E ON SE

MIL:EOAN

Earnings Call Transcript 2018-Q3

[Operator]

Dear ladies and gentlemen, welcome to the E.ON's 9-month results 2018. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Dr. Stephan Schönefuß, who will lead you through this conference. Please go ahead, sir.

[Stephan Schönefuß]

Thank you, operator. Dear analysts and investors, a warm welcome to E.ON's First 9 Months 2018 Results Call. My name is Stephan Schönefuß, and after this opening of the call, I hand directly over to E.ON's CFO, Marc Spieker.

[Marc Spieker, CFO & Member of Management Board]

Thank you, Stephan. Dear analysts and investors, a warm welcome also from my side to our 9-month 2018 results call. E.ON again has delivered a very strong set of quarterly results. Unfortunately, though, I have to open the call on a very sad note. We had to inform the markets that Alexander Karnick, our former Head of Investor Relations, died on Saturday, October 20. Alexander was only 41 years old and a father to 3 children. His sudden and totally unexpected death has shocked us all. We continue to feel great dismay and deep sadness. Alexander enjoyed great respect as a colleague, as an outstanding leader and as a highly regarded contact for the analyst and investor community. In his work, he was highly professional, critical and constructive. It was a great joy to work with him because of his sense of humor, his openness and yes, his somewhat unconventional approach. Just a few months ago, he and his team had been voted as best utility Investor Relations team in the Extel survey. We know how delighted he was to be honored with this award. We have received many condolences from the analyst and investor community around the world for which I would like to sincerely thank you. This is highly appreciated not only by us but also by Alexander's family. Alex, I know you will be dialing in from wherever you are now. You have left lasting marks at E.ON. We will miss you very much. Our thoughts go out to your family and your friends. The moment of silence, which I would like to hold now, is in Alexander's memory.Thank you. After the tragic passing away of Alex, we have to ensure continuity in our Investor Relations work. Stephan Schönefuß, whom you all know quite well, takes over as interim Head of E.ON Investor Relations until further notice. Stephan has been with E.ON for almost 15 years. Since 2010, he has contributed significantly to E.ON's Investor Relations work. Before that, he worked as Vice President in the Regulatory Management for Energy Networks and as Project Manager at E.ON's Trading Operations. I have worked directly together with Stephan for many years and he has proven to be an outstanding IR professional. He will handle well the E.ON IR team in this decisive time ahead of the innogy integration. I would like to ask you to join me in wishing Stephan all the best.Let us now move on to our 9-month results. EBIT in the first 9 months is up by 11% and adjusted net income is up by 25%. This was supported by a particular strong development in the isolated third quarter. Please note, in this respect, that the higher EBIT and adjusted net income contribution in Q3 were, to a large extent, due to some rather technical effects that were partly reversed in Q4. I will explain these effects in detail later.All in all, I can continue to confidently confirm our guidance range for the full year. In fact, we are well on track to reach the upper half of our 2018 guidance range for EBIT of EUR 2.8 billion to EUR 3 billion and of adjusted net income of EUR 1.3 billion to EUR 1.5 billion. Furthermore, I can, at this point in time, reconfirm our midterm outlook from 2018 to 2020. We continue to expect a 3% to 4% compound annual growth rate for our EBIT, translating into a 5% to 10% compound annual growth rate for our earnings per share.Before I give you more details about the results and the outlook, I would like to update you on the progress with respect to the innogy transaction and our recent operational developments in our businesses.The main message regarding the innogy transaction is that the teams are working at full steam. The work stream for the antitrust approvals has already had several status meetings with the case team of the EU Commission, and has recently started to include innogy data into the draft documents. The submission of the draft filing documents will be staggered in order to keep up the pace with the case team as high as possible. The progress so far is fully in line with our expectations, and we remain confident to file the formal notification in due time. The joint project with innogy to prepare for the integration is also gaining significant traction. The initial phase of getting to know each other is already behind us, and the more than 20 work streams has switched to full working mode by now. At this point in time, it is, of course, too early to release detailed results. However, what I would like to highlight is the great spirit that you can sense in all the work streams. Everybody is focused on the joint ambition to create the future of energy.In this context, I would like to reiterate the synergy target of EUR 600 million to EUR 800 million over 2022. I would like to emphasize that we are talking about net synergies in 2022 money, i.e., we will manage the synergies in a way that they will become EBIT accretive. Last but not least, I would also like to reiterate that we intend to implement a full legal integration of innogy into E.ON. As said before, there are a multitude of options available regarding when and how to do this. Many of these options, including a domination and profit and transfer loss agreement, may result in a delisting of innogy.After this transaction update, let me give you a short update on important developments in our businesses. Let's start with the German networks business, where the regulatory review for electricity is in full swing. The regulatory cost audit has been finalized. The constructive tone in the hearings was also reflected in the results. We expect to receive the regulatory benchmarking results with the individual efficiency sectors shortly, the full package for the overall allowed revenues, then also including the general efficiency sector, is expected for the end of Q4 or early 2019.Looking at our Swedish networks, I would like to draw your attention to a quite positive court decision that we received in September. In the first instance, the court dismissed the regulator's view that we are not allowed to transfer the remaining unutilized revenue allowance from the previous regulatory period into the next one starting in 2020. We are expecting the final decision in the coming months. With regard to the allowed regulatory returns in Sweden, as with previous regulatory periods, we will push back hard on initial ideas to bring down the regulatory WACC to unjustified low levels. We are committed to drive the energy transition also in Sweden, and will hence drive hard to set the economic incentives for this at the right level.Let us move on to the Customer Solutions business. Here the dominating topic is the SVT price cap in the U.K. Now as the cap has been confirmed, we estimate the negative EBIT impact for 2019 to be a low triple-digit million euro amount. How the SVT price cap will affect the behavior of market participants remains to be seen. We believe the cap will cause politically unwanted effects in terms of future investment, innovation and competition across the industry and on customers.Due to the price cap, we expect the U.K. Customer Solutions' EBIT for 2019 be clearly lower than 2018. However, we are confident that it will stay clearly positive. We have initiated already last year the far-reaching efficiency program. As we have applied a 0-based budgeting methodology in this context, we are optimistic that we can identify and implement further measures, which should support a rebound in our business' profitability over the midterm.Looking at our group-wide Customer Solutions business in total, we continue to see positive developments in customer numbers in most of our markets. Across our market -- across all markets, we have gained roughly 160,000 additional residential customers compared to 12 months ago.Let me now give you a quick update on the progress in our Renewables business. The Arkona 385-megawatt offshore wind project is producing electricity already since September. The installation of the turbines was completed in record time. Arkona is scheduled to start full operation in Q1 2019. In the U.S., there is further progress with the recent investment decision for the repowering of 172 turbines, with a total of 258 megawatt.Coming to the next chart, let me now focus in detail on the financial performance in the first 9 month of 2018. Year to date, EBIT increased by 11% over prior year. In the isolated third quarter, EBIT increased by EUR 60 million, compared to the same period in 2017. The pronounced positive development during the isolated third quarter is due to a few technical and temporary effects that were mostly reversed in the last quarter of 2018. The results are, therefore, in line with our expectations and consistent with our full year guidance, where we now expect to reach the upper half of the guidance range.Let me explain the developments in more detail. EBIT in Energy Networks is slightly down in the first 9 month of the year. In our German network operations, the widely flat pension cost pass-through effect, the disposal of the gas network in Hamburg and the new regulatory period for gas had a negative effect on EBIT. These effects were partly compensated by positive nonrecurring items in Q2 and Q3, that together, amount to a very low triple-digit million figure. Our Swedish networks continue to benefit from tariff increases, which were largely offset by the adverse development of the Swedish krona. Earnings in our Central Eastern European and Turkey segment were predominantly impacted by the deterioration of the Turkish lira, the lower shareholding level in Enerjisa Enerji following the IPO in the beginning of 2018, as well as lower regulatory returns in Romania. EBIT in Customer Solutions is up 5% over the same period last year, largely due to the relatively positive performance in Germany. Earnings in Germany increased by roughly EUR 50 million year-on-year, mainly driven by the price increases enacted in Q2 last year, which were partly compensated by costs for our Germany sale-specific restructuring program. EBIT in the U.K. was roughly flat versus 9 month last year. The positive impact from price increases in Q2 of last year was overcompensated by adverse operational effects. This include implementation costs for our U.K.-specific restructuring program, increased wholesale costs and ongoing competitive dynamics in addition to the effects from price caps on prepayment meter and vulnerable customers. Positively, but only technically and temporarily by nature, the isolated third quarter brought a sizable mid-double-digit million positive effect compared to prior year. This relates to a change regarding the timing for the recognition of capacity market and network charges. Whereas in the past, these charges were evenly distributed over the year, they now follow a seasonal pattern i.e., higher charges in winter than in summer. This means that the positive effect compared to prior year in Q3 will revert in the fourth quarter.The Customer Solutions other segment is down by roughly EUR 30 million year-over-year. This is mainly due to temporarily higher gas procurement costs in Romania, as well as the unavailability of a cogeneration unit that we operate for a customer. EBIT in renewables improved by 14% in the first 9 month, due to the positive contributions from the newly commissioned offshore wind farm, Rampion, as well as 2 U.S. onshore wind farms. In U.S. onshore, the effect of wind assets coming to the end of attractive support schemes and/or power purchase agreements had a partly offsetting effect. The Corporate Functions & Other line improved by roughly EUR 150 million year-over-year. The result was largely supported by our cost-savings program, Phoenix, that we completed by the end of last year, as well as a favorable derivatives result. Earnings of our noncore nuclear business were roughly flat year-over-year. The impact of lower hedged prices and the nonreoccurrence of positive one-off effects from last year was overcompensated by lower depreciation charges and by higher volumes due to the full availability of the nuclear power plant, Brokdorf, which was suffering extended outage until end of July last year. The result of our Turkish generation business improved by more than EUR 50 million on the back of the nonreoccurrence of a one-off book loss from the sale of a hydro asset in Q1 2017 and positive operational improvements. The adverse development of the Turkish lira, causing the revaluation of euro-denominated loans, partly offset the positive effects.Let's move on to the next chart and take a look at the bottom line. Our adjusted net income came in at roughly EUR 1.2 billion for the first 9 months of 2018 and was up 25% over prior year. The EBIT increase obviously translates to the bottom line and is amplified by roughly EUR 90 million improvement in our interest expenses on the back of lower financial liabilities.Turning to our economic net debt. Our economic net debt decreased by EUR 3.9 billion over the end of 2017. Key driver for this being the proceeds of roughly EUR 3.8 billion from the sale of the Uniper stake, which we recorded already at the half year stage.Let me now conclude with the outlook for the remainder of 2018 and also spend a few words on our midterm outlook. As I stated in the beginning of my intervention, I see ourselves well on track to end the financial year in the upper half of our EBIT guidance range. Compared to full year 2017, this still means a slight reduction, while our year-to-date results show a strong improvement. I would, therefore, like to elaborate on the dynamics, which we are expecting for the fourth quarter in particular. Starting with Energy Networks, EBIT for the full year will be below prior year, despite the only slightly lower earnings as of first 9 month. Keep in mind that the earnings in Energy Networks Germany have been supported by positive nonrecurring items in Q2 and Q3 2018 that together amounts to a very low, but still, triple-digit million figure. During the fourth quarter, our German network operations will continue to experience lower earnings, mainly due to the widely flat pension cost pass-through effect, the disposal of the gas network in Hamburg and the new regulatory period for gas. Due to normal gas-related seasonality, the negative effects relating to the gas network business are more pronounced in winter months. These negative effects amount in total to a sizable double-digit million figure for the fourth quarter.In Customer Solutions, we expect EBIT in 2018 to be significantly below last year. The strong result in the first 9 months of 2018 cannot be extrapolated into the last quarter, as we expect the positive timing effect in the U.K. as of Q3 to reverse. So in Q4, we will see the negative impact from the changed timing of recognition for payments of capacity market and network charges. Moreover, increased wholesale costs and ongoing competitive dynamics in the U.K., in addition to the effects from price cap on vulnerable customers, will also continue to negatively impact U.K. earnings in the last quarter of 2018. Last but not least, there will be the impact from the cost for the implementation of our restructuring programs in both the U.K. and German sales businesses, which are somewhat back-end loaded over the year.Earnings in Renewables should continue to benefit from capacity additions in both onshore and offshore, while the expiration of incentive schemes in the onshore portfolio will still adversely impact earnings. As you may recall, in the last quarter of 2017, we also benefited from favorable wind conditions in an extent that we do not foresee for the same period in 2018.Finally, our noncore nuclear business continues to be impacted by lower hedged power prices. We also might record an extraordinary negative EBIT impact from higher depreciation during the fourth quarter, which I would like to briefly explain as we haven't flagged for that in the past. This negative depreciation effect relates to a potential technical adjustment of the inflation rate assumption for the accounting of our nuclear provisions. In the past, we have used short-term inflation figures, which have produced a considerable degree of volatility in the accounting numbers. We might switch from this volatile short-term actual inflation approach to a clearly less volatile long-term inflation target issued by the European Central Bank. This change in the escalation rate would result in a onetime upward adjustment of the balance sheet value of our nuclear provisions of several hundred million euros that we might record as per year-end. At the same time, we would have to increase the asset values relating to the nuclear power plant in operation, and accordingly, increase the annual depreciation charges or the so-called asset retirement costs. The additional annual asset retirement cost for 2018 would need to be fully booked in Q4 retrospectively for the full year, and could amount to a high double-digit million euro amount. This potential negative effect is cautiously assumed in our updated full year guidance. To be also clear, there would be no change in our long-term cash-out targets, i.e., the ambition to deliver the dismantling of our nuclear fleet on time and budget stay unchanged. This is why economic net debt would also not be affected by this accounting adjustment. But we will significantly reduce the accounting volatility from moving inflation rates going forward. Keeping these effects in mind, I confidently confirm the guidance for 2018 of EBIT between EUR 2.8 billion and EUR 3 billion and adjusted net income of between EUR 1.3 billion and EUR 1.5 billion. And we are on track to deliver in the upper half of these ranges. I also confirm our dividend proposal of EUR 0.43 per share for 2018.With the strong results that we have published today, I would also like to take the opportunity to spend a few words on our midterm outlook. We provided our midterm outlook back in March this year, when the implications of the SVT price cap in the U.K. were not yet fully known and not explicitly included in our guidance. The estimated drop in U.K. earnings in 2019 will make 2019 a more challenging year than we could anticipate. Nevertheless, since we proactively initiated a far-reaching restructuring program, and further measures are being elaborated, as I speak, I'm confident for the U.K. business to show a gradual recovery over the midterm. Our group-wide midterm outlook, I can, at this stage, reconfirm the midterm outlook of a 3% to 4% compound annual growth rate for our EBIT, translating into a 5% to 10% compound annual growth rate for our EPS. We would cautiously expect EBIT in 2019 to be rather flattish versus 2018. Growth will accelerate in 2020 on the basis of strong networks' earnings and the contribution from our restructuring efforts in the Customer Solutions segment.When it comes to our group outlook, we are currently not even assuming a full rebound of the U.K. business profitability already by 2020. And we do include the potentially higher depreciation charges in our nuclear business, which I have elaborated on before in the context of our 2018 guidance. In this context, I also reiterate our commitment of an annual absolute growth of our dividend per share, reflective of our compound annual earnings per share growth target of 5% to 10%. So in a nutshell, some moving parts, but guidance for 2018 improved and midterm outlook confirmed. Rest assured that we will continue to deliver against our pledges.With that, I would like to thank you very much for your attention, and over to Stephan for the Q&A session.

[Stephan Schönefuß]

Thank you, Marc. Operator, please start the Q&A session. [Operator Instructions] Operator, please start the Q&A session.

[Operator]

[Operator Instructions] The first question is from Von-Son Hil, Crédit Suisse.

[Vincent Gilles, Head of the Utilities Research]

Two questions, obviously. First question is, given the update on the guidance for EBIT for the year, upper half, let's assume that you're going to be at about EUR 295 million, just in my assumption. And given last year, Q4 EBIT was 9-5-7, EUR 957 million, and there's no reason to believe that it should be lower in '18 than in '17. And given you give us essentially a gap -- a bridge between what you just give us for 6 month -- at the 9 months and 12 months of about EUR 600 million, is it fair to say that all those one-offs that you've been entertaining us with your triple-digit and double-digit stuff, is it about EUR 300 million? That's -- is it fair to say it's about what all these adjustments will be? That's my first question. My second question is more strategically on the SSE innogy deal, I know it's not your deal, I know it's out of the scope of what you guys have been negotiating with RWE and innogy, but in a way, if this deal was to fail, and it can't be entirely ruled out, I guess, what would be your attitude, given all you said about the U.K. in the last few minutes?

[Marc Spieker, CFO & Member of Management Board]

Vincent let me start with your second question. I'm sure you were listening to the innogy call yesterday as well. And you're -- we're going to say that they are still highly confident or seen as highly probable that the deal will go through. And we are equally convinced that both SSE and Preussen will see the benefits of this transaction. And at this stage, any speculation about any other scenario is not something which we would entertain. On the first one, with regards -- kind of the question on full year guidance and what it means for the fourth quarter, I think we need to be very careful to deriving from a comparison versus prior year now adding up to what a amount of special effects on absolute basis is. So the EUR 300 million I cannot confirm. And I can clearly say that I do not see the results on absolute basis in this year being supported by anything close to the number which you cited. It is something which results from -- now comparing 2017 with '18, which, obviously, always kind of leads then to thinking on a second derivative level. But I think the key points which you should take away is, a, on the networks' business, we guided from the beginning of the year for a decrease. And this is something which -- and again, I say a very low 3-digit million euro nonrecurring effects, which we hadn't included in our guidance at the beginning of this year. So this is overshadowed by this. And so you will see the underlying deterioration as reflect in the Q4 to come through. Secondly, in Customer Solutions, also roughly EUR 100 million you will see simply in the U.K. from this reversal of a change recognition, which is something not a one-off, it's just a timing effect. The effect had been there last year already. And finally, I explained on the potential depreciation effects in our nuclear business, which is also something around EUR 100 million, which will then exclusively hit the Q4 numbers, then stay there also for 2019 and '20. But as I said, this is something which is baked into our updated midterm outlook. I can't make it no more straightforward for you, but I think this would help you and anyone else to get their arms around our earnings dynamic in the year.

[Vincent Gilles, Head of the Utilities Research]

So I wasn't too far away with my EUR 300 million. You've already given us EUR 200 million there, so give or take a couple of millions here and there, we're not too far away?

[Marc Spieker, CFO & Member of Management Board]

Yes, but you said, the EUR 300 million one-off effects, and one-off effects for me is something about a absolute contribution in a given year.

[Vincent Gilles, Head of the Utilities Research]

No, no, I understand, I understand.

[Marc Spieker, CFO & Member of Management Board]

We are far away, I don't want to give it up on this point, yes.

[Operator]

We have received another question from Deepa Venkateswaran, Bernstein.

[Deepa Venkateswaran, Senior Analyst]

My 2 questions. So firstly on the timing of the antitrust notification. I think you said, it is in due course, is that still in Q4? And second question on nuclear provision. I think you said that you don't expect any change in economic net debt, but that the inflation rate change would increase provision. So I was just trying to square how both of those are possible?

[Marc Spieker, CFO & Member of Management Board]

Yes. On antitrust, we can reconfirm and state that the formal application will happen in due time. And whether we combine this with the Christmas card or with New Year's greeting does not provide any sleepless night to me and should not for you or any investor. And secondly, on the change in economic net debt, we reminded that we changed our approach in measuring the impact of nuclear provisions on our economic net debt last year, and we moved to treating economic net debt like financial liabilities, i.e., for us, it is only relevant at the cash-out. And so with moving inflation rates or interest rates, we will not adjust our nuclear provisions if they account for as part of the economic net debt. And only in case that real interest rates would start to become positive again, yes, right now, they are negative. As soon as they start to become positive again, then indeed, we would start to lower our economic net debt proportionately. But as long as we have this kind of, for us, not sustainable real interest rate environment, we would truly look at the cash-out profile of our nuclear provisions, and the cash-out profile, again, is unchanged.

[Operator]

We have received another question from Mr. Alberto Gandolfi, Goldman Sachs.

[Alberto Gandolfi, Managing Director]

The first one is, I mean, going back again to some of your remarks, Marc, you were talking about 2019 a bit more as a challenging year. So I was trying to understand, are you trying to say that there's not going to be growth? And therefore, we should expect much higher growth in medium terms? To be -- for you to deliver 5%, 10% net income growth, are you telling us that there's going to be flattish '19, but probably closer to the 10% after that? And to -- in case, you can't fully say yes or no to this, any indication will be great. But I think you've been spelling out quite in depth all the positive one-offs, but could you also remind us, so that we can understand 2019, all the restructuring charges you have been taking and all the negative one-offs you have in the 9 months, because -- and there is quite a lot of that and you're probably planning to do more of that in Q4. The second question is a little bit longer term, well, much longer term and bigger picture. So I can see that you are stressing in your slides net, net, net synergies of EUR 600 million to EUR 800 million, and that's all great. The question, I guess, is beyond those synergies, could you elaborate on your cost-cutting opportunity? I mean, your workforce in the supply business of 30,000 people is equivalent to the total workforce of big companies. You have companies like Iberdrola with more than EUR 9 billion of EBITDA having broadly the same workforce for the whole business. And you have only 30,000 people in supply digitalization, not just a buzz word, but the new entrants with a software and a small office can run the business in a much leaner way. So I was wondering, through natural attrition or investments in digitalization, could you maybe talk about a little bit what type of costs could you have to face? And what type of benefits would you get at the other end of it? Because it feels like there's a pretty gigantic cost-savings opportunity in your Customer Solution activity.

[Marc Spieker, CFO & Member of Management Board]

Okay. Then let me start with your first question. I think what you should take away from today's call is that on the one side, we have narrowed our guidance for this year to the upper half. And I clearly said that for 2019, we expect, at this stage, a rather flattish development. For the midterm outlook, this has no implication in terms of, the count of the total growth target, and I also explicitly said that when I'm making this statement, that we are not relying then on the U.K. to show a rebound only in order to then support that statement for midterm outlook for the group. So I'm not telling you kind of the group is now relying on a strong nuclear rebound, which we are managing hard, for but we have seen that other companies have been struggling to deliver that. And so it should be a reassuring message for the markets that the long-term growth is intact and will come from true operational and market improvements. Second, with regards -- you kind of slightly broke the 2-question rule, but I will answer now all 3 of them. You asked for the negative one-offs...

[Alberto Gandolfi, Managing Director]

Apologies.

[Marc Spieker, CFO & Member of Management Board]

Yes, the negative one-offs in this year's guidance, so I'm now referring to full year impact. We talked about the restructuring programs in our U.K. and German networks' business, which are roughly EUR 100 million. I also elaborated on this depreciation effects on our nuclear business to kick in, in this fourth quarter. This is also roughly EUR 100 million. I'm highlighting that because this is noncash in nature and, as some of you also say, different -- a different quality. I think otherwise, it's always -- given the size of our group, there are small positives ups and downs. And so the only meaningful positive effect is in the network business, which I said, but that positive EUR 100 million. So in that sense, I see us balanced, if not even tilted to the negative one-off side in this year. And finally on synergies, I fully accept your challenge, and please get it right when I now push back. We will first and foremost now focus on delivering the synergies from the integration and not now speculate then on further potential after that. One thing is clear, that for our classical commodity sales business, cost efficiency is a key competitive factor. And it will be managed by us in that way and all opportunities to drive out cost of that business, while improving the service levels, and product offerings for our customers, will be tackled by us. But I want to get the priorities clear. First, we will deliver on the synergies on the net basis. And then we will update the markets about any further potential, but understand if I tell you now this is a bit far away, I don't expect anything in that respect even throughout 2019. I think that would be it.

[Operator]

We have received another question from Peter Bisztyga, Bank of America Merrill Lynch.

[Peter Andrew Bisztyga, Head of Pan]

I was wondering if you could talk a little bit about the competitive dynamics in your German retail supply business and including the evolution of customer numbers there over the year in the third quarter most recently? And my second question is related to that, which is, household energy bills are going to have to go up probably by the high single-digit percentage amount next year, given where -- how prices and gas prices have moved this year. Do you see any challenges in passing those high costs through to your German retail customers?

[Marc Spieker, CFO & Member of Management Board]

Yes. So on German customer numbers in Q3 alone, for example, we increased our B2C accounts by almost 50,000, 5-0. And I think for the total 3 quarters up until now, the number stands so on...

[Stephan Schönefuß]

I jump in. So you asked, Peter, for Germany especially.

[Marc Spieker, CFO & Member of Management Board]

Germany, full year. Year to date...

[Stephan Schönefuß]

So year to date, in this 9 months, we went up -- how much is this?

[Marc Spieker, CFO & Member of Management Board]

Okay, Stephan will elaborate.

[Stephan Schönefuß]

Roughly 80,000.

[Marc Spieker, CFO & Member of Management Board]

80,000. 50,000 of that in Q3, 80,000 in total. And for the question of pricing dynamic, so when it comes to wholesale price increases, we -- I know that some in the market see this as a major risk. We do not share on this risk assessment and for 2 reasons. Number one, we have, by now, a very good track record in implementing price increases in a way that our customer transactionally not are meaningfully affected as, for example, evidenced by the German business, which was able to increase prices and increase customer numbers. And secondly, if I look at the net operating working capital in those business, we also see from rising rates, there's no meaningful impact on the amount of capital, which has been bound at the business. And at the end, we are in for capital efficiency from a financial point of view. And so from both ends, this is not something, which produces a specific concern. Maybe a general note in that, it is actually -- if it -- when it comes to price developments, it actually doesn't matter whether prices go up or go down. The best for the business is if prices stay flat. Because if you adjust the bill of a customer, kind of, that is the point which you then need to manage, whether it goes up or down. But again, as I said that we could -- now in rising prices, manage this quite well. We would also expect to manage this if prices were to come down again. But no major risk, which we see around that or any specific risk, which we see around that.

[Operator]

We have received another question from Sam Arie, UBS.

[Samuel James Hugo Arie, Managing Director and Research Analyst]

I think many of the questions have been covered already, so I wanted to ask just 2, if you like, strategic questions. The first one is on the retail business. And it seems to me that the challenge for retailers at the moment is they developed very low cost flexible modular IT systems that support 100% self-service long term and eventually dramatically reduce or even remove the call center cost base. And I think that's certainly a model that some of the small challengers are using against you at the minute. And I think you said previously, you are working on some kind of reversion of that platform after the U.K. And I'm just interested that if you could give us an update on that. And if you like, the time line to get serious customer volumes onto that kind of future retail IT platform in the U.K. or elsewhere? And then secondly, I think the other big opportunity that we see so regards the electric vehicles. And I've heard you and Johannes also speak very constructively about this as a mega trend in the past. But you still don't say anything very concrete. And so my question is, when do you think you might be able to say a bit more about the potential impacts of electric vehicles on your network or downstream businesses? And could that maybe be a topic for a Capital Markets event one day soon. I just flagged that yesterday we were at Fortum who have a customer base, 120,000 at the size of your customer base, and they said, they already have 200,000 customers using an EV charging app based out of Berlin. So I think we're starting to hear a bit from other companies about EVs. And just interested when you think you might be able to tell us a bit more about what you are doing there?

[Marc Spieker, CFO & Member of Management Board]

Sam, so on the first question with regard to IT architecture, you are right. We talked about, what we call, the digital ticker, which is a much more flexible and one-year software stack that stays in full implementation swing. We -- instead of -- we are always clear about that we will not kind of go the classical approach to set up a mega IT system and then migrate all our customers onto that, but that we go really for the system, which first and foremost, needs to prove itself in the market. This is happening right now. We are incrementally adding new customers or acquiring new customers on those -- on this platform, both in Germany and U.K. The -- our progress on that is fully in line with our expectations. Now we are starting to talk -- going away from talking about 1,000 customers to 10,000 customers soon, which we are adding, of course, compared to millions of customers, which we have on the old systems is -- now may appear very small. But you just need to keep in mind once that you can prove system stability with around 100,000 customers, then the scalability isn't just a matter of time, and hence, we stay very positive and optimistic about that. On e-mobility, we see this as one of many -- the mega trend after renewable traditions in this decade and the next decade. We need to be a bit careful about the impacts on the regulated versus the unregulated business. On the regulated networks side, where we can only see upside, but this is something which will only kick in as soon as the penetration levels increase. And then you will have these kind of tipping points, which then will require quite significant reinvestments into the network business. For now, we are not including any growth potential from that in our CapEx or other financial guidance. But it's something, again, which we are very optimistic about that will provide for meaningful investment opportunities and to allow us to grow our regulated asset base beyond the 3% to 5% growth rate, which we indicated back in March. On the unregulated side, we are focusing on the fast charging segments, where we are now rolling out, for example, in Germany, every 100 -- approximately 100 kilometers, an ultra- fast charging station along the German motorways. This is an upfront investment, where profitability will take some years. And by some years, I'm not talking probably when you refer to soon next year, because this unregulated part of the business requires amount of transaction per charger, which is a play over several years. So for that, in order to talk about meaningful earnings contributions, it will take some time, but we continue with our cautious investment approach there. And whether or not we will have a Capital Market Day sooner or later, we will come back to you with an invitation. And then you will know. But it's high on our -- e-mobility is high on our agenda, and we see it only as an opportunity.

[Operator]

We have received another question from Nick Ashworth, Morgan Stanley.

[Nicholas James Ashworth, Equity Analyst]

Two questions for me. Firstly, on the U.K. side and talking about it, being under a little bit more pressure next year with the tariffs and then rebounding. I think, Marc, you said, you don't expect a full rebound in the U.K. over the next couple of years. Can you give a bit of color in terms of what the full rebound would look like, i.e., what's the base level for that? And how far off of that do you think you can get to? And then secondly, I guess, just a bit of a follow-up from what Sam was asking. I saw the announcement that you made in connection with innogy this week and has been talking about the innovation hub and how you will be starting that. I guess, there has been a lot of investment going around new business areas on the B2B and B2C side. We have seen that at a lot of your competitors. Can you talk a little bit about what you are actually doing in terms of new products for customers' B2C and/or B2B? And the cost implications, and if that becomes something larger in the next couple of years?

[Marc Spieker, CFO & Member of Management Board]

Nick, welcome, and let me start with the second question. I think it was beyond the scope of this call at the moment as far as guiding you through the different products and innovations for our B2C and B2B clients. But I -- maybe we provide more of that when we go into the March results, for example, that you get or we kind of take it offline, our team or kind of any product expert are happy to guide you through this. On the question of, let's say, capital cost efficiency, that's how I understood kind of the second element of this question. And of course, this is one area where we see the benefit of the integration of E.ON Energy. Innovation matters, it will also increasingly matter, but also the efficiency around innovation will matter. And so where we are running 2 platforms to address the same market opportunity, we will make sure that we integrate on only 1 platform. And so this is being separate as part of the integration. For U.K. business, let me clarify one thing, I said that the midterm group outlook that we have given around the 3% to 4% EBIT increase will not rely on a full rebound of the U.K. business. It's very important because the other side is what is our target and expectation towards our management team in the U.K. and what kind of profit recovery to deliver, and here, I said the midterm and I'm not going to be more specific. But for us, in terms of profitability, the benchmark here would be rather 2017.

[Nicholas James Ashworth, Equity Analyst]

I'll just ask 1 quick follow-up actually on the cost-cutting program and the cost -- the EUR 100 million, that's what in focus. And how much of that is already in the numbers to 9 months? It sounds like most of it will go in Q4. Is that correct?

[Marc Spieker, CFO & Member of Management Board]

You mean in terms of restructuring charges?

[Nicholas James Ashworth, Equity Analyst]

Yes, yes, correct.

[Marc Spieker, CFO & Member of Management Board]

Yes, I would say, approximately half of that will be in Q4. So this is why [ second load ], it's not equally spread across the quarter. So of the EUR 100 million, half of that will be -- would show up in Q4.

[Operator]

We have received another question from Ahmed Farman, Jefferies.

[Ahmed Farman, Equity Analyst]

Marc, just first on the -- your medium-term EBIT guidance. Can I just confirm that you're also confirming today the core EBIT figure for '18 to 2020 of 5% to 6% that you gave us in March. Then my second question is on the '19 EBIT indication you gave. I think you said rather flattish. Is that what you also think for the core EBIT number, which is where consensus is currently? And if that is indeed the case, then your core EBIT CAGR implies quite a sharp growth in 2020. You're almost more than 10%. What the -- can you just remind us of the levers of that growth or that recovery you see in 2020 in the core EBIT business?

[Marc Spieker, CFO & Member of Management Board]

Please understand that today, we will not now entertain a detailed guidance for 2019 and '20. I think there is a clear message, a reassuring message from our side, that the financial impact from U.K. price cap is not something which will change the financial profile of the group in terms of the targets and pledges that we have set out. So take that message. This is why, at this stage, I will not now elaborate on core versus noncore. On noncore nuclear, I would only add that you are all aware that -- as the topic of production rights, securing the production rights in this business and as long as those production rights commercially have not been fixed, we are also very cautious in assuming through our contributions from that side for the group. So there, we just stay cautious as long as we haven't commercially secured these production rights.

[Operator]

We have received another question from Lueder Schumacher, SocGen.

[Lueder Schumacher, Equity Analyst]

Two questions from my side, both on time lines. The first one is on the Swedish court case. You've mentioned that the first ruling has gone in your favor, the regulator has appealed. What kind of time line are we looking at for the next instance? And will this be the last one? So by what time should we have a final ruling on that? And the second also related to time line. Your nuclear output volumes, is there any progress on acquiring the additional volumes you need? And also by when should we know that this is the case? Obviously, I guess, 2020 will be a certain deadline by which you should have reached an agreement.

[Marc Spieker, CFO & Member of Management Board]

Lueder, I -- on the timing of the Swedish court case, you would expect that the court takes a decision early 2019, so most probably due in January. And on the nuclear output, actually it's not the output volumes, it's the production rights, which, I guess, you are referring to. As it said before, as of today, we haven't commercially secured those. Again, be reminded that legislation in Germany was passed mid-year that those production rights have to be transferred. So there is not a question around will we be able to run the nuclear power plants, but it's a question around at what commercial terms. And what then the financial contribution from those to the group may be in the future. Here, we expect an outcome during 2019, and I wouldn't be more specific at this stage.

[Lueder Schumacher, Equity Analyst]

Okay. Can I just -- on the Swedish one -- the January 2019, would this be the final one, the final ruling? Or could this also be appealed?

[Marc Spieker, CFO & Member of Management Board]

No, this is the -- it's now in appeal court. So it's a decision about whether the appeal, which the regulator has filed for following the positive decision for us in the first court case. So the appeal court will then decide whether the appeal has substance or not. So in January, we will know if the decision is no substance, then basically the case is done. And if the appeal court says it has substance, then as always, there are court rulings for me to read, whether it's substance or formalities and so on. But in that scenario, it could take another up to 6 months before we can then get final clarities.

[Operator]

There are no more questions. I hand back to the speakers.

[Stephan Schönefuß]

So then, thank you, operator. And thank you to analysts and investors for your questions and your attention. Then I say, goodbye, and see most of you tomorrow in London. Have a good remaining day. Bye-bye.

[Marc Spieker, CFO & Member of Management Board]

Thank you very much also from my side. Bye-bye.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.