innogy what does the future hold? Frank-Detlef Drake Head of Strategy and Technology London, 30 th January 2018
FUTURE ENERGY SYSTEM We set up innogy to build on and drive the three megatrends of the energy industry Decarbonisation Decentralisation Digitisation 2
FUTURE ENERGY SYSTEM The future energy system will comprise six distinct business areas with significant changes in European value pools Electricity Gas Electricity Gas RES Infrastructure Customer Platform Business area Business 1 Renewables 2 Traditional regulated 3 Emerging new 4 Traditional customer 5 Energy solutions 6 New platforms at grid infrastructure assets (largely nonregulated) infrastructure assets commodity business (B2C and B2B) (Grid+, Energy+) the interface of assets/infrastructure and customer business Ground-mounted solar Wind onshore Wind offshore Power-based (green) fuels Utility-scale storage DSO & DSO-related services (electricity) DSO & DSO-related services (gas) FTTx Smart Street Poles Electricity B2B Electricity B2C Gas B2B Gas B2C Energy+ B2B emobility (EV charging) Energy+ B2C: Small-scale storage Distributed solar Heating (gas, CHP, solar thermal, heat pumps) Smart home Local/regional platforms Global/international platforms European EBIT value pools (rough estimates) in EUR bn 16 2015 6-9% p.a. 22-27 2020 30-38 2025 21 <1% p.a. 18 22 14 13 16 7 5 6 2015 2020 2025 20-27% p.a. 13-23 8-10 2 2015 2020 2025-1% p.a. 16 14-16 2 11 11 5 3 2015 2020 13-15 2 10 3 2025 11-13% p.a. 10-13 4 2015 5-6 2020 2025? 2015 2020 2025 SOURCE: Bloomberg New Energy Finance, Goldman Sachs Global Investment Research, European Commission's Renewable Energy Directive, FTTH Council Europe, Northeast Group, Berg Insight, innogy segment strategies, McKinsey 3
TARGET PICTURE 2025 The What innogy's target picture in 2025 Core business New growth areas G&I Grid assets FTTx Smart poles Retail Innovation Commodity Energy+ emobility Renewables Wind assets Solar EPC/O&M Solar IPP Synergies Platforms 4
TARGET PICTURE 2025 Our target picture 2025 is defined along the dimensions: performance, position, portfolio and partnerships (4P) Performance We will become a topquartile performer Position We will achieve leading positions in our businesses Portfolio We will actively restructure our portfolio, if leading positions and performance cannot be achieved Partnerships - will be needed to improve position and performance Our strategy is in its essence a best owner strategy 5
TARGET PICTURE 2025 The Where innogy's target geographies High score countries Medium score countries No-go countries Focus regions innogy guides regional footprints of segments via boundary conditions 6
TARGET PICTURE 2025 The How innogy's target operating model Functional steering "One face to the customer approach" Develop and hire topnotch skills Programmatic M&A Further strengthening external orientation Scaling digital Agile organization Clear guidance on importance of a much stronger performance culture Follow "One face to the customer approach" across our segments Develop talents Complement existing capabilities with new hires on senior and working level Systematically screen and support acquisitions and divestments required to achieve our target picture Accelerate open ecosystem and partnership approach Accelerate build-up of digital and advanced analytics capabilities within segment and group level Empower crossfunctional teams Rapid prototyping Open ecosystem partnerships 7
STRATEGIC THRUSTS G&I remains a leading 1 DSO in scale & performance and will grow across traditional & emerging infrastructure business areas Target picture 2025 Strategic measures Position Top 3 DSO in our markets Leading player 2 for FTTx and Smart Poles Performance Top-quartile performer amongst European DSOs 2 Ambition to become the best DSO in our markets 3 Core business G&I FTTx DSO acquisitions Efficiency and effectiveness Scale up Germany Portfolio Programmatic M&A, i.e. with financial investors Geographies Focus on Europe Assess opportunities in North America and selected emerging markets (case-by-case) New growth areas Smart Poles International scale up Pilot projects Extend pole base 1 In Europe 2 In the relevant markets 3 According to McKinsey DSO benchmarking 2017 8
STRATEGIC MEASURES New growth area G&I: FTTx 1 The opportunity Global ranking of FTTh penetration 2 in percent 1 South Korea 2 UAE 3 Singapore 6 Japan 11 Sweden 15 China 17 Denmark [-] Czech Republic [-] Trinidad&Tobago [-] Croatia [-] Germany 0 20 40 1,3 Selected examples 60 80 100 innogy's approach Benefit from low penetration rates in Germany and German government support to close this infrastructure gap Capture the opportunity by Lever existing duct network with direct customer access Scale up cooperation with telco players Pursue acquisitions of smaller player in this field Ambition and potential Capex of around 200m p.a. until 2020 1 Fiber to the x (e.g. home and curb) 2 Fiber to the home penetration: Economies with at least 200,000 households SOURCE: IDATE for FttH council Europe, WIK, German Federal Ministry for Economic Affairs and Energy, McKinsey, innogy 9
STRATEGIC MEASURES New growth area G&I: Smart Poles The opportunity innogy's approach Opportunities go beyond hardware and lighting, to services, data, and applications for cities Capture the opportunity by Extending position as major public infrastructure operator Offering various complementary products Creating partnerships with telco providers Ambition and potential Currently in evaluation/piloting 10
STRATEGIC THRUSTS Retail commits to achieve leading positions related to size and performance Target picture 2025 Position Leading positions in core European markets Achieve substantial market share 1 for emobility on a global scale Core business Strategic measures Commodity B2C: Scale & performance B2B: Restructuring & performance Performance Top-quartile performance Portfolio Consider acquisitions for upscaling and for Energy+ Geographies Focus Europe for retail-related businesses North America as strategic growth region 2 New growth areas Energy+ emobility Lean retail backbone/ attackers (incl. Energy+) B2C: Sales increase & churn reduction B2B: Sales increase Partnerships and M&A Upscaling in Europe US market entry 1 In electrical vehicle charging market 2 Entering with emobility in the US and assessing opportunities for entry in other business areas 11
STRATEGIC MEASURES New growth area for Retail: Energy+ The opportunity innogy's approach Push existing offerings and grow through M&A and partnerships Start with expanding offering of asset-light products and services (e.g. energy services to scale rapidly) Six customer segments were identified in B2B requiring a modular yet standardized setup of solutions EV chargers Ambition and potential Grow Energy+ In B2C to reduce churn In B2B as asset-light solution business 12
STRATEGIC MEASURES New growth area for Retail: emobility The opportunity innogy's approach @Home: Establish innogy as 1 st contact for home charging solutions @Semi-Public: Standardize offering @Station: Secure locations for EV charging station @Public: Continue extending public charging facilities to remain leading provider Ambition and potential Achieve substantial market share for EV charging on a global scale 13
STRATEGIC THRUSTS Renewables will focus on growth and performance as well as potential opportunities for value maximizing options Target picture 2025 Position Top 3 Renewables in Wind On-/ Offshore & Solar Performance Top-quartile performance Strategic measures Wind Onshore Improve O&M performance Streamline capex Capital recycling Governmental tender team Portfolio Review strategic fit and potential opportunities for value-maximizing options of parts of the business Geographies Expand in Europe and North America Expand in selected emerging markets, especially for Solar EPC and O&M 1 Core business New growth area Wind Offshore Solar EPC/ O&M Solar IPP 2 Improve O&M performance Capital recycling 10-in-10 program Grow O&M business Enter low-cost EPC market Build IPP business 1 EPC: Engineering-Procurement-Construction, O&M: Operations & Maintenance 2 IPP: Independent Power Producer 14
STRATEGIC MEASURES New growth area Renewables: Solar IPP The opportunity innogy's approach Market entry establishing global Build-Own-Operate business with the possibility of sell-downs Short term: M&A, Brownfield Mid-/long-term: Brownfield and preparation of Greenfield Ambition and potential Timing of first EBIT contribution depending on delivery of pipeline 15
SUMMARY With the 4P-Strategy, we continue our journey with a more specific and binding focus on performance and growth 16
Backup
CORE BELIEFS We have five core beliefs on what is required to change they guide the target picture 2025 Skill and economies of scale are the most critical differentiators our segments will drive these We see the most additional value in optimization within the segments, while we regard the value of vertical integration as an add-on In order to achieve and sustain leading positions, we benefit from strategic partners In order to achieve and sustain a top-quartile performance in all businesses we benefit from (financial) investors and their performance management approaches In order to further strengthen our capabilities and entrepreneurial "mindset", we will build on skill development, cultural change, partnerships, acquisitions, and hiring 18