Fixed Income Investor Update innogy SE November 2016
innogy at a glance Financial review innogy s credit profile
innogy at a glance Successful implementation of innogy carve-out and IPO Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 2015 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 1 st Dec 15 1 st Apr 16 30 th Jun 16 12 th Sep 16 7 th Oct 16 31 Oct 16 Initial announcement of planned IPO Operational start of new company Capital Markets Day Launch of new brand innogy, legal carve-out finalised Implementation of legal carve-out and intercompany relations Implementation of capital structure, split of pensions Intention to float First trading day Shareholder structure as of mid-october : ~77% RWE, ~23% free float First stand alone rating: Fitch assigns innogy a BBB+ rating (stable outlook) and A- senior bond rating 1 3 Nov 16 Moody s affirms Baa3 (stable outlook) senior bond rating 14 Nov 16 S&P assigns innogy BBB- (positive outlook) as company and senior bond rating IPO as catalyst for corporate development Solid balance sheet Strict value focus Unique asset base Access to capital markets 1 assigned ratings are expected (exp) 3
innogy at a glance 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 Source: innogy company presentation, 1 August 2016 4
innogy at a glance Unique asset mix and diversified European footprint Leading market positions across countries in Europe... with a distinct asset profile 574,000 km total grid Focus on Europe anchored in Germany 4x #1 positions 1 Largely CO 2 free #3 worldwide in offshore wind 2 Limited exposure to commodity prices No nuclear liabilities Market presence Grid & Infrastructure Renewables Enabler of energy transition Retail 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. 5 Source: innogy company presentation, 1 August 2016
innogy at a glance innogy comprises three strong segments Grid & Infrastructure Germany East #1 largest electricity DSO in Germany 1 13.3bn total RAB 2 +9% increase expected for German RAB 2 Retail #1 Germany United Kingdom Netherlands/Belgium East largest electricity retailer in Germany 3 23m customers 4 Renewables #3 in offshore wind by installed capacity 5 3.1GW installed capacity 6 1 Based on distributed volume; as of 2015. 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). 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 2014. 4 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 2016. 6 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. 6 Source: innogy company presentation, 1 August 2016
innogy at a glance innogy as blueprint for the utility of the future in an ongoing transformation of the sector Grid & Infrastructure Decarbonisation Decentralisation Renewables Retail Digitalisation Source: innogy company presentation, 1 August 2016 7
innogy at a glance Financial review innogy s credit profile
Financial Review 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 2015 1 6.4bn Capex 2013-15 3,4 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. Source: innogy company presentation, 1 August 2016 9
Financial Review 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 2013-15 2 ~20% Share of quasi-regulated EBITDA 2015 3 ~60% 2.8 2.9 2.9 2.0 2.2 2.0 Retail EBITDA excl. UK 0.7 0.8 1.1 1.1 1.1 1.0 0.8 0.4 0.3 0.2 0.5 0.2 0.2 0.2 0.4 0.8 0.9 0.6 0.3 0.2 0.3 0.4 0.6 2013 2014 2015 (0.1) 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 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. Source: innogy company presentation, 1 August 2016 10
Financial Review Strong cash generation innogy Group bn 2013 2014 2015 9M 2015 9M 2016 +/- EBITDA 4.2 4.3 4.5 3.1 2.9 (0.2) Funds from Operations (FFO) 3.3 2.9 2.5 2.0 2.1 0.1 Changes in working capital Cash flows from operating activities (CFOA) 0.3 0.1 0.2 0.1 (0.3) (0.4) 3.7 3.0 2.8 2.1 1.7 (0.3) Capex 1 (2.3) (2.1) (2.0) (1.1) (0.9) 0.2 Free Cash Flow 1.4 0.9 0.7 1.0 0.8 (0.2) Key value drivers 9M 2016 FFO development positively impacted by cash settlement in connection with the termination of gas storage contracts with RWE Supply & Trading in the amount of 250m and lower cash taxes, to a large extent offset by higher financing costs Decrease in CFOA due to adverse working capital movement, driven inter alia by a lower receivables position at the beginning of 2016 compared to 2015 (positive cash impact in December 2015) We currently expect a further reduction of working capital over the remainder of the year Lower capex mainly driven by the Renewables segment due to the completion of our offshore wind farms Nordsee Ost and Gwynt y Môr in 2015 Note: Rounding differences may occur. 1 Capex on intangible assets, property, plant and equipment. Source: based on innogy company presentation, 1 August 2016 and innogy s nine months 2016 results, 11 November 2016 11
Financial Review Reduced net debt following IPO A B C D Net debt item ( bn) 31 Dec 2015 30 Jun 2016 30 Sep 2016 Cash & cash equivalents 0.6 0.6 0.5 Marketable securities 1.9 1.9 2.0 Other financial assets 12.4 1.7 0.3 Financial assets 14.9 4.2 2.8 Bonds and bank debt 12.9 11.4 11.1 Adjustment for step-up (1.2) (1.1) (1.0) of bonds to market values Other financial liabilities incl. 6.1 10.1 6.0 intercompany loans t/o loans from RWE AG related not representative ~ 6bn ~ 5bn to external debt push-down Financial liabilities 17.7 20.4 16.1 Provisions for pensions 3.5 4.5 5.0 and similar obligations Provisions for wind farm decommissioning 0.3 0.3 0.4 Net debt (B - A + C + D) not representative 21.0 18.7 Key developments since H1 Finalisation of envisaged capital structure, in particular debt/equity swap and intercompany debt repayment (~ 1.9bn) Increase in pension provisions driven by further lowering of interest rates Positive fx impacts from GBP-related debt 2bn of IPO proceeds not yet reflected Leverage envisaged ~4.0 net debt/ EBITDA Source: based on innogy company presentation, 1 August 2016 and innogy s nine months 2016 results, 11 November 2016 12
Financial Review Financial discipline and strict investment criteria foundation for growing shareholder value Grid & Infrastructure Retail Renewables Investment focus > 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 1 2016-2018E Indicative capex split 2016-2018E ~ 4.1bn ~ 0.8bn ~ 1.3bn ROI hurdle rates 2 5%-7% 7%-8% 5%-8% core business 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. Source: innogy company presentation, 1 August 2016 5%-15% new markets/new technologies 13
Financial Review 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 Source: innogy company presentation, 1 August 2016 14
innogy at a glance Financial review innogy s credit profile
innogy s credit profile Key drivers of innogy s prudent financial policy A stable and attractive earnings profile Renewables 17% Retail 21% By division 1 2015 EBITDA 4.5bn By regulated share Grid & Infrastructure 61% translates into strong cash generation and a solid capital structure CFOA/EBITDA ~70% avg. 2013-15 Envisaged leverage for investors Rating Solid investment grade rating 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. 16 Source: based on innogy company presentation, 1 August 2016
innogy s credit profile Striving for a balanced debt maturity profile Maturity profile as of 30 September 2016 ( bn) 5 4 3 2 1 0 1 2016 2017 2018 2019 2020 2021 2022 2023 2024 Post 2024 Intercompany loans from RWE AG Senior bonds Total outstanding gross financial debt of innogy amounts to ~ 15bn It currently consists of senior bonds of innogy Finance BVs (~ 10bn) and of intercompanyloans from RWE AG (~ 5bn) The senior bonds were issued under the debt issuance programme (DIP) of RWE AG ~ 1.3bn are due in 2017 Cumulated maturities of innogy debt As of 30 September 2016 Senior bonds and IC-loans ( bn) 2016 2018 2019 2021 2022 2024 Post 2024 2.5 5.7 2.4 4.3 % of total senior bonds 17% 38% 16% 29% 1 The IC-loan of 0.3bn was already paid back on 11 October 2016. Source: based on innogy s nine months 2016 results, 11 November 2016 17
innogy s credit profile innogy s funding programms Debt issuance programme Independent innogy DIP planned for H1 2017 Nominal Volume: 20bn Commercial paper programme Programme to be finalised until early 2017 Nominal Volume: 3bn Revolving credit facilities innogy SE has access to RWE AG s syndicated credit line via its subsidiary innogy Finance BV up to 1.5bn (Additional Borrower) Up to 1.0bn is granted by RWE AG as revolving credit facility to innogy SE until 31 Dec 2018 innogy intends to establish its own debt issuance programme and commercial paper programme to be able to finance its operation going forward 18
innogy s credit profile All rating agencies recognize innogy as potentially stronger credit compared to RWE Fitch 1 Fitch as the first rating agency assigned innogy a stand-alone rating of BBB+ (outlook stable) on 31 October. Due to assumed high recovery rates senior unsecured bonds are rated even higher at A- Fitch takes into account innogy s high degree of independence from RWE (e.g. independent supervisory board, separate financing) Moody s S&P 2 On 3 November 2016 Moody s affirmed Baa3 (outlook stable) senior unsecured rating for RWE AG and innogy Finance BV bonds guaranteed by RWE AG However, Moody s indicate that bonds not migrating to innogy might suffer a one notch downgrade On 14 November 2016, S&P assigned BBB- (outlook positive) corporate and senior bond ratings to innogy The positive outlook reflects the potential for a one-notch differential to RWE s rating. S&P assesses innogy's stand alone rating at BBB, however it is currently capped by RWE s rating 1 Solicited ratings; the assigned ratings are expected (exp) 2 Solicited ratings 19
summary Summary credit highlights Business Model Financials Capital structure Clear focus on grid, renewables and retail business No nuclear liabilities Experienced management team and sound organisational set-up Strict investment criteria Stable and highly regulated earnings and investment focus Value creation through mix of cash generative and growth assets ~70% cash conversion on average, i.e. CFOA / EBITDA Solid investment grade ratings ~4.0 envisaged leverage (Net Debt/EBITDA) Solid balance sheet and highly cash generative 20
Annex
Contacts Investor Relations Stephan Lowis Head of Investor Relations +49 201 12-15031 stephan.lowis@innogy.com Marcel Rohrbach +49 201 12-15043 marcel.rohrbach@innogy.com Holger Perlwitz Fixed Income +49 201 12-15141 holger.perlwitz@innogy.com Britta Wöhner +49 201 12-44794 britta.woehner@innogy.com Martin Jäger +49 201 12-15106 martin.jaeger@innogy.com Marisa Weiskirch Private shareholders +49 201 12-44915 marisa.weiskirch@innogy.com 22