Rwe Ag Ord S/Adr

Good afternoon, ladies and gentlemen. Thank you for joining the Q1 2024 RWE Investor Endless Conference Call today. Our CFO, Michael Müller, will guide you through our key highlights in financial performance in the first quarter and the outlook for the current year. And with that, let me hand over to you, Michael.

Yeah, thanks Thomas, and good afternoon to all of you. The first quarter was a solid start into 2024. Adjusted EBITDA stood at 1.7 billion euros, driven by good wind conditions in our offshore business, capacity additions in the onshore business, and a good trading performance. Earnings and flexible generation were lower after exceptional market conditions in the previous year. We confirm our full year guidance at the lower end of our guidance range. We've also made significant progress on offshore portfolio optimization. We have de-risked our 3GW Dogger Bank South project by selling down 49% to our partner, Mazda. And we have acquired the highly attractive 4.2GW Norfolk project portfolio from Button South. These well-developed UK offshore projects are eligible for CFD auctions in the coming years. In April, We issued the first U.S. green bond. With this transaction, we have successfully re-entered the U.S. debt market. In the future, we want to be a regular issuer in the U.S. bond market. The $2 billion U.S. bond has maturities of 10 and 30 years. We saw a high demand from investors with the bond being oversubscribed 3.8 times. The final order book volume was close to 7.6 billion US dollars. The high level of interest demonstrates our ability to access debt capital markets, enabling us to finance our growth investments at attractive rates. Let's now take a closer look at the Q1 2024 financials. After the exceptional earnings in the first quarter of last year, EBITDA in Q1 2024 stood at 1.7 billion euros, thanks to a good performance. In offshore wind, adjusted EBITDA was 548 million euros, and earnings were up mainly on the back of better wind conditions. Onshore wind and solar recorded an EBITDA of 341 million euros. This was driven by organic growth and the full contribution of the CEB assets. Adjusted EBITDA of the flexible generation business was 552 million euros. As expected, we have seen the lower earnings development in line with normalized market conditions after the exceptional year in 2023. Our supply and trading business had a good start into 2024, and Q1 results stood at 251 million euros. On the back of the strong operational performance, adjusted net income amounted to 801 million euros. The year-on-year adjusted financial result is almost stable. For adjusted tax, we applied the general tax rate of 20% for the RWE group. And finally, adjusted minority interest reflects lower earnings contributions from minority partners. The adjusted operating cash flow was minus 379 million euros at the end of Q1 and is mostly driven by seasonal effects in operating working capital. Changes in operating working capital were marked by the seasonal purchase of CO2 certificates compensated by positive effects from the reduction of trade receivables and withdrawals from gas in storage. Net debt increased to 11.2 billion euros due to investment and high timing effects. In total, we invested 2.3 billion euros net into our green growth. This includes the acquisition of the Norfolk offshore projects from Wattensal and our sell-down of 49% of the Dogger Van South projects to Mazda. Other changes in net financial debt amounted to 1.9 billion euros This includes timing effects from hedging and trading activities. Our net position from variation margins for power generation hedging stood at minus 1.4 billion euros, representing an outflow of 2.8 billion euros. This includes net variation margins from the sale of electricity as well as purchases of the respective fuels and CO2 certificates. We expect other changes in net financial debts to revert over the course of the year. For 2024, we confirm our outlook despite the faster normalization in European commodity markets. Adjusted EBITDA is expected to be between 5.2 and 5.8 billion euros Adjusted EBIT is assumed to be between 3.2 and 3.8 billion euros, and net income will range from 1.9 to 2.4 billion euros. We expect adjusted EBITDA, adjusted EBIT, and net income at the lower end of the guidance ranges. The dividend target is 1.1 euros per share for this year, and with that, let me hand back to Thomas for Q&As.

Thank you, Michael. We'll now start the Q&A session. Operator, please begin.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. We'll pause for just a moment while waiting for them to queue for questions. Thank you. We'll now take our first question from Robert Pullin of Morgan Stanley. Your line is open. Please go ahead.

Thanks very much. Two questions from me, please. Firstly, revisiting a theme that's been going all year, may we ask what benefit, if any, you're seeing from rising power demand from the data center theme, both in the US and in Europe? And of course, in your European markets, what this might mean for long-term power demand trends? And secondly, if I may, Given a U.S. politician's comment about offshore wind over the weekend in the U.S., may we ask how you assess the risks for that industry under the next U.S. administration from 2025? And in particular, do you see permitting risks if RWE is indeed successful in the New York and New Jersey auctions this year? And aside to that, do those auctions have flexibility on the commissioning date? Would be very interesting. Thank you very much.

Yeah, Rob, thanks for the question. Let's start with the data center topic, which is a hot topic currently in all the discussions. I mean, I can confirm you that we obviously are also strongly engaging with tech companies around PPAs. And actually, we are about to communicate another PPA we signed with a big tech company just recently over 400 megawatts at an attractive price. And that brings us overall to almost half of the volume of our US capacities under construction being contracted to tech companies. So indeed, we do see strong interest for those companies in greening up their portfolio. And maybe that brings me also to the next aspect around offshore. I mean, obviously, we have also read the announcements. We don't have any more insights into the exact campaign. But if we look at the U.S., we see a continuing strong trend for green electrons. It's on the PPA side we just discussed, but the same is true. I mean, if you think about New York, I mean, if New York wants to decarbonize, they essentially need offshore wind. So, therefore, we see the trend for offshore as, yeah, unbroken, so it stays intact. you already hinted to the right point. I mean, if you think about our New York portfolio, we have a lease there, and now we have the options to go into CFD auctions and to develop the project. I mean, we still see demand for those projects, but at the same time, we also do have flexibility in developing the project and also looking for different off-takes. So it is something we'll observe But it's nothing where you see me today being nervous.

Okay. Thank you very much. I'll turn it over. Thank you, Rob. Next question, please.

Sure. The next question comes from Alberto Gandolfi of Goldman Sachs. Your line is open. Please go ahead.

Thank you. Hi, thank you for taking my question, Michael and Thomas. My first question is on guidance. If I look at your slide eight, you're really stressing everywhere, lower end, lower end, lower end. But if I take your net income for Q1 and I simply add the EON dividend you're due to receive, you'll be at 1 billion. So you'll be at more than 50% of the full year. So can I just... ask you, I mean, in hindsight, were you too rushed perhaps in downgrading guidance on the 25th of January? And again, the benefit of hindsight, why sticking to the low end and not essentially, you know, quote unquote, market to market, the fact commodities, power prices have gone up, the spreads have expanded a little bit, and the outlook appears even better on on the horizon, as we discussed, you know, more PPAs, better returns. We are hearing from many players, power demand inflecting. So I'm just curious to see why you stick to such a cautious message, if there's anything that I'm not seeing here. And the second, I know you don't comment, but, you know, we may not talk specifically about Amprion, but it's been reported that it's potentially for sale. But let's say if it's not Amprion, Is there anything that perhaps you may consider non-core that is perhaps for sale? And I'm quite intrigued by this route because as far as I understand, besides the typical asset rotation, none of this was included in your CMD. So if you were to divest an asset that gives you proceeds of a couple of billion, what would that be used for? You know, I see that you're talking about net debt normalizing by your end. So is RWE going to reduce leverage further? Is there a special dividend you're thinking or something else? Any cash return to shareholders? Or are you going to use this to create your own Dignite Foundation? Because perhaps the government has been dragging their feet. Thank you.

You are asking now for a complete strategic review. Yes, nothing less. Thank you. Let's start with the guidance. My comment here would be we are just a quarter into the year and therefore we stick to the guidance we have put forward and also our communication towards the lower end. Yes, I think what you rightly raised is kind of the commodity markets have stabilized in the meantime. So while we went out with a message in January, we saw a continuing trend of lower carbon and gas prices and therefore power prices. I mean, that went down to kind of the minimum in FAB and since then has recovered. I mean, especially on the CO2 side, it came back to, I would say, normalized levels. Yesterday's is probably more potential going forward. But yes, I mean, market prices have stabilized, and that is obviously also helping income. I mean, you saw that in our full-year guidance or full-year communication, we showed how much of our – existing fleet in renewables is still exposed to market prices and there is still something also in 2024 and that would benefit or is benefiting from higher higher prices i guess the more important topic you raised is the long-term outlook uh where i mean we always said that despite we see a quicker normalization in the first years we continue to stick to our guidance and also our view in the later years, because on the one hand side, in our plans, we already baked in a normalization of prices, and at the same time, there is also some potential improvement to come. So therefore, I would say it's too early to judge about full year, and I can just reiterate that our long-term outlook for 2022 7 and 2030 perfectly stays intact. Talk about Amprion. I mean, let me first say Amprion is a financial investment, which we are very happy with. I mean, they're strongly performing, yet Amprion comes with a high investment need. And therefore, it's very clear that when we discuss capital allocation, we also discuss the capital that is needed with Amprion, and therefore, and that's what we communicated, we are obviously, and I think that's kind of usual hygiene you should have when looking at capital allocation, are looking into options around financing and in general about options around Amprion. So that's the comment here. I mean, the other one on divestments, yes, you're fully right. Divestments on the one hand side would lead to cash in and therefore deliver again. And at the same time, you should also expect book gains on that, those which we haven't baked into our plan. That's also very important to notice. I mean, I would consider divestments as being part of our capital allocation. Yeah. So therefore I can just reiterate what we said at the full year numbers. I mean, um, When we look at capital allocation, we do see currently attractive returns. Clearly, projects are meeting the returns we have put forward at the capital market day. Please bear also in mind this is kind of our return expectations. Obviously, every project should strive to outperform our return expectations, and that is also something we are seeing in projects where we actually see FID. So, therefore, I can just confirm we do see –

valuable project in our pipeline and that is something we will consider when we look at capital allocation including um when we uh free up capital by divestments michael sorry but if i can just clarify this point which i think is extremely important and thank you all very clear by the way let's say you were to receive i don't know i'm throwing out there a number two billion euros an ampere uh is your inclination to return this capital to shareholders or to put it at use somewhere else?

I mean, I wouldn't talk specifically about Amprion. I mean, what we said is that when we look at capital allocation, we look at where do we see investment opportunities. We currently see attractive investment opportunities in our projects, yet we also said that If the conditions change, returning more capital to our shareholders would be in the options space and something to look at.

Very clear. Thank you.

Yeah. Thank you, Alberto. Next question, please.

Thank you. The next question comes from Peter Bistiga of Bank of America. Your line is open. Please go ahead.

Hi, thanks for taking my question. So first one, just coming back to this data center point. In ERCOT, we've seen forward curves already move up by more than 20%. You've got, I think, 10 terawatt hours of exposure in that market. And I guess what I'm wondering is whether, you know, the clear impact of data center demand on those forward curves gives you an incentive to keep more of that business merchant going forward. Or are you, in fact, seeing appetite for PPAs at premiums to even these higher forward prices? So that's kind of my first question. And then staying on that topic, are you seeing any difference in the premiums that data centers or hyperscalers are willing to pay for PPAs in the U.S. versus Europe, please? And are you having those kinds of conversations in Europe? Thank you.

Yeah. Yeah, Peter, happy to take the questions. I mean, first of all, I mean, indeed, power prices have gone up. I mean, we also said that already in the course of last year, we gave the clear steer to our businesses, at least on new projects that they should go for contracted businesses. And that's, I mean, we said 95% of the projects that had COD last year were contracted, and also the new assets have a high share of contracted. So that stays intact. So I wouldn't say we go for more merchant. At the same time, on the existing fleets, yes, we do see upsides, and that's been part of the regular hedging activities with power prices going up, and obviously we try to capture those upsides on the existing fleets. Contracting existing assets in ERCOT via PPA to be honest, is not so common. So you get the better prices with new assets, and that is really also then the focus. And on the existing one, it's really then optimizing in the current environment. Is there a big difference between the US and Europe? I wouldn't say so. So we're also seeing demand from data center providers to purchase power in Europe? No, actually not. And also, I mean, you could imagine that maybe in Europe, they would even be more bullish on buying green molecules. That's actually the same also in the US. Yeah, so no big difference. Right. Thank you.

Thank you, Peter.

Thank you. Next question. Question comes from Ollie Jeffrey of Deutsche Bank. Your line is open. Please go ahead.

Thank you. Two, please. The first is on debt. Obviously, it's quite a high number in Q1. We've spoken about that reversing over or elements of that reversing over the rest of the year. Could you give a kind of a band where you see that net debt figure possibly landing by the year end? That would be helpful. And the second question is just coming into the trading business. You've had a very strong Q1, far ahead of good guidance in that business. How do you feel about the outlook for that trading business and for the rest of the year? Is there anything changed in the development of what we've just seen in Q1? Thank you.

Yeah, Oli, I mean, on that depth, I guess that is the question the market is really interested in. I mean, look, the big movements we have seen is working capital. So we do expect that to fully revert even more over the course of the year. When we think about other elements in the financial debt, so especially around variation margins, we also expect that to revert over the course of the year. So, I mean, if you do the math and you assume that we continue with the run rate of the current investments we have, that should bring you by year end about at the same order of magnitude where we currently are with net debt. So therefore, kind of balancing back the temporary effects or seasonal effects and then counterbalance by continuing investments through the course of the year. Around trading, I mean... You know that we don't come, our perspective is always Q1 is pretty early, so it's not the point in time where we would kind of judge on the full year, and therefore we keep the existing guidance intact. Obviously, we are very happy with the Q1 results.

Thanks. Thank you, Olli. Next question, please.

Thank you. And the next question comes from Deepa of Bernstein. Your line is open. Please go ahead.

Deepa, we can't hear you yet.

She dropped the line. While waiting for her to recue, we shall go to Wanda of UBS. Your line is open. Please go ahead.

Hi, two questions from me. The one is on the renewables. EDP flagged recently the higher returns in the renewables project versus what they expected at the CMD in 2023. Do you see a similar trend? Do you also see returns going up versus what you saw last year? And maybe would you be able to disclose some returns on the latest renewables project that you are developing to give us more confidence that basically Investing renewables gives shareholders a better value than share buybacks. And the second one is on the European data centers. Would you be able to disclose how much PPA in terms of the travel hours have you signed for so far in Europe? Thank you.

Yes, Deepak. First, on the returns, I mean, I would kind of stick to the numbers we have put forward at the Capital Market Day. I think the important point here, and that is something we also had in quite some discussions on the road, is kind of the range we put forward is the range for what we call the hurdle rates. So that needs to be met in projects. Yet what you typically would see, there are projects that are also exceeding those returns and actually the way how we see the project is not to just meet the hurdle rates, but to exceed it. And therefore, that also gives me confidence that we do have really valued creative projects that meet the return expectations and even go beyond that. I mean, on data center demands, to be fair, kind of the high ratio of tech companies purchasing power from us in the US, we don't see that yet. In Europe, at the same time, we do have ongoing requests from data centers in Europe on PPAs. And we are also seeing data centers now being built up. I mean, you may have seen that there was in the press that we sold land in the Rheinisch-Lignite area to Microsoft, which wants to build a data center, and they also want to build a second one, I think, in the Frankfurt area. and clearly those data centers go along with demand for green power, and that's actually what we're also seeing. There are requests for PPA offers, and that is something I would also expect to pick up in Germany or in Europe.

In effect, I'm at wonder. I shouldn't forget that also in Europe, many of the assets that we build in onshore and solar space are contracted via CFDs because that's a very risk-free, very high-price alternative as well.

Okay, so there is no number of travel hours that you can give us for data centers in Europe in your portfolio?

No.

Okay, thank you.

Thank you. And we'll now take our next question from Deepa of Bernstein. Your line is open. Please go ahead.

Thank you. I think there was a technical problem, so I don't know if anyone's already asked the question I'm about to ask. So I had two questions. One is you mentioned about the PPA in the US for 400 megawatts. So more broadly wanted to see now that you've finished this quarter, what are you seeing in terms of PPA pricing, particularly versus where baseload power prices are trending both in the US and Europe? And are you seeing a green premium from your buyers? So that was the first question. The second one, just a clarification on net debt, just recapping my understanding. is on the one hand, you're guiding to a normalization on variation margin, probably more than a normalization on working capital with inflows, but also you're highlighting that the CapEx run rate is similar to first Q, so around 10 billion-ish, which is probably lesser than most of us have in our model. So could you just clarify that? And does this mean also that if you're spending 10 billion this year out of the 55 billion programs, then in later years there's some farm down or something which kind of compensates. Could you comment on that? Thank you.

Yeah, Deepa, I mean, let's start with the net debt and the farm down assumptions. I couldn't have phrased it better. So everything is correct, what you said. And then on PPAs, I mean, look, the difficulty is, first of all, we don't communicate prices. We have contracted with customers. And the second one, PPA prices also very much depend on where they are. So, I mean, if you go to some of the East Coast states, especially the more north you go, the higher the prices get. So they get pretty much sometimes even to levels you see in Europe, even above that. If you go to some other areas where it's easier to build renewables, but also the costs are lower, price levels are lower, and then it's a question if you go for, yeah, unit contingents, bus bar, PPAs, or what kind of the setup is. So it's difficult to say, but I mean, what is fair to say, there is demand for green molecules, and that is helping, yeah, to achieve attractive returns in our renewable projects. And that's in the end. So I mean, in the end, I don't care so much about the absolute price of the PPA. I care about the economics of the specific project. And that is the important view. And that is indeed something where we see, as I said, meeting our return expectations and even exceeding them.

All right. Thank you so much.

Thank you, Deepa.

Thank you. We'll now take our next question from Harry Wybert of BNP Paribas, Exxon. Your line is open. Please go ahead.

Hi, everyone. Thank you. It's just one and a half questions. Firstly, just on the debt, could I just clarify? So you're saying that the UN net debt to be where it is now is about 11 billion. Is that assuming neutral variation margin or is it assuming the variation margin is staying where it is at 1.4 billion? And the second one on flexion, I just wondered, given that commodity prices have rebounded, have you seen market conditions in flexible generation also rebound in the last few weeks? in line with power prices? Or have you seen a divergence in profitability there from a linear relationship with power prices? And are you seeing any regional differences in FlexGen? If you look at some of the metrics, it suggests that the UK market perhaps is looking a bit weaker in terms of intraday volatility than the continent. So I'd be interested to know if that's something that you've seen as well. Thank you.

Yeah, I mean, let's first talk about the variation margins. I mean, roughly we assume like other changes net debt about 2 billion to revert over the course of the year. So that's roughly the ballpark number. On flexible generation, my comment would be the following. What we see is that the intraday and day had volatility. That is clearly picking up again. So while I would say maybe the around that, we saw a slight deterioration here still. And then we always said that the intraday optimization is fairly stable. I mean, it was maybe down to 90% of the level we would expect. And that has clearly recovered. So we see further strengthening here. The other topic is more what we describe as kind of the time value. So what we've seen is that the overall curve has come down, and especially optimizing between hours, that has deteriorated. We haven't seen a significant pickup here, but what is at least important is it has stabilized. So therefore, kind of the guidance that we have out there can be clearly confirmed. But clearly, with now, I mean, people are also a little bit more concerned around gas. I mean, going into the winter, let's see what happens. There is clearly upside. Because, I mean, you know our fleet is, in the end, long volatility. So in case volatility picks up again, we would clearly benefit with our fleet there.

Okay. Thank you. Thank you, Harry.

Thank you. Once again, as a reminder, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. There are no further questions in queue. I will now hand it back to Thomas for closing remarks.

Excellent. Thank you all. Thanks for the good discussion and for dialing in today. If you have further questions on any of the topics, feel free to reach out to the IR team. And apart from that, I wish you a great afternoon and speak soon. Thank you. Bye-bye.