Earnings Call: Q4 2015

Mar 8, 2016

Welcome to the RWE conference call on the business performance for RWE's fiscal year 2015 with Peter Terium and Bernhard Günther. I will now hand over to Stephan Lowis. Yeah, thank you, and good morning to everyone on the phone and to those who are joining us via webcast. I am joined here by Peter and Bernhard, who will provide you with a strategic update on the business and the status of our transformation, as well as more details on last year's financial performance and the outlook for 2016. This might be the last time that we report full year numbers in this setup for RWE. With this, let me directly hand over to Peter. Yes. Thank you, Stephan, and welcome from me as well. Without doubt, you will have seen our proposal to suspend the dividend payment for ordinary shares for fiscal 2015. In the meantime, the Supervisory Board has followed suit with the same dividend proposal to the AGM. Let me now take the opportunity to put this decision into context. You only have to look at your Bloomberg commodity screens to see that market conditions have become extremely difficult, especially for our conventional power generation fleet. Together with disruptive technologies and regulatory changes, they have created the perfect storm. To better face these challenges and to put the company back on a stronger financial footing, we have decided on three steps that we need to take. First, we are establishing a new international company comprising our grid, retail, and renewables business, which will receive fresh capital, enabling it to fund growth investments. Second, we are implementing further significant cost savings and efficiency measures to improve the cash flow situation of the company. Third, we won't pay a dividend to holders of RWE common shares for fiscal 2015 in order to preserve cash and equity. However, let me emphasize that this decision was not taken out of desperation, but rather as a result of prudent financial management. We want to maintain flexibility when facing our future challenges. With these measures, we aim to put RWE back on solid ground. We will be better placed to face future developments on the commodities market. We will be able to accelerate growth in the renewables and downstream businesses with the new company. We are strengthening our balance sheet. We will be better prepared for funding our nuclear liabilities. In December, we informed you of our plans to bundle our grid, retail, and renewables business in a separate company and to list the new company via capital increase. The recent slump in power prices has only underlined our conviction that this move is necessary to secure the future of the group. It will be easier for two independent companies to focus on the relevant prevailing issues and challenges and implement adequate strategies. In addition, NewCo will receive the capital means to invest in growth, and RWE AG will have greater financial flexibility to deal with future funding requirements. Since making the announcement, we have made progress with the implementation of the new structure. It is planned that the new company will start operating on April 1. By the end of June, we envisage that the new structure will be fully implemented. The IPO will most likely take place in Q4 of this year. Last week, the management team of NewCo was nominated. The executive board will consist of six members, and the composition is in line with our steering model along the value chain, which we have implemented at group level. The new management team has extensive sector experience spanning many years. Until the stock market listing of NewCo, Bernhard, Uwe, and myself will also continue in our current roles at RWE AG. After the successful implementation of the IPO, Rolf Martin Schmitz will take over as CEO of RWE AG, and Markus Krebber will be the CFO. The corporate governance of NewCo will follow the two-tier board system, with RWE AG being represented in NewCo Supervisory Board. Our downstream and renewables businesses, which will form the new company, have progressed well over the last year and have taken a number of further growth initiatives. Our grid business continued to work on new pioneering technologies and solutions, which will ensure the energy system's ability to integrate the ever-growing renewable capacity. We have taken further steps to develop energy storage facilities and intelligent grid devices. The retail business also successfully expanded its activities. We entered the Slovenian electricity market and started to sell gas in Poland and Hungary, where we already have electricity supply businesses. However, we also took the decision to withdraw from the Turkish retail market, where we do not see the opportunity to establish a meaningful presence. Our network of charging points for electric vehicles has also grown. With some 4,900 charging stations across 20 countries, we are one of the biggest infrastructure operators in Europe in this area. Last year, we have also agreed to equip various new customers, including Daimler and Volkswagen, with charging solutions. Our renewables business made major strides in the expansion of its installed capacity. Over the course of 2015, we commissioned two large offshore wind farms, bringing our total installed capacity to more than 3.5 gigawatts. Our operating results more than doubled in 2015 and also exceeded our internal expectations. We also laid the foundation for further growth with the start of construction of another two offshore wind projects, Nordsee One in the German North Sea and Galloper in the U.K. Finally, we have also made great progress in the field of innovation. Since we set up our innovation hub, we have successfully handed over 5 proof of concepts to the operational business or launched them as separate startups outside RWE. At the moment, we are working on another 15. We have entered numerous partnerships and invested in various startups to develop and test new concepts and products. Let me now spend a few moments on the problems we have encountered at npower. Last year, the operational issue came to a head. After realizing that the company wouldn't be able to tackle them on its own, we decided to appoint a new management team with the sole objective of investigating the root problems and turning the business around. Over the last few months, they have analyzed the issues in depth and come up with a comprehensive recovery plan. What went wrong exactly, and how are we going to fix it? The single biggest problem was the faulty IT and billing system, which consequently led to additional operational issues and poor financial performance. The inability to send accurate and timely bills led to a stark increase in revenue leakage, as well as a higher bad debt. The defective system also resulted in higher operational costs as we had to invest more into handling the higher number of customer queries and complaints. Finally, we lost some 350,000 customers over the course of 2015, which resulted in a significantly lower achieved cost margin. Since last summer, npower has developed a systematic and robust recovery program, which addresses the root causes of the operational deficiencies and also drives cost efficiencies into the business. We have already started to implement a range of solutions which have resulted in operational improvement. There are now controls in place preventing incorrect bills being issued. Total incoming complaints have reduced by 78% from January 2015 to December 2015, placing npower third out of the big six in Q4 2015, based on total incoming complaints per 100,000 customers. While we see our operational performance improving, we are still expecting some financial burdens to continue this year, as well as the occurrence of restructuring costs. Recovery program is planned to be a 2-year exercise to return to normalized earnings in 2018. However, the level will also be influenced by the prevailing competitive environment as well as potential regulatory changes. Let's move on to conventional power generation. This business has been under persistent pressure over the last few years, and there are no signs that this is going to change anytime soon. Rather, the contrary. The business has worked relentlessly to take out costs and increase efficiencies. So far, we have been able to implement measures with an accumulated net benefit of EUR 1 billion to the operating results. We announced some 9 gigawatts of capacity measures and reduced the headcount by some 3,600 FTEs. However, in recent weeks, we have seen a further dramatic drop in commodity prices, which puts many of our power plants in an unsustainable position. On page 10, you can see the free cash flow situation of our generation fleet by technology. At current power prices, it should not come as any surprise to you that our lignite operations, including the mines, are no longer able to cover their full cash costs. With regards to the spread positions, situation is a little bit more distinct. The recent power price moves have largely followed price developments of hard coal, gas, and CO2. While generation spreads for hard coal have remained fairly constant in Germany, they have slightly declined in the Netherlands and have deteriorated significantly in the U.K. However, clean spark spreads have recently improved across all our large markets and have moved quite considerably, making parts of our gas fleet more profitable again. Nuclear operations are still cash flow positive at current forward prices, although only marginally. Overall, at prices of EUR 20 per megawatt hour, the fleet is not able to cover its cash costs. The generation business, therefore, continues its efforts to find additional measures to improve its cash flow situation relentlessly, which is also one of the reasons we are stepping up our overall efficiency program. However, the speed and extent of the recent power price decline will be extremely difficult to mitigate. The focus remains on cash flow generation, but it will be challenging to be free cash flow positive at current power prices in the medium term. This brings me to the overall efficiency enhancement program. I am very pleased to say that our efficiency program continues to progress faster than expected. Despite the negative performance of RWE npower, we have delivered EUR 200 million instead of the planned EUR 100 million in 2015. This brings the total efficiency improvement achieved since 2012 to EUR 1.6 billion. We are not stopping here. In light of the deteriorating market conditions, we are stepping up the program by another EUR 500 million to be delivered by 2018. As mentioned before, the focus will be on efficiency improvements in the generation business. This takes the total program to EUR 2.5 billion net benefit to the operating result, which I believe is a significant amount in such a short time period. Ladies and gentlemen, this brings me to our CapEx program on slide 12. For 2016, we intend to spend between EUR 2 billion and EUR 2.5 billion. This includes investments in growth projects. EUR 1.8 billion is earmarked for day-to-day spending and maintenance CapEx. This is in line with our previously communicated intentions to bring CapEx down to EUR 2 billion. More than half of this amount will be spent on the regulated grid business to support our regulated asset base. In light of the planned IPO of NewCo, we intend to step up investments in growth opportunities. The majority of growth projects are within the renewables business. When we decided to propose a suspension of the dividend for common shares for fiscal 2015 as per our dividend policy, we took into account not only the financial situation of the company, but also the expected midterm earnings development of the company. We reached this decision mainly in light of the recent dramatic deterioration of the earnings prospects of conventional power generation. The current discussions around funding of nuclear liabilities was also taken into consideration. The decision did not come easy to us, as we know that we will disappoint many of our shareholders. However, it is necessary in order to strengthen the company. Nevertheless, I want to clarify that this decision is only with regards to the 2015 dividend. There will be a separate decision for the 2016 dividend next year, which will take a fresh look at the then prevailing economic situation of the company. Let me now hand over to Bernhard, who will provide you with more details on the financial performance of last year and give you the outlook for 2016. Thank you, Peter, and hello from me as well. With the following slides, I would like to highlight the main financial topics for fiscal year 2015 and our outlook for 2016. Much more information can be found in the backup section of our presentation and of course, in our annual report. Let me start on slide 15, which shows the development of the operating result. In fiscal 2015, it fell short of the previous year's number by 4.5%. As expected, the biggest effect is the decline in conventional power generation, mainly driven by a further deterioration of realized generation spreads. With respect to our trading business, we have lower results this year in comparison to the very good result in 2014. The earnings development in our Supply U.K. division has decreased by EUR 364 million to minus EUR 137 million. This is mainly a result of process and system-related problems with private customer billing, as Peter explained. Besides the operational problems, lower energy consumption of customers, the shift from standard to non-standard rate tariffs and high customer losses are also factors for the lower results. The restructuring plan for this division means that we expect the situation to stabilize in 2016, but will only be fully solved by the end of 2018. On the positive side, the operating result of RWE Energy has increased significantly. In fiscal 2015, we have recorded an operating result of EUR 493 million. Besides underlying earnings improvements from the commissioning of our offshore wind farms Nordsee One and Gwynt y Môr, this is also driven by positive one-offs. Above all, from the sale of stakes in our offshore wind project Galloper. This alone accounts for an earnings contribution of EUR 93 million. Furthermore, the revaluation of VSE as a result of its full consolidation leads to improvement of the operating result in our Eastern European downstream business. Slide 16 shows the earnings development from EBITDA down to adjusted net income. EBITDA is at EUR 7 billion, clearly above our guidance of EUR 6.1 billion to EUR 6.4 billion. This is due to the fact that we decided not to finish Block D of our hard coal power plant in Hamm. In this context, we received, among other things, insurance payments. However, we had to write off the asset fully, which accounted for EUR 654 million. But as EBITDA is before depreciation, only the positive effects are reflected in this number, while the operating result reflects the total one-off burden of approximately EUR 130 million. The decline in the non-operating result is dominated by impairments of EUR 2.1 billion for conventional power plants in Germany and the U.K. Despite a negative pre-tax profit, we have a tax burden of approximately EUR 600 million. This is for some business units reported higher tax losses than other business units generated tax profits. As the latter were not in the same tax group, they had to pay taxes. Second, we wrote off deferred tax assets as we do not expect to be able to make use of them in the foreseeable future. But they are not lost and can be used once the situation improves again. The tax rate for adjusted net income is in the order of a normalized tax rate of 31%. Here, we have adjusted for the write-off of deferred tax assets. We closed fiscal year 2015 with a net income of minus EUR 0.2 billion. After adjusting the non-operating result, the income from GCO and the tax effect, we achieved an adjusted net income of EUR 1.1 billion. Slide 17 shows the development of our cash flows from operating activities. It comes down by EUR 2.3 billion to EUR 3.3 billion, mainly due to changes in working capital. First, as explained in our most recent analyst calls, our most significant working capital effect is a result of a revised purchasing policy for required CO2 emission certificates. This had a corresponding positive effect on our cash flows in 2014. Second, due to volatile commodity price developments, we had higher variation margin payments, both as part of FFO and in working capital. The development of our net debt is shown on slide 18. It came down by EUR 5.9 billion, mainly driven by the disposal of RWE Dea. Furthermore, net debt was reduced by EUR 0.7 billion due to the change in pension provisions. Rising interest rates have decreased our pension provisions by approximately EUR 1.1 billion since the end of 2014. However, there were offsetting effects such as regular service costs that increased our pension provisions by EUR 0.4 billion. Let me take the opportunity to remind you of our target of a positive cash balance from 2015 onwards. We were able to achieve this target already in 2014 with a positive cash balance of EUR 1.1 billion. Due to the explained drivers for working capital, which had positive effects in 2014 and counter effects in 2015, we expected a negative cash balance for last year. But most importantly, for both years accumulated, we delivered a positive cash balance of EUR 4.2 billion. In principle, we will stick to our target of a positive cash balance, but as working capital is always very volatile in individual years, there might be years which, for specific reasons, show a negative cash balance. Slide 19 gives you the key elements of our debt or leverage strategy. Let me start with what we have achieved already. The composition of net debt has significantly improved. Net financial debt, including 50% of our hybrid bonds, has come down below our EBITDA of 2015. After the sale of RWE Dea, we have ample liquidity. Our strategy and main target remains to have access to capital markets at all times. To make this goal more tangible, we have defined three measures to support the target. First, the aspiration to keep a solid investment-grade rating to be able to refinance our financial debt, especially in times when the capital markets get tighter. Furthermore, this is essential for our trading and hedging activities. Nevertheless, due to the deteriorating economic environment as well as the political uncertainties, we, along with the utility sector in general, are being scrutinized by the rating agencies. At the end of February, Moody's and Standard & Poor's put us on credit watch negative. This means that within the next 3 months or so, they will decide whether they will confirm or downgrade our rating. As I said, we want to maintain our investment-grade ratings. However, not at any cost. We are willing to take tough decisions, as shown with our dividend proposal for 2015. Furthermore, we have increased our efficiency target from EUR 2 billion to EUR 2.5 billion and show discipline in our CapEx program. But at the end of the day, the rating is solely at the discretion of the rating agencies and is currently driven by developments beyond our control. Second, keep a positive cash balance long-term. Although, as previously mentioned, due to volatile working capital, this might be at risk in a single given year. Third, dedicate financial assets to long-term provisions. In doing so, we have now funded more than 20% of our total mining, nuclear, and non-funded pension commitments. Let me take the opportunity for a brief comment on the work of the Commission to Review the Financing of the Nuclear Energy Phase-out. At the end of February, the CEOs of the utilities met with the co-heads of the commission. The meeting was meant to evaluate possible solutions. The commission is going to continue its work in order to clarify the outstanding issues. We are in constructive talks, however, any agreement has to be acceptable for both sides. Let me conclude my remarks with the outlook for 2016. First on slide 20 for the key earning figures of the group. For 2016, we don't expect to be able to match previous years' earnings figures. The further decline in generation margins and higher OPEX to improve the quality of our grids will not be fully offset by further efficiency improvements. Furthermore, some one-off effects, especially in the EBITDA of 2015, will lead to lower earnings in 2016. Hence, we expect EBITDA to be between EUR 5.2 billion and EUR 5.5 billion, and the operating result between EUR 2.8 billion and EUR 3.1 billion. Our adjusted net income is expected to be between EUR 0.5 billion and EUR 0.7 billion. This assumes a positive effect on our tax rate in the context of our planned IPO and related reorganization measures. Let me point out that the current outlook for 2016 does not include contributions from a positive outcome of our court cases regarding the nuclear fuel tax. Slide 21 gives you the outlook for the individual divisions. It reflects the new management approach for our grid and retail businesses. In order to streamline the RWE group and to align to a functional steering strategy, we have moved the former division supply distribution networks Germany, supply Netherlands, Belgium, Supply U.K., and Central Eastern, Southeastern Europe across the countries under the divisions grid participation others and supply. For 2015, you can find the restated earning figures on the chart. For 2016, in conventional power generation, the main value driver is expected to be lower realized generation spreads. The strong earnings decline we expect for our renewables business is due to the one-off in 2015. Above all, from the sale of our stakes in our Galloper wind project. The earnings improvement for our division trading gas midstream is mainly due to an expected normalized earnings situation from our trading activities after below average earnings in 2015. In our German grid business, we see lower earnings from the sale of grid assets and higher OPEX to improve the quality of our grid business. In Eastern Europe, we will be mainly affected by the positive one-off in 2015 from the revaluation of the VSE participation in the context of the full consolidation of the group. The latter applies to our supply business as well. Furthermore, we expect burdens from the restructuring of our U.K. retail business. With this, I would like to conclude my remarks and hand over to Stephan for the Q&A. Yeah, thank you, Peter and Bernhard. With this, I would like to open up the Q&A session, and you know us and me, two questions only, please. Thanks. The first question comes from Deepa Venkateswaran, Bernstein. Thank you. I have two questions. One is about your chart 10, where you talk is why isn't RWE being more proactive on closures? Just to compare and contrast, SSE decided to close their coal plant in the U.K., even though it got a capacity auction. You haven't done anything like that. Instead, you opted to take a pretty low capacity payment in the December auction. I want to understand why there aren't more closures. Second question is really, what is your clean conventional generation earnings, if you take off the impairment, take off the insurance, what's the clean underlying earning for conventional generation in 2015? Thank you. Hi, Deepa. This is Bernhard. If I understood you correctly, the line was not very good. The first question was on our slide number 10, and why are there not further closures? I think you mentioned explicitly coal U.K. on the one hand, and there is obviously a question mark around lignite. Lignite, as we have stressed before, is a complex system where you do not simply shut individual power plants. You can do so to a certain extent, and effectively, this will happen with the five 300-megawatt units, which will go into the standby reserve soon. On coal U.K., the situation is such as we understand that even the U.K. regulator is now becoming a bit more aware that the U.K. might be structurally heading for an undersupply, and therefore we would expect the situation to improve somewhat and do not see that the current capacity market auctions ought to be extrapolated into the future. The second question, if I understood correctly, was, I think, on the underlying earning situation for conventional power generation in 2015. So underlying probably refers to X one-offs, and in 2015, the major one-offs in power generation were the non-commissioning of our hard coal unit in Hamm, which was a net effect of EUR 130 million negative and restructuring charges, which are recognized in operating result, which are of a similar magnitude. Thank you. Okay, thank you. Then the next question, please. The next question comes from Bobby Chadha, Morgan Stanley. Hi. Good afternoon, everybody. First question's on nuclear. Bernhard, in your speech, you said we need to find a solution that's acceptable to both sides. Can you give any color on which side feels it's more acceptable right now and what the remaining points for discussion are? Second question is on the U.K. retail business. It's a little unclear to me. Have you actually fixed the IT problems or not? When you talk about a stabilized situation, does that mean that you expect the business to be losing between EUR 100 million and EUR 150 million of operating results in 2016? If so, how come it's such a big headwind when it sounds as if the IT issues have been largely resolved? Thank you. Yes. Hi, Bobby. This is Peter. Let me say what I can say on nuclear, because there certainly are talks and negotiations which needs the quietness of the closed room in order to exchange all possibilities. Clearly, the problem is more complicated as one had anticipated from the start. That is why the commission needs more time. The good news is that they have taken more time. It's not only a discussion about what is necessary. I think that's one element, and there might be political views on that or maybe even public views on that, which are different from the, call it, informed view that we as an insider have. But on the other hand, there's also the issue of what can we afford. Very clearly, the commission got both as a working order, find an adequate solution for the financing, but also make sure that the four energy companies that are concerned can continue to prosper or to survive, whatever word you would like to use for that. Surely, with the current electricity power price development and with the recent announcements of the rating agencies, the affordability has come into a slightly different light now. There's a gap between those two ambitions, and we need to see in the next weeks whether that gap can be closed or cannot be closed. But we will not be forced into a deal that we from a company and from a shareholder perspective cannot subscribe to. Okay. Yeah. Hi, Bobby. This is Bernhard. I would like to take your second question on U.K. retail. First on earnings, please do understand that we cannot give any specific earnings indication for the U.K. retail business as in the pre-IPO phase. In terms of our approach to address and fix the I.T. problems, this is underway, but this is not just pushing a button and everything is nice and dandy again. It needs lots of sorting out also in terms of the primary data which the systems draw upon. So it's work which we will do step by step over the coming months and quarters. Okay, Bobby. Can I ask if you're confident that you have a full work through on it? Do you see a solution, or is it still work in progress? Well, we do clearly see a solution. Please bear in mind what we are trying to do here is that's not rocket science. It's not that it's the first time in this planet that somebody is trying to install an SAP IS-U billing system. We know that the U.K. regulation, compared to other countries, is relatively complicated, and as far as I remember, there are a few of our competitors who also struggled somewhat when they introduced new I.T. platforms. But it is something which has been done before, also within RWE in other countries, and therefore, we are very confident that we can solve these issues. Great. Thanks very much. Okay, then the next question, please. The next question is from Ahmed Farman, Jefferies. Hi. Thank you for taking my question. You mentioned earlier that you see that it would be challenging to keep conventional generation free cash flow positive on EUR 20. Can you maybe help us understand how this weakness in the future RWE AG directly managed assets could impact the targets you aim to achieve through the new strategy? My second question is on the sort of the credit rating. It seems that the sub-investment grade credit is also an option on the table. I just want any color on what could be the implications of that, of a downgrade to sub-investment grade rating would be very helpful. And what would it mean for NewCo's credit rating? Thank you. Ahmed, because we seem to have here some bad lines. If we understood your questions correctly, I think one of the main implications on NewCo coming from the, let's say, very challenging, and also the pressure on the rating, was that the question asked? Yes, that's right. Okay, thanks. Yeah. I think maybe in some ways we can answer the two questions with one answer. I think it makes this restructuring of the group and the NewCo spinoff even more sensible. Yeah, it strengthens the case. Okay. Thank you. Okay, then the next question, please. The next question is from Lueder Schumacher, Société Générale. Good afternoon. I think my questions are more or less like Deepa's first ones. The first one is on conventional power generation. Could you give us the EBITDA that we should deduct from one-off items so we get an idea of the underlying one? You gave us some indication of the operating result, but it would be quite interesting to get it for the EBITDA level as well. The second one is, again, on the impact of power prices and what will happen in 2017 when most of the hedges will have run out. You have indicated that lignite is already no longer able to cover cash costs. My question following up on this is, what are you actually going to do? You said it's complicated. There is a bigger system to be considered, but are you actually going to stop producing, or are you currently still selling forward for 2017, 2018 at the current price, thereby recognizing that you will take cash losses? Lueder, here is Bernhard. I would start with the second question, power prices and their impact on conventional power generation. We do not expect the currently low level of power prices to fully hit our P&L before 2019, because we have already hedged also for 2018, some volumes at higher. Of course, I think you also understood that we said at the pro forma forward prices, for the future, the power generation would not be cash positive, especially lignite has turned cash negative. As we said before, closure decisions on lignite are not as easy in terms of telling what is the right step, as they are for other power plants. Because if you close a significant amount of plants, you also will have negative effects on the mining operations. Therefore, we are now in a new ballgame, and we will have to first analyze the situation internally and then potentially, as Peter said in the press conference earlier today, also discuss together with politics and potentially the unions, on what the implications from this analysis would be. On your first question on the pro forma underlying EBITDA in generation, it would be a EUR 400 million number, which you should deduct in that respect. Thank you very much for the EUR 400 million. Can I just add one on the lignite question? You do not have to close lignite. All you have to do is not run it, not sell volumes, and you would still see a merit order impact. But are you saying you are still going to be operating and running the whole station? Yeah, Lueder, this is Peter. Let me say clearly that we internally, naturally have all options on the table, which we consider. But we rather not discuss them publicly, because then they could become a self-fulfilling prophecy. When you use the word merit order, you are getting into a very sensitive territory, because that is where the cartel office also looks at whether what we are doing is only out of pure economic sense in a smaller context, or whether there is a market effect that we try to achieve there. The latter, we naturally do not do. But therefore, we have to be careful in this arena. We have also clearly said at EUR 20, the government wants to have security of supply. The labor union wants to have at least some certainty for the workplaces, but at current cost, it cannot be done. It is a pretty labor-intensive business, our lignite. So we jointly need to look at what of the alternatives on the table are acceptable for the mutuality of those three parties and then start executing them. So that is where we are, and unfortunately, I cannot be any more concrete on this than what I have said. EUR 100 million is going to contribute to the repair of your U.K. supply. And for that, do you expect U.K. supply to actually become EBIT positive again? Yeah. Hi, Peter, this is Bernhard. So on the phasing of the additional EUR 500 million, this is very much back-end loaded. So, we are now obviously addressing measures which are not that quickly to implement as the first or second wave of cost cuttings that we implemented. So expect them rather to come in the years 2017 and especially 2018. On U.K., I am not 100% sure if I got your question correctly. Of course, we expect it to return to an EBIT positive territory. But we said the normalized state will not be reached before 2018. But I am not sure if I got the gist of the question. Yes. What I was asking was whether the cost savings that are required to repair the U.K. business, are those included in the EUR 500 million? No, they aren't, because this is a net-net comparison between where we've been in 2012 in terms of profitability. The cost increases we had now until 2015 have burdened our 2015 numbers. So in a way, of course, the recovery of U.K. will pay back, but this is a kind of zero-sum game. The EUR 500 million on top are not a double counting of the U.K. numbers. Got it. Thank you. Okay, thanks. The next question, please. The next question is from John Musk, RBC. Yeah. Morning, everybody. Sorry to come back to the generation fleet, but a slightly different question on the nuclear plant. Typically, we've seen other people, or we have seen other people close down plants when you have a big CapEx event, given that these plants, as you said, are basically operating at small cash losses. Is there any risk of you shutting down any of the nuclear fleet earlier than the current plan? Secondly, is there any clarity or more precise guidance you can give on the tax rate we should expect in 2016? Yes, John, this is Peter. Let me start with the plant closures. I'm not sure whether some of you might qualify that as a risk or as a chance, but I'll leave that in the midst. We certainly continue our quarterly review of the cash flow plant by plant and at the current power price, whenever a major overhaul comes up, certainly that decision will be more favorable towards closing than it ever has been. But we haven't made any formal announcements on that. I can only say that this review is work in progress, or continuous work that we will continue to do. Yeah. Hi, John. For me, the tax rate will be slightly above 30%. That's what we expect. Okay. Thank you. Okay, thanks. The next question, please. The next question is from Vincent Gilles, Credit Suisse. Yes. Good afternoon, everyone. Coming back to two points, one on nuclear, inevitably. Apparently, in press conference, Bernhard, you said that 40% of the nuclear liabilities are covered, they say in cash, but I am not sure that is what you said. You talk about 20% earmarked level. So if you could help us understand which assets have been earmarked. It is a discussion we had last year, but maybe more precision would be helpful. The second question is coming back to Peter Terium's point on the NewCo, you were talking about adequate funding. I think you used the word adequate. Maybe you can help us understand how you conceive the funding of the new company, keeping in mind that the existence of the two separate companies is just three weeks away. Thank you very much. Vincent, let me start with the second one. By the way, I didn't know that you had a second job as a journalist by calling into our press conference, but that's obviously open to your guys as well. On adequate funding, I meant that under the indicated financing structure where we said 3 to 3.5x EBITDA, we see that a capital increase of 10% is sufficient to cover immediate growth investments. Whenever we've executed them, and as soon as we have developed a track record, we naturally always have the option to go back to the capital market for further growth investments if that might come up. But I would say that's a logical story. More detailed I cannot be about that, specifically in this pre-IPO phase, but there basically also is not that much more to say about it. Hi, Vincent, this is Bernhard. On your first question on the 40% that I mentioned in the press call. That's exactly the number you see on page 19 of the presentation, where the number is put against the overall provisions, which are close to EUR 20 billion. There it's 20% of the provisions earmarked, or covered or offset, however you want to call it, collateralized by earmarked financial assets. If you just refer it to the EUR 10 billion nuclear provisions, of course the number is 40%. This is mainly the proceeds from the DEA sale, which has been reinvested into financial assets. Okay. Thank you. Okay, thanks, Vincent. Next question, please. The next question is from Sam Arie, UBS. Sam, are you still there? Good afternoon, everybody. I had a question relating to the 2020 German government emissions targets, which seems to have dropped off everybody's radar recently. As things stand at the moment, the latest reading I've seen from the German government is that the German government is on track to meet its EU burden-sharing targets for 2020, but still some way short of the 40% domestic emissions reduction target. How should we be thinking about that? Do you think the government is still determined to meet the emissions reduction target for 2020? I mean, the gap seems to be very large. You're looking at probably an extra 60 or 70 million tons of CO2 that would need to be reduced in order to meet that target. Is the government still determined to meet it, in your view? If so, does that mean there is an extra risk above and beyond the many risks you've already highlighted on this call to coal and lignite generation between now and 2020? Yeah. Hi, Mark. I don't see that much of an extra risk at this moment in time. It clearly has been a binding target, at least on paper. Whether there is a gap or not differs from, we'll say, who you ask and who has a look at it. There's even been now the recent report, which has been not getting a lot of publicity, but which says that with the actual programs in place, we might even overachieve the reduction targets for 2020. So far, I don't see any political appetite, at least not from the current government, to change anything to what was, with quite a lot of efforts, achieved last year. Okay, that's fine. Thank you. Okay, Mark. Thanks. Then the next question, please. The next question is from Andreas Thielen, MainFirst. Yes, good afternoon. Two questions. Firstly, if I look on your CapEx chart, the EUR 400 million for conventional generation. Is that the absolute bottom, or would you be able, in the light of the current development, to reduce that any further? Secondly, from Peter's comment initially on the nuclear funding discussion, is it correct to think that, in the end, it would be a proposal which will be an agreement between the nuclear operators and the government, or is the idea that the government will impose whatever they deem as the right thing on the operators? Yeah, let me take the second question first, then the guys can dig into the numbers of the first one if they need to. An agreement is only an agreement if both parties agree to it, otherwise it wouldn't be called an agreement. Clearly, the objective for the commission has been, as instructed by the government, to come to an agreement. Any case of non-agreement, if a one-sided action would be taken by the government, would lead to a further host of court cases, which certainly is not what this current government is looking for. I don't think there will be a disagreed kind of opposed measurement. Worst case, if we don't get it solved, it stays like it is. I'm still looking forward to find a solution to at least have a kind of final clarity on this issue going forward. Yeah, maybe to your first question on slide number 12 with our CapEx breakdown. The EUR 400 million, which are labeled conventional power generation, that's not that we are building power stations in secret, hidden away from the capital market, but this is the day-to-day CapEx, and especially not only in the power stations, but also in the lignite mines. There's a significant amount of expenses which are activated on the balance sheet in the lignite mines. As for example, the real estate, which is bought and sold again as the mine moves through the landscape. So, can it be brought down? Yes, it can be brought down, because it also contains maintenance CapEx, both for mining and for generation. As we sweat the assets there even more, also, I would expect this number to go down slightly. Yeah. Okay, great. Thank you. Okay, the next question, please. The next question is from Sam Arie, UBS. Hi. Thank you for coming back to me. I could hear you previously, but apparently not the reverse. I just wanted to ask one question about the IPO. You have reiterated today that you will aim to list 10% this year. You previously talked about flexibility to list further tranches in future years. Just given the pressures from the power price and what looks like, frankly, a cliff edge in the generation earnings in 2018, we might be expecting a second tranche to be listed at some point in, say, 2017. I guess that brings me to my question, which is really about the dividend and whether this year's suspension could be extended. What I really want to ask is, would you see it as consistent to pay a dividend in the same year as you are raising capital through listing further tranches of the IPO? Okay, Sam, hi. Stefan again. Did I get your question right? Once the NewCo is alive and pays dividend to the HoldCo, what does it mean for the HoldCo dividend? Was that, in essence, your question? Not exactly. I am saying that what I have understood this year is you are suspending the dividend and you are raising capital through the IPO. What I am asking is, if you have to raise more capital through further tranches of NewCo being issued, say in 2017, would we expect then that you would need to suspend the dividend again, or is it inconsistent to you to pay a dividend and raise capital in the same year? Yeah, as Peter said in the press conference on several occasions, we are now maneuvering on a fly-by-sight mode. We will decide that, or the then prevailing management team will decide the 2017 dividend payment when time is due. No more speculation on that at this point in time. Okay, Sam? Okay, thank you. Okay, thanks. Next question, please. There are no further questions. Okay, thank you. Thanks for dialing in and asking your questions, and hope to seeing you soon on the Street or in London. Bye-bye. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may now disconnect.