company presentation 1 August 2016

Transcription

1 company presentation 1 August 2016

2 Introduction

3 innogy s management board Peter Terium Chief Executive Officer Bernhard Günther Chief Financial Officer Uwe Tigges CHO & Labour Director Hildegard Müller COO Grid & Infrastructure Martin Herrmann COO Retail Hans Bünting COO Renewables Note: the term innogy throughout this presentation refers to the future name of RWE International SE which will trade under innogy SE from autumn page 2

4 Formation of a leading European utility This slide has been updated post IPO (23 Nov 2016) to reflect the final transaction structure Current shareholding structure 1 1 As of 23 November Post money. 3 Including Greenshoe. RWE AG shareholders RWE AG Conventional Power Generation Grid & Infrastructure 100% 76.8% Supply & Trading innogy Retail Other innogy shareholders Renewables 23.2% (structure updated on 23 November 2016) Rationale for transformation and IPO of innogy > Increasing divergence of development and prospects of individual business units > Hence creation of homogenous business portfolios with clear strategic focus > Ability to invest in growing businesses, supporting the energy transition > Unlock value through enhanced transparency via separate listing of innogy > Increased flexibility to cope with future funding needs; innogy shareholding as liquid asset for RWE AG Transaction structure > On 7 October 2016, ~10% 2 of innogy has been listed on the Frankfurt Stock Exchange via primary offering > On the same day, a further 13.2% 3 stake in innogy has been placed by RWE AG via secondary offer page 3

5 IPO of innogy as catalyst for corporate development Creation of innogy Financial constraints CAPITAL Solid balance sheet Integrated utility MANAGEMENT FOCUS Clean play Volume focus VALUE CREATION Strict value focus page 4

6 Content Key investment highlights Financials Grid & Infrastructure Retail Renewables Wrap-up Capital Market Day 30 June 2016

7 Key investment highlights

8 Key investment highlights innogy as blueprint for the utility of the future in an ongoing transformation of the sector Grid & Infrastructure Decarbonisation Decentralisation Renewables Retail Digitalisation page 7

9 Key investment highlights Introducing innogy three strong segments Grid & Infrastructure Germany East #1 largest electricity DSO in Germany bn total RAB 2 +9% increase expected for German RAB 2 Retail #1 Germany Netherlands/Belgium United Kingdom East largest electricity retailer in Germany 3 23m customers 4 Renewables #3 worldwide in offshore wind by installed capacity 5 3.1GW installed capacity 6 1 Based on distributed volume; as of Regulated asset base. Numbers based on latest notification by regulator or based on calculations in latest filings with regulators. Expected increase in German regulated asset base calculated as RAB 2010/2011 plus net investments (post concession gains/losses) in regulated assets in the years 2010/2011 to 2015/2016E, assuming full recognition by the regulator. Generally, RABs from different regulatory regimes are not directly comparable due to significant methodological differences (e.g. regulatory periods, regulatory depreciation periods). Also, throughout this presentation, RABs are always stated excluding pro-rata share of RAB from participations that are not fully consolidated. 3 Based on volume sold; as of With respect to the Retail segment, the term customers refers to customer contracts (electricity and gas contracts counted separately) throughout the presentation. 5 Source: Bloomberg New Energy Finance; asset owner database; as of March As of 31 December 2015; pro-rata view, excluding Zephyr portfolio. Excluding 0.3GW renewables capacity from fully consolidated participations related to the Grid & Infrastructure segment. page 8

10 Key investment highlights combining a strong regulated profile with a solid platform for growth EBITDA breakdown Share of regulated business Capex breakdown Renewables 0.8bn Grid & Infrastructure 2.9bn Regulated 2 ~60% Renewables 2.1bn Grid & Infrastructure 3.6bn Retail 1.0bn Retail 0.7bn 4.5bn EBITDA 2015¹ 4.5bn EBITDA bn capex ,4 1 Total includes (0.2)bn presented as Other, consolidation in the combined financial statements. 2 Includes regulated and quasi-regulated share of EBITDA. 3 The term capex throughout the presentation refers to capital expenditures on intangible assets, property, plant and equipment. 4 Includes capex from Other, consolidation. page 9

11 Key investment highlights innogy offers a compelling value proposition 1 2 Unique European asset base Stable business 3 Capitalise on evolving energy system Resilient financial profile Focus on value creation 5 Platform for growth 4 page 10

12 Key investment highlights 1 Unique asset mix and diversified European footprint Leading market positions across countries in Europe... with a distinct asset profile 574,000 km total grid 4x #1 positions 1 #3 worldwide in offshore wind 2 Focus on Europe anchored in Germany Largely CO 2 free Limited exposure to commodity prices No nuclear liabilities Market presence Grid & Infrastructure Retail Renewables Strategic partnership 1 Market positions based on volumes, or, in the case of Czech Republic, Poland, Netherlands and Belgium, based on customer numbers, as per latest available data, electricity and gas markets counted separately. 2 By installed capacity. Source: Company estimate based on competitors disclosure, regulatory reports and research reports. Enabler of energy transition page 11

13 Key investment highlights 1 Nuclear provisions fully covered by RWE AG s asset base no nuclear related liabilities with innogy RWE AG s asset base 1 remains unchanged in light of the envisaged transaction illustrative/simplified RWE AG s asset base 100% stake in Grid, Supply & Renewables GenCo + Trading Capital increase via ~10% 2 IPO ~10% 2 stake new investors ~90% RWE stake in innogy GenCo+ Trading 10%-49% stake new investors 51%-90% RWE stake in innogy Cash proceeds from selldown GenCo+ Trading innogy not liable for nuclear liabilities > When pooling the three business segments Grid & Infrastructure, Retail and Renewables the relevant legal entities have either been merged into, or transferred by way of a share transfer to innogy > For none of the carve-out transactions did we use the instrument of a split-off from RWE AG > In this way, we sought to ensure that we will not be held liable for RWE AG's historic liabilities (in particular nuclear liabilities) under existing German law > From a commercial perspective, RWE AG s asset base remains unchanged in light of the envisaged transaction Today 1 Does not represent RWE AG s balance sheet accounts. 2 Post money. Capital increase/ innogy IPO Sell-down by RWE AG page 12

14 Key investment highlights 2 Stable business profile across segments reflected in ~60% of group EBITDA from regulated activities 1 Grid & Infrastructure Retail Customer base development (m) Renewables Regulated share >80% Quasiregulated 3 share ~60% 2015 EBITDA 2.9bn EBITDA 1.0bn 2015 EBITDA 0.8bn Largely regulated and predictable earnings Stable and diversified business in Continental Europe Quasi-regulated 3 earnings platform for further growth 1 Includes regulated and quasi-regulated business activities. 2 Increase predominantly due to first-time full consolidation of VSE. 3 Includes long-term contracts. page 13

15 Key investment highlights 3 Solid capital structure as foundation for stringent business development Resilient EBITDA supporting strong capex spend... additionally backed by solid capital structure Attractive mix of cash generative and growth assets ~4.0x target leverage (net debt 1 /EBITDA) Credit ratios commensurate with strong rating profile EBITDA ( bn) Capex ( bn) Balance sheet strength to enable growth investments. 1 For composition of net debt see slide 41. page 14

16 Key investment highlights 4 Solid platform for future growth Well-defined investment strategy Strict investment criteria to ensure profitable growth Stringent segment-specific set of hurdle rates ~ 6.5bn of capex E Platform for growth Capital increase as enabler for future growth Turnaround of UK retail business well on track Efficiency programme: integral part of management agenda Operational excellence 1 Including financial investments. page 15

17 Key investment highlights 4 Our investment plan builds on measured steps Create options for the future > Develop new business models > Enable innovation Capture new business opportunities > Enter new markets and new technologies > Grow in adjacent business areas Lever core competencies Lever core competencies Expand and upgrade existing asset base Focus > Expand on efficiencies and upgrade and operational existing asset improvements base > Focus on efficiencies and operational improvements page 16

18 Key investment highlights 4 Building on our core competencies creates compelling mid-term prospects market development innogy focus Grid & Infrastructure Germany East Green investments Support the integration of renewable energy sources Smart investments Manage the costs of the energy transition Growth in selected markets Retail Germany Netherlands/Belgium United Kingdom East Renewables UK turnaround Customer focus Capture the increased strategic value of customers Energy+ Proactively manage emerging customer needs Market entry in adjacent markets Execute current pipeline Market opportunities Benefit from continued support for renewable energy sources Operational excellence Efficiency improvements Expansion opportunities Growth in new markets and new technologies page 17

19 Key investment highlights 4 How innogy drives innovation of the future energy system within its Innovation Hub Defining focus topics innogy Innovation Hub Insights Ideation Build and pilot Handover POC 1 POC 1 Operational business/ corporate start-up Decision point 1 Decision point 2 Strategic partnering Berlin/Essen Israel USA 1 Proof of concept. page 18

20 Key investment highlights 4 Two innovative business models optimising production processes and energy management application Idea Phase: pilot PERSONAL ENERGY ADVICE Phase: pilot Sector challenge innogy s approach SMEs 1 in the production sector have a lack of transparency in their production units and no knowledge how to increase performance Retrofit sensors in combination with an analysis web tool generate real time information about production processes and energy usage on machine level Retail customers expect ever more assistance from their energy supplier in helping to understand, control and reduce their energy usage Real-time and appliance level energy insights, provided to retail customers through their innogy company s app, powered by a common data and analytics platform Customer value SMEs are able to minimise energy costs and identify breakdown risks as well as increase machine utilisation. consenze enables customers to improve decision making Reduced energy expenditure and greater sense of control. Higher customer engagement and trust, more willingness to stay, buy and recommend its supplier 1 Small and medium-sized enterprises. page 19

21 Key investment highlights 5 Our key investment principles to safeguard shareholder value Majority of capex into regulated business Focus on growth opportunities in core markets Strict investment framework with conservative hurdle rates Flexible capital allocation approach: competing projects across segments Prudent capital allocation and investment profile Management highly incentivised for value creation page 20

22 Key investment highlights 5 Focus on attractive shareholder returns Attractive dividend policy based on pay-out ratio of 70-80% of adjusted net income 1 Pay-out ratio supported by strong operating cash flows and backed by solid financial structure Dividend policy compatible with innogy s target of an investment grade rating Anticipated payment of full dividend for fiscal year 2016 Management incentive scheme with clear focus on total shareholder return 70-80% dividend pay-out ratio 2 1 Adjusted net income generally excludes one-off effects, including the entire non-operating result as well as associated tax effects. 2 Based on adjusted net income. page 21

23 Key investment highlights 5 Management incentives build on proven RWE scheme adaption to new business environment innogy management incentive scheme well balanced with a clear focus on total shareholder return 1 Individual annual bonus scheme > Based on the economic development of the company, individual and collective performance as well as performance with regards to corporate responsibility and employee motivation Long-term incentive plan > Aims to reward the achievement of long-term strategic objectives while facilitating the capital market orientation > Conditional right to receive a pay-out in cash following a period of four years > Pay-out dependent on achievement of performance targets derived from the strategic planning and set before the first tranche start ( 3-year IPO business plan ) and based on the share price development as well as the accumulated dividends paid to shareholders (total shareholder return) 1 Further details subject to supervisory board approval of RWE International SE (in future: innogy SE). page 22

24 Key investment highlights Corporate governance innogy with high degree of independence reflected in its supervisory board structure Envisaged supervisory board structure > Two-tier board structure 20 members, thereof 10 shareholder and 10 employee representatives Envisaged composition and staffing process > Target composition RWE AG represented by one management board member, designated CFO Markus Krebber Werner Brandt and Frank Bsirske in personal union as supervisory board chairman and supervisory board deputy chairman for RWE AG and innogy > Audit committee to be formed mainly from independent board members > Envisaged three-step approach for filling and confirming supervisory board seats 1 July 2016: three headed supervisory board in place 1 September 2016: 20 members supervisory board Spring 2017: confirmation of 10 shareholder representatives by annual general meeting page 23

25 Key investment highlights Corporate governance agreement on basic principles sets clear and stable rules going forward Key principles governing innogy/rwe relationship Selected features on agreement on basic principles between innogy and RWE > Both parties RWE AG and innogy shall be in the position to pursue their strategic, operational and financial targets individually and independent from each other > Shortly prior to the IPO the domination agreement between innogy and RWE will be terminated > All intercompany relations and agreements to be carried out at arm s length > Non-compete clause states that RWE is largely restrained from competing in innogy s core businesses until 31 December 2019 > RWE will manage innogy as a financial investment RWE AG will not impose strategic and financial targets and is not involved in planning and management incentive discussions Investment decisions at innogy will not be subject to approval by RWE AG page 24

26 Key investment highlights innogy s key characteristics large and stable business with attractive growth prospects 1 Unique European asset base anchored in Germany, leading positions across many countries 13.3bn total RAB 1 +9% increase expected for German RAB 1 23m customers 3.6GW renewables capacity 2 2 Stable business well invested to yield largely regulated and predictable returns ~60% share of regulated 3 EBITDA 3 Resilient financial profile backed by strong cash generation and solid capital structure ~70% >[95]% CFOA 4 /EBITDA Efficiency factor (average ) in Germany ~4.0x Strong Development of SAIDI target / SAIFI leverage rates Among DSOs net debt/ebitda in Eastern Markets 3 4 Solid platform for growth driven by operational excellence supported by IPO proceeds Set for mid-term growth ~ 6.5bn capex 5 ( E) Focus on further efficiencies 5 Focus on value creation 70-80% dividend pay-out ratio based on adjusted net income Strict capital discipline 1 Numbers based on latest notification by regulator or based on calculations in latest filings with regulators. Expected increase in German regulated asset base calculated as RAB 2010/2011 plus net investments (post concession gains/losses) in regulated assets in the years 2010/2011 to 2015/2016E, assuming full recognition by the regulator. Generally, RABs from different regulatory regimes are not directly comparable due to significant methodological differences (e.g. regulatory periods, regulatory depreciation periods). Also, throughout this presentation, RABs are always stated excluding pro-rata share of RAB from participations that are not fully consolidated. 2 As of 31 December 2015; accounting view; includes 3.3GW from Renewables segment (excluding Zephyr portfolio) and 0.3GW renewables capacity from participations related to the Grid & Infrastructure segment. 3 Includes regulated and quasi-regulated business activities. 4 Cash flow from operating activities after interest and tax. 5 Including financial investments. page 25

27 Financials

28 Financials Creating value for innogy shareholders based on stable earnings and a strong financial profile A stable and attractive earnings profile translates into strong cash generation and a solid capital structure creating shareholder value By division 1 CFOA/EBITDA Attractive dividend policy Renewables 17% Retail 21% Grid & Infrastructure 61% ~70% avg % of adjusted net income payout ratio 2015 EBITDA 4.5bn By regulated share Target leverage Prudent growth Regulated share 2 ~60% ~4.0x net debt/ EBITDA Strict investment criteria 1 Segment breakdown based on sum of operating segment results ( 4.7bn). Total includes (0.2)bn presented as Other, consolidation in the combined financial statements. Numbers might not add up due to rounding differences. 2 Includes regulated and quasi-regulated business activities. page 27

29 Financials Historical financials reflective of the current scope of innogy, set-up of target capitalisation ongoing General structure Scope of companies Capital structure Other > Audited IFRS combined financial statements for the years 2013, 2014 and 2015 > Consolidated financials as of H for innogy Group currently being prepared > innogy Group effectively presented as sum of RWE s three segments Grids/Participations/Other, Supply and Renewables Only few carve-out transactions where assets remained with RWE (e.g. Mátra and Markinch) Businesses sold during (e.g. NET4GAS) 1 not included in scope > 2015 balance sheet not representative of innogy s capitalisation going forward > Capitalisation as per H will be reflective of all relevant intercompany transactions (purchase price payments related to formation of innogy) > Further changes to capitalisation resulting from Cash capital contribution of 0.9bn and debt/equity swap of 1.0bn executed in July 2016 ~10% 2 primary capital increase at IPO > One-offs and non-recurring effects in innogy financials affecting comparability of historic performance 1 An exception applies to companies that are part of the business of innogy, e.g. shares in windfarms that were sold by RWE Innogy, or the sale of certain entities with the simultaneous signing of a long-term supply contract that just resulted in a change of the sales channel during the reporting periods of the combined financial statements. These entities are included in the combined financial statements until their respective sale. 2 Post money. page 28

30 Financials innogy is infrastructure-like with roughly 60% regulated 1 earnings driven by stable grid business Grid & Infrastructure EBITDA ( bn) Retail EBITDA ( bn) Renewables EBITDA ( bn) Share of regulated EBITDA 2015¹ >80% Capex intensity Ø ~20% Share of quasi-regulated ~60% EBITDA Retail EBITDA excl. UK (0.1) G&I East G&I Germany Germany NL/BE East UK Note: numbers may not add up due to rounding differences. 1 Includes regulated and quasi-regulated business activities. 2 Capex intensity defined as capex/ebitda. Capex excluding financial investments. 3 Includes long-term contracts. page 29

31 Financials Grid & Infrastructure Germany stable regulatory returns and operational excellence Grid & Infrastructure Germany million EBITDA 1,999 2,222 2,016 t/o operating income from investments Operating D&A (668) (769) (734) Operating result 1,331 1,453 1,282 Capex Capex/operating D&A 1.3 x 1.1 x 1.3 x EBITDA capex 1,158 1,366 1,048 Comments EBITDA development > Decrease in 2015 primarily driven by lower earnings from disposal of grid assets ( 187m in 2014 to 153m in 2015), the sale of LEW high voltage grid to Amprion resulting in book gains during 2014 and higher grid maintenance costs as well as restructuring costs related to early retirement scheme > Increase in 2014 due to grid disposals (from 63m in 2013 to 187m in 2014), above mentioned sale and effects from the efficiency enhancements launched in 2012 > D&A includes impairment charges on gas storage assets of 101m in 2014 and further impairments in 2015 Capex > Strong increase in 2015 driven by higher grid infrastructure optimisation investments > Capex continuously above D&A in all years supporting RAB growth 1 Income from not fully consolidated participations. 2 Excluding financial investments. page 30

32 Financials Grid & Infrastructure East continuous efficiency enhancement reflected in operating results Grid & Infrastructure East million EBITDA t/o operating income from investments Operating D&A (184) (188) (214) Operating result Capex Capex/operating D&A 1.5 x 1.5 x 1.6 x EBITDA capex Comments EBITDA development > Increase in 2015 mainly driven by the revaluation gain of 143m from the first-time consolidation of VSE in Slovakia, improved regulatory conditions for the Czech gas distribution grid leading to increased WACC, higher gas volumes from favorable weather conditions partly offset by decreased gas storage margins > Decrease in 2014 mainly driven by reduction in gas volumes as a consequence of milder weather, which also impacted gas storage margins due to decreased seasonal spread > D&A increased in 2015 as a result of the first-time consolidation of VSE Capex > Increase in 2015 primarily resulting from the first-time full consolidation of VSE and increased investments in Hungarian grid to meet the minimum regulatory requirements following capex cuts in previous years > Capex significantly above D&A in all years supporting RAB growth 1 Income from not fully consolidated participations. 2 Excluding financial investments. page 31

33 Financials Retail Germany innogy s largest retail segment profiting from leading market position Retail Germany million EBITDA Operating D&A (24) (36) (38) Operating result Capex¹ Capex intensity (Capex/EBITDA) 10% 12% 9% EBITDA Capex Comments EBITDA development > Strong increase in 2015 driven by release of provisions, mainly related to legal risks in connection with customer supply contracts which were mitigated in 2015 ( 81m). In addition, positive effects from efficiency enhancement programme, a larger customer base and higher gas sales > 2013 negatively affected by 142m realised losses in our hedge book due to unfavourable wholesale price developments > Adjusted for those effects, results were stable in 2013 and 2014 > D&A increase in 2014 and 2015 due to depreciation of biomass activities transferred from Renewables to Retail in 2014 Capex > Low capex intensity > Capex in 2014 and 2015 impacted by energy+ business, mainly higher investments in CHP generation units 1 Excluding financial investments. page 32

34 Financials Retail NL/BE strong position in stable Dutch and Belgian market Retail NL/BE million EBITDA Operating D&A (59) (53) (42) Operating result Capex¹ Capex intensity (Capex/EBITDA) 5% 5% 11% EBITDA capex Comments EBITDA development > Increase in 2015 mainly due to recovery from weatheraffected results in 2014 and marketing of new supply offerings > Decrease in 2014 due to mild weather and competitive price pressures. Negative effects partly offset by new supply offerings and efficiency improvements > From 2015, weather induced effects largely hedged > D&A decrease in 2015 due to phasing-out of allocated acquisition costs for our subsidiary in NL and decreased depreciation related to IT systems Capex > Low capex intensity 1 Excluding financial investments. page 33

35 Financials Retail East stable earnings contribution in growing Eastern European markets Retail East million EBITDA Operating D&A (23) (6) (6) Operating result Capex¹ Capex intensity (Capex/EBITDA) 4% 5% 9% Comments EBITDA development > Increase in 2015 mainly driven by revaluation gain of 42m from first-time full consolidation of VSE > Slight decrease in 2014 driven by milder weather and increased competition > D&A decreased in 2014 due to several smaller impairments in Czech Republic in 2013 Capex > Low capex intensity EBITDA capex Excluding financial investments. page 34

36 Financials Retail UK burdened by operational issues; recovery well on track Retail UK million EBITDA (65) Operating D&A (76) (67) (72) Operating result (137) Capex¹ Capex intensity (Capex/EBITDA) 29% 50% nm EBITDA capex (254) Comments EBITDA development > Decrease in 2015 mainly driven by severe process- and system-related issues in the billing of household customers. In addition, we were facing regulatory investigations. Overall negative one-off effects from the billing and regulatory issues amounted to 119m 2. Additionally, increasing competitive pressure leading to higher churn rates and margin pressure > Decrease in 2014 mainly driven by initial repair and workaround measures in relation to our IT system, but also mild weather, customer losses and the sale of Telecom Plus portfolio partly offset by release of provisions > 2013 was affected by one-off gain from sale of Telecom Plus Capex > Structurally different capex profile from other countries due to the requirement for investments in IT infrastructure > Increase in 2014 and 2015 due to non-recurring investments in the IT and smart meter infrastructure in the UK 1 Excluding financial investments. 2 Includes (i) net effects of EUR 60 million related to charges concerning erroneous and late invoicing, the build-up of provisions for regulatory charges and reviews and the release of provisions for customer paybacks and (ii) net effects of EUR 59 million related to billing issues due to changes in revenue estimation. page 35

37 Financials Renewables strong recent growth track record Renewables million EBITDA t/o operating income from investments (44) (3) 102 Operating D&A (248) (271) (330) Operating result Capex¹ Capex/operating D&A 3.9x 2.5x 1.2x EBITDA capex (527) (153) 414 Comments EBITDA development > 2015 increase driven by the commissioning of offshore wind farms Nordsee Ost and Gwynt y Môr as well as higher volumes and increased utilisation levels of existing capacities > 2015 result also affected by one-off effects from gains from the sale of a 75% stake in Galloper ( 93m), the Gwynt y Môr network infrastructure ( 30m) and other assets ( 9m) > Increase in 2014 due to positive effects from compensation payments for delays to the completion of Nordsee Ost. This was offset by drastic cuts made by the Spanish government to renewable energy subsidies granted, decreasing power prices and lower volumes from existing assets > Higher D&A in 2015 resulting from increase in overall asset base due to the commissioning of Nordsee Ost and Gwynt y Môr Capex > Significant decrease from 2013 to 2015 mainly driven by the completion of Nordsee Ost and Gwynt y Môr 1 Excluding financial investments. page 36

38 Financials P&L summary (1/2) strong and steadily increasing EBITDA innogy Group million EBITDA 4,194 4,297 4,521 t/o operating income from investments Operating depreciation, amortisation and impairment losses (1,350) (1,438) (1,471) Operating result 2,844 2,859 3,050 Non-operating result (832) (83) 50 t/o impairments (799) - (167) t/o restructuring (315) (103) 15 t/o disposals t/o mtm derivatives 24 (14) 135 Comments EBITDA development > 2015 EBITDA affected by strong increase in Renewables, Retail Germany and G&I East, partly offset by a decline in Retail UK and G&I Germany > Stable net income contribution to EBITDA from investments accounted for using the equity method as well as other income from investments > Non-operating result, amongst other things, includes book gains or losses from the disposal of investments or noncurrent assets not required for operations, impairments as well as effects of the fair valuation of certain derivatives 2013: largely affected by impairments related to Spanish wind farms, primarily due to the government decision to retrospectively cut renewable energy subsidies 2015: largely affected by impairments related to the IT infrastructure in Retail UK t/o other page 37

39 Financials P&L summary (2/2) historical financial result and tax not representative of innogy s future set-up innogy Group million Financial result (567) (555) (302) t/o financial income t/o financial costs (973) (1,000) (880) Income from continuing operations 1,445 2,221 2,798 Taxes on income (551) (523) (860) Effective tax rate 38.1 % 23.5 % 30.7 % Income 894 1,698 1,938 t/o non-controlling interest t/o one-off effects in noncontrolling interest >50 2 Net income 664 1,467 1,613 1 Refers to bonds transferred from Finance BV and Finance BV II. 2 Pre tax. Comments > Financial result not representative of future capital structure given assumptions behind combined financial statements (CFS) In addition, 2016E financial result will be affected by amortisation of fair value 'step-up' 1 > Financial income in 2015 includes 279m gains from disposal of marketable securities held by regional majority participations > Effective tax rate not representative for going concern given CFS did not take into account tax groups, e.g. for offsetting purposes. Other effects: 2013 taxes includes (144)m effects from the non-usability of certain tax loss carry-forwards 2015 taxes includes (258)m effects from non-deductible expenses, e.g. transfer of loans, and 95m effects from non-taxable income, e.g. tax-free gains from disposal of marketable securities > 2015 increase in non-controlling interest driven by both structural and one-off effects: Macquarie increasing stake in RWE GasNet by 15% One-off income from disposal of marketable securities by non-100% owned German regional utilities (> 50m vs. 2014; pre-tax) > Given limitation above, net income is not representative of going concern net earnings level of the innogy Group page 38

40 Financials innogy s normalised tax rate in the order of 25-30% innogy Group million Taxes on income (551) (523) (860) Effective tax rate 38.1 % 23.5 % 30.7 % Statutory tax rate for innogy tax group 31% 31% 31% Germany 31% 31% 31% Comments > Historic tax rate not representative > 2016 tax rate will be significantly impacted by one-offs due to the ongoing restructuring to be adjusted in the adjusted net income > Going forward, innogy expects a normalised tax rate within the range of 25%-30% > Expected cash tax rate of 20%-25% due to use of deferred tax assets related to the foundation of innogy UK 23% 21% 20% NL 25% 25% 25% East ~23% ~24% ~24% ~25%-30% normalised tax rate 1 1 Relevant for adjusted net income. page 39

41 Financials innogy s capital structure next steps to reach leverage target Net debt 2015 Net debt H Cash contribution and D/E swap in July 2016 IPO proceeds > External senior bonds transferred to innogy from RWE AG ( 11.3bn)¹ > Intercompany receivables and payables not reflective of innogy s capital structure > H1 capitalisation reflective of all relevant intercompany transactions related to formation of innogy incl. purchase price payments for transferred assets Leverage target > 0.9bn cash capital contribution used for intercompany debt repayment > Debt/equity swap of ~ 1.0bn > ~10% 2 primary capital increase at IPO ~4.0x net debt/ EBITDA Note: further effects may have an impact on net debt. 1 Refers to bonds transferred from Finance BV and Finance BV II. 2 Post money. page 40

42 Financials innogy net debt composition and impact of the envisaged IPO Net debt item 1 31 Dec 2015 ( bn) 2 Changes in H Changes in Jul Impact from IPO Cash & cash equivalents 0.6 No significant changes No significant changes + ~10% 2 primary capital increase at IPO Marketable securities Potential valuation changes Potential valuation changes - Other financial assets Transaction driven changes No major changes expected 5 - A Financial assets Bonds and bank debt 12.9./. 850m bond repayment in April No changes expected - Adjustment for 'step-up' of bonds to market values (1.2) Amortisation of 'step-up' over maturity of bonds Amortisation of 'step-up' over maturity of bonds - Other financial liabilities incl. intercompany loans Transaction driven changes./. ~ 1bn debt/equity swap./. 0.9bn IC debt repayment 5 - B C D Financial liabilities Provisions for pensions and similar obligations 3.5 Change in discount rate Change in discount rate - Provisions for wind farm decommissioning 0.3 No significant changes No significant changes - Net debt (B - A + C + D) Increase in net debt Reduction in net debt Reduction in net debt 1 Excluding effects from operating cash flow as well as FX-related changes. 2 Post money. 3 Also includes non-current securities ( 26m). 4 Financial receivables adjusted for 0.2bn of loans against associates and unconsolidated subsidiaries. 5 Netting effects may occur. 6 Corresponding effects reflected in other financial assets. 7 Includes hedge transactions related to bonds. page 41

43 Financials Fair value 'step-up' of bonds leads to lower book interest expenses yet no change on cash interest level Fair value 'step-up' of bonds transferred to innogy with impact on IFRS B/S value of bonds P&L interest costs of bonds Cash interest costs of bonds Amortisation of 'step-up' Senior bonds 'step-up' 1.2bn 11.3bn Amortisation over maturity of bonds ~5% avg. interest ~3% avg. P&L interest ~5% avg. cash interest 2015¹ (gross) Amortisation of 'step-up' 2016 (net) 2016 > 'Step-up' resulting from debt transfer transaction > Book (as per RWE IFRS B/S) to market value as per 18 Dec 2015/28 Dec > No impact on repayment value 1 As of 31 Dec Respective dates of initial recognition in innogy s balance sheet. > Book interest expense reduced by positive book effect from amortisation of 'step-up' over time (to be shown within 'interest and similar expenses') > Positive effect on net interest expense reversed in adjusted net income > innogy s cash interest equivalent to contractual coupons identical to RWE AG in the past page 42

44 Financials Strong cash generation with a CFOA/EBITDA of around 70% post tax on average innogy Group billion EBITDA Funds from operations (FFO) Changes in working capital Comments > Delta EBITDA vs. FFO mainly related to book gains in EBITDA related to sale of assets and delta between use and build-up of provisions in 2015 ( 0.4bn), 2014 ( 0.4bn) and 2013 ( 0.0bn) > Funds from operations (FFO) declines among others due to Higher temporary use vs. build-up of provisions in particular pension and personnel provisions in 2015 ( 0.4bn), and 2014 ( 0.2bn), in 2013 balanced use and build-up of pensions and personnel provisions Cash flows from operating activities (CFOA) Temporary increase in cash tax in particular in 2015 vs ( 0.3bn), partly driven by one-offs related to debt transfer from RWE to innogy Capex 1 (2.3) (2.1) (2.0) Free cash flow > Working capital with low volatility in absolute terms Some one-off effects between 2014 and 2013, mainly related to a y-o-y tax related shift in NL/BE ( 0.2bn) > Lower capex mainly in Renewables after finalisation of major investment projects (Nordsee Ost and Gwynt y Môr) Note: rounding differences may occur. 1 Capex on intangible assets, property, plant and equipment, excluding financial investments. page 43

45 Financials Financial discipline and strict investment criteria foundation for growing shareholder value Investment focus Grid & Infrastructure Retail Renewables > Green investments in grid infrastructure driven by energy transition in Germany > Smart maintenance driven by digitalisation > Growth in selected markets > Market entry in adjacent markets > Smart investments in technologies partly backed by public grants > New products driven by changing role of consumers > Execute current pipeline mainly in wind > Existing technologies in new markets > New technology: utility-scale solar ~ 6.5bn planned capex E Indicative capex split E ~ 4.1bn ~ 0.8bn ~ 1.3bn ROI hurdle rates 2 Note: rounding differences may occur. 1 Including financial investments. Pie charts do not include ~ 0.2bn of centrally accounted capex mainly for innovation projects. 2 Hurdle rates = after-tax WACC + project risk adjustment + country risk adjustment. 5%-7% 7%-8% 5%-8% core business 5%-15% new markets/new technologies page 44

46 Financials Financial outlook 2016 and 2017 Financial year EBITDA Comments Gains from disposals of offshore wind parks and grid assets 2015A 4.5bn Gains from first-time consolidation effects and release of provisions Effects related to regulatory and billing issues in the UK retail business 2016F 4.1bn 4.4bn Absence of positive effects, e.g. gain on disposals and release of provisions Higher operating and maintenance costs in German distribution network business Operational improvement in UK Retail operations 2017F 4.3bn 4.7bn Lower cost base for G&I Germany Gross cost savings in UK Retail in line with targets of recovery programme Higher utilisation of installed renewables capacity and addition of capacity, partly offset by lower average revenue per MWh Slight EBITDA improvement from new efficiency programme page 45

47 Financials Financial outlook: key assumptions for G&I EBITDA 2015 EBITDA 2016 Actual 2,878m Forecast 2.5bn 2.7bn > Book gain from revaluation after firsttime consolidation of VSE Slovakia ( 143m) > High income from grid sales ( 153m) > Slight increase in WACC in CZ > Stable allowed returns on RAB due to largely unchanged regulatory regimes > Stable income from investments in Germany > Stable contribution from other business, mainly gas storage and quasi-regulated water business > Higher operating and maintenance costs in German distribution network business > Lower income from grid sales page 46

48 Financials Financial outlook: key assumptions for Retail EBITDA 2015 EBITDA 2016 Actual 988m Forecast 1.0bn 1.2bn > Release of provisions for legal risks in Germany ( 81m) > Book gain from revaluation in relation to first-time consolidation of VSE Slovakia in East ( 42m) > Slight decrease in operational expenditures, also due to continued efficiency efforts > Operational improvement in UK from organisational measures, cost reduction and customer retention measures > Impacts from billing and regulatory issues in UK (- 119m 1 ) > Customer losses in UK and NL, to a large extent offset by customer growth initiatives in other markets 1 Includes (i) net effects of 60m related to charges concerning erroneous and late invoicing, the build-up of provisions for regulatory charges and reviews and the release of provisions for customer paybacks and (ii) net effects of 59m related to billing issues due to changes in revenue estimation. page 47

49 Financials Financial outlook: key assumptions for Renewables EBITDA 2015 EBITDA 2016 Actual 818m Forecast 0.6bn 0.8bn > Gain on disposals of stakes in Galloper, Gwynt y Môr and Triton Knoll ( 132m) > Income from Nordsee Ost claims ( 12m) > Slight increase in generation volumes: Nordsee Ost and Gwynt y Môr contributing for full year 2016 > Better hydrological conditions > Losses from UK development projects (- 27m) > Lower wind conditions > Lower wholesale prices, expected end of subsidies (NL), lower values of LECs (UK), lower prices for green certificates (POL) > Negative effects from GBP/EUR FX > Slight increase in operational expenditures driven by higher installed capacity page 48

50 Financials Financial outlook: summary Segment 2015 EBITDA actual ( bn) 2016 EBITDA forecast ( bn) 2017 EBITDA forecast ( bn) Grid & Infrastructure Retail Renewables innogy Group Including Other, consolidation. page 49

51 Financials innogy definition of adjusted net income as basis for dividend payout ratio Reported EBITDA 1 4.1bn 4.4bn 2016F EBITDA and 4.3bn 4.7bn 2017F EBITDA - Operational D&A Operational D&A as % EBITDA in line with historical levels - Adjusted net interest - Taxes P&L interest costs adjusted for effect from amortisation of 'step-up' of bonds 25%-30% normalised tax rate Adjusted net income Net income adjusted for innogy IPO one-off costs and delta between P&L and cash gross financial debt interest costs Dividends 70%-80% based on adjusted net income 1 EBITDA before one-off costs related to the IPO of innogy which are included in non-operating result only and are added back for the purposes of adjusted net income calculation.. page 50

52 Financials innogy s financial profile four takeaways 1 EBITDA forecast 4.1bn 4.4bn 2016F EBITDA 4.3bn 4.7bn 2017F EBITDA 2 Q&A Lunchbreak Session Stable and highly regulated earnings ~60% share of regulated 1 EBITDA 3 Strong cash generation and solid capital structure ~70% CFOA/EBITDA (average ) ~4.0x target leverage net debt/ebitda 4 Shareholder value creation 70-80% >[95]% dividend pay-out Efficiency ratio factor based on adjusted in net Germany income Strong Development of SAIDI / SAIFI rates Among DSOs in Eastern Markets 3 Strict capital discipline 1 Includes regulated and quasi-regulated business activities. page 51

53 Grid & Infrastructure Overview

54 Grid & Infrastructure Grid & Infrastructure at a glance Highly predictable, regulated earnings contribution Grid & Infrastructure A leading European distribution grid operator 1 Strong development of 13.3bn RAB 2 with 9% RAB increase 2 expected for Germany and 9% historic RAB growth in Eastern Europe 3 Attractive growth opportunities 1 Based on distributed volume. 2 Regulated asset base. Numbers based on latest notification by regulator or based on calculations in latest filings with regulators. Expected increase in German regulated asset base calculated as RAB 2010/2011 plus net investments (post concession gains/losses) in regulated assets in the years 2010/2011 to 2015/2016E, assuming full recognition by the regulator. Generally, RABs from different regulatory regimes are not directly comparable due to significant methodological differences (e.g. regulatory periods, regulatory depreciation periods). Throughout this presentation, the RAB relevant for the 2015 tariff figure is used. Also, throughout this presentation, RABs are always stated excluding pro-rata share of RAB from participations that are not fully consolidated. 3 Historic increase in regulated asset base for Eastern European countries calculated as RAB relevant for tariff in 2015 vs. RAB relevant for tariff in 2011 (in at constant 2011 year-end exchange rates) for Czech Republic, Hungary and Poland. Growth rate excludes Slovakia as RAB was introduced in 2012 only and RAB will only be adjusted in next regulatory period starting Including FX effects, RAB would have increased by ~7%. page 53

55 Grid & Infrastructure A leading European distribution grid operator anchored in Germany Electricity Gas #1 electricity DSO in Germany 3 +9% increase expected for RAB 1 Germany GER 13.3bn regulated asset base 1 CZ PL SK +9% increase for RAB 2 East #1 gas DSO Czech Republic 3 GER GER CZ HU PL SK Distributed volume (GWh) 142,000 73,000 66,500 16,800 7,200 3,700 Grid customers (m) Grid area ( 000 km²) Grid length ( 000 km) RAB 1 9.7bn 1.6bn 0.9bn 0.7bn 0.5bn Country rating 6 AAA A1 Ba1 A2 A2 HU Note: all figures (except for RAB) as per Rounding differences may occur. 1 Regulated asset base. Numbers based on latest notification by regulator or based on calculations in latest filings with regulators. Expected increase in German regulated asset base calculated as RAB 2010/2011 plus net investments (post concession gains/losses) in regulated assets in the years 2010/2011 to 2015/2016E, assuming full recognition by the regulator. Generally, RABs from different regulatory regimes are not directly comparable due to significant methodological differences (e.g. regulatory periods, regulatory depreciation periods). Throughout this presentation, the RAB relevant for the 2015 tariff figure is used. Also, throughout this presentation, RABs are always stated excluding pro-rata share of RAB from participations that are not fully consolidated. 2 Historic increase in regulated asset base for Eastern countries calculated as RAB relevant for tariff in 2015 vs. RAB relevant for tariff in 2011 (in at constant 2011 year-end exchange rates) for Czech Republic, Hungary and Poland. Growth rate excludes Slovakia as RAB was introduced in 2012 only and RAB will only be adjusted in next regulatory period starting Including FX effects, RAB would have increased by ~7%. 3 Based on distributed volume. 4 Grid customers are defined as supplied delivery points. 5 Based on operated grid. 6 Source: Moody s. page 54

56 Grid & Infrastructure G&I with largely regulated and predictable earnings accounting for over 60% of innogy Group EBITDA G&I within innogy By regulated business By geography By area 4.5bn 17% 21% East ~30% Participations Other Fully consolidated 61% Share of regulated business >80% Germany ~70% Grid 2015 EBITDA 2.9bn innogy EBITDA Renewables Retail Grid & Infrastructure No. 1 electricity DSO in Germany² Strong track record of profitable growth in Eastern Europe High share of regulated business 1 Segment breakdown based on sum of operating segment ( 4.7bn). Total includes (0.2)bn presented as Other, consolidation in the combined financial statements. Numbers might not add up due to rounding differences. 2 In terms of distributed volume. As of page 55

57 Grid & Infrastructure Capex above depreciation resulting in RAB growth Development of regulatory asset base ( bn) Capex breakdown E¹ +9% expected increase for 2010/ /16 RAB Germany 2 +9% historic increase for RAB East 3 25% East 75% Germany RAB 2010/11 Cumulated regulatory depreciation Cumulated capex RAB 2015/16 Total ~ 4.1bn > Capex continuously above regulatory depreciation over > Resulting RAB growth to support regulated profits > Majority of capex will be invested in Germany, increasingly for Energiewende investments > Eastern European capex used mainly for conventional grid expansion and new customer connections 1 Capex including financial investments. Includes non-grid capex. 2 Regulated asset base. Expected increase in German regulated asset base calculated as RAB 2010/2011 plus net investments (post concession gains/losses) in regulated assets in the years 2010/2011 to 2015/2016E, assuming full recognition by the regulator. 3 Historic increase in regulated asset base for Eastern European countries calculated as RAB relevant for tariff in 2015 vs. RAB relevant for tariff in 2011 (in at constant 2011 year-end exchange rates) for Czech Republic, Hungary and Poland. Growth rate excludes Slovakia as RAB was introduced in 2012 only and RAB will only be adjusted in next regulatory period starting Including FX effects, RAB would have increased by ~7%. page 56

58 Grid & Infrastructure Germany Germany #1 electricity DSO with strong market position in industrial centres Grid & participations overview innogy key statistics 9.7bn regulated asset base 1 Hamburg Hanover Berlin #1 electricity DSO in Germany 2 Electricity Gas Grid length ( 000 km) Grid customers 6 9.3m 1.0m +9% increase expected for German RAB¹ Dortmund Essen Cologne Wiesbaden Mainz Frankfurt Chemnitz Dresden A leading gas DSO 3 Ranking of German electricity and gas DSOs 2 Electricity Gas >10m grid customers Saarbruecken Stuttgart Augsburg Munich >100 municipal participations 4 #1 #2 #3 Distribution network; area: electricity, natural gas and water activities of innogy in Germany Total DSOs (#) ~900 7 ~ Numbers based on latest notification by regulator or based on calculations in latest filings with regulators. Expected increase in German regulated asset base calculated as RAB 2010/2011 plus net investments (post concession gains/losses) in regulated assets in the years 2010/2011 to 2015/2016E, assuming full recognition by the regulator. Throughout this presentation, RABs are always stated excluding pro-rata share of RAB from participations that are not fully consolidated. 2 Based on distributed volume. Source: RWE, E.ON, EnBW, EWE. Data as of 2015 (except for some EnBW-DSOs which are based on 2014). 3 Based on distributed volume. 4 Not fully consolidated municipal utilities. 5 Based on operated grid. 6 Grid customers are defined as supplied delivery points. 7 BNetzA, Monitoring report Federal Ministry for Economic Affairs and Energy, website, as of 8 Jun page 57

59 Grid & Infrastructure Germany State-of-the-art asset base with #1 positions by volume & load in Germany Electricity distribution grid 1 Volumes (TWh) Network load (GW) Grid length ( 000 km) innogy E.ON EnBW innogy E.ON EnBW #1 #1 #1 innogy E.ON EnBW Gas distribution grid 1 Volumes (TWh) Network load (GW) Grid length ( 000 km) E.ON innogy EWE #2 innogy E.ON EWE #1 E.ON EWE innogy #3 Source: RWE, E.ON, EnBW, EWE. 1 Data as of 2015 (except for some EnBW-DSOs, which are based on 2014). page 58

60 Grid & Infrastructure Clear strategic imperatives efficiency and capitalising on regulatory expertise to drive earnings growth B Operational excellence A Regulatory management > Exploit operational synergies from scale of business and bestpractice transfer > Drive efficiency via further digitalisation and process optimisation C Business development > Stable regulatory framework leads to predictable earnings > Close interaction with regulators as proven way to prepare for regulatory change > Optimised capex strategy for sustained earnings growth across markets > Anticipate changing role of DSO and benefit from new business models > Small-scale acquisitions page 59

61 Grid & Infrastructure Germany A High level of experience through long-term involvement in German regulation > Timeline for electricity to be read as follows: in 2017, assessment of costs of year 2016 (base year) for benchmarking in 2018, beginning of 3 rd regulatory period in 2019 > Gas and electricity with different timelines to relieve the process of cost assessment '06 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 Incentive regulation 1 st period Cost assessment for 2 nd period Efficiency benchmarking for 2 nd period Incentive regulation 2 nd period Cost assessment for 3 rd period Efficiency benchmarking for 3 rd period Incentive regulation 3 rd period Base year for the 1 st regulation period Beginning of incentive regulation Gas base year for the 3 rd regulation period Electricity base year for the 3 rd regulation period page 60

62 Grid & Infrastructure Germany A German incentive regulation a mature and stable system Cornerstones of German network regulation Current discussion on regulatory review for 3 rd regulatory period Ex-ante revenue cap regulation Elimination of time-lag for investments Cost recognition based on actual DSO s cost base Adjustment of productivity development RAB remuneration determined for entire regulatory period Setting of new imputed return on equity Remuneration mechanism for grid expansion Bonus for most efficient DSOs page 61

63 Grid & Infrastructure Germany A Recent wave of concession renewals successfully accomplished more certainty Overview of concession renewals¹ innogy s existing concessions 75% 50% ~65% 9-12 years weighted average concession duration 2 Concessionbased RAB ~2/3 Nonconcessionbased RAB 3 ~1/3 25% 0% E-2020E 2021E-2025E 2026E-2030E >2031E > During the last 5 years ( ), innogy has experienced a wave of concession renewal processes > innogy has successfully renewed or transferred to grid participations approx. 90% of its expiring concessions over the last 5 years > In case of lost concessions, forced grid sale still offers potential for attractive remuneration of current asset base and investments > Fewer upcoming concession renewals in the mid-term > Tender proceedings are based on quality factors > innogy s advantages are, among others, relationship management in existing concession contracts and fast technical solutions Strong portfolio of ~3,800 concessions 4 Fully consolidated entities account for 94%, participations 5 for further 6% of total concessions ~1/3 of German RAB not based on concessions 3, thus providing further earnings stability 1 Concession renewals based on inhabitants supplied, taking into account exercise of early cancellation options. Chart indicates concessions up for renewal within respective time period, excluding water concessions. 2 Based on inhabitants supplied. 9-year weighted average takes early cancellation options into account. 12-year weighted average excl. early cancellation options. 3 Applies to high voltage, certain regional-based medium voltage grids as well as to high pressure gas grids. Based on 2010/11 RAB in Germany. 4 Including electricity, gas and water concessions. As of 30 June Refers to grid participations for which an innogy entity is the grid operator. page 62

64 Grid & Infrastructure Germany B G&I with superior operational performance and high quality assets supporting sustainable performance Cost benchmarking illustrates innogy s industryleading position Transparent maintenance and renewal strategy based on technically feasible lifetimes and relevant risk aspects Efficient and effective processes, e.g. automated workforce management Combined investment strategy addressing technical and regulatory perspectives Typical costs of a grid operator Exemplary split for innogy s Westnetz 3 Connecting points Substations Other Distribution lines Costs per high voltage grid length ( 000s/km) 1,2 40, , , , , , innogy entities Costs per substation ( 000s)¹ innogy entities Costs per connecting points ( )¹ innogy entities 20 0 innogy grids, benchmarking of 130 grid operators median costs Source: Polynomics AG, Note: representative subset of 130 major grid operators (out of 196). Grid operators not participating in benchmarking mostly small grid operators. 1 Costs used in regulatory benchmarking process. Outliers graphically cropped. Average excluding outliers. 2 High voltage benchmarking relates to 110kV grids only. 3 Based on 2016E forecast data. page 63

65 Grid & Infrastructure Germany B Smart replacement investments further enhancing operational performance and RAB development Optimisation of distribution grids 1 leading to increased operational efficiency and reduced O&M costs Improvement of operating metrics Before Grid length (km) Before After investments Optimisation of O&M costs Switchgears (#) Before After After Degree of cabling 2 (%) Constantly improving operational performance through smart replacement capex 1 Optimisation example of a medium voltage distribution grid. 2 Degree of cabling = underground cables/total grid length. Before After page 64

66 Grid & Infrastructure Germany C German Energiewende opens up significant growth opportunities for distribution grids Renewables have transformed the German energy landscape Installed capacity from renewables (GW)¹ Hydro Wind offshore Biomass Wind onshore Solar PV Other driven by a strong political will to decarbonise the economy 2 25% 1.5% 40% 80% Thermal electricity generation from CHP in 2020 Annual decrease in total energy consumption from 2014 to 2020 Reduction of greenhouse gas emissions until 2020 (compared to 1990) Share of electricity demand to be covered by renewables until 2050 which will continue to drive the expansion of renewables 11 CAGR 5.7% Total RES capacity installed (GW)³ 1 Source: AGEE/BMWi. 2 Source: BMUB, BMWI. 3 Source: European Commission. Excluding pump storage hydro generation. page 65

67 Grid & Infrastructure Germany C Energiewende mainly takes place at DSO level 25 largest network operators in terms of integrated decentral RES capacity¹ Installed capacity (GW) Westnetz Peer 1 Mitnetz Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 LEW Peer 9 Peer 10 innogy companies Other Cumulated share Peer 11 Peer 12 Peer 13 Peer 14 Peer 15 Peer 16 Peer 17 Peer 18 Syna Peer 19 Peer 20 Peer % 80% 60% 40% 20% 0% Cumulated share > In total, 90% 1 of RES capacity is connected to the distribution grid in Germany > With continued growth in RES capacities, DSOs will play a central role in integrating and coordinating the transition towards renewables > innogy is well positioned and at the forefront of this development already among the leading integrators of installed decentral RES capacity 1 Source: EnergyMap.info; largest German network operators in terms of integrated decentral RES capacity as of August page 66

68 Grid & Infrastructure Germany C requiring DSOs to develop intelligent solutions Electricity cost breakdown¹ Grid fees 25% Supply 21% Taxes, levies and fees 54% > Network costs form a substantial part of electricity prices > Investment needs in distribution grids of 23-49bn until further opportunity for RAB growth Expected Ø investments/costs and technical options 2 Development of electricity prices (ct/kwh) 3 bn p.a Conventional grid expansion 28.7 (15)% (20)% Advanced energy curtailment⁴ Conventional expansion Controllable grid devices⁵ Innovative expansion 2016 Energiewende - grid expansion > Political focus to maintain affordable level of power prices > Tackling Energiewende -related investments requires efficient and innovative grid solutions > Development of innovative solutions reduces overall investment needs by up to 20% > As a trusted partner with industry-leading know-how and innovation power, innogy is well positioned to manage the Energiewende 1 Source: German Energy and Water Association, May 2016; Cost breakdown of electricity for household customers annual consumption of ca. 3,500 kwh. 2 Source: Moderne Verteilernetze für Deutschland (Verteilernetzstudie) study for the German Ministry of Economics and Energy (BMWi). Investment needs from assuming conventional grid expansion. 3 Source: German Energy and Water Association, May 2016; Development of electricity prices for household customers (ct/kwh) incl. taxes, levies and fees; annual consumption of ca. 3,500kWh. 4 Curtailment occurs when power output must be shut down in order to balance the grid. Advanced energy curtailment seeks to minimise the resulting economic losses. 5 Controllable grid devices seek to actively address and manage changes in electric frequency due to changes in supply or demand, resulting in less system interruptions as well as adjustments of load depending on current electricity prices. page 67

69 Grid & Infrastructure Germany C Real life examples innogy enables the Energiewende by expanding grid architecture and integrating RES Grid expansion 1 Erwitte WP Wehlühgel Müscheder Weg Rüthen Project Bestwig pipeline Ludwigstr. 2016ff Geseke Dyckerhoff SA Milke Rüthen WP Oberfeld WP Weiberg Substation Wind park Existing before Energiewende Investments Anneliese WP Hölter Berg Büren Büren An der Bremecke Nehden Brilon WP Empertal WP Vierlinden Wünnenberg WP Madfeld WP Radlinghausen Brilon Messinghausen Accu Bredelar WP Altenautal WP Wewelsburg WP Hohenroden Bad Wünnenberg Giershage n WP Neudorf Marsberg Marsberg WEPA Husen WP Kohlgrund 1 WP Adorf WP Kohlgrund 2 Lichtenau WP Meerhof WP Hakenberg Third-party RES integration innogy s network service business is very successful at integrating third-party RES sources to distribution grid: Example: windfarm Heidenrod > Building and connection of 12 wind power stations within ~½ year > Supplied households: 26,000 Example: solar park Pferdsfeld 2 > innogy to connect 28MW of generation capacity > Supplied households: 7,000 20m of grid expansion projects (110kV) implemented/being implemented in local area since m of additional grid expansion projects in pipeline (110kV) innogy s grid business with its continuous investments is the enabler of Energiewende Investments increase regulated asset base and will remain of high operational value to avoid grid flow bottlenecks 1 Example refers to area of Büren, Germany. 2 Currently under construction. page 68

70 Grid & Infrastructure Germany C innogy is a clear innovation leader in its field Example project Smart Operator > Energiewende - increasing RES feed-in leading to volatile grid flows > Intelligent solution in the low voltage grid alternative to conventional expansion > Smart Operator communicates with feed-in sources and consumers and collects data > Improves forecast of grid load and capacity can then be used to balance supply/demand, i.e. by using household appliances at RES peak feed-in times > Improved grid planning, transparency and cost effectiveness Smart operator Intelligent meter Photovoltaic Appliances Home energy controller Hot water Example project Smart Country > Smart country ensures supply of rural areas in times of increasingly decentralised energy > Voltage stability mechanism reducing need for grid expansion with mechanisms such as storage for feed-in balancing, supply/demand analysis technology and more resilient voltage controllers > Roll-out mostly in small rural municipalities, where energy supply is forecasted to exceed demand by 2030 > Received top award and funding by the German Ministry of Economics and Energy Biogas Biogas storage CHP Photovoltaic systems Windfarm Voltage controller Tangible innovative solutions Constantly lifting controllable cost efficiencies Leveraging Energiewende know-how page 69

71 Grid & Infrastructure Germany C Increased focus on Energiewende investments reflected in capex spend Capex breakdown¹ Other grid capex 13% E total capex G&I Germany ~ 3.1bn 1 Energiewende investments 16% Non-grid capex 18% 3 Replacement 34% Customer connections 19% ~ 3.1bn of investments E will continue to support growth in Germany Replacement Energiewende investments Customer connections > Optimisation of existing distribution grid through smart replacement capex > Increases operational efficiency and reduces O&M costs > Integration of renewables capacity > Smart technology driven by digitalisation > Innovative solutions for grid expansion > New customer connections 1 Capex including financial investments. 2 Other grid capex includes investment for non-regulated grid assets such as street lighting, broadband, water or telco activities. 3 Non-grid capex comprises of capex for innogy s German storage facilities, shares of investment spend related to participations as well as capex for other activities, such as innogy s water business. page 70

72 Grid & Infrastructure Germany Participations strategic partnerships with municipal utilities as key competitive advantage Participations as integral component of G&I Selected municipal participations 2 > Partnerships mainly with municipal utilities extend innogy s regional coverage across Germany Participation innogy share 2 Income from investments 3 > Participations provide regional identification and customer proximity > Strategic advantage for innogy also in minority participations through its frequent role as service provider > Synergies in the area of testing, developing and rolling out new business models > Best practices and economies of scale in areas such as procurement, risk management and other > >100 municipal participations 1 20% 27 40% 15 50% 12 43% 7 27% 7 Note: largest participations by contribution to G&I income from investments (adjusting for income/losses from loans to other group entities, gains/losses from sale of investments and other components). 1 Not fully consolidated regional or municipal utilities. 2 As per innogy s combined financial statements. Top municipal 5 participations based on at-equity income contributions shown. Does not include Austrian Kelag with income from investments of 32m. 3 In FY2015. page 71

73 Grid & Infrastructure Germany/East Other business supplemental utility businesses strengthening local footprint Indicative split of 0.3bn G&I EBITDA 2015A from Other Gas storage Water supply TelCo, service and other activities Generation 4.3bcm working gas volume 1 ~75m m³ water supplied in 2015 (RWW) 3 TelCo service provider ~800GWh LEW electricity production from renewables 5 11 facilities in Germany and Czech Republic Some subsidiaries providing wide range of B2B/B2C TelCo products and services Robust cash margins 2 ~3,000km grid length 4 Other services ~600 MW installed capacity Conventional Generation and Other 6 Modern, cost-efficient storage facilities 1 As of 30 Jun RWE Gasspeicher benchmarking, estimates based on publicly available data and market intelligence. Excluding storage facility for which closure has been initiated. 3 innogy has other minor water supply business activities beside RWW. 4 Source: Umwelterklärung RWW Source: company information, as per Annual Report Source: company information. For fiscal year 2015; incl. pumped storage and waste. Energy data management and services facility management, street lighting Hydro, incl. pump storage, run-of-river, as well as small lignite and coal page 72

74 Grid & Infrastructure Germany/East Gas storage despite poor summer-winter spreads, innogy s gas storages with robust cash margin position innogy s gas storage portfolio in Germany and the Czech Republic Working gas volume (bcm) 1 5 storage facilities > innogy s gas storage portfolio mainly comprising of cavern storages in Germany and depleted gas fields in the Czech Republic 6 storage facilities 2.71 > Comparably high cash margins Storage system operator in Germany Storage system operator in the Czech Republic > Industry-leading feed-in times well-positioned to benefit from German Energiewende North-Western Europe Industry cash margins 3 Czech Republic, Slovakia and Austria innogy facilities 4 Closure initiated innogy s gas storage portfolio exclusively comprising of cash-generative assets strategic measures taken in the past for best positioning to capture future upsides Source: innogy estimates based on publicly available data and market intelligence. 1 As of 30 Jun Excluding storage facility for which closure has been initiated. 3 Cash margin defined as (revenue./. opex); revenues are simulated at current market prices and do not take into account possible long-term contracts; opex is estimated on basis of available technical and other parameters such as type, size, depth of storage, etc. 4 Includes one facility which will be closed; another facility is represented by two bars representing the original facility and its extension, bringing innogy s total number of storages to 7 in the ranking for North-Western Europe. page 73

75 Grid & Infrastructure Germany RWW innogy s water competence is one of the largest in Germany RWW overview RWW at a glance ~3,000 km grid length Burlo Weseke Borken Velen Gescher-Hochmoor Reken 33m A EBITDA > RWW is one of the largest privately owned water utilities in Germany 850 km² area served ~75m m³ drinking water supplied in 2015 Wesel Dinslaken Duisburg Raesfeld-Erle Schermbeck Dorsten Gladbeck Bottrop Oberhausen Mülheim an der Ruhr (RWW headquarter) Ratingen Velbert Heiligenhaus Essen (innogy headquarter) Wülfrath Gelsenkirchen Monopolistic, quasi-regulated industry structure 63,000 m³ capacity 1 of RWW s 13 reservoirs > Provides drinking water to 135k connections and 900k citizens > Industrial customer base and hydroelectric power plant diversify business profile > Stable, concession-based business models providing long-term earnings visibility (important current concessions until 2027) > Awarded as top water utility 2016 in several categories such as quality, service and transparency Service point Water treatment plant Water reservoir Distribution grid Direct supply Supply to third-party distributors Emergency water supply Water protection area Note: all figures based on RWW Rheinisch-Westfälische Wasserwerksgesellschaft mbh (2016) - RWW Umwelterklärung 2015, unless otherwise stated. 1 Company information. page 74

76 Grid & Infrastructure Germany Grid & Infrastructure Germany key takeaways 9.7bn RAB¹ 9.7bn 9% RAB increase RAB¹ expected for German RAB¹ GER 9.05%² until 2017/18 return on equity for current regulatory period in Germany ~97% efficiency factor in Germany Among the leading RES-integrators in Germany 1 Regulated asset base. Numbers based on latest notification by regulator or based on calculations in latest filings with regulators. Expected increase in German regulated asset base calculated as RAB 2010/2011 plus net investments (post concession gains/losses) in regulated assets in the years 2010/2011 to 2015/2016E, assuming full recognition by the regulator. Throughout this presentation, RABs are always stated excluding prorata share of RAB from participations that are not fully consolidated. 2 Nominal return on equity on existing RAB until 2017/18 according to German ARegV for new assets (post 2005); 7.14% real for old assets (pre 2006); stated returns pre corporate tax, after trade tax. Based on current initial proposal from BNetzA, return on equity to change to 6.91% for new assets and 5.12% for old assets in the next regulatory period. page 75

77 Grid & Infrastructure East Leading positions in Eastern markets based on diverse electricity and gas portfolio in four different countries #1 gas DSO Czech Republic 3 3.6bn regulated asset base (RAB) 1 CZ PL SK HU +9% increase for Eastern countries RAB 2 #2 electricity DSO Hungary 3 Electricity Gas CZ HU PL SK Distributed volume (GWh) 66,500 16,800 7,200 3,700 Grid customers (m) Grid area ( 000 km²) Grid length ( 000 km) RAB¹ 1.6bn 0.9bn 0.7bn 0.5bn Country rating 6 A1 Ba1 A2 A2 Note: all figures as of Generally, RABs from different regulatory regimes are not directly comparable due to significant methodological differences (e.g. regulatory periods, regulatory depreciation periods). Also, throughout this presentation, RABs are always stated excluding pro-rata share of RAB from participations that are not fully consolidated. Numbers based on latest notification by regulator or based on calculations in latest filings with regulators. RAB values reflect RABs relevant for the tariff in Historic increase in regulated asset base for Eastern countries calculated as RAB relevant for tariff in 2015 vs. RAB relevant for tariff in 2011 (in at constant 2011 year-end exchange rates) for Czech Republic, Hungary and Poland. Growth rate excludes Slovakia as RAB was introduced in 2012 only and RAB will only be adjusted in next regulatory period starting Including FX effects, RAB would have increased by ~7%. 3 Based on distributed volume. 4 Grid customers are defined as supplied delivery points. 5 Based on operated grid. 6 Source: Moody s. page 76

78 Grid & Infrastructure East innogy s Eastern Europe operations a success story Key pillars of value creation in Eastern European countries Restructuring Experience Strong partnerships Operational excellence Innovation > Restructuring of acquired incumbents > Process improvement and best practice transfer > Successfully managed several regulatory periods in different regulatory environments > Systematically optimising businesses within regulatory frameworks > Good working partnerships with governments, municipalities and financial investors > Support governments in energy market transition and play active and important role in DSO landscape > Increased efficiency with continuous process optimisation and best practices > Exchange of DSO knowledge with Germany > Development of innovative pilot projects > Grid automation contributing to and benefitting from German Energiewende know-how Successfully entered markets via privatisation between 1995 and 2003 at attractive valuations Diverse portfolio of grid businesses/infrastructure across different markets and commodities Further growth potential in Eastern Europe through further demand growth and additional RES integration page 77

79 Grid & Infrastructure East Czech Republic track record of continuous optimisation and investments Gas distribution market share 1 Regulation Other DSOs 17% 1.6bn RAB 2 innogy 83% RAB increase 7.94% WACC 3 vs. last period (RP ) Country highlights Long-standing experience in regulatory management and established relationship with regulator. Successfully managed the business through 3 regulatory periods since entry in 2002 Continuously optimised processes/increased efficiency (# of employees decreased by ~10% since 2007) 2 Significant simplification of governance structures and realisation of operative synergies (regional integrated companies transformed to nation-wide functional business) Geographical presence Significant simplification of structures SČP ZČP STP VČP SMP RWE Gasnet 4 JČP JMP JMP Successful financial partnership with a consortium of funds managed by Macquarie Infrastructure and Real Assets, the 49.96% shareholder (increased from 35% in 2015) Continuous increase of RAB to 1.6bn 6 regional integrated gas companies 1 company 1 Source: Energy Regulatory Office (2016): yearly report on the operation of the Czech gas system in Based on distributed volume in As of Nominal WACC value. 4 Only DSO. page 78

80 Grid & Infrastructure East Hungary leading distributor in Budapest and North-East setting the pace of innovation in Hungary Electricity distrib. market share 1 Other DSOs ~60% innogy ~40% Long-standing experience in regulatory management and established relationship with regulator. Successfully managed the business through 4 regulatory periods since entry in 1995 Successful integration of two operating companies (ELMÚ/ÉMÁSZ) through steering by one management team Regulation 0.9bn RAB 2 RAB decrease 6.23% WACC 3 vs. last period (RP ) Country highlights Future strategic focus on exploitation of digital grid solutions to increase network quality and increase operational efficiency Decrease in RAB vs. previous regulatory period driven mainly by negative fluctuations in the exchange rate between EUR and HUF Geographical presence ÉDÁSZ DÉDÁSZ ÉMÁSZ 4 ELMÚ 4 TITÁS DÉMÁSZ Re-increased investment volume and improved operational efficiency to compensate for remuneration decrease caused by politically driven energy price cuts and sector specific taxes Development of innovative pilot projects in cooperation with local authorities, e.g. urban solutions 1 Based on innogy estimation of distributed volumes. 2 As of Real WACC value. 4 innogy subsidiaries: ~54% and ~55% share in ÉMÁSZ and ELMÚ, respectively. page 79

81 Grid & Infrastructure East Poland distributor for dynamically growing Warsaw actively involved in innovating Polish distribution sector Electricity distrib. market share 1 Other DSOs 94% innogy 6% Long-standing experience in regulatory management and established relationship with regulator. Successfully managed the business through 3 regulatory periods since entry in 2003 Our DSO plays an active important role in the DSO landscape and chairs the TSO and DSO association Regulation 0.7bn RAB 2 RAB increase 5.675% WACC 4 vs. last period 3 (RP ) Country highlights Leveraging position in capital city of Warsaw to extend innovation leadership, e.g. AmpaCity and a unique prototype of a demand response tool Front runner role in Poland with smart metering pilot project for 100,000 meters in Warsaw leading to additional remuneration Geographical presence DSO for dynamically growing capital Warsaw Warsaw Very good SAIDI 5 and SAIFI 6 rates among Polish incumbent DSOs 7 Continuously increased RAB; regulatory step-up reached in Based on distributed volume. Data as of As of RAB adjusted each year. 4 Nominal WACC value confirmed for 2016; following years to be adjusted according to risk free rate development. 5 System average interruption duration index. 6 System average interruption frequency index. 7 Source: company information about the largest Polish DSOs as per FYE page 80

82 Grid & Infrastructure East Slovakia No. 3 position successful cooperation with Slovakian government, full consolidation since 2015 Electricity distrib. market share 1 Other DSOs 80% innogy 20% Long-standing experience in regulatory management and established relationship with regulator. Successfully managed the business through 3 regulatory periods since entry in 2003 Strong partner to the Slovakian government with full management rights Regulation 0.5bn RAB 2 Constant RAB 6.12% WACC 3 vs. last period 2 (RP ) Country highlights Constant RAB within last regulatory period 49% shareholding, however, full consolidation under IFRS since 2015 driven by management rights assigned to innogy Geographical presence ZSD SSE-D VSD 4 (innogy) Ongoing smart metering roll-out >4MWh p.a. until 2020 and clear focus to increase grid automation Constant investment of ~ 40m p.a. 5 continuous asset renewal, increase quality of supply and safety of operations 1 Source: Energy Analytics Energeticky TRH SR RAB introduced in Real WACC in Subsidiary of VSE Holding. 5 Refers to page 81

83 Grid & Infrastructure East A East regulation across countries with near-term stability of regulatory parameters Regulatory model overview Regulatory period overview > Transparent regulatory framework > Close interaction with regulators based on years of trust and reliability > Similar formulae for regulated revenues/prices in all four countries > Stable returns from RAB For 2/3 of East RAB (CZ and PL) expected until 2018 and 2020 respectively due to both regulatory periods beginning in 2016 CZ HU PL SK For 1/3 of East RAB (SK/HU) trustful consultations ongoing on new regulatory period starting 2017 Electricity distribution Gas distribution Largest RABs in stable countries Broadly similar regulation systems Overlapping regulatory periods provide stability page 82

84 Grid & Infrastructure East B Operational excellence reflected in continuous improvement of quality of distribution Improving grid performance 1 driven by focus on modernisation investments SAIDI (min) 2 SAIFI SK 4 HU SK 4 HU 5 Slovakia: significantly improved quality of supply > Result of considerable increase in investment volume > Replacement of critical assets and grid renewal > After roll-out of high voltage grid automation, ongoing roll-out in medium voltage space > Shorter response times in case of outages by introduction of modern workforce management system > Regulator is monitoring various quality standards, customers are automatically compensated by DSO if not keeping a quality standard Hungary: DSO improvement measures > Intelligent medium voltage/low voltage stations > Grid automation solutions > Upgrade of IT solutions: mobile workforce management, supervisory control and data acquisition system, condition-based maintenance strategy and advanced geographical information systems > Investment strategy incentivised by bonus/malus system Source: innogy company information. 1 Note: quality parameters among countries not directly comparable due to different grid structures and technical conditions. 2 System average interruption duration index is a reliability indicator of average outage duration for each customer served, measured in minutes per annum. 3 System average interruption frequency index is a reliability indicator of average numbers of interruptions per year. 4 Comparable methodology starting from As per innogy company information. 5 Metrics presented related to ELMÚ. page 83

85 Grid & Infrastructure East C Future investments in East mainly driven by replacement and customer connections Capex breakdown¹ Customer connections 17% E total capex G&I East ~ 1.0bn 1 Non-grid capex 6% Other grid capex 2 3 5% Energiewende investments 4 1% Replacement 70% Replacement Customer Connections > Optimisation of existing grid > Modernisation of stations and gas pipelines; construction of cables and overhead lines on all voltage levels > Increases operational efficiency and reduces O&M costs > Growth in connection numbers driven by underlying macro factors (population, energy demand) > Mostly customers from existing grid; new lines where load demand exceeds current capacity > Connections of renewables so far less pronounced, but growth foreseeable in the future ~ 1.0bn of investments E will continue to drive growth in innogy s Eastern markets Other > Primarily IT hardware and software > Third party driven investments rebuilding existing grid routes or cabling overhead lines to free the ground 1 Capex including financial investments. 2 Non-grid capex contains investments in storage, overhead (e.g. renewal of buildings, IT investments) and other. 3 Other grid capex primarily includes IT investments or third party capex. 4 Mainly relates to smart meter investments. page 84

86 Grid & Infrastructure East Grid & Infrastructure East key takeaways 3.6bn RAB¹ 9% RAB increase 9.7bn RAB¹ for East RAB 2 PL Value creation through market entry capabilities and continuous optimisation CZ SK HU #1 gas DSO in Czech Republic 3 Operational excellence (SAIDI/SAIFI) Electricity Gas 1 Generally, RABs from different regulatory regimes are not directly comparable due to significant methodological differences (e.g. regulatory periods, regulatory depreciation periods). Also, throughout this presentation, RABs are always stated excluding pro-rata share of RAB from participations that are not fully consolidated. Numbers based on latest notification by regulator or based on calculations in latest filings with regulators. RAB values reflect RABs relevant for the tariff in Historic increase in regulated asset base for Eastern countries calculated as RAB relevant for tariff in 2015 vs. RAB relevant for tariff in 2011 (in at constant 2011 year-end exchange rates) for Czech Republic, Hungary and Poland. Growth rate excludes Slovakia as RAB was introduced in 2012 only and RAB will only be adjusted in next regulatory period starting Including FX effects, RAB would have increased by ~7%. 3 Based on distributed volume. page 85

87 Grid & Infrastructure Grid & Infrastructure key takeaways 1 A leading European distribution grid operator 13.3bn RAB¹ 9% RAB increase¹ expected for Germany 9% RAB increase 2 for East Predictable, regulated earnings contribution secured by stable regulatory frameworks 9.05% 3 until 2017/18 return on equity for current regulatory period in Germany ~6.5% 4 pro-forma WACC Eastern European countries 3 Highly efficient operations with excellent network reliability ~97% efficiency factor in Germany Continuous optimisation 4 5 Investment opportunities from renewables expansion Further growth through dedicated investments as key driver for regulated profit growth Among the leading RES-integrators in Germany ~ 4.1bn E G&I capex 5 1 Regulated asset base. Numbers based on latest notification by regulator or based on calculations in latest filings with regulators. Expected increase in German regulated asset base calculated as RAB 2010/2011 plus net investments (post concession gains/losses) in regulated assets in the years 2010/2011 to 2015/2016E, assuming full recognition by the regulator. Generally, RABs from different regulatory regimes are not directly comparable due to significant methodological differences (e.g. regulatory periods, regulatory depreciation periods). Throughout this presentation, the RAB relevant for the 2015 tariff figure is used. Also, throughout this presentation, RABs are always stated excluding pro-rata share of RAB from participations that are not fully consolidated. 2 Historic increase in regulated asset base for Eastern countries calculated as RAB relevant for tariff in 2015 vs. RAB relevant for tariff in 2011 (in at constant 2011 year-end exchange rates) for Czech Republic, Hungary and Poland. Growth rate excludes Slovakia as RAB was introduced in 2012 only and RAB will only be adjusted in next regulatory period starting Including FX effects, RAB would have increased by ~7%. 3 Nominal return on equity on existing RAB until 2017/18 according to German ARegV for new assets (post 2005); 7.14% real for old assets (pre 2006); stated returns pre corporate tax. Based on current initial proposal from BNetzA, return on equity to change to 6.91% for new assets and 5.12% for old assets in the next regulatory period. 4 Pro-forma RAB-weighted average WACC of CZ, HU, PL and SK. SK RAB only included for 4 months due to first-time consolidation of VSE in Including financials investments. page 86

88 Grid & Infrastructure Regulatory deep dive

89 Grid & Infrastructure Regulatory deep dive G&I Germany EBITDA driven by significant asset base and income from participations and complementary activities Breakdown of 2015 EBITDA ( bn) Earnings composition Grid Regulated asset base Pro-forma WACC 2 6.1% Return on RAB 0.6 Other grid earnings (regulated/ unregulated) 0.4 D&A (IFRS) 0.5 Grid EBITDA 1.5 Grid > RAB of fully consolidated grid businesses > Pro-forma WACC based on 2010/2011 regulatory cost of equity and debt and blended capital structure of our regulated businesses > Grid sales > Non-regulated grid business (e.g. grid services) > Regulatory acknowledged depreciation vs. IFRS > Additional regulatory compensation (e.g. investment measures in 110kV grid) > Operational efficiencies Part. Income from participations³ 0.2 Part. > Mainly participations and JVs with municipal utilities Other Non-grid business/other 0.3 Other > Gas storage business in Germany > Quasi-regulated water business > Other EBITDA 2.0 Note: numbers may not add up due to rounding. 1 Numbers based on latest notification by regulator. RAB stated excluding pro-rata share of RAB from participations that are not fully consolidated. 2 Pre-tax WACC (before corporate and trade tax) calculated based on several assumptions, including 60/40% debt/equity ratio of regulatory assets and 50/50% split new/old assets. Return on regulatory equity for new/old assets of 9.05% nominal/7.14% real (before corporate tax, after trade tax). Cost of debt of ~4% pre-tax. 3 Operating income from investments, to a large extent comprising of at-equity income from investments, included within EBITDA. page 88

90 Grid & Infrastructure Regulatory deep dive German incentive regulation provides for a predictable and stable remuneration framework Ex-ante revenue cap regulation Cost recognition based on DSO s actual cost base RAB remuneration determined for entire regulatory period Remuneration mechanisms for grid expansion > No volume risk DSOs not impacted by fluctuations in demand > Stable ex-ante framework codified by law, as opposed to ex-post supervision by regulator > Revenue cap mechanically updated year by year mainly without regulatory discretion > Cost recognition stable for 5-year regulatory periods > Non controllable costs treated as pass-through in regulatory formula > Inflation factor as effective macro hedge > RAB split into 40% equity 1 and 60% debt by regulatory definition > Return on regulatory equity fixed at nominal 9.05% (7.14% real for old assets) 2 for entire regulatory period until 2017/18 > Cost of debt treated as pass-through and therefore allows for natural hedge against changes in interest rate environment > Expansion factor included in revenue cap formula with 1-year time lag > Investment measure mechanism recognised without time lag, established to support expansion of 110kV investments Note: figures based on current parameters may be subject to change. 1 Maximum value. 2 Returns before corporate tax, after trade tax. page 89

91 Grid & Infrastructure Regulatory deep dive German incentive regulation a mature and stable system Regulatory timeline 1 st regulatory period (5 years) 2 nd regulatory period (5 years) 3 rd regulatory period (5 years) Electricity Cost base in 2011 relevant for revenue cap in 2 nd regulatory period Cost base in 2016 relevant for revenue cap in 3 rd regulatory period Gas Cost base in 2010 relevant for revenue cap in 2 nd regulatory period Cost base in 2015 relevant for revenue cap in 3 rd regulatory period 1 st regulatory period (4 years) 2 nd regulatory period (5 years) 3 rd regulatory period (5 years) RoE 1 Elec./Gas Initial proposal BNetzA 9.29% 7.56% 9.05% 7.14% 6.91% % 2 New assets 3 Old assets 4 Return on imputed equity (RoE) 5 Base year 1 Return on equity. 2 BNetzA s current initial proposal for return on equity as per current consultation process. 3 Nominal. New assets subject to historic cost accounting. 4 Real. Old assets subject to current cost accounting. 5 Returns before corporate tax, after trade tax. page 90

92 Grid & Infrastructure Regulatory deep dive Revenue cap is determined based on returns on RAB + imputed depreciation + base year cost base Composition of revenue cap pre-efficiency, expansion and inflation factor Revenue cap Returns on RAB Imputed depreciation and trade tax Acknowledged opex 60% Financial debt Actual cost of debt in base year compensated as pass-through Imputed depreciation equivalent to linear depreciation of regulatory asset values Regulatory asset life differs from IFRS and German GAAP Derived from P&L under German GAAP for regulated grid business Asset value Max. 40% Excess equity Equity Compensated with ~4%¹ Compensated with 9.05% (nominal)/ 7.14% (real) for new/old assets 2 and Imputed trade tax equivalent to trade tax on the regulatory return on equity, calculated before corporate tax (~15%) but after trade Return on Equity tax (~15%) Controllable Costs and As acknowledged by regulator, subject to regulatory cuts RAB Regulatory capital structure Note: figures based on current parameters may be subject to change. Discussion of (i) revenue cap (leaving out other components such as (a) quality element ( 19 ARegV), (b) volatile costs ( 11 ARegV), or (c) regulatory accounts ( 5 ARegV)) and of (ii) asset base (leaving out other components such as (a) financial assets or (b) deduction capital) for illustrative purpose only % for electricity and 4.19% for gas as per second regulatory period. 2 Returns before corporate tax, after trade tax. page 91

93 Grid & Infrastructure Regulatory deep dive Revenue cap is adjusted for efficiency, productivity and inflation to mirror developments between base years Current regulatory period before adjustments for investments Revenue cap Non-controllable Controllable Efficiency costs costs Inflation Productivity 2011 base year During regulatory period Expense equivalent costs > Directly derived from P&L statement under German GAAP > Actual cost of debt as pass-through Opex Cost of debt Benchmarking process Inefficient controllable costs Efficient controllable costs Controllable costs subject to efficiency adjustment > Productivity targets mandated by the regulator and inflation > The relevant efficiency parameters of each DSO are benchmarked > Revenue targets are set taking into account targeted efficiency gains on controllable costs over the regulatory period Imputed costs > Regulatory return on equity and excess equity > Imputed trade tax > Imputed depreciation Depreciation Trade tax Return on equity Cost of Capital Noncontrollable costs Non-controllable costs > Costs incurred outside of influence of DSO like payment for use of higher voltage levels of other grid operators and subsidies for decentralised generation 1 > Partially annually adjusted Actual/ Regulator imputed perspective Note: illustrative discussion of revenue cap leaving out other components such as (i) quality element ( 19 ARegV), (ii) volatile costs ( 11 ARegV), or (iii) regulatory accounts ( 5 ARegV). 1 Additional components include, e.g. advances and construction grants, pension costs or non-wage labour costs. page 92

94 Grid & Infrastructure Regulatory deep dive Revenue cap mechanics two levers to adjust for investments completed between base years Revenue Cap Noncontrollable 2 1 Adjustment Controllable Efficiency Inflation Productivity Expansion 2 nd regulatory period - exemplary for electricity regulation Inflation, productivity, efficiency and expansion factors and adjustments to non controllable costs 1 1 Annual adjustment of controllable costs via expansion factor - Controll - able costs Non con - trollable costs 2 Controll - able costs Non con - trollable costs 2 > Applies to medium- and low voltage levels 1 > Measured by relative growth of area supplied (low voltage) and relative growth of number of connections Annual adjustment of non-controllable costs > Investment measures treated as non-controllable costs (110kV networks) Source: innogy; BNetzA. Note: illustrative discussion of revenue cap leaving out other components such as (i) quality element ( 19 ARegV), (ii) volatile costs ( 11 ARegV), or (iii) regulatory accounts ( 5 ARegV). 1 Independent of pressure ratings for gas. page 93

95 Grid & Infrastructure Regulatory deep dive 3 rd regulatory period changes to both existing framework and to key parameters need for combined assessment Changes to regulatory framework Changes to parameters within given framework Changes to regulatory framework 1 Jun Jul 2016 Early August 2018/19 > German government decides on draft regulation proposal > Key changes Capital cost true-up Special bonus for efficiency Increased transparency > Upper House of Parliament (Bundesrat) decides on draft proposal > Government to give consent to Bundesrat decision > Most changes will apply only with start of the 3 rd reg. period Changes to parameters within given framework 6 Jul 2016/ 13 Jul 2016 Return on equity Productivity factor 10 Aug 2016 Sep/Oct /19 Current RP > New assets 9.05% > Old assets 7.14% > BNetzA releases initial proposal for return on equity and starts consultation process Next RP > New assets 6.91% > Old assets 5.12% > 1.5% > Not yet specified > End of consultation process > Final decision expected > Changes will apply only with start of the 3 rd reg. period Proposed amendments for next regulatory period need to be assessed as a single package since individual changes can, to some extent, be compensated/mitigated by other measures page 94

96 Grid & Infrastructure Regulatory deep dive Potential changes in 3 rd regulatory period proposed by German government 1 Draft proposal for 3 rd regulatory period provides further opportunities Elimination of time-lag for investment budgets Bonus for most efficient DSOs > Update of remuneration on regulatory asset base during regulatory periods Recognition of new investments in RAB² on yearly basis RAB remuneration to be reduced annually in line with depreciating asset base Investments from 2007 to 2016 exempt from changes in remuneration > Introduction of new bonus for most efficient DSOs > Available to DSOs with 100% efficiency to encourage innovative investments in grid technology and expansion Significant investments planned in the future Superior operational performance Innovative solutions for Energiewende challenges Change will only impact G&I s financial performance from 2019 (electricity)/2018 (gas) onwards Increased transparency > Regulator to publish additional information on the regulatory parameters and targets Source: Verordnungsentwurf Bundesregierung, Bundesrat as per 8 July Updated for amendments made by the Bundesrat as per 08 Jul Decision by federal cabinet expected in early August. 2 Previously time lag of up to 7 years. page 95

97 Grid & Infrastructure Regulatory deep dive G&I East EBITDA driven by significant asset base and other grid earnings Breakdown of 2015 EBITDA ( bn) Earnings composition Grid Regulated asset base 1,2 3.6 Pro-forma WACC 6.5%³ Return on RAB 0.2 Other grid earnings (regulated/unregulated) 0.2 D&A (IFRS) 0.2 Grid > RAB of fully consolidated grid businesses in CZ, HU, PL and SK > Pro-forma WACC based on weighted average implied WACCs for all 4 countries > Regulatory acknowledged depreciation vs. IFRS > Others (non-regulated services, volume corrections) > Operational efficiency Grid EBITDA 0.6 Part./Other Income from participations 2,4 0.1 Non-grid business/other 0.1 VSE consolidation effect 0.1 Part./Other > Participations: ZOV (Zagreb waste water business) > Gas storage business in CZ EBITDA 0.9 Note: numbers may not add up due to rounding. 1 Generally, RABs from different regulatory regimes are not directly comparable due to significant methodological differences (e.g. regulatory periods, regulatory depreciation periods). Also, throughout this presentation, RABs are always stated excluding pro-rata share of RAB from participations that are not fully consolidated. Numbers based on latest notification by regulator or based on calculations in latest filings with regulators. RAB values reflect RABs relevant for the tariff in First-time full consolidation of VSE during Pro-forma RAB value shown assuming full-consolidation of VSE during For calculation purposes, RAB only included for 4 months in Income from participations for VSE included for 8 months in Pro-forma RAB-weighted average WACC of CZ, HU, PL and SK. SK RAB only included for 4 months due to first-time full consolidation of VSE in Income from participations, to a large extent comprising of at-equity income from investments, included within G&I EBITDA. page 96

98 Grid & Infrastructure Regulatory deep dive East regulation similar key elements with country specific characteristics Regulatory model overview Czech Republic Hungary Poland Slovakia Current regulatory period General Type of regulation Revenue cap Price cap Price cap Price cap Incentive elements in regulatory framework RAB/WACC Regulatory opex treatment Other Regulated asset base (RAB) 1.6bn 0.9bn 0.7bn 0.5bn Regulatory WACC (pre-tax) 7.94% % % % 2 Efficiency factor 4 Pass-through of financing costs Regulation of quality of supply 5 Exposure to volume risk Inflation 6 Compensation for investments 1 Nominal WACC value. 2 Real WACC value. 3 Nominal WACC numbers confirmed for 2016; following years to be adjusted according to risk free rate development. Nominal WACC value. 4 Efficiency factor reflects elements of individual as well as industry/macro-related productivity components. 5 Bonus/malus system for stability. 6 Inflation effects considered in regulatory revenues. page 97

99 Grid & Infrastructure Regulatory deep dive Regulatory deep dive key takeaways 1 Mature regulatory frameworks with predictable and stable remuneration Key takeaways 2 Q&A Coffee session break 3 4 Strong experience in managing regulatory frameworks across countries 3 rd regulatory period in Germany changes under discussion with differentiated effects no fundamental change to overall framework High operational efficiency and innovative solutions leading to outperformance 5 Strong post-tax earnings contribution from participations (included in EBITDA) page 98

100 Retail

101 Retail Retail at a glance Leading energy retailer serving 23m customers 1 in 11 European countries 2 Market leading positions with four #1 and six further top 3 positions 3 Retail Resilient financials with stable overall customer base and significant cash generation Turnaround of UK retail business well on track and 200m cost savings programme launched Significant and growing energy+ business and growth optionality from front runner positions in new solutions 1 With respect to the Retail segment, the term customers refers to customer contracts (electricity and gas counted separately) throughout the presentation. 2 In terms of electricity and gas supply. Active in more than 20 countries with energy+ and electric vehicle infrastructure. 3 Market positions based on volumes, or, in the case of Czech Republic, Poland, Netherlands and Belgium, based on customer numbers, as per latest available data, electricity and gas markets counted separately. page 100

102 Retail European leader serving 23m customers with energy and energy+ products Diversified electricity and gas customer base # contracts m customers 1 Active in 11 countries 2 4x #1 positions 3 16x top 5 positions 3 Netherlands/Belgium 4.7m 20% UK 5.0m 22% East 5.4m 23% Germany 8.1m 35% 1bn EBITDA Gas 7.0m 30% Electricity 16.2m 70% ~ 110m/ ~ 70m EBITDA/ OR from energy Total 23m customers 1 Electricity Gas 1 With respect to the Retail segment, the term customers refers to customer contracts (electricity and gas counted separately) throughout the presentation. 2 In terms of electricity and gas supply. Active in more than 20 countries with energy+ and electric vehicle infrastructure. 3 Market positions based on volumes, or, in the case of Czech Republic, Poland, Netherlands and Belgium, based on customer numbers, as per latest available data, electricity and gas markets counted separately. Source: Company estimate based on competitors disclosure, regulatory reports and research reports. page 101

103 Retail Stable and diversified business with growing share of energy+ products Retail within innogy bn 17% 21%...with stable earnings contribution... Margin 2.8% 3.0% 2.8% Margin ex UK 2.5% 2.9% 4.1% EBITDA ( m) 1,113 1, Total Total excl. UK 1,053 > Solid and diversified business in continental Europe with stable margins and customer numbers > Negative OR development in UK due to operational difficulties > UK turnaround offering substantial rebound potential 61% innogy EBITDA 2015 Renewables Retail Grid & Infrastructure 1 and a growing energy+ business ( m) ~ 110 ~ 70 > E EBITDA OR 1 Segment breakdown based on sum of operating segment results ( 4.7bn). Total includes (0.2)bn presented as Other, consolidation in the combined financial statements. Numbers might not add up due to rounding differences. > 100 > Significant momentum in noncommodity energy+ business > Heat business currently largest earnings contributor > Other energy+ activities expected to gain significant share in medium term > innogy well positioned to capture future growth page 102

104 Retail Capital light business with significant cash generation Significant cash generation Capex intensity 1 14% 20% 29% Capex intensity 7% 8% 9% excl. UK 1 Capex ( m) Total excl. UK > Capital light business with investments representing only up to 14% of total innogy capex 2 Limited investments; mostly into IT Growing share of energy+ related capex Capex intensity <30% (excl. UK <10%) > Increase driven by IT investments into UK smart meter infrastructure, to be largely completed by 2017 UK Future investments mostly energy+ and IT related 2016E 2018E breakdown of capex 3 Bolt-on acquisitions 10-20% IT incl. smart meter 25-35% Other 10-15% Total ~ 800m energy % > Energy+ investments related to Investments into energy+ asset base (mainly heating business/ CHP projects in Germany) Product development > IT investments driven by digitalisation and UK smart meter roll-out > Selected small-scale acquisitions to facilitate/strengthen market entries and add further energy+ skills 1 Capex intensity defined as capex/ebitda. Figures excl. UK exclude UK contribution for both capex and EBITDA to Capex including financial investments. page 103

105 Retail Focus on sustainable increase of customer value in existing business by growing energy+ and by creating optionality B Grow energy+ business A Maximise value of commodity business > Extend CHP solutions and heating products and services > Flexible roll-out of energy+ product range > Grow in prosumer / home energy solutions C Create options for new business > Optimise along value drivers and across markets > Achieve turnaround in UK > Cross-selling of second commodity and expansion into new markets > Build on front runner positions to capture future growth (e.g. electric vehicle charging stations) > Become active innovator in the new energy world > Identify and commercialise emerging opportunities early on page 104

106 Retail A Large customer portfolio across 11 connected markets Well diversified portfolio across Europe in gas and electricity and private and business clients Customers ( 000) 1 B2B B2C GER 60 8, NL/BE 10 4,700 UK East 10 5,400 NL/ BE GER PL CZ SL 0.1 CR HU SK RO B2B 75% UK 20 4,980 Total ,130 Volume electricity Total 212TWh B2C 25% B2B 58% Volume gas Total 243TWh B2C 42% Electricity Gas # contracts in m as of 2015 Note: B2B including industrial customers as well as resellers, B2C including residential and commercial customers. Depending on national regulations and market specifics, the individual attribution of customers to our B2C or B2B business may vary to a certain extent across our markets. 1 Customer numbers are rounded to the nearest 10,000 customers. Numbers may not add up due to rounding differences. page 105

107 Retail A Improved steering of Retail segment enables further operational efficiencies Pre onwards Increasing exchange and functionalisation and focus on operational improvements Key benefits Retail managed at country level Increasing coordination of activities across RWE East region and by RWE retail board 1 Consistent retail steering with clear functional leadership across regions Further push best practice sharing across the organisation by functional steering > Countries acting relatively independently > Only informal exchanges between countries > Institutionalisation of functional coordination > Mainly advisory nature; ultimate decision making still with countries/regions > Case-by-case cooperation > COO overall responsible for retail, Executive Committee members for individual functions/ segments > Specific KPI-tracking, concepts and initiatives > Regions retain process and profit responsibility Allow for consistent strategy and agile product launches, particularly for energy+ Enhance operational controls Preserve customer proximity and local responsibilities 1 Coordination within RWE East segment since 2011, retail board since page 106

108 Retail A Expertise in managing diverse regulatory and competitive environments provides significant benefits Continuum of different regulatory and competitive environments in our markets... is leveraged to create competitive advantages Competitive context 1 Monopoly [1] Oligopoly [~5] Polypoly [>10] B2C Fully regulated B2C Medium regulation Regulatory context 2 B2B B2B Fully deregulated > Certain markets with fast changing regulatory environment > innogy with in-depth experience in various markets in terms of regulation and competition > Enables innogy to react quickly and effectively when markets are further liberalised or when regulation changes > Facilitates entry into new markets and businesses Expansion from CEE to SEE Build and scale up of second commodity business > Sharing of best practises and experiences with regard to customer needs and new products between countries > Diversification effect from broad portfolio Note: regulation of SME business in some countries is equivalent to regulation of residential consumer business (e.g. UK, BE); not reflected in respective B2B position; Romania and Slovenia not shown. Source: company estimates. 1 # of competitors shown referring to # of competitors jointly representing at least 80% of market volume. 2 Regulatory context taking into account degree of liberalisation (# of segments open for competition, # of segments where end customer price is regulated) and regulatory interventions (special levies and taxes, existence or effort to establish state-owned player). page 107

109 Retail A Actively managed stable and loyal customer portfolio # customers (m) 1 Largely stable customer base Consistent action to limit churn Germany NL/BE East UK Area Customer care with high customer satisfaction CSAT Change4 4 East % +4% 69% +4% 83% +6% Retail awards achieved Product offering Measure > Customers receive a bill shock-call in case of increased annual bills > Proactive up-/cross-selling based on price sensitivity and switching risk scoring (which is based on customer data and behavior, e.g. interaction with the call center) > Keeping the contract and supporting the customer when they move > Automatically adjusting advance payments > Save desk (specifically trained employees) > Directly re-acquiring customers in the switching process by fixed-term contracts > Offering products targeted on specific/niche segments (e.g. green energy) > Bundling of commodity deliveries with longer-term services > Retention offers for loyal customers 1 Rounding differences may occur. 2 Increase predominantly due to first-time full consolidation of VSE with 0.5m customers. 3 Customer satisfaction index, measuring % of customers being very satisfied or satisfied with the service provided; data collected by multiple external service providers. Underlying methodologies may differ by country and results are mapped into percentage scale to facilitate comparability. Exception: Germany where the score is defined as index value where 0 is the lowest and 100 is the highest score. 4 Change 2014 to 2015 (B2B, B2C equally weighted) in percentage points, except for Germany (see footnote 3). 5 CSAT for East including Czech Republic, Hungary, Poland and Slovakia. page 108

110 Retail A B2C portfolio supported by customer acquisition via second brands and other effective channels Rapid customer growth Variety of channels # customers ( 000) , , Electricity Gas Own channels 3rd parties Partnerships > Sales offices, call centres, website > Used as backbone of channel management, focused on providing high quality in an efficient way > Price comparison websites, intermediaries > Targets either specific customer segments or customers in specific regions/countries > Partnerships with direct marketing companies such as impeak and Energie-für-dich > Provide closer access to customers and new acquisition opportunities; used when unique skills of the partner is needed (e.g. Greenergetic platform for PV sales) # customers ( 000) Electricity Gas > Scale up to leading and cost-effective internet-based suppliers (separate brand limiting cannibalisation) > Significant potential to roll out e-channels in other countries > Enabling multi-brand play in markets with e.g. tactical pricing of different brands Channel partnerships provide closer access to customers Partnership in NL # new customers ( 000) x page 109

111 Retail A Strong growth track record in second commodity and new markets Significant track record in second commodity cross-selling and in entering new markets Czech Republic # customers ( 000) 1, Belgium 1 # customers ( 000) Gas Electricity Slovakia # customers ( 000) Croatia # customers ( 000) Electricity Gas > Broaden focus by adding second commodity > #2 position achieved within 3 years in gas in Slovakia > Transfer experience to other markets with second commodity potential (e.g. Poland and Croatia) Note: customer numbers are rounded to the nearest 10,000 customers 1 RWE acquired Essent in 2009, Essent entered Belgian market in Last year pre-market entry > Capital-light approach to new markets by leveraging existing resources in core countries > Entered Croatia in 2013 by acquiring a boutique player via an earn-out scheme and scaled position up significantly > Further leverage know-how by entering neighbouring markets (e.g. Slovenia and Romania) page 110

112 Retail A KPIs Germany home market with strong market positions, loyal customer base and mature regulation EBITDA ( m) t/o realised losses in our hedge book (142) includes non-materialisation of legal risks 81 EBITDA margin 1.4% 2.1% 3.3% Customers (m) Volume electricity (TWh) Volume gas (TWh) B2C share of volume 1 24% 20% 20% Churn rate B2C 2 12% 13% 12% Customer satisfaction 3 n/a Market set-up and innogy position > Fully liberalised with mature and stable regulation > Highly fragmented market > No need to pre-approve tariffs, no limit on number of tariffs > innogy acting as base supplier in its core regions #1 electricity 4 #3 gas 4 Loyal customer base supported by strong brands More than 10 years 38% Customer loyalty 5 Time with innogy 3-10 years 27% Up to 3 years 35% Base supplier 6 Regional and national brands Well established regional and national brands with strong customer loyalty 8 Electricity base supply 7 Both electricity and gas base supply 1 B2C share of volume based on total gas and electricity volume. 2 Total customer losses in year divided by the average customer number across the year calculated on the basis of the numbers at the end of each quarter. 3 Customer satisfaction index, measuring % of customers being very satisfied or satisfied with the service provided; data collected by multiple external service providers. Score is defined as index value where 0 is the lowest and 100 is the highest score. 4 Based on volumes. Source: Company estimates based on public disclosure of peers. 5 Based on electricity customers at RWE brand level as an example. Consolidated data not available. Numbers may not add up due to rounding differences. 6 Areas in which innogy is base supplier are highlighted in the map. 7 Includes marginal areas where only gas is provided as base supply. 8 Rebranding to innogy underway. page 111

113 Retail A NL and BE strong position in NL using multi-channel approach and successful expansion into BE KPIs EBITDA ( m) EBITDA margin 4.0% 4.3% 5.6% Customers (m) Volume electricity (TWh) Volume gas (TWh) B2C share of volume 1 50% 53% 54% Churn rate B2C 2 20% 21% 21% Customer satisfaction 3 n/a 74% 78% Key business development initiatives Successful roll-out and growth of second brand Roll-out of partnership as additional sales channel Market access and energy optimisation for B2B customers Service partners Acquisition of service partners 5 to get access to energy+ customers Market entry and scale up in Belgium Market set-up and innogy position > Fully liberalised > 10 significant players ranging from price-challengers to service focused incumbents > High churn rates in Dutch and Belgian markets #4 #1 electricity 4 electricity 4 Dutch gas and Belgian gas and ~ 40m Total opex Efficiency measures > Multi-brand strategy implementation, incl. the integration of back-offices and IT platforms > Procurement optimisation reducing external spend > Several restructuring initiatives to reduce personnel costs (e.g. nearshoring services to Poland) 1 B2C share of volume based on total gas and electricity volume. 2 Total customer losses in one year divided by the average customer number across the year calculated on the basis of the numbers at the end of each quarter. 3 Customer satisfaction index, measuring % of customers being very satisfied or satisfied with the service provided; data collected by multiple external service providers. Results are mapped into percentage scale to facilitate comparability. 4 Based on customer numbers. Netherlands as of 2014; source: company estimate based on GfK market research, Belgium as of 2015: VREG. 5 Energiewacht NV, Geas Energiewacht BV, Volta Limburg BV. page 112

114 Retail A KPIs East high increase in demand and further opportunities especially from cross-selling of second commodity EBITDA ( m) t/o book gain from revaluation after firsttime full consolidation of VSE 42 EBITDA margin 5.3% 5.6% 6.5% Customers (m) Volume electricity (TWh) Volume gas (TWh) B2C share of volume 2 38% 35% 36% Churn rate B2C 3 7% 4% 4% Customer satisfaction 4 n/a 77% 83% Market set-up and innogy position > 3-5 major and (some) smaller players per market > Some markets are fully liberalised (e.g. CZ), most still in liberalisation process or partly regulated > Lower average revenues than in Western Europe due to generally lower grid charge levels > innogy with very high customer satisfaction 1 Increase predominantly due to effect of first-time full consolidation of VSE company with 0.5m customers. 2 B2C share of volume based on total gas and electricity volume. 3 Total customer losses in one year divided by the average customer number across the year calculated on the basis of the numbers at the end of each quarter. 4 Customer satisfaction index, measuring % of customers being very satisfied or satisfied with the service provided; data collected by multiple external service providers. Results are mapped into percentage scale to facilitate comparability. Customer satisfaction index East relates to CZ, HU, PL and SK only. 5 Market position as of 2015; Source: OTE, Czech Energy Regulatory Office. #1 Gas CZ 5 #2 in Hungary, Slovakia and Croatia 6 Structurally attractive growth market Electricity demand East 7 in TWh E 2030E Source: ENTSOE as of #2 in electricity in Croatia (as of 2015; source: company estimates) and Hungary (as of 2014; source: company estimates) and in gas in Slovakia (as of 2014; source: URSO, regulatory body). 7 East including Croatia, Czech Republic, Hungary, Poland, Romania, Slovakia, Slovenia. 8 Mid-point of minimum and maximum ENTSOG scenario forecasts. 9 Numbers are rounded to the nearest 10,000 customers E 2030E Commodity growth opportunities in existing markets Countries Customers ( 000, 2015) 9 Electricity Gas Focus Poland 930 <1 > Cross-selling of gas following gas market opening Czech Republic 15.8% 300 1,350 Hungary 2,120 <1 > Further intensification of cross-selling of electricity > Cross-selling of gas supported by acquisition of customer portfolio(s) Slovakia > Further intensification of cross-selling esp. in B2C Croatia 110 <1 > Cross-selling of gas following gas market opening Slovenia <5 > Growing electricity mainly in B2C Romania <1 <1 Gas demand East 7 in TWh (without gas used for electricity generation) 10.8% Source: ENTSOG (gas demand without gas used for electricity generation) 8. > Growing electricity also in B2C, intensification of cross-selling of gas in B2B page 113

115 Retail A KPIs UK recovery plan to address operational difficulties already showing first results EBITDA ( m) (65) t/o impacts from billing and regulatory issues 8 15 (119) 1 EBITDA margin 3.9% 3.1% (0.7)% Customers (m) Volume electricity (TWh) Volume gas (TWh) B2C share of volume 2 64% 53% 50% Churn rate B2C 3 13% 14% 14% Customer satisfaction 4 n/a 65% 69% Market set-up and innogy position > Fully liberalised > Fragmented, 6 large players and numerous mid-sized and smaller players > Regulatory scrutiny (e.g. recently finalised CMA investigation resulting in restrictions on charges to prepayment customers, measures to increase customer engagement, and increased price transparency) #2 electricity 5 #5 gas 5 Customer satisfaction improved to best-in-class Incoming complaints ( 000s per 100,000 accounts) Q1 13 Q1 14 Q1 15 Q1 16 British Gas (Centrica) EDF E.ON npower (innogy) Scottish Power (Iberdrola) with stabilising trend in customer numbers > Strong first quarter with net customer losses almost coming to a halt > Q impacted by expiry of extraordinarily high number of fixed term contracts; positive trend in July 2016 SSE 1 Includes (i) net effects of 60m related to charges concerning erroneous and late invoicing, the build-up of provisions for regulatory charges and reviews and the release of provisions for customer paybacks and (ii) net effects of 59m related to billing issues due to changes in revenue estimation. 2 B2C share of volume based on total gas and electricity volume. 3 Total customer losses in year divided by the average customer number across one year calculated on the basis of the numbers at the end of each quarter. 4 Customer satisfaction index, measuring % of customers being very satisfied or satisfied with the service provided; data collected by multiple external service providers. Results are mapped into percentage scale to facilitate comparability. 5 Market position as of 2015; Source: Cornwall Energy. 6 Source: Ofgem - Supplier performance on consumer complaints (May 2016). page 114

116 Retail A Positive development of leading indicators evidence UK Retail recovery Area Operational controls and management information IT Management of outsource partners and suppliers Customer satisfaction Challenge > Insufficient controls and lack of information > Unsuccessful integration of IT systems and excessive external spend > Inadequate approach > Customer losses due to poor customer satisfaction > New management team and strengthened key departments > Resolution of defects in ERP platform > Review of outsourcing partner management and model > Customer service process deficiencies addressed Key measures taken > Enhanced operational and financial controls > Sharpened commercial focus > Enhanced IT capabilities and set-up > Introduction of new system integrator to increase competition and reduce spend > Optimisation of relationships with supply chain partners > Agile and competitive pricing strategy introduced > Complaints handling enhanced Leading indicators Late bills ( 000s) 97 (27)% 71 Major IT incidents (54)% Spend on outsource partner services (15)% Incoming complaints ( 000) (61)% Jun-15 Jun-16 H1-15 H1-16 H1-15 H1-16 While further consistent action is required, measures have started to show meaningful impact Well on track with meeting commitments with our regulators H1-15 H1-16 page 115

117 Retail A UK Retail bankable plan and determined actions Implementation status of targeted gross cost savings 1 Approved for implementation 64% 200m targeted gross cost savings Key opex savings measures Fully realised 11% > Reduce customer service spend and bad debt expense Initiatives completed with impact accruing 25% > Rationalise project portfolio and renegotiate vendor contracts > Renegotiate and reduce consultancy services > Rationalise support functions > Implement budget cuts and stricter travel policy >⅓ of initiatives already implemented Cornerstones of recovery programme targets > Targeted gross cost savings of 200m until 2018 approved for implementation Based on more than 220 separate initiatives Initiatives accounting for more than one third of targeted opex savings already realised or implemented > Additional opex saving initiatives identified and being evaluated > Besides opex savings, meaningful gross margin initiatives targeted based on improved operational performance and customer/stakeholder satisfaction Key targets for 2018 Consistently high customer satisfaction New commercial offerings and routes to market Cost base in-line with competitors Return to profitability consistent with market potential Positioned for growth: sustainably improved competitiveness 1 As of July page 116

118 Retail A innogy adapts to customer needs shifting to more automation and decentralised electricity production Customer type Product needs Targeted innogy product offering Classic consumer > Commodities > Fix, flexible > Electricity > Gas More customers to produce selfgenerated power and enabled to manage their consumption, generation and electricity feed-in Advanced consumer Prosumer Energy manager > Targeted tariffs > Energy related tools and services (smart, energy efficient) > Own, decentral production (CHPs, solar, wind) and storage > Customised offers > Trading energy > Optimising energy usage (demandresponse) > Insurance/assistance services > Energy audits and savings solutions > Security solutions > Home automation > PV > CHP/Micro CHP > Batteries > O&M services page 117

119 Retail B Energy+ already constitutes an important part of Retail profitability innogy energy+ offering today......with strong expected profit growth Profitability/positive OR Today Mid-term > 150 Heating businesses and services Stable and profitable business based on long-term customer relationships Heating CHP O&M services n/a ~ 110 > 100 ~ 70 Basic energy+ Flexible and opportunistic addressing of changing customer needs Insulation Loyalty cards Energy audits and savings solutions Lighting (LED) Security solutions m Insurance services E Prosumer and home energy solutions Addressing upcoming energy-related needs of our customers Powerhouse Lemonbeat SmartHome Micro CHP PV Batteries EBITDA OR Significant energy+ momentum expected to continue Heating business and services to contribute a considerable share of the growth page 118

120 Retail B Heating businesses and services stable business based on long-term customer relationships German heating business¹ District heating > Operation of small to medium-scale systems for public supply and subject to regulated prices > More than 110,000 customers > 2,800 MW th installed capacity CHP > Contracting of small to medium-scale installations based on 5-10 years for B2B customers contracts > ~150 installations > 150 MW el installed capacity > Strong pipeline of new projects Service partner business in the Netherlands > Contracting, maintenance and repair services of mainly B2C heating installations > 246,000 lease contracts > 975,000 service contracts > Contracts range from a minimum of six years for warm water appliances to years minimum for boiler rental or leasing > Frequent visits to customers used as channel to promote commodity products and energy+ Asset-intensive business with attractive returns Stable regulated or quasi-regulated earnings Recurring service revenues Intimate customer access with ability to cross-sell 1 Further assets in regional companies. page 119

121 Retail B Basic energy+ offers flexible and opportunistic addressing of changing customer needs LED bulbs Loyalty card > Rental of LED bulbs to customers, addressing customer interest in efficient lighting without own investment > Monthly fee of ~ct30-60 charged via energy bill (retention effect) 1 > Started in Slovakia in 2014 as a B2C offer, since launch 270,000 LED bulbs rented out > Roll-out to other East countries ongoing. In CZ further 90k bulbs rented out until end of June 2016, in PL 11k bulbs rented out within 4 months since launch > Basic concept now transferred to B2B business > Provision of loyalty card (customer gets discounts at various shops) and additional services, currently including appliance breakage assistance, extended guarantee for electric and gas appliances, and arrangement of medical assistance > Monthly fee of 1.0/month per card and /month per additional service, depending on the type of service, charged via energy bill (retention effect) > Started in Slovakia in 2013, more than 160,000 cards and more than 55,000 additional services sold > Extension of additional service offering with new partners ongoing Increased retention and new margins by addressing customer needs in convenient way Leverage on functioning billing processes, strong brand recognition and partnerships 1 Depending on the type of bulb. Based on pricelist in the Czech Republic. page 120

122 Retail B Prosumer and home energy solutions addressing upcoming energy-related needs of our customers Powerhouse > Sale of energy management/it solution for B2B customers with decentral energy generation > Allowing customers to directly access the market and streamline own production and consumption with energy market opportunities > Powerhouse is a market leader in Dutch horticulture segment > and is now making inroads to the segment of large B2Bs, as well as to Spain and USA > Powerhouse contributed 11m/ 14m to operating result/ebitda in 2015 PV > Installations mainly for B2C customers based on sale or lease contracts > One-stop-shop service (incl. design, installation, subsidy application, integration with battery, etc.) > 1,950 installations already in 2015 sold > Acceleration with partners (e.g. Greenergetic) and roll-out to further countries (CZ, PL) ongoing Connected Home > Sale of central units and devices to B2C customers (product line: SmartHome) > Addressing customer need in optimising production and use of energy and steering other devices > innogy with substantial footprint in market for connected homes: nearly 800,000 SmartHome 1 devices and units sold up to 2015 > Roll-out to further countries in preparation > Recently signed a deal with Nest; already more than 30,000 Nest units sold in UK and Netherlands 2 Strong footprint in energy management Leadership in attractive market pockets (e.g. horticulture) Platform for additional revenue streams (e.g. energy market access and financing solutions) Recurring service revenue 1 SmartHome devices and units are also sold to end customers through regional companies. Total number also includes devices and units sold to those regional companies. 2 As of 30 June Strong footprint in new market area Customer retention and brand benefits as innovative company page 121

123 Retail C innogy is in a front runner position for electric vehicles through leading charging infrastructure Broad coverage of charging points throughout Europe with a focus on Germany # innogy charging points as of 31 December 2015 Key statistics (2015) NO > 1,760 charging systems sold > Overall > 4,900 charging points in > 20 countries1 DN > More than 100 (municipal) utility and 50 B2B partners NL UK > 4.1GWh electricity charged LU CZ Current business model SK AT FR HU CH < > 430,000 charging processes PL DE 3,115 BE SL RO HR IT SR BG TR Provision of state-of-the-art hardware Operation of own and partner-owned infrastructure Full back-end solution including access, billing, utilisation monitoring etc. MT >150 Trusted solution provider for growing network of large corporates 1 As of 31 Dec 15. page 122

124 Retail C Ambitious policy targets will propel development of electric vehicles In order to reach ambitious national targets in Germany......significant policy support is under way Reduce CO 2 emissions by 40% by 2020 Source: GTAI (2015). EV stock Germany Ambition of 6m EVs by 2030 Increase battery density to 300Wh/l 500,000 Expansion of charging infrastructure R&D support > Investment of 300m in 15,000 new charging stations until 2020 > Drive technology > Energy systems and storage > Loading infrastructure and mobility concepts 22,698 24,419 50, Target - Gov support Source: International Energy Agency, Bain (Dec 2015). programme 1 Government support programme targeting an increase in EVs to 500,000 vehicles (maximum programme duration is 2019). 2 Subsidy for battery electric vehicles with price of less than 60,000; 3,000 for hybrid cars; total subsidy of 1.2bn paid for by government and OEMs in equal parts. 1 Incentives for EV purchase > Motor vehicle tax exemption extended to 10 years > Subsidy of 4,000 when buying an EV < 60,000 starting in May > Granting EVs use of special traffic and bus lanes > Special parking for EVs Source: KraftStG (tax law for motor vehicles) and EmoG (law for electric vehicles) page 123

125 Retail Retail key takeaways 1 Well established European player 23m customers in 11 countries 1 4x #1 positions 2 Stable customer base with strong local brands 2 3 Resilient financials with UK rebound potential Q&A session Capitalise on development in energy+ 1bn EBITDA 2015 ~ 110m energy+ EBITDA m UK cost programme > 150m energy+ EBITDA 2018E 4 5 Grow in heat, prosumer and home energy solutions Build front runner positions to capture future growth ~800k ~2,800MW th heat capacity devices sold installed connected home A leading position in offering charging solutions for electric vehicles 1 In terms of electricity and gas retail (electricity and gas contracts counted separately). 2 Market positions based on volumes, or, in the case of Czech Republic, Poland, Netherlands and Belgium, based on customer numbers, as per latest available data, electricity and gas markets counted separately. page 124

126 Renewables

127 Renewables Renewables at a glance Significant and diversified renewable portfolio of 3.1GW 1 across Europe Experienced developer and operator; #3 worldwide in offshore wind 2 Renewables Significant pipeline of 0.3GW 3 under construction and 4.1GW 3 in development Stable financial profile with ~60% quasi-regulated income (2015) and ~12 years average wind support tenor 4 1 As of 31 December 2015; pro-rata view, excluding Zephyr portfolio. innogy has further renewable capacity of 0.3GW in consolidated participations related to the Grid & Infrastructure segment. 2 By capacity. Source: Bloomberg New energy finance; asset owner database, as of March Pro-rata view. 4 Capacity-weighted company estimate for offshore and onshore wind farms subject to an unexpired support tariff for ~1.5GW for onshore and ~1.0GW for offshore; pro-rata view as of 2015, excluding Zephyr portfolio. page 126

128 Renewables Well diversified European 3.1GW renewables portfolio with a focus on competitive technologies 3.1GW portfolio 1 in operation ~12 years avg. wind support tenor 4 0.3GW 4.1GW #3 under development construction ,160 pipeline worldwide offshore wind 3 Diversified portfolio with large asset base in Germany and UK By capacity 1 Poland 7% Spain 15% NL 6% Other 6% UK 29% Germany 37% Successful partnership management and a focus on wind and hydro By capacity 1 Hydro 16% Other <1% Installed capacity (MW) 1 Wind Offshore 31% Wind Onshore 53% 1 As of 31 December 2015; pro-rata view, excluding Zephyr portfolio. innogy has further renewable capacity of 0.3GW in consolidated participations related to the Grid & Infrastructure segment. 2 Pro-rata view. 3 By capacity. Source: Bloomberg New energy finance; asset owner database, as of March Capacity-weighted company estimate for offshore and onshore wind farms subject to an unexpired support tariff for ~1.5GW for onshore and ~1.0GW for offshore; pro-rata view as of 2015, excluding Zephyr portfolio. page 127

129 Renewables Strong and resilient financial profile through support schemes Renewables within innogy...with high and increasing quasi-regulated earnings 4.5bn 17% Quasi-regulated/long-term contracted EBITDA share (2015) Remaining wind regulatory support tenor (2015) Offshore 6-10 years years Onshore 1-2 years 3-5 years 21% 6-10 years years 61% ~60% EBITDA from quasi-regulated earnings ~14 years average remaining offshore wind regulatory support tenor 2 ~10 years average remaining onshore wind regulatory support tenor 2 innogy EBITDA Segment breakdown based on sum of operating segment results ( 4.7bn). Total includes (0.2)bn presented as Other, consolidation in the combined financial statements. Numbers might not add up due to rounding differences. 2 Capacity-weighted company estimate for offshore and onshore wind farms subject to an unexpired support tariff for ~1.5GW for onshore and ~1.0GW for offshore; pro-rata view excluding Zephyr as of For total wind, average remaining regulatory support tenor is ~12 years, for hydro ~12 years based on ~0.1GW assets with unexpired support tariff. Germany offshore based on initial support period of eight years only. 3 Feed-in tariff. 4 Contract for Difference. 5 As of 2015; based on onshore and offshore wind; pro-rata view. 1 Renewables Retail Grid & Infrastructure Young asset fleet, only limited wind capacity with expiring support by Expected increase of quasi-regulated share to 65% from full contribution of newly commissioned assets in 2016 Trend towards FiTs 3 and CfDs 4 will further increase stability Average weighted age of wind fleet of ~6 years 5 page 128

130 Renewables Strong revenue and profit growth from significant investments in the past Capacity MW, accounting view 1 MW pro-rata view 2 2,550 2,691 3,129 Total revenues m 2,633 2,805 3, , EBITDA m 818 Capex m Additionally, in innogy managed a PPA for the UK Zephyr portfolio with a capacity of 256MW, for which innogy earned a management fee; ultimate counterparty of the PPA is the RWE Group. 2 Excluding Zephyr portfolio. page 129

131 Renewables Growing asset base through near-term project pipeline Construction and development pipeline By country, pro-rata view Significant near-term investments mainly in wind 2016E-18E capex breakdown 3 by generation assets NL 11% Other 16% Germany 16% Total: 4.4GW UK 57% Solar Hydro Solar 10-15% Hydro <10% Other <10% GW, pro-rata view Wind Offshore Wind Onshore Wind offshore 20-30% Total ~ 1.3bn Wind onshore 45-55% Under construction Development close to FID Early development > Key projects under construction include Nordsee One (2017 CoD 2 ), Zuidwester (2017 CoD) and Galloper (2018 CoD) > Current construction pipeline to be fully commissioned by early Not probability weighted. 2 Commissioning date. 3 Capex including financial investments. > 1.3bn 16E 18E for gross investments into specific projects under construction or close to FID > Additional potential for investments depending on success in auctions > Other including financial investments and day-to-day capex page 130

132 Renewables Renewables to focus on three key strategic areas B Leverage growth opportunities in existing markets > Attractive project pipeline and significant development expertise A Optimisation of existing business > innogy with flexible capital approach > Partnership strategy to optimise risk-return allocation C Enter new regions and technologies > Maximise energy yield and availability > Continue to reduce O&M costs > Execute existing construction projects on time, budget and quality > Selective growth by leveraging core competencies and using partnership models > Increase scope for new investment opportunities > Develop skills for solar to enter new technology page 131

133 Renewables A Significant and diversified renewables portfolio and advanced development skills and capabilities Highlights > Well diversified portfolio in attractive European markets Onshore wind portfolio of more than 1.6GW 1 in six countries Top 3 player in offshore wind Highly cash generative hydro business with long remaining lifetime > Exposure to different support frameworks across Europe > Over 1.3GW commissioned in the last 5 years > Technological and project management expertise > Geographical spread reduces meteorological volatility of earnings Diversified European portfolio 1 MW Focus on wind and hydro especially in UK and Germany By production volume (TWh) 1 By production volume (TWh) 1 Hydro 23% Other 1% Onshore wind 42% Netherlands 6% Other Poland 7% 6% Germany 36% Offshore wind 35% Spain 12% UK 34% Size of bubbles indicates installed capacity Wind Onshore Wind Offshore Hydro Solar Total 8.3TWh (2015) Note: Figures may not add up due to rounding differences 1 Pro-rata view, excluding Zephyr, as of 31 December page 132

134 Renewables A Business model leverages core competencies at all stages of the value chain Development > innogy capabilities > > > KPIs > > Construction Market intelligence, engineering, procurement, financial structuring Identification and development of promising sites Profitable sale of projects > Delivery of MW to consent/fid Hurdle rates per technology and country IRR > hurdle > > > > Operation Management and delivery of complex projects Management of project partners and suppliers > > > Experienced operator Innovative O&M concepts fit for purpose Trusted service partner for JVs Delivery on time Delivery on budget Delivery on quality > > O&M cost per MWh Availability Partner and stakeholder management1 1 Only logos of partners shown. page 133

135 Renewables A Offshore wind #3 player with significant expertise in delivering projects Highlights > Industry with high barriers to entry due to development and engineering challenges > Significant technological and project management expertise and strong learning track record from completed projects 1.0GW capacity 2 ~14 years avg. remaining support life 2 Avg. asset age of ~2 years 2 > Well positioned to win auctions with partnership approach optimising risk and return allocation Installed capacity 2 MW Share of quasi-regulated income 1 Wholesale price ~28% Support scheme ~72% Key figures Capacity (MW), pro-rata view Capacity (MW), accounting view Average load factor 4 39% 39% 44% Production volume (GWh) 5 1,170 1,469 2,749 Avg. revenue ( /MWh) By gross profit; gross profit defined as revenues sales cost. 2 Pro-rata view, excluding Zephyr portfolio, as of 31 December Excluding Zephyr portfolio. 4 Accounting view excluding Zephyr PPA. Load factor defined as production volume divided by maximum possible volume based on average of capacities at beginning and end of year. 5 Accounting view excluding Zephyr PPA. 6 Net revenues after deduction of transaction costs. Accounting view excluding Zephyr PPA. Zephyr PPA management fee is included in OR/EBITDA. page 134

136 Renewables A Offshore wind steep learning curve with significantly improved risk-reward proposition Approach in the past Current approach Benefits Contracting > Multi-contracting approach > Own vessels used > Single lot with few key contracts > Vessels supplier responsibility Reduces interfaces and complexity Financing > Predominantly corporate level financing > Non-recourse project level financing Limits capital requirement per project Partnering > Ambition and preference to do most projects independently > JVs with experienced financial and strategic players Provides higher capital diversification, risk sharing and de-biasing North Hoyle 1 (2004) Greater Gabbard (2012) Gwynt y Môr 1 (2015) Nordsee One 1 (2017) Galloper 1 (2018) Rhyl Flats 1 (2010) Thornton Bank 1 3 ( ) Nordsee Ost 1 (2015) Note: years refer to commissioning date. 1 innogy operatorship or main service provider to JV. page 135

137 Renewables A Galloper successful value creation through development activities Facts UK offshore Significant development success Capacity Shareholder structure > 336MW (100%) > 25% each ~13% Further 93m gain from sale at financial close Timing > Commissioning expected by Q European Power Deal of the Year Financing > ~ 1.5bn external facilities > Project financing 30:70 gearing At FID Equity IRR at FID Initial development Initial development > Original partner decides to refrain from investment > Project development put on hold Internal Internal re- re-evaluation evaluation by innogy by innogy > Project re-evaluated by innogy > Reconfiguration of central characteristics by innogy, e.g. introduction of larger turbines Project goes ahead with new partners > Siemens, Macquarie and GIB as new joint equity partners > Significant development gain at financial close achieved page 136

138 Renewables A Track record of installing bigger turbines, farther from shore and in deeper waters Project (Expected) CoD Capacity Turbines Water depth Distance to shore Support scheme North Hoyle MW 30 x 2.0MW 7-11m depth 7 km 1.0 ROC + WS Rhyl Flats MW 25 x 3.6MW 10-15m depth 8km 1.5 ROC + WS Gwynt y Môr MW 160 x 3.6MW 12-28m depth 13km 2.0 ROC + WS Greater Gabbard MW 140 x 3.6MW 24-34m depth 23km 2.0 ROC + WS Thornton Bank MW 54 x MW m depth 28km WS + Certificate 3 Galloper MW 56 x 6MW 27-36m depth 30km 1.8 ROC + WS 4 Nordsee One MW 54 x 6.15MW 26-29m depth 45km EEG Nordsee Ost MW 48 x 6.15MW 22-26m depth 60km EEG In operation Under construction Monopile Jacket Note: WS = Wholesale 1 Part of Zephyr portfolio. 2 Including Thornton Bank 1 3: Thornton Bank 1: 6x5MW (gravity foundation), Thornton Bank 2: 30x6.15MW (jacket foundation), Thornton Bank 3: 18x6.15MW (jacket foundation). 3 Minimum price for offshore wind certificates are 107 per MWh for the first 216 MW of generating capacity, and 90 per MWh for capacity exceeding 216 MW. 4 The level of support is granted for 20 years (subject to a backstop date in 31 Mar 2037). 5 EEG compression model: 194/MWh; 154/MWh; 39/MWh. page 137

139 Renewables A Offshore industry has significantly matured Foundation installation Improvement in installation vessels Significant innogy learning curve # of foundations completed over time (in days) Nordsee Ost (CoD 2015) Average # days for installation per foundation ~8.2 Nordsee Ost (CoD 2015) Source: Company estimates. Nordsee One (CoD 2017E) ~2.3 Nordsee One (CoD 2017E) Excalibur Project North Hoyle Year Purpose built Water depth 20m Crane 250t Length 60m Jumbo Javelin Project Greater Gabbard Year Purpose built 2 Water depth n/a Crane 900t Length 144m Innovation Project Galloper (planned) Year Purpose built Water depth 65m Crane 1,500t Length 150m 1 Deployment period. 2 Heavy load carrier deflected from its normal purpose; built for transporting heavy loads. Therefore, lack of stability in comparison with jack-up barge. 3 As of July > Built first ever commercial UK offshore wind project in 2003 (North Hoyle), built the second largest fully operational offshore wind farm to date (Gwynt y Môr) 3 > Currently constructing 10 th project of which innogy has led over half > Experience, scale and long-standing relationships with the supply chain ensure successful delivery > Robust lessons learnt and sharing of experiences ensure that each project builds on the success of previous ones page 138

140 Renewables A Onshore wind well experienced operator with >1.6GW portfolio across 7 countries Technological expertise and operational excellence in well-proven technology > Outstanding development and construction skills combined with comprehensive market intelligence value engineering through technological expertise operational excellence by in-house O&M strategies > Continuous improvement measures to ensure value adding growth within increasingly competitive markets > Best positioned for further international growth Share of quasi-regulated income 1 Wholesale price ~45% Installed capacity 2 MW 1.6GW capacity Avg. remaining support of ~10 years Avg. asset age of ~9 years Support scheme ~55% 34 Key figures Total capacity (MW), pro-rata view 3 1,537 1,601 1,648 Total capacity (MW), accounting view 3 1,667 1,763 1,823 Average load factor 4 24% 23% 25% Total production volume (GWh) 5 3,375 3,463 3,887 Avg. revenue ( /MWh) By gross profit; gross profit defined as revenues sales cost. 2 Pro-rata view, excluding Zephyr portfolio, as of 31 December Excluding Zephyr portfolio. 4 Accounting view excluding Zephyr PPA. Load factor defined as production volume divided by maximum possible volume based on average of capacities at beginning and end of year. 5 Accounting view excluding Zephyr PPA. 6 Net revenues after deduction of transaction costs. Accounting view excluding Zephyr PPA. Zephyr PPA management fee is included in OR/EBITDA. page 139

141 Renewables A Delivering onshore wind projects on time and on budget and achieving cost savings Track record of delivering construction projects Delivering projects on/below budget 15% Over budget Significant reduction in O&M costs while increasing availability O&M costs 1 ( /MWh) Time-based availability 2 (%) 5% (5)% (15)% Below budget Delta in time (months) (2) (4) (6) and on/ahead of schedule Behind schedule Ahead of schedule Source: Company estimates. 1 Numbers do not include operational costs like lease, tax etc. 2 Numbers do not include unavailability caused by external impacts like grid curtailment, weather, etc > Maintenance optimisation; e.g. maintenance timing based on weather prediction maximises energy yield > Centralisation of engineering team making expertise accessible for complete fleet > Active ownership; in-sourcing of expensive O&M service contracts page 140

142 Renewables A Hydro highly cash generative and stable business with low investment needs High cash generation and operational excellence > Well established asset base > Long remaining lifetime and very limited capex requirements > Diversified hydrology exposure > Upside potential if wholesale prices materially rebound 500MW capacity 2 Installed capacity 2 MW Long remaining asset lifetime ~10% EBITDA contribution to segment 3 Share of quasi-regulated income 1 Support scheme ~25% Wholesale price ~75% Key figures Total capacity (MW), pro-rata view Total capacity (MW), accounting view Average load factor 4 50% 46% 42% Total production volume (GWh) 5 2,289 2,117 1,944 Avg. revenue ( /MWh) By gross profit; gross profit defined as revenues sales cost. 2 Pro-rata view, as of 31 Dec As of Accounting view. Load factor defined as production volume divided by maximum possible volume based on average of capacities at beginning and end of year. 5 Accounting view. 6 Net revenues after deduction of transaction costs. Accounting view. page 141

143 Renewables B innogy well positioned in increasingly competitive markets with ambitious national RES growth targets Germany UK Netherlands Poland EU 2020 target % of renewables in total energy consumption 18% by % 15% by % by % by % 6% 11% RES share in gross final energy consumption (2014) Gap to target achievement for 2020 Key national targets Transition to auction regimes > Target of 18% renewable energy share by > Target of 40% 45% renewable energy share in total electricity consumption until 2025, 55% 60% until 2035 > Exit from nuclear energy until end of 2022 > Switch to auctioning starting from 2017 > Pay-as-bid remuneration > Source 15% of UK energy from renewable sources by 2020 > RES-E 2 target of 30% by 2020 > End of hard coal fired generation by 2025 > Unclear what targets will apply to the UK following the implementation of the Brexit > From onwards > CfD auctions only for low carbon projects >5MW > No future auctions currently announced for mature technologies like onshore wind > Target of 14% renewable energy share by 2020 and 16% by > RES-E target of 37% by 2020 > Discussion to exit coal fired generation > Individual support levels determined per technology > First come, first serve basis as well as pay-as-bid basis > Separate budget and process based on centralised tender model for offshore wind Source: Eurostat May IEA Energy Policies of IEA Countries, 2013 Review. 2 Electricity from renewable sources; source: DECC, Third Progress Report on the Promotion and Use of Energy from Renewable Sources for the United Kingdom, January if the project has secured an RO grace period. 4 IEA, Executive Summary Netherlands, PwC, Raport: Potencjalna luka w realizacji celu OZE 2020, March > Target of 15% renewable energy share by > Target of 19% renewables share in electricity production by 2020 > New support scheme based on auctions effective since July 2016 > Separate auctions for seven defined RES categories and for capacity below 1 MW page 142

144 Renewables B Strong construction pipeline and promising development projects 1 Key projects under construction Country Technology Full capacity (MW) innogy stake Expected CoD Support scheme Nordsee 1 Goole 2 Zuidwester Galloper GER UK NL UK Offshore % 100% 100% 25% Q4-17 Q1-17 Q2-17 Q1-18 Feed-in tariff (EEG ) Onshore 0.9 ROC Onshore SDE+ 80/MWh Offshore 1.8 ROC Development projects country split Capacity, pro-rata (MW) 2 Poland 5% Netherlands 6% Germany 18% Close to FID ~1,750 UK 70% Netherlands 11% Poland 12% Germany 14% Other 9% ~3,100 ~4,350 3 Early development ~250 ~250 ~50 ~2,300 UK 54% MW ~950 ~450 ~ Under construction Development close to FID Early development Total ~1,100 Onshore Offshore Hydro Solar Note: capacities in Close to FID and Early development categories rounded to nearest 50MW. Numbers may not add up due to rounding differences. 1 Pro-rata capacity. 2 EEG compression model: 194/MWh; 154/MWh; 39/MWh. 3 Includes <25MW Hydro. ~1,750 page 143

145 Renewables B innogy actively positions itself for upcoming auctions Clocaenog Mynydd y Gwair Grimmen- Papenhagen Triton Knoll Kaskasi Technology > Onshore > Onshore > Onshore > Offshore > Offshore Size (100%) > 96MW > 33.6MW > 26MW > 900MW > MW (Expected) Auction timing > Q > Successful participation > Q > Successful participation > Q > > 2017 Auctioning process > UK CfD auction > UK CfD auction > FiT (EEG 2017) > UK CfD auction > Wind offshore act/ EEG 2017 Only utility so far to have won onshore CfD auction in UK 1 Factors to succeed in upcoming auctions Strict observance of investment criteria Partnering helping to de-bias assumptions Operational synergies from scale Regional and technological diversification Patience and perseverance 1 As of July Statkraft announced in Dec 2015 that they will continue with the development of Triton Knoll, but not invest any further into offshore wind projects. page 144

146 Renewables B Strict investment criteria to focus on value creation Investment framework hurdle rate build-up Attractive returns from recent projects (average project IRRs¹) Base renewables WACC 4.50% Minimum value contribution for new projects 0.75% Wind Offshore GER UK ~9% ~9% Risk premia Technology risk Construction risk Regulatory risk 0.50% 3.50% GER ~7% Country risk premium 0.00% 7.00% Project specific hurdle rate (Project WACC) 5.75%+ Wind Onshore NL UK ~8% ~11% Investment criteria Strict investment framework with conservative hurdle rates PL ~11% Project specific IRRs at FID generally well above prevailing hurdle rates Project specific hurdle rates determined by adjusting renewables base WACC for risk premia and minimum value contribution Source: company estimates. 1 Post-tax project IRRs at FID. Note: Projects since Wind Offshore UK including Greater Gabbard and Gwynt y Môr; Galloper not included as only equity IRR available; Wind Offshore Germany including Nordsee Ost. Wind Onshore including four projects in UK, eight projects in Germany, four projects in NL and five projects in Poland. Simple average of project returns. page 145

147 Renewables C Development of growth optionality through selective and prudent new market entry innogy priorities for new market entry Wind Onshore in new markets Solar Rationale US TR IE Very large market with strong growth potential, resource availability and government support Growth potential, excellent meteorological conditions and demand for capacity Natural expansion of existing UK market > Technology expected to become highly cost competitive > Business model comparable to onshore wind with similar required skill set > Short construction period and limited risks > Low technological complexity Approach > Leverage existing capabilities > Cooperation with local and financial partners > Brownfield approach to accelerate market entry > Build-up of skills and capabilities > Utility-driven approach to asset management and commercialisation (e.g. system integration/storage) Note: US = United States, TR = Turkey, IE = Ireland. page 146

148 Renewables C Spotlight onshore wind in the US leverage capabilities in familiar conditions and profit from growth potential Attractive market framework in the US......with considerable wind energy potential > Attractive support framework > Renewable portfolio standards in several states > PTC 1 framework extended until 2020 > Availability of long-term PPAs for wholesale price components > Strong legal protection Wind speed (m/s) > <4.0 Significant wind potential due to requirements in space and elevated level of wind speed and significant expected growth Wind capacity growth US (GW) 74 4% CAGR E > Very low LCOEs 2 in international comparison, also compared to conventional power generation > Ageing coal plants need to be replaced innogy approach in the US > Focus on Northeastern US where environmental conditions, risk profile and process set-up is very similar to Europe > innogy s sophisticated engineering is capable to maximise output of small parks with high environmental requirements > Existing experience in cooperations with local partners is valuable to source initial projects > Medium-term build-up of own development capabilities > Leverage innogy's onshore expertise and centralised operational functions, such as engineering and O&M Source: US EIA, Annual Energy Outlook Reference case. 1 Production tax credit. 2 Levelised cost of electricity page 147