Q4 2012 Earnings Call Transcript
Transcript Call Date 03/05/2013

Operator: Welcome to the conference call of RWE's Fiscal 2012 Results with Peter Terium and Dr. Bernhard Gunther. I will now hand over to Dr. Stephan Lowis.

Dr. Stephan Lowis - VP, IR: Good afternoon to everyone who has joined us today via telephone or webcast for our full year 2012 results presentation and strategy update. I'm joined here by Peter Terium and Bernhard Gunther, and as usual, I would like to cut it short and directly hand over to Peter.

Peter Terium - CEO: Yes, thank you Stephan and good afternoon to everyone who has joined us today via telephone or webcast. We have kept the presentation as brief as possible. While there are currently many challenges for utilities, we believe you are all well aware of them and are more interested in RWE's strategy to address them and it also allows us to give more time for Q&A.

Let me go through the milestones of 2012 before heading straight into our response to the challenging market environment. I'll give you a brief review of the year. First, with regards to the financial performance. I'm pleased to report that we have delivered on our guidance, the guidance which we upgraded at our Q3 results. Both EBITDA and operating results improved by 10%. Recurrent net income was on par with 2011. This was mainly due to a lower financial result. Bernhard will elaborate on this later on.

Over the course of last year, we have made progress on our divestment program. We have achieved some EUR2.1 billion in asset disposals. The clear focus was value preservation in order to minimize earnings dilution. A further benefit was the reduction of some future CapEx requirements. However, let me come to our current plans a little later.

We have also successfully continued the renegotiation of our long-term oil-index gas contracts, more so than (witnessed) in our initial guidance for 2012 which did not foresee a settlement with Statoil for last year. All solutions are fully structural and include compensation payments for past losses. After the conclusion of the price revision with GasTerra later last year, there is only one counterparty, namely Gazprom, remaining with who we are still in the price review proceedings. As you are aware, these are (in fund of) international of an arbitration tribunal and we expect a conclusion in the first half of this year. We have finalized our 2012 efficiency program, which brought an accumulated EUR1.5 billion compared to 2006. Our new efficiency enhancement program is also well on track, with all operational measures identified and already bearing first fruits last year. More on that in a moment.

Finally, we can confirm our outlook for 2013 that we have given in March 2012. We will spend some time going into details of our guidance later on. However, with increasingly volatile market conditions, we have decided to refrain from any longer-term financial guidance at this point. We will provide updates on the divisional targets for 2014 of RWE Dea and RWE Energy. For the rest of the business, we are also going to give some qualitative commentary on the operational outlook post 2013, but do not expect us to underpin this with specific numbers.

However, you will not have to wait until March next year to get the outlook for 2014 as we are planning to provide guidance for 2014 in November with our Q3 results, while we can look back at a good performance in 2012 and a solid earnings expectation for this year, I know that most of your questions revolve around the challenging market conditions in the Central European generation market and the impact on RWE in future years.

Since most of you are following the power price development on an almost daily basis via your Bloomberg screens, I won't bore you with the obvious. But I would like to highlight a couple of points. First, the drop in power prices over recent weeks can mostly be attributed to the weakness in fuel prices, notably CO2 and coal. Taking into consideration that these are the input costs of the price-setting plant in Germany, it is also the reason why clean dark spreads stayed relatively stable.

Second point, it is undeniable that the increase in proportion of renewables in the system has led to overcapacities in times of strong sunshine and high wind levels. This has an instant impact on spot market prices and it translates to some extended to forward prices. Achievable spreads for peak capacities are particularly affected.

Third point, we can currently observe a relatively flat power curve and backwardation in clean dark spreads. This implies that the market anticipates net conventional capacity additions in the next two years, since there are still some power plants under construction and few firm capacity shutdowns announced so far.

Finally, renewables also have an ever increasing impact on load factors for conventional generation, especially peak power plants. Gas-fired plants have seen their running hours decline steeply over the last two years due to the expanding feed-in from photovoltaics during peak hours. While many of them are no longer able to cover their fixed or even cash costs at those reduced loads, they are still needed in times of system stress as seen earlier this year during the cold spell in January. This holds not only true for old gas-fired power plants, but also for brand new ones. Take for example our Lingen plant which we commissioned in 2010, it only ran for some 2,000 hours in 2012, a decline of more than 50%.

Current forward prices and spreads lead to decreasing load hours and do not allow peak capacity to earn sufficient margins. Therefore mid to long term we see the requirement for an upward correction of revenues for peak capacities. However, while it has become clear that the current (market) design does not provide the required remuneration to keep conventional capacity online to serve as backup for intermittent renewable generation. It is far from certain, how our new system might look.

Regulatory uncertainty will therefore continue to make operational as well as investment decisions difficult. Now what does this all mean for RWE? It will come as no surprise that earnings from our generation business are coming under severe pressure. As mentioned before, we are not yet going to provide specific guidance for 2014 and beyond, but let me say something on the future earnings trends in the different businesses. We cannot escape the commodity price developments but it would be wrong to just look at outright power prices. Due to the diversified fuel mix our generation portfolio can mitigate some of the downward pressures.

For example, although lignite spreads came down from their highs at the end of 2011 and beginning of 2012. The decrease was much more muted than the drop in outright power prices. As already mentioned, clean spark spreads – clean-dark spreads stayed relatively stable. On the other hand our gas fleet is not only suffering from low clean spark spreads but also decreasing load factors due to the renewable expansion. This is particularly evidenced by our newbuild CCGTs, Moerdijk and Claus, which are struggling to cover their cash costs. But what does this mean for our earnings come 2014?

Our generation business will be significantly down from 2013 levels. Although our outright position is largely hedged for 2014 and to some extend for 2015, we have been selling forward into a falling power curve and our average achieved price will therefore comedown. The forward selling for our spread positions is still in early stages, but clean dark spreads have shown some resilience, spreads for gas plants continue to be extremely low.

This will impact above all on the profitability of our Dutch and U.K. generation portfolio. Overall, the outlook for our generation business is anything else, but exciting. However, we should not forget that more than half of RWE's earnings is generated by businesses other than generation. Our regulated group business will continue to contribute stable earning streams and even show some moderate growth potential.

The European energy transition provides some opportunities to expand our energy services business, and in area such as Renewables and Upstream Gas & Oil, we are still developing some growth projects. Do we believe that this can compensate for all of the earnings pressure in the generation business, no, but we are doing everything possible to mitigate these negative earning trends further and I will come back to some of the measures we are taking in our new European generation company.

Now, let me move on to RWE's strategic response to these challenges and how we intend to drive to business forward. While we still believed that the cornerstones of our strategy are valid, it has become clear that we have to adapt some of the targets in light of the new market conditions. The new targets are based on a number of fundamental beliefs for RWE's role in the transformation of the European energy markets.

First, the transformation of the European energy market is not temporary, but structural. Renewables are here to stay and play an ever more important role, increasing energy efficiency and distributed energy solutions will have a further impact on the future energy landscape.

Second, today's business model for conventional generation, especially for gas and hard coal-fired power plants will not persist in the future. While it is not yet clear how a new market design might look, we have to ensure our business can cope with current market realities and be fit for future changes.

Third, we have to regain our financial sustainability. Our current tight headroom has reduced our ability to flexibly respond to new opportunities.

Fourth, RWE has the capabilities to adapt to structural market changes. We have done so in the past and we have the employees and tools to create innovative products and services required to prevail and be commercially successful in these new market conditions.

Lastly, a significant increase in RWE's operational excellence is necessary and possible. Initiatives such as the European generation company as well as the bundling of business support functions will identify further cost saving potential.

These beliefs translate into the individual targets within our three strategic cornerstones; invest in sustainable projects which improve our CO2 intensity and support the energy market transformation; become more robust by focusing even more on the cost efficiency of the business and improving our financial flexibility; maintain our international footprint while keeping our regional focus. The implementation of this strategy will be based on three steps, strategic repositioning. Here we have to take a look at our portfolio and ask the question about the strategic rational of owning each individual asset. Second step, selective CapEx. Given our financial constraints we have ensure that scarce investments funds are allocated more effectively and efficiently. After the conclusion of our power plant replacement projects, we are looking for less capital intensive growth opportunities. Third step, sweat the assets. I might even add sweat the organization. Finally, we have to ensure that our assets continue to earn a positive value contribution by cost cutting and on our efficiency enhancements. This holds particularly true for our conventional power generation.

While growth will be limited, we believe that we can create long-term value along this route. Let me now go into more detail on these individual steps.

On the back of the fundamental changes in the European energy system as well as our current range of constraints we have taken another look at our portfolio to identify assets which we do not consider core that do not add much value to the portfolio or where the ownership structure could be optimized. A similar exercise was done for the ongoing disposal program where we have divested assets such as Berlin waterworks or Horizon, which no longer fitted with our core activities.

As mentioned earlier, we have already sold assets for EUR2.1 billion. However, we will not achieve our EUR7 billion targeted by the end of this year. Our current focus is on the sale of our Czech gas transmission company, NET4GAS. In addition, we are not excluding further disposals. However, these will be opportunistic with the focus on portfolio optimization and value enhancement. This could include stake reductions in companies or assets that we do not necessarily need to hold 100%.

Our growth ambitions and investments have also been scrutinized under these considerations. The last couple of years have been marked by the largest investment program in RWE's history. While a renewal and modernization of our power plant portfolio was required, it also diminished our ability to quickly respond to the changing market conditions. Our investment approach has to become more flexible. We cannot afford large amounts of capital to be tied up for several years in investment projects, but only because of the substantial time lag before they are contributing to cash flows, but also due to the rapid economic and regulatory changes in the market, which might impact the initial prerequisites for these investments.

We therefore, will be much more selective with future capital deployment. Value enhancement will take precedence over capacity or volume expansion considerations. We will be looking at shorter payback periods and ways to minimize the capital intensity.

Last, but not least, we have reviewed the strategic rationale and are in the process of evaluating potential options for RWE Dea.

While we are more than ever convinced that Dea is an excellent business and provides promising growth potential, we have to ask ourselves, if we are the best owner for this business. There is only limited synergy potential with the rest of the Group, even after considering a further integration of the LNG activities. In addition, with our reduced financial headroom, we cannot provide RWE Dea with the necessary capital to realize their growth ambitions.

The initial conclusion of the review indicates that the upstream business is not core to the operation of our other activates. We will therefore now analyze potential options for RWE Dea. Please understand that we will not make any indication around timing or potential exit root at this point in time. We are not under any time pressure and different options might involve different time frames.

With this let me move on to our financial position. We ended the year on 3.5 time net debt to EBITDA or at par with the previous year's level. Unfortunately, we were not able to bring our leverage factor down as envisaged at the beginning of last year. However, this was mainly due to the fact that our pension provisions increased due to lower interest rates.

Our net financial debt has not increased. Nevertheless, our access to the capital market to the debt capital market is still excellent. As you might have seen, we issued a seven year bond with a coupon of 1.875% in January of this year. Now, don't get me wrong. We still aim to bring down the leverage factor to a maximum of three times. However, this is not an end in itself.

The key target is to maintain access to the debt capital markets including long-term maturities. While the current market environment allows for very favorable financing conditions, we still feel that the factor of three times is more sustainable in the medium term.

So, let's answer your next question. How are we going to achieve this?

One of the main prerequisites to reduced debt levels sustainably is a positive cash balance. There are three parts to this equation; cash flows from operating activities, capital expenditure and dividends. You know our dividend policy of 50% to 60% payout of the current debt income. The main focus will be further reductions in CapEx and efficiency enhancement measures.

The current investment program for 2013 to 2015 adds up to a total CapEx of EUR13 billion. This is approximately 20% below the EUR16 billion we had planned last year for the period 2012 to 2014. The program is still front loaded as we are finalizing our power plant replacement program in 2013 and 2014. The longer term CapEx level will be in the range of EUR3 billion to EUR4 billion. Our day-to-day investments will be between EUR2 billion to EUR2.5 billion per annum. Nearly half of this is dedicated to our electricity and gas grids. The focus of our discretionary investment projects will remain on renewables, mainly onshore and offshore wind.

Outside the traditional utility business, our Upstream Gas and oil activities will continue to require significant CapEx. As we have much less financial headroom we will concentrate even more on so called asset life growth projects. Let me give you some examples from our German and Central, Eastern and Southeastern European downstream activities. The focus in our German Sales & Distribution division outside the traditional grid business will be on energy services. The German in a given day presents ample opportunities in this field.

For example, there are estimates that the centralized CHP generation will grow by 5 to 6 gigawatts to approximately 10 gigawatts over the next 10 years. Projects in this area typically provide an IRR slightly below 8%, with a limited risk profile. In addition, we are developing new products and solutions, partly in close cooperation with our local municipal partners, for example, for complete energy concepts. For the coming years, we have a CapEx budget of approximately EUR100 million per annum for such growth projects. In combination with our investments in the grid business and our efficiency program medium-term we see for the division the chance for moderate earnings growth in the magnitude of approximately 3% per annum from a stable regulated earnings base.

In our CEE/SEE division, we concentrate on downstream activities in addition to our grid investments. Over the last couple of years, we established significant market positions in either gas or electricity. The next step will be to leverage on these positions by offering to respective other fuel and entering additional markets. In the Czech Republic, for example, we are the market leader in the gas market. From this starting point, we have already gained approximately 170,000 electricity customers to whom we provided 1.6 terabyte hours of electricity in 2012.

Slide 13 gives you more insight to our strategic targets for the other CES/SEE regions.

Ladies and gentlemen, the environment for conventional generators is tough and further deteriorating. But to start on Slide 14 with the positive aspects, the current situation proves that we have followed the right strategy in three aspects. As previously stated, first, it pays to have a broad generation mix, which offers a well-diversified risk profile. Second, it was the right time to set up a combined European generation company. The challenges that we are facing are unique, structural and Europe-wide. Therefore, it's much easier to work on development countermeasures from one platform rather than from three different countries.

Third, our investments to make our plants more flexible worldwide. Nevertheless, the slide shows that we are facing an alarming situation. Only about 50% to 60% of our plants still cover their cost of capital, while some 20% to 30% show a negative cash balance at current market conditions. This clearly is not acceptable. Our prime target for our generation activities is to solve the issue of those cash negative plants. Our current efficiency program is already a step in this direction.

Out of a total EUR1 billion for the RWE Group, by 2014, approximately EUR0.2 billion will be realized in a new generation company, and further measures are already in preparation. This includes plant by plant specific actions to turn them cash flow neutral or cash flow positive. Measures up twofold, improve the cash inflow and reduce the cash outflow.

Slide 15, gives you an overview of what we are currently working on. Let's take, as an example, Gersteinwerk, an old gas fired power plant which we have in Germany. Last year, we temporarily mothballed the steam turbines of two units with 355 megawatt each from April to September and we will do the same in this year. In addition, one block is in constant cold reserve. With this and with a new operational regime, we were able to lower the cash costs by a high single-digit million euro amount.

Last December, when the amount was high and renewables more or less not available, the plant was needed and generated cash. Over the next couple of months we will thoroughly investigate the cost structure and further optimization potential of each individual unit. We will identify the avoidable cash costs and in cases where the achievable margins will be sustainably below the avoidable cash costs, we will shut down the plants. It's also obvious that under prevailing market conditions additional conventional newbuild projects will certainly not be undertaken.

While most of the measures in our new generation platform are still being identified, we are on track with the implementation of our current efficiency program. In contrast to the factors driving the current difficult environment for utilities which are beyond our control efficiency enhancements are one of the important counter measures which are within our control. We finalized the old EUR1.5 billion efficiency program last year. On top of that we already have early results from our new program. The EUR200 million we achieve in 2012 is partly driven by quicker staff reductions, mainly in our German businesses. Out of the total planned headcount reduction of approximately 3,700 roughly 1,000 were already realized in 2012. The achievements with our new program were also one of the main reasons why earnings in 2012 came out better than originally expected.

Slide 17 gives you some information about where the efficiency improvements are coming from. 13% of the new program will be coming from the German supply and distribution business. It includes mainly non-regulated business. In our sales business, we are working on improvements by bundling functions. In the grid business, we will further optimize our operating costs. But efficiency measures are not only focusing on plain cost reductions. We want to improve our earnings situation with new products as well. The German (in a given day) provides chances for this and we want to be the partner of choice in this respect.

With regard to conventional power generation, I just explained what we are working on. In our U.K. as well as Trading/Gas Midstream division, IT optimization and further automation play an important role. As a result, especially in our U.K. business significant headcount reduction is envisaged.

Slide 18 shows our outlook for 2013. The current expectations for the three main earning figures confirm the outlook that we gave one year ago. Thanks to our conservative hedging strategy, we feel quite comfortable with this outlook as to margins in our generation business are already locked in. The biggest variable is still the settlement of the gas contract price review with Gazprom that we expect to conclude in the first half of this year.

Again, our guidance is after expected disposals, which is mainly the sale of our Czech gas transport business NET4GAS. As mentioned earlier, please understand that against the backdrop of an increasingly volatile business environment, we had refrained from giving an explicit long-term or longer term guidance. We will update you in November with our complete expectations for 2014. By then, we will have more clarity about our business activities.

But during my presentation, I explained the trends that we can see and Bernhard will mention further aspects in a minute. So, it will be obvious that earnings will not match the 2013 level.

Let me conclude my part by briefly summarizing the major aspects. We have talked a lot about the tough environment. We are aware of the situation and respond with our three steps. Our prime target is to reach a balance budget and return to a leverage of 3.0 times EBITDA under the precondition of value enhancement (harder than speed).

We strongly believe that this is the best way to bring RWE back on track for attractive play for investors. Against this backdrop, we have happy to confirm our outlook for 2013.

With this, I would like to hand over to Bernhard.

Dr. Bernhard Gunther - Member of Executive Board: Thank you, Peter, and good afternoon from me as well. As we provided you with our annual report and the presentation material early this morning, I assume it will be in your interest to concentrate on the main issues which then gives us more time for your questions.

Let me start with the operational performance on Slide 21. The operating result was up by EUR600 million, an increase of 10%. This was mainly driven by improved earnings in our Germany generation business unit after the one-off burdens we faced in 2011 from the nuclear exit. Furthermore, we felt the positive effect from the start of our new lignite fired power plant in Neurath.

The Trading/Gas Midstream division recovered by approximately EUR200 million. The energy trading activities showed a healthy and strong performance. Furthermore, we were able to settle several oil index gas contract reviews.

Looking at the major value drivers on the right hand side of the slide, our efficiency programs explain approximately EUR600 million of the earnings improvement. Out of this, approximately EUR200 million were already early achievements from the EUR1 billion program until 2014. Further positive earnings came from higher grid and sales margins. RWE Dea did quite well due to higher oil prices and a stronger U.S. dollar. However, depreciation increased by EUR300 million as a result of our huge investment program over the last couple of years.

Electricity generation margins came down by some EUR100 million. We were able to offset the decline of electricity prices and spreads to a larger extent. This was especially due to the positive volume effects mainly from the start of the commercial operation for our new lignite plant BoA 2&3. As a consequence of our disposal program we lost an operating result of approximately EUR100 million mainly from the deconsolidation of Amprion in the third quarter of 2011.

Let's have a look on our earning numbers, down to net income on Slide 22. The non-operating result is dominated by the value adjustment of EUR1.7 billion for our Dutch generation portfolio. The strong growth of renewable capacity in Germany depresses electricity prices and generation spreads in our neighboring countries. There was no need for additional goodwill impairments. The outcome and the sensitivity of our impairment tests to the market parameters are shown on Pages 155 to 156 of the Annual Report.

Summing up all the value adjustments we have undertaken since 2010 we reached a total of approximately EUR2.5 billion for our Dutch portfolio. The deteriorated environment is therefore reflected in the current valuation. Our financial result declined by about EUR460 million driven by an increase in the interest accretion to non-current provisions and the higher average net financial liabilities. The first aspect relates mainly to the adjustment of the net present value of other long-term provisions as a result of lower discount rates.

Furthermore, net interest in 2011 benefited from the release of a provision made in relation to renewables fund, which ceased to exist following the nuclear phase-out decision. The effective tax rate was 24% or 4 percentage points lower compared to fiscal year 2011. The main reason for the low tax rate is tax free book gains from disposables and one-off effects resulting from deferred taxes. We have adjusted for these one-off effects in the determination of recurrent net income resulting in adjusted tax rate of 34%. As a result of the aforementioned earnings trends recurrent net income reaches EUR2.5 billion on a par with last year.

Before I turn to the development of net debt with Slide 24, I would like to briefly introduce to you the changes in the reporting of our hedge position on Slide 23. This is a result of the new conventional power generation division. We were used to the reporting of the volumes for the German portfolio across all technologies nuclear, lignite, hard coal and gas. With the establishment of the division, we have increased the transparency by providing a split between the so called outright and spread positions of our conventional power portfolio.

Outright includes our nuclear and lignite capacity. One has to admit that with regards to its carbon price dependency lignite could also be considered a spread position. However, due to its dispatch features, it fits more into the outright position. Generally we hedge the mix of a generation volumes forward driven by market liquidity. On the continent, we typically start hedging three years before delivery and in the U.K. typically two years in advance. We follow a hedging strategy which aims at hedging all technologies in parallel. Due to possible limited market liquidity for single commodities, the actual hedging may deviate from parallel hedging. If we see market signals that indicate specifics or opportunities, we adjust our hedge strategy accordingly, but generally we follow trading ideas within our prop trading activities, not within our generation activities.

Let's get back to the fiscal year numbers on Slide 24. As Peter mentioned earlier, we will stick to our leverage target of 3.0, midterm. We reached a level of 3.5 times in 2011 and stayed on this level in 2012. The outlook for 2013 is similar assuming no further changes in interest and discount rates. In the current market environment, a leverage factor of 3.5 times is well accepted by the market and gives us excellent access to the capital market at very attractive conditions. The recent issuance of bonds and private placements underpins this. However, that does not mean that we do not work hard to achieve our 3.0 target midterm, but Slide 24 shows that net debt was strongly influenced by the change from provisions.

Due to the decline of interest rates, domestic discount rates for example came down in 2012 from 5.25% to 3.5%. As a result of this non-cash accounting item, our net debt increased by approximately EUR3 billion. This should be judged differently to the change of net financial debt which remained stable.

The market trend for interest rate is beyond our control. It can change quickly in the other direction as well and should not affect the Company's strategy. In other words, if we hadn't had the change in discount rates, our net debt would have stayed about EUR30 billion corresponding to a leverage factor of approximately 3.2 times, a good way to our target.

Our cash flow from operating activities declined by approximately EUR1.1 billion to EUR4.4 billion. It is thus non-reflective of the positive earnings development. One reason is the change in market value of our commodity derivatives which led to earnings improvements but not yet to cash flows. Furthermore, we have negative implications from changes in working capital, which as you know, is always volatile and subject to timing differences between cash and earnings profiles. More details can be found on our backup chart 41 and in the annual report on page 78.

Let me now come to the divisional outlook on Slide 25. Since the beginning of this year, the new group structure has been in place. Our conventional power generation activities are now within one division and in the Netherlands and in U.K. we show the supply activities separately. Therefore, we have provided you with pro forma 2012 numbers to give you our outlook based on the new group structure. Please note that we will provide you with the quarterly pro forma 2012 number a few weeks in advance of the publication of the quarterly reports, which should help you to work on your quarterly forecasts.

Why we see a stable or even a slightly positive development in our downstream activities, our conventional power generation business in particular will fall significantly below the previous year for the reasons explained earlier. However, we expect positive one-offs from the settlement of the last outstanding gas price review in the first half of this year, which together with the achieved settlements of the last years should improve the earning situation of our Trading/Gas Midstream division significantly.

Our Central Eastern Europe, Southern Eastern Europe division will be significantly down mainly due to the expected disposal of our gas transport operator NET4GAS, but even excluding this effect, there is pressure on earnings especially because of additional burdens from the tough political environment in Hungary.

For RWE Energy and RWE Dea, we have additional longer term targets for 2014. For RWE Dea, we can confirm the target to increase production volumes of hydrocarbons to more than 40 million barrel oil equivalents compared to approximately 31 million in 2012. This should be in line with an operating result in the order of EUR800 million.

Unfortunately, the 2014 target for RWE Energy cannot be maintained. There are three reasons for this. First, the reduced CapEx program for the group as a whole would also impact RWE Energy. Although, we expect to spend CapEx in the magnitude of approximately EUR2 billion in the next three years, this is much lower than originally planned. As a result, RWE Innogy will not be able to reach its old 2014 targets of approximately 4.5 gigawatt of installed capacity in operation or under construction. We know expect RWE Innogy to operate approximately 3.5 gigawatts of renewable capacity by the end of 2014.

Consequently the target for operating result has to be adjusted down as well. Second, the 2014 operating results target of EUR500 million included a significant contribution from our German offshore wind farm Nordsee Ost. Due to the considerable delay with grid connection, the first feed-in of electricity is not expected before mid-2014 which clearly leads to a negative impact on 2014 earnings. This is before any compensation payments, as it is not yet clear how much and when we will receive compensation for lost earnings by the delays.

And third, parts of our renewable generation capacity is not eligible to receive fixed feed-in tariff and hence are affected by reduced market prices. To sum up, RWE Innogy's operating results in 2014 is now expected to exceed $300 million excluding any compensation payments for the delayed quit connection for Nordsee Ost.

Slide 26, gives you the major value drivers for the development of our earnings in 2013. Our efficiency improvement are substantial, but will not be able match the pressure on operating earnings especially from the full auctioning of carbon certificates and the decline in generation margins.

Nevertheless and as previously mentioned, we do expect a strong relief in our Trading/Gas Midstream division once the last outstanding oil indexed gas contract price revision is settled. The disposal program is expected to lead to an earnings dilution of approximately EUR200 million, depending on the disposal timing of natural gas.

Let me conclude my remarks with a few comments on some value drivers below the EBITDA line. Although our CapEx program will come down significantly, we will see an increase in depreciation over the coming years with our new projects coming on stream. From today's point of view, we expect depreciation in the order of EUR3.1 billion in 2013 growing to a level in the order of EUR3.6 billion by 2015. Assuming no further changes in discount rates the financial result should on the one hand benefit from the absence of one-off burdens from the adjustment of the net present value of other long-term provisions in 2012. On the other hand, there is a slight negative effect from interest accretion to pension provisions.

While the decline in discount rates and the expected return on plan assets are offsetting each other to some extent, the amount of pension provisions as the basis for the interest accretion has increased from EUR3.8 billion to EUR6.8 billion. Under this assumption and from today's point of view the financial result is expected to be in the order of EUR1.9 billion for 2013. Our underlying tax rate is expected to grow medium-term as a result of a higher relative contribution of RWE Dea to our pretax profits. Tax rates are typically higher for upstream companies.

With this, I would like to start the Q&A session.

Dr. Stephan Lowis - VP, IR: Thank you, Bernhard. Thank you, Peter, and with this I would like to remind all of you to our/my favorite two question rule only, and please, operator the first question, please.

Transcript Call Date 03/05/2013

Operator: Patrick Hummel, UBS.

Patrick Hummel - UBS: Two questions please. First one is regarding your 2013 guidance. I'm basically taking the Page 26 earnings bridge and trying a bit to reverse engineer it in regards to the Gas Midstream business. If I take all the other drivers together, it suggests that you expect the swing of give and take EUR1 billion in the Gas Midstream, so you had a loss of EUR600 million in that division in 2012. Is the EUR600 million the right order of magnitude and if so how much in that you would consider one-off namely related to the Gazprom payment and what's the impact on 2014, I guess we should take that down by several hundred million? The second question is the 20% to 30% of your generation capacity that you consider burning cash you say basically that you're going to address this was cost savings. You haven't really mentioned large plant closures at least not to a significant extent. Is it that you refrain from plant closures, because you think it will not have any meaningful impact on power prices or are you expecting any kind of additional capacity payments going forward or why are you focusing on cutting costs rather than just closing the capacity?

Peter Terium - CEO: Maybe I can answer your first question with regards to what's happening in Midstream and Gas Midstream in 2013, what has happened in 2012 and what will happen in 2014 and the years beyond, please bear with me that we continue our communication policy of not giving you any precise numbers. The only thing we can say is there is a significant one-off in 2013 and if you would compare 2014 to 2012 of course, there would be a level shift with all the gas contracts being rebaselined pricing wise which also would be significant.

Dr. Bernhard Gunther - Member of Executive Board: Let me then come to the 20% to 30% of our plant portfolio which is cash negative as per today. Surely, the first aim is to make them cash positive and this is not done by banking on a market regime which is, 3, 4 or 5 years away, so this is real short-term, hands on measures. Reducing cash out and improving cash in, and I think that's the first option that you need to pursue. Any plant closure costs money immediately, but only write off would also cash out for closures. So, we first try to improve the cash balance, before we decide on future plant closures. Future plant closures or immediate plant closures, always need to be in line with the cash position of that individual plant, disclosing simply plants for the benefit of creating scarcity in the market and driving the price up of something, if it is immediately in a very unpleasant debate with the Cartel Offices, so it has to be done on a plant by plant basis, and we first improve before we close.

Operator: Benjamin Leyre, Exane BNP Paribas.

Benjamin Leyre - Exane BNP Paribas: First question will be on debt please. I wonder if three times that factor is still the right benchmark once Dea is disbursed because Dea is arguably more risky, and maybe if you could leave with a higher than three times debt factor after the disposal of Dea. Perhaps also on the (second to peak) on the lignite, I actually wonder if you hear from your contacts with the politicians at the moment any discussion about potentially lignite extraction tax or any kind of claw back that could affect your lignite activities in Germany?

Dr. Bernhard Gunther - Member of Executive Board: Maybe on the 3.0 times EBITDA debt target, we fully support your perspective that post disposal of Dea there should be some effect on a like-for-like basis on our debt bearing capability and our rating KPIs and we sincerely invite you to communicate this view also to the rating agencies because it's ultimately them who will recognize it.

Peter Terium - CEO: Your second question, (indiscernible), it's basically on a potential lignite tax. One needs to keep in mind that while lignite there are three elements of the discussion. One is the environmental element, CO2 emissions which is clearly critical. Two other elements are on security of supply for which lignite is a local resource which is available, always available and the third one is on the affordability of energy for which lignite is low cost option as well. The discussion currently in Germany focuses slightly more and more and affordability and security of supply. I am not saying that I feel comfortable with the discussion around lignite tax. I'm just saying that there are opposite (power works) as well. Secondly, we've looked at this from a (indiscernible) perspective. It's not that easy to implement a lignite tax as such. It would be a discriminatory tax. So, there would be legal levers to protest against that and if you would put a kind of a concession on lignite because it is a resource that comes out of the own soil then it would be difficult to differentiate lignite from oil and gas because that would be a similar treatment. So, never be feel comfortable in our business, but I'm not that nervous at this moment in time around the lignite tax.

Operator: Chris Kuplent, Bank of America.

Christopher Kuplent - Bank of America: Let me start with my first two questions for today. Firstly, on cost cutting, I'm a little bit confused. Previously, you had targeted EUR750 million uplift in 2013 versus '12 if I get that right and yet you have – again, if I understood your previous communication, targeted EUR600 million in 2012. So, it looks to me like EUR200 million are missing. So, if you just could shed some light on that, that would be great or simply confirm that, where are you going from 2012? Is it plus EUR800 million now into 2014 or still plus EUR1 billion? Secondly, I guess, my question is on disposals. The EUR2 billion of assets that you've disposed of in the last 12 months, I guess, can you let us know how much EBITDA they generated in 2012 or how much you expected them to generate in 2013 in order to make a little more sense of your 2013 guidance pre/post disposals?

Dr. Bernhard Gunther - Member of Executive Board: Hi, Chris. Maybe I start with the cost cutting question. I think the one thing which has changed from our previous communication is that we have prematurely delivered on some of our cost savings targeted until 2014 already in 2012 earlier than anticipated, for example, by not filling vacancies which have appeared in 2012 because we had a view that we would have to be more rigorous on costs. So, this is basically time shift between – from 2013 into 2012 and from the original number of EUR750 million targeted for '13 which is now down to EUR550 million and EUR200 million were already delivered in 2012. This is one of the reasons why our 2012 operating result was above our guidance. The other part of the EUR600 million for 2012 which you are looking for is the old program, the 2006 program which delivered its last EUR400 million in 2012. So, we have in 2012 overall EUR600 million out of which EUR400 million old and EUR200 million new program. So, this beats the final or the residual number to be delivered in terms of efficiency enhancements until end of 2014 at EUR800 million which sums up to the over EUR1 billion as communicated before.

Christopher Kuplent - Bank of America: I understood that, that's good. I just mixed up your message previously suggesting that 2012 under the old program you would get EUR1.5 billion versus I think it was EUR900 million in 2011, but I'll take your answer. That's great.

Dr. Stephan Lowis - VP, IR: Chris, we had a bad line, can you just repeat the second one, because I thought you were asking about the dilution on EBITDA of the EUR2.1 billion disposal effect, is that right?

Christopher Kuplent - Bank of America: Yes, that would be my first question. And my second question I guess linked to that, I'm trying to understand comparing your previous 2013 guidance which you gave pre and post-disposals with your updated one today, so I guess I'm trying to understand what your assumptions are for the deconsolidation of NET4GAS in 2013? You obviously gave us very helpfully the full-year contributions for NET4GAS but your new 2013 guidance I'm assuming does not fully assume deconsolidation of that entire number?

Peter Terium - CEO: Yes. To answer your second first question which was on the EBITDA effects of the disposal program, it was so for 2013 of the objects which had been disposed before. It's roughly EUR100 million. You know that many of the disposals were non-cash generating at the time we sold them, like Edward Grieg, like Horizon Nuclear Power in the U.K. On NET4Gas please bear with me that we won't comment on any details of the timing but for valuation purposes it might be fair to assume a half year effect for your models.

Operator: Bobby Chada, Morgan Stanley.

Bobby Chada - Morgan Stanley: My first question is about the CapEx guidance that you have given. You say 95% of the current year CapEx is committed. But if we go back to this time last year, you were forecasting around EUR6 billion of CapEx which was pretty much fully committed and you came in with just over EUR5 billion. So how did – what's the definition of committed CapEx? Can we be sure that EUR5 billion is really a hard number or could it come in lower? Then secondly on the impairments, I think you have said in your remarks that the impairments you've taken so far fully reflect current business conditions. It seems there isn't any write-down for CCGTs built in the U.K. or Germany, or indeed any deterioration in the value you might expect from some of the other types of generation you've built. Is it fair to assume there is some recovery built into your impairment tests or do you really think you fully impaired the assets on a mark-to-market basis?

Dr. Bernhard Gunther - Member of Executive Board: First to start with your question around CapEx, how much is committed and how do the numbers then matchup with the – or the previous statement on how much is committed with the actual forecast. So, I would be happy to acclaim it as a heroic deed of the new CFO that we slashed CapEx ruthlessly, I think it's the main reason is simply delays, and therefore, yes, we spend less, but it's not reducing the overall program yet. Although of course, we're stepping onto the break heavily for everything, which is discretionary going forward. On impairments, I think Bob you read at least two questions. One was about, Bob, if you have an asset impairment in the Netherlands, what about the U.K. and Germany, and to what extent is recovery built into that? To start with the second part of the question and just a high level answer. Of course, into an impairment test we have to include market price assumptions beyond the next two or three years, and we do not assume market prices to stay rock bottom flat throughout the next 20 years, although we have become much more cautious on any kind of recovery, that's the reason why we now did the Dutch impairment in Q4, 2012. Why haven't we done or why don't we see anything offer same nature for Germany and the U.K, that's a pretty simple reason. In Germany, if you look at for example, new build CCGT, or time them in a similar situation to the Netherlands, not exactly the same but a similar one, but you know that we do our impairments tests on a fleet basis or the whole generation fleet for a respective market in Germany and the Netherlands, and in Germany, the German new build power plants with high asset values are benefitting from the profit shield of largely depreciated nuclear and lignite assets. Therefore the overall fleet is not impaired, and in the U.K., you must bear in mind that there is a difference that we will have a different market situation post LCPD when much of the coal has been switched off and we are very confident that gas-fired power plants, new gas-fired power plants will contribute much higher load hours post 2015, because it's just physically needed to keep the lights from going out.

Operator: Martin Young, Nomura.

Martin Young - Nomura: My first question, kind of picks up on your comment there about the U.K., could you share your thoughts on the outlook for your hard coal and your biomass plant in the U.K. for the next couple of years, because they generated quite significant volumes in 2012, which I guess is not going to be the case on an ongoing basis, at least not in the next couple of years. Then the second question gets back to the issue of the Netherlands. Could you give us the actual value that you are placing on the Dutch generation portfolio and what I presume is a positive impact on depreciation going forwards, what is that?

Peter Terium - CEO: Let me start with the first question, Martin. If I understood it correctly, I mean, under the current prevailing regime in the U.K. it is useful to convert hard coal stations into biomass. We are planning to do so in Tilbury. That planning is not let to a final decision yet. I think one of the elements going forward will be that if we would do so, it is a kind of cluster risk that were creating there. So, one of the decision points would be to find a partner which will enter into that risk together with us. But so far from a market view under the regime which is just implemented there, we see good value in converting Tilbury in this case, if that's the one you're referring to into biomass. I think that's a useful thing.

Martin Young - Nomura: What type of output so are you expecting though for the next few years from Tilbury and indeed the hard coal plant that you have because presumably some of this such as Didcot is going to meet the end of its days and Tilbury, unless it's relicensed will meet the end of its days as well?

Dr. Bernhard Gunther - Member of Executive Board: No. We're not considering Didcot, we are talking about Tilbury and that would need a clear investment to bring the plant up to a level to operate them biomass for a future of at least a number of years and we are considering that investment, but that's not been finally decided yet.

Martin Young - Nomura: I appreciate that, but all I'm trying to get at is what type of output should we be looking at in the U.K. say in 2013 and 2014 from the hard coal facilities that you have and indeed Tilbury, because some of these are not going to be able to operate going forward, are they?

Dr. Bernhard Gunther - Member of Executive Board: Martin, I think, if I get your answer question right, this quarter's will end in end of March due to the LCPD hours and Tilbury has roughly six months left. So, in terms of running hours, so I guess that is the timeframe you're looking for and in that timeframe, we have to make a decision, yeah.

Dr. Bernhard Gunther - Member of Executive Board: The decision we still believe, will have to be done by May, June of this year, mid of the year, more or less.

Martin Young - Nomura: In the Netherlands?

Dr. Bernhard Gunther - Member of Executive Board: So, in the Netherlands, of course, this is well supported. The impairment should have and does have an effect on future depreciation. We expect it to be in the order of magnitude of EUR60 million to EUR70 million per annum.

Martin Young - Nomura: What value are you putting on the Netherlands now? Are you able to disclose that?

Dr. Bernhard Gunther - Member of Executive Board: No, sorry.

Operator: Peter Bisztyga, Barclays.

Peter Bisztyga - Barclays Capital: Two questions from me. Firstly, just one on the dividends, your dividend payout ratio is sort of right at the bottom end of your 50% to 60% range. Clearly, you've indicated that earnings will decline beyond 2013. Would you expect to keep the dividend payout at the bottom end of that range or would you increase the payout to compensate? Then my second question is there were some stories towards the end of last year that you'd failed to reach a framework agreement for your German union negotiations. Can you just give us an update on what's happening there and whether that has had any impact on your ability to deliver headcount reductions on a share deal?

Dr. Bernhard Gunther - Member of Executive Board: Hello Peter. Let me start with the dividend before Peter chips in on the union talks. I mean the very purpose of the payout ratio range we have committed to is to have some flexibility, so therefore I would not muse about any future use of this flexibility for years to come and the reason that in 2013 for the 2012 dividend we came out at the lower end of the range is correctly because we see that earning profile, earnings profile deteriorating over the next couple of years.

Peter Terium - CEO: And on the framework agreement with the labor unions, I can say that we are very close to finally signing off. We have reached agreement but trouble is for the last wording in the contract to be done, but I expect the signing to be done in the next weeks or so. That will give us an increase in labor costs in 2013 that helps us stay within the guidance and I think it's a moderate agreement also for the year 2014. As far as flexibility is concerned, we've diligently looked at that. It allows us to execute the headcount reduction programs within the cornerstones of the agreement.

Operator: Vincent Gilles, Credit Suisse.

Vincent Gilles - Credit Suisse: I just want to bounce back on the question that was just asked on the dividend payout, is the 50% to 60% commitment, just the commitment in '13, or should we assume that this is going beyond 2013? And apology if you've already answered that question, but I was not on the line all the time. That's my first question. My second question is implied by the first question which is – given that on the base of what you are talking about as this sort of future earnings and the CapEx dried before it really goes down, and if you want to stay within 3 to 3.5 times net debt to EBITDA, isn’t paying such a high dividend a luxury you cannot really afford? Shouldn't you consider cutting your dividend more forcefully in the near future?

Peter Terium - CEO: Well let me start with the first question and you will probably get the same answer in a slightly different accent. The 50% to 60% is a bandwidth that we have established quite some years ago. It was not specifically linked or pinpointed to one year nor did it have a validation date. As far as we're concerned it is an ongoing commitment but it is not cast in stone. So the proper answer would be until further notice, but I don't see a notice coming up on Horizon at least not so far yet.

Vincent Gilles - Credit Suisse: So paying that level is not a luxury given the level of debt and the prospects for earnings in the future?

Peter Terium - CEO: Well there are different views on that. It really depends on who you ask. I mean if you look at the capital debt markets, they feel comfortable with the level of debt at least that is normal in time considering the interest rates at which we can put bonds out. If you look at our shareholder structure it's not only about the local communal shareholders, but we have quite a lot of value investors for whom dividend and a dividend continuity and a dividend yield is a very important element. So insofar all in all I don't see paying out dividend as a unnecessary luxury.

Operator: Andreas Thielen, MainFirst.

Andreas Thielen - MainFirst: Firstly I had like to understand the outlook for the utilization of the gas plants going forward. You talked a lot about the reduced load factors. If I look on the load factors in Q4, I mean, excluding U.K. that suggests something like 20% and I just wonder if that could be seen as a guidance for the load factors going forward in the current environment or should we expect that to come down further given the rather negative margins, which we have in the spark spreads? Secondly, with respect to the CapEx guidance, firstly, I would like to understand the EUR13 billion/EUR1.9 billion for oil and gas does that assume that is the disposal of Dea built in there already? Second part to that question is the EUR13 million, Dr. Bernhard talked earlier about a spillover from the EUR6 billion in '12 into '13, is that reflected in that or should we add another EUR1 billion?

Dr. Bernhard Gunther - Member of Executive Board: Let me start with utilization of gas plants. Utilization factor as such is not a purpose on its own. We look at cash flow and operational income breakeven. So, so far with some of the gas plants it is clearly possible also at a low utilization rate to still have a positive cash flow and it will continue to operate at gas plant. Example on this is, if we do a mothballing throughout the months of April until November and we keep to plant up and running in the winter season, we certainly need to accommodate the workforce, but a lot of other OpEx elements to be in line with that, and certainly that gas plant would not up and earnings its full cost of capital, but it certainly would be a gas plant that we continue to operate further on. So, the 20% that you've mentioned you cannot extrapolate that, because we will have other, maybe even old gas plants that will be possibly taken out of duty, but even at lower utilization, we'll still continue to run some of the plants if they're cash positive.

Andreas Thielen - MainFirst: I'm clear that is only a helping tool, but just in reality, I'd rather want to understand from the negative spreads we currently, do you see, that overall generation for gas plants continues to go down versus 2012 or are we already at a low point?

Peter Terium - CEO: Well, that depends on the development of electricity price and the gas price and then adjusted for CO2 rights and then if you take the element of efficiency of the respective plant into account as well, then you can give an answer to the question. What I'm saying is, you can't have a simple standard development of your clean spark spreads and we've already mentioned that, specifically the plants that have a high efficiency do not necessarily have a negative clean spark spread, the clean spark spread as such is an average spread, which is not attributable to the whole of the fleet.

Dr. Bernhard Gunther - Member of Executive Board: With regards to the CapEx profile, I think you can see on Slide 12, that in the numbers we gave in the EUR13 billion for the next two or three years including '13, the Dea numbers are included and the rough cut CapEx budget for Dea as we planned is roughly some EUR3 billion.

Dr. Stephan Lowis - VP, IR: The spillover effect is also included, if that was the remaining part of your question.

Operator: Vincent de Blic, JPMorgan.

Vincent de Blic - JPMorgan: The first question is just a follow-up on CapEx. In the EUR3 billion to EUR4 billion of sustainable CapEx long-term, I presume you still include Dea. Could you quantify how much you have (in this time though), and also if you sell completely out of Dea, whether you will redeploy this CapEx saving elsewhere or just going to spend less in total? The second question was also on Dea. You've tried to sell non-developed resources for some time, just today's announcement indicate that you've made some good progress and are more confident now to be able to reach a deal in the next few quarters or do you still see some (indiscernible) in particular, I guess in Egypt and Libya as difficult to market in the current environment?

Dr. Bernhard Gunther - Member of Executive Board: Maybe to start on the CapEx numbers given like all the other numbers given in our today's presentation. This is still including Dea. So, the numbers you see on Page 12 also in the annual profile to still include Dea and as you can infer from the answer I gave to the previous question is roughly EUR1 billion on an annual basis, which would be out and we would not intend to spend it somewhere else to be very precise. The part of our CapEx discipline, of course, is to not spend it again.

Peter Terium - CEO: On the second question on Dea, you can certainly take out of the wording of our ad hoc that we will be evaluating options which starting a process and in light of that process, we are not commenting on our few or our evaluation of individual elements or individual parts of that conglomerate, and as it says in the ad hoc we are looking at selling all the Dea, which can be done in various means and we are evaluating the most proper one on that. I mean this is a last comment I'd say this has been a process, which has gone through a very strong evaluation in the last let's say six months or so and it has not been quite of an overnight decision, which we recklessly came to. So, we've certainly looked at Dea and its individual assets before we entered into this decision.

Operator: (Amit Farman), Redburn.

Amit Farman - Redburn: Could you provide some color on the levers you can pull to strengthen your balance sheet if the power price falls by another EUR4, sort of EUR4 to EUR5 per megawatt hour? My second question is on the timing of the renegotiation of the gas contract. Is there any risk that it can sort of slip to the second half of this year or is – are you really confident on H1 this year?

Peter Terium - CEO: So, on your first question, the levers to any further drop in power prices are the same as we have at our discretion right now. So, it's efficiency enhancements/cost-cutting. It's CapEx discipline. It's the divestment profile that we have. These plans are not contingent on a particular level of power prices. On the gas price renegotiations, if you ask me, is there risk? Yes, of course, I cannot exclude it. It's an arbitration tribunal that's like a court case. The gentleman sitting on the jury won't follow instructions by the two parties, by the claimant and the defendant. Are we confident that we will get it in the first half? Yes. Or two, because we have strong indications from the tribunal that they want to get it solved within the next couple of months.

Operator: Deborah Wilkens, Goldman Sachs.

Deborah Wilkens - Goldman Sachs: I was hoping you could help with setting out what you expectations are for the EU and or just German policy around current prices? And if you could also just remind us how you are prepared for rising carbon price?

Peter Terium - CEO: I mean we are currently discussing intensively with the German government directly and indirectly also by the various trade associations what would be a potential future design for the power price – sorry for the industrial market. That has several levers EEG and bringing EEG close to market is one. Certainly a second one is the ETS, developments on the ETS, and the third one is what kind of regime will need to be brought in place in order to have security of supply on a longer term safeguard. These are three distinct items that correspond with each other or correlate to each other and all of them we are currently discussing. On the ETS, we have clearly stipulated out our position. We believe the ETS is a functioning system, the fact that CO2 prices are at all times low right now just confirm that it works, because we've seen staggering economical growth and 90% of the price developed, obviously are two prices that's related to that and not to a malfunctioning of the system. So, if you don't like the outcome don't criticize the system but criticize the input into the system is our device and that has to do with targets for (2030), a relationship to the development of the number of certificates being brought into the market and that last but not least a kind of back loading but only in connection with the first two items and see to prices good rise to different level. How we are going to react to that or what is our impact to that, what I have said one year ago, two years ago and three years ago, we have a robust portfolio with various technologies in there. Maybe lignite will be slightly less profitable and on the other hand gas will be further in the money. It's been the aim of the game since quite a few years and that's the result of our investment program.

Operator: Peter Bisztyga, Barclays Capital.

Peter Bisztyga - Barclays Capital: Just a follow-up from me on that CO2 point. Given your hedging position for 2014 and 2015, I would presume most of your nuclear output is hedged for those two years. Could you give us an indication therefore whether earnings in those years would be positively or negatively impacted by a rise in CO2 prices?

Dr. Bernhard Gunther - Member of Executive Board: By and large, Peter, we are carbon neutral in our overall position. We have built a strategic carbon long position a couple of years ago and this basically delivers the carbon neutral profile of ours. So the overall earnings effect would be negligible as long as we are talking about normal price rises.

Dr. Stephan Lowis - VP, IR: Please understand, Peter that we don't get our – time specific CO2 position for our portfolio which is, let's say, the implicit question you're asking for. So we're not saying in March, we are CO2 long and in May we are even longer or shorter whatever, that would be too complicated also, to backtrack these kind of things.

Operator: Patrick Hummel, UBS.

Patrick Hummel - UBS: Just two follow-ups please. To double check the CapEx number on Dea on Slide 12, you say EUR1.9 billion, in the year '13 to '15 is earmarked to oil and gas projects, you just said before that CapEx will drop by EUR1 billion excluding Dea, is the remainder just day-by-day CapEx or am I missing something else there?

Peter Terium - CEO: No, you're right. Spot on. That's day-to-day.

Patrick Hummel - UBS: So, basically then post Dea, we can really talk about EUR2.5 billion CapEx in 2015?

Peter Terium - CEO: Yeah, EUR3 billion overall for the three years, including both day-to-day and discretionary spending.

Patrick Hummel - UBS: Second one, you were mentioning that you're looking for further optimization of your portfolio in the sense that you might set minority stakes, is there any guidance you can give us how much net income dilution that could bring?

Peter Terium - CEO: Yeah No, so far its natural gas and that's it. We won't comment on anything else.

Patrick Hummel - UBS: Okay, but I got you right that you're still looking at, for example, in the renewables business that you might sell stakes in your assets, which of course would have a certain earnings impact, is that fair to say?

Peter Terium - CEO: Yes, that's fair to say. We are looking at these options and we will report them once they have materialized.

Operator: Andreas Thielen, MainFirst.

Andreas Thielen - MainFirst: Just one further question on the EUR200 million in the savings program you linked to the new generation company. Would it be fair to say that this is just, call it, first part of the potential savings you expect from that strategic shift there or from the transition and if so, is there any indication, would it be 50% or whatever?

Peter Terium - CEO: First part, you're absolutely right. The EUR200 million has been the first immediate quick win which we included, and we are working on a further program which is already progressing pretty well. Second part, I'm not going to give you an indication right now on that number, but it certainly is not insignificant.

Operator: Alberto Ponti, Societe Generale.

Alberto Ponti - Societe Generale: I have two questions. One was, if you could give us a sort of an EBITDA margin for supply of electricity and gas in the U.K. and in the Netherlands. The second question is, how did you actually span out the generation assets from supply, i.e., is generation standing at market prices and supply is purely buying and trading electricity and gas or there is some sort of a tolling agreement between supply and generation.

Peter Terium - CEO: Well, beyond the numbers we report on the operating result in the two markets, U.K. and Netherlands, we don't provide any further details margins, EBITDA margins broken down by regions. On how the business model works between the local generation units and the retail units, we do transfer the power at market prices and this is a very strict principle followed already since many years at RWE. Nonetheless, of course, there are optimization effects, for example, on the retail side out of sales portfolio management as we call it by bundling the demand and leveling out the stochastic elements to a certain degree.

Alberto Ponti - Societe Generale: So, it is effectively the supply in the U.K. EUR288 million you show for 2012 is de facto an EBITDA per megawatt hour traded, i.e., there is no tolling fee being paid to generation.

Dr. Stephan Lowis - VP, IR: So, just on to understand you're referring to the pro forma number of the supply U.K. business, is that right, EUR288 million, because we have that line, so that's…

Alberto Ponti - Societe Generale: Yeah. It's page 25, the per forma figure you have shown.

Dr. Stephan Lowis - VP, IR: That's clear, but just we didn't get the question right. That's the point. Can you just repeat? What (I would) around this EUR288 number?

Alberto Ponti - Societe Generale: But phrase it differently, supply is not paying any tolling fee to generation.

Dr. Bernhard Gunther - Member of Executive Board: No, not at all. It's pure market price. It is a market price where zero – let's hope that it never happens, but then supply would pay zero.

Operator: Martin Young, Nomura.

Martin Young - Nomura: Just one quick follow-up question and that is, ballpark what is the tax rate that you incur on the Dea business?

Dr. Bernhard Gunther - Member of Executive Board: As you know, the tax rate in upstream E&P is significantly higher than in our ordinary utility business or it's fair to assume 50% and above. This is in line with the historic tax rates at Dea as well.

Martin Young - Nomura: But if we went to 60%, would that be a little bit harsh, somewhere between 50% and 60% is fair?

Dr. Bernhard Gunther - Member of Executive Board: If you look at the historic profile, it has fluctuated widely depending on the production mix between the various tax jurisdictions, yeah. If it all were from Norway, you would still be optimistic with 60%.

Operator: Benjamin Leyre, Exane BNP Paribas.

Benjamin Leyre - Exane BNP Paribas: One follow-up please on delayed grid connection for the North Sea offshore wind farm. What could be the magnitude of the compensation payment which you are not including in your guidance at the moment?

Peter Terium - CEO: We are not giving transparency on the payment as such, but I can say that we have looked at North Sea off this totality and also included some technical changes to the concept due to which even with the delay and including the payments we are entitled to and the technical changes, it is still creating value on top of our rack at this moment in time.

Dr. Stephan Lowis - VP, IR: Thank you. The remaining two is on my list. I would say then after that we can close the list and if you have further questions then you can call me. So, the last two one, please operator.

Operator: (Rowland Seth, CF Partners).

Rowland Seth - CF Partners: Your hedging for 2014, it looks like you're about 60% hedged. Is this due to liquidity constraints or did you on purpose not hedged because we expect for example recovery of price?

Dr. Bernhard Gunther - Member of Executive Board: Our general hedging profile as we said is liquidity driven. We only deviate from it when we have very strong views that market opportunities might be lost otherwise, and if you look at extrapolation over time, it's by and large liquidity driven (on outright).

Operator: Deborah Wilkens, Goldman Sachs.

Deborah Wilkens - Goldman Sachs: Two more questions from me, one is, if you could help us understand if there are any implications from the Dea decision for the outlook for the supply and trading business, and then the other is if you can give us some feeling for time frame for how long you will run plant a loss?

Peter Terium - CEO: I'll start with December 1, I don't – we don't see that the sale of Dea has an impact on the outlook for supply and trading.

Dr. Bernhard Gunther - Member of Executive Board: Just again sorry for asking again a question, but you were asking about how long we take losses in the power stations before we closed, was that the right question?

Deborah Wilkens - Goldman Sachs: How long do you give yourselves before – how long will you give yourselves to run the plan at a loss before you decide to take it off?

Dr. Bernhard Gunther - Member of Executive Board: Deborah, this is a simple investment decision. We compare the accumulating losses against the avoidable cash cost and if this gives us a negative NPV, we will react very swiftly. So, as mentioned before, these investigations for the critical units are now done on a quarter basis and we wouldn't do that if we wouldn't act upon this information.

Dr. Stephan Lowis - VP, IR: Thanks for all joining us. Let me finally remind you, we have a fixed income call at the 8th of April together with Bernhard and Markus Coenen and we are now going on the road to see each other in London, New York, wherever we can meet. Thanks for dialing in. Bye-bye.

Operator: Thank you for your attendance. This call has been concluded. You may now disconnect.