RWE AG (RWE (LON:0HA0).DE), a leading energy company, reported significant advancements in its "Growing Green" strategy during its earnings call for the first three quarters of fiscal 2024.
CEO Markus Krebber announced that the company exceeded its internal rate of return (IRR) target with net investments of €6.9 billion, 95% taxonomy aligned, and an average IRR of 8.2%. Adjusted EBITDA reached €4 billion, and adjusted net income was €1.6 billion, prompting an increase in guidance for the year.
RWE also detailed a share buyback program worth €1.5 billion over 18 months and confirmed a dividend target of €1.1 per share for fiscal 2024. CFO Michael Muller outlined a reduction in net cash investments, averaging €7 billion for 2025 and 2026, a decrease from the previous €8 billion run rate, due to a reassessment of capital allocation, particularly in U.S. offshore wind and hydrogen projects.
Key Takeaways
- RWE AG's "Growing Green" strategy is showing strong progress with net investments of €6.9 billion, 95% taxonomy aligned.
- The company has achieved an average IRR of 8.2%, surpassing the 8% target.
- Adjusted EBITDA and net income stand at €4 billion and €1.6 billion, respectively.
- RWE has announced a €1.5 billion share buyback program and confirmed a €1.1 per share dividend target for fiscal 2024.
- The company is reducing its CapEx program by €2 billion for the next two years, focusing on investments with favorable risk-reward profiles.
Company Outlook
- RWE is committed to maintaining its strong investment-grade rating while navigating market uncertainties.
- The company has 11.2 gigawatts of capacity under construction, with an emphasis on maintaining favorable risk-reward investment profiles.
Bearish Highlights
- Delays in U.S. offshore wind and hydrogen projects have led to a reduction in the CapEx program for the next two years.
- Uncertainties regarding potential impacts of U.S. Republican policies on clean energy tax credits and the Internal Revenue Code (IRA).
Bullish Highlights
- Strong demand for green power is evident, and RWE's existing U.S. projects with Final Investment Decisions (FID) are protected against potential tariff changes.
- Prices for Power Purchase Agreements (PPAs) in the U.S. are rising year-on-year, and European offshore project prices remain stable.
Misses
- The CapEx plan reduction of €2 billion is solely from offshore wind and green hydrogen projects, with no additional spending planned for the next two years.
Q&A Highlights
- CEO Markus Krebber addressed the offshore wind strategy, partnership approach, and the political landscape in Germany, focusing on energy cost reductions and skepticism about new nuclear builds without regulatory reform.
- CFO Michael Muller confirmed stable guidance for trading activities and quicker normalization in flex generation returns.
- Inquiries about the average IRR of 8.2% confirmed it includes projects with FIDs and those under construction, primarily based on PPAs in the U.S. and feed-in tariffs in Europe.
- Discussions with rating agencies indicated confidence in maintaining strong investment-grade ratings through reduced CapEx and market responsiveness.
RWE AG's earnings call demonstrated a strategic approach to capital allocation and partnerships, with a positive outlook on project viability and market conditions. The company remains focused on its "Growing Green" strategy, despite the need to adjust its CapEx program due to delays in specific projects.
The management's reassurance on the protection of U.S. projects with FID and the rising PPA prices reflect confidence in the company's future performance. The call concluded with an invitation for further inquiries, indicating RWE's openness to ongoing dialogue with investors and stakeholders.
InvestingPro Insights
RWE AG's (RWEOY) financial performance and strategic decisions align with several key metrics and insights from InvestingPro. The company's adjusted EBITDA of €4 billion and adjusted net income of €1.6 billion reflect its profitability, which is corroborated by InvestingPro data showing a P/E ratio of 8.45 and an adjusted P/E ratio of 6.12 for the last twelve months as of Q3 2024. These figures suggest that RWE is trading at a relatively low earnings multiple, which could be attractive to value-oriented investors.
The company's announcement of a €1.5 billion share buyback program and a confirmed dividend target of €1.1 per share for fiscal 2024 is particularly interesting when considering the InvestingPro data showing a current dividend yield of 2.23% and a dividend growth of 9.49% over the last twelve months. This commitment to shareholder returns is noteworthy, especially given that RWE's liquid assets exceed short-term obligations, according to an InvestingPro Tip.
However, investors should be aware that RWE's revenue growth has been negative, with a -26.8% decline over the last twelve months as of Q3 2024. This aligns with another InvestingPro Tip indicating that analysts anticipate a sales decline in the current year. Despite this, the company's strong EBITDA growth of 231.51% over the same period suggests effective cost management and operational efficiency.
The reduction in RWE's CapEx program and the focus on investments with favorable risk-reward profiles are prudent moves, especially considering the InvestingPro Tip that the company has been quickly burning through cash. This strategic shift may help improve the company's free cash flow yield, which is currently implied to be poor based on its valuation.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights beyond those mentioned here. In fact, there are 7 more InvestingPro Tips available for RWE AG, which could provide valuable context for understanding the company's financial health and future prospects.
Full transcript - RWE AG PK (OTC:RWEOY) Q3 2024:
Operator: Welcome to the RWE Conference Call. Markus Krebber, CEO of RWE AG, and Michael Muller, CFO of RWE AG, will inform you about the developments in the first three quarters of fiscal 2024. I will now hand over to Thomas Denny. Please go ahead.
Thomas Denny: Thank you, and good afternoon, ladies and gentlemen. Thank you for joining the nine months 2024 RWE investor and analyst conference call today. Our CEO Markus Krebber will kick it off with the key nine months highlights, and an update on capital allocation, including a share buyback program. Afterwards, our CFO, Michael Muller, will present the details and will guide you through the financial performance of the first nine months as well as the outlook for the current year. And with that, let me hand over to Markus.
Markus Krebber: Thank you, Thomas. And also, a warm welcome to everyone from my side. This year is all about execution of our strategy, delivering the financial performance and constantly reassessing capital allocation. We have made strong progress in executing our Growing Green strategy and continued the transformation of our company with profitable growth through our investments. So far in 2024, we have invested €6.9 billion net with 95% of our investments being taxonomy aligned. We have 11.2 gigawatts of capacity under construction across all technologies. With 8.2%, the average IRR of our investment decisions exceeds our target of 8%. Despite headwinds from declining commodity prices, we delivered a good financial performance. Adjusted EBITDA stood at €4 billion, and we have already reached more than 75% of the lower end of our EBITDA guidance for the full year '24. Adjusted net income stood at €1.6 billion and more than 85% of the lower end of the full year guidance. Based on our good performance in the first nine months of '24, we are increasing our guidance. We now expect adjusted EBITDA, adjusted EBIT and adjusted net income in the middle of the guidance ranges. We constantly reassess our capital allocation in the light of changes of the risk-reward environment for our investments. Currently, we see higher uncertainties for certain technologies. In particular, we see higher risks and delays in the development of U.S. offshore wind and in the ramp up of the hydrogen economy in our core European markets. We therefore reduce our CapEx program for the next two years. In the current environment, investing in RWE shares is highly attractive. Consequently, we decided on a significant share buyback program. Over a period of up to 18 months, we will return an additional €1.5 billion to our shareholders. Our dividend target of €1.1 per share for fiscal year '24 and the objective to increase the dividend year-on-year are confirmed. Let me now hand over to Michael with more details on the share buyback program and our nine months financial performance.
Michael Muller: Yes, good afternoon also from my side. We will start the share buybacks already this quarter. The program has a duration of up to 18 months and the total volume is up to €1.5 billion. The share buyback program will be executed under the existing authorization as granted in the AGM 2023. As this authorization lapse in May 2025, we will ask the shareholders for a renewed authorization in the AGM next year. The program is funded from lower net cash investments in the coming years. We now plan net cash investments for 2025 and '26 to average €7 billion compared to a run rate of €8 billion that we laid out in our Capital Markets Day a year ago. No impact on rating KPIs is expected as we stay -- and we stay committed maintaining our strong investment grade rating. For 2027, we confirm the EPS guidance range set at the last Capital Markets Day. Let's now take a closer look at the financials. After the exceptional earnings in the first three quarter of last year, EBITDA in the first nine months of 2024 stood at €4 billion, thanks to good performance in our Flexible Generation segment and our trading business. In Offshore Wind, adjusted EBITDA was €1.079 billion. Earnings were up on the back of better wind conditions. Onshore Wind and Solar EBITDA stood at €990 million. This was driven by organic growth, the full year contribution of the CEB assets and higher hedge prices and better weather conditions in Europe. Offsetting effects have been lower prices for unhedged positions and weaker weather conditions in the U.S. Adjusted EBITDA for the Flexible Generation business was €1.447 billion. As expected, we have seen lower earnings in line with normalizing market conditions after an exceptional prior year. Our Supply and Trading business delivered a good performance in the first nine months after an exceptional prior year. The last nine months results stood at €465 million. On the back of the good operational performance, adjusted net income amounted to €1.6 billion. The year-on-year adjusted financial result is lower due to increased net financial debt. For adjusted tax, we applied the general tax rate of 20% for the RWE Group. Adjusted minority interest reflects lower earnings contribution of minority partners. The adjusted operating cash flow was €4.4 billion at the end of the first nine months. The main drivers have been good operational performance and seasonal effects in operating working capital. Changes in operating working capital were marked by a reduction in trade receivables, partly compensated by a decrease of trade payables. Net debt increased to €12.2 billion due to investments and timing effects. In total, we invested €6.9 billion net into our Green Growth. Other changes in net financial debt amounted to €2.2 billion. This includes timing effects from hedging and trading activities as well as the increase in leasing liabilities. Our net position from variation margins for power generation hedging stood at minus €1 billion, representing an outflow of €2.4 billion since the beginning of the year. This includes net variation margins from the sale of electricity as well as the purchase of the respective fuels and CO2 certificates. We expect other changes in net financial debt to largely revert over the rest of the year. Based on the good performance in the first nine months for 2024, we are increasing our guidance. We now expect adjusted EBITDA, adjusted EBIT and adjusted net income in the middle of the guidance range. The dividend target remains €1.1 per share for this year. And now, let me hand back to Thomas.
Thomas Denny: Thank you, Michael. We'll now start the Q&A session. Operator, please begin.
Operator: Thank you. [Operator Instructions] And up first we have Alberto Gandolfi from Goldman Sachs. Please go ahead.
Alberto Gandolfi: Hi, good afternoon, and thank you for taking my questions, and just wanted to congratulate you on the move for taking a stance against like an unreasonably low share price. I have two and a half questions, so I hope you forgive me, but we've been waiting for today for such a long time. So, the first question is, on the CapEx delays that you have announced, am I right in thinking that because it's largely U.S. offshore and hydrogen, the 2027 net income is barely affected by it? So, when it comes to forecasting '27 EPS, we get the accretion from the cancellation of the shares, but we don't have much of a reduction in net income or maybe if you can tell us how small the dilution from lower investment could be? Related to then and to this and talking about the share buyback and returns, I bundle into one, that's why it's probably one and a half. Am I right in thinking that at the current share price, a share buyback is a mid-teen IRR, implied IRR instead of developing organically? Is that the way you're thinking at it as well besides the shares are depressed? And on the back of these, I was reading from -- I was reading a translation from the press conference you had and you said this is not a cancellation of CapEx, it's a delay in investment. And can I ask, is it just the same project that you delay, or are you thinking maybe U.S. offshore we can remove, we can introduce something else, like could be nuclear restart, could be, I don't know, but does this mean that the smoothing of CapEx could allow you to achieve a greater IRR than your target 8% on whatever you're spending now in the next three, four, five years? So, I'm trying to understand the IRR on buying back the shares end if there's upside risk to the returns you've been targeting so far? Thank you for indulging with me. Thank you.
Michael Muller: Maybe I'll take the first question, and then Markus, you want to pick the last one? Let's start with guidance for 2027. I mean, first of all, you are right, especially the offshore investments would have been unproductive CapEx since the project would only go online by the end of the decade. So therefore, no earnings impact from this one. On hydrogen, yes, there would be some impact, but I think broadly what you said is right. The impact on the earning is largely limited and then effectively you see the accretion from less shares. The return of the share buyback, obviously is difficult to calculate because you have to assume at which share price you buy back the shares, but I mean, as we said, we feel that this investment is attractive at the current share price. You can assume that we do assume that the return of the buyback should be higher than the 8% average return that we see on our existing asset fleet.
Markus Krebber: Yeah, I take the last one on the CapEx program. So, there's of course now speculation, but two things are clear. I mean, we said we're going to cut out of '25 and '26. We call that delay, because we still believe that the hydrogen economy will be needed, will be picked up if we don't give up on the climate protection targets, but it will come later. And U.S. offshore, of course, depends on the administration, especially the permitting side. But what you can already assume, Alberto, is that even if we call it delays, it will be pushed out beyond 2030. So, we don't -- today, we don't expect that we're going to pick it up in the second half of the '20, so we're not going to reach the €55 billion. On the exact mix, how we invest beyond '25, '26, where we have now very high visibility? Again, then depends on what is the risk-reward framework for potential investments. Of course, we go for only for those where we meet the hurdle and everything which is above the hurdle needs prioritization. And then of course, we have now introduced share buybacks as one part of capital allocation. So, we also look at the relative attractiveness of that when we decide how big the CapEx program might be. But that's to be decided then, when we have more clarity about investments in the later '20s.
Alberto Gandolfi: This is very clear. And thank you so much. Congrats again.
Michael Muller: Thanks, Alberto.
Operator: Thank you. And we come to our next question from Peter Bisztyga from Bank of America. Please go ahead.
Peter Bisztyga: Yeah, good afternoon. Thanks for taking my questions. So first of all, I wanted to get your thoughts on the implications of Republican clean sweep on your onshore investment plans in the U.S. I know it's some very early days, but it seems pretty likely that we'll see changes to certain aspects of clean energy tax credits. So really just interested to hear what is your base case expectation what sort of bonus tax credits or other others could get removed, for example, and how that might affect your onshore growth plans? And please excuse me for asking this, but if the outcome on the onshore side is also negative versus your current expectations, would that also influence your capital allocation decisions going forward? And then, my second question is on German elections and I'm just wondering if you could give us some headline thoughts about how a CDU-led government could alter energy policy based on what they've already said is in their plan. So obviously particularly interested in your thoughts on nuclear but also coal phase out and the rollout of gas fired power generation. Thank you.
Markus Krebber: Peter, thanks for the question. I'll take them both. The first on the implication or the potential implication of the Republican sweep on the onshore PV battery business, I mean we closely observe what are the discussions so far it's not clear where it's going. So, let's focus first on the fundamentals what we do see. First, we see very strong demand for power and all sorts of power and especially on the PPA side, only green power. So that demand is as strong as never before and we are in very good discussions with off takers and currently we see more demand that we can actually fulfill physically by building the assets. Of course, a potential change on the IRR side, I mean changes the economics but doesn't change the need for additional power. So, then the second question is do we get higher PPA prices to actually compensate for a watered down IRA, where I still think the jury is out because the benefits of the IRA which incentivize investments, which incentivize the build out of supply chain, creates lots of good jobs across the entire country especially in red districts and of course reduces consumer prices for industry -- electricity prices for consumers and the industry has huge benefits. And I mean, you probably have also followed that we have seen before the election the letter from eight representatives of the House Republicans in full support of the IRA. So, it remains to be seen. But we don't know and we are not in the business of projecting the future. We are in the business of doing good investments. So as long as we have good investments, we're going to do them. And currently, we have a bit more than 4 gigawatt under construction, good offtake. And that is also important given that we have the Republicans now back and then Mr. Trump in the White House. We have derisked the supply chain. So, we will only do derisk investments which are good. If they are not good, it will of course affect capital allocation. And if we don't can compensate in other parts, I mean we have now proven that share buybacks are part of the mix. But this is now, I mean too many variables. We need to discuss what we might do in different circumstances. Second one is Germany. So first is of course the election outcome and what kind of coalition are we going to see? Do we see a strong conservative-led government with only one party in a coalition, so a two-party coalition, which is of course much easier to find compromises, or does Germany again and we had this experience, end up with a three party coalition? That is too early to tell. But you specifically asked about conservative policy. So they just run an energy conference last week where we also attended of course and what is clear is they will stick to the transition path or the energy transition, but they put much more emphasis on cost efficiency. So, not everything at the same time doing the decarbonization in a very rational way, meaning that you need to look at the full system cost. So, also the grid buildout costs need to be considered and, and of course they're going to stick to the European EU ETS. So there is no benefit in spending more money in Germany to front run something which is in the end steered by the EU ETS. That is their thinking. What my expectation is there might be during the campaign discussion on nuclear, but I see it as very, very unlikely that we're going to bring them back. But in the end it's a political decision and for us it's a question if we need to do it, what are the economics, but when I look at the economics, I don't see also from a political point of view not being attractive. What I do expect is that they put much more emphasis on very pragmatic build out of new capacity, especially gas without restrictions on how to decarbonize, because that's what we have the EU ETS for. So, it could all come a bit faster and a bit cheaper and a bit more attractive also for us. And it's urgently needed, as we have seen last week, with the very, very tight market already in one day.
Peter Bisztyga: Very detailed answer. Appreciate it. Thank you.
Markus Krebber: Thank you.
Operator: And now from Morgan Stanley (NYSE:MS), we have Rob Pulleyn with our next question. Please go ahead.
Rob Pulleyn: Thank you very much for taking my questions. If I can just follow up on that, Markus, conceptually, so the Chancellor of Germany, let's leave the name blank, calls you asking for RWE's nuclear restart and to name your price and terms. If what you previously answered was that the economics don't make sense, what would you want in return to make the economics make sense? And how soon could all of this be delivered? A second sort of pretty ancillary question, if I may. Given the delay in some of the investments and some of the impairments we've seen at your peers, there are no impairments in the announced today. Is impairment testing something we should be worried about for those hydrogen investments and the US seabed? Thank you for both. Thank you.
Markus Krebber: Yeah, I think Michael will take the second question. I mean, you all seem to love nuclear now. I think the case to extend the lifetime of an existing one is clearly there, but we have passed that point in Germany and we are currently obliged by law to decommission them to build them back. So, we cut something every day as we speak. So bringing back -- just so that you understand where we are, bringing back Three Mile Island, which was a fully mothball plant for economic reasons, is easier than bringing back our plants, which were recently decommissioned, for a couple of reasons. First, we have currently no permits. So, if somebody calls me, whatever the name is, you left it blank, and says, what do we need? I would not start with discussing what we actually need economically to reinvest in them. That is of course, technically possible, but the first question is, how do we ensure the permits? Second, the permitting is not only on federal level, it's also partly on state level. And then you have the oversight, which is partly outside, to external auditors, which all makes it very, very complicated. So, we need to discuss first the entire permitting architecture in Germany. That is the first. The second is qualified personnel. I mean, we are now running these units for 12 years with decommissioning dates, and we don't have the people, so we probably need to invest a lot. And that seems to be the tightest point on the timeline. We need to train people that they can run the units, we need support for that. And then, the fourth is in economic investments we need to take into the units. And of course, since it takes probably three, four years to bring them back, you already know that you're going to commission them again in the next legislative term with the next government and you need protection if they turn around again. And of course somebody could take it to the court case. So, coming back to your financial question, I would say, okay, I need protection for my investments. If I can never turn it on again, if I run it, I want to have a long-term PPA, because we know that renewables and nuclear is not a good pairing. Because if you have the nukes, not on a PPA basis baseload, the renewables are eating into the profitability of your nukes. And with having said all that, and that's also -- I'm on record in an interview, it's not impossible. If somebody wants it, it's politically feasible, but when I look at what we need to overcome and what the economics are, I think it's unlikely.
Rob Pulleyn: Thank you very much for that very thorough reply.
Michael Muller: Rob, So, I pick up the second question. I mean look on hydrogen, this is, I mean we already foresaw that something like that could potentially happen. So, therefore, what we did, we already kind of scaled back on the hydrogen organization, but we don't stop any projects. It's more that the effort we spend in developing new projects is produced and obviously then the subsequent spend. So therefore no capital here at risk. And with offshore, I mean, look, we still believe that U.S. offshore wind will be needed. I mean, if you look at New Jersey, New York, if they simply want to comply or meet the increasing power demand, they basically need offshore. And therefore we do see value in those projects. I mean, what we now do is obviously be more careful with committing big amounts there, but we definitely will look into what we do with the project going forward, how we keep the optionality because as I said, in the long run, we believe the east coast will need those projects. And we also feel that with our projects we are good positioned relative to other projects.
Rob Pulleyn: Thank you very much. I'll turn over.
Operator: Thank you. And we now take a question from Deepa Venkateswaran from Bernstein. Please go ahead.
Deepa Venkateswaran: Hi, there. Thank you for taking my questions. I had two questions. The first one is on the changes to the CapEx plan. So can I confirm that the €2 billion you've shaved off is entirely only from offshore wind and green hydrogen, or is there any other phasing effect or anything? Because I was surprised that you're spending so much on those two given the lead time -- given they're supposed to start much later. Is there anything else in this, maybe more farm downs or anything else which is also in the puzzle? And second question on the U.S. Just to confirm how protected are the projects that you are -- you've already taken FID against any changes in tariffs for panels or batteries? And do you have the equipment already there or could there be any risk to these projects in case of any immediate imposition of tariffs? Thank you.
Michael Muller: Yeah. Hey, Deepa, I'll take both questions. Let's first start with the CapEx. No, it's just on offshore and hydrogen. I mean look, we said that out of the -- if you divide the €55 billion plan by seven years, it gives you roughly €8 billion per year. We're now saying for the next two years, we're going to spend roughly €7 billion. So that gives you kind of a saving of €2 billion compared to the CapEx plan. And I mean you can roughly say half is hydrogen, half is offshore wind. And in offshore wind in the next time we would have engaged into commitments for further locking in the supply chain. That is clearly something we don't do. So therefore the amount, even though the projects are far out, is quite substantial. On the U.S. projects, we don't see a risk there. I mean clearly we need to observe what happens. I mean as Markus said, our hypothesis is going forward that even in a worst case scenario that if there would be changes to IRA, there would be changes to the market simply because there is a strong need for green power. The question is what happens on the existing projects. I mean that is clearly something where we have an eye on. At the same time, I mean the U.S. does have a tradition in not interfering into historic projects. So from the current point of view we don't see any risk here. But obviously that's something as a kind of typical regulatory work. We are closely monitoring and taking the right measures here if needed.
Markus Krebber: Let me add one thing, Deepa. You specifically asked also for tariffs, and probably you are hinting to the projects we have under construction. So we have very high confidence that we have protected the projects where we have taken FID. So the moment we take FID, we not only want to understand offtake, we also want to understand the supply chain risk. And you have different kind of measures. You can move tariff risk to your suppliers. You can buy local. You can buy from certain suppliers which are not exposed to potential measures. And you can also procure early and store already before you start the project in the U.S. So, it's a bundle of measures we take, but we feel very comfortable that we can expect no negative impact, also with very harsh measures on our projects under construction.
Deepa Venkateswaran: All right. Thank you.
Operator: Thank you. And up next, we have Ahmed Farman from Jefferies. Please go ahead.
Ahmed Farman: Yes. Hi, Michael and Markus, Congratulations on a strong set of results and thank you for taking my questions. I just want to first start on the sort of the buyback program. As I understand it, you will be on a regular basis reviewing the attractiveness of the CapEx program and then reassessing your capital allocation going forward. So, is there a scope for further upside to the scale of this program as, let's say, visibility emerges on the policy and political framework in U.S., Germany, et cetera, or is the CapEx for '25, '26 now very firmly locked in with those targeted IRRs that you mentioned earlier? That's my first question. And then, second question is more -- Markus to your comment about the attractiveness of investing in RWE stock. Are there any other aspects you're considering such as improving capital efficiency by potentially bringing in partners into under construction projects as part of that too? Thank you.
Markus Krebber: Thank you, Ahmed. So, we have now laid out the plan -- the CapEx plan for '25, '26. So you should not expect us now starting speculation that we change that tomorrow again. I mean we don't have full foresight of the future. There can always things happen, but we feel very confident with the investments we are now targeting with the reduced amount, and also with the risk profile and especially with the returns we are getting there. But what we do is not every month, but at least, I mean twice a year, a regular full review of our capital allocation, and where we see changes and then we take decision based on that. But the question was what happened with the plan? It's probably more imminent from '27 onwards. I would be surprised if we see another change on '25, '26. Part of the capital efficiency program is also that the -- that we intend to bring down what Michael just a couple of minutes ago called unproductive CapEx. So the partnering strategy, we probably try to bring on board partners already in projects under development and by that of course we reduce the burden on our balance sheet. The old days where you would typically partnered after CUD, where you get full value for the construction risk you have gone through was always probably value maximizing when the unproductive CapEx was not a big issue. But within higher interest rate environment and higher risk framework, you probably partner earlier to reduce and we were going to take measures on that end over the next quarters.
Ahmed Farman: Thank you.
Operator: Thank you. And we now move on to a question from Meike Becker from HSBC. Please go ahead.
Meike Becker: Yes, good afternoon, and thank you very much for taking my questions. I have two on PPAs, please. Could you give us an update on the PPA prices you're achieving in the U.S.? And the outlook you're seeing expectations where that's going? And the other PPA question is how you feel about signing PPAs for your offshore projects that currently don't have a CfD in Europe, considering where the market prices are right now? Thank you.
Michael Muller: So, PPA prices in the U.S. we don't disclose absolute numbers and it's also very difficult to compare them because you have different markets and different types of PPAs, but year-on-year prices are higher. Expectation is if the current support scheme the IRA doesn't change, we expect prices to at least stay on the current levels. But you see a huge difference in certain markets or some markets are much more attractive because of higher demand and tighter supply than others. But overall positive picture, we expect it to continue. On European offshore, you probably refer to our merchant projects, which we intend to fully contract until COD as we have also done in the past. Not much has changed. I mean with the stabilization of the power prices where we already talked at half year results, I mean it hasn't changed. I mean prices for '25, '26 are still at the same level, 85, 90. So it is much more stable since the last seven, eight months. So, we know what prices we want to achieve for the offshore assets, and we have started the marketing and we now going to sell them piece by piece.
Meike Becker: Thank you.
Operator: Thank you. And from UBS, we now have Wanda Serwinowska with our next question. Please go ahead.
Wanda Serwinowska: Hi, Wanda Serwinowska, UBS. Questions from me. The first one is on the U.S. onshore and solar. How many gigawatts of the renewables can you safe harbor? If you could give us a number that would be appreciated. And the second question is on the JV with National Grid (LON:NG) in the U.S. National Grid has a put option basically on their stake. So, can they exercise it now given that the product is delayed or under what circumstances they can do it? Thank you.
Markus Krebber: Wanda, thanks for the question. So, U.S. onshore, can we clarify what you mean exactly with safe harbor? You mean for the IRA?
Wanda Serwinowska: Yeah, exactly. For the ITC (NS:ITC), what your peers are saying, if you put 5% of CapEx into the project, you basically -- your ITC is safe. So I'm trying to understand how many gigawatts you can basically safe harbor in the U.S.?
Markus Krebber: Yeah, that's in that respect a difficult question because when we have seen the safe harbor rules in the earlier years in the first Trump administration where you had the yearly extension of the IRA, it was relevant. Currently, we have no extension -- or no expiry of the IRA. So it will in the end, depend how they change the rules. So, if we go back to the old rules, I could answer that question, but you first need to know the new ones. As the regulation currently stands, there is no need for safe harbor because there is no expiry date of the IRA.
Michael Muller: On the National Grid put option, of course, it's confidential how it exactly works, but the put option can only be exercised when the partners disagree on certain developments. So if somebody wants to put in a bid and the other doesn't agree to the price. So currently, we don't see the case for an exercise of the put option.
Wanda Serwinowska: Thank you.
Operator: Thank you. Olly Jeffery from Deutsche Bank (ETR:DBKGn) has our next question. Please go ahead.
Olly Jeffery: Thanks very much. So a couple of questions. The first one is on community offshore wind. If that project is delayed beyond 2030 and assuming you spend no CapEx on community offshore wind this decade and taking into account the delays in hydrogen spend, which we think of that as being around a kind of a €10 billion CapEx saving on the €55 billion plan that you can use choose to allocate elsewhere? The second question is on TTF gas prices. I'd just be interested to hear your views on with the impact of Trump potentially impacting gas prices globally, what does your commodity team think of kind of the medium term impact could be on gas prices? Do you think that potentially you could see gas prices below the €29 TTF megawatt hour that we see at the moment in '27? And then lastly, on your comments regarding offshore partner sharing, potentially bringing in partners earlier, would you aim to do that after achieving PPAs on those projects with the hope of making those projects more valuable in achieving gains? Or if you continue to bring partners in before COD, should we think of that more as proceeds and no gains associated with that? How should we think about the gains element when you're bringing in partners before COD? Thank you very much.
Markus Krebber: Thanks, Olly. Great questions. I mean on community offshore wind, I have to disappoint you because I mean this is now a very partial view of the portfolio. We would need to discuss many things like what was your assumption on additional farm down, did you assume project financing and so on. So I'm reluctant to give you that clear answer because then you would -- it's a portfolio approach. I mean for now, we know we're not going to spend anything in addition to what has been spent for the next two years, and then we decide what we do in the following years. And also since we always had likelihood -- behind the offshore projects, the long-term view is more on a portfolio view. Short-term view is on a very, very specific project view. So we can answer that question when we know what are the alternatives in offshore for the late '20s. TTFs, we don't see any mid-term price impact from whatever the U.S. administration might do because that in the end depends only on additional liquefaction capacity. I mean -- and that is the relevant point because with limited liquefaction capacity in the Gulf, even if you drill more gas in the U.S., global prices will not be affected, then it's stranded in the U.S. and you see U.S. prices coming down. I think the most relevant determining factor mid-term on global gas prices is Russian gas. What happens there? Do we go back to full deliveries or no deliveries? I think that has a higher impact than anything which happens in the U.S. U.S. is of course important long term if you see new LNG export terminals coming in the early '30s. And your last question, I mean it can be all, and we going to approach the partnering strategy as we have also done in the past, value maximizing. So sometimes you take the construction risk, sometimes not. Sometimes you take the commercial risk, sometimes not. I mean for big projects, I would definitely prefer to have a partner for an aligned interest which has exactly the same risk profile than us. So, actually entering into the development pretty early as we have done with Total (EPA:TTEF) for part of the German ones. And of course the earlier you take a partner on board with less likelihood you should expect any kind of gain.
Olly Jeffery: Thanks.
Markus Krebber: You can get the gain only if you take over certain risks and then manage them better and they are priced in the market.
Olly Jeffery: Yeah. Makes sense. Thank you.
Operator: Thank you. And we now move on to Harry Wyburd from BNP Paribas (OTC:BNPQY) Exane. Please go ahead.
Harry Wyburd: Hi. Thank you. So I think we've covered a lot of the big-ticket topics quite thoroughly, so I'll just keep it to one question on a slightly more fundamental topic. So, we're seeing a lot more curtailments, a lot more zero price hours, a lot more negative price hours in Europe. A huge surge so far this year versus previous years. I wondered, have you revised or thought about the capture rates you assume in your European CfDs and PPAs? And are you happy that the CfDs and PPAs that you previously signed and the ones that you are signing on a look-forward basis adequately protect you from things like curtailments? And would this trend perhaps be another reason why you might reconsider capital allocation if you see bigger opportunities in storage and flexibility, particularly in Europe? Thank you.
Markus Krebber: So, Harry, very easy answer. With all the commercialization of our renewables, we don't see any big risk even with increasing curtailments. I mean, there might be a minor effect here and there, but typically, I mean, first of all, the fleet is not very big. And the biggest problem with the curtailments you actually have with the solar peaks around noon and our solar capacity is not very big. Of course, when the rules change, and I expect that the route is going to change and that renewables needs to be better integrated into the market. You know that upfront, we don't expect any retroactive changes to the regulation. So, regulation changes, you need to factor it in. And you are already hinting to the point where we currently see is a huge investment wave in storages. I mean the markets work, which is good, the market signals work. I mean currently, storage is very attractive. We have also ahead of us certain big FIDs on storages in Europe.
Harry Wyburd: Okay. Thank you.
Operator: Thank you. And now from Citi, we have Piotr Dzieciolowski with our next question. Please go ahead.
Piotr Dzieciolowski: Hi, good afternoon everybody. I wanted to ask you two questions. So first, when you look at your guidance rise for this year, when you say you lifted from the bottom end of the range to the middle of the range, actually when you look granularly through the divisions, all of the renewable divisions, so offshore onshore solar and flex gen are the lower half of the guidance ranges you provided. And it's a trading that makes a difference. So I just wanted to understand what is the -- I presume you were targeting more like a middle of the range. Is there any reason why these divisions kind of perform weaker than you expected? Is the one denominator for it? Was it the price? Was it the volume? And is there any read across to it to the next year? And the follow up I have on the 11 gigawatt you have under construction, how much of this capacity is coming -- is going to contribute to your P&L next year? And if you can give a large bracket of what is the magnitude of volume, EBITDA contribution and so on? Thank you.
Michael Muller: Yeah, I think the first question and the details Thomas is just looking at. So, let's start with the guidance 2024. I mean, well observed. I mean what we, I mean, you know that we always have some positions in our asset fleet that is not hedged. I mean, you know that we deliberately leave it open in renewables also to cope with a volume risk. So, you don't want to fall short in certain times. Plus, if you talk about the onshore business, we also have certain markets where the markets are not so liquid, so you can kind of hardly hedge that. So, like if you talk about Poland, Italy and also Spain and that leaves us with -- and also UK for now, so that leaves us with some merchant positions and it's basically offshore and onshore. Those are the merchant positions that were left open that brought it down. Secondly, I mean you also obviously need to see what happens to the wind in the remainder of the quarter. I mean in flex gen, it's very much the same. It's not so much the spreads, but it's the volatility that has come down that makes us currently still a bit more cautious in the range of the respective segments, but what is important is that overall, if you put together all the numbers and also the strong performance in trading, we believe that we will be back in the mid of the range. I mean, what are the capacity for 2025? So roughly 4 gigawatt is the number that we assume to come online in the course of 2025. And I mean, yeah, then you kind of can assume what is the average investment and then the 10% EBITDA yield, which comes out of the 8% return, that should give you the number.
Piotr Dzieciolowski: Okay. Thank you very much.
Operator: Thank you. And now we take a question from Ingo Becker from Kepler Cheuvreux. Please go ahead.
Ingo Becker: Thank you very much. Good afternoon. My first question would be on the political environment in Germany. The CDU have been putting quite a focus on lowering energy costs. Just wondering what in your eyes you believe that might work. Might mean energy prices are currently set in markets and/or regulators and there's quite some taxes which might be a maneuver mass. And in addition to that, would be interested in your view on nuclear from a system perspective. So not from an RWE perspective, but if you believe nuclear revival for Germany given the transition logic we have makes sense at all. My second question briefly would be on your flex gen and trading activities and the guidance you have been given in February, which was quite at the time when prices also in the forward market were at their lowest year-to-date. Whether there's anything in the current '25, '28 forward curve that is imposing any kind of directional change on that guidance or are you at this stage still very comfortable with that? I understand you don't change the numbers here, but maybe just some kind of understanding if things are moving as you expected in February, March or hasn't changed? Thank you.
Markus Krebber: Ingo, let me take the first two questions. Michael will take the last one. On Germany, so it has two elements what the conservatives are targeting. One is what they call cost efficiency. So to get rid of over regulation. To give you examples, I mean when you have a European ETS system where the emissions are kept, you don't need to set a date and you don't need to subsidize to switch from gas to hydrogen, and burning it into a hydrogen-ready gas plant. This is -- I mean, makes it more costly. And so, these kind of things they don't want to do because they say we have one market instrument, which works and we don't need to overregulate without any positive effect on the climate, but significant more cost. The other element they are targeting is they specifically say we have significant incomes close to €20 billion from carbon pricing across -- in the German federal budget. And they want to give that money back either by reducing grid charges or direct subsidies to consumers. So they want to keep all the incentives to move away from carbonized energy in place, but they want to give back the money to give some relief for those hardest hit on the consumer side as well as on the energy incentive industry side. That's how I understand it so far. On nuclear, I mean, I don't see that new builds are part of the solution in many markets. First of all, you have these long lead times and if we don't address the fundamental problem by nuclear is in the western world, so expensive, which is it's only driven by the regulatory regime and the oversight. If we don't change that, and government authorities are willing to take some more responsibilities and don't outsource that to auditors who always want everything gold plated 100%, then we cannot change. We see that problem in the U.S. We see it in the UK. We see it in -- on the continent. If that is addressed, it might change. I'm not very optimistic. I mean the idea behind the SMRs is that you get them convinced that the regulatory regime can be changed. Without that, I struggle to see that it's ever economic again.
Michael Muller: Ingo, I take the question on trading and flex gen. I mean on trading, we always guide this range of 100 to 500 and that is basically our base case assumption in a normalized year. Therefore that is also for the following years. I mean on flex gen, we said at the beginning of the year that we saw a quicker deterioration or normalization of the higher returns or incomes than initially assumed. And I mean you now see in the actuals that the outcome is actually slightly better on the back of the scarcity, but there is also some effect for the later years. So, there is a quicker normalization in the front years than what we had initially assumed.
Ingo Becker: Thank you.
Operator: Thank you. And up next we have a question from Pujarini Ghosh from Bernstein. Please go ahead.
Pujarini Ghosh: Hi, this is Pujarini from Bernstein, and thanks for taking my questions. I have just one. On the average IRR of 8.2% that you highlighted, please can you confirm, which projects this includes and does it include your already commissioned projects or under construction and FID projects? And to what extent is the realization of this IRR dependent on the evolution of wholesale power prices versus predetermined through long-term PPAs?
Michael Muller: So, it includes all the projects that we have FIDs and most of them should be already then under construction. And I mean it is based on the assumptions we have taken in investment cases. I mean you know that our clear aspiration is to contract those assets. So you can assume that all the projects in the U.S. are based on PPAs. In Europe, mostly feed-in tariffs, it does include the offshore projects with the respective PPA assumption, but as Markus mentioned previously before on a question, we are very confident with those prices that we assumed in the business cases to also be realized. And as you said, we are in the process of marketing those assets, but at the same time, you also know some of them only will come online, '25, '26, '27, '28. So there is also still time to lock in those PPAs.
Pujarini Ghosh: Thank you.
Operator: And we now have a follow-up question from Ahmed Farman from Jefferies. Please go ahead. Mr. Farman, your line is open. You can pose your question.
Ahmed Farman: Yes, thank you. Just a quick one probably for you, Michael. I guess, could you just give us a sense of where you see the net debt to EBITDA with under the sort of the cap and lower CapEx plus the buyback program for 2025? And if you've had any feedback already from the rating agencies on the reassessed capital allocation plan? Thank you.
Michael Muller: Yeah, important question. I mean as you can imagine, we did have conversations actually yesterday with the rating agencies and explained them that. I mean for the rating agencies, as you can imagine it's very important that we do reduce CapEx, and basically by that keep in the framework of our overall plan and therefore also our net debt plan and that we also show that we react to market conditions. So therefore, we are very confident that we will stay in the respective KPIs required for keeping the strong investment grades rating, thus also keeping the rating.
Ahmed Farman: Thank you.
Operator: Thank you. And our last question for today comes from Alberto Gandolfi from Goldman Sachs. Please go ahead.
Alberto Gandolfi: Thank you for your patience, because there was no question on it. I wanted to ask you if -- considering a bit of confusion in the press, have you been in contact with or in touch with any activists regardless of the name in the press over the past few weeks and months? Has there been and what can you disclose the nature of the discussion if there has been one? And thank you so much.
Markus Krebber: So Alberto, are you incentivized to having the first and the last question, then you get full bonus. So thanks for the question. I mean it's difficult, right? I mean first we need to define what is an activist because we have many investors in the shares, and we are in constant dialogue with all the relevant capital market participants. But you also have seen after the first specific rumor on one of the very prominent activists that they have come out with a statement and said they have not made any demand to management. And also from all others, which we would call activists, we have not got any demand. But of course, we are in discussions with many our investors and you know that especially the discussion around share buyback didn't come up yesterday. So, it was an ongoing discussion about capital allocation with not only some but many, many investors. And also totally different views. And we have now come to the conclusion which we think is the right way forward for the next months and quarters, but let me reiterate, and you have seen that statement, there have not been made any specific demands to management from activists.
Alberto Gandolfi: Thank you.
Operator: Thank you. And with that, I'd like to hand the call back over to you, Mr. Denny, for any additional or closing remarks.
Thomas Denny: Excellent. Thank you all for dialing-in. It's been a very good call. I highly appreciate it. If you have any further questions, you know that the IRR team is at your disposal anytime. And I wish you all a great rest of the day. Thank you.
Operator: Thank you for joining today's call. Ladies and gentlemen, you may now disconnect.
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