E.ON SE

XETRA:EOAN

Earnings Call Analysis

Strong Earnings and Growth Commitments

In a year marked by strategic advancements, the company achieved an adjusted EBITDA of EUR 9.4 billion, surpassing expectations by EUR 1.5 billion. Major strides in network investments, partially due to significant regulatory achievements, led to a 30% year-over-year increase in these investments, reaching nearly EUR 700 million. The firm is on track with its EUR 5 billion CapEx plan, aiming for a 7-10% IRR by 2028, and has an ambition for EUR 42 billion investments by the same year. Capturing growth opportunities in digital transformation and sustainability, they also target a compounded annual growth rate (CAGR) of 10% in new business solutions. Firmly committed to shareholder returns, they promise high single-digit earnings growth and up to a 5% annual dividend increase.

Strengthening the Core through Regulatory Advances and Investment

The company reported steady progress, particularly in terms of regulatory achievements which have provided the capability to increase investments. Focused on advancing the clean energy transition, it has highlighted the need for more investment, specifically in the German market, to achieve better returns for investors. Investment in energy infrastructure increased by 30% year-over-year to close to EUR 700 million in 2023, concentrating on growth projects and network expansion. A total capital expenditure plan of around EUR 5 billion is targeted through 2028, with an expected internal rate of return (IRR) of 7% to 10%.

Operational Excellence Driving Resilience in Retail

Despite challenges, the company's energy retail business showcased resilience, delivering strong returns and cash flows. Efficient process automation has been a key driver, with significant improvements in contract adaptation times in Germany. The firm continues to accelerate these digitization efforts to enhance operational excellence.

A Forecast of Growth and Digital Transformation

The new solutions business is set to achieve a compound annual growth rate (CAGR) of 10% in the future. This growth is part of the company's broad strategic vista that includes a EUR 42 billion investment focusing on infrastructure. In addition to the financial objectives, the company is making strides in digital capabilities and sustainability, with significant efforts directed towards employee safety and running 30 million connections with advanced digital technology.

Commitment to Dividend Growth and Value Creation

The company has ratified its pledge to value creation and financial prosperity, signifying the overachievement of its 2023 earnings targets. A dividend per share increase of up to 5% annually has been anchored by high single-digit underlying earnings growth. These shareholder benefits are underpinned by robust balance sheet capacity, anticipated to be an additional between EUR 5 billion and EUR 10 billion by 2028.

2023 Performance: Surpassing Expectations

The company's operational performance in 2023 surpassed its earnings target substantially, with adjusted EBITDA achieving EUR 9.4 billion, EUR 1.5 billion higher than initial guidance. The Energy Networks business contributed significantly to this increase with CapEx-driven regulated asset base (RAB) expansion across multiple regions. Adjusted net income also exceeded expectations, reaching EUR 3.1 billion, which is set to normalize in 2024.

Strategic Outlook: Sustained Earnings Growth and Robust Financial Position

Looking ahead to 2028, the company projects an increase in underlying earnings by 6% per year, with EBITDA surpassing EUR 11 billion and adjusted net income growing to EUR 3.3 billion. An ambitious ROCE target improvement by 100 basis points to a range of 8% to 9% reinforces the focus on value creation. Almost 90% of EBITDA growth until 2028 is expected to come from infrastructure segments, with Energy Networks and Energy Infrastructure Solutions set to grow at CAGRs of 7% and 13% respectively. The Energy Retail business is also expected to achieve significant growth, increasing to around EUR 2 billion by 2028.

Shareholder Value: Delivering on Dividends and Total Return

The company reasserts its long-term dividend growth promise, aiming for yearly increases in dividend per share of up to 5%. This is bolstered by projected earnings per share growth of 6%. For 2023, a dividend of EUR 0.53 per share is proposed, reflecting a total annual shareholder return well over 10% for the next five years. Through disciplined execution and sustainable earnings growth, the company offers a compelling proposition for current and potential investors.

Earnings Call Transcript 2023-Q4

[Iris Eveleigh, executive]

Good morning, everyone. Dear analysts, the investors, a warm welcome from my side to our Full Year 2023 Results Call. I'm here with Leo and Marc, who will present our results to you. As always, we will leave enough room for your questions afterwards. And also, as always, please stick to the 2 questions through each.

With that, I hand over to you, Leo.

[Leonhard Birnbaum, executive]

Yes. Thanks, Iris. Good morning also from my side. I am here with Marc. Today, he's still my CFO, and he will remain that until the 1st of June, but I'm very proud before I get to the 2023 numbers and our revised outlook that also we have been able to very smoothly figure out a great succession for Patrick Lammers with Marc, who happily will take over the new challenges, which a new job we'll offer to him, but as I said, he will stay around for a few more months to come.

So where are we today? Maybe 2 words. Today, we are actually talking to you from our brand-new testing lab in Essen. So for once, we have actually decided not to broadcast from a conference room, but rather from a real-life facility in which you see where all the investments are going to -- which we are going to announce today and explain to you today. This is one of the examples how E.ON is driving the energy transition forward.

So let me now turn to my 4 key messages. First, 2023, we have seen a strong delivery, the strongest company performance since I took over as CEO, actually 3 years ago. And it makes me proud that we have not only delivered great financials, but also that we are able -- and shown that we are able to grow.

Second, we will emphasize today that this is the right time to step up to the next big investment cycle. And we will continue to deliver on a unique once in a lifetime, once in a generation growth opportunity. And for E.ON, this means that we are upping our investment plan to EUR 42 billion by 2028, as you have seen.

Third, I want to emphasize that we are not only delivering against financials, not only growing, but we are also delivering against our aspirational and sustainability targets, as well as against our claim to pioneer the digitization in the energy sector.

And fourth, we will actually fund this growth from a strong balance sheet and create significant shareholder value. I'll touch on all these points a little bit, but Marc will then detail some of them more later.

On my first message, 2023 was again a year full of challenges. War in Ukraine, interest rate turnaround, economic downward trend in Europe, a continuous rise of geopolitical risks. Nothing of that has changed the continued delivery, the continued performance of E.ON.

With an adjusted group EBITDA of EUR 9.4 billion, we delivered results that have significantly exceeded our expectations for the 2023 financial year. And actually, in both our segments, Energy Networks and Customer Solutions grew in most of our market's year-on-year.

Finally, our investment rose by around EUR 1.7 billion to EUR 6.4 billion from a starting base of EUR 4.7 billion. And this accelerated growth momentum underpins the validity of our strategy. This growth momentum I just mentioned stems from a supportive political environment for E.ON.

And this environment becomes evident in the grid action plan of the European Commission. This grid action plan has put grid expansion at the top of the energy transition agenda, something that was unthinkable just a few years ago.

The growth momentum also becomes evident in the constructive reform of the European electricity market design. All calls for more government interventions were met with a pretty clear signal. The key to a new energy future is actually more private investments.

And all of that has translated into even more aspirational targets. And all of that, again, strongly supports E.ON's investment case. And we see the impact already in our day-to-day operations, not only in stated ambitions.

For instance, customer connections request from customers in Germany have increased by 75% within 1-year to more than 400,000 following the increasing renewable trend. But I want to emphasize that we are seeing growth momentum not only in Germany, but in all our markets.

Likewise, updated decarbonization targets in the industrial and housing sectors drive the need for further energy efficiency. They created an increased customer demand for tailored infrastructure solutions to decarbonize.

And we are tackling this within our Energy Infrastructure Solutions business, investments in this area have increased by 30% year-over-year. And this growing relevance of the now stand-alone segment leads to our new 3 segment structure.

Energy Networks, Energy Infrastructure Solutions and Energy Retail. That's all that is just as simple. Energy Networks contains our regulated business for the energy transition, which makes E.ON the leading DSO in Europe.

Energy Infrastructure Solutions includes our long-term contracted activities such as district heating and cooling networks in urban areas, integrated energy infrastructure for industrial and for commercial customers.

And in Energy Retail, we have proved to be the best owner when it comes to operating our customer portfolio for the commodity activities and for the solutions part of the B2C business, and we do not only manage this business as a strong cash contributor. We also seize the opportunity of leveraging our commodity portfolio to accelerate the growth of our solutions portfolio.

And now let me just briefly flip through these segments and our growth plan for all of them. In Energy Networks, it's now all about delivery. The majority of the investments we are announcing today will be allocated here.

And as the CEO, in many discussions, I've been asked whether we have the preconditions in place to deliver. And the clear answer is, yes, and to highlight that, let me just touch on some critical aspects and how we manage them that are always mentioned in the discussions.

First, operations. Proof of evidence, we are successful in attracting a skilled workforce. In 2023, we have hired more than 5,000 new colleagues on a gross basis in networks only -- 11,000 in total, 5,000 in networks only. And that despite tight labor markets. And we are fully confident that we can attract more than 13,000 additional talents there by 2028. So we have the people.

Second, supply chain. We are working on this topic already since years. Despite EUR 1.7 billion higher investments, we have not encountered a single bottleneck in the supply chain in the last year, so much for us having this under control. How have we done that? Well, we have worked on standardization, on better demand forecasting, on process improvements in our energy asset management and we have worked with our suppliers to increase their resilience and increase their capacity.

Third, permitting, and we see really improvements in several areas, and so we are confident that this will not be the crucial bottleneck. Because of that and many other improvements, which we have done in many other areas, we can assure you we can deliver, and we will deliver our accelerated investment program.

As responsible corporate citizens, we are also putting however, significant efforts on affordability when it comes to the energy transition. It's not just any investment is good for us. We want only efficient investments.

While we are seeing extended grid fee increases in Germany in 2024, we would, however, want you to keep in mind that those are not a proxy for future developments as they are driven by the reintroduction of redispatch cost to the network fees. Going forward, we expect more moderate raises for households, ensuring that the network tariffs and fees remain a manageable part of the total bill.

So therefore, for all of these reasons, I'm confident to share with you one of the most important numbers today. We will ramp up our Energy Networks CapEx to a new target of EUR 34 billion out of the EUR 42 billion in the investment plan.

And with that, we have now increased our Network CapEx plan for the third time in a row, it now is twice as high compared to when I took over 3 years ago, and actually also the total investment volume of EUR 42 billion is more or less twice as high as when I took over 3 years ago.

You see me really comfortable with this run rate for 3 reasons. One, we have started to ramp up our spending already from '21 to '23, and we have over delivered the initial targets last year. Second, our annual investment plan is backed up with 110% of operational projects.

So if something goes wrong somewhere, we will still hit the target because we are overshooting when it comes to investment. And then over the year, managing it towards the target picture, which one to achieve.

And finally, our long-term planning has further improved. We have a much better visibility until 2028 and beyond, and we will be able to keep this run rate into the mid 30s. And overall, all of this will actually boost our power RAB growth to an outstanding CAGR of 10%.

However, we have deliberately not gone to the limit of what could be possible. We have kept a sense of proportion regarding the network investments. And let me explain to you why.

While on one hand, the importance of networks for the clean energy transition has finally been widely appreciated across Europe. We have, on the other hand, seen constructive regulators and various improvements in regulatory parameters in different markets.

And here are some examples. They needed return step-ups on new invest in Germany. The increase in regulatory WACC in Sweden. The WACC uplift in Poland. And on the other hand, we are also benefiting from existing inflation protection mechanisms in various markets. And especially in CEE countries with real RAB regimes, we have seen double-digit RAB indexation.

All those uplifts and the various inflation protections in all our major markets allow us to ensure an attractive return on capital of 150 to 200 basis points in average overall markets above our capital cost. And we deem this value spread as necessary to successfully compete for investors in an international context.

The regulatory achievements that we have seen enable us to step up our investment plan, but to make the clean energy transition a success, more investment would be needed, particularly in Germany. And let me emphasize, operationally, we are ready.

And we are equipped with the necessary strong balance sheet capacity for additional investments from the Easter package, but to invest even further, we require more substantial improvements, especially in the German regulatory framework.

In particular, the rate of return must improve to further attain the required return for our investors and Marc will add more details on that later.

Let me now continue with our second segment, the long-term contracted infrastructure activities in our EIS business. EIS has continued to deliver on its growth trajectory. 2023 was successful driven by strong operational and sales performance. Investments year-over-year increased by 30%, reaching close to EUR 700 million, 80% of these investments were focused on growth projects and the expansion of our heating networks long-term and quasi-regulated business.

We are targeting for a total CapEx program of around EUR 5 billion until 2028, maintaining our expected IRR rate of 7% to 10%. We are confident that we will be able to deliver here also looking at our pipelines, which is already today twice time -- at 2x the size of our sales targets for the year 2024.

And with that, let me turn to retail. Our energy retail business -- sorry, delivered in a challenging market environment. We have shown again resilient returns and cash flows short and long-term.

To protect these results, we have defined 3 areas to drive our operational excellence. First, we radically digitize and automate our processes. In Germany, we can now, for example, run 10 million price contract adaptations today in only 6 weeks compared to 14 weeks in the past.

And we will further accelerate this. We have included AI tools to improve our customer experience, and we are working diligently to be one of the highest quality energy supplier in Europe, also building on the reliability, which we have shown over the last years.

Second, with our energy market departments, we manage a fully integrated portfolio optimization across all regions, more advanced hedging support -- more advanced hedging supports customer price protection and enables us to actively manage retail commodity risks.

And third, we continue to focus on high-quality customers, lowering our exposure to large B2B customers whilst focusing on high-value customers. And all of these initiatives will further improve our revenue margin profile in Energy Retail going forward.

Outside of commodity sales, our large customer portfolio is providing a strong leverage for E.ON to be the provider of choice also when it comes to new customer solutions. And we were able to continue to grow also this business both on capabilities and lead generations.

I want just to highlight a few examples, like in the eMobility business, we have closed additional prime partnerships with BMW and became the strategic partner for Mercedes in Europe, and we are working on more to come. And this is only 2 -- these are just 2 of the examples and successes -- for successes, which we have seen.

Our new solutions business will deliver 10% CAGR going forward. So much for the great 2023 financials and our updated EUR 42 billion growth program with a focus on infrastructure businesses. Let me now turn to our progress in becoming more sustainable and more digital.

First, digitization. The systems of the future can only be operated fully digitally. And therefore, we are in the process of digitizing the core of our operations with market-leading technologies. We have by now moved 100% of our applications from our data centers into the cloud. We have no data centers anymore; we have ripped them out.

By 2026, we will have massively improved and standardized how we steer and observe our grids. We are simplifying grid connection processes, minimizing connection times and increasing the stability of our system-relevant infrastructure and that is obviously a benefit for society overall.

But also with regards to our customers, we are continuing our efforts to migrate all accounts to upgraded sales platforms. We have shifted to a digital-first customer experience where -- and already today, we have more than half of our customer interactions fully digital. This share will further increase, obviously, with benefits for cost to serve.

We are also seeing an increasing number of energy companies putting trust in our software solutions, which are available to the third markets, not all, but some, and here, we generate additional external revenues in operator portfolio of start-ups that offer cutting-edge software technologies.

And all of that, we have bundled in our E.ON One. One example is envelop, which is offering twin of digital grids of electricity grids. And already today, 30 million connection points in Europe are running on that technology.

Now on sustainability. We have helped with everything we do; we are helping our customers to become more sustainable. But that doesn't stop us ourselves from becoming more sustainable. And we strive to continue this year-by-year and I would, however, without going now into all targets, like to emphasize one target, especially safety.

For us, it's of an absolute importance that every employee returns home safely and healthy every day. And we are operating grids and infrastructure, which is a potentially dangerous environment.

And therefore, this is an absolute focus, and we have been able to reduce our KPIs in the health and safety area year-over-year to a significant amount, but we are never satisfied in that area because every single severe accident, which we have is one too many.

Therefore, the emphasis, which we're putting in health and safety, we are also putting diligently on all kinds of other targets. In total, you should take note of the fact that we are now including the CDP A- -- A-list, which really makes us a champion, and they are looking at all the parameters. So we are really moving towards becoming more sustainable year-over-year.

And we have also a Prime Status B- by ISS ESG and a low-risk profile according to Sustainability. So all the rating agencies are basically giving us scores, which are slowly hard to even improve going forward.

So let me conclude. We deliver on the financial targets. We deliver on sustainability. We deliver on digitization, and we are uniquely positioned to capture unprecedented growth opportunities. We will focus on value creation and on an investment plan that is based on sound financials, and we again commit to annually increase our dividend share -- dividend per share by up to 5% year-over-year.

And now Marc will guide you through the updated financial framework, which is building on that and how we translate our strategy into an attractive financial reward for all our shareholders.

And with that, over to you, Marc.

[Marc Spieker, executive]

Leo, thank you very much. And welcome from my side to everyone. When it comes to the changes in the management board, its announcement day, not a farewell. It's why I directly cut through to my main messages.

First, we significantly over delivered in 2023 on our earnings targets as you just heard from Leo. The magnitude of the beat certainly is extraordinary. The fact that we outperformed should nevertheless not come as a surprise to you. We deliver what we promise, and we always strive to achieve more, which brings me to my second message.

We have successfully demonstrated in 2023, we can manage an investment momentum, leading to an increase in our annual organic CapEx run rate by close to 35%. This is an important muscle that we will continue to use big time. We increased our midterm investment guidance by close to 30% to EUR 42 billion by 2028.

More importantly, when we do this, we have a clear focus on value creation, which brings me to my third message. Our operational strength is backed by a strong balance sheet. Our accelerated investment program is fully financed by our operational cash flows and a controlled buildup of financial debt. We can comfortably ensure a strong BBB/Baa rating. Even with the full execution of our growth plan, we see an additional EUR 5 billion to EUR 10 billion balance sheet capacity by 2028.

Fourth and final asset, our ambitious midterm plan will provide a highly attractive total shareholder return. We will deliver high single-digit underlying earnings growth. In addition, our shareholders will continue to benefit from our super reliable dividend growth commitment by up to 5% annually, as Leo just said.

Let's zoom in on our 2023 operational performance. Our adjusted EBITDA came in at EUR 9.4 billion. This is roughly EUR 1.5 billion above our initial guidance midpoint for the full year 2023. In our Energy Networks business, the increased underlying EBITDA of EUR 6 billion came from CapEx-driven RAB expansion essentially in all countries.

On top, we saw temporary upside from lower-than-expected so-called redispatch costs in Germany. And as you know, these timing effects are all economically neutral over the years. Outside Germany, we also observed additional temporary upside from a continued recovery of network losses.

In our Customer Solutions business, we achieved an adjusted EBITDA growth of around EUR 1.1 billion, which was driven by recurring and nonrecurring elements. When it comes to the recurring effects, we observed the normalization of our B2C retail margins, due to an improved market environment and our fast adaptation to a more volatile commodity price environment.

We are now comfortable that an underlying earnings level of EUR 1.6 billion to EUR 1.8 billion will be a new base to grow off. And let me be clear, this new norm also applies in today's -- [ vary ] today's commodity price environment.

Our Energy Infrastructure Solutions business is fully on track with its underlying 10% EBITDA growth trajectory. In 2023, this growth was partially disguised by adverse FX effects and an exceptionally strong financial year in 2022, containing partially positive one-off effects from asset optimization in the high price environment.

Let's move on to the adjusted net income, which came in at EUR 3.1 billion, roughly EUR 0.7 billion above our initial guidance midpoint for the full year. The growth is essentially driven by the positive EBITDA development because earnings with a nonrecurring character mainly occurred in entities with major noncontrolling interests, minorities have been exceptionally high. This effect will fully normalize already in 2024.

Let me now turn to our strong balance sheet. Our debt factor at year-end sits comfortably at 4x. This builds the solid foundation for the acceleration of our green growth plan. The quality of our earnings will remain high. Our cash conversion rate for the medium-term plan will stay at the well-known 100%.

Cash conversion came in at the -- in 2023 at the expected 80% belong 100% norm. And you're all aware of that this builds on the very strong 150% cash conversion back in 2022. So an expected normalization, which will bring us back to the earnings quality, which you are used to from us.

Our provisions were driven by the strong decline in interest rates in Q4. Our pension discount rates dropped by around 100 basis points in the fourth quarter alone. The environment led to an increase in our pension liability and to an increase in the accounting value of the asset retirement obligation.

If you look at current rates, you will observe that this effect has already partially reserved as I'm speaking. All in all, this means that we have an exceptionally strong balance sheet, which provides a solid foundation for our future growth plans, which brings me to our CapEx plan.

As Leo already said, we are facing a unique investment opportunity. The lion's share of our CapEx upgrade will be invested in our Energy Networks business. 90% of this is RAB effective. We target to increase our annual CapEx run rate by a further 20% each year until 2025. This will translate into a sustainable CAGR of our power regulated asset base of 10% annually.

Our networks investments have a clear regional focus and follow largely the same underlying trends across markets. As a significant part of our investments are directed at German regulated networks, I would like to zoom in for a brief moment on the value creation in Germany.

In the German regulatory system, we create value through allowed capital returns on our investments and through becoming more efficient relative to our benchmark cost base. Our ambition is clear. We want to achieve 150 to 200 basis points value spread on our total cost of capital across our entire networks business.

In our German business, by far, the largest market will live up to this as well. This has made very transparent for you if you look at the composition of our EBITDA. Our step-up in investment volume presented today is well tailored to the total effective returns that we can and will earn.

For an even further step up of our investments, we would need to see additional improvements in the regulatory environment. In this context, we highly appreciate that the German regulator has started an open and transparent consultation process on how to make the German regulatory regime fit for what is and will be needed in the future.

In parallel, we continue to take legal actions where regulatory parameters are not in sync with market standards. This continues to be the case for the market risk premium for the current regulatory period. If this was to improve to international market standards, it could justify further investments beyond our currently communicated envelope.

Next to Energy Networks, we continue to gradually increase our investments in the Energy Infrastructure Solutions business. We see growing demand from our industrial and commercial customers for decarbonized energy and heating solutions. We have not yet factored in the significant potential from the municipal heating transition, which is gaining more and more momentum across Europe.

And in Energy Retail, we continue to focus our investment activities on strengthening our digital sales and service platforms against the digitization strategy that Leo laid out. All our investments are required to meet strict internal hurdle rates, buildup of project in country-specific WACCs plus risk-adjusted spread ambitions.

Turning to our 2028 outlook, as we roll forward our 5-year guidance horizon. Our operational achievements in 2023 and our transparent value creation set the starting point for a unique green growth story.

Of course, we need to discount for the significant positive nonrecurring effects that we saw in 2023. Doing this, we will increase our underlying earnings by 6% per year or in absolute terms, EBITDA will grow on an underlying basis by more than EUR 3 billion to more than EUR 11 billion in 2028.

In the same period, adjusted net income will grow by EUR 0.9 billion on an underlying basis to EUR 3.3 billion. And this should provide for you a feel for the underlying robustness and strength of our earnings trajectory also well beyond 2028. As a reminder, our net income line is now protected against any further change in interest rates due to the remuneration scheme for new investments in German Energy Networks.

Finally, we focus on value creation and increase our ROCE guidance by 100 basis points to a range of 8% to 9% on average for the coming years. Our green growth story is supported by all 3 business segments. Close to 90% of the EBITDA growth can be attributed to our 2 infrastructure business segments. Growth in Energy Networks is driven by our growing investments. Our power RAB CAGR of 10% translates into an underlying EBITDA CAGR for energy networks of 7%.

Energy Infrastructure Solutions is expected to grow at a CAGR of 13% until 2028. This is supported by a total investment plan of EUR 5 billion. Be reminded, the segment will be a stand-alone segment from Q1 2024 onwards. We will then share with you additional details on the business.

Finishing with our Energy Retail business. Based on the strong recurring earnings growth in 2023, we envisage our Energy Retail business grow gradually by another EUR 0.3 billion to around EUR 2 billion by 2028. Growth will be driven by an increased focus on high-quality customers, excellence in operations and an increasing share from our decarbonization products and services.

On to our balance sheet and capital structure commitments. We have a strong financial position with ample headroom to further accelerate the clean energy transition going forward. We remain fully committed to our strong BBB/Baa rating commitment. With our accelerated green growth plan, we will remain comfortably below our up to 5x debt factor commitment.

In terms of rating relevant ratios like FFO to net debt, we look at an additional balance sheet capacity of EUR 5 billion to EUR 10 billion by 2028 on top of our current EUR 42 billion CapEx envelope.

We explicitly reserve the option to carry out additional opportunistic portfolio measures over the course of the next 5 years. This would provide for even more balance sheet headroom. Importantly, for you, executing upon such disposals should still leave us in line with our EBITDA and adjusted net income guidance for 2028. All this sends a clear and simple signal to you, there is room for much more.

Let me conclude on what all this means for our shareholders. We are fully confirming our long-term dividend growth commitment with annual increases in our dividend per share of up to 5%. This commitment is backed by a strongly growing earnings per share of 6% on average across the next 5 years.

We will propose to payout EUR 0.53 per share for 2023. And based on yesterday's closing price, our financial commitment to you translates into a total annual shareholder return of significantly more than 10% for the next 5 years. And if there is one thing that you can continue to rely upon, and with that, I'm getting back to my first message, we will deliver what we promise, and we always strive for more.

And with that, back to Iris.

[Iris Eveleigh, executive]

Thank you very much, Marc and Leo. And with that, I'll open our Q&A session and we start with Harry from Exane.

[Harry Wyburd, analyst]

So 2 as usual for me. So firstly, you mentioned several times that you could further increase CapEx beyond what you put in the guidance today, which obviously begs the question, how much could you increase CapEx buy? And you sort of mentioned you got EUR 5 million to EUR 7 billion of spare balance sheet headroom plus potentially some more on top from disposals.

So does the additional CapEx headroom kind of conveniently match that EUR 5 billion to EUR 10 billion? Or could it even be more than that? So that's the first question.

And the second question is on timing effects. I think -- and on a very simple level, it seems like what's happening this year is a repeat of last year. I guess the regulator sets the expected grid losses and redispatch costs in Q4, and then power prices fall significantly in the beginning of the year -- this year as well as last year.

So the question is, what have you assumed for basically, I don't know what the right word is it's not our performance, but gains that you'll make on timing effects this year because of the fall in power prices. Have you assumed everything you could get based on today's low power prices? Or could there be more timing effects that go in your favor throughout 2024 like we had last year?

[Marc Spieker, executive]

Yes. Welcome, Harry. Thanks for the questions. Let me start with the second one. It's too early to now talk about what does the current price environment mean. And you can rely upon that. We have built our guidance on prudent assumptions and as we -- as the year unfolds, we will update you.

But from today's point of view, everything in our guidance looks robust that we will be able to deliver in the current environment, but also should environment change.

That brings into the headroom, the EUR 5 billion to EUR 10 billion headroom should tell you 2 things. First of all, a message of comfort and strength that we have headroom to do more. And it should also send the message of comfort that we really stick to our value creation targets.

What you see with our current midterm plan is that we will pretty much keep our leverage factor constant. And that means the growth trajectory that we write or show you for the next 5 years is pretty much something which we could deliver for many, many decades to come at the same regulatory conditions.

But what, of course, we foresee is that there will potentially be more investment opportunities and needs as we roll into -- well into the next decade. And for that, we are now running the discussion with the regulator, what needs to be done in order to improve the conditions, in order to incentivize these investments. And so the message of the EUR 5 billion to EUR 10 billion for our investors should be one of comfort and strength.

[Harry Wyburd, analyst]

Just -- sorry, just to follow on the CapEx envolop, how much higher could you go on CapEx?

[Marc Spieker, executive]

Sorry, say that again. I didn't get the question acoustically.

[Harry Wyburd, analyst]

So the question was, you mentioned there's more to do on CapEx that you haven't included in the guidance today. So how much more CapEx could you do relative to the program you just announced?

[Marc Spieker, executive]

So we put out the EUR 42 billion, and we are very comfortable to be able to deliver that. And then first of all, we will be looking at how will the incentives for further growth look like. And before that, it just doesn't make any sense to speculate about what is in or what is not in, you can rely upon that we will deliver the EUR 42 billion.

I mean that we will continue when we further elaborate whether or not to step this up that we will focus very much on the potential to create value for our shareholders.

[Iris Eveleigh, executive]

Next question comes from Wanda from UBS.

[Wierzbicka Serwinowska, analyst]

Wanda Serwinowska from UBS. Two questions for me. The first one on the Networks EBITDA guidance. I mean on Slide 8; you mentioned continued debating points on the existing assets. So could you please clarify what exactly was baked into the guidance? And what are the remaining points? And when do you expect basically the decision from the regulator?

And also, you more than double the contribution from the operational excellence outperformance. I mean how sustainable it is in the longer term beyond the current regulatory period?

The second question is on the dividend. If we assume a 5% annual dividend growth until 2028, the payout ratio will be still well below the regulated peers. We will be looking at 55% based on our guidance. Fees are at 70%, 75%, and as a result, the dividend yield that you are offering your shareholders, is 100, 150 bps below the regulated piece.

So my question is, you improved the earnings guidance, the outlook is much better than we thought is going to be. So why you capped the dividend policy unchanged?

[Leonhard Birnbaum, executive]

So I'll take the operational excellence. Actually, if you look at it, we are significantly more increasing our CapEx commitment compared to our OpEx target. So we are increasing year-over-year, the efficiency and we can tracked it also in operational KPIs. So we are confident that we can keep up with the track record that we have shown over the last years.

Obviously, this is also partially dependent on the respective regulatory treatment that we are getting. So in that sense, we feel pretty comfortable around the sustainability of operational excellence, which we have included, the outperformance, which we have included.

I would say that when it comes to the regulatory, I would not like to speculate now too much into the future. We know that we have a significant additional investment need, but that will depended on the outcome of the new regulatory consultation, which just -- now has just started.

For us right now, we have planned for the next 5 years, which we know. And we are not planning beyond that before we have some more clarity about the outcome of what is being discussed right now in the appropriate circles. And on dividend, I'll give it to you.

[Marc Spieker, executive]

Yes. So Wanda, we see a unique green growth investment opportunity, and we reserve this balance sheet headroom in order to deploy this capital should the incentives be set at the right point that we can create value for our shareholders with that. And that is the reason why we have set the dividend policy as it is.

You also asked about return on existing assets, indeed, existing assets for our power networks in Germany that stands for about EUR 19 billion of regulated asset base. And here, the return, if you look at the allowed return on equity stands at 5.07%. And that should not come as a surprise.

We have been outspoken about that in the past that we do not deem this market adequate, and this is why we have gone to the court, the outcome of that court case will probably not happen before 2025.

[Wierzbicka Serwinowska, analyst]

A very quick follow-up. So is the return on equity, the only remaining discussion point with the regulator...

[Leonhard Birnbaum, executive]

No.

[Wierzbicka Serwinowska, analyst]

In Germany?

[Leonhard Birnbaum, executive]

It's one of the ones that will take some time to sort out. And what we also don't have right now is the Xgen factor, the general efficiency increase factor. But we have made assumptions which we are comfortable that will hold true in the planning.

[Wierzbicka Serwinowska, analyst]

And in your planning, nothing on the returns on the existing assets have been baked in, right? Or have you baked in some improvements? Because it might be substantial given EUR 90 billion of RAB?

[Marc Spieker, executive]

No. As in the past, for the terms of our guidance, we applied the allowed returns, which are currently formally available. Any upside from a court case that would come on top.

[Wierzbicka Serwinowska, analyst]

And Marc, again -- yes, congratulations...

[Marc Spieker, executive]

Wanda, you are stretching our 2-question rule by far.

[Wierzbicka Serwinowska, analyst]

Yes, I know. Yes. I just wanted to say congratulate on your new job, and I will turn over.

[Iris Eveleigh, executive]

Then turning to Peter from Bank of America.

[Peter Bisztyga, analyst]

And congratulations also from me, Marc, on the new role. So 2 questions. First of all, everybody, certainly in the U.S. is getting excited about data centers at the moment. So I was just wondering if you could talk a little bit about what trends you are seeing [ straight ] expecting in your Networks business either in the Nordic region or anywhere else. And also whether this is a potential opportunity for your Energy Infrastructure Solutions business? So that's my first question.

And then the second one, actually, on your Retail, you're expecting sort of fairly healthy growth in your Retail EBITDA over the next few years. Can you scope out in a little bit more detail as to what's driving that? Is it new products on the future energy home? Is it efficiency? Is it customer gains? So a little bit more detail on that would be helpful.

[Leonhard Birnbaum, executive]

Yes. I take. Peter, thanks for the questions. I'll take the first one. First, we are seeing an increase in data center connection requests. We have seen that a lot around Frankfurt for the reasons that you all know, the Internet breakout point that we have there.

There we are, by the way, at the limit of what the grid can cope with. And that is exactly -- around Frankfurt, we have the discussion that we are having now driven by AI, hyperscalers building data centers all over the place in the U.S. So we have that in Frankfurt, the grid being the bottleneck for addition of additional data center capacity.

We are seeing the request for data centers popping up all over Europe as well. 2 hyperscaler data centers for Microsoft will be built here close to Cologne, again, investing on the terrain in our terrain. We are not seeing that to an extent in which -- to which it is already being discussed in the U.S. So that would come as an upside.

Right now, data center increase is also driven by increased penetration of 5G, which is driving an increased penetration of distributed data centers all over the place even at a smaller scale. We are seeing some areas which are hotspots like the Nordics, where there are more people trying to build larger scale data centers. And yes, that is all an upside from our business.

So renewables are driving the increase of the network base, connection requests of customers coming in, and they are like not only the Tesla's battery factories, but also especially data centers. It's an upside not -- and not, however, to the extent it's being discussed right now in the U.S. that would further increase the outlook here in Europe.

And on the retail, I give it to Marc because whatever he says now, I would mail him in the next years on it. So be aspirational, Marc.

[Marc Spieker, executive]

That's a great comfort for you. But I'm still going to be wrong with Q1, but thanks, Peter, for the congratulation. I'm not yet off the hook.

So on Retail. I think there's a significant opportunity here in the convergence that all these decentral assets will make necessary. Let's look at our German customer base just as an example, we have 40 million customers, 2/3 of them are residential homeowners.

All of these will during the next 5 to 10 years at some point in time, own an energy asset on their ground or lease it. This will trigger an enormous need how to manage the flexibility, how to service and also how to provide an insurance like backup for them if they can't produce it on their own. And that's a unique opportunity where technology will converge on a digital platform, where we here comes to the digitalization strategy, again, be in a pole position to generate value.

The second element clearly will continue to be operational excellence. We will see in German increasing rollout of smart meters and increasing digitalization also of our customer care. And with that, while Leo talked about the opportunity to grow our workforce, that's true for many areas. But in some areas, we will also continuously work on further efficiencies, and we said also, yes, on FTE reduction when it comes to further digitalization -- digitizing our services.

So that ambition is built, that's the message on very sound robust trends, and they are all manageable from our side. So no excuse later on.

[Leonhard Birnbaum, executive]

I remember that one.

[Iris Eveleigh, executive]

The next question comes from Meike Becker.

[Meike Becker, analyst]

And also Marc Congratulations from my side as well. Let me focus on your energy infrastructure business. If I may, arguably, that could be a growth area where we have the least visibility? And if I play devil's advocate, I might also say that some of your peers in the past have put out very ambitious numbers and have been later on, pulled it back.

So what KPIs are you looking at? Or what KPI should we be looking at and to see if growth is on track? And what comfort can you give us that this segment is growing strongly? The second question is on your interest rate sensitivity in EBITDA and net income.

[Marc Spieker, executive]

Second question, I didn't get it.

[Iris Eveleigh, executive]

Interest rate sensitivity and EBITDA and net income.

[Leonhard Birnbaum, executive]

Okay. I mean let me take Iris and you take the second one. So yes, we are showing now more visibility, which is why we're showing it now as a new segment. I'm not going to say what I think about my competitors, you can say that. But for us, we want to deliver also in that area. It's also marked by the way.

And the KPIs actually are more or less the same that you know from all our other businesses. We are looking at EBITDA. We are looking at CapEx as an indicator of growth. We are looking obviously at operational KPIs like the pipeline, which we use for internal steering.

And then we have an IRR hurdle rate from 7% to 10% that Marc just mentioned in his speech for each individual project, depending on the market and risk profile of the customer. And basically, all of that then translates into the numbers that Marc presented. It's pretty straightforward. We don't try to make it complicated.

[Marc Spieker, executive]

If I may add, kind of on top of the financial KPIs, of course, we focus on technology. So our solutions are carbon neutral or carbon neutral ready. And secondly, this is an organic project business. So what we're not going to do is buy into growth in that area. We're going to develop that business, project-by-project on an organic basis.

On interest rates, first of all, the really relevant question, if I may, actually say is what's the impact on our cash flows of changing interest rates. And the answer to that one is nil, nothing, yes, because our funding is now set up to exactly be in sync with the regulatory returns. So whatever happens on the interest rate side, what you as an investor and analyst can bang on is it actually doesn't change anything for us as a company from a financial point of view. Yes.

And from an EBITDA point of view, as it's just one side, it will depend on -- it is cumulative depending on new investments in Germany. That's going to be a question then when will interest change -- interest rates change for how long and so on. So the simple answer -- the simple answer, it has no impact when it comes to the value of our company.

[Iris Eveleigh, executive]

And the next question comes from -- who is next in line? The next question comes from Alberto from Goldman.

[Alberto Gandolfi, analyst]

I mean, at the suns of -- repetitive, Marc, congratulations for big job, can I also Martin Jager for all the help over the years and congratulation him on his fantastic move.

And 2 questions on my end. I don't want to be dismissive about the planning just presented. You managed to make power distribution grades exciting, probably for the first time in the history of the industry. But I was trying to understand what's next here.

So if I think about the balance sheet headroom, there's EUR 5 million to EUR 10 billion. And I was wondering, Germany is a highly disseminated market. Is there an angle here where you could be a consolidator, maybe of your own minorities or a consolidator of other concessions perhaps even considering an asset swap, whereby you can swap some of the gas grid for the power grid. Is that something that is on your mind potentially down the line?

And the second question, I think if we look at Slide 7, we can clearly see that CapEx starts below EUR 6 billion at EUR 5.7 billion and ends up at EUR 7.5 billion, and Leo, you were talking about this level of growth well into the 2030s. Does it mean that the EUR 7.5 billion is obviously not the maximum you can do and potentially beyond '28, that EUR 7.5 provided returns are attractive, could actually keep growing?

[Leonhard Birnbaum, executive]

All right. So Alberto, you don't sound dismissive to us at all. We have seen the electrification compounder which you put out, which we have taken note of. So we feel actually pretty good with whatever you throw in our direction.

So no, actually, you all -- I've a first comment, you're all already asking what's next, yes? I mean, what's next is first delivery. I mean, it's EUR 42 billion delivery. It's EUR 11 billion EBITDA in '28 delivery. So yes, we are thinking beyond, but we are focusing on our organization first on deliver here and now because every dream pipe otherwise, is worth nothing if we don't deliver in the next year, the year after next and so on.

So -- so now I don't want to sound dismissive, but I just want to remind that a good plan is not automatically executed. It just needs good work. So nevertheless, to your concentrator question, no, I would not like to speculate around the consolidation that we could actually drive in the market or whatever. But I think there is an even more interesting game to look at. Is there a consolidation of processes and systems because we know the complexity of the future energy world is such that many players will actually struggle to do that internally.

And what I would find actually more attractive than anything else is if many companies -- smaller players would come to us and say, "Couldn't you run a number of processes for us, could you take complexity of our back and handle it together with everything you're handling already."

That would be for us actually more interesting because it will provide obviously a boost -- a profitability boost without a further CapEx deployment. So I think there are different consolidation gains possible than just a straightforward M&A, A, B, whatever asset swap speculation. And that is the even more interesting one, and that is probably one that is really going to come our way. We are already seeing smaller players being overwhelmed by the investment requirements, the complexity of the system, et cetera. So that's one.

And then the EUR 7.5 billion, no, it's not a max. The 5-year CapEx plans that we have shown over the last year and also the one that we are showing now is a slope, it's not a continuous, it's kind of like same number in every year. It's actually growing year-over-year. So if we roll it forward, it's actually growing to a certain extent also automatically. And yes, we are going to be clearly above EUR 7.5 billion. We are clearly going to be above the average in the '28 planning. So if you look at it year-over-year, you would see it's an increasing slope.

[Iris Eveleigh, executive]

So we move on to the next question from James Brand from Deutsche Bank.

[James Brand, analyst]

Sorry. We made it today. So I had a couple of questions. One was actually on delivery, so it feeds in quite nicely from the previous answer. And the question is, what are your biggest challenges and particularly around supply chain because we've heard a lot of things around, obviously, supply chain issues and more of the renewable industry than your industry. But is the supply chain where it needs to be for you to deliver what you're targeting over the next 5 years?

And then secondly, on retail I see that your kind of targeting a 3% to 5% energy sales margin. I think that's increased because I think you used to talk about 2% to 4%, I know there is a little star and a disclosure around how it's defined, so maybe it's a definitional issue.

But has that increased? And what are you seeing in terms of competition on Energy Retail because you've always been signaling at the 9-month results that the competitive backdrop there had improved? And also for me, sorry, I should say well done on the good results, and congratulations to Marc.

[Marc Spieker, executive]

Thank you, James. And why don't I start with the Retail, and you take the delivery. We changed all this time you need to deliver. So Retail, the 3% to 5%, it's an average portfolio target. And our strategy is clear. We will focus on high-value, high-quality customers, and that is what you've seen we've been doing already during the last 3, 4 years. So this is not something which we are inventing with this midterm plan.

And this is why we will be gradually also increasing the margin level on a portfolio level. And keep in mind that we are driven down significantly our B2B retail exposure, which is strategic noncore and many more measures which we do in order to back this up and where we are comfortable that we will manage this in the current market environment.

[Leonhard Birnbaum, executive]

Yes. And maybe on the delivery challenges, I think the first challenge is you need to stay focused. So kind of like it never become complacent, whenever you have achieved something think about the next challenge, which is coming. So it's more -- first of all, it's a mindset issue. You need to be on the ball all the time.

I think we are pushing our organization in that direction. I tried to answer the point on the supply chain in my speech. It's an issue, obviously, if you ramp it up, for example, some suppliers now need to expand their capacity. And for that, they need longer-term visibility on the volumes which we are ordering.

So we need to change the approach which we are taking, saying, we will take for the next 5 years, year-over-year this amount, yes, which we have not done in the past, which was not necessary. So yes, we are changing approach. But overall, we have it under control. Our size is an asset here.

And I might repeat what I said, EUR 1.7 billion up, no supply chain shortage. We have good visibility for the critical -- I mean, procurement groups, also going forward, so we don't foresee that. The only supply chain shortage, which we're right now having is desks in our 4 offices. So actually, it's a problem we'll be having.

So some people have to wait longer for new desks than they actually anticipated before. But so far, no, we really have it under control. It feels the fact that we have been really focused on all these topics, demographics, supply chain, digitization, process excellence. Year-over-year already now for several years is really paying off.

[Iris Eveleigh, executive]

With that, we move on to Bartek from SocGen.

[Bartlomiej Kubicki, analyst]

Of course, I will join the congratulation wave. Two things I would like to discuss. One is Sweden and the other one is OpEx. On Sweden, if you can perhaps explain to us why the RAB is up 30% on a year-on-year basis from EUR 4.9 billion to EUR 6.4 billion? And then with the increase in the allowed WACC. Shall we expect a sort of automatic increase in EBITDA in '24? Or you think there are some offsetting factors in Sweden, which will not trigger an EBITDA increase despite the fact that WACC is higher. So simply, is there any cap on tariffs in Sweden?

And then on OpEx, you are talking about employing 13,000 more people until 2028, which will of course, increase your OpEx. And I just wonder whether this will trigger a squeeze on your OpEx outperformance or there are also some offsetting factors. For instance, you will significantly increase your OpEx capitalization rate. So consequently, we will see no impact on EBITDA until '28 from increasing to OpEx.

[Marc Spieker, executive]

Yes. Bartek, thank you. And let me start with the question on the RAB in Sweden. As you know, the regulatory system in Sweden is a real rate regime. And that means that the regulated asset base is being inflated annually based on a construction price index and what you essentially see in the numbers that you have mentioned is both the effects of organic investments, and on top the indexation change in a real rate environment.

When it comes to OpEx, for us, it's not so much about, is it not 13? Is it 10? Is it 15? This is part of the delivery mindset that Leo has mentioned for us is all about productivity. So we manage is that our cost base manages meaningfully under proportionately than our asset base growth. That's the ultimate target.

And digitalization is one of the key levers to that. But of course, if you look at the magnitude of the program which is out there, it's just impossible to do this just with digitalization. It's impossible. And so we will be adding these people. And yes, we will constantly be looking at opportunities over time, and this includes then also the regulatory period from '20 onwards, how at any given point in time, we can become more efficient to further outperform against our benchmark cost base.

[Leonhard Birnbaum, executive]

But if I may. So all we are seeing is already in the plan. The OpEx performance should remain broadly constant, and whatever we are hiring should be somehow be offset by the efficiencies inflation production mechanisms.

[Bartlomiej Kubicki, analyst]

Okay. And on the WACC thing in Sweden, shall we expect an automatic increase in EBITDA in '24 because of the WACC increase? Or there are some offsetting factors, which are...

[Marc Spieker, executive]

No, there is -- yes, sorry, you asked that. There is no automatism, so it is on to each individual deals or to set the tariffs essentially at their discretion. And with that it doesn't follow kind of an industry-wide and regulatory-induced tariff cap, it's a specific decision.

[Iris Eveleigh, executive]

Next question comes from Deepa.

[Deepa Venkateswaran, analyst]

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, executive]

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, analyst]

I just wanted to know if you could be explicit about your ROCE expectations for networks.

[Marc Spieker, executive]

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, executive]

The next question comes from Piotr from Citi. .

[Piotr Dzieciolowski, analyst]

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 EUR 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, executive]

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, executive]

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, executive]

So we move on to the next question from Ahmed from Jefferies.

[Ahmed Farman, analyst]

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, executive]

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, executive]

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, EUR 4 billion to EUR 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, executive]

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, analyst]

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, executive]

So that's a question whether I should spin you off.

[Marc Spieker, executive]

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.

[Leonhard Birnbaum, executive]

But I would also argue maybe Rob, becomes a little bit philosophical now. The peak of unbundling somehow is over. And it's like if you look at it, where is the smart meter? Is it networks? Or is it customer business? Where is the wallbox? The wallbox is clearly a customer solution, but in reality, will be monetized by flexibility provides to the grid, where are flexible tariffs.

You look at the U.K., where we have now IDNO, we have competitive business on the last mile, yes. So some of the customer solutions business creeping into the network business. So I'm not a friend of these simple categories, we have AOB. I think we have an evolvement and in the future integrated world being so much decentralized, being so much more complex, I'm wondering whether the most efficient system is really the one that we slice a complicated, interconnected, decentralized system into 25 different roles, which optimize themselves individually.

So I actually feel that indeed, we are not only happy with the setup. The setup also makes sense for our customers.

[Iris Eveleigh, executive]

Thank you very much. Thanks, Leo. Thanks, Marc. Thanks, everyone, for joining the call. If there's anything, and you still would like to ask us. The IR team is around to take your questions or to go a bit into certain aspects in a more depth. Thank you very much and talk to you hopefully soon. With that, we close the call.

[Leonhard Birnbaum, executive]

Thank you.