CREDIT FACTBOOK. October 2013

Transcription

1 CREDIT FACTBOOK October

2 Forward-looking statement RWE Credit Factbook 2013 contains certain forward-looking statements as defined by US federal securities laws. This predominantly relates to the following statements: > Projections of revenue, income, earnings per share, capital expenditure, dividends, the capital structure and other financials; > Statements of plans or objectives for future operations or concerning the company s future competitive position; > Expectations of future economic performance; and > Statements of assumptions underlying several of the foregoing types of statements, all of which are forward-looking statements. Also words such as anticipate, believe, estimate, intend, may, will, expect, plan, project, should and similar expressions are intended to identify forward-looking statements. The forward-looking statements reflect the judgement of RWE s management based on factors currently known to it. No assurances can be given that these forward-looking statements will prove accurate and correct, or that anticipated, projected future results will be achieved. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Such risks and uncertainties include, but are not limited to, changes in the general economic and social environment, business, political and legal conditions, fluctuating currency exchange rates and interest rates, price and sales risks associated with a market environment in the throes of deregulation and subject to intense competition, changes in the price and availability of raw materials, risks associated with energy trading (e.g. risks of loss in the case of unexpected, extreme market price fluctuations and credit risks resulting in the event that trading partners do not meet their contractual obligations), actions by competitors, application of new or changed accounting standards or other government agency regulations, changes in, or the failure to comply with, laws or regulations, particularly those affecting the environment and water quality (e.g. introduction of a price regulation system for the use of power grids, creating a regulation agency for electricity and gas or the introduction of trading in greenhouse gas emissions), changing governmental policies and regulatory actions with respect to the acquisition, disposal, depreciation and amortisation of assets and facilities, operation and construction of plant facilities, production disruption or interruption due to accidents or other unforeseen events, delays in the construction of facilities, the inability to obtain, or to obtain on acceptable terms, necessary regulatory approvals regarding future transactions, the inability to successfully integrate new companies within the RWE Group to realise synergies from such integration and the potential liability for remedial actions under existing or future environmental regulations and the potential liability resulting from pending or future litigation. Any forward-looking statement is valid only as of the date on which it is made. RWE neither intends to, nor assumes any, obligation to update these forward-looking statements. * Footnotes are to be inserted manually (using copy and paste ). For additional information regarding risks, investors are urged to consult RWE s latest annual report, other reports recently filed with the Frankfurt Stock Exchange and the material furnished to the US Securities and Exchange Commission by RWE. 2

3 4 Organisation The Executive Board and Group structure of RWE AG Structure of the RWE Group along the value chain 7 16 Our main financial targets Leverage factor target Positive cash balance provides ability to drive down debt Composition of net debt Development of net debt, EBITDA and leverage factor Balanced maturity profile of RWE s bonds liabilities and assets Capital market debt currency and interest exposure External sources of financing Commercial Paper Programme Commercial papers as a financing tool Debt Issuance Programme (DIP) Bond Financing via RWE Finance B.V. Outstanding RWE senior bonds (currencies) Outstanding RWE senior bonds (time to maturity) Outstanding RWE hybrid bonds (currencies) Outstanding RWE hybrid bonds (time to maturity) Equity and liabilities (schematic) Main characteristics of a RWE hybrid bond Example of the CHF hybrid bond structure (I) Example of the CHF-hybrid bond structure (II) Example of a hybrid bond structure (III) RWE common share dividend history since 1970 Syndicated loan EIB loan RWE has been rated BBB+/stable with S&P Selected S&P rating criteria RWE has been rated Baa1/stable with Moody s ratios applied by the agencies Key statements on RWE by the rating agencies RWE rating compared to peers RWE s rating history Organisation of risk management RWE AG: risk management RWE's corporate treasury Cash Credit market developement Credit risk management of financial counterparties Organisation of commodity risk management in the RWE Group RWE Supply & Trading RWE Supply & Trading commodity risk limit system Credit risk management in the RWE Group of financial assets Asset Mgmt.: investment strategy (I) Asset Mgmt.: investment strategy (II) 57 How the size of the provision is determined Nuclear power plant decommissioning concept (I) Nuclear power plant decommissioning concept (II) RWE Investor Relations contacts

4 Organisation The Executive Board and Group structure of RWE AG Structure of the RWE Group along the value chain 5 6 4

5 The Executive Board and Group structure of RWE AG Peter Terium Dr. Rolf Martin Schmitz Dr. Bernhard Günther Uwe Tigges Chief Executive Officer since 1 July 2012, appointed until 31 August 2016 Deputy Chairman and Chief Operating Officer since 1 July 2012, appointed until 31 January 2019 Chief Officer since 1 January 2013, appointed until 30 June 2017 Chief Human Ressources Officer since 1 January 2013, appointed until 31 Decenber 2015 RWE AG (Group Centre) Conventional Power Generation Supply / Distribution Networks Germany Supply Netherlands / Belgium Supply United Kingdom Central Eastern and South Eastern Europe Renewables Upstream Gas & Oil Trading / Gas Midstream RWE Generation RWE Deutschland Essent RWE npower RWE East RWE Innogy RWE Dea RWE Supply & Trading Internal Service Providers RWE Consulting RWE Group Business Services RWE IT RWE Service 5

6 Structure of the RWE Group along the value chain Raw material production Power generation Energy trading/ gas midstream Electricity and gas networks Electricity and gas supply Gas and oil Lignite Conventional generation Renewable energy RWE Dea RWE Generation RWE Generation RWE Supply & Trading RWE Deutschland RWE East RWE East RWE Innogy RWE East RWE npower Essent > Robust business model through presence at all stages of the energy value chain 6

7 Our main financial targets Leverage factor target Positive cash balance provides ability to drive down debt Composition of net debt Development of net debt, EBITDA and leverage factor Balanced maturity profile of RWE s bonds liabilities and assets Capital market debt currency and interest exposure

8 Our main financial targets Targeting a healthy and efficient balance sheet > Securing access to the debt capital market at all times > Leverage factor (net debt to EBITDA at a maximum of 3.0 over the medium term) as an operational instrument > Cash flow from operating activities to cover investments and dividends by 2015 Strong liquidity profile > Ample liquidity from strong operational cash flows and committed back-up line > Commercial paper market can easily be accessed > Smooth maturity profile > Defined minimum liquidity internally due to margining requirements from trading business Prudent financial policy > Long-term and fixed interest financing matching a long-term business > Conservative definition of net debt (including all major long-term provisions) > 75% of pension obligations funded by Contractual Trust Agreement (CTA) 8

9 Leverage factor target Leverage factor mid-term target: 3.0x Net debt in bn 2.8x 3.5x 3.5x In the order of Below e Leverage factor (Net debt/ebitda) Net financial debt incl. 50% of hybrid bonds Pension, mining and nuclear provisions > Current market environment allows us a higher gearing temporarily > Aspiration to bring down leverage factor to 3.0x medium term unchanged > Focus on additional efficiency enhancements and lower capex > Short-term changes in discount rates for long-term provisions will not drive deleveraging strategy 9

10 Positive cash balance provides ability to drive down debt Cash flows from operating activities to cover investments and dividends by 2015 bn Further reductions in capex levels e Additional efficiency enhancements post 2014 initiated Dividend proposal 2013: 1/share; 1 Pay-out ratio of 40% 50% of recurrent net income from 2014 onwards Capex in property, plant & equipment and financial assets (according to cash flow statement) Dividends (incl. minority payments; year of payment) Cash flows from operating activities 1 Executive and Supervisory Boards intend to propose to the AGM on 16 April 2014 a dividend of 1 per common and preference share 10

11 Composition of net debt million Cash and cash equivalents 2,672 2,009 2,476 3,074 1,249 1,922 Marketable securities 3,047 5,353 3,445 3,443 8,052 11,302 Other financial assets 1,892 2,322 1,985 3,247 4,832 2,125 assets 7,611 9,684 7,906 9,764 14,133 15,349 Bonds, other notes payable, bank debt, commercial paper 17,748 19,959 17,572 17,707 11,839 12,005 Other financial liabilities 2,198 1,964 2,238 2,439 1,644 1,280 liabilities 19,946 21,923 19,810 20,146 13,483 13,285 Net financial debt 12,335 12,239 11,904 10, ,064 for pensions and similar obligations 6,856 3,846 3,318 3,281 2,738 3,565 Surplus of plan assets over benefit obligations for nuclear waste management 10,201 10,366 10,010 9,491 9,465 9,053 Mining provisions 2,874 2,780 2,920 2,712 2,866 2,822 Adjustment for hybrid capital (portion of relevance to the rating) of which recognised in equity in accordance with IFRS 1, of which recognised in debt in accordance with IFRS Net assets held for sale Net debt of discontinued operations ,240 3,645 Net debt of the RWE Group 33,015 29,948 28,964 25,787 18,659 16,514 EBITDA 9,314 8,460 10,256 9,165 8,773 7,915 Leverage factor

12 Net debt, EBITDA Leverage factor Organisation Development of net debt, EBITDA and leverage factor since 2002 billion 1 1 As of 2007, change in the composition of net debt. 12

13 bn bn (capital market debt) Organisation Balanced maturity profile of RWE s bonds Total: 18.5 bn RWE AG/RWE Finance bonds RWE AG hybrid bonds (first call dates) Accumulated outstanding debt (incl. hybrid capital) Target of max. 2bn redemption per year (excl. hybrid bonds) Cumulated maturities excl. hybrid bonds bn 24% bn 13% bn 23% From bn 40% (RWE AG and RWE Finance B.V., as of 08 October 2013) 13

14 liabilities and assets (excluding hybrid capital, as of 30 June 2013) liabilities in billion euros assets in billion euros Split of securities % Short term ( 12 months) Long term (> 12 months) Total 0.7 Short term Long term ( 12 months) (> 12 months) Total 81% Bonds, incl. other notes payable Collateral, margin payments received 1 Securities Collateral, margin payments 1 Interest bearing instruments Equities Loans with banks Other: including CP of 1.3 bn, finance leasing, financial liabilities with non consolidated companies, other financial liabilities Cash/cash equivalents Other: other financial receivables, financial receivables with non consolidated companies, other loans receivable Real estate (0%) Alternative investments (0%) 1 Excluding variation margins which are netted against the fair values of the respective derivatives. 14

15 Capital market debt currency and interest exposure (as of 08 Oct 2013) 9% 30% 18.5 bn bn 2 70% Interest rate fixing expiry > 1 year Interest rate fixing expiry < 1 year 91% 1 Capital market debt = bonds of 14.8 bn and hybrids of 3.7 bn; split into currencies includes cross-currency swaps 2 Capital market debt plus other interest rate-related positions such as commercial paper and cash; including interest and cross-currency swaps 15

16 External sources of financing Commercial Paper Programme Commercial papers as a financing tool Debt Issuance Programme (DIP) Bond Financing via RWE Finance B.V. Outstanding RWE senior bonds (currencies) Outstanding RWE senior bonds (time to maturity) Outstanding RWE hybrid bonds (currencies) Outstanding RWE hybrid bonds (time to maturity) Equity and liabilities (schematic) Main characteristics of a RWE hybrid bond Example of the CHF hybrid bond structure (I) Example of the CHF-hybrid bond structure (II) Example of a hybrid bond structure (III) RWE common share dividend history since 1970 Syndicated loan EIB loan

17 External sources of financing Sources of external debt financing 1 Commercial paper (up to 1 year) 0.0 bn out of 3.7 bn ($5.0 bn) Short-term financing on the money market with a maximum headroom of $5 bn 2 EMTN programme (up to 30 years) 14.8 bn out of 30.0 bn Long-term bond financing on the debt capital market with a maximum headroom of 30 bn 3 Hybrid bonds (more than 60 years) 3.7 bn Subordinated bonds which provide for equity credit with the rating agencies 4 Fully committed syndicated loan (until Nov. 2017) 0.0 bn out of 4.0 bn Unused credit line which serves as an liquidity back-up committed by an international banking group 5 EIB loan (until 2020) 0.65 bn out of 1.1 bn Low-interest programme loan by European Investment Bank (EIB) As of 08 October

18 Commercial Paper Programme Key facts on RWE s Commercial Paper Programme > The global Commercial Paper Programme enables RWE to issue short-term notes without major pre-arrangement based on the given documentation > Issues in the form of Euro commercial paper (ECP) or U.S. commercial paper (USCP) > Key facts: Issuer: RWE AG Volume: $5 bn Term of the notes: up to 364 days Currencies: no restrictions for ECP, USCP only in USD Interest: based on Euribor / Libor 18

19 Commercial papers are a very attractive and flexible financing tool > Commercial papers (CP) are important instruments for corporate borrowers to bridge shortterm financing needs. RWE usually issues notes of up to 6 months, longer maturities are used from time to time. The rates are very attractive close to Euribor. > The utilisation of RWE s CP programme is usually in the low to mid three digit million Euro range. Occasionally, RWE decides to bridge larger financial needs for a short period of time. > At the end of 2011, RWE increased the utilisation to pre-finance the proceeds from the intended equity transaction. Moving average of outstanding CPs ( bn) Jan 10 Jun 13 19

20 Debt Issuance Programme (DIP) Key facts on RWE s Debt Issuance Programme > RWE s Euro Medium-Term Notes (EMTN) Programme > Flexible tool for issuance of public or private bonds based on the given documentation without major pre-arrangements > Key facts: Issuer: RWE AG or RWE Finance B.V. Volume: 30 bn Term: up to 30 years Currencies: no restrictions Interest structure: fixed coupons, floating coupons or zerobonds Unsecured and unsubordinated, pari passu, negative pledge, cross default, no financial covenants Listing: Luxembourg SE, passporting to Germany, the Netherlands, Austria, Ireland and the UK Documentation updated once a year with one year validity 20

21 Bond Financing via RWE Finance B.V. 5 Guarantee Cash Cash Capital Markets Bond RWE Finance B.V. IC Loans RWE AG intercompany (IC) loans Cash IC Loans Cash RWE Subsidiaries Key facts on financing via RWE Finance B.V > RWE Finance B.V., based in the Netherlands, is a 100% RWE Group member solely established for refinancing RWE AG via the capital markets > RWE Finance B.V. only issues senior bonds; all senior bonds are issued under the guarantee of RWE AG > Issued bonds are forwarded to RWE AG or RWE Group companies > Hybrid bonds and private placements are issued by RWE AG RWE Finance B.V. Board of Directors > Dr. Markus Coenen (Head of Finance, RWE AG) > Arjan Blok (CFO Essent) > Dr. Volker Heischkamp (Head of Treasury, RWE AG) > Jacob Stollenga (Director Reporting, Essent) 21

22 Outstanding RWE senior bonds (currencies) EUR Senior GBP Senior USD Senior JPY Senior Issuer Issue Date Moody's S&P Coupon (%) Currency Amount Out. (million) Maturity RWE AG Baa1 BBB EUR RWE AG Baa1 BBB EUR RWE Finance BV Baa1 BBB EUR RWE AG Baa1 BBB EUR RWE AG Baa1 BBB EUR RWE Finance BV Baa1 BBB EUR 2, RWE Finance BV Baa1 BBB EUR 1, RWE Finance BV Baa1 BBB EUR 1, RWE Finance BV Baa1 BBB EUR 1, RWE Finance BV Baa1 BBB EUR RWE Finance BV Baa1 BBB EUR RWE AG Baa1 BBB EUR RWE AG Baa1 BBB+ floating EUR RWE Finance BV Baa1 BBB EUR RWE Finance BV Baa1 BBB GBP RWE Finance BV Baa1 BBB GBP 1, RWE Finance BV Baa1 BBB GBP RWE Finance BV Baa1 BBB GBP RWE Finance BV Baa1 BBB GBP RWE Finance BV Baa1 BBB GBP RWE AG Baa1 BBB USD RWE AG Baa1 BBB+ private JPY 20, As of 17 September Delayed settlement to ; tapped after the issue date. 22

23 Outstanding RWE senior bonds (time to maturity) Issuer Currency Placement Volume in currency (million) Volume in (million) 1 Tenor (years) Issue date Maturity date Coupon (%) German Securities Code ISIN Code RWE Finance BV EUR Public 1, , A0T3SN XS RWE Finance BV EUR Public A0DAN1 XS RWE Finance BV EUR Public 2, , A0T6L5 XS RWE Finance BV EUR Public XS RWE AG EUR Private Floating XS RWE Finance BV EUR Public XS RWE Finance BV EUR Public 1, , A0T3SP XS RWE Finance BV EUR Public A1HE5D XS RWE Finance BV GBP Public XS RWE Finance BV EUR Public 1, , A0T6L6 XS RWE Finance BV GBP Public A1AJN3 XS RWE Finance BV GBP Public XS RWE Finance BV EUR Public A1HR28 XS RWE Finance BV GBP Public XS RWE AG EUR Public XS RWE AG USD Private A1R1BH XS RWE Finance BV GBP Public A1GZLK XS RWE AG EUR Private A1PGV8 XS RWE Finance BV GBP Public 1, , A0AJN2 XS RWE AG JPY Private 20, Private No listing No listing RWE AG EUR Private A1R0S7 XS RWE AG EUR Private A1TM2X XS As of 17 September

24 1 2 3 Outstanding RWE hybrid bonds (currencies) 4 5 EUR Hybrid CHF Hybrid CHF Hybrid USD Hybrid GBP Hybrid Issuer Issue Date Moody's S&P Coupon (%) Currency Amount Out. (million) RWE AG Baa3 BBB EUR 1,750 RWE AG Baa3 BBB CHF 250 RWE AG Baa3 BBB CHF 150 RWE AG Baa3 BBB USD 1,000 RWE AG Baa3 BBB GBP 750 Maturity Perpetual / Next call: / Next call: / Next call: / Next call: Perpetual / Next call:

25 Outstanding RWE hybrid bonds (time to first call) Issuer Currency Placement Volume in currency (million) Volume in (million) Tenor Issue date First call date Coupon (%) German Securities Code ISIN Code RWE AG EUR Public 1, ,750.0 perpetual A1EWR0 XS RWE AG CHF Public limited A1MAVP CH RWE AG CHF Public limited A1PGUU CH RWE AG USD Public 1, limited A1ML2E XS RWE AG GBP Public perpetual A1ML0G XS As of September

26 Equity and liabilities (schematic) Assets RWE Balance Sheet Equity and liabilities Assets Common shares Preferred shares Hybrid bonds Senior bonds (senior unsecured) > Junior to all other present or future obligations > Senior only to shares Other liabilities Hybrid bonds are deeply subordinated and support RWE s financial strength 26

27 Main characteristics of a RWE hybrid bond compared to a senior bond GBP Senior Bond (January 2012) GBP Hybrid Bond (March 2012) Volume GBP GBP Tenor January 2034 Perpetual Right of early termination by RWE No Yes, first call date in March 2019 Extraordinary right of early termination by RWE No Coupon 4.75% 7.00% Issue Price % % Yield 4.76% 7.12% Yes, on occurrence of special events Ranking Senior, not subordinated, unsecured Deeply subordinated, unsecured Coupon Step-Up No +0.25% from March 2024 onwards +1.00% from March 2039 onwards Coupon Deferral Not possible Possible Equity Credit by rating agencies No 50% 27

28 Example of the CHF hybrid bond structure (I): Termsheet Description Subordinated Resettable Fixed Rate Notes Currency CHF Issue Date 4 November 2011 Size CHF 250 million Coupon 5.25% Instrument Baa2 / BBB Maturity 4 April 2072 Call Dates 4 April 2017, 4 April 2022 and on each subsequent coupon payment date Interest Optional Interest Deferral Arrears of Interest become Due / Compulsory Payment Date Subordination Special Event Calls 5.25% until 4 April 2017, reset to 5-year CHF mid swaps plus a margin of (i) bps until April 2022, (ii) bps until 4 April 2037 and (iii) bps until 4 April 2072 Cumulative deferral Upon (i) payment of interest on the notes or parity securities or dividends, (ii) redemption or repurchase of share capital or parity securities, (iii) redemption, (iv) winding-up/dissolution Junior to all unsubordinated and subordinated creditors, pari passu with any parity securities, senior to share capital Gross-up (par), Accounting (Make-whole), Tax (Make-whole), Agency (101), change of control (Makewhole) 28

29 Example of the CHF hybrid bond structure (II): structure to maturity Nov 2011 (issuance) Apr 2017 Apr 2022 Apr Apr 2072 Key dates Coupon step-up Issue date 1 st par 2 nd par Annual call thereafter until maturity date 25 bps step-up additional 75 bps step-up Maturity date Coupon 5.25% Fixed rate at 5-yr CHF MS rate (reset) + initial spread* Fixed rate at 5-yr CHF MS rate (reset) + initial spread* + 25 bps Fixed rate at 5-yr CHF MS rate (reset) + initial spread* bps Equity credit S&P: 50% Moody's: 50% S&P: 0% Moody's: 50% > RWE has the right to call the notes at par plus any accrued or outstanding deferred coupon payments after 5.4 years, after 10.4 years, and on every interest payment date thereafter. The final maturity is April 2072 > In addition, RWE has special redemption rights upon the occurrence of an accounting event, tax event, clean-up call, change of control (at make-whole), rating agency event (at 101%) or a gross-up event (at par) > The equity credit is 50% with both agencies until the first call date in year 5.4, and falls to 0% from S&P thereafter, whilst Moody s remains at 50% until 10 years prior to maturity date * Initial spread: 438.9bp 29

30 Example of a hybrid bond structure (III): Optional coupon deferral with the CHF hybrid No Current coupon paid in cash Simultaneously, any previously deferred coupon must be cash settled RWE exercises its option to defer the coupon payment Yes Any deferred coupon must be settled in cash Yes No payment of current coupon Deferred coupon remains outstanding (cumulative) Shareholders resolve on proposal to pay dividends at the Annual General Meeting No Deferred coupon remains outstanding (cumulative), if not settled voluntarily Remuneration Date AGM > RWE has the option to suspend coupon payments at any remuneration date. However, once shareholders resolve on proposal to pay a dividend at the AGM, all deferred coupons must be settled in cash. 30

31 RWE s share dividend history since Dividend per share 31

32 Syndicated loan Key facts on RWE s Syndicated Loan > Back-up liquidity for general corporate purpose > Size of 4 billion > Consortium of more than 30 international banks > No financial covenants and no rating trigger > Agreed in 2010 with an original term of 5 years plus two extension options > The facility will mature in November 2017 committed by 32 international banks 32

33 EIB loan Key facts on RWE s EIB loan > Low interest programme loan by European Investment Bank (EIB) > 645 million granted in autumn 2011 with a maturity of 9 years > Funds will serve to finance capital expenditure on RWE s electricity distribution network > 350 million granted in summer 2013 (unused) > Funds can be used to finance capital expenditure on RWE s share in the Grater Gabbard offshore windpark 33

34 RWE has been rated BBB+/stable with S&P Selected S&P rating criteria RWE has been rated Baa1/stable with Moody s ratios applied by the agencies Key statements on RWE by the rating agencies RWE rating compared to peers RWE s rating history

35 Business risk profile Organisation RWE has been rated BBB+/stable with S&P risk profile Minimal Modest Intermediate Significant Aggressive Highly leveraged Excellent AAA AA A A- BBB -- Strong AA A A- BBB BB BB- Satisfactory A- BBB+ BBB BB+ BB- B+ Fair -- BBB- BB+ BB BB- B Weak BB BB- B+ B- Vulnerable B+ B CCC+ > Due to its strong business risk profile and a significant financial risk profile RWE falls into the BBB-bracket > Including further factors RWE has overall been rated BBB+ by S&P 35

36 risk profile Business risk profile Organisation Selected S&P rating criteria Market environment Political and regulatory framework Market position Share of regulated business Degree of vertical integration Capital intensity CO 2 intensity policy, e.g. leverage target Liquidity and financial flexibility Track record disposals ratios, e.g. FFO / net debt 20% for a BBB+ rating RWE Strong Significant BBB+ 36

37 risk profile Business risk profile Organisation RWE has been rated Baa1 / stable with Moody s Criteria (brief description) Weight Single rating RWE 1. Size and scale 2. Competitive position 3. Fuel strategy and mix 4. Downstream integrations 5. Capital requirements 6. Share low-risk business 7. policy 15% 10% 5% 5% 5% 10% 10% 50% Aaa A Baa A Ba Aa Baa Baa1 / stable 8. Cash flow / interest 10% Baa Cash flow / net debt Retained cash fl. / net debt 12.5% 12.5% 50% Baa Baa 11. Free cash flow / net debt 5% Ba 37

38 Definition of major financial ratios applied by S&P and Moody s Funds from operations (FFO) Cash flow from operating activities before working capital movements Retained Cash Flow (RCF) FFO minus dividends FFO / Net Debt Ability of a company to generate cash before working capital movements in relation to the level of outstanding debt RCF / Net Debt Companies with higher level of retained cash flow generation appear to be better able to repay debt over time Development of RWE s key rating ratios over time % FFO / Net Debt RCF / Net Debt

39 Key statements on RWE by the rating agencies Standard & Poor's (BBB+, stable outlook") > On 5 July 2013, S & P confirmed its rating view for RWE of BBB+/ stable outlook. > RWE s business profile is seen as strong, based on the leading position in power generation and supply in Northwestern Europe, and a meaningful share of stable regulated and longterm contracted earnings, among others. > However, S & P expects that depressed power prices in Central Europe, as a result of continuous additions of subsidised wind power and photovoltaic capacities and lack of growth in power demand are likely to continue to hindering RWE s power generation operations. > RWE s financial risk profile is considered significant as it profits from satisfactory cash flow generation from operations, a strong liquidity profile, and a commitment to reduce financial debt. > The stable outlook reflects S & P s view that RWE will be able to maintain cash flow credit ratios commensurate with ratings over the next few years, mainly as a result of lower discretionary cash spending and disposals. Moody's (Baa1, stable outlook") > On 21 June 2013, Moody s downgraded RWE s rating from A3 /negative outlook to Baa1/ stable outlook. > The downgrade reflects Moody s view that the pressure on RWE s core business of power generation will intensify due to the challenging operating environment which is expected to exert negative pressures on cash flow and profitability over from lower achieved power prices, narrower margins on gas-fired generation and the nuclear fuel tax in Germany. > In addition, Moody s is of the opinion that RWE s planned earnings growth from renewables and its sale of the E & P business carries some execution risks. > The stable outlook assumes that RWE will continue to deliver on its cost cutting and capex reduction plans, and succeeds in realising substantial asset disposals. > RWE s rating takes account of the Group s track record of financial discipline and the measures RWE has taken in response to the challenges in its core generation business. 39

40 RWE s rating compared to peers Standard & Poor s Moody s Company Outlook Outlook CEZ * A+ Stable Aa3 Negative * A Negative A1 Negative * A- Stable A2 Negative * A- Stable A2 Watch neg. A- Stable A3 Stable * A- Negative A2 Negative A- Stable A3 Negative * A- Stable A3 Negative A- Negative A3 Stable BBB+ Stable Baa1 Stable BBB Stable Baa1 Negative BBB Stable Baa2 Negative * Government-related entities. As of August

41 RWE s rating history Standard & Poor s Moody s Date CreditWatch/ Outlook Jul 2012 BBB+ Stable Jun 2011 A- Negative Apr 2011 A Watch negative Jan 2009 A Negative Jun 2008 A Stable Feb 2008 A+ Watch negative Mar 2003 A+ Negative Jun 2002 A+ Stable Mar 2002 AA- Watch negative Dec 2001 AA- Negative Dec 2001 AA- Stable Sep 2001 AA- Watch negative Date CreditWatch/ Outlook June 2013 Baa1 Stable Jul 2011 A3 Negative Apr 2011 A2 Watch negative Nov 2009 A2 Negative Jan 2009 A1 Watch negative Feb 2008 A1 Negative Apr 2005 A1 Stable Mar 2002 A1 Negative Dec 2001 Aa3 Negative Sep 2001 Aa3 Watch negative Feb 2000 Aa3 Stable Feb 2000 AA- Stable 41

42 Organisation of risk management RWE AG: risk management RWE's corporate treasury Cash Credit market developement Credit risk management of financial counterparties Organisation of commodity risk management in the RWE Group RWE Supply & Trading RWE Supply & Trading commodity risk limit system Credit risk management in the RWE Group

43 Organisation of risk management in the RWE Group Group-wide risk management system Executive Board of RWE AG Overall responsibility for group-wide risk management system Committee Responsible for implementing, monitoring and refining the group-wide risk management system Group Controlling Controlling and coordination of group-wide risk management system Commodity of commodity positions Group Controlling Group Controlling Monitoring of commodity risks Group Controlling Group Credit of credit risks Group Finance Controlling Monitoring of financial risks Commodity Committee Group Accounting Group Legal & Compliance Group Compliance Asset Committee Decisions on hedging strategies Monitoring of risks in financial reporting Monitoring of compliance of risks and opportunities associated with investments in securities Group companies 43

44 RWE AG: risk management RWE Group companies are subject to strict risk management which is regulated by group-wide directives derivatives are not to be used for speculative purposes and serve only to hedge risks arising from operations Main financial risk factors are: Foreign Exchange (FX) > RWE Group companies have to hedge any FX risk with RWE AG > RWE AG measures the net position for each currency and hedges itself with external counterparties (banks) > Measurement and limitation of FX risks is mainly based on an FX value at risk concept [VaR (95/1d) 1 < 1m] Interest Rate RWE has two different risk categories: > Bonds which are held as fixed income assets: Rising interest rates may lead to lower bond prices Average Value at (95/1d) 1 in 2012: 5m > Financing costs: Rising interest rates may lead to higher financing cost Interest rate exposure from financing activities is measured with Cash Flow at Average Cash Flow at (95/1y) 2 in 2012: 14m Counterparty (banks) > Measurement of exposure (caused by cash, term deposits, FX/IR derivatives etc.) for each bank > RWE allocates for each bank a limit which is usually derived from the bank s equity, rating and CDS Equity > Shares are part of RWE s asset portfolio > Average Value at (95/1d) 1 of share price changes in 2012: 9m 1 Confidence level: 95%; holding period: 1 day. 2 Confidence level: 95%; holding period: 1 year. 44

45 RWE's corporate treasury basis for group-wide financial risk management External market Capital market s FX deals (incl. derivatives) Interest deals (incl. derivatives ) CP programme Money market RWE AG Liquidity transfer via cashpool Hedging (fx, interest rates) Intercompany loans RWE subsidiaries > RWE AG acts solely as external counterparty for financial transactions (excluding regulatory requirements) > Group Treasury has the overall responsibility for treasury operations > Central database for group-wide financial risk management 45

46 Cash is centralised at RWE AG RWE AG Entity A Entity A Subs A Subs B Subs B Subs B > RWE AG is using cashpooling almost throughout the entire holding structure > As a result, RWE AG has all cash of the Group available on a daily basis > RWE Group uses zero balancing or in some cases notional pooling to consolidate cash on RWE AG > RWE AG administrates internal accounts for RWE s Group entities > To avoid external payment risks, payments between RWE Group companies can be made through these internal accounts without touching external bank accounts 46

47 in % spread in bp Organisation Credit market developement Observations at the credit market With the containment of the European sovereign debt crisis, the uncertainty and the mistrust concerning the credit standing of banks have been reduced: > RWE s internal reference index* for bank CDS decreased and reached levels like before the sovereign debt crisis > However, CDS spreads still react sensitively to market rumours > CDS spreads of Spanish and Italian banks recovered, but are still higher than others > ECB keeps its deposit rate still close to zero so that only term deposits with low yields are offered * The reference index used is the average 5y CDS of 28 large banks which are systemically important financial institutions according to the Stability Board (FSB). Although CDS levels recovered Oct 10 Apr 11 Oct 11 Apr 12 Oct 12 Apr 13 Oct 13 reference index (average of world wide system relevant banks)...offered yields for term deposits are still low O/N 1W 2W 1M 2M 3M 4M 5M 6M 9M 1Y EONIA ( ) EONIA ( ) money market curve ( ) money market curve ( ) 47

48 CDS Equity Organisation Credit risk management of financial counterparties counterparty risk management Credit indicators > RWE s internal base limit for assessing the financial counterparty credit risk is derived from the counterparty s rating and its amount of equity > Minimum rating of the three rating agencies S&P, Moody s and Fitch is considered. > As reference index* the average of the CDS spreads of the 28 so called systematically important banks is used > The internal base limit is reduced if the CDS of the counterparty is higher than the reference index > Bank exposure and limits are updated daily > Deposits are moved to banks with lower CDS levels or into money market funds invested in strong government securities AA- A- BBB+ BBB * The reference index used is the average 5y CDS of 28 large banks which are systemically important financial institutions according to the Stability Board (FSB). 48

49 Organisation of commodity risk management in the RWE Group Executive Board of RWE AG > Overall responsibility for group-wide risk management system > Establishes the rules and minimum standards > Defines limits for aggregated market and credit risks > Takes decisions on transactions that can result in substantial risks > Defines the overall hedging strategy CFO of RWE AG > Responsible for tracking and monitoring commodity risks with regard to both the market and the credit side Group Controlling > Is responsible for the approval of methods and models for the valuation of commodity risks > Sets standards for risk measurement, monitors commodity risks and reports on these to the Executive Board > Analyses and approves credit limits for large commodity counterparties, large suppliers and banks Commodity > Manages commodity positions > Grants approvals for detailed hedging strategies and large commodity transactions within the framework determined by the Executive Board > Derives detailed limits for the commodity risks of the operating companies from the risk caps established by the Executive Board Operating companies > Handle operative commodity and credit risk management > Control and monitor commodity risk positions 49

50 RWE Supply & Trading acts as the interface between the RWE Group and global wholesale energy markets Embedded lignite supply Emission Power Gas Oil Coal Freight Weather Biomass certificates RWE Supply & Trading Retail, small/medium sized industrials, municipals Sale of power and gas to end customers RWE s generating companies > Investment decisions > Technical optimisation to increase value of assets > Operation and maintenance of generation assets Transfer of commercial responsibility > Face to the wholesale market > Trading activities 1. Trading Sale of fuels and emission certificates 2. Commercial Asset Optimisation Sale of power > Commercial optimisation of assets, fuel supply and asset hedging on behalf of generating companies > Asset-backed trading activities > Reserve & balancing, ancillary services, face to TSOs 1 Sale of power and gas RWE s sales companies > Sale to customers (power, gas) > Back-to-back procurement > Lock-in sales margin > Bear volume and credit risk Sale of power and gas Options and emission certificates 3. Sales & Origination > Physical and financial customer business, principal investments, complex illiquid transactions and services > Internal/external back-to-back procurement Sale of power, gas, emission certificates Industrial customers 1 TSO = Transmission system operator. 50

51 RWE Supply & Trading commodity risk limit system > RWE Supply & Trading is the RWE Group s interface to the wholesale markets for power and energy commodities, while serving as an internal transaction partner for hedging commodity risks > The global risk limits in the energy trading business are set and constantly monitored by the Executive Board of RWE AG > limits are then further detailed: Executive Board of RWE AG grants Global limits for market risks Organisational Unit Commodity grants restrict Detailed market risk limits Comments on adequacy of limit requests to be granted by Executive Board and monitors limit utilization Group Controlling restrict Board of RWE Supply & Trading grants Limits for single desks/books/traders 51

52 Credit risk management in the RWE Group High-level credit policy > Group-wide credit policy has been established. Above all, it is based on overall limitation and maximum individual counterparty limits and tenors (based on the creditworthiness of a counterparty) for upper-size business Robust counterparty risk assessment and monitoring > Counterparties are assessed using internal rating tools, where available external rating information are also taken into account > All counterparties are monitored on an ongoing basis and reviewed on a regular basis State of the art measurement and monitoring of exposures > Potential future credit exposure (= potential replacement value) is calculated with a Value-at--like methodology > In addition, both current and future settlement exposure is measured > Counterparty credit exposures are reviewed on a near-time basis Clear credit incentives > Credit capital costs are based on the rating/probability of default (PD) of a counterparty > Performance determination includes credit risk charges Driver of credit risk mitigation > Bundling of know-how in a central credit risk management unit > RWE Supply & Trading was a key driver of the EFET 1 standards for power and gas with more than 130 EFET agreements having been signed so far > RWE Supply & Trading plays a leading role in the development of exchanges/otc clearing 1 EFET: European Federation of Energy Traders. 52

53 of financial assets Asset Mgmt.: investment strategy (I) Asset Mgmt.: investment strategy (II)

54 of financial assets: centralised structure Asset Committee (AMC) > Defines investment strategy > Sets guidelines for the implementation > Members: CFOs of RWE AG, RWE Power, RWE npower, RWE Dea, enviam, Lechwerke, Süwag, Head of Finance of RWE AG Investment strategy, guidelines & restrictions Recommendations & reporting Group Finance of RWE AG > Centralised asset management by RWE AG Investment guidelines Asset management contract > RWE AG subsidiaries: 2.2 bn > RWE Pensionstreuhand e.v. (PTV): 3.3 bn > RWE Pensionsfonds AG (PF): 6.7 bn > UK Pension Trust - RWE npower: 4.2 bn Internal management External management Master KAGs : RWE AG Group > Spezialfonds : 5 > Subfunds: 30 As of 30 June Master KAGs : PTV + PF > Spezialfonds : 4 > Subfunds: 70 54

55 Asset management: investment strategy 1 Strategic Asset Allocation (SAA) > SAA is defined for each subsidiary by weight per asset class; not single securities > Each asset class is defined by a specific benchmark index > SAA is reviewed once a year Target portfolio Bonds 75% Equities 25% Equity range Bond range 30% Total equity 90% European bonds Total bonds 25% 20% Europe 75% 60% 15% 45% 10% Pacific USA 30% 5% 15% US high yield 0% 0% Max. Min. Max. Min. 1 Excluding plan assets to cover pension obligations 55

56 Asset management: investment strategy (domestic plan assets; smaller plans deviate slightly) Strategic Asset Allocation (SAA) > SAA is defined by weight per asset class; not single securities > Each asset class is defined by a specific benchmark > Evolution of the SAA is based on an asset liability study Target portfolio Bonds 53% Equities 24% Balanced 10% Alternative investments 10% Real estate 3% Equity range Bond range 30% 25% Total equity 90% 75% Bonds 10+ Total bonds 20% 60% 15% 10% 5% Europe Pacific USA Emerging markets Eastern Europe 45% 30% 15% Corporates US high yield 0% 0% Max. Min. Max. Min. 56

57 How the size of the provision is determined Nuclear power plant decommissioning concept (I) Nuclear power plant decommissioning concept (II) RWE Investor Relations contacts

58 How the size of nuclear provisions is generally determined Nuclar provisions at RWE (as of 31 Dec. 2012) How the size of the provision is determined 1 for uncertain liabilities as per IAS 37 2 Public-law liabilities under Sec. 9a of the Germany Nuclear Energy Act 3 are made for >Disposal of spent nuclear fuel assemblies Flasks, transport, conditioning, intermediate and final storage 4,494 mn million 2 Escalation rate (specific cost increase) >Decommissioning of nuclear power plants Post-operation phase, dismantling, removal, final storage >Disposal of radioactive operating waste (e.g. cleaning cloths, oils) Conditioning, flasks, intermediate and final storage 4,945 mn 762 mn 1 Total cost at the cut-off date Annual interest accretion IFRS 4 3 Discount rate (discount to net present value) Amount payable 4 Inflation of current cost to the assumed disposal date by a set inflation rate; then discounting of the result back to today (discount rate 5.0%) t 58

59 RWE Power s nuclear power plant decommissioning concept (I) Decommissioning Decommissioning planning + licensing procedure Operation Post and residual operation Nuclear dismantling (immediate, deferred 1 ) Conventional dismantling/ Demolition Final disposal years 2-3 years 85 90% share of costs 10 15% share of costs > Power production has ceased > Fuel elements are being cooled in pond storage facilities until they are suitable for dry-cask ( CASTOR ) storage on site > Systems no longer needed to be shut down > Installation of decommissioning infrastructure and substituted systems > Dismantling of contaminated and activated systems, structures and components > Materials and waste management (treatment, conditioning, packaging) > Partial dismantling of buildings, clearance of site > Conventional demolishing of buildings/ components which fall no longer under the German Atomic Energy Act (AtG) > Final disposal of decommissioning waste 1 For deferred dismantling the facility will be prepared for long term safe store operation of ~ 30 years 59

60 RWE Power s nuclear power plant decommissioning concept (II) Decommissioning Decommissioning planning + licensing procedure Operation Post and residual operation Nuclear dismantling (immediate, deferred 1 ) Conventional dismantling/ Demolition Final disposal years 2-3 years 85 90% share of costs 10 15% share of costs Explanation of costs > Post operation period ends after receiving the decommissioning license, afterwards residual operation. > As soon as the NPP is fuel-free, fixed costs can be reduced further. However, there is an ongoing need for inspection and (external) review. > Overall costs for decommissioning excluding costs for final disposal can be divided into 50% post and residual operation, 35% dismantling activities and 15% materials and waste management. > Expenses are booked against provisions; they do not have an effect on the profit and loss statement at that time. 1 For deferred dismantling the facility will be prepared for long term safe store operation of ~ 30 years 60

61 RWE Investor Relations contacts Contacts for Institutional Investors & Analysts Investor Relations Dr. Stephan Lowis Martin Vahlbrock Gunhild Grieve Judith Heise Vice President Investor Relations Tel.: Tel.: Tel.: Tel.: Dr. Burkhard Pahnke Jens-Philipp Briemle Vera Bücker Jennifer Wendland Tel.: Tel.: Tel.: Tel.: Contact for Private Investors Cosima Bockelmann Tel.: