Stable market trends shape the industry

Transcription

1 Stable market trends shape the industry TRENDS OF THE EUROPEAN ENERGY INDUSTRY Massive investment needs > App. 500bn in Europe (incl. Russia) up to 2020 Margin shifts along the value chain > Cyclical margin shifts between retail and production Renewables & Climate change policy > Climate change policy drives EU targets, e.g. 20/20/20 by 2020 > New markets (renewables) Competition & Liberalization > Increasing competition on all levels: from upstream to retail > Changing customer behavior Cyclicality commodities/ security of supply Convergence of markets > High price levels in the mid-term/strong volatility for all commodities Core Market Electricity > Convergence of regional power and gas markets Politics & Regulation* > Continuing strong impact on business model and profitability > Energy industry part of public debate Growth Market Additional markets for renewables business Gas Water Consolidation > Ongoing consolidation of top players in Europe * Including competition authorities

2 Market Cap of European Utilities I MARKET CAPITALIZATION OF LISTED TOP UTILITIES [ BN] Competitor peer group GDF SUEZ EDF E.ON 38 Enel 32 Iberdrola RWE EV/EBITDA 2010e Multiple National Grid Fortum Centrica Scottish & Southern 21 4 CEZ October 2010 Net financial debt Market capitalisation Gas Natural EdP > Post-crisis market caps have fallen while debt level increased creating pressure on credit rating Source: Reuters, 29 Oct 2010

3 Market Cap of European Utilities II MARKET CAPITALIZATION OF LISTED TOP UTILITIES [ BN] Competitor peer group 12 5 Oct 2010 market cap Feb 2008 market cap GDF SUEZ EDF 43 E.ON 38 Enel 32 Iberdrola RWE EV/EBITDA 2010e Multiple 27 National Grid Fortum Centrica CEZ 28 Scottish & Southern Gas Natural EdP Source: Reuters, 29 Oct 2010

4 Most competitors are fighting their indebtedness EDF being a different animal 2008 VS COMPARISON OF LEVERAGE FACTOR IN RELATION TO FINANCIAL SUSTAINABILITY Leverage factor (economic debt/ EBITDA 2010e) 6,5 6,0 5,5 EDF 5,0 4,5 IBR 4,0 GDF SUEZ Enel 3,5 E.on 3,0 RWE 2,5 2,0 1, Source: Total economic debt in % of enterprise value Bubble size = total refinancing requirements For competitors: S&P company reports, Reuters data; For RWE: figures provided by CFC In general, financial sustainability decreased due to aggressive growth, the economic crisis and tighter credit rating Recently, most players have improved their financial situation significantly by: Consolidation/ Disposals Reduced capex programs Equity increases Efficiency improvements Financial engineering Resulting in a relatively stable financial situation but no flexibility

5 Aggressive growth - European competitor universe is shrinking Every top player has made at least one big move since 2007 EDF GDF SUEZ E.ON / Enel Iberdrola RWE Competitors in focus

6 Reduced capex programs because of both financial and economic considerations ANNUAL CAPEX PLANS OF COMPETITORS [ BN] EDF GDF Suez E.on Enel Iberdrola RWE > Competitors slash capex programs over time except for Iberdrola > EDF is the only player still communicating stable capex program > GDF SUEZ and E.ON with highest reduction > Iberdrola planning to keep level of 4bn, after having flexibly scaled down from 7bn > RWE s capex slash will eventually meet market expectation CFC Planning for RWE Source: S&P company reports, Reuters data, as of October Red figures for RWE provided by CFC, 100% realization of optimization measures assumed

7 The aftermath of the crisis some home work has been done but competitors have not gained back their flexibility FINANCIAL HEADROOM 2010 [ bn] 12,4 Financial headroom 1) 2,9 0,0 0,0 0,0 0,0 Financial situation > Debt not an issue for EDF, due to 85% state ownership > Vehicle for the French state to manage debt > Creating intransparent risk sharing > GDF SUEZ is the only European player with significant headroom Source: RWE/GoldmanSachs Analysis, September ) Assuming max. LF of 3.5 to maintain A rating and no EBITDA change > Both E.ON and Enel have done their home work regarding financial and portfolio optimization > Leverage factors seem stable > Higher Enel leverage factor compensated by partial state ownership and A- rating > No flexibility left > Regulated business model and A- rating allows for higher LF > Highly flexible, scalable capex program due to onshore wind > RWE will barely be able to safeguard position > Substantial restructuring needs to be realized

8 Regional Strategy EDF a European Player, with some nuclear outpost in the US and China France > 96.8 GW, 454 TWh UK > 12.8 GW > 72 TWh Germany > 7.2 GW > 30.3 TWh Italy > 6 GW > 21 TWh Other countries in Europe > 6.4 GW 1.7 GW USA > 1.7 GW > China 1.7 GW nuclear > Vietnam & Laos 0.8 GW coal Power activities Power & gas activities Long term LNG supply Regasification capacity

9 Regional Strategy GDF SUEZ Global player with 75% of all new projects strategically located in fast-growing non-oecd markets Portugal > 1.7 GW UK > 3.8 GW France > 8.5 GW > 32 TWh > Gas: 294 TWh BeNeDeLux > 18.1 GW > 88.6 TWh > Gas: 75 TWh Other countries in Europe > 12.1 GW > 43 TWh Other countries in Europe > 0.8 GW 1.2 GW North America > 6.7 GW > 22.8 TWh 2.5 GW > 6.3 GW Middle East, Africa, Asia & Pacific > 6.7 GW > 30.4 TWh 0.7 GW Latin America > 8.5 GW > 35.4 TWh 3.2 GW Gas activities Long term LNG supply Power activities Power & gas activities Regasification capacity Add. markets through International Power

10 Regional Strategy E.ON Pan-European growth strategy including power and gas in Russia UK > 10.3 GW > 32.8 TWh > Gas: 78 TWh BeNeLux > 2.8 GW > 10.5 TWh > Gas: 6 TWh Sweden > 6.8 GW > 19 TWh > Gas: 7 TWh Germany > 22.7 GW > TWh > Gas: 110 TWh CEE > 65 TWh > Gas: 40 TWh Italy > 5.6 GW > 16.5 TWh > Gas: 33 TWh Russia > 8.3 GW > 53.9 TWh > 7.5 bcm gas field particip. France > 2.5 GW > 7.5 TWh > Gas: 9 TWh Spain > 3.4 GW > 12.2 TWh Power activities Power & gas activities

11 Regional Strategy Enel trying to integrate Endesa Iberia > 22.1 GW > 61 TWh Italy > 40.4 GW > 84 TWh > Gas: 80TWh Slovakia > 5.3 GW > 19.9 TWh Russia > 8.2 GW > 39.1 TWh Other countries in Europe > 2.2 GW > 5.4 TWh North America > 0.8 GW > 2.4 TWh Latin America > 16.3 GW > 55.7 TWh Power activities Power & gas activities

12 Regional Strategy Iberdrola playing the Atlantic basin game Spain > 25.7 GW > 65.8 TWh > Gas: 66 TWh UK > 5.3 GW > 25.7 TWh > Gas 34 TWh Other countries worldwide > 1.1 GW > 1.4 TWh North America > 4.5 GW > 11.4 TWh > Gas 53 TWh Latin America > 5.6 GW > 38.6 TWh Power activities Power & gas activities Long term LNG supply Regasification capacity

13 Renewables All competitors with significant Renewables growth activities also in the Americas region PIPELINE ACTIVITY [GW] OPERATIONAL CAPACITY INCL. HYDRO [GW] IBR Enel 1) RWE EDF E.ON GDF Suez Europe Pipeline Americas Pipeline Endesa Pipeline Europe Operational Americas Operational Sources: Annual reports and analyst reports (Mar 2010) 1) Endesa: 9 GW pipeline with unknown geographical split (Americas / Europe)

14 Competitor strategies in a nut shell Focussers Diversifiers Power & Gas vertically integrated Power & Gas strategy 1) Power only vertically integrated power strategy, gas only opportunistic Power champions European focus Global/LatAm business approach 1) Including Russia, not taking into account wind in the USA

15 Discussion topics

16 Renewables Operational RES-capacities of European players historically strong in hydro EUROPE: OPERATIONAL CAPACITY INCL. LARGE HYDRO [GW] BACK UP EDF Enel 1) IBR E.ON GDF Suez RWE Hydro Offshore Onshore Biomass Others Sources: Annual reports and analyst reports (March 2010) 1) Including Endesa

17 Renewables Competitors in the Americas with strong focus on the US except Enel and GDF Suez OPERATIONAL CAPACITY AND PIPELINE ACTIVITIES [GW] USA Latin America IBR Enel 1) E.ON EDF 2) GDF Suez RWE 0 USA Capacity USA Pipeline 0 Latin America Operational Latin America Pipeline Presence in North America due to onshore wind growth strategy Presence in South America due to M&A strategy Sources: Annual reports and analyst reports (Mar 2010) 1) Including 2.9 GW pipeline in Canada. Endesa pipeline excluded due to unknown geographical split (Americas / Europe) 2) Including 1 GW pipeline in Canada

18 Renewables RWE s diversified & regionally focused portfolio optimises integration at the expense of capex efficiency RENEWABLES DEVELOPMENT PATH INCLUDING HYDRO [GW] Capacity [GW] today Mid-term targets Capacity CAPEX GW bn Match capacity / CAPEX targets 1) Technological Diversification CAPEX efficiency Invest / Output Enel 34.2 EDF 25.1 IBR GDF Suez 12.2 n.a. n.a. n.a. n.a. n.a. E.ON 4) 8.3 RWE ) Does the allocated Capex match the communicated target?

19 Trading In Trading utility competitors represent only a limited share of the industry 1 st tier 2 nd tier 3 rd tier EU Power and Gas Utility Traders > E.g. CEZ, Vattenfall, EnBW Oil & Gas Majors Independent Traders Banks > e.g. BP, Shell, Total, British Gas > National Producers (NOC, NGC) Cross Commodity Traders > Cross-commodity traders: Glencore, Dreyfus, Sempra > E.g. Goldman Sachs, BarCap Specialised Traders > Oil: e.g. Vitol, Trafigura, Gunvor > Metals: e.g. Simportex, Metdist > Soft Commodities: e.g. Cargill Others > E.g. Citigroup, Deutsche Bank, Credit Suisse, Societe Generale Source: Oliver Wyman Benchmark Study

20 Trading RWEST is one of the largest traders in Europe but only half the size of global competitors REVENUE PEER COMPARISON [ bn] 1) European Player Global Player ,0 1,5 1,5 1,4 1,4 1,3 1,1 1,1 1,1 Trading 2) 797m 0,6 ABT 347m 0,1 0,2 0,2 0,2 0,3 0,1 RWEST RWEST Tier 1 EU utility traders I.e., EDFT, RWEST, E.ON, GDF SUEZ Tier 2 EU utility traders Top-3 bank EU P&G divisions RWEST Leading NA P&G producertraders Oil and Gas majors Independent traders Top-3 banks (all commodities) 1) Average overall commodities revenues. Energy company asset optimisation revenues included 2) Including coal and other revenues for consistency with benchmark data Source: Oliver Wyman Benchmark Study

21 Snap shot of the ongoing competition from Stars to Question Marks Stars RWE? Question marks App. EBITDA split 2009 Global Rest of Europe The global player Home market Atlantic basin & RES leader Pan-European power and gas Digesting Endesa Go nuclear on global level > Globally, vertically integrated gas position complemented by strong power position with low carbon footprint (330g/kWh) already below market average in 2025 > Free headroom to explicitly target strong growing, non- OECD markets, e.g. 40% of Capex outside EU, merger with IPR > No renewables strategy > Suez & Energy Services black holes of profitability: 80% of employees delivering 20% of OR Anticipated strategy: > Continue with growth path > Develop RES > Winning the renewables bet in Europe and potentially in the US > Stable regulated business (45% grid, 20% REN EBITDA) allowing for highly flexible capex plan > Adapting to the new energy world by increasing flexibility > Cultural fit and integrated power & gas position in the US & MX Anticipated strategy: > Keep growing RES > Well positioned European player > Lucky to have missed out on high price Endesa, getting EU- leftovers only > Power generation close to 2025 market average > Multiple challenges in the gas business: unbalanced position, inflexible organization, etc. Anticipated strategy: > Consolidate, integrate and then grow position in Europe > Pursue growth on global level in mid-term > Wild, debt driven M&A growth in the past. Leading to diversified but unlinked businesses > Focus on consolidation and realizing synergies > Pure power generation strategy, divesting gas upand midstream assets > Cultural fit with LatAm activities supports past M&A growth Anticipated strategy: > Trying to build the new, integrated Enel > Focus on power generation in the Americas, Iberia, IT and Eastern Europe > 85% state owned dinosaur, propagating nuclear revival on global level > Strength derived from core market. High risk nuclear strategy with significant back fire potential > Poor European and global value proposition: overpaid market entry in UK/US, minority ownerships D/IT, etc. Anticipated strategy: > Protect the core, i.e. prevent renewables growth in France and physical market coupling with NWE

22 Four lessons from our competitor analysis and several key questions for RWE Competitor lessons Improve financial flexibility Reap synergies from compact and coherent core business Foster flexible, scalable investment strategy Develop multiple growth regions and business models Do we have a joint understanding how to answer these questions? Financing > Have we done enough to regain our financial flexibility? > Do we have to exploit financing alternatives? Portfolio > What is our ideal portfolio for the future? > Shall we continue our two pillar strategy? Growth > Concentrate on Europe or go beyond? > Shall we pursue a consolidation step?