Focus on financial strength

Transcription

1 Focus on financial strength Bernhard Günther Chief Financial Officer Berenberg and Goldman Sachs Third Annual German Corporate Conference Munich, 23 September 2014

2 Forward Looking Statement This presentation contains certain forward-looking statements within the meaning of the US federal securities laws. Especially all of the following statements: > Projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items; > Statements of plans or objectives for future operations or of future competitive position; > Expectations of future economic performance; and > Statements of assumptions underlying several of the foregoing types of statements are forward-looking statements. Also words such as anticipate, believe, estimate, intend, may, will, expect, plan, project should and similar expressions are intended to identify forward-looking statements. The forward-looking statements reflect the judgement of RWE s management based on factors currently known to it. No assurances can be given that these forward-looking statements will prove accurate and correct, or that anticipated, projected future results will be achieved. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Such risks and uncertainties include, but are not limited to, changes in general economic and social environment, business, political and legal conditions, fluctuating currency exchange rates and interest rates, price and sales risks associated with a market environment in the throes of deregulation and subject to intense competition, changes in the price and availability of raw materials, risks associated with energy trading (e.g. risks of loss in the case of unexpected, extreme market price fluctuations and credit risks resulting in the event that trading partners do not meet their contractual obligations), actions by competitors, application of new or changed accounting standards or other government agency regulations, changes in, or the failure to comply with, laws or regulations, particularly those affecting the environment and water quality (e.g. introduction of a price regulation system for the use of power grid, creating a regulation agency for electricity and gas or introduction of trading in greenhouse gas emissions), changing governmental policies and regulatory actions with respect to the acquisition, disposal, depreciation and amortisation of assets and facilities, operation and construction of plant facilities, production disruption or interruption due to accidents or other unforeseen events, delays in the construction of facilities, the inability to obtain or to obtain on acceptable terms necessary regulatory approvals regarding future transactions, the inability to integrate successfully new companies within the RWE Group to realise synergies from such integration and finally potential liability for remedial actions under existing or future environmental regulations and potential liability resulting from pending or future litigation. Any forward-looking statement speaks only as of the date on which it is made. RWE neither intends to nor assumes any obligation to update these forward-looking statements. For additional information regarding risks, investors are referred to RWE s latest annual report and to other most recent reports filed with Frankfurt Stock Exchange and to all additional information published on RWE's Internet Web site. 1

3 RWE an attractive value proposition Attractive portfolio > Leading market position and regionally focused strategy > Pure utility play exit of upstream activities > Balanced asset portfolio > Highly cost-efficient and modernised power plant portfolio > CO 2 neutral position > Successful structural changes to all long-term gas supply contracts Stable financials > Progress in strengthening balance sheet > Streamlined and disciplined investment approach > Cash flows from operating activities to cover investments and dividends by 2015 > Further efficiency enhancements and operational excellence Earnings outlook for 2014, RWE Dea as a discontinued operation (DCO): EBITDA c bn; operating result c bn; recurrent net income c bn 2

4 Main messages Performance in H line with expectations: EBITDA -32%, operating result -40%; recurrent net income -62% Group outlook for 2014 confirmed EU Commission and German government approve RWE Dea transaction; closing expected by the end of 2014 RWE enters Romanian market for electricity supply activities Reform of the Renewable Energy Act (EEG 2.0) passed S&P confirmed our BBB + rating 3

5 From commodity driven earnings development to attractive regulated profile RWE develops towards an attractive stable downstream business profile with additional focus on renewables and upside potential from conventional power generation Operating result in bn Upstream Gas & Oil Renewables Distribution and Supply 48% 55% e 10% 15% Conventional power generation 51% 24% Trading Gas Midstream e >70% >20% >70% 5% 10% Mid-term Of which circa 40%-50% regulated 4

6 RWE s mid-term business profile drivers GENERATION TRADING DISTRIBUTION SUPPLY > Selective growth in renewable energy > RWE Innogy aims to earn its cost of capital in 2016 > Restructure conventional power generation ( no profit or cash burning ) > Upside potential from market recovery of conventional power markets (e.g. new market design or recovery of commodities) > Ongoing focus on value extraction in commercial asset optimisation > Develop growth opportunities in new trading markets > Additional value contribution from principal investment projects > Commercial settlement with Gazprom; no further losses until May 2016 > Ongoing losses from longterm contracted gas storage capacities > GER: Stable regulatory environment for the next regulatory period Electricity: Gas: Potential for revenue growth from integration of renewables Focus on performance > CEE/SEE: Aim to stabilise regulated earnings CZ: Discussion on next regulatory period (2015) HU: Political pressure on returns High portion of earnings from stable regulated businesses (German and CEE/SEE networks; renewables) > Focus on efficiency enhancements > Increasing pressure on sales margins > Margin upside via new products and cross selling > Value oriented customer service > Smart markets: Decentralised CHP/services Energy efficiency > Growth by leveraging sales know-how across mature and new markets Integrated utility along the value chain with focus on core markets within Europe 5

7 Conventional Power Generation: mark-to-market earnings perspective bn Mark-to-market (m-t-m) OR m-t-m before efficiencies Operating result (OR) Efficiencies Depreciation EBITDA 1 Mark-to-market as of November 2013 at market prices of around 37/MWh for German base load forwards 6

8 Overview of capacity measures Measure Plant MW 1 Fuel Location Date Decommissioning Long-term mothballing Summer mothballing Termination of contracts Total Amer Hard coal NL Q Goldenbergwerk 110 Lignite DE Q Westfalen C 285 Hard coal DE Q Gersteinwerk K2 610 Hard coal DE Q Claus C 1,300 Gas NL Q Moerdijk Gas NL Q Gersteinwerk F 355 Gas steam turbine DE Q Gersteinwerk G 355 Gas steam turbine DE Q Weisweiler H 270 Topping gas turbine 2 DE Q Weisweiler G 270 Topping gas turbine 2 DE Q Mid-size units 85 3 Gas NL Q Emsland B 360 Gas steam turbine DE Q Emsland C 360 Gas steam turbine DE Q Lingen 880 Gas CCGT DE Q Confidential 2,660 Hard coal DE Q Q ,940 MW 1 Net nominal capacity, rounded 2 At a lignite plant 3 Includes 1 unit which is part of ELES transaction 7

9 Impact of our capacity measures on our total conventional generation portfolio Net decrease in RWE Generation s portfolio 1 to substantially materialise after ,716 MW 2,449 MW 3,224 MW Contract terminations and asset disposals 764 MW Additions 41,256 MW 5,698 MW 110 MW 1,140 MW LCPD (UK) 1,554 MW Additions 41,560 MW 5,698 MW 894 MW Decommissioning Decommissioning 40,666 MW 5,698 MW 1,892 MW 1,284 MW 38,774 MW Decommissioning 5,698 MW Installed net capacity at the end of 2013 Installed net capacity at the end of 2014e Installed net capacity at the end of 2015e Installed net capacity at the end of 2016e Installed net capacity at the end of 2017e XX MW Thereof mothballed gas-fired capacity XX MW Thereof nuclear decommissioning 1 RWE s legal consolidation stake. Unit D (764 MW) of our hard coal-fired power plant at the Westphalia site in Hamm is not considered here because the date for bringing the unit into operation is pending. 8

10 RWE Innogy will provide mid-term earnings growth despite reduced capex volume Development of operating result by million 203 million First generation: Gwynt y Môr (576 MW), Commissioning: Düshorner Heide (26 MW), Goole Fields (33 MW) Bedburg I (37 MW) Commissioning: NSO (295 MW), Gwynt y Môr (fully), onshore projects 1 Commissioning of onshore projects e 2015e 2016e Taken and planned investment decisions Investments decided in 2014 Planned investment decisions in 2014/2015 Onshore wind farm Zuidwester Approx. 90 MW Offshore wind farm Nordsee One 2 Approx. 330 MW Onshore wind farm Bedburg I 37 MW Offshore wind farm Galloper 2 Approx. 340 MW Several onshore wind farms Approx. ~120 MW 1 1 Subject to FID, commissioning expected of ~55 MW in 2015 and of ~35 MW in RWE Innogy would hold minority stakes. 9

11 More customers will produce self-generated power and will be enabled to manage their consumption Changing energy landscape Trends in retail markets Household customer» Increase in decentral energy production from household customers Virtual power plants» Higher incentivisation of prosumers to maximise own consumption Business customer Gas production Electricity production» Rising penetration of home automation systems enables households to manage their energy needs» Electricity production on-site becomes increasingly attractive for business customers which leads to higher volumes of own production of power, gas or heat Surplus marketing Heat production 10

12 Excellent access to debt capital market is key bn Leverage target mid-term: < 3.0x; more flexibility short-term In the order of 26.0 Net debt 3.5x 3.5x 3.5x Significantly >3.5x Leverage factor e 2 Net financial debt incl. 50% of hybrids Pension, mining and nuclear provisions 1 Leverage factor (Net financial debt (incl. 50% of hybrids) + pension, mining and nuclear provisions)/ebitda; rounding differences may occur 2 RWE Dea as a discontinued operation (DCO) 11

13 RWE well on track to reach target of a positive cash balance Cash flows from operating activities to cover investments and dividends by 2015 bn >0 9.3 Cash balance e 2015e Capex in property, plant & equipment and financial assets (according to cash flow statement) Dividends (incl. minority payments; year of payment) Cash flows from operating activities (2014: from continued operations) 12

14 Deliveries on our measures to improve the leverage situation Measures Efficiency enhancements > Earnings improvement through efficiency enhancement measures; at least 1.5 bn by 2016 Capex reduction > Reduction of discretionary investments > Optimisation of maintenance capex Disposals > Sale agreement signed for RWE Dea; closing expected by the end of 2014 > Urenco and further portfolio optimisation Dividend policy > Adjusted dividend pay-out ratio from 2014 onwards; 40% 50% of recurrent net income 13

15 Efficiency enhancements Efficiency improvements 1 year ahead of plan At least 1.5 bn net benefit to be achieved by 2016 Net benefit to operating result In million e 2015e 2016e > Total programme consists of measures amounting to 2 bn (= gross effect) > Efficiency improvements to be fully earnings enhancing by 2016, one year earlier than initially envisaged > Efficiencies net of underlying cost increases such as wage inflation > 1 bn already achieved by 2013 instead of 2014 > Continuous improvement: focus on limiting cost increases by e.g. staff factor costs, to secure further potential upside > Staff reduction: Reduction of ~10,200 FTEs envisaged by year-end 2016 Operational FTE reduction of ~4,500 realised by year-end 2013 > Internal planning for next wave of efficiency enhancements already started 14

16 Efficiency enhancements Efficiency measures of 2 bn implemented by the end of 2016 Net benefit by division ~ 10% Holding, other divisions and cross divisional effects ~ 10% Trading/ Gas Midstream ~ 10% Supply UK ~ 20% Supply/Distribution Networks Germany Measures of 2 bn = 1.5 bn (net) by 2016 ~ 50% Conventional Power Generation Conventional Power Generation > ~40% reduction of overhead costs > Reduction of O&M costs > Improvement of availability and flexibility of plant portfolio Supply/Distribution Networks Germany > Reduction of overhead functions in the grid and sales business > Leaner sales processes and development of new products > Optimising grid operations Supply UK > End to end cost reductions across domestic customer business, including outsourcing of some customer support activities Trading/Gas Midstream > Focus on optimisation of locations, IT and support functions Holding & cross divisional effects > Implementation of new steering model > Harmonisation of IT equipment Difference between measures and net figure = cost inflation; %-figures indicate net benefit to operating result 15

17 Efficiency enhancements Focus on total controllable costs (TCC) 60% of the efficiency programme will be achieved through a reduction of TCC 10.8 bn 10.1 bn ~ 9.0 bn e Personnel costs Other TCC Operational cost improvement Portfolio and other effects 16

18 Capex reduction Capex programme reduced to maintenance level bn ~1.0 Renewable projects > Approx. 8 bn capex programme for excluding RWE Dea: ~ 0.9 Completing conventional power plants ~0.5 Other ~8 ~5.6 day-to-day of which c. ~3.1 for electricity & gas grids 1.9 bn for major projects 5.6 bn day-to-day incl. grids 0.5 bn other > Completion of new-build power plant programme ~3.5 ~2.5 ~2.0 > Completion of large offshore wind farm projects in e 2015e 2016e RWE Dea Further growth projects have to be financed debt-neutral, e.g. by the disposal of other assets or partnering solutions. 17

19 Disposals Disposals focus on RWE Dea and Urenco RWE Dea > Strategic decision, not for deleveraging purposes > Agreement signed with LetterOne Group in March to sell RWE Dea at an EV of c. 5.1 bn > EU Commission and German government approve RWE Dea transaction; closing expected by the end of 2014 Urenco > Non core asset > Reviewing potential exit routes > Disposal conditional to meeting all stakeholders interests Portfolio adjustments > Evaluation of further optimisation potential within participation portfolio > Streamlining of renewable businesses 18

20 Outlook for 2014 In million EBITDA 8,762 7,904 6,400 6,800 Operating result 5,881 5,369 3,900 4,300 Recurrent net income 2,314 2,314 1,200 1,400 Dividend 1.00/share Payout ratio of 40% 50% 2013 reported 2013 RWE Dea DCO e RWE Dea DCO 1 1 Based on the sale agreement, RWE Dea will be sold with retrospective effect as of 1 Jan Hence, RWE Dea is considered under discontinued operations (DCO), i.e. not included in EBITDA and the operating result for 2013 and The recurrent net income (RNI) of RWE in 2013 still includes the RNI of RWE Dea. In 2014 RWE Dea is reflected in the RNI via the interest on the sale price, assuming the deconsolidation by the end of Further restatements according to IFRS 11. See pages 10 and 37 of the H interim report. 19

21 Back-up Charts 20

22 Major earning drivers post 2013 Further decline in realised electricity margins (realised outright power price 2013: 51/MWh) Disposal of RWE Dea Disposal of NET4GAS in 2013 (2013 earnings contribution: 171 m to operating result) Regulatory and competitive pressure Efficiency enhancement programme (2014 to 2016: at least 500 million) Earnings growth in renewables (target to reach ROCE/WACC break even in 2016) Performance increase in our downstream business Further potential upside from: New market design for conventional power generation or commodity recovery Selective growth projects from Energiewende (new German energy policy) Potential for small growth in our supply business across Europe 21

23 2014 divisional outlook for the operating result million forecast versus 2013 Conventional Power Generation 1,384 Significantly below 2013 Supply/Distribution Networks Germany 1,626 Moderately above 2013 Supply Netherlands/Belgium 278 Significantly below 2013 Supply United Kingdom 290 Moderately below 2013 Central Eastern and South Eastern Europe 1,032 Significantly below 2013 Renewables 203 Significantly below 2013 Trading/Gas Midstream 831 Significantly below Figures partly restated. 22

24 RWE s forward hedging of conventional electricity production (German, Dutch and UK portfolio) As of 30 June 2014 >30% >10% >40% >10% >50% >20% >50% >30% >60% >40% >70% >50% >80% >60% >80% >80% >90% >90% 2015 forward 2016 forward 2014 forward >30% >10% >40% >10% >40% >20% >50% >30% >60% >40% >60% >50% >80% >60% >30% >20% >40% >10% >40% >10% Months before delivery of forward contract Outright (GER nuclear and lignite-based power generation) Spread (GER, UK and NL/B hard coal and gas-based power generation) -0 23

25 Contango has been reinstated in the front of the curve Spread between implied versus front year (EUR/MWh) 1 Implied Year (FY0) 2 Front Year (FY1) Second Year (FY2) Risk premium (right scale) German power baseload 2 Implied Cal as weighted average of spot settlements and balance-of-year forwards 24

26 Germany: Clean Dark (CDS) and Spark Spreads (CSS) 2013 forward 2014 forward 2015 forward Ø 9.96 Ø 7.86 Ø Jan-12 1-Apr-12 Ø Ø Trading year 2012 Trading year 2013 Trading year Jul-12 1-Okt-12 1-Jan-13 1-Apr-13 1-Jul-13 1-Okt-13 1-Jan-14 1-Apr-14 1-Jul-14 1-Okt-14 Ø CDS Cal base load ( /MWh) (assumed thermal efficiency: 36%) Source: RWE Supply & Trading, prices through to 8 August 2014 CSS Cal peak load ( /MWh) (assumed thermal efficiency: 49%) 25

27 NL: Clean Dark (CDS) and Spark Spreads (CSS) forward 2014 forward forward Ø Ø Ø Ø Ø Ø Jan-12 Trading year 2012 Trading year 2013 Trading year Apr-12 1-Jul-12 1-Okt-12 CDS Cal base load ( /MWh) (assumed thermal efficiency: 37%) 1-Jan-13 1-Apr-13 1-Jul-13 1-Okt-13 1-Jan-14 1-Apr-14 CSS Cal base load ( /MWh) (assumed thermal efficiency: 49%) 1-Jul-14 1-Okt-14 1 CDS: Including coal tax. Source: RWE Supply & Trading, prices through to 8 August

28 UK: Clean Dark (CDS) and Spark Spreads (CSS) forward 2014 forward forward 1 24 Ø Ø Ø Jan-12 4-Apr-12 4-Jul-12 Ø Okt-12 4-Jan-13 Ø 2.03 Trading year 2012 Trading year 2013 Trading year 2014 CDS Cal base load ( /MWh) (assumed thermal efficiency: 36%) 4-Apr-13 4-Jul-13 4-Okt-13 4-Jan-14 4-Apr-14 CSS Cal base load ( /MWh) (assumed thermal efficiency: 49%) 4-Jul-14 Ø Okt-14 1 Including UK carbon tax. Source: RWE Supply & Trading, prices through to 8 August

29 Development of net debt billion Cash flows from operating activities 1 Capex on property, plant and equipment and intangible assets and financial assets 1 Dividends 1 Divestments/ deconsolidations/ capital measures 1 Change in pension, nuclear, mining provisions 1 Others including f/x effects and change of net debt from discontinued operations (DCO) No DCO restatement of FY Of which 1.0 bn from DCO Net debt 31 Dec From continuing operations, i.e. excluding RWE Dea. Net debt 30 June

30 Full benefit of deleveraging measures mainly after > Leverage ratio 2014: declining earnings trend overlays efforts to reduce debt > Continued pressure on earnings and cash flows induced from falling commodity prices > Prime objective is to maintain excellent access to capital markets > Aspiration to bring leverage factor in line with 3.0x target remains > Leverage starting to ease from 2015 onwards due to positive cash balance *no positive effects from disposals assumed 29

31 Capital market debt maturities and sources of financing Capital market debt maturities 1 Strong sources of financing bn 2,5 2, Fully committed syndicated loan ( 4.0 bn up to March 2019) 0.0 bn For liquidity back-up 1,5 12 Commercial paper (up to 1 year) $0.0 bn ($5.0 bn) 1, bn (30 June 2014) 0,5 4 0, MTN programme (up to 30 years) 14.3 bn (30 June 2014) 2 30 bn Maturities of debt issued Hybrid (first call date) Accumulated outstanding debt (incl. hybrid) Balanced profile with limited maturities up to end of 2015 (~ 4.3 billion) 1 RWE AG and RWE Finance B.V. as of 30 June Bonds outstanding under the MTN programme, i.e. excluding hybrids. Including hybrids: 18.0 bn. 30

32 RWE s major investment projects RWE share Conventional new build power plant programme (capex at 100% share) Capex ( bn) Hamm (hard coal, 1,528 MW) 1 77% 2.5 Eemshaven (hard coal/biomass, 1,554 MW) 100% The date for bringing unit D (764 MW) into operation is pending. Unit E (764 MW) Units A B RWE Innogy: major projects under construction (capex at 100% share; UK offshore includes investment for grid connections) Gwynt y Môr (offshore wind, 576 MW) 60% 2.8 Nordsee Ost (offshore wind, 295 MW) 100%

33 By 2015 we will have renewed 25% of our electricity generation fleet BoA Neurath 2.1 GW Lignite 12 GW 12.5 GW out of out of (2011) 49 GW 49.2 (2013) GW Gas Lignite Hard coal Staythorpe 1.7 GW CCGT Moerdijk GW CCGT Lingen 0.9 GW CCGT Claus C 1.3 GW CCGT Pembroke 2.2 GW CCGT Denizli 0.8 GW CCGT Hamm (unit E) 0.8 GW Hard coal Eemshaven 1.6 GW Hard coal 2010 H H

34 The fuel mix of European electricity generators 2013 RWE has one of the most balanced generation portfolios of European electricity generators (installed capacity) 100% 80% 60% 40% 20% 0% Centrica CEZ EDF Enel E.On GDF Iberdrola RWE SSE Hydro/ Other Gas Hard Coal Lignite Nuclear Share in power plant capacity of own generation by fuel type. Source: Annual reports 2013, company presentations, RWE. 33

35 The fuel mix of European electricity generators 2013 RWE has one of the most balanced generation portfolios of European electricity generators (generation output) 100% 80% 60% 40% 20% 0% Centrica CEZ EDF Enel E.On GDF Iberdrola RWE SSE Hydro/ Other Gas Hard Coal Lignite Nuclear Share in electricity generation of own generation by fuel type. Source: Annual reports 2013, company presentations, RWE. 34

36 Practical example for efficiency improvements in the lignite business Availability of our lignite based power generation fleet 100% Measures to improve availability (examples) > Optimisation of coal management > Improvement of commercial availability by shifting planned outages into low-price times > Shorter planned outages, e.g. through parallel maintenance tasks 75% 50% Above average availability of lignite fleet in 2013 > Mix of fewer unplanned outages and low level of planned outages Efficiency gains > Compared to 2011, our lignite based electricity production increased by 7.5 TWh to 75.8 TWh in Our aim is to keep these production volumes mid-term, although 2013 was a peak year 35

37 Keep up with RWE Follow us on and have a look at Financial calendar Annual and Interim Reports Investor and Analyst Conferences Facts & Figures - The Guide to RWE and the Utility Sector as well as further fact books Consensus of analysts estimates of RWE s key performance indicators IR videos and presentations 36