EnBW Energie Baden-Württemberg AG ($EBK)

Ladies and gentlemen, welcome to the EnBW Investors and Analyst Conference on the First Quarter of 2026. I'm Viki, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Lenka Zikmundova, Head of Investor Relations. Please go ahead.

Thank you, Vicki, and good morning, ladies and gentlemen. Thank you for joining us for EnBW's investor and analyst conference call on the first quarter of fiscal year 2026. As usual, our Deputy CEO and CFO, Thomas Kusterer, will guide you through the presentation. Afterwards, we will open the floor for questions. For those of you joining via webcast, please feel free to submit your questions at any time using the chat function. And with that, let me hand over to Thomas.

Thank you, Lenka, and good morning, everyone, from my side as well. Overall, EnBW had a solid start to fiscal year 2026. Earnings were resilient and operating execution remains strong. adjusted EBITDA amounted to EUR 1.2 billion, fully in line with our expectations, and we therefore confirm our earnings guidance for the full year 2026. A key strength of our performance continues to be the high quality and stability of EnBW's earnings base. Around 81% of earnings were generated from stable low-risk activities with grids once again forming the backbone of our results. This unpins the resilience of our integrated business model particularly in the current volatile market environment. We also made good progress on the financing side. In February, we successfully issued EUR 1 billion in green hybrid bond. transaction attracted high investor appetite, further secured a significant share of our funding needs for 2026 and increased our permanent hybrid capital to EUR 3.5 billion. Operationally, our flagship offshore wind project, is right, is progressing well and remains on track for completion. Today, 45 of 64 turbines have been installed. The majority of capacity secured through long-term PPAs, providing strong earnings visibility ahead of commercial operations this summer. In parallel, we reached another important milestone at our power generation side in Mavag. Construction has started on our first large-scale battery storage project at a site that already hosts our grid stabilization, gas power plant. The capacity of 100-megawatt hours, the project will further support system stability and the integration of renewable energy in Southern Germany. Commercial operation is planned for the end of 2026, building on our existing battery storage footprint. This marks the next step in expanding our activities. Today, EnBW already operates around storage assets with more than 100-megawatt hours of installed capacity. In addition, around 2 gigawatt hours of battery storage projects are already in our development pipeline. The next milestone is our 800-megawatt hours project in Philips Board, which leverages EnBW's existing infrastructure and the former generation site. Following FID, taken last December, we are targeting commissioning by the end of 2027. Finally, we also made good progress in E-Mobility. During the first quarter, we expanded our infrastructure by an additional 500 fast-charging points in Germany, taking the network to more than 8,500 fast charging points in total. Once again underlines the strong momentum in E-Mobility and supports continued growth in smart infrastructure for customers. And now back to the financials of the first quarter of 2026. as just mentioned, adjusted EBITDA was at EUR 1.2 billion of the first 3 months, which is in line with our expectations. The performance was once again anchored in our low-risk business which accounted for 81% of adjusted EBITDA, well above our long-term target of 70%. Overall, earnings developed as expected across all segments. System create infrastructure continued to provide a stable earnings before. Renewable energies were impacted by hydro conditions while wind and organic growth provided support. Thermal Generation and trading contributed less in line with our expectations. Smart infrastructure for customers delivered a solid performance, mainly from E-mobility. Let me now take you to the performance of our 3 business segments in more detail starting on Slide 4. Starting with system critical infrastructure, our largest segment in terms of earnings in the first quarter of fiscal year 2026, adjusted EBITDA amounted to EUR 667 million and remained broadly unchanged compared to the prior year. Building on the strong momentum of recent years, regulated fee revenues continued to grow, in particular in electricity and gas distribution. This reflects the continued expansion of our regulated asset base supported by substantial investments across accretive assets. This positive development was partly offset by higher personnel and maintenance costs, in line with our expanded operational activities of the business. In addition, we saw a temporary effect in electricity transmission, which we expect to reverse over the course of the year. Moving on to sustainable generation infrastructure on Slide 5. In sustained generation infrastructure, earnings were lower than last year and amounted to EUR 429 million of the first 3 months 2026. This development was mainly driven by weaker performance in Thermal Generation and Trading, as expected, while renewables were broadly close to prior year levels. Start with renewables. Here, adjusted EBITDA came in at EUR 275 million. Earnings were impacted by lower hydro levels across Germany. This was driven by below average order flows and declining spreads, particularly in run-off rework generation. These effects were partly offset by favorable wind conditions and additional earnings contribution from newly commissioned assets. Among them was the continued ramp-up of our offshore wind farm eerie, which contributed positively to the first quarter earnings. Turning to Thermal Generation and Trading. Adjusted EBITDA was lower year-on-year at EUR 154 million and in line with our expectations. This reflects, first, to hedge generation margins. In addition, available generation capacity was lower following our lignite acidian of 2025. Second, Earnings were impacted by weaker trading performance in a volatile global market environment. At the same time, this are for to put the current market volatility into perspective. Alongside our integrated setup, EnBW continues to benefit from the disciplined risk management processes established before ensuring the market dislocations of 2022. These frameworks are operating as intended. As a result, our hedging strategy once again delivered stability and visibility. Overall, margin movements were fully manageable highlighting EnBW's effective and risk mitigating policy that is EnBW is well positioned to absorb market volatility without any material impact. For the third fiscal year, our generation position are almost fully hedged. providing a high level of comfort for our earnings guidance. Looking ahead, hedge ratios stand at 70% to 90% for 2027 and between 20% and 50% for 2028. And we have already started hedging for 2029. In smart infrastructure for customers on Slide 6. Adjusted EBITDA increased by 19% year-over-year to EUR 143 million. This positive development was primarily driven by continued strong momentum in E-mobility. Higher charging volumes once again supported earnings, benefiting from our market-leading network of more than 8,500 fast charging points, its ongoing expansion and continuous EV adoption. In addition, retail activities benefited from higher gas sales volumes, reflecting the colder weather conditions in the first quarter in Continental Europe. Let me now turn to adjusted net profit and the reconciliation on Slide 7. Adjusted net profit attributable to EnBW's shareholders was at EUR 227 million of the first 3 months. In absolute terms, the year-over-year movement in adjusted net profit was in line with the development of adjusted EBITDA, also resulted in corresponding lower tax outflow. The adjusted financial results remain broadly stable year-on-year as offsetting interest rate effects balance each other. Finally, results attributable to noncontrolling interest reflects improved earnings performance of minority-owned entities. Moving on to Slide 8 with a brief look at our investments on the first quarter. For the first quarter 2026, our gross investments amounted to EUR 1.2 billion, around 21% below the prior year level. This development was fully in line with our expectation and reflects the composition at maturity of our project portfolio rather than any slowdown in execution. Investments are once again clearly focused on print expansion while outflows for renewables were known. This mainly reflects the well-advanced status of key projects as well as the selective exit from 2 U.K. offshore wind projects this January as they no longer met our strict risk return criteria. Overall, 87% of these gross investments were taxonomy aligned and 83% attributable to growth projects. Looking at the allocation by segment. system critical infrastructure accounted for 60% of gross investments in the first quarter. Here, we continue to invest at full speed in grid expansion and reinforcement in both transmission and distribution. Our lighthouse projects in electricity transmission are progressing according to construction of Sun, our major north-south DC transmission project is well underway. At the same time, Ultranet is almost completed on our side and remains on track for commercial operations by the end of this fiscal year. Around 30% of investments went into sustainable generation infrastructure spending mainly related to the construction of our offshore wind farm hydride and 22Red. The remaining investments were allocated to smart infrastructure for customers primarily for the continued expansion of our E-mobility chartering ever. Finally, and in line with the agreed payment schedule, we recorded higher inflows from cofinance contributions by our partners. These inflows mainly related to High right and our transmission grid operator transit BW and form an important element of our diversified funding strategy. With that, let's take a brief look at our retained cash flow on Slide 9. After the first 3 months, we take cash flow amounted to EUR 607 million and came in as anticipated for the first quarter. Compared to the prior year, retained cash flow was lower. This was mainly driven by the year-on-year decline in adjusted EBITDA which mechanically translated into a lower cash contribution. In addition, the first quarter included higher noncash items, primarily related to our gas storage businesses. These effects were driven by higher market prices and weigh on retained cash flow. Finally, declare dividends were slightly higher than in the prior year. And with that, let's move on to the development of net debt. As illustrated on Slide 10, net debt was at EUR 12.7 billion at the end of the first quarter. This is around 4% lower than at the end of financial year 2025, and therefore, broadly unchanged. Net debt remains stable as net cash investments were largely financed from retained cash flow. Additional net debt reducing factors included our 2 green hydrogen bonds issued at the beginning of the year with 50% classified as equity. Further support came from seasonal working capital effects and a slight reduction in pension-related net debt, driven by higher interest rates. That brings me to the last slide and our guidance for 2026. Ladies and gentlemen, as already mentioned in the beginning of the presentation, we are confirming our full year guidance for fiscal year 2026. Starting to the year provides a solid foundation for the remainder of the year. It gives us confidence in our outlook both at the segment level and for the group as a whole. The breadth of our well-balanced portfolio anchors EnBW in volatile times and support reliable performance in a geographically demanding environment. This leaves us well positioned for the year ahead. And now let me hand back to Lenka.

Thank you, Thomas. Ladies and gentlemen, we will now start with the Q&A session. Operator, please begin?

[Operator Instructions] At the moment, there are no questions from the telephone.

Thank you, Vicki. And we will start with the chat because we have received all the several questions. I will start with the first 1 from Andrew. Can you give a general update on trading conditions in Europe? And on gas trading with regards to PNG, do you expect a stronger result from trading in 2026 compared with 2025?

Andrew, thanks for the question. actually, I mean, the trading conti -- a quite volatile market environment, as you are probably aware, Gas trading was stronger in Q1 than expected. Electricity trading was below expectations. And in all fairness, it's quite difficult in this environment to make the right trading decisions. You can only hardly rely on fundamentals. It's more dependent on political decisions. So directionally, I would hope that we will see a good result in trading by the end of this year, but it's actually hard to tell in all sales.

We continue with the next 1 from Andrew on the guidance. In 2025, the last 3 quarters of the year achieved about EUR 3.7 billion of EBITDA with 1.16 billion of adjusted EBITDA in the first quarter, you need to achieve about EUR 3.7 billion of EBITDA over the remaining 9 months of 2026 in line with what you achieved in 2025. However, you talk about lower generation margins, reduced installed capacity and lower trading results in first quarter '26, so can you give more details on why you are confident in achieving your full year guidance?

Yes, absolutely, Andrew. I mean when we looking at normalized trading results and also normalized level conditions. On top of it, we do see a good performance in our e-mobility business above -- also well above prior year. We are getting more installed capacity in renewables into our portfolio, especially with the ramp-up of Harith. So overall, we are quite positive that we will be able actually to meet our guidance for full year '26.

So we'll go on with Michael Carson from Santander. You had 2 questions. Do you expect any material effect potentially coming from political moments to reimpose windfall taxes and to alter the EPS reflected in electricity prices.

Michael. Actually, I do not see any kind of risks regarding wind profit. When you look at the current market situation and the market price development over the last couple of months. It's not comparable to the situation we have seen back in 2022. As a quick reminder, in 2022, we had gas prices at the peak around EUR 340 per megawatt hour and currently, we are looking more like EUR 40 to EUR 50 per megawatt hour. And as a reminder, before the war in Iran started, the level was around, let's say, early 30s. So it's not comparable at all so we do not expect any kind of only to movement towards windfall profit.

And the second 1 goes to a similar direction. Can you confirm, please, that all your natural gas requirements are fully covered for '26 and is EnBW fully able to pass through costs to customers?

Yes, we are fully covered. Actually, we do not have any kind of exposure to the Middle East when it comes to LG sourcing most of our LG is actually procured from the U.S. and other countries. So no direct exposure when it comes to price developments, as I just said, fully hedged for 2026. And we do also not exactly for this year actually any impact from this development on our customer base, be the retail lower industry customers.

The next one, again from Andrew on the gas tenders in Germany. Can you update on the auction process for new hydrogen-ready gas plant in Germany? When do you now expect the auction to take place?

Yes, Andrew, we finally might be getting there. So we do expect the first auction beginning of September and the second, beginning of December. It looks like this is going to happen. However, cautious, I mean, as you are aware, we're waiting for these options now for 3 to 4 years already. But as it looks like it's September and December.

And now with Joshua from Incyte. Hisato several questions. The first one, given currently elevated one your base load power prices, are you locking in your remaining unhedged 2027 generation?

I mean we are monitoring market development, as you would expect, closely and continuously. And if we feel that we do have the right level, we also hedge forward to '27 but also actually '28, and we have already started our hedging for '29. So yes, we are looking at the current market prices and see if it's a level we feel comfortable for the next years to come.

The next 1 is also on the guidance. I can see that full year guidance has been maintained is there any color that can be shared on how Q2 is progressing and the benefit from higher power prices.

Yes. I mean, I think I kind of answered the question already, Andrew, I had a similar question. For the second quarter, I mean, we -- is progressing in line with what we would expect. We've already hedged our electricity capacity for the year 2026. However, of course, we do benefit to a certain extent from higher power prices and we are trying to look in but also, as mentioned before, given the volatile market environment and the dependency of power price development, commodity price developments related to political decisions and short-term decisions. It's hard to tell what it really means for our full year trading results. I would hope actually that it's going into the right direction.

The next 1 is on the rate regulation in Germany. Given the upcoming regulatory updates from the Federal Grid agency, can you clarify the expected timing of key decisions, any informal guidance or signals you are already receiving from the regulator?

Sure, no. I mean, in the regulator actually published the final drop of the next regulatory framework the back end of December last year. No big surprise in there. However, still a few unknowns, especially when it comes to cost of equity and cost of debt. And we do not expect actually to get any clarity before 2027 on at least quite decisive point.

Next 1 on the offshore. Can you update us on your participation strategy for upcoming offshore wind tenders, including where you see the most attractive opportunities and how you are positioning your bid pipeline?

I mean as you know, we already built 3 CTs as we speak, and we will potentially also participate in the next tenders. I mean we do have 1 CCGT in the permissioning process already, let's say, in calls through a larger CCGT of 850 megawatts. And we do have more sites that would be eligible and also potentially well placed for further tender processes -- sorry, ready -- so this was sorry, I was actually referring to the gas tender. So I will answer your question in addition to what I just said regarding the gas tenders. Yes, actually, we will potentially also participate in the offshore tender. However, very much dependent, obviously, on the framework, and we need to have more clarity on that. As of today, we do expect that we are looking at 2 sided CFDs, but that needs to be clarified first before we can really commit ourselves to participate in the standard processes. Sorry about that.

The next 1 is from Alexandra from BlackRock. will the higher OpEx and grids be covered through tariffs in the next year?

That's clear, yes, yes.

The next 1 was the low hydro levels across Germany expected and included in your guidance? And what do you invest in your guidance over the next few quarters?

Actually, it was not expected. It's lower than the normalized level we have seen for the last couple of years, and that is what we normally assume when we put our guidance. So the level was below what we had expected for the first quarter. And as I mentioned before, assuming that we are going to see normalized levels in hydro and also wind and solar for the rest of the year. we will see an increase again in earnings from hydro generation, especially runoff river.

I think I don't see any other questions in our chat. Just turning to Vicki to the operator to get some questions.

There are no questions from the telephone.

Okay. Then with that, we come to a close. And once again, thank you very much, Thomas, and everyone online. Thank you for the questions. As always, if you have any further questions, please do not hesitate to reach out to our IR team for more details or in depth discussion. All the been have a great rest of the day. Bye-bye.

Bye, and thanks, everyone.

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