Iris Eveleigh: Next question comes from Deepa.
Deepa Venkateswaran: Marc, congratulations. And I think you’ll be doing 1 more earnings call. But congratulations. So my 2 questions are, one, on the 2024 guidance. Could you just clarify if there is any one-off or timing in either networks or retail embedded in your guidance? And if you could quantify that? And secondly, I noticed, obviously, for the first time, you’ve given spread targets over WACC for both the divisions. I think the energy infrastructure was simple. You’ve given your IRR of 7% to 10%. So that’s simple. On the regulated the networks business, what is the ROCE? I mean, your group proceed is 8% to 9%, but I’m guessing that’s also flattered a bit by Retail, which might be capital intensive. Could you give an idea of what’s the ROCE that you’re expecting in networks? And I presume that’s pre-tax ROCE, so you’re comparing it to pretax WACC.
Marc Spieker: Yes, Deepa, thanks for the congratulations, and I’ll take the 2 questions. One-offs 2024, that was your first question. Essentially in Customer Solutions, no major one-offs for ’24. We expect that pretty much margin normalization already. And then when we look at our Energy Networks business, we still expect a considerable amount of one-offs, which are specifically related to pension liabilities that increased following increasing inflation rates, and there is actually a positive compensation for that in the German regulation. And so we will see in ’24 still a — close to mid-3-digit million-euro one-off amount in Energy Networks. And then if you look at our ’28, there is pretty much nothing, yes. It’s just a little negative one from the redispatch costs, which will then T+2 over 3 years, but in the grand scheme.
So this is something for ’24, and that’s it. On our value creation ambition, I think we’re crystal clear when it comes to the Energy Networks business that we have our performance target of 150 to 200 basis points across the portfolio, and each individual country needs to pay into that. When it comes to our Energy Infrastructure Solutions business, our value spread depend on technology, on country, but are in a range of 150 to 350 basis points. And so these are the value creation aspirations that we have for both of our CapEx-intensive businesses. And for Energy Retail, it is pretty much CapEx or working capital light. There are no such meaningful spreads. I hope that addresses your question.
Deepa Venkateswaran: I just wanted to know if you could be explicit about your ROCE expectations for networks.
Marc Spieker: Across the board, it’s going to be at around 8%. So if you just look at the weight also of our invested capital energy networks, our group target is 8% to 9%. So networks will be at the lower end of that. And kind of the spread to the 9%, that’s the contribution from Energy Infrastructure Solutions.
Iris Eveleigh: The next question comes from Piotr from Citi. .
Piotr Dzieciolowski: This is Piotr from Citi. Congratulations from my side as well. I have 1 question on the CapEx price volume mix. So you are targeting €42 billion now. But is there a risk that the jobs, the equipment will be more expensive? And what happens in that case to E.ON? And is — are you going to do that job and volume-wise and therefore, the kind of a target maybe exceeded it goes all to up and we shouldn’t worry about it? Or there is a risk that you don’t deliver, and you have cost overruns, CapEx overruns and — it is a risk for you? And the second question I would have on the retail hedging strategy. How do you think about the changing market structure in the context of your hedging. So you will be forced to differently hedge in the future in that 5 years from now given there will be a different profile cost. And generally, the cost of hedging could be much higher for you.
Marc Spieker: Okay. So on the second one, I think the answer is straightforward. We will continue to do a better job than anyone else, and whatever that means in the marketplace, we will only tell you in hindsight. You know that part of the answer, Piotr. I’m sorry. And on investment and inflation, Leo talked about all our efforts that we’ve done in supply chain management. So we feel quite comfortable talking to all of our counterparts and looking at the supply chain partnerships that we are engaging into that we will be able to deliver the CapEx on. If there should be changes expectation from today would be well manageable. And if you look at our financial headroom and also that wouldn’t create any headache in any dimension.
Leonhard Birnbaum: And maybe we can add that we did the analysis last year. We try to understand how much of the increase is inflation driven and how much is more transformers, more cables, et cetera. It was like 25% inflation in last year, which, however, we saw exceptionally developments over the last 2 years, which has now been slowly factored in. But 75% of the increase is really just more transformers. And roughly, we have put it in. I mean, in reality, I think you shouldn’t worry too much because, I mean, we have now a prudent plan in place, and we assume that we can keep the efficiency level that we have right now. If there would be a substantial change, then we would actually need to sort it out first with the regulator, but we wouldn’t just invest more to do whatever the volume target is, if it doesn’t lead to the financial outcomes that we have committed to today.
So from a value creation standpoint, it’s irrelevant, but we owe it to our customers to fight that we really get more assets for more money and not just more RAB for more money. And this is what we will do. But again, for you, financially, I think it should be relevant.
Iris Eveleigh: So we move on to the next question from Ahmed from Jefferies.
Ahmed Farman: Yes. Congrats to Marc from my side as well. So 2 questions from my side. Firstly, I just was wondering if you could share your thoughts on how you have approached the impact of lower commodity prices in the Energy Retail business. Sort of the way through — I’m sort of thinking about is, obviously, these will eventually translate into lower bills, which is sort of, let’s say, a revenue headwind, but obviously, you are projecting quite a substantial growth in the Energy Retail earnings. So I’m just trying to sort of — if you could help us understand that a little bit better. Is it that most of the tariff fee basing happens in ’24? And from there on, with its other KPIs that are driving the growth? So that’s the question, first question.
Second, Marc, you mentioned a few times about the interest rate sensitivity and how that’s sort of a large year pass-through for the business now. Could you just elaborate that a little bit more ID, it’s because of the indexation within regulation. But is there any nuance around timing or differences between various great regions that you have? And does that apply to both refinancing as well as new issuance of debt.
Leonhard Birnbaum: I would like to take the price question first, and I would just answer it in very general terms. What we really want is what is good for our customers because in the long run, this is the best for us. And lower prices are better for our customers than high prices. And therefore, actually a lower price environment will be beneficial for us. And I can illustrate that I mean 2022 was a case example. When we have really high prices, you might argue that this increases the profitability of an efficiency business or helps in retail. But in the end, it puts pressure on the builds that we have to provide to our customers. It increases political pressure. It doesn’t help from infrastructure provider who needs regulatory support.
So lower prices actually, in the long run, if you just look through the fog and through the smoke in the end, it’s better. So we appreciate it if prices go down. It’s good for our customers and being an infrastructure provider being kind of like tied up with the societies we operate in, we have an interest of our society is doing well. So it’s a positive. No matter what it does short-term to one or the other business. And the other question I’ll leave to you, Marc.
Marc Spieker: I mean if I got it acoustically right, you asked about interest rate sensitivity and now in our funding and German regulation put together. So our funding and within our interest rate exposure on the funding side, we closely synchronize it with our total portfolio on the regulated network side, and that includes real rate regimes where we have an automatic protection for changing rates, and that includes Germany, which is formerly a nominal rate regime. But for the 5-year regulatory period from ’24 to ’29 or ’28, for new investments, rates will be determined every year on a mark-to-market basis. And this is — if we practically look at our issuance volumes in the bond market, €4 billion to €5 billion annually and match that to the interest exposure on our asset side and the regulated Networks businesses pretty much matches out.
And that’s why we are interest rate neutral. I hope that addresses your question. Otherwise, you have one more question to ask exceptionally.
Iris Eveleigh: Okay. That’s great. So now we come to our last question for today, and this comes from you, Rob, from Morgan Stanley. So it’s your chance to make us all leave this call on a positive note.
Robert Pulleyn: No, quite a lot of pressure. Well, let me start with the positive stuff. Congratulations on such a fantastic plan. It’s really quite impressive. And also, to Marc on his new role, you’ve been a fantastic CFO in the space and really look forward to engaging with you in your new role. So I think this can be a positive angle, actually. We were wondering on asset disposals and your indication of why not go further simplify and focus the group on the core business, where the outlook is evidently improving much faster and better than ever on thought, that could retain the balance sheet headroom you’ve identified and enable a higher dividend. So if I could just end on the asset disposal question. It’s the only question left everything else has been answered.
Leonhard Birnbaum: So that’s a question whether I should spin you off.
Marc Spieker: No. I guess. The answer is very simple. We have a very clear strategy now for the last 3 years. It’s about growth, it’s about sustainability and it’s about digitalization. And of course, we will constantly monitor our portfolio against these strategic criteria. And you should expect when we look at asset disposals that this is exactly what we’re going to do. So we will constantly monitor. And if we come to the point where we come to a conclusion, as always, we will first sign something before we communicate. I guess not more to say to that. And generally, if you look at the growth potential, growth trends across the market, we are happy by and large, we don’t have a single restructuring case. I mean that’s a moment to almost kind of stand still. So it’s a very benign environment that we see, and we are very happy with the portfolio.
