E.ON SE (EOAN) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the webcast of E.ON SE. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Martina Burger, who will lead you through this conference. Please go ahead.

Thank you. Dear analysts and investors, welcome to our H1 results presentation. Thank you for joining via telephone or webcast. Today, I'm here with our CEO, Leo, and our CFO, Marc. Verena can't join today in person as she is enjoying an extended summer break after the birth of her second child. She will be back with us in September. Leo will guide you through the highlights of the first half of 2021, while Marc will give you an update on our financial performance and the outlook for the remainder of the year. As usual, we will only highlight the main messages to leave enough room for your questions. With that, over to you, Leo.

Thank you, Martina, and good morning and a warm welcome also from my side. Since my last conference call back in March, I passed already my first 100 days, actually a little bit more, in the office, and I can truly say that I took over a great company with great people. And I can say that not only because we have again delivered an operationally very strong quarter, but, on top, we have marked a huge challenge due to the floods in our German grid areas, and I will elaborate a little bit on that in a second. Actually, all of our businesses performed well in the second quarter based upon excellent operations, and the remaining impact from the pandemic is in line with our expectations. And we are well progressing on the synergy delivery in the first half of 2021. On top, we are now including the already communicated effects from the adoption of the legal settlement of the nuclear production rights issue. We do not only see the majority of the financial impact in the sharp increase of our year-over-year development of EBIT and adjusted net income in the H1 figures, but we also adjust the 2021 full year outlook today. The total EUR 600 million EBIT impact brings our 2021 target now into the range of EUR 4.4 billion to EUR 4.6 billion. And we upgrade also our outlook on adjusted net income, respectively, and now target for a range of 2.4 to 2.4 -- EUR 2.2 billion to EUR 2.4 billion. And Marc will elaborate on this topic later, and he will also explain how this translates into our midterm outlook, which is basically now changed by this technical effect. With that, our midterm delivery plan, the synergy target of EUR 780 million by 2024 and our dividend commitment will not change. But now before moving to my standard topics, let me draw your attention on a very important topic on the next page. And normally, we do not include any pictures in Capital Market Update calls, but this time we do. You all have, and we do -- you have all -- we have all heard and you've all seen how in mid-July a large part of Western Germany in the Rhineland and other European countries have been hit hard by heavy rainfalls that resulted actually in catastrophic floods. In Germany, many cities and villages have been destroyed and 180 people actually lost their lives. I traveled personally to the affected areas, and I can only tell you that the TV pictures don't do the situation any justice. It's actually really shocking if you are on the ground. The water had obviously also destroyed gas and power lines, converted substations and other important energy infrastructure operated and owned mainly by one of our DSOs. We had around 200,000 people without access to energy in peak times. The reaction, however, was very strong. In overnight measures, we have mobilized more than 1,000 colleagues and a lot of devices across all our German entities, who have all provided immediate aid in the affected areas. Our experience with weather events, our excellent operations and our widespread reach across Germany proved to be a strength in crisis management. And let me take this opportunity, despite this being an investor call, again, to thank all my employees, who did such a stellar job and really went to the limit of what was possible. We have by now basically reconnected all customers somehow to the energy infrastructure with a few exceptions. But why is this maybe also important for you? Well, obviously, first, because it just shows again that access to energy matters and one values more what one doesn't have. And so this is, again, what we have seen in the crisis. Infrastructure is now really valued, and this event is a clear signal also that E.ON is investing into important things that matter, and resilient and sustainable infrastructure is more important than ever. And obviously, it also shows that we are a good operator for such infrastructure with the skills to actually run them in a benchmark way. And that brings me now straight to my strategic focus areas on the next page. When I first announced my top priorities, I focused on 3 themes that will have the biggest impact on the future of our company, i.e., sustainability, digitalization and growth. And today, I can share that we are progressing on all 3 items. First, sustainability. Our sustainability footprint is continuously improving. We put a special focus on biodiversity next to climate action. We've decided to manage our grid corridors in an ecological way and will turn around 70,000 hectares along our 13,000 kilometers of high-voltage power lines into valuable biotopes and habitats. The affected area is equal to the size of more than 100,000 soccer fields. So it's -- that's the target which we gave ourselves: 100,000 soccer fields with biodiversity. Also, E.ON became a partner of the United Nations Environmental Program, UNEP, which has proclaimed the Decade of Ecosystem Restoration. We have developed an online platform as part of this partnership with UNEP that gives the UN decade a digital home. On this platform, initiatives from all over the world can present their projects, networks and gain supporters for the protection and restoration of ecosystems. Being a partner of UNEP fills us with pride, but, at the same time, it's also an obligation to consistently implement sustainability in everything we do ourselves. Second, digitalization. It's about to become the inherent DNA of our business, and we are creating a digital-first mindset throughout the complete organization. And together with partners, we are delivering on our digital road map, which we have defined in more detail, with focusing on cloudification. And the aim is to make IT processes more flexible to increase the operational efficiency and to accelerate the development of new solutions and services for customers and employees. Also within the businesses, we are constantly delivering with the help of digitalization. We have accelerated our migration, which brings us now to 9.5 million accounts that are operated by our new sales platforms in the U.K. and Germany, and this will help us to achieve our ambitious targets within the Customer Solutions segment. Third, we see a strong political momentum which translates into future growth options for E.ON. In July, the European Commission released a plan to accelerate the energy transition within the EU. The Fit for 55 program is fully in line with our growth ambitions that puts our customer-centric energy infrastructure right in the center of its aspirations. Our activities are fully aligned with the focus areas of the Fit for 55: high ambitions on renewables, green hydrogen targets, energy efficiency, charging infrastructure, simplification of permitting procedures, et cetera, only to name a few of the 13 themes announced by the EU Commission. Let me just briefly elaborate on one of these areas in more detail, green hydrogen. I'm utterly convinced that green hydrogen will become the second pillar of decarbonization, especially with the shorter time frame to achieve 100% climate neutrality by 2045. And I'm also convinced that hydrogen will be relevant much quicker than previously anticipated for the decarbonization of traditional industries, but also for midsized companies and for the e transition. Therefore, E.ON, as an operator of gas assets and with a long-lasting history in the solution business, can play a decisive role to make this happen. And this is why I've joined the CEO Alliance for Europe's Recovery Reform and Resilience, to take responsibility across sector lines to support the European Green Deal. So more to come for E.ON. And this is, for me, the conclusion next to the delivery amongst all our operational priorities we are making excellent progress at our strategic review. I'm really looking forward to present the outcome of it to you on November 23. Now let's leave the future and return into the present, and let me point all your focus again to the existing business. As many of you have noticed, the German regulator, the Bundesnetzagentur, in short the BNetzA, has published an initial proposal and started its consultation on the return on equity for the fourth regulatory period. The value that BNetzA has announced, based on the conducted expert opinion, is a minimum return on equity of 4.59% pretax, which is a decline of more than 2 percentage points compared to the return of the current period of 6.91%, a quite heavy reduction that will take the return on equity to a noncompetitive level in comparison to international regulatory systems. Especially when comparing the BNetzA numbers to similar decisions that were taken by other national regulators lately like in France or the U.K., the proposal must be considered very low and, more precisely, significantly too low. As expected, the risk-free rate, the 10-year average of the German yield, has been significantly reduced. At the same time, the market risk premium and the risk factor beta has been marginally reduced as well, which, according to the latest economic research, makes no sense. From our point of view, the market risk premium has been set way too low. It should be set at a minimum of at least the average of European energy regulation. For Germany, a market risk premium of 6.5% to 7.5% has been calculated by ValueTrust on behalf of BDEW, which is a value that seems more appropriate. I can also point out a positive development in that context. The consultation documents that were published by the BNetzA do not propose a fixed actual value but a minimum value, including some room for improvement that actually mentioned a range of 25 basis points. But let me be crystal clear, 0.59% with or without additional 25 basis points, is unacceptably low. A return at that level is not at all sufficient to support the investments that are urgently needed to support the energy transition in Germany. And at this point, I still trust in the BNetzA that they will determine an appropriate level to support the energy transition, which is of the highest priority for German society. Let me point out also the process for the consultation will be held in written form only and is closing on the 25th of August. Consultation is public. That means any interested party, including investors and research analysts, can and should participate to send their opinion on the proposed value to BNetzA. In 2 of the last 3 regulatory periods, the proposed number has been considerably increased after the consultation. That's why I'm still rather optimistic for the outcome. We expect the final determination to be published by BNetzA most likely in October. So let's leave Energy Networks here, and let me now turn to the solution activities on the next page. We actually often talk in detail about our commodity retail portfolio. Therefore, today, I will share more details about our noncommodity business as a teaser for our Capital Market Day later in the year. Let me start with our Energy Infrastructure Solutions business. Across our markets, we are targeting to invest around EUR 500 million this year. On top of completion of our large growth initiatives, such as Högbytorp in Sweden, we will execute on small and midsized [ heat-sensitive ] energy solution projects mainly in Germany, Sweden and the U.K. to deliver on our ambitious targets. All of this will translate to a strong earnings target north of EUR 200 million in '21, which represents a 40% year-over-year increase. Post '21, we target a growth of around 15% per annum until 2023. Next, to our infrastructure-like solutions, EIS, Marc highlighted in the Q1 presentation how our Future Energy Home business is gaining momentum. As a reminder, this business is included -- is including all of our residential energy solutions in the area of home heating and home energy management, PV and storage and, on top, our eMobility activities. Revenues have surged by 30, 3-0 percent, compared to the first half of 2020. Also on the earnings side, the increasing demand for sustainable solutions is bearing fruit, and we have recorded a surplus of around EUR 30 million on EBIT level in the first half compared to the first half of 2020. In absolute terms, the earnings contribution might still look low, but it's actually very positive for a strongly growing business to show positive momentum at all and at positive territory. We have clearly entered a route now that is currently pointing only to one direction, further growth. So much for that, and now Marc will present the financial highlights of the period. Marc, over to you.

Thank you, Leo, and good morning, everyone, also from my side. Before elaborating on the continuously strong business performance of the first half of this year, let me make one introductory remark. Legislative proposal on the use of nuclear production rights was approved by the German Bundesrat end of June. It is now adopted by all necessary legislative bodies. Therefore, we are able to book the majority of the positive earnings contribution already in Q2. For the first 6 months, EBIT came in at roughly EUR 3.2 billion, which is an increase of 45% or EUR 1 billion compared to the same period last year. Looking at the segments. Earnings in Energy Networks are up by approximately EUR 130 million compared to the first half last year on the back of positive weather effects and the nonrecurrence of negative effects from the pandemic. Customer Solutions earnings momentum was strong with an increase of almost EUR 360 million year-on-year, which is an increase in EBIT of almost 80, 8-0 percent, compared to last year. The U.K. sales business benefited from the ongoing migration of our customers onto the new platform. With an EBIT of EUR 163 million in the first half, we are already higher than our target of above GBP 100 million for the full year. Be reminded that especially in the U.K., the seasonality is usually very pronounced towards the first half of the year. Half year earnings of our Non-Core Business are largely driven by earnings effect of roughly EUR 500 million from the already mentioned approval of the legislation on the nuclear production rights. Let us have a brief look what the earnings development means for our bottom line. Our adjusted net income came in at roughly EUR 1.8 billion for the first half of 2021, up 86% versus 2020. In addition to the increase in our operating results, we are seeing positive effects in the economic interest line and a lower tax rate, 23%. Let me now turn to the development of our economic net debt. Compared to Q1 2021, economic net debt is largely unchanged despite the ongoing high level of investments and dividend payments of EUR 1.5 billion in the second quarter. As anticipated, the operating cash flow rebounded in Q2 after a seasonally weak first quarter. The cash conversion rate has now reached 49%, and we will see further strong improvements for the remainder of the year. Be reminded, we guide for an average cash conversion rate for 2021 until 2023 of 100%. Our outlook on this remains unchanged. Back to our first half performance, assuming interest levels to be at the level by year-end, we are confident to achieve the upper end of our debt factor target of between 4.8 and 5.2x. Finally, before elaborating on the outlook for the group, let me now turn to the impact of the settlement of the nuclear production rights. As alluded to earlier, the German Bundesrat has approved the legislation in June. The resulting earnings impact of EUR 600 million covers both the impact of the nuclear production rights granted for free and the compensation for frustrated investments. Consequently, we upgrade our full year guidance for Non-Core. The impact on EBITDA level of EUR 400 million leads to a new guidance range of EUR 1.2 billion to EUR 1.4 billion. The impact on EBIT level of EUR 600 million leads to a new guidance range of EUR 0.8 billion to EUR 1 billion. The adoption of the law in Q2 has been fully in line with our expectations. The way how we treat it in our guidance is outlined with our full year results disclosure already. So what does that mean for our guidance on group level? We now expect group EBITDA between EUR 7.6 billion to EUR 7.8 billion and group EBIT between EUR 4.4 billion and EUR 4.6 billion. After taxes, the effect translates into an increase of the adjusted net income line of roughly EUR 500 million. Consequently, the new corridor is updated to EUR 2.2 billion to 2.4 billion. When the outlook for 2021 is updated, there is no effect on our midterm earnings. Consequently, we have not adjusted our financial framework to reflect that we will operationally deliver what we have promised so far. We plan to properly update our financial framework in November with the Capital Market Day. So today, full confirmation of all our midterm commitments. This also includes the synergy target of EUR 780 million by 2024 and our dividend commitment of an annual dividend per share growth of up to 5%. That's all from my side today. Thank you very much for your attention, and back to Martina for Q&A.

Thank you, Marc. Let's start the Q&A session now. [Operator Instructions] Over to the operator for some instructions on the Q&A session.

[Operator Instructions]

The first question on the line is from Alberto from Goldman Sachs.

It's Alberto Gandolfi from Goldman Sachs. I'll stick to the 2 questions and -- plus an observation. I'm prompted. You should forgive me. The first question is about the Fit for 55 goals. It seems to me that with the electrification of mobility and real estate that Europe is targeting already by 2030, we will probably need a different type of power distribution grid in Europe, which is like 60% of your business. So I was wondering if you can maybe elaborate with us how the network is going to look like and if your 5% annual RAB growth in the medium term you presented in the previous slides presents some upside risk. The second question is on digitalization, using, I think, Leo's words, becoming part of E.ON's DNA now. You're a few months into it. You have already been migrating customers onto one platform in the U.K. You are doing that in Germany. Can you maybe share with us some of the early learnings regarding to cost savings from it? So what's the return on this investment? Are you actually making money out of it? Can we see more to come? I appreciate you'll probably elaborate that at the CMD but just to see some early findings. My observation, which is not a question, so I'm sticking to the 2 rule, I mean, your second half implied EBIT seems to be EUR 1.3 billion, EUR 1.5 billion, if I'm not mistaken. Last year in COVID, you did EUR 1.6 billion. So it sounds to me incredibly conservative. Again, that's just observation, does not require a reply but thank you for your patience.

Alberto, I'll take the question. I struggle a little bit with my voice. I hope you can hear it. My vocal cords have been under stress by, I think, Teams conference 1,005. But eventually, electrification. I think it -- obviously, if you ask how the network will look like in 2030, we could go into details and I could tell fantastic stories until the end of this conference. But the net effect is it will gain dramatically in importance because there will be so much more load on it. eMobility will probably penetrate faster than anticipated a few years ago. Sector convergence towards industry is going to move faster with the Fit for 55 and the increased targets from -- for industry. We will see further penetration of renewables probably in an even more aggressive way. We will have significantly more decentral assets that need to be steered, and we will have higher volatility and less redundancy in the system. So -- which requires us not only to have a much stronger system, one that actually is much more resilient. We will require a much smarter system that allows us to understand the status of the system at any point in time also on a very local level and which allows us to influence the status of the system on a very local level at any point in time. So we need to invest more into aluminum, but we need to invest also more into silicon, so to say, and make the grid significantly smarter. In that sense, actually, if anything, I see more investment opportunities. And that is even without an increase on customer connections like data centers, battery production, et cetera, which I didn't even touch. So the electrification will actually support our business, and the Fit for 55 is a strong push towards electrification, and I might remind you that also, hydrogen, in the end, in the form of indirect electrification. So that's a positive. Now on your second question regarding digitalization, I would like to correct, we are not a few months into it, we're actually into it already for a longer period of time. But obviously, we have a special focus on it right now in the context of strategy. I would like to probably defer your question to the Capital Market Day in which we would also kind of like show how we want to actually digitize. But maybe only 3 learnings. You need to understand where you really want to go to. That's one item. The second one is not about technical project, it's about enabling [ feasibility ] to the projects. And the third one is actually, you will need to change your structure, processes and systems if you really want to digitize. You can't just digitize in the setup as it stands today. So much for that.

So we can go to the next question from Vincent from JPMorgan.

Yes. So I see the question regarding investment on energy transition side and opportunity already been touched upon. So I'll ask a question related to comment you made before on the rate of returns in the current review being too low. There is need for more investments. I have difficulties and I struggle to understand that, so I'd like to get a bit your color there. My view would have been you have a return on the existing assets, and that has to be a fair return for all. And if there is a need for new investments, an incentive has to be put in place. And the financing of it is up to the company, which can make disposals, capital increase or else. So could you explain the specific element? Because it's not the first time that I think it was raised as well at the full year result. I may be missing something here. I'd be interested in this point. And the second question is we've seen the U.K. government plan to introduce opt-in switching on the U.K. retail market for 2024. Do you expect to lose customers in the medium term? Or does your recent restructuring mean actually you can keep numbers stable and then grow customers? So I believe E.ON is well positioned on a relative point of view versus peers, thanks to the work you've been doing on digitalization. But what does that mean relative -- on margin in absolute? Probably still some pressure there. Could you give us some color on that? It would be very appreciated.

This Marc here. Let me take all your questions one by one. I'm not quite sure whether I got the point on the rate of return correctly, so just come back if you find that actually my answer was responding with your question. So first of all -- in the first place, it's not about funding. You brought up a lot of ideas now about funding. It's essentially about getting a proper return for capital which we then dedicate for 25-plus years. And that is a discussion which we're having with the regulator, that when you commit your capital for such a long time, plus when you have storms plus ice snow and so on, again and again show that this is not a risk-free business. It requires a high competency in maintaining, managing and also troubleshooting in times of crises and that this is more than just a financial investment. That is a discussion which we're having with the German regulator there. We have a very clear position that and we -- I've laid out that the 4.6% are actually ignorant of all those things which I've just mentioned. And within -- the proposal on paper now even suggesting a further slight reduction in the market risk premium, let's say, is irresponsible and completely misses actually everything, theory and the empirical evidence. So expect us to stand up in the current consultation period and to make our point that the 4.6% are not satisfactory.

If I may just add one point. Just to underline what you just said, also the municipalities which are owned by the respective cities actually have exactly the same point. And clearly, they have -- they don't partly rely on capital markets, they rely on commonality to actually finance themselves. So it's clear this is, for the whole industry, an issue. Every player in Germany is actually supporting our point. We are not alone because we are the capital market-based network player. All network players actually support it. So on the U.K. government proposal for '24, actually, Vincent, it's -- I can't give -- I don't have a crystal ball. I can't give you the exact answer. But what I'm absolutely confident about and that I'm actually partly just echoing what you yourself said, that we are very well positioned. And so the challenge in the U.K. is not to rest on any achievement. We will continue, and you can expect us to continue to work on improvements in our U.K. setup during the future years. And that will mean that our ambition is to be in a pole position to whatever comes. And that's why we're not afraid of any change if that was to come also in the market setup or regulation. It is about how we relatively stand to the rest, and then we should be able to defend a decent margin.

Just to be sure I understood the last sentence you made, so the fact that you're relatively well positioned, and it's indeed the question, you -- potentially you could have an -- increase your number of customers under this more competitive environment. Is it a fair assumption?

Yes, that could be the case. But again, at '24, it's a long time span. And actually, when it comes to retail markets, we are not running 4, 5 years' projections as the market dynamics have proven to be much higher. So let's talk about that again when we come a bit closer to '24.

So the next question is from Lueder Schumacher from Societe Generale.

Just 2 questions on my side, no observations. You listed at the full year '21 guidance in line with the agreement on nuclear production rights, which means that you left the underlying outlook unchanged. Now that's despite the high double-digit euro million impact from the floods. So should we really look at this as an upgrade to the underlying guidance? And the second question is really on -- about -- what's your view on the quite extraordinary wholesale price environment for power and gas prices that we are currently seeing? Is that a danger for supply margins in the future? Or could this actually be beneficial for the Customer Solutions business as presumably the competitive pressure should get less? And so related to this as well, any comment on churn rates would be quite interesting.

Marc? So maybe I'll take the second question. I'll start with this. Actually, your question has already given the answer. It can go both ways, yes, because on the one side, it clearly increased pressure or can increase pressure because if gas prices go up in absolute term, then it might have an impact on churn rates. On the other side, especially smaller market entrants traditionally have hedged shorter. And they might actually get under pressure, so you might also see a certain consolidation of the pressure, which would move exactly in the other direction. We have to observe carefully how this actually plays out, but I would be careful to give a prediction at this point in time. And maybe it's actually also different market by market. But again, this just underscores also the point that Marc already made. You just need to make sure that in relative terms, you are ahead of your competition. And Marc, you maybe take the first question.

Yes, Lueder, I start on the '21 guidance. Indeed, yes, our ambition clearly is that the impact from the flood in Germany will have to be digested in our given guidance range. In that sense, you could say that the ambition level has increased, yes? But on the other side, I think what our investors should take note of, obviously, if something like that happens, that we set naturally an ambition that we are able to digest that and do not -- now adjust like-for-like for any impact which happens of that kind for our guidance, yes? With regard to the second half, it's now kind of a second observation, and I guess we will then quickly get a third observation and eventually a question actually. So be reminded that if you look at the dynamics this year, we have seen a lot of the recovery in the first half of this year. That is both due to the normalizing weather conditions, which have impacted negatively last year quite dramatically in the first half, and also to the COVID impact, which was very much standard around also the first half. And so this recovery is actually now done, yes? On the other side, keep in mind, and I guess a lot of you are aware of this, the seasonality in our Customer Solutions business is that the buy part of operating earnings is actually produced in the first half. If you look back our records for years, that this has been pretty much the case in every individual year. And also, don't forget, when it comes to our Non-Core Business, that actually, we are now getting ready and preparing also to phase out nuclear, yes? And this means that a number of activities now need to be adjusted, and that will have -- also impact on our margins in the nuclear business. It is not just turning the button and switch the plant off, it requires a well-managed preparatory phase. And that actually starts in the second half, and that will also be weighing on the margins in our nuclear business. So just those points to keep in mind, that the second half is not just an easy walk, it is a carefully calibrated guidance. And from today's point of view, we are confident to stay in that range.

Thank you. So I can hand over to Sam Arie from UBS for the next question.

Lots of positive messages today. Two questions from me on costs and then on gas. On the cost side, it seems like the integration synergies are delivering very well. It's great to see you reconfirm the midterm target there. But can I ask, when you sort of look around at the business, do you think there is a lot of potential for further synergies or cost savings? Marc, I think you said in the past that the business is already pretty close to the efficiency frontier, which sort of suggests there's maybe not much more to go after, but I'm just wondering if there's any further development in your thinking on the potential for cost savings and efficiency. And then my question -- second question on the gas side. I mean in recent weeks, we've seen SSE and NG with stake sales on the gas networks. We've got National Grid now obviously planning a gas disposal next year. And it's interesting because all of the companies talk about the importance of green gas and the gas networks in the future as you do and hydrogen and so on, but they're still divesting. So I just wonder if you could give us an update on your thoughts on the gas network there and whether we think of them as a sort of long-term core part of the portfolio.

Yes. So Sam, I'll take the question first. Yes, indeed, in the -- on the cost synergies and efficiency potential, yes, we are progressing quite well and to our satisfaction. Now do I see further potential? I will not give you a number now, but I will just make a general comment. I just said that we are looking at a decade of growth which we need to deliver to actually enable the energy transition. I think part of our aspiration needs to be that we make increasing cost efficiency and cost reduction a standout repertoire of our business rather than something that we drive through programs with one top line number. So rather than giving you now another triple-digit million number, as you have in your mind already, I would rather like to come to the point that a certain efficiency reduction of x percent per year becomes the new normal at E.ON. So that may be something, and we'll certainly come back to that point. But we don't have now fixed numbers that I would share at this point in time with you. Second, and when it comes to gas, indeed we are looking with high interest at all the developments there. I think there's a differentiation when you look at gas assets between TSOs' assets and DSOs' assets and then also BSO assets, which are kind of like combined with local heat supply, district heating supply. But in any case, we see an upside for -- we see both -- again, it's a bit similar to the supply side, the question on the supply side that Lueder just asked. We see an upside from the green gas development, and we see a downside from the -- we call it Fit for 55 carbon, the next coal -- gas, the next carbon -- the next coal discussion, so to say. And we are looking at that. But I think it's -- actually, one of the questions that eventually we will need to answer not only at companies but probably as an EU -- on an EU level, how we want to think about those assets because that will be essential for how we will drive the energy transition over the next 2 decades and what role actually hydrogen gas will play in that. So again, a topic -- a good topic to us, but not one where you would get something that you can plug into models today.

Thank you, Sam. So the next question is from Rob from Morgan Stanley.

Rob Pulleyn from Morgan Stanley. May I ask, just back on the regulatory review, given your comments on the proposed minimum ROE and taking your point it is a minimum, if the value creation opportunity between this return and your cost of capital is not sufficient, and then, just hypothetically speaking, if the ROE does not improve by more than the 25 basis points you indicated, then how much would RAB growth be scaled back in that outcome? And the second one, if I can sort of change tack a little bit to something that hasn't been asked, is regarding this very exciting run-in for the German elections where the polls are moving around quite a bit. Could you help us understand that -- the spectrum of outcomes that is possible for E.ON on the outcome of this election? And I think maybe speaking generically about what could happen rather than assigning policies to various coalition options.

Rob, this is Marc here and let me take the first one. So the consultation process now just started. And I think there's no sense now in running hypothetical discussions about what happens. That's - I think we've made our point very clear. The 4.6% which you can derive would be far from satisfactory, and our focus now lies on making sure in the consultation process that our arguments and the argument actually, as Leo said earlier, of the whole industry in Germany but also of investors and other stakeholders who will be raising their voice in that process, that those arguments now will be laid out and heard. Be reminded that in the past, during those consultation periods, we have seen quite some market movements in the numbers as well. So that is our focus. Our focus is not now on speculating on what-if questions.

Now I take a question on the German election. I will put it this way. First, a utility needs to be able to work with any government. So if our business would be dependent on a certain outcome of an election, that should make you nervous. But actually, we think at E.ON that in principle we can work with any company -- with any coalition. Now when it comes down what are the likely coalitions, yes, then today -- like a few weeks ago, people would have told you, we could see a black green, a conservative green government. Now we're saying that's more unlikely now because the conservatives have lost somehow, so it's more a liberal conservative green. I would argue that is -- basically, when it comes to energy, that's more or less all acceptable for us. So the -- but maybe the only item that is clear is it looks more likely than not that in any case, a green party will be part of a coalition, that's number one, which will then actually -- which could present an upside. For example, if we really think about the permit procedures, like the greens could be the ones that could most radically change that because in the opposition, they would always need to most fiercely oppose it. So maybe there's an opportunity in that. And then it looks more likely than not then the conservatives will be leading the new coalition despite a movement in the number. So personally, I'm looking forward to see what the outcome will really be. Still some days to go and right now the time is so hostile, so heated, that I would refrain from making detailed predictions. But any coalition that we can see as likely at this point in time would be an acceptable coalition for Germany anyway because it's an elected one but also for E.ON.