Earnings Call: Q4 2016

Mar 14, 2017

Thank you, and good afternoon to everyone on the phone and to those who are joining us via webcast. As we will be holding our Capital Markets Day in 2 weeks, we will focus today on the details of our 2016 results. For this, I am joined here by Markus Krebber. You will have seen in the documents published today that we are discussing adjusted EBITDA and adjusted EBIT compared to EBITDA and operating results in the past. This is due to new guidelines of the European Securities and Markets Authority, ESMA, on the application of alternative performance measures. We are also moving to adjusted EBITDA as our main steering KPI. From this year onwards, we will therefore focus on our comments on adjusted EBITDA. Now over to Markus. Thank you, Gunhild, and good afternoon, ladies and gentlemen. An eventful year laying behind us. RWE underwent a fundamental restructuring, preparing ourselves organizationally and financially for the challenges we are facing in the energy industry. It culminated in the successful IPO of innogy, the largest IPO in Germany since 2000, which improved our financial situation and flexibility significantly. We received proceeds of EUR 2.6 billion and innogy another EUR 2 billion for its growth agenda. Operationally, we closed the year in line with our guidance. Adjusted net income was even slightly above the range we gave in March. We have significant one-off effect in our non-operating and financial result, mainly due to impairments of our conventional generation fleet and changes to nuclear provisions as a consequence of the intended nuclear energy fund. We have the financing for the nuclear energy fund in place and will pay the full amount of EUR 6.8 billion on July 1st, so we no longer have to bear significant political risks linked to this part of the liabilities. On this occasion, I am happy to confirm that last week, an agreement has been reached with the government on a supplementary public law contract. It is to be signed once the law comes into force upon receiving EU state aid clearance. In this context, we have agreed to withdraw from the court claims related to waste disposal and the moratorium claim. The agreement does not include the constitutional claim nor the nuclear fuel tax claim. For the latter, we expect a final decision this year. On the 14th of February this year, we announced to call the Swiss franc hybrid bond, which has its first call date on the 4th of April this year. We still see merits in hybrid bonds as a layer of capital. However, against the backdrop of our improved capital structure and regained financial flexibility at a lower level. It is a positive sign that S&P understands how to look at the new RWE and, as a result, confirmed the BBB- stable outlook rating, even though we lost the full equity credit for all remaining outstanding hybrids. Regarding our full hybrid strategy, we will be covering this at our Capital Markets Day at end of March. Our outlook for 2017 shows a moderate improvement for our adjusted EBITDA and significant increase for our adjusted net income. As already announced a few weeks ago, we have decided to propose to this year's AGM a further suspension of dividends for common shares and a minimum dividends of EUR 0.13 for preferred shares. For 2017, we are more optimistic, and our target is to reinstate a dividend payment of EUR 0.50 per share. Let's now have a more detailed look at our 2016 results. Slide 4 shows the development of our adjusted EBIT. It declines by EUR 755 million, or 20% in line with our guidance and based on mixed segment performances. While the adjusted EBIT of conventional power generation developed better than anticipated, the performance of trading gas midstream was clearly below our expectations. innogy showed an earnings decline of EUR 350 million, which has been in line with expectation. Bernhard Günther provided the detailed analysis yesterday. Other consolidation came down by EUR 170 million. This is mainly a technical effect due to a positive one-off in the restated 2015 figures. Slide 5 gives you the details of the performance of the conventional power generation division in 2016 and the outlook for this division for 2017. While in fiscal year 2016, adjusted EBIT was slightly up by EUR 31 million, adjusted EBITDA came down by EUR 829 million. There are two main reasons for this different development. First, the decision not to complete the second block of our new hard coal fired power plant in Hamm in 2015 led to compensation payments of more than EUR 500 million. While this is reflected in adjusted EBITDA and adjusted EBIT, the corresponding write-down of the plant of approximately EUR 650 million is included in adjusted EBIT. Secondly, underlying operating depreciation came down, among other things, due to the impairments of 2015. In fiscal year 2015 and 2016, we had some positive and negative one-off items, which partly offset each other. On a net basis and excluding the depreciation effect of Hamm, they explain an earnings decline of approximately EUR 0.4 billion. For 2017, we expect adjusted EBITDA to come down significantly, mainly as a result of a further decline in realized generation margins. Furthermore, in 2016, we had some special items which will not recur in 2017. On the positive side, we will see no further burden from the nuclear fuel tax, which will by law, phase out at the end of 2016. In 2016, we paid approximately EUR 0.15 billion. In addition, we are working on further efficiency improvements. This brings me to our current hedge position on Slide 6. For 2017, we have hedged our outright position at approximately EUR 31 per megawatt hour. This compares to approximately EUR 35 for 2016. For 2018, we have already hedged more than 90% of our outright position at an average price of approximately EUR 27 per megawatt hour. For 2019, it is more than 70% at an average price of approximately EUR 25. Our current hedging leaves upside in our spread positions for 2018 onwards. We will give you more insight in our hedge methodology at our Capital Markets Day. Now on to the performance of the trading gas midstream division. Adjusted EBIT fell by approximately EUR 300 million to minus EUR 145 million as a result of a negative trading performance, especially in the second quarter. Although it is a high loss, it is still within the range of our expected business volatility. At the Capital Markets Day, we will provide a comprehensive insight into the performance and management of this division. On the positive side, we reached an agreement at the end of May last year with Gazprom, which ensures that our gas procurement contract will not expose us to earnings risk in the coming years. Looking at 2017, we are optimistic we will return back to normalized earnings, which we see in the order of EUR 200 million per annum for the trading division. Slide 8 shows the details of the non-operating result, which is dominated by the impairment charges, mainly on the German generation fleet and the risk premium on the nuclear provisions of approximately EUR 1.8 billion with a nuclear energy fund. Financial result on Slide 9 also contains significant special items. It is impacted by the adjustment of the net present value of the nuclear and other long-term provisions. Furthermore, in 2016, we incurred losses from the sale of securities, while in the year before we realized profits. In 2017, we will see, ceteris paribus, a decline of the regular interest accretion to provision of approximately EUR 0.4-EUR 0.5 billion as a result of the lower discount rates and the externalization of nuclear provisions into the nuclear energy fund. Ladies and gentlemen, having explained the operational performance and the non-operating and financial results, Slide 10 provides the other earning drivers down to adjusted net income. The positive tax result is due to deferred tax assets that we could use in the context of last year's reorganization. Minorities came down for three main reasons. First, in 2015, some participations had extraordinarily high earnings from the sale of securities, which did not reoccur in 2016. Secondly, the impairments on our German generation fleet and on Denisy also had an impact on minority shares of earnings. Thirdly, in the consolidated RWE Group figures, innogy was recognized with a loss in the first quarter due to derivatives which RWE holds in its accounts for innogy. Now on to adjusted net income on Slide 11. Here you see the details of the adjustments which lead to an average adjusted net income of EUR 777 million in 2016. Let me give you some explanations to the individual adjustments. As usual, the complete non-operating result is reversed. In the financial result, the adjustment of the net present value of the nuclear provisions due to the change in real discount rate is eliminated. In the tax line, we have adjusted for the effects related to the non-operating result. Not all of them are tax-relevant. Unlike in previous years, we have adjustments in the line of non-controlling interest. As the impairments also had an impact on minority stakes, we have adjusted for this effect in this line as well. Furthermore, valuation changes in certain derivatives for our innogy participation led to a negative earnings contribution from innogy. Since these are timing differences which are included in the non-operating result, the effect is also taken out of the minority line. Thus, we have consistently reversed the effects from the non-operating result and one-offs in the financial result on taxes and minorities. The bridge from adjusted EBITDA to cash flow from operating activity is shown on Slide 12. The reconciliation down to FFO is mainly explained by the net utilization of provisions of around minus EUR 0.6 billion, mainly for nuclear restructuring and pension provisions, as well as cash effective taxes and interest of around EUR 1.4 billion. The negative change in working capital is largely driven by the phasing out of some working capital measures. We decided to stop some of these measures on the back of economic consideration and our more comfortable liquidity situation. On slide 13, you can see the details of our net debt development. It came down by EUR 2.8 billion since the end of 2015. The proceeds from the listing of innogy and further sales of innogy shares more than outweighs the additional burden from the risk premium for the Nuclear Energy Fund of EUR 1.8 billion and the increase in provisions due to lower discount rates. While the cash balance for 2016 is negative at approximately EUR 0.4 billion, there is a positive impact on net debt from FX effects. In particular, the strong decline of the British pound compared to the euro led to an FX-induced improvement of our corresponding debt of approximately EUR 1 billion. Ladies and gentlemen, our nuclear provisions have been significantly impacted by the new law on the Nuclear Energy Fund. Slide 14 explains the numbers. Nuclear provisions increased by EUR 2.2 billion to EUR 12.7 billion at the end of 2016. This splits into EUR 7 billion, which will be transferred into the Nuclear Energy Fund, and the residual nuclear provisions for the decommissioning of the nuclear power plants and operational waste management. The EUR 7 billion is a fully consolidated figure, which includes E.ON's minority stake in the Emsland Nuclear Power Plant. The economic stake for RWE is EUR 6.8 billion. It also includes a risk premium on the base amount as well as the interest on the base amount for the period from January 1st to June 30. These provisions will come off our balance sheet on July 1st when we transfer the amount to the fund. The residual provisions, which will stay on the RWE's balance sheet, amount to EUR 5.7 billion. Here we have digested an additional EUR 9 billion from the change of the real discount rate from +0.9% down to -0.9%. This is partly offset by the release of provisions due to lower expected decommissioning costs. As I explained in our Q3 2016 call in November, to better understand our financial situation, we need to look at RWE standalone. If we strip innogy out of the consolidated figures, net debt for RWE standalone amounts to EUR 6.9 billion. Besides our hybrid bonds, which are included as 50%, mainly consist of the long-term provisions for nuclear, mining, and pensions. And these are well backed by our 76.8% stake in innogy. Let's now look at the liquidity position of RWE standalone. We have said that we want to pay the EUR 6.8 billion into the Nuclear Energy Fund on July 1st. On slide 16, you can see that we have sufficient funds available. The remaining available liquidity after transferring 6.8 billion to the fund amounts to some EUR 3 billion at December 31st. In addition, we have our commercial paper program in place, of which EUR 0.5 billion were used at the end of last year. Finally, we have a committed syndicated credit facility of EUR 2.5 billion and uncommitted bank guarantees of EUR 2.3 billion as additional reserves. This brings me to the outlook for 2017 on slide 17. As mentioned by Gunhild, we have moved to adjusted EBITDA as our key steering KPI. This reflects better the cash optimization focus which drives the management of our business. In addition, we will guide adjusted net income as it explains the underlying bottom-line earnings development. We expect adjusted EBITDA to reach between EUR 5.4 billion to EUR 5.7 billion and adjusted net income of EUR 1 billion to EUR 1.3 billion. Adjusted EBITDA would be moderately above 2016 due to improved earnings in our Trading Gas Midstream division and a better expected result at innogy. This overcompensates an expected earnings decline in the generation business. Adjusted net income shows disproportionately strong increase. This is driven by two additional effects. First, the impairments we recognized in 2016 lead to approximately EUR 0.3 billion lower operating depreciations from 2017 onwards. Second, an improved financial result due to lower discount rates and the externalization of nuclear provisions. You have seen the details for our operational divisions on the previous slide. For innogy, we expect adjusted EBITDA to be moderately above the previous year. innogy has given a guidance of approximately EUR 4.4 billion compared to EUR 4.2 billion in 2016. Now slide 18 and our dividend proposal. The management and supervisory boards will propose to the AGM in April to suspend the dividend for common shares and to pay only the minimum dividend of EUR 0.13 per share for preferred shares. 2016 was a year of significant restructuring and heavy burdens for RWE. We have a significant liquidity requirement in 2017 to finance the Nuclear Energy Fund. Against this backdrop, we don't see any room for paying a dividend on common shares for fiscal year 2016. We are optimistic going forward. Our operating performance and innogy's successful IPO makes us financially robust, allowing us to give shareholders the prospect of paying a EUR 0.50 dividend for 2017. Furthermore, the aim is to at least maintain this level in the years to come. Our general dividend policy will be oriented towards operating cash flows of RWE standalone that are freely available on a sustainable level. This means we do not want to pay out dividends out of the substance of the company, or in other words, we do not want to raise debt or sell innogy shares in order to pay dividends. Furthermore, we are looking at RWE standalone and not the consolidated IFRS figures. This means that the operating cash flow from conventional power generation and the trading gas midstream, and the dividend that we receive from innogy are relevant. On that basis, we have set the 2017 dividend target at a level which we can afford midterm from an earnings and cash flow perspective. At the Capital Market Day, we will provide you with more details on the different elements of our cash flow to give you a better feeling on how the dividend might develop. Let me conclude my remarks with a brief preview on what you can expect at our Capital Market Day on March 28 in London. I have already explained on several occasions that the consolidated IFRS figures, including innogy, do not provide the economic reality of RWE standalone. We are working on additional KPIs to provide you with a full picture of RWE standalone, including P&L, cash flows and balance sheet. Furthermore, we want to improve the general transparency of the operational part of our business. You will have the chance to meet senior management of our operational business, conventional power generation and trading gas midstream, and use this opportunity to drill deeper in these units. I'm looking forward to seeing many of you in 2 weeks' time in London. With this, I would like to hand over to Gunhild for the Q&A. Thank you, Markus. Let me just remind you about our two question rules. Operator, can you please give us the first question? Thank you. The first question is from Alberto Gandolfi, Goldman Sachs. Yes, thank you. Good morning. It's Alberto Gandolfi, Goldman Sachs. I have two questions. I'll have a backup one in case you're not going to answer one of the two, if you allow me. Let me start first with some of the statements that have been reported by Bloomberg from the press conference early on, talking about strategic options and strategic review. Can I ask if this strategic review and strategic options exist? Are these a really, let's say, a process which is underway at RWE? What is the objective of these? Is it simply you thinking about leverage, you're not happy with leverage? Or you're bigger picture, trying to reinvent yourself, trying to maybe use some of your financial assets and maybe swap them for controlling over physical assets, which you can fully control, for instance. The second question is related to the first one, but separate in a way. What is your long-term vision? When you have to take a structural decision here, what are you thinking about in terms of key pillars? Do you envisage a tighter supply-demand for power generation in Central Europe, or are you interested in being, for instance, a consolidator of generation assets in Europe? Can you comment on what would be the currency you could use to fund this expansion? I am obviously referring to your innogy stake. Thank you. Thank you, Alberto. I think that were five or six questions in two, but we will try to answer them. Thank you. Cut me off whenever you want, Gunhild. Apologies for that. Alberto, I now pick two of them, yeah? Not the easiest. Let's go through it. We are actually happy with the current situation. Let me start with that. You can also see that we are now more optimistic about the future development. We are not under pressure, and there's no rush to move anywhere. How we look at the business is, we have two operational segments, and we have the innogy financial stake against our long-term provisions. We are happy about the dividend innogy pays because we need the money in order to pay for the provisions. What we said today, and maybe that was slightly a misinterpretation of the press, I take the time now to answer that question also for the potential questions to come. Of course, given the recent market rumors, we had many questions. We had market rumors yesterday evening, this morning. We also had market rumors more regarding a German consolidation play a couple of weeks ago. What we made clear today is that we as a management team have the duty to look into all potential options. Also, it is our duty that we stay in frequent contact with many market participants. That is just a general statement. The next statement was that we will not comment any market rumors. Please accept that we will not give you a kind of flavor to the no-comment remark, because if we start doing that, the no-comment remark is not meaningful anymore. That was the only thing. Now some people have made different stories out of it, but that was what we said when we got questions on the potential sale of innogy, but also on the potential consolidation plays. The general remark was, there's no comment. Of course, it is the duty of the management, and in the best interest of our shareholders, that we constantly evaluate all potential options to develop our business and portfolio further. Everything else is an interpretation of that. Now to your second point, what is the vision? Definitely the Capital Markets Day will be about our vision and also about our strategy. Of course, security of supply and the tightness in some markets we already see, and the potential tightness which will also come on the continent, latest when we phase out the nukes, is definitely part of our strategy. It will be around that theme. Whether a portfolio development is the right thing to do, it depends on the optionality. What do I mean by that? It is hard to predict, and what is definitely clear, we currently have a financial investment innogy, which we love. We especially love the cash return, and whatever alternative we can think about needs to be better than what we currently have. So it is a pure value maximization, opportunistic approach. Does that answer your question for the moment? It does, and thank you for being so patient. Thank you. Thank you. Next question, please. Thank you. The next question is from Vincent Gilles, Credit Suisse. Yes, good afternoon, everyone. Two questions strictly on the 2016 numbers. The first one is working capital. You talked about phasing out some measures on working capital. If you could elaborate and help us understand what you did or didn't do any longer, and why you acted this way. The second one is the word cost-cutting, probably for the first time in five years, was not pronounced during a call. Can you just update us a bit on how much cost you took away last year? I know it's complicated. You separated into two entities, et cetera, but maybe just help us a bit understand what happened on the cost-cutting side. Thank you. Yeah, thank you. Let me start with the latter. We didn't call it cost-cutting, but whenever you see efficiency improvements on the slide, especially on the generation slide 5 for 2016 and also the improvement for 2017, efficiency improvement is what you call cost-cutting. It was a reduction of operating expenses. Here on the generation side, we have saved around EUR 200 million in 2016 compared to 2015. This is now without innogy. The rest of the costs are more or less stable. We also expect further efficiency improvements or cost-cutting for the years to come. On the working capital side, what we did prior to the successful IPO of innogy, where the liquidity situation was much more tight because we knew we need to pay into the nuclear fund. The liquidity problem was entirely solved by the successful IPO. What we did there is working capital was managed much more tightly and slightly even above existing market rates. There was the incentive for the teams, especially on the trading side, to not keep any working capital, like gas in store or coal stocks or whatsoever. The financing will move to the banks. At current interest rate levels and our current liquidity situation, these measures from a pure economic point of view doesn't make sense anymore, so we have stopped it. Very clear. Thank you. Thank you. Next question, please. Thank you. The next question is from Sam Arie, UBS. Hi, thank you. Thank you for your presentation, very helpful. I have a couple of questions. One is a follow-up question on the cost program, and the other is on the trading divisional result. I know you said you will give us some more info on these at the Capital Markets Day. Firstly on the cost, I think previously you talked about the EUR 900 million target. If you factor in the EUR 200 million at innogy and something like EUR 200 million that I think you are reporting today has already gone in, is it fair to assume there is another EUR 500 million bottom line impact to come from the program? Secondly, on the trading side, in our conversations, I think a lot of people have assumptions about your trading division returning to historical norms around a sort of EUR 200 million annual level. But can you just give us a bit more of a flavor of what actually happened last year, why the result was so negative? Bearing in mind that some of our other companies have said that last year was actually quite a favorable environment for trading. So those are my two questions. Thank you. Yeah. I will not comment on what some of our competitors did. I can explain to you what happened here without revealing the actual positions we had. Most of the losses stem from the second quarter. What in the second quarter happened, if you look at commodity prices, we have seen the massive drop. Let's take German base load as a proxy, but the entire fuel complex dropped in line with that to EUR 20 in February, March. We were surprised by the massive and fast recovery we have seen in the second quarter. That was totally off the radar, and that was what caused the losses. I think Bernhard already said, Bernhard Günther, that time when he reported about Q2. We were all in our risk limits. There was full transparency about what positions were on. Also the potential consequences were clear from the beginning. So there was no kind of failure in the risk management system. Now, we will give you more details on the trading division, but if you look at the comparable like-for-like results of trading, I mean, the division was highly impacted by the significant positive and negative run-off of the oil index gas contracts and the out of the money gas storages, where we have solved all problems. So from now on you see clear figures. The average result of that division, whether you take the last 10 years or the last 5 years, including we had some bad years in this time, are on average above the EUR 200 million. We still have confidence that the business will structurally, on average, make this contribution. So our expectation is risk given volatility, that it contributes around EUR 200 million EBIT. Now on the cost side. I think the EUR 500 million, I'm not sure whether you now talk about including innogy or excluding innogy. First of all, one comment how we will communicate our further efficiency improvements or cost cutting. We will not include innogy. Because we take the innogy guidance and they explain their details and what you see on our side is the additional cost management which comes especially on the generation side. So on the operating business of RWE. There the number of EUR 500 million is too high. So you can expect a significant three-digit million number. We will give you a clear picture of what has been achieved on an actual basis and what you can expect in the future to come at the Capital Markets Day. Maybe just to round the program up. We had a program in place of EUR 2.5 billion until 2018, which was for the whole group. Of that we have achieved until last year, EUR 1.9 billion. Out of that roughly EUR 1.3 billion came from the generation business, which is fully on track. As Markus said, from this year onwards we will then communicate on our side standalone. Could we have the next question, please? Thank you. The next question is from Ahmed Farman, Jefferies. Yeah, hi, good afternoon. Two questions from my side. Again, my questions are from some of the comments made earlier this morning. Not sure if you will answer that, but I am going to try. Firstly on your innogy stake. You said today that you are happy with the current situation of 77% stake, but then you also talked about the approval from the board to go down to 51%. Maybe you can help us understand under what situations is 77% the optimal structure versus 51%, or what time period? My second question is: How should we think about how RWE may use the proceeds from any divestments of innogy? Your debt is largely non-current, so it will not be easy to de-lever. You have talked about paying the dividend from operating cash flow. Should we think that in a situation where you do reduce the stake, largely for growth CapEx or some acquisition within your core business, which as you seem to set laying out is power generation. Thank you. Yeah, thanks for the question. First of all, a statement why I said we are happy with the current situation. We are not under pressure. I mean, we don't need to sell further energy stakes, not for liquidity reasons, not for other reasons. We are not in a rush. We can take the time to decide what is the best way forward for the company. Now you are right. On the provision side we still have some other debt outstanding, like the hybrids, that we decide when the time come. I mean, we will not give our optionality out of hands earlier than we have to take the decision. But potentially there we also can reduce the balance sheet. On the other hand, you are right. If, and now that's a conceptual question or a conceptual answer. If we think about what to do with the innogy stake, there are three aspects. The first one is just to repeat what I already said. The current cash yield we have on that investment is always the hurdle rate to be met. Otherwise it has a direct impact on our operating cash flow and consequently on dividends. That needs to be met. The second one is, it will be then an opportunistic approach where we think we can better invest the money or not better invest the money and can be either a diversification of the financial asset portfolio, or potentially other uses of cash. But I also said in the last call, and we will make our investment criteria for all the different aspects very clear at the Capital Markets Day. We will keep a financial portfolio of a significant size against our long-term provisions because we have learnt the lessons from the situation. You never know what's going to happen when you need to finance your provisions. So we will keep a significant financial portfolio, and the guideline we have given ourself at least 100% utilization of the provisions for the next five and 75% for the next ten years will be hold as a financial asset. Yeah. And within this framework, we will over time, decide what is the best way forward. Okay. Just one clarification there. The provisions you're referring to include both nuclear lignite mining and pension provisions? Yes, right. Okay, thank you. Thank you. But just to complete it, we will give full transparency on the utilization. We also have utilization of provisions outside these long-term provisions for especially restructuring. Thank you. Can we have the next question, please? Thank you. The next question is from Deepa Venkateswaran, Bernstein. Thank you. Two questions. The first one is Deepa, sorry. You are very hard to hear. I do not know if you are Sorry. Yeah. Is that clear? So my first question is, I noticed you have done a write back of your nuclear decommissioning provision. Could you just help us understand what was the basis for that? Was it based on more near-term experience on the cost, or what was the basis? The second one, just in terms of your net income guidance for 2017, obviously, there is a big discrepancy between your net income this year and what innogy reported yesterday. So what should we assume is the basis for your guidance for 2017? Is it just innogy plus your clean numbers for generation and hybrids and other things, or is there some adjustment on derivatives or something that you factored in your guidance for 2017? Thank you. Okay, thanks for the question. The first one on the provision, we have two effects on the nuclear provision side. The first one is the average duration of the remaining provisions are much shorter. It is around 10 years now. So, according to IFRS, we had to change the methodology for discounting. We are now using market rates. So the discount rate is 40 basis points, and the assumed inflation is 130 basis points, which leads to a negative real discount rate of 90 basis points. This led to an increase of around EUR 860 million in the provision. On the other hand, the remaining liabilities, which are decommissioning and waste treatment, are much better controllable by RWE. We have already experience in this field, and we constantly review our assumptions on how much that will cost going forward. Here, we have seen some productivity increases, efficiency improvements, and we have factored that in, and that led to a release of around EUR 460 million, so that on a net basis, provisions increased by EUR 400 million. Now- Okay to the net income question. That is around a 10% change in your cost estimate, roughly speaking. No, I do not understand the 10%. I would have thought that your remaining decommissioning provisions were around EUR 5 billion, and if you have written back around EUR 400 million of that. Yeah, it is maybe 7% more, closer to seven or eight. Then you have the discounting effects. It is difficult to say how much is that in percentage cost reduction. I would look at the net number. We are now applying a real negative discount rate because we had to follow IFRS accounting rules. If you ask me whether I think over an average duration of 10 years, average, minus 9% real interest rate is reasonable. I do not know. I definitely know it is very conservative. Now to the net income question. The innogy guidance yesterday was a net income of above EUR 1.2 billion. Of course, you can try to come up with what is the net income of RWE then. There are a couple of factors. You have our own EBITDA, you have our own financial result, our taxes, but also please keep in mind that the EUR 1.2 billion are for 100% innogy, and there are a significant part of minorities in it. I think if you take the time and just write down the numbers, it is pretty obvious how that adds up. Yeah, sure. But I think on 2016, it does not add up. Your minorities are significantly lower because of, I think, the accounting treatment you mentioned. So 2016, you cannot really reconcile your net income and their net income, because of all these extraordinary effects. That is why I was wondering whether 2017 is clean and does not have anything. For net income, you are right. For adjusted net income, you can already do it for 2016. Is that okay, Deepa? Yeah, maybe we will do a talk offline then. Okay. Yeah. Thank you. Next question, please. Thank you. The next question is from Peter Bisztyga, Bank of America. Good afternoon. So two questions from me. Firstly, can you remind us the reasons why you have set a minimum ownership threshold of 51% for innogy? Is that purely financial, or are there any other reasons for that, strategic or otherwise? Then secondly, just on the nuclear tax, do you have any more precise timing you can offer us on when you expect to get a final ruling? Yeah, the last one is pretty easy. We have no insights into the timetable. We expect the ruling this year. I cannot tell you whether it is more likely in Q3 or Q2, so we expect it this year. On the other question, just to reiterate, there was also a misinterpretation of how you interpreted what we said in our press release that everybody knows which decision has been taken within the company. The decision by the innogy Supervisory Board is that we can sell innogy down to 51%. That was a decision that were taken when we decided on the IPO, because it was unclear at that time how much secondary we were going to take. That is the only decision that has been taken within the company. Is that okay, Charles? Well, I guess the question was why 51%? That was a threshold that time picked by the Supervisory Board. To remind you in order of how our corporate governance looks like, if we start selling parts of the company, we still need to involve the Supervisory Board at specific thresholds. These are much lower than the 51%. So, we leave it there. Okay. All right. Thank you. Thank you. Next question, please. Thank you. The next question is from Ingo Becker, Kepler Cheuvreux. Yes. Good afternoon. I had a question on how separate you two groups actually are by now. Going forward, in terms of cost-cutting, will you have greater scope for cost-cutting, or do you expect actually costs to build up before you can cut them by separating operations that you might today still share with innogy? The other question is on your segment reporting. If you compare that with innogy, some numbers like apparently adjusted EBITDA or adjusted EBIT, in your segment statement are exactly the same as the sum in innogy's segment statement. While others, like revenues or, I think, CapEx is not exactly the same, actually deviate. I am not sure this is not a too technical question, but can you tell us why some of the segment results of innogy group we can find in your segment statements and others not really? Thank you. The latter question is quite We still have consolidation effects within RWE. If you look at the innogy results, this is standalone innogy. If some of the valuations or whatsoever is based on deals or relationships done between innogy and RWE, you still see both legs in the innogy result, but only the one leg in the consolidated figures, because one leg falls apart because it is the consolidation effect of the entire consolidated group. I think if you want to understand it better, we shouldn't do it here in the call, but take it offline. It's all about innogy standalone and consolidated innogy figures within our figures are different because we have to consolidate some transactions. On your first question, cost cutting. We don't expect any further significant dis-synergies from separating the groups. We don't expect a buildup of costs. It will be about our efficiency measures on the cost side, bringing them further down, and then what innogy intends to do on the cost side. But no temporary buildup due to dis-synergies. Is that okay, Ingo? Yeah. Thank you. Can I just ask, your innogy segment line, this is not what we could strip out in order to see RWE on the standalone. You still have effects on your other consolidation accounts. Yes. Is that correct? Exactly. Yeah. Okay. In order to provide you with the full transparency, we exactly will provide you at the Capital Markets Day with real RWE standalone figures, including excluding consolidation effects. Right. Thank you. Okay. Next question, please. Thank you. The next question is from Michel Debs, Citigroup. Michel? Yes. Can you hear me? Yes. Yes. Good afternoon. I have two questions. The first one on trading. You told us that you expect an average level of earnings of just over EUR 200 million in the long run. You also said that in 2016, the negative contribution of trading, although not something you wished for, remained within the expected volatility of trading. So what is that volatility? Should we understand that what you expect from trading is EUR 200 million baseline, plus or minus 400? What kind of range should we take? That's my first question. My second question is more conceptual. It's about how to think about the company. Listening to you over the past 50 minutes, what I understand from you is that we have to think about you as a financial portfolio backing a bunch of provisions. Next to that, you have a stub that effectively has very little financial debt and rather volatile cash flows. Is that how we should think about you? As some kind of volatile stub cash flow, and next to that, but in the same consolidated statement, but separate from it on the valuation basis and intellectually, a big stable portfolio of dividend coming from innogy and other financial participations you may have, backing your liabilities. Thank you very much. Start with the first one, trading. Let's say, what we have seen last year with a result of minus EUR 150 million, that is maybe at the lower end, whether you say minus 150 or 200. So the range you gave is definitely a reasonable one. The range of plus, minus 300 to 400 around the baseline. The second question, I think you described our portfolio pretty well. I would not emphasize too much the volatility of the cash flow, but more the risk profile of the business. If you are in conventional power generation, especially on the continent, it is a more risky business than it used to be in the past. So it can only take a much lower leverage ratio. Then together with that, we have our stable dividend stream from innogy and a very stable cash outflow on the provision side. That is the entire portfolio we run. Is that okay, Michel? Thank you very much. Thank you. Next question, please. Thank you. The next question is from Lueder Schumacher, SocGen. Good afternoon. Two questions, please. The first one is on your notoriously volatile operating cash flow. It has been very volatile through the quarters, but at the annual level, EUR 2.3 billion to EUR 2.4 billion, would you say that is a level that we can consider to be normal for RWE in its present form? That is the first question. The second question is, Markus referred earlier to tightness on the continent, latest when we phase out the nuclear power plants. It seems quite a bullish statement. Apart from closing nuclear capacity, what else is driving this tightness you are expecting? Yeah. Let's first talk about the tightness. We have already seen in January of this year, situations in Germany where without the nuclear production, the consequences would have been very severe. It is definitely there when the nukes go off. The question is now what happens until then. If you look at the decommissioning plans of the industry and what they have submitted to the regulator, it is quite significantly. If nothing happens until the early 20s, profitability, especially of old plants, will deteriorate further. If nothing's happened, then the industry will take the action, and we're going to see more closures. Then, especially in winter times, the capacity becomes tight earlier than in the early 20s. Yeah. I think if you look back what happened in the U.K., it is maybe a good case example of what could happen also on the continent. Now, on the cash flow statement. First of all, the volatility. You are totally right. RWE has shown a significant volatility in the cash flows. This is especially due because we, in our operating cash flows, have always shown effects from margining and collaterals. We think now that these effects are more financing effects because it's all timing issues. On a net basis over the long run, it should always be around plus, minus zero. So in future, we will change the definitions, and we will strip out the financing effects of collateral and margin payments, and we will show you an operating cash flow without these effects. We expect this to be much more stable. This is then also the basis for the dividend, where we said this is the operating cash flow, excluding these financing effects around collateral and margining, which is the basis for cash flow decisions. I guess that's a number you share with us at the Capital Markets Day, not today. The number you said, we now need to discuss what is the exact definition, and do we talk about RWE standalone, blah, blah. So what we will come up with is the RWE standalone figure and something we are going to call distributable cash flow. So that is clear to everybody that that is the basis. Okay. Thank you very much. Thank you. Can we have the next question, please? Thank you. The next question is from Daniel Bohn, JP Morgan. Hi. Most of my questions have actually been answered. If I could just ask, we are still waiting for the EIB loans for a formal debtor exchange to take place. I think there is about EUR 1.1 billion. Obviously, this has quite important implications for the CDS, and you have said that economically mirrored at innogy, et cetera, through the creation of intercompany loans. When can we expect that to take place? My understanding is all of the senior debt has now moved over. If you could give a timing on what the EIB are saying, or if there has been any issues with getting the debtor exchange pushed through, that would be helpful. Thank you. It will happen during the course of the first half year this year, so latest end of June. Perfect. Thank you. Yeah. Can we have the next question, please? Thank you. The next question is from Javier Garrido, JP Morgan. Hi, good afternoon. First question is just a clarification. I did not quite catch whether you were including or not the cash outflow linked to restructuring provisions within the 100% and 75% metrics that you use for the percentage of coverage by financial assets, that you could clarify. The second question is a more strategic question about this topic of the coverage of the cash outflows linked to provisions. There are statements today from Thorsten Herdan from the Ministry of Energy, talking about the need to shut down coal capacity and the use of a capacity in coal, which is actually not exactly in line with the industry comments or the comment you made just today about without nuclear, Germany would have had a tough time. In general, when you think of your lignite fleet, is your lignite cash outflows linked to the future shutdown of lignite part of the reason why you plan to have, let us say, an excess financial asset versus your cash utilization in the next few years? It was a bit of a convoluted question, but the question is really how do you see the utilization of your mining provisions and the utilization of your provisions linked to the shutdown of lignite where there is a risk that the cash outflows are anticipated versus what we see at present? Thank you. Yeah. The first question regarding the metric, we said that we cover 75%-100% of cash outflows by financial asset. This includes the entire utilization of provisions, not only the long-term. So we said we will cover, by a financial asset, all known outflows over the next 5 to 10 years by the given ratios. The second question, I have not seen the statement of Mr. Herdan today, but what I have seen is the statement of our Chancellor, and she said we need to approach the coal exit very carefully due to several reasons, security of supply, social consequences in the affected regions, and so on. I think that discussion we will have, but to be honest, what we experienced over the last couple of months and weeks is it is much more muted now than it was earlier this year. It depends on the German election, and then we see when we take it from there after the election. I think it's not as it was a couple of months ago, because everybody has realized how the situation now is. To the provisions, for the lignite provisions, we actually don't expect any net utilization over the coming years, or no net change in provisions. We have constant utilization, but we also increase the utilization constantly, which is a burden in EBITDA already. So in a cash flow view, we don't expect an additional negative effect from the change of provisions. It's all in the EBITDA already. The current plan, and it was confirmed by the North Rhine-Westphalian government, which confirmed the operational plan how to operate the mines. We still expect to operate it until the mid of the century. Of course, in a staged approach, starting with one mine, to close one mine in the '30s, and then the next two by the mid of the century. So on a provision level, we don't expect significant effects over the next coming 5-10 years. Okay. Thank you very much. Thanks. Could we have the next question, please? Thank you. The next question is from Nick Ashworth, Morgan Stanley. Hi. Afternoon, everybody. Just a couple of questions. Firstly, on the dividend for 2017, just to be absolutely clear, you are saying you are envisaging a EUR 0.50 dividend. Is that a fixed dividend expectation for 2017, or is there room for that to move? Presumably, if it were to move, I guess it would be up, not down, given that you are talking about that as a floor going forward. Secondly, just on slide 6 in the slide pack where you show your forward hedging. It looks, if I look at 2018, that the hedging on the spread position is a bit higher than it has been in previous years. Also, if I look to 2019, it looks like the hedging on the outright is a little bit higher. Has there been a change in hedging profile? Is that a one-off, or is this something which we expect to see going forward? Yeah. On dividend, let's all be happy that we envisage to pay a dividend for 2017, and let's talk about the upside when we see it. But you are right. We said we are now very confident that we can keep that level, and if it changes, it's going to be to the positive. But whether that's going to be 2017 or later, that's now speculation. I don't want to go there. On the hedging profile, it's actually more difficult than the picture shows because the hedging approach to the outright position is not a pure outright hedge. We have not changed the methodology over the last 6 months, but we have changed how we present it, and you will understand all the details and why there is potential also upside on already hedged positions at the Capital Markets Day. It takes much longer to explain our hedging approach than we can do it here in the call. Please understand that it takes another 10, 12 days. Okay. Understood. Thank you. Thanks, Nick. Next question, please. Thank you. The next question is from Martin Brough, Deutsche Bank. Hello. Thank you. I just had a question around the supervisory board, just as a reminder there. The first one is, would the composition of the supervisory board be reshuffled at any point if there are changes in holdings as a result of the innogy deal? For instance, if some municipalities have sold out of RWE and maybe bought into innogy instead, would that be affected over time in a supervisory board structure? The second one is, could you just remind us what the position of the workers' representatives is now? Are they representatives of the workers of RWE ex innogy, or are they representing workers in the wider sense, in the sense that you are still consolidating innogy, and therefore, the workers of innogy are also being represented by members of the supervisory board of RWE? Thanks. Thanks for the question. I mean, the first one is, I cannot make any comment regarding the future composition of the supervisory board because that is not a decision the management takes. We even do not make a proposal. According to corporate law in Germany, what we have is, we have the representatives of the shareholders are elected at the AGM. They have been elected at the last AGM, and they have a term of five years. If nothing happens, if nobody steps down, you can expect that to be stable until the next election at the AGM. But of course, it usually happens that some people step down, but that is not for structural, but more for personal reasons. On the workers' council/union representative side, it is still the old RWE supervisory board. Currently, we also have members which are staff members of innogy on our supervisory board. Okay. Could I just ask a follow-up to that? Because how do you reconcile that then with RWE not attempting to influence the strategy of innogy and treating innogy just as a financial investment? Because if the supervisory board of RWE includes people that are trying to represent innogy in terms of board decisions of RWE, does not that treat innogy as more than just a financial investment? Thanks. Yeah. Sorry, but the question then needs to be the other way around. Who sits on the innogy Supervisory Board and influences innogy's strategy? We cannot influence innogy's strategy by having innogy representatives on our own supervisory board because they supervise us, and it is not about a strategy discussion on innogy in our supervisory board. I somehow did not get the question right, maybe. Okay. Thank you. Yeah. I understand what you are saying. Thanks. Thank you. Next question, please. Thank you. The next question is from Sam Arie, UBS. Hi. Thank you. Yes, I queued up and came around for another question. I'm sure if that means we're getting towards the end of the line. I just wanted to come back to one of the first things you said on the call today regarding an agreement that you've reached on a public law contract for the transfer of nuclear provisions and then giving up some additional claims you have there. Could you spend a minute before we finish to tell us what you've actually secured there in the private contract, what protections it gives you, and help us understand what you've given up in exchange? Thank you. Yeah. I think both sides, the government as well as the utilities, had a strong interest in having this contract for a couple of reasons. The most relevant is, it's a highly complicated process in itself that we dismantling, that we package the nuclear waste and then we move that over and the government is responsible for storing it. So an exact specification, technical specification, how that interface works was in the best interest of both parties. Because otherwise, you potentially end up in lifelong law cases fighting what is the right specification. Because with the changed specification, it also changes who pays what kind of element of the bill. So that we have full clarity on what we have to transfer. That was the first one. Then we had a strong interest because a public contract is much better than a law. It cannot be changed without the consent of both parties. The law can be changed by the parliament. You can now say, what did you give? Two things. The first one is we have a lot of claims still related to storage. So we had a lot of claims which are related to those part of the value chain, so to say, which are now with the government. That is an awkward position that we still run claims where we are not liable. So we will withdraw all these claims. In addition to that, we also withdraw the moratorium claim regarding the Biblis power plant. That is more or less the deal of the contract. Is that okay, Sam? That is very helpful. Thank you for the explanation. Thank you. Are there more questions? Yes. The next question is from Tanja Markloff of Commerzbank. Yeah. Good afternoon. I would just like to ask whether you could specify how many innogy employees are in the Supervisory Board of RWE and how many municipal shareholders are in the members of the Supervisory Board at the moment. Sorry, Tanja. What was the second question? How many municipal shareholders? We have- How many representatives of the municipal shareholders are members of the Supervisory Board? We have four. That is Mr. Sierau, the Mayor of Dortmund. We have Mr. Ottmann. We have Mrs. Mühlenfeld, the former Mayor of Mülheim, and we have Mr. Schartz, the Deputy Chairman of the Christian Democrat Party in Rheinland-Pfalz, so four representatives from our communal shareholders. I think we have still three staff/union members, which are somehow related to innogy, two workers representatives. Then, as you know, Mr. Bsirske, the Co-Chairman, is also the Co-Chairman of the innogy Supervisory Board. Okay. Thank you very much. Thank you. Could we have the next question? Thank you. The next question is from Amit Vermani, Jefferies. Yeah. Hi. Just one more follow-up question. I wanted to come back to a comment you made earlier about the power generation supply-demand balance tightening, and you mentioned nuclear shutdowns towards the end of this decade. Do you also see consolidation, corporate consolidation, within the power generation space as also helping the supply-demand balance? Or is that a theme of fact that you don't see much happening on in the next 12 to 18 months? If you could share your views on that would be very helpful. Thank you. Sorry, but that is now speculating of what potentially could happen. It depends always. It's a willing buyer, willing seller, and then a pricing question. I don't know whether you have common ground or not. I don't want to speculate. Okay. Thank you. Thank you. Could we have the next question, please? Thank you. The next question is from Peter Bisztyga, Bank of America. Hi there. Just a quick one on nuclear provisions. Could you clarify what benchmarks you're using for the discount rate and inflation assumptions? Are these now going to be updated every quarter, as you do with pension provisions? Yeah. Thanks, Peter. The easy part is, yes, we need to update that now every quarter. Other than with pension, it also goes to the P&L. But we currently discuss and let's see how big the effects are, whether we call it non-operating or not, because it can potentially have huge impacts. What we take is the inflation is the implied inflation of inflation-linked bonds of the same duration as our liability, and the discount rate is the risk-free governmental bond interest rate of the same duration as our liabilities. That's 10 years, yeah? Yeah, on average, it's 10 years. Perfect. 9 point something. Very clear. Thank you. Thank you. Could we have the next question, please? Currently, there are no further questions. Then I would say we end the call. The IR team is, of course, at your disposal afterwards for further clarification. We are looking forward to see you in two weeks time in London. Thank you.