U.S. Markets open in 6 hrs 32 mins

Edited Transcript of RWE.DE earnings conference call or presentation 14-Nov-19 11:00am GMT

Q3 2019 RWE AG Earnings Call

Essen Nov 17, 2019 (Thomson StreetEvents) -- Edited Transcript of RWE AG earnings conference call or presentation Thursday, November 14, 2019 at 11:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Gunhild Grieve

RWE Aktiengesellschaft - Head of IR

* Markus Krebber

RWE Aktiengesellschaft - CFO & Member of the Executive Board

================================================================================

Conference Call Participants

================================================================================

* Alberto Gandolfi

Goldman Sachs Group Inc., Research Division - Head of European Utilities Research

* Deepa Venkateswaran

Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst

* Elchin Mammadov

Bloomberg Intelligence - Utilities Analyst

* John Musk

RBC Capital Markets, Research Division - MD of European Utilities Research

* Lueder Schumacher

Societe Generale Cross Asset Research - Equity Analyst

* Peter Andrew Bisztyga

BofA Merrill Lynch, Research Division - Head of Pan-European Utilities and Renewables and Director

* Samuel James Hugo Arie

UBS Investment Bank, Research Division - MD and Research Analyst

* Wanda Serwinowska

Crédit Suisse AG, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Gunhild Grieve, RWE Aktiengesellschaft - Head of IR [1]

--------------------------------------------------------------------------------

Okay. Thank you very much, and sorry from our side as well. Hello to everyone on the phone and to those who are joining us via webcast. I'm joined here by Markus Krebber for the presentation on the first 9 months of 2019.

We already announced the required reporting changes after closing one of our asset swaps with E.ON. Since E.ON's renewables business only contributes to the IFRS figures from 18th September onwards, we will concentrate on RWE stand-alone until year-end when it comes to income statement and cash flow.

However, with regards to net debt, we already reported the combined figures for the new group. We also provided you with details on the pro forma EBITDA for the new renewables business as it will be reported from next year onwards. Furthermore, we have now also published the detailed generation data for renewables on a pro forma basis on our website.

Let me now hand over to Markus.

--------------------------------------------------------------------------------

Markus Krebber, RWE Aktiengesellschaft - CFO & Member of the Executive Board [2]

--------------------------------------------------------------------------------

Yes. Thank you, Gunhild, and a warm welcome to everyone. With the final clearance from the European Commission of our transaction with E.ON, we have executed large parts of our asset swap. The transfer of E.ON's renewables business formed the basis to start the renewables operations at RWE. While innogy's renewables business is temporarily at E.ON, it is managed by 2 designated Board members of RWE renewables: Holger Himmel, the designated CFO; and Sven Utermöhlen, designated

(technical difficulty)

I think we better clarify whether we are on air or not before we continue. So sorry for the inconvenience. But I think it doesn't make sense to continue until we have solved the technical problems from the operator.

--------------------------------------------------------------------------------

Gunhild Grieve, RWE Aktiengesellschaft - Head of IR [3]

--------------------------------------------------------------------------------

Operator, can we...

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

We are currently working on it. There's nothing else I can do. I'm currently working on stopping the prompt. I really am sorry about the inconvenience.

--------------------------------------------------------------------------------

Markus Krebber, RWE Aktiengesellschaft - CFO & Member of the Executive Board [5]

--------------------------------------------------------------------------------

Yes. But what does it mean? Can we -- are we on air? Or can nobody hear us?

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

We're live right now. People can hear you.

--------------------------------------------------------------------------------

Markus Krebber, RWE Aktiengesellschaft - CFO & Member of the Executive Board [7]

--------------------------------------------------------------------------------

Oh, okay. Good. Then I continue, and maybe we are sometimes interrupted by an annoying announcement.

So let me repeat the last one. While innogy's renewables business is temporarily at E.ON, it is managed by 2 designated Board members of RWE renewables: Holger Himmel, the designated CFO; and Sven Utermöhlen, designated COO, Global Offshore of RWE renewables. The other renewables Board members are already in charge for the business at RWE. We have already started to coordinate financial and strategic planning for the combined business.

We also made progress in our growth plans for renewables. In September, innogy was successful in the CfD auction with its 1.4-gigawatt offshore wind project, Sofia. And we also announced the acquisition of a 1.5-gigawatt offshore wind pipeline in Poland and the signing of partnerships in Japan, together with the opening of our office in Tokyo.

With the new strategic direction, we also introduced ambitious CO2 reduction targets, which are at the center of our purpose: Our energy for a sustainable life. This all rounds off a very good performance in Q1 to Q3, with an adjusted EBITDA of EUR 1.5 billion on the back of an extraordinary Supply & Trading performance. In view of the good news from the U.K. regarding the reinstatement of the capacity market, the new scope of the group as well as the continued strong trading performance, we revised our outlook for the full year.

With our new strategic direction, we have also set ourselves the ambitious target to become carbon-neutral by 2040. At the center of our CO2 reduction plan is a gradual and responsible phase out of coal-fired generation. In Germany, this involves implementation of the recommendations of the Commission for Growth, Structural Change and Employment; in the U.K, we have decided to our shut our last coal-fired power station in March 2020; and in The Netherlands, we convert our hard coal plants to co-fired biomass. Let me remind you that we have already achieved a reduction of 1/3 or 60 million tons of CO2 between 2012 and 2018.

Let's turn to the development of our adjusted EBITDA. For RWE stand-alone, it amounted to EUR 1.5 billion on the back of an outstanding trading performance and a strong gas and LNG business. Despite lower generation volumes, earnings at Lignite & Nuclear are on a level with previous year due to higher realized generation margins. Earnings of the European Power division suffered from lower production volumes and weak commercial asset optimization. Also, the missing payment from the pension of the capacity market in the U.K. played a part. Adjusted EBITDA included the innogy dividend of EUR 700 million, which we had contractually agreed with E.ON.

Slide 6 provides the performance details of the Lignite & Nuclear division. Year-on-year, the production volumes came down, driven by the restriction at the Hambach mine and outages, among other things. However, slightly higher generation margins have been realized and led to a solid earnings contribution. The Q1 to Q3 results was therefore as expected on par with the previous year's level.

The increase in depreciation is mainly influenced by the discounting adjustments for nuclear provisions, which lead to higher asset values for the operating plants as well as changes from the application of IFRS 16. The increase in CapEx results mainly from an exploration of relocations in the mining area as well as increased plant maintenance. The full year outlook includes approximately the acquired nuclear minorities for the fourth quarter of approximately EUR 35 million. We confirm the outlook for an adjusted EBITDA of between EUR 300 million and EUR 400 million.

The European Power division realized an adjusted EBITDA of EUR 130 million. Lower production volumes and weak earnings from commercial asset optimization impacted the performance of this segment. Compared to the first 9 months of last year, we also lack EUR 47 million of capacity payments in the U.K.

Speaking of which, we welcomed the decision by the European Commission to reapprove the British capacity market. It's a confirmation by bias of its intention to resume the suspended payment. We updated our guidance and now include the income from it. As a reminder, we secured capacity payments of about EUR 180 million for fiscal 2019 and also have about EUR 50 million outstanding from the first quarter of 2018. We therefore expect this segment to come out between EUR 450 million to EUR 550 million for the full year.

Now to our current hedge position on Slide 8. The minority stakes in our 2 nuclear plants, which we received as part of the transaction, are now reflected in the generation volumes. For our outright position, we increased the hedge position for more than 60% to more than 80%, mainly via implicit fuel hedging in 2022. In the year '21 and '22, average hedged power and carbon prices rose to the same extent. Therefore, the achieved margins have not changed. The development of fuel spreads, which are relevant for our hedged prices on the previous slide, underline the stable margin development. Fuel spreads develop mostly sideways over the last 3 months.

Moving onto the earnings development of the Supply & Trading division on Slide 10. The segment continued its good run and contributed an exceptional EBITDA of EUR 545 million at the end of Q3. Compared to the same period last year, we saw an outstanding trading performance over all desks and a strong contribution from the gas and LNG business in the first 9 months. We confirm our outlook for the division being significantly above the EUR 300 million mark.

Ladies and gentlemen, Slide 11 provides the earnings drivers down to adjusted net income. Our adjusted net income amounted to EUR 855 million after Q3 2019. Besides the typical adjustment of the nonoperating result and the corresponding tax position, we have many corrections in the financial result stemming from changes in discount rates for long-term provisions and the application of IFRS 9. In addition to deferred taxes, we had adjustments of provisions for tax and tax refunds for previous periods.

Moving on to our distributable cash flow on Slide 12. The distributable cash flow amounted to EUR 585 million after the first 9 months, which is on a comparable level to the previous year's period. The higher adjusted EBITDA was contrasted by higher CapEx as well as changes in provisions and other noncash items. Regarding the latter, we confirm our expectation to reach a level of approximately EUR 500 million for the full year. There is still a timing effect from CO2 provisions in the first 9 months as all CO2 provisions for the full year are used in the second quarter, while the buildup takes place over the course of the year.

Although we see the full year 2019 positive effect from change in working capital from the reversal of a high level of accounts receivables at the year-end 2018, we now expect to end the year at around 0. This is due to the fact that we will receive the back payments from the GB capacity market only at the beginning of 2020, while they will be already reflected in adjusted EBITDA of 2019.

Turning to the details on the development of net debt. As mentioned by Gunhild earlier, with the changes to our accounts after closing last parts of the transaction, we show now for the first time net debt for the new group. For better comparison with our previous reporting, we have put together a reconciliation of net debt from RWE stand-alone to RWE Group. Net debt for RWE continuing operations stood at EUR 10 billion at the end of Q3 2019. The transaction effects added EUR 4.6 billion, which include additional provisions, tax equity liabilities, the cash payment to E.ON of EUR 1.5 billion as well as EUR 0.5 billion of lease liabilities. We expect another approximately EUR 200 million of tax payments in relation to the asset swap, which will bring the total impact on net debt from the transaction exactly to our guided figure of around EUR 4.8 billion.

Since we continue to consolidate the innogy assets, which will be transferred back to RWE, we do not expect any further material effects on our net debt from the full execution of the transaction with E.ON. Besides the transaction, another reason for the increase in net debt was the outflow of variation margins due to the realization of the underlying transaction, for which we have received variation margins in previous years. In addition, we saw an increase in provisions following the further decrease in discount rates, especially for pension liabilities. For year-end, we currently expect net debt to stay around the current level, assuming no further changes in the commodity and interest environment.

Before we move to the outlook for the group, let us take the opportunity to have a first look at the pro forma EBITDA for fiscal 2019 for RWE renewables. To arrive at the right earnings levels for the future segment of RWE renewables, a few adjustments to the scope and consolidation methodology of innogy's and E.ON's former renewables business need to be taken into account.

From E.ON's renewables portfolio, we have to deduct the assets remaining at E.ON, which includes mainly the onshore wind park of E.DIS as well at a 20% stake in the offshore wind farm, Rampion. Since our stake in Rampion is therefore only 30%, we also have to move to equity consolidation. While this has a measurable effect on EBITDA, it does not impact net income as we do not have to show any depreciation or minorities for this effort.

When it comes to innogy's renewables portfolio, we have decided to transfer the hydro and biomass activities to European Power, reassigning approximately EUR 100 million. Considering all these effects, we expect the pro forma adjusted EBITDA for the new renewables segment to range between EUR 1.3 billion and EUR 1.5 billion for 2019.

Looking beyond EBITDA, the transaction will influence future depreciation levels due to the purchase price allocation and the harmonization of depreciation periods for our renewables assets. We can confirm previous statements that the impact will be approximately EUR 100 million.

Moving onto the outlook for fiscal 2019. Due to the re-approval of the British capacity market as well as the continuing good trading performance, we now expect adjusted EBITDA of EUR 1.8 billion to EUR 2.1 billion and adjusted net income to reach between EUR 0.9 billion and EUR 1.2 billion for RWE stand-alone. At group level, we also introduced an outlook for the acquired operations from E.ON of EUR 200 million to EUR 300 million, reflecting the earnings for the period between transfer of the assets in September and year-end. For the RWE Group, we now forecast adjusted EBITDA to range between EUR 2.2 billion and EUR 2.5 billion. Furthermore, we confirm our target to pay a dividend of EUR 0.80 for fiscal 2019.

With this, I conclude my remarks, and I'm happy to take all your questions.

--------------------------------------------------------------------------------

Gunhild Grieve, RWE Aktiengesellschaft - Head of IR [8]

--------------------------------------------------------------------------------

Thank you, Markus. And with this, we would like to hand over to the operator to put through the first question.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question in the queue comes from Alberto Gandolfi from Goldman Sachs.

--------------------------------------------------------------------------------

Alberto Gandolfi, Goldman Sachs Group Inc., Research Division - Head of European Utilities Research [2]

--------------------------------------------------------------------------------

The first one is on the renewables guidance on Slide 14 that you provided. So I guess the question is there is probably a difference in scope versus just simply taking innogy renewables and E.ON renewables. That's probably EUR 240 million, EUR 250 million annualized. But one thing that was doing is that in H1, innogy renewables plus E.ON renewables gave nearly EUR 900 million of EBITDA. So EUR 881 million, I think. If I strip out the 6 months contribution from hydro, biomass, Rampion, probably the first half will be EUR 760 million. Now considering ongoing capacity additions, the rule of thumb historically would be to take the first half, multiply by 2, add a little bit. So I'm quite surprised that your guidance doesn't come at EUR 1.5 billion or higher.

So what I was wondering is, are you seeing a problem with those factors? Or is it simply the case that you expect most of the capacity additions for 2019 to happen very late in the year, say, December, which probably means that next year numbers are actually okay on renewables? Maybe there's, I don't know, EUR 300 million EBITDA growth, but this year is a little bit impacted by timing effect. Or is there something more underlying, more structural that maybe I'm missing? So a bit convoluted, but I hope these are the moving parts. So the clarity -- very specific guide on this will be highly appreciated.

The second question is can you perhaps tell us what is the D&A line associated with that EBITDA for the renewables? Ideally more in general, what is the D&A step-up for the integration of the deal pro forma use for 2019, including assets right after PPA. That will be really helpful.

--------------------------------------------------------------------------------

Markus Krebber, RWE Aktiengesellschaft - CFO & Member of the Executive Board [3]

--------------------------------------------------------------------------------

Thanks, Alberto. I mean I'm reluctant to give now guidance for next year, and please understand that because we are now in the midst of looking -- going through all the portfolios and decide what we're going to do next year. And I have preliminary hypotheses, but I think it's not the right thing to do it now. We will do that when we have full clarity at the Capital Markets Day. So -- and now the speculation of what -- where year-end will end up this year, given your calculation of how the first half year would look like is also, I mean, speculation about Q4. I mean you are totally right that there is no -- there are 2 material effects: one is that we exclude -- better yet, we exclude those assets on the renewables side which are not coming to us, which stay with E.ON. And this is the only thing where when you add up the innogy and E.ON renewables business on a stand-alone basis before the transaction, we lose some value. The rest is pure, let's say, presentation of figures because we move EUR 100 million into another segment. And we have the consolidation effect of Rampion, which is also close -- I mean, very high 2-digit number, which has no material effect -- no effect at all on net income. It's still then the same adjusted net income.

Of course, when you look at -- and we do the same, when you look at current expectations for the businesses, they were a bit higher than the average of the EUR 1.4 million. What we are not doing is we are not guiding now that we're going to meet the midpoint of the EUR 1.3 million to EUR 1.4 million. It's just a mechanical exercise, how we came to the figures. So also, the ingoing figures of E.ON and innogy are not our figures. These are just the figures we got from the businesses when they were at E.ON and innogy.

Now capacity additions, yes, there are coming some projects later this year, early next year. I mean, now, to answer your question, I would need to understand what was your original expectation. I mean that is an exercise we cannot do now. But overall, the assumption that [gross model], the second half of the year would make as much as the first half of the year is not a totally invalid one.

Depreciation and amortization for the renewables business, so the isolated effect on depreciation and amortization from PPA and harmonization of accounting depreciation period is around EUR 100 million. This is the isolated effect on depreciation, amortization. We have other effects because now, on Rampion, we don't show additional depreciation anymore because it's already reflected in the EBITDA when we moved from full consolidation to an equity consolidation. So there is a lower depreciation on that. There is also lower interest payments because of project finance, and there also is lower taxes and lower minorities. So net income is the same for Rampion than it was before.

I mean the only open question and therefore we can definitely not give guidance today is what is the earnings increase from this year to next year. And to round the entire topic about the uncertainty about the renewables business, up now with your questions, which I highly appreciate. You can also take another view, that you -- when you take next year's average guidance, you actually need to deduct around EUR 200 million to make it like-for-like comparable because EUR 100 million will be shown in a different segment and around EUR 100 million is the consolidation effect on Rampion, yes? So from the guidance, as you have currently understood the business, you need to deduct EUR 200 million without any lost value for RWE to make it comparable to how we will present the numbers from next year onwards because of hydro, biomass going into another segment and the not full consolidation of Rampion.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

The next question comes from the line of John Musk from RBC.

--------------------------------------------------------------------------------

John Musk, RBC Capital Markets, Research Division - MD of European Utilities Research [5]

--------------------------------------------------------------------------------

Two questions from me. And sorry, coming back to the Slide 14, first. You just mentioned to Alberto there that the numbers and the starting points from innogy and E.ON came from the individual companies. I was slightly surprised with the E.ON number in particular because if I look at the latest consensus provided by them, that's actually EUR 980 million of EBITDA for renewables. So it would imply that potentially, they're downgrading market expectations for that business. I don't know whether that's something you can comment on.

And then secondly, on the -- obviously, the very positive result in Supply & Trading. Is there anything that you've seen this year that makes you think your previous guidance on profitability for that division will change going forward? Or should we be going back to more normalized numbers?

--------------------------------------------------------------------------------

Markus Krebber, RWE Aktiengesellschaft - CFO & Member of the Executive Board [6]

--------------------------------------------------------------------------------

Yes. Thanks, John, for the questions. I mean on the first one, the EUR 980 million, my understanding, this was not the guidance of E.ON. It was the market expectation, so the consensus. So it's more the question whether E.ON should have or have done anything to correct the guide. Well, the only thing I can tell you, I'm -- we are not surprised by the development of the E.ON renewables, how they perform. So they are actually performing as we have assumed. I mean what has been done on the E.ON side in order to guide, I don't know, right? So we are not surprised.

On the Supply & Trading side, we put on the slide the number EUR 250 million as an expectation for the next year and the coming years. I mean that may be on the conservative side, but it is a volatile business. And in the end, the opportunities for the traders, how much money they can make also depend on how volatile, how imperfect are the markets because you always need, as you know, arbitrage opportunities in our business. So if market is priced correctly, there is no opportunity to make money. So it depends more on how the market is actually priced. The more structural breaks are in the markets, like coal exit in Germany or other things on the gas and CO2 side, of course, the more opportunities you have. And of course, there is maybe a view that, that might continue in the future, but then you also need to write a fundamental analysis to capture all the money. Fortunately, we did it this year. We will not adjust our guidance. Maybe I have slightly higher internal expectations, but definitely, we don't increase our guidance.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

The next question comes from the line of Peter Bisztyga from Bank of America.

--------------------------------------------------------------------------------

Peter Andrew Bisztyga, BofA Merrill Lynch, Research Division - Head of Pan-European Utilities and Renewables and Director [8]

--------------------------------------------------------------------------------

So just a sense of coming back to this renewables issue. Actually, if I look at E.ON's guidance for Q2, they were saying that effectively, second half of the year would be flat on EBITDA, so that takes you to about EUR 930 million of EBITDA for the full year. So it does look like the range that you've provided on Slide 14 is perhaps tracking sort of a bit low but not the midpoint. But notwithstanding that, I was just wondering if you could comment on how wind speeds have been, I guess, in Q3 and what you've seen so far in Q4. Are we in a normal wind half? Or are we actually sort of tracking a bit below normal, and therefore, that could be like something that's a positive delta for next year?

And then my second question, on your hedging. Baseload power prices were sort of flat to down, if anything, in Q3. Fuel spreads, you said on the call, traded sideways. I'm just wondering how then you managed to increase your hedged prices by EUR 1 to EUR 2 per megawatt hour for 2021 and 2022.

--------------------------------------------------------------------------------

Markus Krebber, RWE Aktiengesellschaft - CFO & Member of the Executive Board [9]

--------------------------------------------------------------------------------

Yes. Peter, thanks. I mean thanks, first of all, for clarifying that actually, our range here is -- or E.ON's old guidance is in our range. And now let's see where the business ends up at year-end, which also -- I mean, one important factor is, of course, wind speeds in the 4th quarter, which is the most important quarter in the year. And answering your question, what we have seen in Q3, what we have seen in Q3 is that wind volumes and speeds in the Southern parts of Europe are a bit higher than average. In the Northern part, it was a bit lower than average. Of course, we have more installed capacity in those markets where it was slightly below average. But it was, I mean, more to normal than in the first half of the year.

On the hedging side, it's more a mechanical effect. There was no miracle or wisdom behind it. Because simply, when we now close the positions, the open positions we have also on the implicit side, then you roll in higher power prices but also higher carbon prices. So the spread actually stays the same. But over time, with the increased prices, we roll in higher power and higher carbon prices but without changing the spread. So even if nothing moves from to-date or from Q3 and onwards, you will see, when we close the position, higher power and higher carbon prices about the same spread.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

The next question comes from the line of Wanda Serwinowska from Crédit Suisse.

--------------------------------------------------------------------------------

Wanda Serwinowska, Crédit Suisse AG, Research Division - Analyst [11]

--------------------------------------------------------------------------------

Just one question from me on the renewables growth in Germany. I saw some headlines on Reuters saying that you see a sluggish offshore wind expansion in Germany. And you're saying that onshore is not -- also the expansion for onshore is not as good as one could expect. So how core is the onshore/offshore market, important -- how important it is for the new RWE renewables portfolio?

--------------------------------------------------------------------------------

Markus Krebber, RWE Aktiengesellschaft - CFO & Member of the Executive Board [12]

--------------------------------------------------------------------------------

I mean you're touching upon an important point, which is the energy policy and the framework. And of course, there are some question marks behind especially onshore. In the new proposed law, which also covers the hard coal exit, they have now increased the target for offshore in Germany, which is, of course, very helpful also for us. But they have set the minimum distance of new onshore installation to residential areas to around 1 kilometer, which rules out in many areas in Germany for onshore wind, which is, of course, problematic. But there is currently an internal discussion in the government because it was only a draft by the Ministry of Economic Affairs. There is no strong opposition from other ministers. Let's see where that goes.

But of course, I mean, any kind of support in Germany for more wind is very beneficial for our position and our future growth prospect. But we don't depend on Germany. I mean most -- as I said, I mean, most of the pipeline we have and we have seen over Q3 -- no, everything was outside Germany. So currently, in Germany, we have still Kaskasi, which is a relevant investment in front of us. We also expect more onshore wind to come into our portfolio over the next couple of years. Of course, there are still projects in the pipeline in very late stage. It was just only delayed in Germany because processes took longer than expected. But overall, I mean, if the German government, and I have no doubt about it, is serious of reaching 65% renewable penetration by 2030, we need significant more wind offshore and as well onshore. And that should benefit us.

--------------------------------------------------------------------------------

Wanda Serwinowska, Crédit Suisse AG, Research Division - Analyst [13]

--------------------------------------------------------------------------------

Just one quick follow-up. Would you be able to give us the number of gigawatts that you have under development or under construction in Germany?

--------------------------------------------------------------------------------

Markus Krebber, RWE Aktiengesellschaft - CFO & Member of the Executive Board [14]

--------------------------------------------------------------------------------

I think we have not split it in the different countries yet.

--------------------------------------------------------------------------------

Gunhild Grieve, RWE Aktiengesellschaft - Head of IR [15]

--------------------------------------------------------------------------------

No, not yet. But under construction, as far as I know, we have nothing at the moment. And as Markus mentioned, Kaskasi is the offshore wind project where we have received -- or where innogy has received a feed-in-tariff or was successful in the auction. And there, we expect FID at some point next year.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

The next question comes from the line of Lueder Schumacher of Societe Generale.

--------------------------------------------------------------------------------

Lueder Schumacher, Societe Generale Cross Asset Research - Equity Analyst [17]

--------------------------------------------------------------------------------

A couple questions from my side. One is going back to Rampion. We've got the number of rocks they get at the market price. Could you give us an indication of either how much EBITDA we should expect from either 100% of Rampion to come in the year? Or if you prefer to answer this in a different way, how much of equity consolidated income should we expect from Rampion in the financial year? I'm not sure if you said very high double-digit number. Are we getting towards EUR 100 million or closer to EUR 70 million? Any kind of idea there would be appreciated.

Then I've got 2 more questions on our previous favorite slide, Slide 8, so your hedging volumes. It appears to be that your volume assumptions for outright has gone up. With H1 results, you just said 65-terawatt hours. Now it has become 65- to 70-terawatt hours. Just wondered where the extra volumes are coming from. Is it kind of Hambach-related? Any kind of resolution? Just wondering about that.

And also on the same slide, you used to be a bit more detailed in your disclosure as far as the average hedged CO2 prices. This now appears to have disappeared. Is that something you would go going forward? Or -- just wondering why this visibility has disappeared.

--------------------------------------------------------------------------------

Markus Krebber, RWE Aktiengesellschaft - CFO & Member of the Executive Board [18]

--------------------------------------------------------------------------------

Yes. Lueder, thanks for the question. On Rampion, I have to admit, I don't have the number at hand currently. And I mean we will check whether we are willing to guide individual project on EBITDA on net income level. On the hedging slide, the additional volumes are stemming from the nuclear minorities we got from E.ON, which is around, I mean, 5-terawatt hours per annum. Of course, a bit lower in '22 because we closed Gundremmingen B end of '21. But this is the reason for the increase. So the nuclear minorities of E.ON are now included.

The CO2 prices are still on the slide. I think the team has changed the layout a bit or the color. So you have -- above the bars, you have on the left-hand side, the power price; on the right-hand side, the CO2 price.

--------------------------------------------------------------------------------

Lueder Schumacher, Societe Generale Cross Asset Research - Equity Analyst [19]

--------------------------------------------------------------------------------

Oh, in orange. Yes, got it.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

The next question comes from Deepa Venkateswaran from Bernstein.

--------------------------------------------------------------------------------

Deepa Venkateswaran, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [21]

--------------------------------------------------------------------------------

For my 2 questions, actually, to take a break from renewables, could you maybe update a little bit about what you -- if you could provide an update on the lignite discussions going on with the government and where you see to reach by year-end and also into next year?

And my second question is indeed back to renewables. Would you be able to say if there are any minorities that your income statement will be impacted by because of the renewables business being consolidated? And did I hear correctly that you said that you need to increase depreciation by EUR 100 million to impact for this purchase price allocation?

--------------------------------------------------------------------------------

Markus Krebber, RWE Aktiengesellschaft - CFO & Member of the Executive Board [22]

--------------------------------------------------------------------------------

Yes. Deepa, I mean, you are right. We said 100 -- we have EUR 100 million additional depreciation from PPA on the renewables side. On the minority side, maybe to have some more clarity there, we are willing to give a number because, in total, for the group, from -- in next year, we expect minorities now that we have Rampion at equity consolidation. So total minority for the group will be below EUR 50 million only. So you see very, very little minorities being left, especially from the renewables business. So below EUR 50 million for the entire group.

On the coal exit, I have to disappoint you. I mean the only thing I can confirm, but there is also broad speculation in the German press, the discussions between the operators and the government have now significantly accelerated. You have seen the first draft flow for the coal exit. In terms of content and time line, due to confidentiality reason, I cannot comment today.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

The next question comes from Sam Arie from UBS.

--------------------------------------------------------------------------------

Samuel James Hugo Arie, UBS Investment Bank, Research Division - MD and Research Analyst [24]

--------------------------------------------------------------------------------

I think I just wanted to spend another moment on this Page 14 because that seems to be where all the attention is today. And I'm still not 100% clear about why we have what looks like a little bit of a downside to price on this page. And I think everyone's got a different way of looking at it, but it seems to me that your left-hand bricks on the chart on Page 14 add up to an expectation that's about in line with where many of us were for innogy energy and E.ON renewables this year. But the kind of implication of the chart is that, that's a level including Kelag and gas storage because those bricks then gets divested later on as you move through the waterfall. So it's the equivalent of saying expectation in renewables is a bit lower by an amount that's equal to Kelag and gas storage, so maybe almost EUR 100 million.

And I just -- that's a high level, so I can't quite tell whether that's an overestimate that we have made and we will need to come down by that amount or whether those are sort of the short-term factors that impact the second half. Obviously, you get to about the starting point on the left-hand side just by doubling the H1 numbers, as a few people pointed out, from the renewables divisions. So I wouldn't mind just another quick comment there.

And then I think my second question is obviously a chance to talk to you since you've had full sight of these businesses. And I know I think other people are very happy with the deal that's been done. But you can you just spend a moment to talk to us about what you found now you've got a much better, more detailed visibility. Are you generally finding that everything is in line with the assumptions you made outside-in? Or are there positive surprises in there? Or are there other things look a bit more difficult than you thought at the time the deal was struck?

--------------------------------------------------------------------------------

Markus Krebber, RWE Aktiengesellschaft - CFO & Member of the Executive Board [25]

--------------------------------------------------------------------------------

Yes. Sam, thanks for the question. I mean on the latter one, I mean, we will give full detail on what we actually found, and more important, what we plan to do with the combined business next year. But what I can confirm, I mean, after having done the most -- I mean, on the most material side post-closing due diligence, we have not found any negative surprises yet.

On the first question, I mean, guidance, I actually cannot reconcile your figures. Because, I mean, I think it was Peter who made clear that the guidance of innogy -- of E.ON was, the last one, EUR 930 million. So it is within our range, EUR 850 million to EUR 950 million we have presented on the slide. The last consensus for the innogy renewables business, I just looked it up, I got it from the team, was around EUR 770 million, EUR 770 million. If you add the Kelag and gas storages, it's exactly in the midrange of EUR 800 million to EUR 900 million. So from all the guidance we now give and what the companies have given before and the figures we made transparent on Kelag and gas storage, the outgoing position on the left-hand side shouldn't surprise anybody. I think the -- and then we have 2 sorting measures. I mean the one sorting is EUR 100 million to European Power and one is EBITDA is lower because no full consolidation of Rampion, but this has no impact on net income.

--------------------------------------------------------------------------------

Samuel James Hugo Arie, UBS Investment Bank, Research Division - MD and Research Analyst [26]

--------------------------------------------------------------------------------

Yes. Okay. So thank you for your answer on the first point. On the chart -- look, I know, once again, it's a debate on sort of the interpretation. But I hear your point. And maybe just one small further question is the implication of some of this also implies that the E.DIS renewables assets, they're not coming to you. I'd take out, I think, something around EUR 40 million and which may be something wasn't given in consensus. I don't think we'd have a sort of guidance from that number before. Is that about the right quantum for E.DIS?

--------------------------------------------------------------------------------

Markus Krebber, RWE Aktiengesellschaft - CFO & Member of the Executive Board [27]

--------------------------------------------------------------------------------

I think, I mean, we are not willing to give exact numbers, but I mean, it's a mid-double-digit number. So you are not far apart, maybe a bit, bit higher.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

The next question is from the line Elchin Mammadov from Bloomberg Intelligence.

--------------------------------------------------------------------------------

Elchin Mammadov, Bloomberg Intelligence - Utilities Analyst [29]

--------------------------------------------------------------------------------

I have 2 questions. The first one is on renewables. I mean, there was a lot of talk during this earnings season during the -- about the blockage and wake effects. I was just wondering whether it was -- there's any impact on -- do you see any impact on the future bidding over -- at the next project and whether it's something that you experienced in the past? Or your assumptions about load factors haven't changed at all?

And the second one is on Claus C. I mean we've seen news coming out of The Netherlands that they don't want to let you build the link to Belgium. If you could update us on what's the current situation and what your plans are, that will be great.

--------------------------------------------------------------------------------

Markus Krebber, RWE Aktiengesellschaft - CFO & Member of the Executive Board [30]

--------------------------------------------------------------------------------

Yes. Let's start with Claus C. It is still the intention to connect Claus C to the Belgium grid. We therefore need, of course, approval for -- I mean, first of all, a capacity market in Belgium, but that looks promising, and also all the necessary approvals from the Dutch side to do that. I think there was an overinterpretation in the press of how the situation looks like. Of course, there are ongoing discussions, but we are not aware of any relevant opposition. So we think we can go ahead with our plan to connect it to the Belgium grid.

And the other one, on wake and blockage, I mean, I can now say we, so we, talking for the innogy and E.ON renewables team, have accounted for wake losses for many years. Blockage effects were first identified, I think, recently. But of course, the teams have done ongoing studies and calculated these effects and also taken into account industry-wide knowledge and -- but also own intelligence. We have in recent bids like, for example, Sofia incorporated the wake and blockage effect as we currently expect them. And so we don't expect any negative impact on the IRR of the recently won project, and we also do not see any -- expect material impact on our production plans. I mean there was a continuous incorporation of the effects into the plan and especially into the bidding processes. So please don't expect any negative surprises from these effects on our site in the future.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

The next question comes from the line of Alberto Gandolfi from Goldman Sachs.

--------------------------------------------------------------------------------

Alberto Gandolfi, Goldman Sachs Group Inc., Research Division - Head of European Utilities Research [32]

--------------------------------------------------------------------------------

Apologies for violating the 2-question rule, but considering it's just a follow-up from what Peter interestingly asked earlier. Lignite, so Slide 8. Markus, maybe I got something wrong, so please shut me off if that's the case, but I thought you were saying something like spreads remain constant because both prices and carbon hedges go up. However, from 2019 to 2022, there is a EUR 7 per megawatt hour improvement in the spread, just power price minus carbon. If I assume that the rest of the costs are fixed, this will be a EUR 450 million, give or take, call it, EUR 400 million to EUR 500 million uplift in EBITDA over that time frame. So what else should we think about that might offset or taper some of the EUR 400 million to EUR 500 million increase? Otherwise, I guess, it's pretty straightforward.

--------------------------------------------------------------------------------

Markus Krebber, RWE Aktiengesellschaft - CFO & Member of the Executive Board [33]

--------------------------------------------------------------------------------

I mean there is one effect which you can be aware of. I mean we said the Hambach restriction effect is about EUR 100 million to EUR 200 million. And we are, this year, at the lower end. So the negative effect on the Hambach restriction can be a bit higher in the future years.

Another one is, I mean, we have put many -- I mean we have put capacity in the security in the lignite reserve, 5 blocks 300-megawatt each, so 1.5 billion. And of course, we get for the first year's compensation for the government that can actually run the optimization, so the cost reduction a bit earlier. So we will see a slightly negative effect when these payments will roll out. And of course then, the biggest question mark is what will be the agreement of the German government when to start the phase out of our lignite capacity. And I mean, they are talking now on hard coal starting end of 2022 -- or 2020. And that could also, of course, have an effect if that also applies to lignite on the '21 result. But other than that, I fully agree with your calculation.

--------------------------------------------------------------------------------

Gunhild Grieve, RWE Aktiengesellschaft - Head of IR [34]

--------------------------------------------------------------------------------

Is this fine, Alberto?

--------------------------------------------------------------------------------

Alberto Gandolfi, Goldman Sachs Group Inc., Research Division - Head of European Utilities Research [35]

--------------------------------------------------------------------------------

Really good.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

Okay. Thank you. There are currently no further questions in the queue. (Operator Instructions) There are no further questions in the queue, so I'll turn the call back to your host.

--------------------------------------------------------------------------------

Gunhild Grieve, RWE Aktiengesellschaft - Head of IR [37]

--------------------------------------------------------------------------------

Thank you very much, and thank you for everybody participating in the call. Of course, the whole IR team is at your disposal, if you have any further questions. And otherwise, we hope to see you soon on the road. Thanks, a lot. Bye.

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

Thank you for joining today's call. You may now disconnect your handsets.