Rwe Ag · XETR:RWE
Rwe — Investor Presentation (March 2007)
48 slides from Rwe's investor presentation, March 2007
Slide 1: Focus on Organic Growth and Dividends
Focus on Organic Growth and Dividends March 2007
Slide 2: Forward Looking Statement
Forward Looking Statement This presentation contains certain forward-looking statements within the meaning of the US federal securities laws. Especially all of the following statements: Projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure or other
Slide 3: Key messages
Key messages Performance Operating result +14%; organic growth +17% 2006 Net profit +72% due to one-off effects € 680 m cost reduction programme concluded Financial Increasing transparency by setting up a CTA/Pensionsfonds* Position New definition of net debt Return of cash to shareholde
Slide 4: RWE Group results FY 2006
Performance 2006 RWE Group results FY 2006 January – December € million 2006 2005 Change in % External revenue 44,256 39,487* +12.1 EBITDA 7,861 7,095* +10.8 Operating result 6,106 5,371* +13.7 Net income 3,847 2,231 +72.4 Recurrent net income 2,466 2,257 +9.3 Cash flow from operating activities 6,7
Slide 5: We have achieved or beaten our mid-term targets
Performance 2006 We have achieved or beaten our mid-term targets Target Achieved Operating result 5% 11.6% organic CAGR CAGR 2004 - 2006 Dividend >15% 41% CAGR 2004 - 2006 CAGR 2004 -2006 ROCE 14% 18.7% by 2006 Cost reduction + synergies € 680 m Fully achieved by 2006 5
Slide 6: Utilisation of financial flexibility
Strategy Utilisation of financial flexibility The disposal of the Water Division will further enhance the financial flexibility of the Group. We aim to utilise it by way of Organic growth Cash returns to shareholders Selective external growth 6
Slide 7: Strong levers for organic profit growth
Organic growth Strong levers for organic profit growth Price development Strong wholesale electricity prices in our core markets Value oriented retail strategy Growth & efficiency enhancing capex Power generation in Germany, UK, NL and CEE Upstream exploration & production projects for RWE D
Slide 8: RWE Power: Attractive spreads locked in
Organic growth RWE Power: Attractive spreads locked in Forward selling of RWE Power in the German market (baseload forwards in €/MWh) 64 60 56 52 Forward 48 44 2007 40 36 32 28 >1% sold >10% sold >35% sold >55% sold >90% sold >95% sold 24 64 60 56 52 Forward 48 44 2008 40 36 32 28 >1% sold >10% sold
Slide 9: RWE Energy has successfully implemented a value-oriented retail strategy
Organic growth RWE Energy has successfully implemented a value-oriented retail strategy Development of volume and gross margin* Value-oriented retail strategy – RWE Energy Electricity Germany – Across all customer segments: value-orientation results in increasing total gross margin Stabilization
Slide 10: RWE npower: value oriented retail strategy with growing customer numbers
Organic growth RWE npower: value oriented retail strategy with growing customer numbers Development of customer numbers Value-oriented retail strategy (in million accounts) Price volatility in wholesale gas 6.9 and power prices has continued [of which 6.3 dual fuel] 6.2 6.1 [2.1] Competition rem
Slide 11: Mid-term capex programme significantly stepped up
Organic growth Mid-term capex programme significantly stepped up: Growth takes centre stage € 5.0 bn p.a. +/- 10% RWE npower € 600 m p.a. (+/-50%) € 4.0 bn p.a. € 3.5 bn p.a. +/- 15% RWE Energy € 1,500 m p.a. (+/-20%) Water Division € 2.3 bn p.a. RWE Dea € 600 m p.a. (+/-15%) Energy RWE Power € 2,30
Slide 12: Major investment projects
Organic growth Major investment projects of which Project (€ bn) Horizon Capex Growth Efficiency1 Germany Power plant BoA 2/3 (lignite - 2,100 MW) 2006 – 2010 2.2 0.7 Power plant Hamm (hard-coal – 1,530 MW) 2008 – 2012 2.0 0.4 Power plant Ensdorf (hard-coal – 1,530 MW) 2008 – 2012 2.0 0.4 CCGT Linge
Slide 13: How growth capex will impact underlying earnings performance
Organic growth How growth and efficiency enhancement capex will impact our underlying earnings performance (€ bn) 25.0 Maintenance 7.0 Mandatory (grid) 1.4 Efficiency Replacement 8.4 enhancement 9.9 Operating result*: approx. 20% 1.7 + € 1,000 m p.a. 100% EBITDA: Growth 8.2 8.2 + € 1,200 m p.a. Tota
Slide 14: Generation capacity in Europe will stay tight!
Organic growth Generation capacity in Europe will stay tight! Different sources (Union for the Coordination of Transmission of Electricity (UCTE), Cambridge Energy Research Associates (CERA), IEA) expect capacity bottleneck Drivers for capacity bottlenecks - Overageing power plants - High gas pr
Slide 15: Old power plants result in a massive need for new build by 2030
Organic growth Old power plants throughout Europe result in a massive need for new build by 2030 GW* 1.200 Assumed CAGR: 1.15% 1.000 ~75GW ~400GW ~580GW 800 ~140GW 600 400 Capacity required to cover peak loads 200 Addition of wind/ hydro/biomass Old plants 0 2005 2010 2015 2020 2025 2030 * EU 27, No
Slide 16: Selective investment in hard coal plants attractive despite carbon risks
Organic growth Selective investment in hard coal plants attractive despite increasing carbon risks If the current oil /gas and CO2 price levels prevail hard coal plants (HC) are likely to operate in base load. New CCGTs will only operate profitably in a mid merit / peak load position. Therefore ne
Slide 17: Our new CCGT power plant project in Lingen
Organic growth Exploiting attractive market opportunities – Our new CCGT power plant project in Lingen German clean spark spreads – Peak load CCGT project Lingen Cal 07 power baseload vs. Cal 07 TTF gas in 2006 20 Net capacity 875 MW €/MWh 10 Efficiency > 58% 0 Investment € 0.5 bn -10 Commis
Slide 18: CEE markets show opportunities for attractive growth
Organic and external growth CEE markets show opportunities for attractive growth Electricity Gas CEE Volume1 Growth2 Volume1 Growth2 markets (TWh) % p.a. (bcm) % p.a. Poland 145 2.8% 15 1.2% Czech Rep. 75 2.7% 10 1.6% Romania 59 2.5% 18 1.4% Bulgaria 42 2.7% 5 5.1% Slovakia 28 0.0% 7 3.7% Hungary 35
Slide 19: Lignite opportunities for RWE in CEE countries
External growth Lignite opportunities for RWE in CEE countries Lignite coal in selected CEE countries and Germany, 2005 Production1 (mt) Reserves2 (mt) Importance of lignite3 Germany 178 41,000 26% Poland 62 14,000 40% Czech Republic 49 1,200 49% Serbia/Montenegro 34 2,500 65% Romania 31 3,000 29% B
Slide 20: RWE's integrated gas position – strong platform for growth
Organic growth RWE’s integrated gas position – strong platform for growth Europe’s largest gas companies (2005) (Gas sales volume in bcm) RWE’s key gas figures (2006) ENI (ITA) 86 Gas sales volume (bcm) 33.5 E.ON (GER) 84 External gas revenue (€ bn) 12.1 Gasterra (NED) 81 Customers2 (million) 10.2 G
Slide 21: RWE Gas Midstream: full integration of the Group's midstream activities
Organic growth RWE Gas Midstream: full integration of the Group‘s midstream activities RWE Gas Midstream Consolidation, optimisation and growth platform for RWE’s unregulated gas midstream business Gas procurement for RWE Energy’s supply operations RWE Power Gas procurement for RWE Power’s power
Slide 22: Strengthening our European gas position
Organic and external growth Strengthening our European gas position Current initiatives Acquisition of Saar Ferngas Renewal of gas contract with Gazprom (gas supply of 9 bcm p.a. and transit through 2035) Working on liquefaction in Egypt to export RWE Dea’s equity gas Substantial gas find by
Slide 23: New efficiency enhancement targets
Organic growth New efficiency enhancement targets Annual earnings contribution (€ million) 200 200 € 600 million annual earnings 100 contribution in total 100 as of 2010 2007 2008 2009 2010 Efforts will mainly focus on cost reductions from internal benchmarking processes and higher availability an
Slide 24: External growth: Strategy and perspectives
External growth External growth: Strategy and perspectives We will stick to our strategy: – Targets have to make strategic sense (markets, synergies) – Targets have to fulfil our strict financial criteria M&A market is currently a sellers’ market with stretched valuations, therefore patience is
Slide 25: Shareholder-friendly dividend policy to continue
Cash returns to shareholders Shareholder-friendly dividend policy to continue Dividend (in € million) 2,500 1,9681 2,000 +34% 1,500 CAGR 984 Payout ratio Payout ratio 1,000 844 of of 619 703 70% - 80%2 50% - 60% 500 0 2002 2003 2004 2005 2006 2007e 2008e ..... 1 Upon approval of Annual General Meeti
Slide 26: Update on water disposal
Strategy Update on water disposal States in which American Water Update on planned disposal has regulated operations of American Water Petitions for regulatory approvals filed in 13 states – seven approvals already received Necessary corporate functions (refinancing, risk management and internal
Slide 27: EU published integrated energy and climate package
Political topics EU published integrated energy and climate package (January 10, 2007) EU commission has expressed its views on: How competition can be improved (including the findings of the Sector Inquiry) How further steps can be taken to tackle climate change Main items are: Ownership unbu
Slide 28: Proposals to improve competition in liberalized markets
Political topics Fully committed to liberalized markets, we have proposals to improve competition General topics Strengthen co-operation of grid operators nationally as well as cross-border Improve market transparency Support energy efficiency programmes Electricity: Invest in new generation
Slide 29: Development of net financial debt
Balance sheet Development of net financial debt € billion Capex Dividends Cash flows acquisitions/ Currency Others from disposals/ translation operating (de)consoli- effect activities dations 20 +1.2 -6.8 +4.5 15 11.4 -14.3 10 5 -4.7 0 -0.2 -0.5 -5 Net financial debt Net financial assets 31.12.20051
Slide 30: Setting up a Contractual Trust Arrangement (CTA) and Pensionsfonds
CTA – Pension Fund Setting up a Contractual Trust Arrangement (CTA) and Pensionsfonds* RWE will externalise the pension provisions into a CTA and Pensionsfonds* Reasons for setting up a CTA/Pensionsfonds*: – Increased transparency allowing better international comparison – Increased transparency o
Slide 31: New definition of net debt
Balance sheet New definition of net debt January – December Absolute € million 31.12.2006 31.12.2005 change Cash and cash equivalent 2,794 1,431 1,363 Marketable securities 17,835 11,356 6,479 Other financial assets 3,473 3,603 -130 Gross financial assets 24,102 16,390 7,712 Bonds, notes payable, ba
Slide 32: New cap for net debt
Balance sheet New cap for net debt Old cap of “net financial debt” New cap of “net debt” at at € 10 – 12 bn € 22 – 24 bn after CTA € bn € bn 23.4 25 25 20 20 12.0 15 15 11.4 10 10 6.9 5 5 11.4 -4.7 0 0 11.6 -4.7 -5 -5 2005 2006 2005 2006 Net financial debt (+), assets (-) Pension provisions 32 32
Slide 33: Outlook for 2007
Outlook Outlook for 2007 Reported 20061 Pro forma 20062 2007 € million € million forecast2 EBITDA 7,861 7,172 +5% - 10% Operating result 6,106 5,681 ca. +10% RWE Power 2,744 2,744 Ò RWE Energy 2,506 2,506 Ô RWE npower 512 512 Ò Water Division 425 DCO2 DCO2 1 Exchange rates of (€ 1 =) USD 1.26; GBP 0
Slide 34: Outlook for 2007
Outlook Outlook for 2007 Reported 20061 Pro forma 20062 2007 € million € million forecast2, 3 External revenue 44,256 42,554 Ò Operating result 6,106 5,681 ca. +10% Net income 3,847 3,847 Ô Recurrent net income 2,466 2,466 ca. +10% Capex on fixed assets 4,494 2,9104 ca. € 4 bn4 1 Exchange rates of (
Slide 35: New mid-term targets
Outlook New mid-term targets Dividend Share buy back Operating Recurrent net Efficiency result income enhancements For 2007: Planned upon 5% CAGR from 10% CAGR € 600 m annual proposal of the deconsoli- organic growth until 2008 earnings extraordinary dation of contribution by payout ratio American y
Slide 36: Back-ups
Back-ups RWE
Slide 37: Update on Emissions Trading: The new German NAP II
Update on Emissions Trading: The new German National Allocation Plan (NAP II) German NAP II was notified to the EU commission by end of June 2006. Key elements: – Emission cap: 482 million t p.a.; compliance factor (cf) of 85%; no auctioning – 14 years of full allocation for new plants and “transf
Slide 38: Update on Emissions Trading: UK NAP II
Update on Emissions Trading: Current status of UK Governmental draft (NAP II) The UK published a drafted NAP II in March 2006; following public consultation, the Government announced further details of the NAP at the end of June and submitted it to the EU Commission on August 21. On November 29
Slide 39: Setting up a CTA and Pensionsfonds I
Setting up a Contractual Trust Arrangement (CTA) and Pensionsfonds* I What is the impact on the balance sheet? Assets: ‘Marketable securities’ and ‘Cash & cash equivalents’ will decrease Liabilities: ‘Pension provisions’ will decrease Underfunding or overfunding of the CTA / Pensionsfonds* wil
Slide 40: Setting up a CTA and Pensionsfonds II
Setting up a Contractual Trust Arrangement (CTA) and Pensionsfonds* II What is the impact on the cash flow statement? Cash-outs for initial funding. These will – according to common accounting practice - not affect the cash- flow from operating activities, however Reduced cash-flow from income o
Slide 41: RWE Group electricity production
RWE Group electricity production January – December Other Total Total in TWh Germany UK Internat. 2006 2005 Lignite 67.9 5.0 72.9 76.0 Nuclear 47.3 47.3 45.1 Hard coal 50.8 20.8 71.6 64.0 thereof contracts 31.1 31.1 29.5 Gas 9.9 14.4 24.3 27.3 Water and others 5.9 1.3 0.4 7.6 7.1 thereof contracts 2
Slide 42: RWE Group electricity sales volume
RWE Group electricity sales volume January – December Po- Total Total in TWh Ger-many UK land Hun-gary Others 2006 2005 Private and commercial 29.3 22.3 3.3 5.6 0.6 61.1 61.9 Industrial and corporate 52.4 34.1 2.9 5.4 0.1 94.9 100.3 Distributors/power utilities 69.1 1.3 4.8 0.5 75.7 66.1 Electricity
Slide 43: RWE Group gas sales volume
RWE Group gas sales volume January – December in TWh Ger-many Czech Rep. UK Others Total 2006 Total 2005 Private and commercial 27.2 36.3 41.4 7.0 111.9 113.2 Industrial and corporate 51.1 44.2 9.6 17.7 122.6 116.0 Distributors/power utilities* 105.7 15.9 4.8 0.0 126.4 127.6 Total 184.0 96.4 55.8 24
Slide 44: RWE AG: flexible funding structure
RWE AG: flexible funding structure Fully committed for liquidity syndicated € 4.0 billion back-up and credit line refinancing (€ 2.0 bn 364 days €0.0 billion € 2.0 bn 5 years) Commercial papers (up to 1 year) $ 5.0 billion $ 0.4 billion MTN programme (up to 30 years) € 20 billion € 14.5 billion Amou
Slide 45: Financial assets and liabilities (as at 12/31/2006)
Financial assets and liabilities (as at 12/31/2006) € 24.1 billion1 3.0 €19.4 0.5 billion2 1.1 2.8 0.5 1.4 Other financial assets 16.8 Other loans Other Cash & cash equivalents 16.4 Commercial paper Securities held as current assets Bank loans Bonds (incl. other 1.0 Securities held as fixed assets n
Slide 46: Gross financial debt currency and interest exposure
Gross financial debt currency and interest exposure1 Gross financial debt as of December 31, 2006: € 19.4 billion €/Others 24% Floating 17% $ 38% £ 38% Fixed 83% Long term financed (> 1 Year): 83% of gross financial debt Short term financed (< 1 Year): 17% of gross financial debt With debt in foreig
Slide 47: Structural subordination in the RWE Group
Structural subordination in the RWE Group RWE AG (A+/A1)/RWE Finance B.V./Consolidated German Subsidiaries1 86% RWE Npower Holdings Plc Thames Water Aqua Holdings GmbH RWE Npower Plc American Water E’town Corp. (A-/Baa1) (A-/Baa1) < 1% 13% Elizabethtown Water Co. For sale <1% As of December 31, 2006
Slide 48: Reminder…
Reminder… To be always updated, please have a look at our webpage. Navigation around www.rwe.com Calendar Investor Relations > Calendar Annual Report Investor Relations > Financial Reports > Annual Report Interim Report Investor Relations > Financial Reports > Interim Reports Fact book (300