Peter Terium. Good morning and welcome to our press conference on fiscal 2012.

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1 Peter Terium/Dr. Bernhard Günther Press Conference RWE Fiscal 2012 Essen, 5 March 2013 Check against delivery. Peter Terium Ladies and Gentlemen, Good morning and welcome to our press conference on fiscal My Executive Board colleagues Rolf Martin Schmitz, Bernhard Günther, Uwe Tigges and I would like to thank you for joining us. We will also be very happy to answer any questions that you may have afterwards. As you will see from the people here today, the RWE Executive Board is in the process of restructuring. Leonhard Birnbaum is no longer with us. He decided not to accept an extension of his contract and will be leaving the company. The tasks of the RWE Executive Board will in future be spread across the remaining four mandates. Nor is Alwin Fitting here with us today. He will turn 60 in a few days and will retire at the beginning of next month. I would like to express my heartfelt thanks to both Leonhard Birnbaum and Alwin Fitting for their good work. And I wish both of them all the best for the future.

2 Alwin s successor is Uwe Tigges, who chaired our Group Works Council until 30 June Since 1 January this year he has been Chief Human Resources Officer of RWE AG. He will also take on the role of Labour Director with effect from 1 April Bernhard Günther, who has been a member of the Executive Board since July 2012 and became our new Chief Financial Officer on 1 January this year, will be familiar to you from our conference calls. Now you will all have the chance to see as well as hear him. Ladies and Gentlemen, Fundamental changes are taking place in Europe's energy markets: moving away from the large conventional power stations and towards decentralised plants and renewables. However, the conventional plants will be needed as back-up stations for a long time to come. But more and more often, renewables, and especially photovoltaics, are driving gas-fired power stations in particular out of the market. The boom in photovoltaics is keeping wholesale electricity prices down, not only here in Germany but also in neighbouring European countries. This impacts on the economic viability of our entire power plant fleet. We therefore have to adjust to the fact that, in the longer term, earning capacity in conventional electricity generation will be markedly below what we have seen in recent years. This has the effect of eroding our traditional business model. There has also been a huge change in political framework conditions. Consider the phase-out of nuclear energy in Germany, new levies on hard coal for power stations in the Netherlands, on CO 2 in the UK or on our own networks, and our regulated sales margins in Hungary. Competition is now much more intense in the area of electricity and gas sales. 2

3 We are experiencing what may be the most extensive upheaval that this sector has ever seen, and this is happening right across Europe. Complaining about it will not help; neither will running away. We want to play a leading role in shaping the transformation of the energy market. For RWE, that will mean some massive changes. We have to make drastic savings. We have to become leaner, more efficient and more robust. In future, we will focus more on decentralised activities instead of large power station units. The emphasis will be on cooperation with a wide range of partners, and, just as importantly, on high levels of service. We will have to part with some areas of our activities. And in future we will have a considerably smaller workforce. In addition, the Executive Board of RWE Aktiengesellschaft today decided to withdraw from the exploration and production of crude oil and natural gas. Therefore, RWE intends to look at the options for disposing of all of its shares in RWE Dea AG. The planned disposal would be in line with RWE AG s strategic repositioning. It would also take considerable pressure off future capital expenditure and therefore make an essential contribution to improving RWE s financial headroom. The details of any transaction and how it would be implemented are still under evaluation. Further important developments will be announced in due course in a suitable manner. 3

4 Ladies and Gentlemen, Despite all the effort that this will involve, we want to become one of the market leaders in the energy market transformation. We will make every effort to turn the transformation of the energy market into a success story. Achieving this, however, will involve a lot more than just expanding in the area of renewables. In the past year we once again spent nearly 1 billion on the expansion of renewables. RWE Innogy now has some 5 billion in capital employed. Since 2010, we have set up project companies with many municipalities to build and operate photovoltaic panels, wind turbines and combined heat and power plants, and there will be more to come. In 2012, the Group increased its electricity generation from renewables by 41%, to 12.4 billion kilowatt hours. Among other things, an expansion in wind energy played an important part in this development. Of all the German energy utilities, we are the largest onshore wind power operator. The share of our electricity generation capacity represented by renewables increased from 7.6% to 8%. Renewables have therefore overtaken nuclear energy, which fell from 7.9% to 7.5%. At 30%, our gas-fired power stations now have the largest share of our generation portfolio. At the end of 2011, hard coal still represented the largest share. Sustainability for us also means modernising our power plant fleet. You will be familiar with our new-build power plant programme with an investment volume of around 12 billion by In addition, RWE Innogy had invested around 5 billion in renewables by the end of

5 Since 2010, we have commissioned five highly efficient gas-fired power stations with a generating capacity of 6,400 megawatts, three of these during last year 1. When the state-of-the-art and highly flexible lignite-fired twin unit BoA 2&3 was commissioned at Neurath, all of our 150-megawatt units were decommissioned once and for all. The technology used by BoA 2&3 reduces annual CO 2 emissions by about six million tons compared to the older units. And at the same time, flexibility is increasing: the latest type of lignite-fired unit can supply 55% of its capacity flexibly in the form of balancing energy. We place great importance on the expansion and modernisation of our electricity distribution systems. This makes us an enabler of the energy market transformation. According to our forecast, at the end of 2012, over 250,000 renewables units were connected to our distribution network. Around 95% of these were photovoltaic panels. In the past three years alone, we have taken just under 140,000 facilities regulated by the Renewable Energy Act onto the grid. To do an even better job of incorporating renewables into our supply system, we are developing and testing new, more efficient and more flexible methods of grid operation in the form of projects such as Smart Country and Smart Operator. We are providing new products and services to give our customers plenty of opportunities to use energy efficiently and save costs while looking after the environment at the same time. With a range of services from the installation of smart meters to systems that automatically control consumption at home ( Smart Home ), contracting models, cogeneration projects, electric cars and energy consultancy, we are already one 1 Claus C, 1/12, 1,304 MW; Moerdijk 2, 2/12, 426 MW; Pembroke 9/12, 2,188 MW 5

6 of the largest energy service providers in Germany, with annual revenue of 600 million. Last year we commissioned a new district heating plant here in Germany every ten days, half of them using the principle of cogeneration. According to estimates, this market for decentralised cogeneration plants will grow by 5,000 to 6,000 megawatts to around 10,000 megawatts over the next 10 years. A tight cash-flow situation means that we will be concentrating more on this form of asset light growth in future. To this end, we would like to dovetail our products even more closely: with our sales activities on the one hand, and our businesses in Germany, the Netherlands, the UK and Central and Eastern Europe on the other hand. All of this shows that the huge challenges represented by the transformation of the energy market in Germany can be overcome only if the major suppliers, municipal companies and society as a whole work together. It also shows that that the business of energy transformation is a highly complex undertaking. Ladies and Gentlemen, Taking the difficult economic conditions into account, we performed well in economic terms during the 2012 financial year: Our year-on-year operating result and EBITDA increased by 10% to 6.4 and 9.3 billion respectively, which is more than we expected. Recurrent net income, the basis for determining our dividend, remained virtually unchanged at around 2.5 billion. On this basis, our dividend proposal to the Annual General Meeting this year will once again be 2 per share. In terms of dividend yield, we still rank among the top companies in the DAX. 6

7 Bernhard Günther will now provide more details about our business performance. Over to you, Bernhard. Bernhard Günther Ladies and Gentlemen, Peter Terium has already given you a brief summary of the key financial indicators of our business performance: an increase of 10% in both operating result and EBITDA, and a stable recurrent net income. This put us in a slightly better position than we had forecast in March 2012, when we expected the closing figures for EBITDA and the operating result to be on a par with the previous year. We made good ground in the gas midstream business in particular, since we were able to reach agreement with almost all of our gas suppliers regarding adjustments to contracts and compensatory payments. It is only with Gazprom that we have not yet been able to find a solution. However, we are expecting to resolve this in the first half of this year. We also benefited from a greatly improved performance in energy trading. As expected, we improved earnings significantly at RWE Power, as in 2011 they were still affected by high one-off burdens resulting from the early decommissioning of our German nuclear power stations. Net of major consolidation and currency effects, the increases in EBITDA and the operating result amount to 12% and 13% respectively. Due to time constraints, may I refer you to the Annual Report for details on the various divisions. However, I would like to briefly explain the reconciliation of the operating result to net income, which you will be familiar with from previous years. 7

8 The non-operating result of minus 2.1 billion was again significantly below that of the previous year, reflected by a decline of about 0.9 billion. Here, impairments on our Dutch power stations are a key contributing factor. This is an indication of the significant deterioration in the prospects for electricity generation in Europe. The financial result also deteriorated, to minus 2.1 billion, which is partly due to a lower net interest result, which fell by 203 million to minus 836 million. In addition, interest accretion to non-current provisions grew by 339 million to minus 1.2 billion. The main reason for this was the drop in discount rates for these provisions. Our effective tax rate dropped by four percentage points to 24%, mainly due to non-tax deductible capital gains. Our net income declined overall by 28% to 1.3 billion. Net of one-off effects, our recurrent net income, the basis for determining the dividend, remained largely unchanged at about 2.5 billion, which put us at a similar level to the previous year, as we had expected. At about 5.1 billion, capital expenditure on property, plant and equipment and on intangible assets fell markedly compared to the record levels of the two previous years. Most of these funds were invested in the construction of new power stations, while a further area of focus was on the maintenance and modernisation of our grid infrastructure. Capital expenditure on financial assets amounted to 0.5 billion, also well down year on year. Cash flows from operating activities of 4.4 billion were 20% below the previous year, and thus failed to reflect the positive earnings trend. One reason for this is that changes in the fair values of certain commodity derivatives produced income without resulting in cash inflows yet, because the contracts are not realised until later. 8

9 By 31 December 2012, net debt, including provisions for pensions, nuclear energy and mining, had risen to 33.0 billion, an increase of 3.1 billion on This was brought about by the increase in provisions for pensions, which form part of our net debt. A key factor in this regard is the low interest rate, which leads to a reduction in discount rates. Nevertheless, we continue to have excellent access to the debt capital market. Conversely, at around 12 billion, our net financial debt remained unchanged. As you are aware, we manage our debt on the basis of the ratio of net debt to EBITDA. This ratio was 3.5 at the end of the year, and was thus on a par with last year. This means we are above our self-imposed upper limit of 3.0. We intend to bring this debt ratio back down to below the 3.0 level once again in the medium term. On that note, I now hand you back to Peter Terium. Peter Terium Ladies and Gentlemen, RWE is facing huge challenges. We have a state-of-the-art power plant fleet, but also large debts. As we approach the end of an investment cycle we are struggling under a mountain of debt totalling 33 billion. Our balance sheet is not satisfactory. Declining margins in electricity generation are also a cause for concern. This means that we can no longer draw on unlimited resources. And this means: We must reduce our costs We must improve our financial headroom 9

10 And we must refocus our corporate strategy to take account of the transformation of the energy market We are doing all of this with a clear goal in mind: We want to make RWE an unreservedly reliable, trustworthy and powerful partner in the transformation of the energy market. In view of the changes in our markets, we will consistently avoid the financial risks associated with major projects such as the construction of new nuclear power stations. Also, for the foreseeable future, we will build no new large-scale coal and gasfired power stations. One exception could be BoAplus, depending on its profitability. We are transforming our business model with determination. For us, intelligent energy is the way forward. We will focus on distributed energy and energy services. For instance, this coming spring we will introduce HomePower solar onto the market, a system that will enable our customers to store solar energy that they generate themselves and use most of it for their own purposes instead of feeding it into the grid. With the RWE 2015 programme we want to ease the company s financial burdens and secure its competitiveness. Measures to reduce costs and increase revenues will play a key role in this regard. Following the successful conclusion of our previous programme to enhance efficiency, we want the RWE 2015 programme to contribute a further 1 billion in earnings by the end of We already achieved 200 million of this during Further 10

11 measures to improve our profitability are being planned for the period after The RWE 2015 programme will make us leaner and at the same time more flexible. A good example is the new generation company RWE Generation SE, which brings together our conventional power stations in Germany, the Netherlands/Belgium and the UK. Tasks and processes from the Accounting and Finance, HR and Purchasing functions have also been bundled as of 1 January this year and are being centrally controlled as part of the new company RWE Group Business Services. The sale of assets brought us proceeds of 2.1 billion in In the process we took care to keep the losses of earnings as low as possible. The two largest items were the disposal of our 24.95% share in the Berlin waterworks and the sale of the Horizon nuclear energy joint venture. The proceeds from those two disposals were in the order of 660 and 430 million respectively. However, we do not want to divest at just any price. Because disposals also mean a loss of earnings contributions. So from the perspective of reducing our debt ratio, there is little point in selling assets at an unsuitable price. In 2013, we will focus on the disposal of NET4GAS, the operator of our longdistance gas network in the Czech Republic. If we manage to do more, so much the better. But we are under no time pressure. We will also significantly scale back our investments in the next few years. From 2015, these will range from around 3 to 4 billion a year. From that point at the latest, we will no longer pay out more for investments and dividends than we earn in cash flow from operating activities. Even then, our capital investments will still keep us among the top companies in Europe. 11

12 We will also have to deal with having fewer employees in future. We must find socially acceptable solutions in this regard. Also during difficult times, RWE remains a reliable employer. We place great importance on social responsibility. This is also reflected in this year s collective agreement for our workforce in Germany. Uwe Tigges can give you the details of this afterwards. Ladies and Gentlemen, We are sticking to our strategic mission of becoming more sustainable, more robust and more international, but are resetting our priorities. The fact remains that the success of our strategy will be measured by its contribution to our company s value. However, our strategy is being implemented against the backdrop of a tight financial situation. This affects our future investments in particular. Our progress will therefore not be as swift as we had originally intended. The focus of our climate protection strategy is on renewables. We are pressing on with the energy market transformation and are making long-term investments in renewables. However, for financial reasons we need to ease back on the pace of expansion of renewables. In 2013, RWE Innogy will invest about 1 billion in renewables. The figures for 2014 and 2015 will be in the order of 500 million each year, which is considerably less than was originally planned. As a result, Innogy will achieve its expansion goal of 4,500 megawatts under construction or in operation only after We currently assume that we will have a generating capacity of 3,500 megawatts on the grid by the end of the coming year. The operating result for 2013 is expected to amount to over 300 million. In future, RWE Innogy will concentrate on further developing its already strong core business areas of onshore and offshore wind and bolstering hydro 12

13 generation. Biomass no longer forms part of our core business. To maintain financial headroom for Innogy, we are therefore looking at attractive sale options for our smaller biomass power stations in particular. However, the use of biomass in the large-scale power stations run by RWE Generation will remain an important option in future, and will therefore continue to form part of our generation strategy. High-performance electricity distribution systems are vital for the transformation of the energy market. To a certain extent, they are the cornerstone of the transformation process. In Germany, RWE is planning investments of 600 million each year until 2015 to maintain and expand its distribution systems. We are still relying on an integrated, robust business model to overcome the challenges and risks of a changing market environment. We must do much more to develop new business models that support the energy market transformation, whether alone or in partnership with city and municipal authorities, or using public participation models. Projects such as Smart Country in the Eifel region or Smart meter in Mülheim help us to test and offer new energy service packages. Basically, we must reach the point where we can make profitable use of the interplay between photovoltaics, smart technologies, micro-cogeneration and storage technologies. We are working at full pace to achieve this. We want to make our efforts to become market leader in the energy market transformation a fixed part of our business activity, just as the operation of power stations and grids is. To summarise: We are working on a much more decentralised business model. 13

14 Europe is and will remain the regional focus for our business. Our most important markets are Germany, the UK, the Benelux region and Central and Eastern Europe. We want to shape these changes together with our employees, in a fair and socially balanced way. We want to be one of the market leaders in the transformation of the energy market. This brings me to our outlook. We are expecting significant losses of earnings from conventional electricity generation during the current year already. However, we expect to be able to absorb these shortfalls during 2013, partly from the high compensatory payments expected in relation with our gas supply contract with Gazprom. This means that we are expecting our EBITDA to be in the order of 9 billion. We expect our operating result to be close to 5.9 billion, and our recurrent net income to be around 2.4 billion. The sale of NET4GAS is also accounted for here. Therefore we confirm the forecast that we made in March 2012, which is an achievement in itself in these difficult times. However, the picture is much darker after What are the reasons for this? Operating results for RWE Generation will decline still further. The current German forward prices for 2014 and 2015 in particular lead us to this expectation. They are currently at 42 per megawatt hour, therefore well below the prices that we achieved in To keep it simple: at an annual power generation of over 200 billion kilowatt hours, a decrease in electricity prices of 1 per megawatt hour means a decline in earnings of over 200 million. It is not possible to completely offset this effect with lower fuel and CO 2 costs as well as increased efficiency or growth in new businesses. 14

15 Investments in new power stations also burden us with higher impairment losses. On the plus side however, we are posting a high and sustainable contribution to earnings from our RWE 2015 programme. We can add improved results from such areas as RWE Innogy and our sales business to this as well. But one thing is already clear all of these measures together will not be enough to maintain our 2013 earnings level. That s all from us for now. We now look forward to your questions. 15