if I'm not mistaken. Last year in COVID, you did €1,600,000,000 So it sounds to me Incredibly conservative. Again, that's just observation, does not require a reply, but thank you for your patience.
Alberto, I'll take the question. I struggle a little bit with my voice Good morning. I hope you can hear it. My vocal cords have been under stress by, I think, Teams Conference 1,005. But eventually, electrification, I think it obviously if you ask how the network will look like in 2,030, We could go into details and I could tell fantastic stories until the end of this conference.
But the net effect is It will gain dramatically importance because there will be so much more load on it. EMobility will probably penetrate faster than anticipated a few years ago. Sector convergence towards Industry is going to move faster with the Fit455 and the increased targets from for industry. We will see further penetration of renewables probably in an even more aggressive way. We will have significantly more decentralized assets that need to be steered and we will have higher volatility and less redundancy in So which requires us not only to have a much stronger system, one that actually is much more resilient.
We will require much smarter system that allows us to understand the status of the system at any point in time, also on a very local level and which allows us to influence the status of the system on a very local level at any point in time. So we need to invest more into aluminum, but we need to invest also more into silicon, so to say, and make the grid significantly smarter. In that sense, actually, if anything, I see more investment opportunities. And that is even without an increase on customer connections like data centers, battery production, etcetera, which I didn't even touch. So the electrification will actually support our business and the Fit for 55 is a strong push towards electrification.
And I might remind you that also hydrogen in the end is a form of indirect electrification. So that's a positive. Now on your second question regarding digitization, I would like to correct, and we are not a few months into it. We are actually into it already for a longer period of time, but obviously we have a special focus on it right now in the context of strategy. I would like to Probably defer your question to the Capital Market Day in which we would also kind of like show how we want to actually digitize, But maybe only 3 learnings.
You need to understand where you really want to go to. That's one item. The second one is not about technical projects, it's about enabling the fees to deliver the projects. And the third one is actually You will need to change your structure processes and systems if you really want to digitize. You can't just digitize in the setup as it stands today.
So we can go to the next question from Vincent from JPMorgan. Please go ahead, Vincent.
Opportunity already been touched upon. So I'll ask a question related to comment you made before On the rate of returns in the current review being too low, there is an informal investment. I have difficulties and I struggle to understand that. So I'd like to get a bit of your color there. My view would have been You have a return on the existing assets and that has to be a fair return for all.
And if there is a need for new investments, An incentive has to be put in place and the financing of it is up to the company which can make disposals, Capital increase allows. So could you explain the specific element because it's not the first time that I think it was raised as well at Your results are maybe missing something here. I'll be interested in this point. And the second question We've seen the UK government plan to introduce opt in Switching on the UK retail market for 2024. Do you expect to lose customers in the near term?
Or does your recent restructuring mean actually you can keep numbers stable and then grow customer? So I believe E. ON is well positioned on a relative point of view versus peers, thanks to the work you've been doing on digitization. But what does that mean relative or much and in absolute, Probably still some pressure there. Could you give us some color on that?
It would be very appreciated. Thank you.
This is Mark here. Let me take all your questions 1 by 1. I'm not quite sure whether I got the point on the rate of return correctly. So just come back if you find the next one. So what is So first of all, this is for us in the first place, not about funding.
It's We brought up a lot of ideas now about funding. It's essentially about getting a proper return for capital, which We've been dedicated for 25 plus years. And that is a discussion which we're having with the regulator that when you commit Your capital for such a long time. Plus, when you as storms plus Istrom's and so on again and again show that this is not a risk free business. It requires a high competency in maintaining, managing And also troubleshooting in terms of crisis, and this is more than just a financial investment.
That is a discussion which we're having with the German regulator. There was a very clear position that Leona laid out that the 4.6% are actually ignorant of all those things which I've just mentioned. And within the proposal On paper, not even suggesting a further slight reduction in the market risk premium, let's say, is irresponsible and completely misses So expect us to stand up in the current consultation period. And to make our point, as the 4.6% are not satisfactory.
If I may just add one point, just to underline what you just said. Also the municipalities, which are owned by the respective cities actually have exactly the same point. Clearly, they don't partially rely on capital markets. They rely on to actually finance themselves. So it's clear this is for the whole industry an issue.
Every player in Germany is actually supporting our We are not alone because we are the capital market based network player. All network players actually support this.
So, on the U. K. Government proposals for 2024, actually, Vincent, it's I can't give you no I don't need the crystal ball. I can't give you the exact answer. But what I'm absolutely confident about and that I'm actually partly just echoing what you yourself said, We are very well positioned.
And so the challenge in the UK is not now to rest on any achievement. We will continue and you can expect us to continue to work on improvements in our UK setup During the future years and that will mean that our ambition is to be in a position to whatever comes. And that's why we're not afraid of any change if that was to come also in the market set up or regulation. It is about how we relatively stand to the rest and then we should be able to defend a decent margin.
Thank you. Just to be sure I understood the last sentence you made. The fact that you're relatively Well positioned, indeed, other question. You potentially could have an increase in number of customers under this more competitive environment. Is it a fair assumption?
Yes. That could even be the case. But again, 24, it's a long time span. And actually, when it comes to retail markets, we are not running 4, 5 years projection As the market dynamics add prudent to be much higher. So let's talk about that again when we come a bit closer to 2024.
So the next question is from Lueder Schumacher from Societe Generale. Please go ahead, Liza.
Good morning. Just two quick questions on my side, no observations. You lifted the full year 2021 guidance in line with the agreement on nuclear production rights, which means that you left the underlying outlook unchanged. Now that's despite the high double digit €1,000,000 impact from the floods. So should we really look at this as an upgrade to the underlying guidance.
And the second question is really on about what's your view on the quite extraordinary wholesale price environment for power and gas prices that we are currently seeing. Is that a danger for supply margins in the future? Or could this actually be beneficial for the customer solutions business Presumably, the competitive pressure should get less. And so related to this as well, any comment On churn rates would be quite interesting.
Mark, so maybe I take the Second question, Miri, and I'll start with it. Actually, your question has already given the answer. It can go both ways, yes? Because on the one side, it clearly increased pressure Or can increase pressure because just prices go up in absolute term and it might have an impact on churn rates. On the other side, especially smaller market entrants traditionally have hedged And they might actually get under pressure.
So you might also see in a certain consolidation of the pressure, which would move exactly in the other direction. We have to observe carefully how this actually plays out, but I would be careful to give a prediction at this point in time and maybe it's actually also different market by market. But again, this just underscores all of the points that Mark already made. You just need to make sure that in relative terms, you're ahead of the competition.
Ludo. Hi. On the 2021 guidance, indeed, our ambition It really is that the impact from the flood in Germany will have to be digested in our given guidance range. In that sense, You could say that the admission level has increased. But On the other side, I think what our investors should take note of, obviously, if something like that happens, that we said naturally an ambition that we're able to digest that And not just like for like for any impact which happens of that kind of our guidance.
With regard to the second half, it's now kind of the second observation and I guess we will then quickly We get a third observation, individually question actually. So be reminded that if you look at the dynamics this We have seen a lot of the recovery in the first half of this year. This is both due to the normalizing weather conditions, which have impacted negative last year quite dramatically in the first half and also to the COVID impact, which was very much standard around also the first half. And so this recovery is actually now done. On the other side, keep in mind, and I guess a lot of you are aware of that, the seasonality in our customer solutions business is that the byproduct of earnings is actually produced in the first half.
If you look back our records for years, that this has been pretty much the case in every individual year. And also don't forget when it comes to our non core business that actually we are now getting ready and preparing also to phase out And this means that a number of activities now need to be adjusted and that will also impact on our margins in the nuclear business. It is not just turning the button and switch the plants off. It requires a well managed preparatory phase. And that actually starts in the second half.
And that will also be weighing on the margins in our nuclear business. So just those points to keep in mind The second half is not just an easy walk. It is a carefully calibrated guidance. And from today's point of view, we are confident to stay in that range.
Very clear. Thank you.
Thank you. So I can hand over to Tal Marie from UBS for the next
Lots of positive messages today. Two questions from me on cost and then on gas. On the cost side, it seems like the integration synergies are delivering very well. It's great to see you I reconfirm the midterm target there. But can I ask, when you sort of look around at the business, do you think there is a lot of potential for Further synergies or cost savings?
Mark, I think you said in the past that the business is already pretty close to the efficiency frontier, We sort of suggest there's maybe not much more to go after, but I'm just wondering if there's any further development in your thinking on the potential for cost savings and efficiency. And then my question second question on the gas side. I mean, in recent weeks, we've seen SSE and NG With stake sales on the gas networks, we've got National Grid now obviously planning a gas disposal next year. And it's interesting because all of the companies there talk about the importance of green gas and the gas networks in the future as you do and hydrogen and so on, but they're still divesting. So I just wonder if you could give us an update on your thoughts on the gas networks there and whether we think of them as a sort of long term
Thank you.
Yes. So Sam, I'll take the question first. Yes, indeed. On the cost synergies, on the cost and efficiency potential, yes, we are progressing quite well into our satisfaction. Now do I see further potential?
I will not give you a number now, but it would just make a general comment. I just said that we are looking at a decade of growth, which we need to deliver to actually enable the energy transition. I think part of our aspiration needs to be that we make increasing cost efficiency and cost reduction as standard repertoire of our business rather than something that we drive through programs with one So rather than giving you now another triple digit million number as you have in your mind already, I would rather like to come to the point that a certain efficiency reduction of X percent per year becomes the new normal at E. ON. So that's maybe something and we'll certainly come back to that point, but we don't have now fixed numbers that I would share at this point in time with you.
2nd, when it comes to gas, Indeed, we are looking with high interest at all the developments there. I think there's a differentiation when you look at gas assets TSOs assets and DSOs assets and then also DSO assets which are kind of like combined with local Heating supply, but in any case, we see an upside for we see both again A bit similar to the supply side, the question on the supply side that you just asked. We see an up Aside from the green gas development and we see a downside from the, I recall it, bid for 55 carbon, the next call gas, the next call discussion, so to say. And we are looking at that, but I think it's Actually, one of the questions that eventually we will need to answer not only at companies, but probably As an EU on an EU level, how we want to think about those assets, because that will be essential for how we will drive the energy transition over the next 2 decades and What role actually hydrogenic gas will play in it? So again, a topic a good topic to us, but not one where you would get something that you can plug into models
Okay, understood. Well, listen, thank you for your answers, and we look forward to hearing more in due course.
Thank you, Graeme. So the next question is from Rob from Morgan Stanley. Rob, please go ahead.
Rob Pulleyn from Morgan Stanley. May I ask just back on the regulatory review. Given your comments on the proposed minimum ROE and taking the point that is a minimum, if the value creation opportunity Between this return and your cost of capital is not sufficient. And then just hypothetically speaking, if the ROE does not improve By more than the 25 basis points you indicated, then how much would RAB growth be scaled back in that outcome? And the second one, if I can sort of change tack a little bit to something that hasn't been asked, is regarding this very exciting run-in For the German elections, where the polls are moving around quite a bit, could you help us understand the spectrum of outcomes that is possible for E.
ON on the outcome of this election and I think maybe speaking generically about what could happen rather than assigning policies to various coalition options. Thank you.
Rob, this is Mark here. Let me take over the first one. So the consultation process now just And I think there's no sense now in running hypothetical discussions about what happens if I think we've made our point there, clear that the 4.6%, which seems to be the right, would be Far from satisfactory, and our focus now lies on making sure in the consultation process that our arguments and the arguments actually, as Leo I said earlier of the whole industry in Germany, but also of investors And other stakeholders who will be raising their voice in that process. Those arguments now will be laid out and heard, be reminded that in the past during those consultation period, we have seen quite some market movements In the numbers as well. So that is our focus.
Our focus is not now on speculating on what if questions.
I'll take a question on the German election. I will put it this way. 1st, A utility needs to be able to work with any government. So if our business would be dependent on a certain outcome of an election, That should make you nervous, but actually we think that in principle we can work with any company With any, sorry, with any coalition. Now when it comes now to what are the likely coalitions, And today, like a few weeks ago, people would have told you we could see a blackgreen, a conservativegreen government.
Now I'm saying that's more unlikely now because the conservatives have lost somehow, so it's more liberal conservative green. I would argue that is basically when it comes to energy, that's more or less all acceptable for us. But Maybe the only item that is clear is, it looks more likely than not that In any case, Green Party will be part of a coalition, that's number 1, which will then actually Which could present an upside. For example, if we really think about the permit procedures, Like the Greens could be the ones that could most radically change that because in the opposition they would always need to most Previously opposed it, so maybe there's an opportunity in that. And then it looks more likely than not and the conservatives will be leading the new coalition despite the movement in the number.
So personally, I'm looking forward to see what the outcome will really be and still Some days to go and right now the time is so hot, so it's so heated that I would refrain from making detailed predictions. Any coalition that we can see as likely at this point in time would be an acceptable coalition for Germany anyway because it's an elected one, but also for E. ON.
Thank you very much for the thoughts. We will pay great interest to how this evolves over the remaining campaigning period. I'll turn it over. Thank you.
Thank you. So I can hand over to Deepa from Bernstein for the next question. Deepa?
Thanks, Martina. So my two questions, sorry to come back to the allowed return. Leo, I would love to hear your perspective on why Despite, I think a lot of lobbying already before the draft, why the regulator has kind of stuck to the same old methodology when they should fully be aware of the investment needs and so on. And is this more so that They can then improve it later, but what do you think is the regulators thinking? And do you get the sense that I mean, you highlighted that in 2 out of 3 occasions they exchange.
So where would you put the odds and would it be only constrained to this 25 bps that the experts have highlighted or Actually, shouldn't it not do more? So that's my first question. And the second one on the CMD in November. Mark, I think you highlighted that You would upgrade the framework, but I just wanted to know would these be more mechanical updation or Are you actually applying to also kind of maybe provide the numbers? And could you provide maybe a sneak preview of what are the topics you might want to
All right. So I'll take the first question, Deepa. And first, let me thank you for the open letter you wrote
to the
business. Very much appreciated. And even if it might not show in the proposal, it really makes a difference If many investors, analysts, etcetera, right to the business and to a lease impact. So let me be crystal clear, we expect more than 25 basis points of improvement that we would still consider an unacceptable to low outcome. 2nd, I don't want to speculate too much What is really driving the business AUG into work, whether this is now positioning for negotiation and car line being very aggressive with the first You know, it's the first in which they do just maybe showing us kind of like all their cards.
But So in the end, that is not the really important thing. The really important thing is in the end what define the number that we get out, Not only on the interest rate, but also on all other items, but let's just focus on that one, 25 basis points on top that would not be enough And we are crystal clear on that one.
Yes, Deepa, on the Capital Markets Day, I I think it's quite obvious that when we talk about strategic update that we always make sure that our financial framework is in the It's completely in sync with our strategic ambitions. And so when we are talking about updating our financial framework, Basically then that with a strategy you should be expecting that this will be tied very concrete financial pledges Which will then be summarized in the financial framework, make sure that the points connect. One element what I can say already today what our investors Keep in mind is that we are beyond the midterm long term commitment to nearly grow our dividend per share. And so the focus around a growing dividend that is something we should have heard us say in the past And that you can rest assured will be part of the framework. And then don't expect now too much kind of miracle that we produce completely new KPIs and whatnot.
It will just be a proper reflection of our strategic ambition.
Okay. Thank you so much.
Thank you. And the next question over to John Mass From RBC, please go ahead.
Yes. Good morning, everyone. Sorry to come back to The regulatory situation, but I note you obviously highlight the fact that you believe the draft returns are not competitive in an international context. And we've had news flow in the UK today with the Competition and Markets Authority essentially saying that the 4.55 is the right number for regulated returns. So perhaps you will be a little Generous saying that the 4.59 is not competitive.
Just wondering if what your thoughts are on The comparison to the U. K. And then secondly, just for clarification, when you were talking in the presentation around The EIS business, and you mentioned the 15% EBIT CAGR. I just missed the time period for that. So can you just repeat that, please?
Yes, maybe I start with the Question around the allowed return and how competitive it is. Now obviously, We're looking around, we need to make sure that you look for regulatory frameworks, geographies, which has reason with similarities, Sure and so on. Those show and if you then always normalize and levelize that The same methodology as the news release, the return numbers vary actually always, Now on the 25 bps in the UK, the UK cost of equity, if you would be significantly above the currently proposed 4.6 Felix normal equity return, which The German regulators proposed and again one difference just being as nominal versus the real number which So, and actually, that's a bit the point where we Not lightheartedly say that the proposal is irresponsible because actually this puts Germany completely at the back end And this is not what you need as an incentive for all those investments which are needed in order to carry out the energy transition. On that note, as you said, again, we're now talking about the 25 bps improvement here, what the regulatory balance has proposed. There was a 4 6 or 4.85 that would not actually make any difference in our assessment
of the return. And on your second question, the 15% growth for EIS was until 2023.
Okay. Thank you.
Thank you. And now for the next Question is James Brand from Deutsche Bank. James, please go ahead.
Hi, good morning. Thanks for the presentation. I guess, getting post afternoon, Almost updating your time. Two questions for me. One is a bit of a follow-up from Luda's question on Retail margins and the scope for higher commodity prices to put pressure on the retail business.
To that end, I was wondering whether you could tell us how How hedged you are or give some kind of broad indication for how hedged you are in the retail business for the rest of this year and potentially also into next year, possible given that over the winter period, a lot of commodities and power markets and gas markets are extremely high over the winter and running into Q1. So that's the first question. And then secondly, on the Future Energy Home business, which you highlighted €30,000,000 increase in EBIT from H1 last year. I was wondering whether you could share your expectations for the full year for that business. And also whether you could just remind us what's in that business as what looks like a picture of a smart meter on your slide.
So But I don't think it's just smart meters. Maybe you could just remind us what you're doing there. Thank you.
James, this is Mark here. So on your first question, you are completely aware of that In the magnet dynamic retail market, the way how you hedge is a sensitive competitive information. And so we can't And haven't in the past also laid out the details around our hedging for upcoming years. In general, what I can say and what you should be assuming
and what
we're doing On any B2B volumes, we strictly apply back to back hedging. So do not leave any open position for any B2B positions. And on B2C that we apply a hedging strategy that can span 1 up to 3 years I. E. Covering the liquid market horizon.
We're
In that sense, makes our portfolio robust in the current environment, but I can't go into further details for commercial reasons. For future energy home,
I think it's okay. I mean you have 2 big products kind of like which is PV plus battery And products which we offer like heating installations, etcetera, and that is a bit market dependent obviously on the different markets. Those are the main items in there.
Yes. And I think the important element about Future Energy Home
is, It's
actually now really gaining good traction when it comes to revenues. So we are actually approaching the €1,000,000,000 level That is in reach, not this year, but maybe next year. And with that actually comes, Lior pointed out earlier that it is already a profitable business. So it's a vastly growing and profitable business. And I think that makes it particularly attractive.
Great. Thanks so much.
Thank you. And the next question comes from Piotr from Citi. Please go ahead, Piotr.
Hi. Hello, everybody. Thank you for the presentation. I have two questions, please. The first one would be On the regulatory review, if I may come back to this one.
Do the current stance on the returns from the regulator give any But where one looks at the returns you achieved on the German regulated business is a big outperformance versus the returns That one can get such a conclusion. So is there do you understand the aim of the regulators is to cut some of these outperformance? Or these are 2 separate things and The cost benchmarking we will kind of consider next year. So that would be the third question. And second, I I wanted to ask you about the smart meters rollout in Germany.
I read on one of your pages you're going to roll out 2,500,000 smart meters over the next 10 years. And my question is, how why Germany is so much behind other countries when it comes to smart meter rollout? And what's the remuneration framework on this program? And can you give the main parameters of this?
I'll take Bose first on your first question. No, you shouldn't think of those items connected. Those are 2 different reviews. And whether then in the somewhere hidden in the mind of the regulator there is a connection, I don't know. But these are 2 different topics.
Number 1, the cost benchmarking and the loud return. 2nd, on the smart meter rollout, this is my highlight question. I think actually, first, the smart meter rollout in Germany is a dismal failure. And because of permit and regulatory procedures, The remuneration scheme actually doesn't matter at all. It's actually not the issue.
The issue is really kind of like the way In Germany, we have defined that we approve assets for rollout. I've been very vocal on every possible opportunity that this is an example of what needs to change to make the energy transition successful. Now If you ask me why this is the case, I think then the answer is I don't really know, but maybe my best answer is because the Germans have a tendency to
Okay. Thank you.
Perfect. Thank you. So we have the last question From Louis from ODDO. Louis, please go ahead.
Yes. Thank you very much. Hi, good morning and afternoon to everyone. Two questions indeed. The first one, just coming back on 2021 guidance, a bit on the first Observation as well regarding what element eventually in terms of nonrecurring factors we should take in consideration And specifically of the Energy Network division that seems to be pretty well oriented since the beginning of the year.
Is there anything that we should take into consideration for the remaining of the year that would prevent you from not being a bit more aggressive on this topic as soon as this Earnings release, I think that you already gave some indications, the customer solutions, that's why it was more on Energy Networks that I And regarding the second topic, thank you for your slide Page Already a few questions on it, but just follow ups on this one because we feel that there might be some For the growth to be expected clearly into this topic going forward, more specifically on Future Energy Home, could you provide us with a kind of indication in terms of CapEx that have to be invested or even better in terms of capital employed, so that should be invested in this kind of business. And also if we could have an idea on the Energy and Infrastructure Solutions. If the trend that we see, which is clearly encouraging, It's going to remain that strong in the future or if there is something specific in 2021 that could explain the nice contribution of the division
So, this is Marc here. Thanks for your questions. Let me start with the guidance question. And we see here that's been now great a number of times. We have upgraded our guidance now by on EBITDA by the €600,000,000 which stemmed from the Technically effect from the nuclear or for the agreement, the agreement with the German government.
And apart from that, our guidance is unchanged. If we had overwhelming evidence that we were, for example, at the higher end of our fundamental guidance, ignoring our technical adjustments, you should expect that we would have been taking that out clearly and we are not. Expect us that we are solidly delivering against the expectations which we have laid out as part of our financial framework at the beginning of this year. With regard now to the individual businesses and you asked specifically on Energy Networks, I would also suggest that you look at our guidance and that we will be delivering according to the guidance which we have set for the
Energy Networks business also including in
the second half. And that includes that the positive performance, which fits in during the first half We'll reverse during the second half as we have laid out and explained in our full year conference. And that means that the positive upside from recovery versus COVID versus normalizing well this year, This is now a big boost for the first half, but the second half we'll see relative to last year and that earnings will actually come down. And with that, we are fully in line with the guidance also on the Energy Network segment, which we
have provided.
On future energy home,
if I
got it right, essentially asked for the The CapEx intensity, I can't share now a specific CapEx target. This is something which we've been reserved for the Capital Market Day. But in general, you should think about this business as Actually pretty CapEx light. So you have seen us in the past here and they're doing some small M and A. And when I say small, We're talking about acquiring capabilities at €1,000,000,000 amount here and there.
And apart from that is actually pretty much a capitalized business. So that the earnings and growth momentum, which we have been alluding to, It's not a momentum which is principally relying on massive CapEx, but it is principally about A customer increasing our revenue line, and we're doing that this year already profitably. Thank you very much. I think that covers it.
Yes. So there are no further questions on the line. Thank you very much for your interest. And as always, the Investor Relations team is there for your questions that you still might have.