E.on Se · XETR:EOAN

E.on — Investor Day (January 2014)

59 slides from E.on's investor day presentation, Jan 30, 2014

  1. Slide 1: E.ON's European distribution business – Powering the energy system transformation

    E.ON’s European distribution business – Powering the energy system transformation 30 January 2014

  2. Slide 2: Agenda

    Agenda E.ON’s European distribution business Sweden Germany Back-up 2

  3. Slide 3: Business overview

    Overview S D Business overview Map of E.ON’s distribution networks Regional Network length Market share Unit (‘000 km) (in %) Power Gas Power Gas Germany 352 59 19 14 Sweden 134 2 24 60 Hungary 84 18 50 20 Romania 79 20 17 49 Czech R. 65 Gas networks 4 27 6 Slovakia 37 Power networks - 40 - Spain 32

  4. Slide 4: Distribution in E.ON group context

    Overview S D Distribution in E.ON group context Position within group context Expected 2013 Distribution EBITDA by region Expected 2013 Group EBITDA €9.2 to 9.3bn ~€3.2 to 3.4bn Distributed energy Southern Europe & others ~11% CEE Sales Sweden ~17% Distribution Germany ~72% European downstream busin

  5. Slide 5: Business environment and strategic priorities

    Overview S D Business environment and strategic priorities Business environment Continuously deliver and improve top performance  Deliver top performance as basis for good relations with  Improving regulatory environment customers and regulators in most countries, further  Strive to be #1 in the

  6. Slide 6: Networks are enablers for new energy systems

    Overview S D Networks are enablers for new energy systems E.ON’s expected total capex Cross-regional synergies: smart metering for renewables integration in € millions Regional Number of Roll-out unit smart meters period (in millions) 400 1.0 2006-09 300 0.7 2010-14 200 8.3 2012-21 0.2 2014-24 100 1

  7. Slide 7: Distribution capex plan

    Overview S D Distribution capex plan Expected distribution capex by category Expected distribution capex vs. regulatory depreciation Ø p.a. 2014–16: €1.5bn 1.5 1.0 0.5 Other mandatory Maintenance & replacement connections investments Smart meters Customer Total renewables Integration of 0.0 2014E 20

  8. Slide 8: Earnings prospects

    Overview S D Contribution to group portfolio Pro forma distribution EBITDA* E.ON’s mid-term portfolio target Germany Other EU Countries €bn Bubble sizes represents 4 EBITDA contribution + Brazil Turkey 3 ECR* Rus- DE* sia Earnings prospects Sales E&P 2 Networks EGC* 1 Hydro Nuclear 0 2012A 2013E 201

  9. Slide 9: Agenda

    Agenda E.ON’s European distribution business Sweden Germany Back-up 9

  10. Slide 10: Energy market overview

    Overview S D Energy market overview Market characteristics Market specifics  Stable power demand ~150TWh  Power with central role in energy mix –  Sound economic development: also heating, e.g. heat pumps Stable 1.2 % GDP growth in 2012  Integrated Nordic wholesale market  High country rating 

  11. Slide 11: Business overview

    Overview S D Business overview Network area – Power Network area – Gas Key data 2013 Key data 2013 Network length 134,400 km Network length 1,855 km ~1600 km Market share Market share (based on ~24% (based on ~60% network length) network length) Electricity Electricity 43.7 TWh 7.3 TWh supplied supp

  12. Slide 12: Business model distribution

    Overview S D Business model distribution Business model – Cornerstones Business model – Guiding principles Customer orientation  Distinct customer focus and efficiency as our core identity  Lean process development and automation  Live a performance culture, follow a business Contracting/ Perform

  13. Slide 13: Regulation – General basics

    Overview S D Regulation – General basics Principles of regulation model Elements of regulation model  Quality of supply: requirements on the supply to fulfill good quality criteria (>11 outages per customer and year not accepted)  Outage fee: major penalty scheme (customer compensation) for long o

  14. Slide 14: Regulation – Building blocks of allowed revenues

    Overview S D Regulation – Building blocks of allowed revenues RAB  Based on replacement value (RV) of all physically existing assets irrespective of actual age of assets ( RAB = 84% of RV) (Regulated  New investments are included in RAB latest six months after completion asset base)  Yearly inde

  15. Slide 15: Regulation – Development of allowed revenues

    Overview S D Regulation – Development of allowed revenues Revenue cap for the period 2012-2015 (accumulated): translates into yearly 38.2bn SEK (in 2010 money)* revenue caps (in nominal terms) bn SEK 10 8 6 4 2 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Actual Forecast * Decided revenue cap

  16. Slide 16: Performance – Quality

    Overview S D Performance – Quality Network quality Customers (‘000) without power after hurricane/storms per day 250 Gudrun 2005 Simone 2013/10/28 Sven 2013/12/05 200 Per 2007 Hilde 2013/11/16  Specific Nordic 150 challenges: strong storms/hurricanes and 100 very widespread 50 distribution networks

  17. Slide 17: Performance – Efficiency

    Overview S D Performance – Efficiency Efficiency vs. peers Regulatory benchmarking of local grids – Opex / CSV* MSEK  Effective contractor management 100  Leverage technical services market via tender process for regional contracts every third year Industry** 80 Fortum  Strong cost and performanc

  18. Slide 18: Enabler of energy system transformation I

    Overview S D Enabler of energy system transformation I Renewables network connections DSO compensation for network connections MW 400 2.800 Grid Internal grid Wind farm 350 2.400 Substation 400/130 300 2.000 250 Substation 130/30 1.600 200 1.200 150 800 Internal grid 100 50 400 0 0  Provide custome

  19. Slide 19: Enabler of energy system transformation II

    Overview S D Enabler of energy system transformation II Overview: use of smart technologies Case study: dynamic line rating Active management of capacities  Starting point: stressed power grid on Öland, network congestions 1-3% of time  Maximize capacity utilization of existing assets  New 48MW o

  20. Slide 20: Business outlook

    Overview S D Business outlook Opportunities in market consolidation Case study: Kramfors  Highly fragmented distribution market with  Excellent geographical fit: an ”island” within E.ON’s ~165 distribution companies with strongly differing distribution network (5000 customers, 90 GWh) potential to

  21. Slide 21: Financial outlook

    Overview S D Financial outlook Investments in power distribution Earnings in power distribution in bn SEK in bn SEK 4 5 Actuals Actuals Expected Expected 4 3 3 2 2 1 1 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014  Figures from 2007 to 2009

  22. Slide 22: Key takeaways

    Overview S D Key takeaways • Sweden delivers robust earnings resulting from outstanding performance • Top performance is the key driver to balance out all stakeholder interests • The energy transition is challenging but presents a growth opportunity • Further growth potential through efficiency driv

  23. Slide 23: Agenda

    Agenda E.ON’s European distribution business Sweden Germany Back-up 23

  24. Slide 24: Germany – Business overview

    Overview S D Germany – Business overview Network overview Key figures E.ON grids Market share Grid P 6.9m ~16% customers G 0.8m ~5% P 352,000km ~19% Grid length G 59,000km ~14% Installed RES P 26GW ~37% P 3,800 ~28% Concessions G 1,900 ~32% P Power segment G Gas segment Shareholder structure 31% 31%

  25. Slide 25: Distribution in Regional Unit Germany context

    Overview S D Distribution in Regional Unit Germany context 2012 results (in Euro) E.ON Germany thereof Distribution thereof going concern* Sales ~€40.3 billion ~€12.7 billion ~€10.5 billion EBITDA ~€2.8 billion ~€1.8 billion ~€1.4 billion CAPEX ~€1.1 billion ~€0.9 billion ~€0.7 billion Operating Cas

  26. Slide 26: Concessions – E.ON as partner of municipalities

    Overview S D Concessions – E.ON as partner of municipalities Expiring concessions (power & gas) per year Concessions – Our business backbone €m of allowed revenues  Renewal of concessions at least every 20 years 450 400  Many areas have become highly competitive 350  Of all currently expiring con

  27. Slide 27: Regulation – General basics

    Overview S D Regulation – General basics Process steps of regulatory system  Revenue cap incentive regulation Cost Audit  Cost audit and benchmarking once per + every 5 years regulatory period (5 years) Benchmarking  Total costs of historic base year basis for benchmarking & revenue cap  Efficie

  28. Slide 28: Regulation – Regulatory schedule

    Overview S D Regulation – Regulatory schedule Power distribution* Comments 1st regulatory period 2nd regulatory period 3rd  Cost of base year 2011 are basis for allowed revenues from 2014 onwards  Regulatory cost audit and benchmarking took place from mid 2012 to end 2013  Replacement investments

  29. Slide 29: Regulation – Cost base

    Overview S D Regulation – Cost base Composition of cost base Cost base = Allowed  Cost structure of efficient system operator OPEX  Including actual cost of debt + Allowed  Equity financed part of the Regulated Asset Base Return on equity up to a maximum equity level of 40% multiplied with 9.05%

  30. Slide 30: Performance – License to operate

    Overview S D Performance – License to operate Cost efficiency power & gas Quality regulation  „Best in Class“ in cost efficiency benchmarking  Better quality than required by regulator Power, 2nd regulatory period 100 min/a Non-availability per year in % Φ E.ON Germany 99.4% as a function of load

  31. Slide 31: Performance – Earnings drivers

    Overview S D Performance – Earnings drivers Building blocks of EBITDA Other earnings (e.g. third party business, participations, aperiodic effects) ~17% Additional remuneration ~12% Allowed profit for grid expansion ~59% according to cost audit ~12% Higher efficiency than required from benchmarking

  32. Slide 32: Energiewende – E.ON networks as enabler

    Overview S D Energiewende* – E.ON networks as “enabler” Example E.DIS: RES installed capacity Key challenges in MW 8,000  Distribution grid originally designed to distribute 7000 power up to maximum load  RES installed capacity exceeds maximum load in a region nearly factor 3 4,900  Now, expansio

  33. Slide 33: Energiewende – E.ON as innovation pioneer

    Overview S D Energiewende – E.ON as innovation pioneer Examples of application of smart technologies Controllable mid-voltage/low-voltage-secondary sub-station Enables an increased in-feed of renewables in low voltage networks by dynamic voltage regulation Dynamic line rating (high-voltage) Increase

  34. Slide 34: Political perception of DSO role in Energiewende

    Overview S D Political perception of DSO role in Energiewende Rising awareness for situation of DSOs Government’s coalition agreement from December 2013  “DSOs are the backbone of the ‚Energiewende‘ on the ground because the roll-out of renewables results in an increasing decentralization of the en

  35. Slide 35: Financial outlook

    Overview S D Financial outlook CAPEX Earnings Outlook Expected cash-effective investments (€bn) Expected EBITDA (€bn) 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 2013E* 2014E 2015E 2016E 2013E* 2014E 2015E 2016E RES integration Replacement / Others Customer connections  Temporary decrease in earnings s

  36. Slide 36: Key takeaways

    Overview S D Key takeaways • Distribution: high-performing business with attractive earnings and moderate risks • E.ON networks in Germany are “best-in-class" • The Energiewende is a growth opportunity for us 36

  37. Slide 37: Backup

    Backup  Overview  Sweden  Germany  Other EU Countries  Czech Republic  Hungary  Slovakia  Romania  Spain  IR team and calendar 37

  38. Slide 38: Overview – RAB and regulatory periods

    Overview Overview RAB and regulatory periods Regulated asset base 2013/2014 (€bn)1 Regulatory periods Germany ~10 Power Gas Sweden ~9.1 Germany 2014-2018 2013-2017 Spain ~0.82 Sweden 2012-2015 2013-2016 Hungary ~1.5 Spain 2013-2016 Not relevant Czech Republic ~1.2 Romania ~0.7 Hungary 2013-2016 2010

  39. Slide 39: Sweden – Regulation: building blocks of allowed revenues

    Sweden Regulation – Building blocks of allowed revenues Schematic illustration (power) RAB based on Allowed Capex Opex allowance Pass-through Quality Revenue cap Under-/over- replacement value calculated as based on actual of non- bonus/penalty 38 234 MSEK* recovery (RV) of all annuity based on: cos

  40. Slide 40: Germany – Regulated asset base and allowed cost base

    * ** Regulated asset base* Old assets: current costs New assets: historic costs Debt base (related to actual capital ~€2.6bn gas ~€7.4bn power structure, minimum 60%) 40% Cap determine the current costs Regulated Equity base (related to regulatory capital structure, maximum 40%) Return on Equity** O

  41. Slide 41: Germany – Regulation: how it works in detail

    Germany Regulation – How it works in detail German regulation formula EOt = KAdnb,t + (KAvnb,0 + (1- Vt) · KAb,0) · (VPIt / VPI0 – PFt) · EFt + Qt + (VKt – VK0) + St EOt Revenue Cap VPIt Consumer inflation index for the year t for the year t KAdnb,t Permanently non-controllable costs VPI0 Consumer i

  42. Slide 42: Germany – Regulation formula

    Germany Regulation – Formula German regulation formula decomposed EOt = KAdnb,t + (KAvnb,0 + (1- Vt) · KAb,0) · (VPIt / VPI0 – PFt) · EFt + Qt + (VKt – VK0) + St 1 2 3 4 5 6 Revenue cap = CPI and general Expansion 1 Cost base x 2 efficiency x 3 factor adjustment Volatile costs Settlement of Quality

  43. Slide 43: Germany – Regulation: breakdown of TOTEX

    Germany Regulation – Breakdown of TOTEX German regulation formula decomposed EOt = KAdnb,t + (KAvnb,0 + (1- Vt) · KAb,0) · (VPIt / VPI0 – PFt) · EFt + Qt + (VKt – VK0) + St KAdnb,t Permanently non controllable cost (§11 II ARegV)*  Yearly adjustment based on actuals/planned values  Example: expens

  44. Slide 44: Germany – Regulation: breakdown of TOTEX

    Germany Regulation – Breakdown of TOTEX German regulation formula decomposed EOt = KAdnb,t + (KAvnb,0 + (1- Vt) · KAb,0) · (VPIt / VPI0 – PFt) · EFt + Qt + (VKt – VK0) + St KAdnb,t Permanently non-controllable cost  Example: 20.- EUR (due to definition) “TOTEX” KAvnb,0 Currently non-controllable co

  45. Slide 45: Germany – Regulation: inflation and general efficiency

    Germany Regulation – Inflation and general efficiency German regulation formula decomposed EOt = KAdnb,t + (KAvnb,0 + (1- Vt) · KAb,0) · (VPIt / VPI0 – PFt) · EFt + Qt + (VKt – VK0) + St VPIt / VPI0 Adjustment for inflation (§8 ARegV)*  Customer Inflation Index (CPI) used as published by the Federa

  46. Slide 46: Germany – Regulation: network expansion

    Germany Regulation – Network expansion German regulation formula decomposed EOt = KAdnb,t + (KAvnb,0 + (1- Vt) · KAb,0) · (VPIt / VPI0 – PFt) · EFt + Qt + (VKt – VK0) + St EFt RES growth factor (§10 ARegV)*  Regulatory instrument for remuneration of investments due to changes of the supply tasks du

  47. Slide 47: Germany – Regulation: quality and regulatory account

    Germany Regulation – Quality and regulatory account German regulation formula decomposed EOt = KAdnb,t + (KAvnb,0 + (1- Vt) · KAb,0) · (VPIt / VPI0 – PFt) · EFt + Qt + (VKt – VK0) + St Qt Quality element (§19 ARegV)*  Introduction in 2012 aiming at the retention of optimal quality of supply in Germ

  48. Slide 48: Germany – From sales to allowed revenues

    Germany From sales to allowed revenues German distribution – Composition of sales* (€bn) ~11.9 ~6.5 ~4.8 ~0.6 Sales RES Allowed Other surcharge revenues  DSOs are legally obliged to purchase all power produced by the renewables generators connected to their network  More than 50% of sales results

  49. Slide 49: Czech Republic – Power price regulation

    Czech Republic Overview CZ power – Price regulation of distribution Price regulation power - Overview Price regulation power – Key cost factors  Method: revenue cap  Regulated return on RAB (pre-tax): 6.7%  Regulation period: 2010-2014 (3rd)  Revaluation for old assets at 3% (starting  Next reg

  50. Slide 50: Czech Republic – Gas price regulation

    Czech Republic Overview CZ gas – Price regulation of distribution Price regulation gas - Overview Price regulation gas – Key cost factors  Method: revenue cap  Regulated return on RAB (pre-tax): 7.1%  Regulation period: 2010-2014 (3rd)  Revaluation for old assets at 3% (starting  Next regulatio

  51. Slide 51: Hungary – Power price regulation

    Hungary Overview HU power – Price regulation of distribution Price regulation power - Overview Price regulation power – Key cost factors  Method: modified price cap with real  Regulated return on RAB (pre-tax): 6.23% quantity acceptation with year-2 Q  Regulatory asset value determined at unit Ba

  52. Slide 52: Hungary – Gas price regulation

    Hungary Overview HU gas – Price regulation of distribution Price regulation gas - Overview Price regulation gas – Key cost factors  Method: price cap  Regulated return on RAB (pre-tax):  Regulation period: 2010-2013 period is different for USP and competitive market. Basics extended till 2016 or

  53. Slide 53: Slovakia – Power price regulation

    Slovakia Overview SK power – Price regulation of distribution Price regulation power - Overview Price regulation power – Key cost factors  Method: price cap  Regulated return on RAB (pre-tax): revaluated  Regulation period: 2012-2016 annually (6,04% for 2012 and 2013, 6,03% for  Next regulation

  54. Slide 54: Romania – Power price regulation

    Romania Overview RO power – Price regulation of distribution Price regulation power - Overview Price regulation power – Key cost factors  Method: price cap  Regulated return on RAB (pre-tax): 8.5%  Regulation period: 2008-2012 (2nd)  RAB: depreciated asset base based  Next regulation period: 20

  55. Slide 55: Romania – Gas price regulation

    Romania Overview RO gas – Price regulation of distribution Price regulation gas - Overview Price regulation gas – Key cost factors  Method: price cap  Regulated return on RAB (pre-tax): 8.6%  Regulation period: 2008-2012 (2nd)  RAB: depreciated asset base based  Next regulation period: 2013-201

  56. Slide 56: Spain – Price regulation of power distribution

    Spain Overview ES – Price regulation of power distribution  Energy Reform launched in July’13 in order to tackle the tariff deficit issue in Spain and review system regulated costs.  2013 & 2014 transition regulatory scenario approved. New Regulatory scenario expected to be approved in Jan-Feb’14

  57. Slide 57: E.ON Investor Relations Contact

    E.ON Investor Relations Contact Dr. Marc Spieker Head of IR T+49 2 11-45 79-3 45 marc.spieker@eon.com Peter Blankenhorn Regions/Sales, SRI, Retail, T +49 2 11-45 79-4 81 Facts & Figures peter.blankenhorn@eon.com François Poullet Generation, Gas T +49 2 11-45 79-3 32 francois.poullet@eon.com Marc Koe

  58. Slide 58: E.ON IR - Reporting calendar & important links

    E.ON IR - Reporting calendar & important links Reporting calendar Date Event March 12, 2014 Annual Report 2013 April 30, 2014 2014 Annual Shareholders Meeting May 13, 2014 Interim Report I: January – March 2014 August 13, 2014 Interim Report II: January – June 2014 November 12, 2014 Interim Report I

  59. Slide 59: Disclaimer

    Disclaimer This presentation may contain forward-looking statements based on current assumptions and forecasts made by E.ON Group management and other information currently available to E.ON. Various known and unknown risks, uncertainties and other factors could lead to material differences between

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