E.ON SE ( OTCQX:ENAKF ) Q4 2015 Earnings Conference Call March 9, 2016 6:30 AM ET Operator Dear ladies and gentlemen, welcome to E.ON’s full-year results 2015. At our customer’s request this conference will be recorded. [Operator Instructions]. After the presentation there will be an opportunity to ask questions. [Operator Instructions]. May I now hand you over to Ms. Groth, who will lead you through this conference Please go ahead, Madam. Anke Groth Thank you very much. Dear analysts and investors, a warm welcome from my side to today’s call. Johannes Teyssen and Michael Sen are with me to guide you through the operational and financial achievements of 2015, and to give an outlook for 2016 before we start with Q&A. Johannes, over to you. Johannes Teyssen Yes, hello, ladies and gentlemen, the investors and analysts, welcome to our full-year 2015 conference call. A short word to an additional announcement of this morning. Our Chairman has, after eight years, and after five years of being the Chairman, announced that he wants to hand over the responsibility now to Mr. Kley, the present CEO of Merck. I think we all appreciate the dedicated service of Mr. Wenning. Mr. Wenning will also still lead the annual shareholders’ meeting, and thus with us, strive to complete our strategic repositioning and then for the new phase hand helm over to Mr. Kley. 2015 has been a year of some outstanding operational achievements in many businesses of our Group. It has also been a year of substantial progress in deleveraging our balance sheet. And, finally, it was a year in preparing the spin-off of Uniper as a prerequisite for a more focused and value-creating setup for E.ON. Unfortunately, it has also been a year which has seen a continuation and later even an acceleration of the very unfavorable price developments in many of the relevant commodity markets. Against this challenging backdrop, we achieved an EBITDA of €7.6 billion, which is at the upper end of our outlook range of €7 billion to €7.6 billion, announced in March last year. Versus prior year we had decline of roughly €800 million; this is mainly driven by negative price and volume effects within the power portfolio; lower oil and gas prices and the weak Russian ruble; as well as some meaningful disposal effects. Underlying net income ended up at €1.6 billion, which is on the same level than 2014, and just in the middle of our outlook range. In alignment with the Supervisory Board, we confirm today our commitment to propose a cash dividend of €0.50 per share for the fiscal year 2015. This represents a payout ratio of underlying net income of almost 60%. Looking ahead at 2016 in our market environment, we have not seen a very encouraging start into the year with now even record low power prices, further fall in gas prices and continuously weak ruble exchange rate. No company in our sector can avoid the realities of the depressed commodity markets. Therefore, we expect, for 2016, EBITDA to come out between €6 billion and €6.5 billion. The reduction compared for 2015 is lastly due to lower prices and volumes in conventional power, disposal and FX effects. We expect underlying net income to come out between €1.2 billion and €1.6 billion. Please be aware that this outlook today is on a pre-spin-off basis. Assuming a positive vote on the spin-off, a majority stake in Uniper, our AGM of June 8, and assuming that the spin-off will become effective in 2016, three points have to be taken into account. Firstly, our outlook will have to be adjusted, due to changed scope of future E.ON, and corresponding accounting effects results from the spin-off. Secondly, in such a case we expect our outlook to be significantly lower. Further details will be communicated along with the publication of the spin-off documents for the AGM. And thirdly, due to accounting effects, this does not allow any conclusions on the expected EBITDA and underlying net income for Uniper in 2016. Michael Sen will detail the results and the outlook in a moment. Before he does so, I would like to give you some remarks on the report of the Commission for the review of the findings in the nuclear phase-out in Germany, the so-called KFK. This special Commission is making progress in its deliberations, but has extended its work for a few weeks until April. It is, thus, premature to talk about a still-open final recommendation, but based on the first available draft of the final report, it is possible to give you some insight. But please be aware that this needs to be taken with caution, since it is subject to ongoing debates and to the final decision of our government and parliament in due course. The nuclear operator shall stay accountable for the operation and the dismantling of the plant. The government, however, shall become accountable for all storage-related issues. Thus, both sides would also have the economic chances and risks associated with the respective tasks. Obviously, the devil may be in the details, and some complex issues still need to be specified. We, as the operators, quite clearly have to deliver the initial financing also of the storage-related issues. The stress test as well as the audited accounts of the operators ought to be the base for such a settlement. Then there might be a debate on the adequate reflection of risk and especially changes that could arise from changes in the organizational, legal and technical setup of the overall nuclear waste processing and storage process. Again, as I said, some complex technical, legal and financial questions have to be sorted out, and there is no settlement proposal yet available. After these opening remarks I would like to, firstly, update you on the preparation of the spin-off of Uniper; secondly, and most importantly, discuss likely consequences of the adverse external environment for the setup and proper ambitions of Uniper, and correspondingly also for future E.ON; and finally highlights with achievements in future E.ON’s core businesses. Turning to chart 2, I’m totally aware that quite a number of analysts and investors regard the successful and timely creation of a very substantial new organization as Uniper and its carving out of the existing E.ON Group within 12 months is something almost self-evident. Let me once more assure you it was not. In the eyes of involved employees and advisors and banks, this task was one of the most complex exercises in the entire European industry. Nevertheless, since January 1, Uniper and E.ON are organizational legally separate entities. E.ON still owns 100% of Uniper, but Uniper now is a group within a group, and, thus, prepared for a spin-off to new owners. The delivery of the so-called day one in quality, in time and in budget, without hampering business continuity has been a major success. It has been built upon more than 4,200 operational, legal and financial milestones supported by various binding tax rulings, and numerous company valuation exercises. Especially when you bear in mind that we had to change the configuration of the carve-out structure quite significantly in the middle of the process, due to the nuclear intervention of the German Government, one can only applaud our teams for this achievement. I’ve said it before, but I’m proud to do it again. A big thank you to the E.ON and Uniper employees for their extraordinary dedication and extremely hard work to create two new and properly prepared companies. I move to chart 3. Let us move on to the familiar chart with the overall project timeline and the key milestones. After the successful carve-out, the focus has now shifted towards the preparation of the spin-off in a transaction sense. As you can see on the chart, we have now concrete dates for several very important milestones. On April 26, we intend to hold in London, a long-awaited Capital Market Day for Uniper. At this occasion, the top management team of Uniper will present its equity story for the first time. Also we, as a management team for future E.ON, will give a strategic and financial update. The AGM invitation and the publication of the spin-off report, are expected to take place at the same day as the Capital Market Day of Uniper. In late May, we intend to file the Uniper prospectus with the German financial regulator BaFin. The date for the AGM on June 8 is known since a long time and, assuming a positive vote from our shareholders, the listing continues to be expect for the second half of 2016. Thus, the overall schedule stays unchanged. The spin-off preparation remains on track today. Turning to chart 4. Some analysts have recently raised the question, which would impact a substantial negative development in the external environment that happened since our spin-off announcement back in late 2014 might have on the proposed transaction? Quite obviously, our sector has seen in the last 15 months since our announcement on December 1 2014, some of the most dramatic developments ever, especially in the commodity in Russia-exposed operations. However, the fundamental technology trends and customer behaviors have not changed, but have rather expedited towards a more decentralized and renewable setting. The energy systems and appliances are becoming more decentralized and digital. New applications like PV and battery are getting cheaper for customers. The climate change agenda became even more pronounced at Paris and renewables have overtaken all other kinds of energy investments, the biggest one on a global scale in 2015. Thus, the need, or at least the value of virtually integrated setup in our industry from central production to customer solutions, has become even less important in the last 15 months. On the back of these developments, we remain deeply convinced the strategic rationale to split our integrated E.ON Group and focus on the two different energy worlds, with two separate companies is only reinforced by the current environment. As an entity directly exposed to the capital markets, Uniper will be in a much better position to take the right management actions, compared to an entity that is part of an energy conglomerate. The same is true for future E.ON, that can now adjust its plans towards the promising operations and energy networks, renewable customer solutions. Some people might, however, argue that it would have been an unfortunate time to dispose of commodity businesses at the potential trough of a cycle. But, please bear in mind, we are not selling the Uniper businesses or assets through our proposed spin-off. We are just giving the majority of Uniper shares to our existing E.ON shareholders. These E.ON shareholders will, thus, have this very same financial exposure to the very same physical assets and the very same risks than before. What will have changed is that the shareholders will receive the possibility and the optionality to change their exposure to the Uniper assets, whilst staying an E.ON shareholder, or vice versa. We are, thus, only increasing the optionalities for our shareholders. It is, thus, not about disposing assets with unfortunate market timing. However, these additional advantages for our shareholders come at a certain price. Firstly, the carve-out comes at a cost. Here our assessment for these one-off transaction costs and initial de-synergies have not materially changed since our initial announcement in December 2014. A significant part of these costs have been spent already last year. Secondly, we mentioned it from time to time, but I would like to reiterate that the spin-off of Uniper is, to a certain extent, reducing the overall debt-bearing capacity from a credit rating perspective, compared to a going concern scenario. Nonetheless, we’re optimistic that this unavoidable negative shall be overcompensated by lesser complexity costs, higher focus and value creation. From an overall perspective, we thus continue to regard the spin-off of Uniper as the right enabler to fully and swiftly execute on our strategy. However, where we clearly see the necessity for substantial adjustments of expectations, due to the adverse environment, is in the setup and achievable ambitions of Uniper, and correspondingly also for us as future E.ON in the upcoming years. Let’s look at Uniper first. Some important core elements of our initial expectation remain unchanged. After finalization of the last legacy project, Datteln 4, Uniper has currently no plans for further major growth projects in generation going forward. For Uniper it is, thus, all about free cash flow generation at a time of deeply depressed commodity markets, in order to sustain the future and to allow for dividends. Still, free cash flow will be significantly reduced compared to market and own expectations 15 months ago. At the Capital Market Day on April 26, the Uniper management will share its ambitions, towards the new challenges, with you all. Also, for future E.ON there will be clear impacts. Based on potentially lower dividends and proceeds to come from Uniper, reduced cash flows from nuclear operations and the uncertainty surrounding nuclear commission, we will definitely challenge the ambitions defined 15 months ago. This is especially true for the top-line growth ambitions that were, back then, based on a very high level of expected investments. Furthermore, the increased pressure calls for an even stronger focus on financial discipline and proper capital allocation. Regarding future E.ON, I’d still like to clearly re-emphasize that, irrespective of the highest commodity price environment, our core businesses, around energy networks, renewables and customer solutions, are fully intact and continue to perform very well, even in these tough times. These operations are quite resilient, have a low-risk profile and withstand negative impacts from volatile markets. Let us put things straight. Almost all of the negative implications discussed, day in, in the market, would impact E.ON irrespective of the proposed spin-off, as they do to other competitors in our markets. The [indiscernible] thus, only the question, if and how we create value on top of these unfortunate developments. At the strategic and financial update on April 26 in London, we intend to present to you a framework, to position future E.ON for a good future in the very interest of our investors, customers and employees. Turn to chart 5. Let me end with a few top-level remarks concerning our operational achievements in the last year, and the outlook for our core businesses in 2016, because in these dramatically changing times, it is of great importance to not lose sight of E.ON’s significant strength. Let us start with an update on regulatory developments for energy networks. In 2015 we had regulatory review for networks in Sweden, the Czech Republic and Turkey. In all three countries we managed to achieve higher allowed revenues for the new regulatory periods, reflecting our strong operational performance and our investments. In the Czech Republic and in Turkey the regulators approved higher allowed returns, in order to give additional incentives for those investments. For the three countries we will enjoy several years of regulatory stability, as the regulatory period lasts three years in the Czech Republic, four years in Sweden, and even five years in Turkey. In our biggest network business in Germany, 2016 is a base year for the next regulatory period for power starting in 2019. Thus, also here we have quite some regulatory visibility for the coming years. This short overview shows you that our energy network businesses are in a very good shape. Same holds true for our renewables business, year 2015 has been the year of offshore wind. Following the successfully accomplished offshore wind projects, Amrumbank in the German seas, and Humber Gateway in the English seas, we are now number two worldwide in terms of delivered offshore capacity. We continue to build on the strong track record. End of January we started to install the first of 116 turbine foundations for the offshore wind project Rampion, which is located in the English Channel. We are further progressing with the Arkona offshore wind project, which is located in the German Baltic Sea, and will have a capacity of up to 385 megawatts. Overall, we will continue to invest, and to work hard to make renewables offshore, onshore and PV competitive, and therefore as attractive as possible for our investors, and as cost effective as possible for customers. This focus on the customer and its need is the key to succeed, especially in our customer solutions businesses. Thus, I would like to highlight to you some of our recent achievements in this area, with a special focus on the B2B customers. Roughly three years ago we established the unit E.ON Connecting Energy, which offers a range of innovative energy solutions tailored to commercial, industrial, and public sector customers. This company designs, finances, builds, and operates energy equipment and systems that allow these customers to reduce energy consumption, and their CO2 emissions. It takes a holistic approach to deliver an integrated solution that fits the customer’s energy needs, ranging from energy efficiency solutions; building energy management systems; remote control of assets and buildings; virtual power plants; to highly efficiently centralized solutions, such as CHPs or fuel cells. The last few months shows that this approach to become the partner of choice for integrated solutions, and B2B is going down well with the markets. We have recently achieved numerous commercial successes, with important customers, like Procter & Gamble, or BMW. Going forward, we’ll put even more energy into the development of our customer solutions activities, together with our current customers, but with many new ones too. With these remarks, and a look onto chart 6, I would like to come to the takeaways of my presentation. Firstly, amid the continuously deteriorating commodity market environment and adverse FX developments, 2015 was a year of some outstanding operational achievements in the core businesses, and in preparing the spin-off of Uniper. Secondly, we remain deeply convinced of our strategy and the spin-off of Uniper continues to be on track. Thirdly, the adverse environment has consequences for the setup and ambitions of Uniper and E.ON. And thus, finally, future E.ON will have an even stronger focus on financial discipline and proper capital allocation. Thank you for your attention and, Michael, now over to you. Michael Sen Yes, thank you Johannes. Good morning, or better probably good afternoon, everybody, also from me. This is Michael, and I’m delighted to go through the first set of full-year results with you today. To get us started and put matters into context, it is fair to say that 2015 has been a highly challenging, eventful, and also extremely busy year for E.ON. Challenging as commodity and power prices continue to be trending downward, depicted on page 8, coal, oil, and gas prices declined 60% since the beginning of 2014. Power prices across Europe dropped 40%; the devaluation of the Russian ruble is also not supportive. On top came the constant discussions around nuclear liabilities, and the publication of the stress test. We’ve been extremely busy with the ongoing preparation for our spin, as well as continuing to reshape and further focus our portfolio by closing several larger disposals. Yet, we have achieved what we have set out for ourselves. Even more importantly, E.ON delivered on what we have been promising to the markets for 2015. First, we confirmed the €0.50 dividend proposal that we already committed to at the beginning of the year. Second, we have comfortably met our guidance EBITDA of €7.6 billion was at the upper end of our guidance range, while underlying net income of €1.65 billion was slightly above the mid-point. Regarding the dividend, I would like to add that this year we will not be able, which will be liked by many of you, to offer the option of the scrip dividend. This is for technical reasons as we need to keep the number of shares constant during the spin-off process. These days in our industry, it is almost mission critical to work on the balance sheet to maneuver through the difficult times. Therefore, it has been important to be able to meaningfully reduce economic net debt by €5.7 billion, down to almost €28 billion. This is a reduction of almost 17% year over year. Consequently, our debt factor also declined to 3.7 from 4.0. One of the key drivers of this has been our strong operating cash flow, with cash conversion rising to 81%, from 76% in 2014. The other driver has been the continuous adjustment of our portfolio, we closed the disposal of our E&P activities in Norway. As you remember, our Italian and Spanish renewable and generation portfolio has been divested and we exited Spain altogether. Together with the proceeds of our build and sell program, we delivered €4.5 billion in economic net debt reduction over the levels in 2014, and thereby reducing our risk profile significantly. Net cost savings came in with €100 million in calendar-year 2015, in addition to the €400 million in 2014. Overall, the Company delivered a total of €1.4 billion net cost reduction between 2012 and 2015. Let me quickly run you through the core EBITDA developments in 2015, since we have various parts moving. EBITDA as expected came in at €7.6 billion, a contraction of €800 million over 2014, or 10%. The single biggest driver behind this decline was our power portfolio where EBITDA dropped by €700 million year over year. Prices accounted for significantly more than 50% of the decline, as the achieved outright power prices for Central Europe and Nordic declined by roughly €7 per megawatt hour, versus 2015. Lower volumes obviously played a decisive role within nuclear, mainly due to the shutdown of Grafenrheinfeld in Germany mid-2015, as well as lower volumes from Ringhals-2 in Sweden. Better hydro-generation in Sweden was not able to compensate for these effects. The second large and largest item weighing on EBITDA came from disposals with €500 million. This is mainly related to the disposal of our conventional and renewable generation in Spain and Italy. E&P Norway did not yet have an earnings effect in 2015, due to the closure late in Q4. Let’s move to E&P businesses performance. With an output of nearly 24 million mboe, we were slightly ahead of last year’s level of 22 million mboe, owing to a better production in our Njord and Elgin-Franklin field. Yet, predominantly the weak oil price impacting liquids as well as gas prices left their toll on E&P’s P&L, with a total negative of €200 million. Keep in mind that this does not relate to our North Sea activities only, but to some degree also to our Yuzhno field. The €200 million negative effect is in other, is a combination of obviously several factors. In terms of downside volatility, we have seen a €200 million decline from E.ON Russia, predominantly driven by the ruble weakness; €100 million decline in Group management resulting from costs associated with the spin-off; and a €200 million negative effect from the non-recurrence of disposal book gains in renewable. So this was largely offset by positive effects in nuclear generation Germany. On the one hand, this results from the omission of one-off charges we had in 2014. On the other hand, it results from the revaluation of nuclear provisions. This was driven by a further alignment of our net interest rate, along with industry standards in comparison with other nuclear operators in Germany. As you may recall, the so-called stress test disclosed an industry average of 1% net interest rate. E.ON, prior to the adjustment, used 0.7%. To be more in line with industry standard, we have now move to 0.9%, which is still more conservative than the German average, and substantially more conservative than our other European peers. Our regional unit Germany delivered strongly, particularly in Q4; for the full year being up €4 billion. It is important to understand that approximately 50% of this is attributable to positive related one-offs, i.e., releasing provisions; while the remainder was largely due to lower temperatures relative to 2014. The retail business delivered positively, based on our intense customer focus, yet we believe we have seen peak margins. The cost savings had a positive impact of €100 million on EBITDA. We have seen incremental earnings by adding new capacities, namely our offshore wind farms Amrumbank and Humber. Both showed a very strong isolated Q4, literally benefiting from a nice tailwind based on strong wind conditions. Together with the COD of Maasvlakte, and also Berezovskaya, all contributed a total €300 million positive effect. As you can see on page 11, the €8 billion contraction in EBITDA did not drop through to the bottom line. On the contrary, underlying net income was flat year over year, mainly due to depreciation coming down by almost €500 million, driven by our disposals, primarily on the back of our Spanish and Italian assets, as well as the disposal treatment of North Sea E&P as of Q4, calendar 2015. On top, the sizable impairment also led, obviously, to lower depreciation. Our FY15 tax rate was 28%, thus lower than the 34% guidance we gave with nine months. In nine months we expected impairments on tax assets in Q4 to drive up our tax ratio for the full year. As I already flagged during our Q3 call that this may change in terms of earnings segmentation, the effect was incurred in Q4, but then classified with a higher share than initially assumed as non-operational, simply because the nature of the impairment also is non-operational. This reduced the tax ratio on the underlying to 28% versus the 20 — 34% which we saw during the first nine months. Again, the revaluation of the tax assets occurred in relationship to the spin-off and its many moving parts. Thus, we see this volatility in the tax ratio also as a, if you so wish, special situation, which should stabilize again, going forward at a more normal level. Let me move to the items below the line, reconciling to net income ultimately attributable to shareholders. We already communicated to you at Q3, calendar 2015, that we would have to write-down a significant amount from our assets. The impairment we recorded for the full year came in at €8.8 billion, which net of write-offs was €8.4 billion, around the amount we had been flagging earlier. 70% of this stemmed from our generation assets; and 20% from our E&P assets. Obviously, we have also seen impairments in the preceding calendar year, and even further back in the years before that. This has continued to be an industry-wide phenomenon, caused by the continued slide of power and commodity prices. In essence, these reflect the structural changes happening in the energy industry in Europe, on the back of regulatory actions; lower fuel prices; and the challenging power market design for owners of thermal assets. All of these have evidently left their marks in our balance sheet, and subsequently on our equity. The cash conversion rate was up 500 basis points year over year. That means we have continued to harvest cash as much as possible. We’ve been converting 81% of book earnings into cash earnings, compared to 76% a year before. Operational cash flow came in at €6.1 billion, down only €0.3 billion vis-a-vis 2014, despite the €800 million decline in EBITDA. The main drivers were lower cash, tax, and interest payments. Also worth to consider is the fact that we’ve paid back additional €400 million to €500 million of fuel tax in January of this year; or last year, if you so wish. Adjusted for this, our operational cash flow would have been €6.5 billion, equivalent to a cash conversion rate of 86%. Net debt was cut by a nearly €6 billion, to approximately €28 billion. Consequently, our debt factor is down to 3.7 from 4.0 the year before. Page 14 runs you through the key items contributing to this. The operating cash flow of €6.1 billion was able to more than cover our CapEx budget in 2015 and the dividend payment. In addition, one of the key contributors was also disposal of slightly more than €4 billion Spanish and Italian assets, contributed the lion’s share of about 75%; and the remainder was largely coming from E&P Norway. Combined with the proceeds realized under our build and sell program, divestment proceeds amounted to €4.5 billion. Our pension provisions also declined in total by €1.4 billion. This was predominantly driven by the 70 basis points rise in interest rate in Germany over the end of 2014. Another aspect was the CTA funding of roughly €5 billion for Germany and the UK. The cash out for the CTA funding is included under the position, other. Beyond that, the other position comprises a list of smaller effects, such as, for example, changes in shareholder loans and several FX effects. Let me now summarize the key outlook assumptions for the individual decisions — divisions. Generation EBITDA should be significantly below prior year. Yes, we’re fully hedged in our outright position; however, at a lower achieved price level than 2015. You can see this in the hedge levels and prices in the back-up slides. The disposal of our generation assets in Spain and Italy, as well as the decommissioning of Grafenrheinfeld, also adds to this. In renewables we expect EBITDA to decline slightly. Falling power prices will weigh on our hydro margins; while disposals also have negative effect. This will not be entirely compensated by the commissioning of our new wind farms, Humber and Amrumbank, which came online in the second half of last year as part of our growth in renewables. In global commodities we expect a significant increase in EBITDA, as the gap between transfer prices and achieved prices should narrow significantly, and due to optimization of the gas business. In E&P the effect for the full disposal of our North Sea activities is the predominant driver for the decline. EBITDA from our participation in the Yuzhno gas field should also be lower, driven by lower BAFA prices. Regarding the remaining E&P business, which is Yuzhno, I would like to keep — I would like you to keep in mind that we have significantly lowered — at a significantly lower tax ratio, which means that the impact or volatility of any price or volume changes on the UNI is much higher. Germany. We expect EBITDA to be lower year over year, which is predominantly driven by the non-recurrence of the positive one-offs which occurred in 2015. Also, remember that 2016, as Johannes has outlined, is the reference year for electricity regulation in German grids, and therefore not exactly the year for cost savings. Also, keep in mind that we probably have seen peak margins in the retail business. We expect other EU segment to be above prior year’s level, driven by organic improvements; more seasonally-typical weather patterns; and, which has also been outlined, the start of new regulatory periods in Czech and Sweden, and especially for Sweden, if and when storm conditions follow a normal pattern. EBITDA in non-EU countries should decline, mainly because of our Russian unit. This is driven particularly by the continuous weakening of the ruble, and the outage of Berezovskaya. Page 16 shows our outlook for 2016. We expect EBITDA in a range of €6 billion to €6.5 billion; and the UNI at a range of €1.2 billion to €1.6 billion. Our outlook, and the expected EBITDA range, have to be put against the environment we operate in. Commodity and power prices continue to trend downwards since the beginning of the year. It remains to be seen if and when we would hit trough. Additionally, the weak ruble exchange rate is not supportive, either. The disposals from 2015 also have significant spillover effects on the EBITDA decline. Please be aware that this outlook is based on a going concern basis, i.e., for the EON Group as it stands today. Assuming a positive vote for the spinoff at the AGM in June, we will give a new outlook for future EON. The new outlook will reflect the new Company setup and the different scope of the business portfolio. This implies that the outlook will be lower and that we communicate today only the larger EON Group. This is important to understand because we have heard this legal and accounting disclaimer already led to some confusion; this is just a technical effect. Flipping over to page 17, I would like to close with a few words on what to expect over the coming months. On April 26, Uniper hosts a Capital Market Day in London to present its full-fledged equity story for the first time. EON will provide something like a strategic and financial update on that day. On the same day, we will also send out the invitation for the AGM, which will include the spin-off report. Finally, let me return to what I’ve said in an interview recently and what Johannes, in parts, has also touched upon already. The unprecedented decline in global commodity markets continues and is even amplified. This leads to base load power prices testing new all-time lows across Europe since the beginning of the year. Currencies and interest rate provide additional downside. On the top of these adverse market conditions, we remain exposed to the uncertainty of the German Government’s decision on the financing of the nuclear liability, as well as the recently announced sector reviews by rating agency. Players within the industry respond with announcements of dividend cuts, disposals and restructuring programs highlighting the impact of these challenges that they’re facing. Despite the restructuring we began 18 months ago, these conditions will not leave our earnings and balance sheet unaffected. They will also cause declining cash flows which, all things being equal, increase the pressure on the balance sheet and could potentially reduce our growth CapEx, as we will continue to need to harvest cash flow for compensation. Whilst this will impact Uniper far more, EON will also remain affected via PreussenElektra and via its remaining stake in Uniper itself. This adds to the technical factors from the spin-off, reducing the combined debt capacity of Uniper and the future EON from a rating perspective. We obviously cannot change the deteriorating environment which is, by definition, beyond our control. However, what we can do, and this is important, is to continue to focus on all levers that are within our control and continue to take very decisive and comprehensive management action. It’s all about focus and discipline, as Johannes has already outlined. In order to protect our balance sheet, we will first and foremost follow a highly stringent and disciplined capital allocation, as well as a rigid cost management system. In this way, we will strive to mitigate these negative effects to the maximum extent possible, while protecting our sound core business and the interests of our shareholders. Allow me a word on dividends. Despite the deteriorating market environment, we promised for two years in a row a fixed dividend, and we delivered. This includes 2015, where we promised a €0.50 dividend, which we confirm today. Going forward, however, our dividend policy will need to strike a better balance between reflecting the current and future operating environments. The ongoing deterioration of commodity prices; the fact that power prices have tested new all-time lows nearly across Europe; and the ongoing uncertainty around nuclear liabilities pose new challenges for us, our shareholders and the whole sector. We are responsible custodians of the business. Hence, this challenging environment must and will be reflected in our planning and in all our considerations of the future. This may require reinforced financial structure, the framework for which we will lay out at our strategic and financial update at the end of April. With this, I would like to hand it over to Anke and we are open for questions. Anke Groth Yes, exactly. Thank you very much, Michael. We are opening the Q&A session now. Question-and-Answer Session Operator [Operator Instructions] The first question is from Vincent Gilles of Credit Suisse. Your line is now open. Vincent Gilles First question is on the assumptions you are using to give us the guidance for 2016. The wording on your documents suggest it is not necessary that the end of 2014 that you draw the line in the sand to take the commodity prices. It sounds like you did it a bit later which also suggests, therefore, that adjustments may be less than for some other of your peers. So, if you could just help us understand when you actually base your assumptions. Also, I know it’s a bit difficult, but if you can help us understand what the adjustment will be, just quantify roughly the adjustment that you will apply to the numbers once you present to us in April. And the second question is on the dividend. I do understand you’re not going to give us a dividend for existing EON for 2016, any form of guidance. But is it fair to say that the payout you applied in 2015 is a good measure of where you could be, and therefore the 14% of a bit more decline you suggest in EPS for the year could also be applied to the dividend in 2016 on an unchanged basis? Thank you. Michael Sen Vincent, this is Michael. I’m not quite sure whether I got everything from your first question, but I took something like what are our assumptions for the guidance or the outlook we gave as in the €6 billion to €6.5 billion on EBITDA and, subsequently, the net income. Basically, if we talk about the main parts being FX, because base load price basically is due to a large extent hedged, which you can see in the back of materials. This is a decline of roughly €11 per megawatt hour year over year on the Central Europe piece, and then I think €2-ish per megawatt hour on the Nordic piece. This doesn’t move the needle. So it’s more like if you talk about key assumptions FX. Since there’s a lot of volatility in there, I’d say you take that’s what you see on your screens today. Look, if we had gone back when we did the outlook, this was a week or two weeks ago, and we talked about the range, the ruble was at a different stage. Today, it’s again RUB80-ish, so from that point of view, if you take from an FX rate what you see today, this is something like which you have also seen in December of last year when we elaborated on all of this. This so much for the core assumption FX, our base load. Also, on the oil price, the oil price will have an effect; has been going up in the last couple of days, now roughly at $40-ish. Yet, the oil price will have a lower impact, because the E&P business is gone but there will be a smaller impact. In terms of the dividend, let’s say, I think it’s too premature you try to triangulate via taking the payout ratio we have and applying that one to a lower base. I think what is correct in that triangulation is that there is a lower base. That’s for sure. But then also coming to the payout ratio as such, it’s too premature but it will also be a range. That range would have to reflect what we see today and if it’s something like a policy, then it would also have to reflect what we see probably — or encounter mid-term. Then it’s also striking a balance between what you see in the outside world and, of course, what’s the nature of your portfolio and how that portfolio is impacted by what we see in the outside world. Johannes Teyssen That was it basically. Next question. Operator The next question is from Deepa Venkateswaran of Bernstein. Your line is now open. Deepa Venkateswaran I have two questions. The first one is on the nuclear commission. So you mentioned that there are certain technical issues that the commission needs to resolve. Could you elaborate on what you mean by technical issues? And the second question is just an update on the Russian outage. What are you assuming in your guidance in terms of how long you assume this outage? Do you assume any offset from insurance? Also, do you assume that you need to pay any penalties to the Russian authorities for that? Thank you. Johannes Teyssen Okay, for the Nuclear Commission, I think we took pretty much the wording of the commission itself. Obviously, assessing all chances and risks associated to interim and final storage, there are numerous technical issues; how you assess specific interim and final storage. There’s technical questions around transport and other things. So I would say behind a lot of numbers, it starts and ends with technical assessments of recent chances. Those things presently I understand happen within the Commission, so detailed work. It’s beyond just cutting the line, who does what. Now it’s a point assessing individual positions from item to item. That’s what we refer to. But what the outcome is again, and how they assess those changes and risks is in their control, and we don’t have any more insights. For Berezovskaya 3, obviously it was quite a bad fire only weeks after the commissioning. Plant was working extremely reliable in the first weeks. It was a break of an oil pipe there, and it caused some serious damage to the boiler. Presently, we cannot even yet fully assess all the risk, because we cannot enter all parts of this boiler building. Therefore, we assume at this time that the plant is at least out for 20 months until it is fully restored. We have, however, some insurance coverage. The cover is for the damage itself and it also covers the non-availability for a period of up to one year. Obviously, we need now to talk and we are engaged in talks with the respective insurance companies. We’re also in talks with the Russian operator to see what assessment it will have in the system. More we cannot say today. Michael Sen And, Deepa, this is also one of the reasons why we have the spread in the outlook, because we need to see if and when we come to a decision also with insurance and regulatory counterparts. Operator The next question is from John Musk of RBC Capital. Your line is now open. John Musk Two questions again. I think on the first one, there’s quite a lot of commentary from you on the deteriorating outlook and how that would impact credit metrics and balance sheets in the two new entities. I guess my question is how close did you come to actually not paying a dividend, given that that would be one step to potentially put both companies on a better footing when we actually get to the split? And then secondly, slightly more straightforward, on the Group overhead consolidation, which includes, obviously, the split costs. What should we expect for that when we look into 2016? There was about €600 million of costs there in 2015. Is that number going to be broadly the same in 2016? Michael Sen Let me start with the first one on dividend and credit metrics. I think this is a — I would not subscribe to the assumption that in order to get the spin done that anyone has to cut dividend. That would be way too far-fetched. What we’ve been saying is that in terms of dividend policy and in terms of the basis of dividend, because of the deteriorating environment, it obviously impacts the base as such. Yet it does not change, especially long term, the nature of portfolio, which we are trying to set up and intend via the two companies. Of course, Uniper will have something as a dividend based on a free cash flow basis. This is not an animal, which should have a lot of growth CapEx. So we also, as future shareholders, would assume that they only have must-have CapEx. And they will have some legacy CapEx, like for Datteln and the like. E.ON, on the other hand, is, by nature, a portfolio which has a stable business. It’s going to have a stable grid business, will have a growth business on renewable and then has a customer solution business. Yet, we have to see in the foreseeable future what impact we are going to take into by having the deteriorating environment and the regulatory uncertainties, for example, on nuclear funding. That means that we on our side also have to do the utmost like, for example, prioritize every investment. Johannes always says, we now have to live within our means. That is what we have to say on the dividend policy. In terms of admin and other, for your models, I would say the €600 million was more or less split related. And that line item in your models should be flat year over year. Operator The next question is from Alberto Ponti of Societe Generale. Your line is now open. Alberto Ponti The first question is about the impact of disposals on EBITDA for 2016. And secondly, more broadly, do you expect more closures in generation, particularly referring to potentially lignite or other types of capacities? Michael Sen Yes, I think in terms of disposals, we have to go segment by segment. If we talk about the generation segment, it’s mainly Italy and Spain, and if you would take roughly a €200 million number, wouldn’t be too far-fetched. I already said during my speech that on the E&P side, since we already went out of Norway and closed it. And the UK, keep your fingers crossed, hopefully we see encouraging signs over the next couple of days. The impact is — if you go north of €500 million/EUR600 million-ish that should be about it, what you can put in your model out of disposals. Johannes Teyssen And if you come to plant closures for 2016, I think we announced retirements of roughly 1.7 gigawatts at this time. This includes, as the biggest item, a coal power plant in the UK called Ironbridge, with 740 megawatts. The second biggest is an older CHP plant in Germany at Kiel, in Northern Germany with 320 megawatts. Our gas-fired power plant, the CGT in Bavaria, Irsching, is not included, since authorities disallowed the closure at the time being. But we sue for better compensation there and would hope that the response of the court reinforces earlier judgments and forces the regulators to pay higher compensation for that. I think those were it. Next question? Operator The next question is from Andreas Thielen of MainFirst. Your line is now open. Andreas Thielen Just try again on one of the earlier questions. On slide 16, you refer to the effect that, with the split, numbers will look significantly lower in the spin off. Can you give us — is that going to be just a technical one-year effect and then, although it will not be there in 2017, it should be back to, in brackets, normal? Or is it an ongoing effect and will relate to the different accounting routes on the companies? Michael Sen I already heard, as I said during the speech, that somehow this creates confusion, which it was not meant to do. On the contrary, this is more a technical regulatory remark; nothing more. The nature of that is that outlook we have been giving is on a going-concern basis. It entails the entire portfolio of E.ON. So the E.ON portfolio, as you have it today, it’s — will have €6 billion to €6.5 billion. The moment you split Uniper, the moment the AGM says yes, then Uniper goes into discontinued operations, like you have seen it with many other disposals and the like. The moment it goes into discontinued operations it’s normally not reported in your regular operations, and then it is prepared for the spin. Ultimately, if the spin happens the stuff goes out. Therefore, also out of regulatory reasons we have to flag that once portfolio elements, which are called Uniper go out, obviously €6 billion to €6.5 billion will be lower, because they’re out. That’s all it means. Andreas Thielen Okay that’s very clear, thanks very much for that. Second question would be on the generation business. Would you be willing to share with us what is the portion let’s say over the non-merchant business in the generation EBITDA? Johannes Teyssen I think we would rather refer the breakdown of those things to the capital market day of Uniper, they will be more precise, on April 26. I think otherwise we end up in detailing the questions that are important for the equity market. Sorry there. Operator The next question is from Mark Lewis of Barclays. Your line is now open. Mark Lewis I had two questions, one general and one more specific. The general question is, Dr. Teyssen, you mentioned the Paris climate agreement. Germany still has this very ambitious target to reduce its domestic emissions by 40% by 2020, but it’s a long way short of achieving that. Do you think the government is essentially simply going to let that fall by the wayside? Or is there a risk that coal plants will still be hit between now and 2020 further in order to achieve that target. What’s your reading of the political situation with regard to that target and it’s achievability? That’s the general question. The more specific question relates to Datteln, I was just wondering if you could give us an update on where we are on that and when you would expect Datteln to start up? Johannes Teyssen All right, in the first one I think it’s a bit speculative. Obviously, people do scenario accounting for how much CO2 will be avoided. I think all numbers, in the past, that were usually calculated proved to be wrong. I take that the government takes a more cautious view today and not just implementing things without fully understanding what happens. The energy and economy Minister was quite negative on any negative coal policies. He said, you know things are needed for the longer future and he doesn’t think it is appropriate to enter in a general coal-bashing time. Will anything happen? Obviously, nobody can rule things out. Is anything known or being speculative presently? No. Thus, the jury is out and it’s still several years to go until that date. Thus, I don’t see the government enacting on something urgently before the next federal elections next year. There was an earlier question I think that we didn’t answer precisely, because that comes to my mind here, someone talked about lignite plants. Please keep in mind, we only have one single lignite plant and that is contracted on different terms, so we don’t have truly any exposure to lignite. Thus, this whole question on lignite speculation is not important for our Company. And then the Datteln plant last week, we finally got the permit to continue our construction work after, I didn’t look it up again, how many years we were on the backup line. The construction site is already re-entered; all the workers are onsite and have restarted the work on the completion of the plant. We expect it to last roughly up to two years, we would say, at this time. So that is the situation. Finally, construction work goes on, but it’s based on the ruling of regulator assuming that it’s more — significantly more likely than not that we get the final permit — the operational permit and, thus, things are at least moving there. Operator The next question is from Sam Arie of UBS. Your line is now open. Sam Arie I have two questions as well, the first is actually about the nuclear law suits that you have in process and I was wondering could you perhaps just give us an update on these, if there are any new developments for us to be aware of? And in terms of timing, if it’s now possible that we could hear a verdict on the nuclear fuel tax case before the commission report comes out on nuclear funding or whether that would still be expected after? And then my second question is about the German distribution businesses, which are an important part of future E.ON. I think we’re expecting two things here, so a steady increase in CapEx and the asset base, but a possible reduction in the allowed return when we go through the next cycle. So I’m just wondering could you share your expectations about how those two factors will balance out. Johannes Teyssen Okay, for the nuclear law suit, I think the next stage is actually next Tuesday. On Tuesday and Wednesday, the constitution are accordingly invited for the oral hearing on the ex-population [ph] law. I will be part of the team representing our Company in Karlsruhe. I think it’s custom that — at least regularly the custom that the court does not voice an opinion in those hearings. But it’s also at least traditional that within a few months afterwards the verdict will be issued. So it’s an important milestone, because the hearing finally happens and, thus, in a few months, before summer, I would expect a potential ruling on the nuclear fuel tax. There you should not expect any hearing, because here the lower court sent the question to the Constitutional Court, whether the law is constitutional or not, so it’s not party hearing; just one court sends the question to another, to the highest court actually in this case, and this highest court decides on the record of the case. So there will be no hearing, and then one sudden day we all will learn that the verdict has been issued. Nobody knows anything about that. The speaker of the court has said that this ought to be expected within this year, but more is just not known. So it could be theoretically tomorrow morning and it can be theoretically any other day this year, we just have to wait and see. Thus, there is no correlation to the decision of this commission. Michael Sen With regard to the distribution network, I think it is too early to already judge on any outcomes. We know a few perimeters like the WACC [ph] and the regulated asset base as we all know it, it’s about CapEx. Yes, we would invest, by the way, if we would then also see the appropriate returns. Obviously, I guess the one thing you are hinting at is whether allowed returns are being under pressure, because of the yield curves we see. They probably will be. But then, on the other hand, maybe they are also counter effects, which we see or don’t see now. Don’t forget that a lot of municipalities are also dependent on what is going to happen or what the regulator decides upon that one. They also — at least from what I see and read, they would be happy if they can get some cash in into their municipality books. Operator The next question is from Peter Bisztyga, Bank of America Merrill Lynch. Your line is now open. Peter Bisztyga Just a quick question for Michael Sen, you said at the end of your speech that you might need to communicate a reinforced financial structure in April. What exactly did you mean by that, are you flagging that you might need new equity or are you just talking about dividends and CapEx? Michael Sen Yes, hi, Peter. First, it’s a very good question and, actually, the latter part of what you just said is it’s an overall financial framework, because this is what needs to guide us. We said what — we clearly said what the priorities are going forward. We’ve said we’ve got to be focused; we’ve got to be disciplined on especially capital allocation. Now if we want to do that we need some sort of framework right. We need something which frames us. Do we want to have a return focus? If yes, how does it look like? Do we entail going forward, and I’m talking about new E.ON, something like a growth, an EPS growth. In the long term probably yes. Where do we want to be in terms of credit metrics? Obviously, we can say where we want to be, but it takes two to tango, because you also need the rating agency. There you also may have to differentiate where do you want to be on a sustainable level, or do you derive your judgment from what you see today where everybody is under stress and everybody is nervous, including the rating agencies. And, do you want to be more in the level where you see your future peers? There are some well-respected companies out there who have maybe a similar portfolio set-up, like new E.ON is going to have, and where are they. Then you can derive a few financial, how should I say it, corner stones on credit metrics, on how do we want to allocate capital and then, obviously, also because that then determines how your CapEx is going to be spent, how and where and to which amount. And then, of course, on the highly debated policy on dividends, i.e., probably something like a payout ratio. That’s what I wanted to say with that sentence. Operator The next question is from Ingo Becker of Kepler Cheuvreux. Your line is now open. Ingo Becker I guess my second question goes in a very similar direction on the one just asked. My first one would be on the Czech Republic; you have said that you get higher load returns there to incentivize investments. Do you get the higher returns for new investments only, or is that for the entire asset base? Is that for power and gas? And net-net will it grow your profits there, or will it ensure that our profits stay stable, in the sense that the Czech Republic had a history of very stable tariffs? On the second question, which again goes in a similar direction, I would appreciate it if you could just reiterate the answer you gave just before. But, given the conditions, and if you abstract from the idea of growth, apparently there are some companies who raise capital in order to grow. If we abstract from that for a second, given the developments in power commodity markets, plus what you know already to be a most likely outcome with regard to the nuclear commission’s view, it must have become much, much more challenging, right, to split a group. I’m not sure if you can answer that. But abstract from growth, given that you continue to talk about Uniper and the spin-off to be on track. Given what you know today, and what you see today, and let’s assume the Nuclear Commission decides along the lines that have been speculated lately, is that spin-off still viable financially in the current set-up or would you rather do — rather do? Michael Sen Yes, thank you. And I think Johannes is probably going to take over the distribution thing. But let me get things straight. I think it is very important to understand, and Johannes said that during his speech, it is getting tougher, so this will have impact on dividends, and what you — what have you, and so on and so forth. We have uncertainty — we will not speculate; we have uncertainty as to what the government is going to rule on the nuclear liabilities. Yet, all of this would have happened anyway; this is not spin related. Spin related is that you have some lower debt-bearing capacity, which we have always said is do-able, yet obviously it gets tougher. The price we have to take is higher but that is not spin-related; that is happening anyway. So there will be things happening to our entire portfolio and they would have happened anyway. If Uniper would remain in the overall E.ON basket, this would also have a drag probably on the dividend capability and so on and so forth. But there are prices being put on, if you so wish, both companies currently which are beyond our control. Rating agencies are very sensitive to what is happening today in the market environment and have put a couple of companies under review and negative outlook. That means you have to work harder for the same metrics, if you so wish. What does that do to our entire strategy and also encountering the spin, this is what we have to consider going forward, and then take all measures — all measures: measures like CapEx; measures like cost; measures like adjusting dividend capacity; measures on the overall — which I explained to Peter, overall financing. Johannes Teyssen And for the first question, the allowed return was increased from roughly 7% to 8%, and its true for power and gas, and it’s true for the whole regulatory period starting in 2016. So, yes, it will have a positive impact on earnings. Operator There are no further questions. I hand back to the speakers. Anke Groth Yes, thank you very much for participating and asking the questions. Thank you to Michael and Johannes for guiding us through 2015 and a little bit of 2016. The IR team is available for every answer you would like to ask. Please give us a call afterwards. 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