Welcome everyone to this audio call with a deep dive on our Swedish distribution business. I'm Johan Sahlqvist, head of investor relations, and I'm very pleased to have with us here today Mrs. Annika Viklund, head of Business Area Distribution. Warm welcome to you, Annika. Thank you, Johan. Annika, the other week we arranged a number of round table discussions for analysts and investors on this topic. Looking back, what are your key takeaways from the meetings and are you satisfied with the outcome? I'm very satisfied with the outcome in the term that quite a few decided to join our round table meetings, and it is always very fruitful for us to have these dialogues around the big topics and working inside a company, even in an industry and having a lot of dialogues with colleagues, I think it's still very important to have these questions and dialogues. What is really cooking in terms of thinking? Are our presentations and reports comprehensive? Yes, I'm really happy to have this possibility to have these dialogues. Nice to hear. I fully agree to that. Thank you very much, Annika. The idea now is that you will guide us through the same presentation materials as we showed in these meetings, well, I will now simply hand over the word to you. Thank you, Johan. Vattenfall Distribution, the business area in Vattenfall responsible for the distribution grids in the electricity side. I am really happy to take you through some pages, and I would like first to start to say that, first of all, it has become very evident in the past years that the electricity distribution grids will play an important part to support electrification and also to support decarbonization and enable customers and society to move away from fossil-based fuel and coal-based processes. That is very clear. It is also very evident that this change is happening now, not in the future only, but now. These electrification plans, as we call it, they are now shared among companies with high ambitions and agendas to be part of this journey to become fossil-free and emission-free in the coming decades. These customers are requesting goods and services to be manufactured and to be manufactured fossil-free throughout the whole value chain, including the transport. That is what we hear from our customers. They would like to become fossil-free in order to also deliver to their customers products and services manufactured in a new way. With this said, distribution grids are the enabler of this journey, and together with fossil-free electricity production, this is something that will keep us all busy for, I would say, quite many years ahead. Let's start to look at the electricity demand in the EU, this is expected to rise significantly until 2030, and with an annual pace of approximately almost 2%. Also, 500 GW renewable will be installed, we can see that approximately 70% will be connected to the distribution grid, meaning not into the TSO side, but really to the distribution side. We also see that the strongest contributions will come from electrification of industry and transport sectors, and I think we should have that in mind. We see maybe a lot of dialogues right now around electrical cars and industrial customers who are thinking about going to another way of producing their goods, but definitely transport is something to keep an eye on in the coming years, definitely. Because I will come to the hen and egg dialogue, and that is, should manufacturer of heavy vehicles dare to go into production of these vehicles if there are no chargers? On the other hand, would you like to build chargers if there are no one to requesting your services? That is quite important. Have in mind, not only cars will be there or larger vehicles, but also boats, vessels and airplanes. The role of us, the DSO and the distribution grid, is to be the base and enabler for electrification and capacity expansion. I think it's interesting to see how much that will be, but we have some ideas and numbers for that. We also see that the connecting points for renewable energy will be the DSOs, and here we see wind farms coming online, but also larger solar parks, which we will see the coming years. We are also looking into one in particular area, and that's the enabler for flexibility and demand management, because we cannot simply build the grids as fast as we would like to do. There are permit processes and there are actually construction coming in place. We also need to work with the flexibility in the system and work together with our customers to see can they help us in terms of flexibility? Can they switch on and off loads in the system just to make sure that the network will cope with the demand? Also, of course, the customer. I would like to emphasize a key element in enabling customers and have this interest for the society and customers are the smart meter, where actually Vattenfall is right now in the second wave of rollout in Sweden. Right. Thank you. Let me also share how we see our business in distribution. I think it could be worth to note that we have a quite huge distribution operation today. We are the largest operator of regional electricity grids in Sweden. I could also emphasize what is a regional grid. That is the connector in between the national grid, the TSO side, and also the local distribution side. Usually, municipalities have the grid level. The regional network is supposed to transport electricity from the TSO as an extension down to the local side. We are one of the largest operators and also have this top three position in the local grid side. We are the owner of the city grid in Berlin, and as previously communicated, we have also offered to share the shares in this grid company, Stromnetz Berlin. Of course, it's important for Vattenfall to, at all times, have a long-term perspective over ownership. We have had a dialogue for many years with the city about the concession. Right now we are in this phase that we have offered to sell our shares. That is nothing we will put any time into this or discuss about, but this is still an ongoing discussion with the State of Berlin. We have also a business unit for operating and owning new grids in the U.K. We established that a few years ago, we are now developing services requested on that market, IDNO, which is Independent Distribution Network Operators, and also power as a service solution that could be on the shelf solutions, more or less operating behind the meter for larger customers requesting services from us, going a little bit far beyond the regulatory task. We have approximately 3.3 million business customers and household customers. What is characterizing us is that we have a regulated business, the big portion of that with a quite stable demand. I think it's worth to point out also that looking at the underlying EBIT for last year, Johan, then we can see that the Swedish operation is definitely standing for the majority in the range of almost 80%. Looking at the regulatory asset base, that is also mirrored quite well, that the assets in Sweden are representing more than 50 billion SEK compared to Germany, almost SEK 20. If we look to the Swedish number here on the RAB, could you give us an indication of the split here between the local and the regional grids? It's approximately 50/50 in between these two kind of grids. I think we could have in mind that it is really in the regional network, together with the transmission grid owners in the TSO, that will be replaced, reinforced the coming years, and undergo a major change to cope with the growing volume. We will see a much higher throughput of electricity in our grid. I think what we could say is that we can expect a high growth of the RAB in the regional side due to electrification. These assets do also have a slightly higher age than the local grid assets. The regional network assets are reaching, in coming decades, the regulatory end of life. I can come back to that later. If we look at the market structure here and the relationship between the TSO and the sort of relative distribution of the ownership of the regional grids and local grids, is there anything that stands out here in terms of the Swedish markets in relation to other European markets, or is that quite a normal structure? I think it's worth noting to say that we have one TSO in Sweden, a state-owned company, and we have three major regional network owners. The regional network owners, sometimes you have the regional network located partly on the distribution side, and sometimes also on the TSO side. We have very clearly segmented the market in the local network, the regional network, and the national grid, the TSO, the transmission network. Here it's also good to see that Vattenfall has the majority of assets in the regional network. This is really one interesting area you're pointing out here, Johan, because this is where we see the growth, and I can come back to that a little bit later. Yeah. Let me now also continue to elaborate on how we compare with the players here in the Swedish market. We have mentioned the larger players, that is E.ON and also Ellevio, used to be Fortum Distribution a few years ago, for some of you who recognize that name. We look at it in terms of the assets we own and also what kind of assessment the regulators are doing to compare. You see 50% of the regional network is related to Vattenfall, and also Ellevio have approximately 22%, and E.ON, 20%. You can see that we have, on the local side, a split between 16% and 20% of each one of these three players. The market shares of regional grid is slightly leaning towards more of Vattenfall ownership. When it comes to the local grids, you have a quite even split among the three. We have also, in Vattenfall Distribution, two distribution areas in Sweden. We look at the northern part of Sweden and then the southern part of Sweden. It could be good to have in mind that we are actually in distribution, a consolidation of more than 40 smaller grid operators. In 1996, the Swedish electricity market was deregulated, so there were quite a few of acquisition activities in those days, and that has created this entity we have today in Sweden, in Vattenfall, for our company. Of course, as I mentioned before, that with the market growth will definitely happen in the regional network predominantly. Quite a few smaller players in the Swedish market. Are we looking into M&A opportunities in the national market or even abroad potentially as well, or how do we see that? Well, we are always open for reviewing the options we have, let me also summarize that the recent years and opportunities have been quite few, and I conclude that as the distribution network seems to be a quite valuable assets for municipalities, we should have in mind that on the local grid side, there are approximately 170 owners of local networks. For this municipality, it is of course also attractive to see how this electrification is happening in their part of Sweden. I think it is a little bit about safeguarding also working opportunities and growth of societies. Of course, the uncertainty around network regulation and ongoing court processes has most likely hampered these discussions as well. I think we have, on the other hand, in Vattenfall, we are quite pleased what kind of networks we do have. They are very interesting. They are placed in the right area, so to say, where a lot of growth is happening, urbanization, but also electrification. Right. Let us talk a little bit about the growth of the electricity demand as we see it. We have seen a quite big growth of wind power in Sweden lately, and it looks like it's set to also continue now. Looking for the demand to grow the coming, maybe not only 10, but 15 years or even 20 years, the electrification of industry and transports is expected to increase the total demand in Sweden. We also see new businesses in addition to the current industrial landscape we have with quite a few industrial customers that are energy-intensive. We see these new businesses as data centers and battery factories are likely to have a significant impact. The weather here in Sweden is quite attractive also when it comes to cooling solutions for data center, most obviously. We see also the efficiency improvements in the residential sector. As you also can see, it seem to have a quite small mitigating effect on the total demand. We are coming from a background when we did this fuel switch in heating in the 1970s from oil coming into electricity. Of course, we have much more energy efficient solution, but still, Sweden is a cold country. We need to heat our houses during the wintertime or even in the early spring. I think this is the efficiency we definitely see in the products also Vattenfall has in other areas. If you look at this chart and also taking into account the amount of wind growth in the Swedish market, what would you say are the main implications from a distribution perspective? How should we look at this development? Is it all positive or are there also quite some challenges to this? Well, I think there are interesting challenges in this new market we are entering with a high electricity demand, also this implies that we have also electricity production and these customers coming online now and then moving into Sweden and electrifying their processes, they will also like to see fossil-free and emission-free production coming into their processes. We are actually coping with not only this electricity demand, but exactly as you're pointing out, Johan, the wind power growth in Sweden. I would say that some of the challenges will definitely be to deliver as fast as our customers and the energy producers would like us to deliver long permit processes. We're working quite a lot with in Vattenfall together with the rest of the industry to see how we can influence that to be shorter. You, of course, you don't really know when our customers would like to see this big growth. We see it happening here and now, but exactly how fast things will come. There is a saying that you are always underestimating the volume, but always overestimating the time, how long time things will take. I think just to have this sliding scale of 25- 45, I believe that, I think a lot of this demand increase will come faster. Also, as you're pointing out, Johan Sahlqvist, the wind power. We see a high interest of wind power coming online in Sweden. Let's just finalize the introduction of the business presentation, the first part here, and that we believe that this energy transition is expected to drive growth in the demand, and we are continuously looking into how our assets are built out. We know that we will spend quite a lot of time and efforts to not only building new assets, but also reinforcing aging assets that will come into their technical and regulatory end of life. I think it's good to keep in mind here, Johan, that the distribution grid was predominantly built out in between 1970s and '90s because we had the nuclear that were built out. We did this fuel switch from oil to electricity of heating of the houses, et cetera. We also had, the past decades, this weatherproofing activities of the Swedish network that came in particular after the bigger storms and the longer outages. That means that we are working with that part, but also making reinforcement and new investments to accommodate with this renewable energy, wind power coming online, but also to enable electrification. This fact that we have an asset fleet, Well, an aging asset fleet, is that something that our customers take notice of already today? Is it impacting the reliability of the network in any way, would you say? Or to make improvements? I would say that as a network owner and asset owner, you always look very carefully to analyze how we can have a high-quality network. Of course, we are maintaining our assets in a very good way. We have a regulator that is continuously supervising us and looking out for that we deliver the quality of services. I would say what the customers are noticing, that we are rebuilding the networks and making quite a lot of efforts in terms of changing their meters to a new smart meter, enabling them for getting access to customer data and insight. For sure. In a perfect situation, Johan, our customers never notice anything we do. They just have a perfect quality of supply, and this is how we would like to be perceived. Of course, there is a lot of work going on under the surface, that's for sure. Yes. In summary, I think looking at Vattenfall Distribution, we are well positioned to leverage on this energy transformation and transition we have ahead of us. I think I could maybe just go into one area where maybe we should look at how it looks in Sweden of when it comes to where do we have our own industries, et cetera. Maybe, Johan, you have some thinking here and questions. No, I thought it would be good if you could elaborate a bit further on the energy-intensive industries here, because we could see on the earlier slide, of course, a big increase in the industrial demand. Who will really be the driver of this electrification and what is the timeframe that we're looking at here, so to say? Yeah. Johan, that's all very good questions, and I see for sure that energy-intensive industries in Sweden, looking at the traditional industries we've had, we have quite a lot of parts in the pulp and paper, we have in steel, we have in cement, we have in these kind of in mining, we have in heavy industries. They are located, I would say, close to our hydropower plants historically, et cetera. That is where you built your paper mills and everything you needed, access to water and cooling, and you also need ways to transport your goods. Looking how we are located in Sweden, the distribution grids, the north and the south, I mentioned previously. We have quite big parts of the northern Sweden. Looking at the southern part, we are located from Stockholm over to the west side, through the east. We do also own a majority owner of subsidiaries in Västerbergslagens around Ludvika area and Gotland, the largest island of Sweden. The energy-intensive industries, they are connected as already today, quite a lot in the northern Sweden. We see a very interesting development in northern Sweden, where very large industries are now looking into becoming fossil free very urgently and also looking into hydrogen solutions, et cetera. That's interesting. You see data centers both in the north and south of Sweden, but then also in Sweden, on the west side, we have a very interesting customer segment of the chemical cluster and refineries, and they do also look into their different plants. On the island of Gotland, connected to our network is also the cement factory. I would say definitely that they see the possibilities of access to fossil-free and emission-free production, such as the wind power, the hydropower, and I think that is very interesting. That is why they look into it. I would like to mention a little bit about the wind power. What we can see right now, looking at the permit situation, we see, as mentioned before, that quite a lot of new wind power will be connected to the local grid, but also to the regional grid due to the size of turbines, et cetera. This is really spread all over Sweden. I will say for sure that we need to look into where we need to reestablish new grids, but also that we can connect them quite good into our current grid as well. Is it fair to say that all the major industries where we see this electrification trend are actually connected to our regional grid? I would say a majority is naturally done. It has been that for ages and really, I think, yes, you can say that, and that means that Vattenfall is active in quite a few segments already to understand their requirement and the sensitivity, what they need from us. Yes, that is true, and I think that is making life very exciting for us in distribution. What I think it could be interesting also to look very briefly also into the regulatory scheme. All the countries have, for the regulated business, some kind of regulatory scheme. I could just take you very briefly through some of the different components. We do have, like many else, we have controllable costs and uncontrollable costs, which is actually the cost for net losses and upstream network. You set aside an efficient requirement, and that goes into the operational costs, actually. You have the second side. You have all the assets have a value according to a known price, and that is put in a Regulatory Asset Base. You have a return in terms of WACC. You make some adjustments on that, and you have, of course, after depreciation, also the cost of capital. I think these two components, they are more or less the same all over Europe, at least, how regulatory business is viewed. I can also say that we have had quite a few court processes the past years, and on here in the end of February, it was ruled that for the third regulatory period we're in right now, we have a WACC that should be recalculated by the regulator. This is something we have appealed because we got revenue frames also set in a way that we believe that this is something we would like to try in court. We have this February coming from the court also, something that the regulator was given that they should use a stable and predictable forward-looking approach and also to review the regulatory risk of companies and also include the interruption costs, which was one part in our appeal for the controllable cost for 2014- 2017. I think it's good to know that the regulator has appealed this verdict, and still, the court has not yet decided whether this appeal will be granted or not. It's worth to note that this has come at least in favor of the network companies. Looking at the next perspective, the recent development is also that when it comes to the lower side in the regulatory scheme, when you have the operational cost and you have the cost of capital, you also have some adjustments for the previous regulatory periods if you have under or overcharging that. This is one of the areas we have also seen that the government has now submitted a proposal for legislation that will permit this carryover from previous regulatory periods, and we believe also that this law will come into force in June. This is something we are now during the spring waiting for the decision to be announced. Then we also have other areas such as co-reporting or joint accounting that we also expected to be passed this year. All in all, I think it's good to also to see that this whole model is taken care of, that you always need to be very cost-efficient, and this is what we are in Vattenfall. Our regulator is making this kind of comparisons on a yearly basis. You also need to be very effective when it comes to investing in new assets, as you have known prices set and you have to work quite hard. That is what we do also to make efficient the procurement. The final thing maybe to say also, what we believe on the development, also a little bit going further, that is the regulator has also proposed a legislative amendment to extend this application of efficiency requirement on a TotEx model, which is both CapEx, capital expenditure, and OpEx side, operational cost. This is something we see also happening in other parts of Europe where this TotEx model, that all costs are subject to efficiency requirements. I think this is something that we can expect going forward. All in all, regulatory models are never easy to understand in general, but I think we have also been successful in carrying out our perspective on what is needed in order to also be a part of this electrification and have a supportive, but still very strict and demanding regulation in place. Thank you, Annika. I think that's a good condensed overview. Should we also elaborate a bit further on the sort of dynamics of the regulatory situation here? To what extent is the Energy Markets Inspectorate impacted by politics? Which are the driving forces? I think the type of questions that we typically hear. That's a very valid question, Johan. You can say that, of course, the Inspectorate is always self-sufficient. They as the national regulatory authority are standing free in their judgment how to review also the legislation around it. Of course, they have a role to also enable the energy market to make sure it works well, but also that the consumer perspective is taken greatly into account. They also have to interpret what is coming from the European Union at large. As we all know that the European Union announced this Clean Energy Package, which we can have until and own audio cost about, very interesting indeed, but it has actually especially large effect on grid companies. What we see is that more system responsibility is now given to us, the DSO, and we need to collaborate with the TSO, the transmission operator, to also solve issues when it comes to efficient grid use and also when it comes to the quality. This new system, exactly what we talked about, more energy production coming online, but also more consumption than grids, also calls for flexibility in handling the grid in a stable way and also new skills and business models have to be developed. I would like to mention that the government has, in Sweden, they have initiated first an Electrification Commission, put together among authorities and companies also to have this dialogue with the government, the industry side, the research, the society, and this is headed by the Infrastructure Minister, Mr. Eneroth. There is also this Electrification Strategy, which is a government-initiated thing that comes from Mr. Ygeman, the Minister for Energy and Digital Development. This is made to push the effort of electrification in Sweden at large. These two ministers are really eager and keen to make this happen. We also see other initiatives such as the electricity grid dialogue and everything. I think it's really interesting to see throughout the whole political landscape that we need to have the right governance in place in order to make this happen. We are also, as Vattenfall, taking a strong part of both the Electrification Strategy and also the Commission work. Maybe, Johan, it's time to sum up a little bit, looking what we have ahead of us, trying to explain and present how we view it from a distribution side and from distribution side. We have a very exciting future ahead of us. Please also let me emphasize that the future is already here. Today we have these dialogues with our customers, we have these dialogues with politicians and stakeholders, and it's happening really now. We also see that what we expect is that the gross CapEx side will increase towards up to approximately SEK 7 billion per annum, to compare to what we also announced for last year, approximately SEK 5 billion. I think that is interesting to see that our network bill will become larger but also reinforced. That is really our contribution from our side. What's the distribution of this CapEx here, if you look at the split of investments take? Yes. What will be and what you also will see when you are out in the field side, these are overhead lines, these are cables, these are larger substations, but also smart meters as we also got a new regulation. We are actually in the second wave of rolling out smart meters, in Sweden, being ahead of many other European countries. This is primarily where the CapEx will be. We invest in assets that will increase the capacity in the network, and it will also be to grow the cities and also to cope with the demand from transport, charging cars, but also of course new housing, but not the least, wind power production and new industries and also reinforcement of the current industries. If we look at this figure, because it is quite a significant increase, of course. How will this be actually financed? Is it on the customer side by connection fees? How should we look at this going forward? Yes. In general, as you know, Johan, the distribution network is always financed by its customers connected to it. When you get totally new customers in, customers is paying their part of their entrance tickets, sometimes you can say, into the network. We will see the connection fees will be quite extensive to finance also this build-out, in particular in the industrial side. The ground rule is that we socialize reinforcements of central grids, whilst also reinforcement and connection to individual customers will be paid over connection fees or investment grants also when you need to move assets like that. It depends a bit, but I would say that the net effect is maybe not that big of change, but definitely the gross side it will be. I think what we should have in mind that Vattenfall's regulatory asset base in the distribution side will grow, and again, I think this will also show that we will be extremely valued part in the energy system and also in the Vattenfall portfolio. Okay. Annika, I think this concludes our presentation here today. Thank you so much for your participation. Thank you everyone for listening in, and we hope that this has provided you with a good overview of the situation for our Swedish distribution here today. Thank you very much. Bye-bye.