Let me begin with the key financial indicators:

Transcription

1 Report on the first quarter of 2016 On-line press conference for journalists Essen, 12 May 2016, 10:00 a.m. CEST/9:00 a.m. UK time Speech notes for Dr. Bernhard Günther Check against delivery. Ladies and Gentlemen, Good morning to you all from Essen. Welcome to our conference call on our business performance for the first quarter of Let me begin with the key financial indicators: EBITDA was 2.3 billion and our operating result was 1.7 billion, up 5% and 7%, respectively, on the first three months of last year. This increase is attributable, among other things, to energy trading, which made an above-average earnings contribution. On the other hand, the result from conventional power generation declined substantially, as expected. Looking at the year as a whole, we must remember that our earnings during the first quarter are usually disproportionately high, mainly due to the weather. In other words, they cannot be taken as a guide for the entire year. In addition, certain expenses that we expect for the current year had not been incurred, or were incurred only to a limited extent, by the end of March. This applies to such

2 2 things as expenditure for the nuclear fuel tax and measures to maintain our power stations and grids. Our adjusted net income was 857 million. This represents a decline of 2% compared to 2015, despite an increase in operating income. The main reason for this was a much poorer financial result minus 591 million compared to minus 229 million in the previous year. Before I talk about our business figures in greater detail, I d like to briefly address two current topics: financing the phase-out of nuclear energy and the restructuring of the RWE Group. At the end of April, the commission reviewing the financing of the nuclear phase-out (KFK) presented its recommendations. It suggests that the energy utilities pay monies equalling their provisions for interim and final nuclear waste storage into a State-run fund. The recommendations are logical in principle. However, the commission wants to add a high risk premium to these provisions. Let me spell it out: the commission s proposals go beyond what is responsible from an economic perspective. They are too demanding, and fail to take the Group s actual economic situation into account. And on these grounds, the commission s recommendations are not acceptable to us. Even so, we remain interested in achieving a consensus on financing the phase-out of nuclear energy. Therefore, we will continue to offer our suggestions and

3 3 arguments in discussion with policy-makers. On 1 April, our new subsidiary bundling renewables, grids and retail began commercial operations. Its provisional name is RWE International SE. Besides its six-member Executive Board, about 3,100 employees have already moved from our German companies to RWE International. After three further waves, the transfer of staff is scheduled to be complete by the first quarter of German regional companies and international companies in these areas are to be transferred to RWE International as legally autonomous enterprises during the next few months. The definitive name and brand appearance of the new company are to be announced in the summer. We are planning the IPO for the fourth quarter of this year depending, of course, on the situation on the capital market. From that point forward, the new company will act independently and on its own responsibility. That brings me to our business performance during the first three months of this year. A point of clarification to begin with: in October 2015, the German legislator decided to simplify the legal requirements governing how quarterly reports are drawn up. The Frankfurt Stock Exchange responded to this. Companies now have the possibility of optimising their quarterly reporting from a cost-benefit perspective. We have now made use of this opportunity for the first time in our new quarterly report. It is therefore noticeably shorter than in the past.

4 4 One other change relates to the segment structure of our reporting. This is due to the fact that we have adjusted our management model. From now on, we will segment our business activities into five divisions: Conventional Power Generation, Trading/Gas Midstream, Renewables, Grids/Participations/Other, and Supply. The last two divisions are new. The activities that have previously been covered by the Supply/Distribution Networks Germany, Supply Netherlands/Belgium, Supply United Kingdom and Central Eastern and South Eastern Europe segments will be transferred to them. To ensure comparability between the figures for 2016 and those for the previous year, we have restated the previous year s figures in the new structure on a pro-forma basis. I will discuss the individual segments in a moment. But first I would like to talk about the changes in the key figures for the first quarter of Ladies and Gentlemen, Our external revenue including natural gas and electricity tax fell by 6%. This is partly attributable to the supply business in the UK, where we suffered customer losses. In addition, the British pound became cheaper relative to the euro. This led to a decrease in revenue in the UK after conversion into euros. The full consolidation of our Slovak

5 5 energy supply company VSE since August 2015 had a slightly positive influence on revenue. This brings me to our operating result: In the first quarter of 2016, the RWE Group posted an operating result of 1.7 billion, an increase of 7% year on year. This is partly attributable to the fact that our trading activities achieved above-average returns, whereas they were below average last year. The Trading/Gas Midstream Division was therefore able to considerably increase its operating result, from 7 million to 166 million. Let s move on to the earnings trend in the other four divisions. In Conventional Power Generation, the operating result dropped considerably, in line with expectations. It fell by 20% to 354 million. The main reason for this is that the wholesale prices we received for the electricity generated by our power stations were lower than in The decline in earnings was contrasted by lower fuel purchase prices. The latter caused the market conditions for our gas-fired power plants to be slightly more favourable than in 2015 and their utilisation to improve accordingly, primarily in the UK. Continued cost-reduction measures and income from property sales also helped us limit an even greater decline in earnings in this segment.

6 6 On the other hand, we enjoyed stable performance in the Renewables Division, where our operating result of 154 million was essentially unchanged compared to Increased electricity production from our new offshore wind farms Gwynt y Môr and Nordsee Ost had a positive effect, whereas in the same period in 2015 they were not yet at full capacity. We also achieved capital gains from the sale of smaller run-of-river hydroelectric stations along the Upper Ruhr. A counteracting effect was felt by the fact that the high extraordinary income posted from the sale of the grid infrastructure of Gwynt y Môr was no longer included in this year s result. Furthermore, the significant drop in wholesale electricity prices weighed on earnings. Many renewable power stations also in Germany which do not receive fixed feed-in fees suffered as a result. Now let s move on to the Grids/Participations/Other segment, which is appearing for the first time in this form. In this area, we posted increased expenditure for grid infrastructure maintenance. We also accrued provisions for part-time retirement measures. Even so, the operating result in this area was slightly above that of last year, at 583 million. One reason is that we revalued our stake in the German distribution network company WestEnergie GmbH and revealed hidden reserves. Furthermore, our book gains from

7 7 the sale of grids rose, although we expect a decrease for the year as a whole. Cooler temperatures also resulted in an increase in transit volume in our Czech gas distribution network. A counteracting effect resulted from our accrual of provisions for old-age part-time employment measures in Germany. Lastly, I will now turn to the Supply Division, which is also new, and combines the regional supply activities that were presented separately in the reports for earlier years. Following on from an operating result of 555 million in the same quarter the previous year, the result for Supply during the reporting period was 543 million. A few words on developments in the individual markets: Retail in Germany suffered from the negative consequences of increased up-front costs in the area of network usage fees, taxes and levies. These were only partly offset by price adjustments. In the Netherlands, we gained revenue in the residential customer segment; however, a positive one-off effect from the previous year resulting from the reversal of a provision for legal risks did not recur. In the UK, the marked decline in our residential customer segment since the beginning of 2015 made itself felt. However, our market position there has stabilised again to a certain extent. Even so, we were partly only able to retain

8 8 customers by offering them new contracts at more favourable conditions. Some relief in the UK retail business was provided by a reduction in procurement costs for electricity and gas. Expenses incurred to implement energy-saving measures as part of the State ECO 1 programme also fell. Now let me move from the development of earnings to capital expenditure. At 373 million, our capital expenditure was 10% lower than the figure recorded in the equivalent period last year. We recorded a significant decline in expenditure on property, plant and equipment in the Conventional Power Generation Division. A year ago, we were still devoting a sizeable amount of capital expenditure to the UK gas-fired power stations of Pembroke and Staythorpe. The event that mainly influenced the strong decline in capital expenditure in the area of Renewables was the completion of our offshore wind farms Gwynt y Môr and Nordsee Ost. We spent more in the area of Grids/Participations/Other than in the previous year. Good weather conditions enabled us to implement more measures in the winter months than in the previous year to improve our grid infrastructure. And now to my next point, cash flow. 1 Energy Companies Obligation

9 9 Cash flows from operating activities amounted to minus 2.0 billion. The previous year s figure was also negative. 2 This is mainly the result of seasonal influences that are reflected in changes in working capital. One reason for this: electricity and gas sales are higher than average in the first quarter due to weather conditions. Customer payments, on the other hand, are spread evenly throughout the year. This typically leads to a substantial increase in accounts receivable in the retail business and correspondingly low cash flows from operating activities. The bulk of the costs for CO 2 emissions is also incurred in the first quarter. During the period under review, however, we also had to pledge much more collateral for forward transactions. This was one of the main reasons why our cash flows from operating activities were noticeably worse year on year. Deducting our capital expenditure in the area of grids in particular gave us a free cash flow of minus 2.3 billion. This negative free cash flow is also the main reason for the marked increase in our net debt, which amounted to 27.9 billion as at 31 March A further reason was the increase in provisions for pensions, to take account of changes in market interest rates. That s all for the first quarter of And now on to the forecast for the fiscal year. 2 Minus 627 million

10 10 Ladies and Gentlemen, We are able to confirm the outlook on the RWE Group s business performance this year, which we published in March: We expect EBITDA of 5.2 billion to 5.5 billion, an operating result of 2.8 billion to 3.1 billion and adjusted net income of 0.5 billion to 0.7 billion. The only change compared to the March outlook relates to the extent of net debt as at the end of We had previously anticipated a figure in the order of last year s level. One of our assumptions was that interest rates would remain stable, which would also imply stable discount factors for long-term provisions. But this assumption was not confirmed. Thanks to the latest drop in interest rates and the need to top up our provisions for pensions as a result, we are now expecting a moderate increase in net debt for the year as a whole. Ladies and Gentlemen, That s all the formal reporting I m going to do today. Now let s have a further look at the restructuring of the Group! A look at the figures for fiscal 2015 based on the new corporate structure confirms what Peter Terium said at this year s Annual General Meeting: our new company is starting out as a heavyweight with a future-oriented business model,

11 11 a profitable portfolio and a broad range of expertise. Right from the outset. Thus, the new company accounts for the bulk of external revenue of the entire Group. The EBITDA of the segments that are bundled in the new company amounts to 4.7 billion. However, this does not include overhead functions, one-off effects and additional costs. On this basis, through direct access to the capital market, we aim to enable the new company to have the necessary preconditions for future growth. We want to make it the driving force for the energy market transformation in Europe. The potential success of the new company which we firmly believe in can take the whole Group along with it. After all, we must not forget that the new company is the third pillar underpinning RWE AG, alongside conventional power generation and energy trading. As the majority shareholder in the new company, it is RWE AG that stands to benefit most from the potential growth and dividends of the new company. That s about it, ladies and gentlemen, from our side for the moment. The floor is now yours. We look forward to your questions.