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Edited Transcript of RWE.DE earnings conference call or presentation 12-Mar-20 11:00am GMT

Essen Apr 2, 2020 (Thomson StreetEvents) — Edited Transcript of RWE AG earnings conference call or presentation Thursday, March 12, 2020 at 11:00:00am GMT

Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [1]

Good afternoon, ladies and gentlemen. As you know, we are organizing today the Capital Market Day and the annual press conference on fiscal 2019. I would like to thank you for your understanding that those events do not take place in London as planned, but take place here via webcast. And this is why we are contributed to health care and save many trips. Thank you that you have logged on and switched on your video conference system. We are in our new headquarters, in the RWE campus Essen, and the call will be the same as usual.

After the entry statements given by Rolf Martin Schmitz and Markus Krebber, you will have the opportunity to ask questions. (Operator Instructions) And our press conference will be held in German, which is translated simultaneously into English. But of course, you can also always ask your questions in English.

And thus, I would like to give the floor to Rolf Martin Schmitz, our CEO. Rolf, you have the floor.

Rolf Martin Schmitz, RWE Aktiengesellschaft – Chairman of Executive Board, CEO & Labour Director [2]

Thank you very much, Stephanie. Ladies and gentlemen, hello from Essen. Welcome to the press conference on our business performance in fiscal 2019 and our forecast for the years ahead. We wanted to present your results from London as this year, the Capital Market Day and the annual press conference are being held on the same day. But you’ve just heard the cause, the reason why we’ve changed our strategy. And now we’re having this video conference, and I think it’s better for all persons involved.

Ladies and gentlemen, last year, our main focus was on 2 things: the transaction with E.ON and the coal compromise in Germany. These are 2 issues which are hugely important for the future of our company. Both of them represented unique challenges for all of us at RWE, both employees and management, and that’s why we’re happy to report the following. These challenges have almost been completely mastered and the path forward is clear for the new RWE.

Our operating activities posted an excellent result for the year. We beat our targets. And my colleague, Markus Krebber, will discuss the numbers in just a few minutes. But I would like to express my gratitude to everyone who made this possible. It was an outstanding feat when that could only be accomplished with real teamwork. It was important to keep an eye on the operational business and people. Our employees truly showed a lot of dedication.

But what lies ahead of us in the future will be no less exciting or intense. We will tackle these challenges with the same spirit. Last year, RWE began a new chapter. We laid the foundations for this 3 years ago by consolidating our finances, by making important strategic decisions and by realigning our business. The result of this is that our asset swap with E.ON has transformed us into a global player in the field of renewable energy.

In terms of offshore wind, we are the world’s second largest operator. Our goal is to generate electricity in a manner that enables a sustainable life in a society that consumes more and more electricity, electricity that is clean, secure and affordable. Being carbon neutral by 2040, that’s our goal. And this is what we channel all of our energy into here at RWE, our energy for sustainable future.

Our company is not the only one that has changed fundamentally. Climate protection is one of the most important issues of our day and age. Electricity is our business. Electricity is the lifeline of the society, and we want to produce electricity in a carbon-neutral way. Renewable energy makes this possible. Renewables are booming all around the world. Global investments totaled some USD 282 billion in 2019, almost doubling over the course of the last 10 years. That’s great news for the struggle to protect our climate and for RWE as well because this robust demand for carbon neutral electricity opens up outstanding opportunities for value accretive growth. And that’s exactly what we want.

We are planning net global investments of EUR 5 billion through to 2022. Contributions by partners can drive up this expenditure considerably. We have earmarked 20% of our net investments for projects in Germany, corresponding to approximately EUR 1 billion. One current example is the Yushin wind farm, which we are building with municipal partners on the recultivated parts of the Garzweiler opencast mine, right in the middle of our home region.

Another example is the Kaskasi offshore wind farm located off Germany’s North Sea Coast and, on which an investment decision will be reached soon. Through to 2022, we intend to boost our installed wind and solar capacity by almost 50% from around 9 gigawatts to more than 13 gigawatts. Assets with the capacity of 2,007 gigawatts are already under construction right now. And our project pipeline looks good too, with more than 20 gigawatts in store.

Let me give you 2 current examples. The Triton Knoll wind farm off the East Coast of England is scheduled to go online in 2021, with a planned capacity of around 860 megawatts. And the Big Raymond onshore wind farm in the U.S. State of Texas is RWE’s largest onshore wind farm in the USA, with a capacity of 440 megawatts. It is due to start operation this year.

The new additions are easy to see. What is less visible but equally crucial for us as a company is the research and development of new technologies. For instance, in the Bay of Biscay, we are testing new ways to build and operate offshore wind farms and deepwaters. Starting in 2021, we will be working with a partner to test a floating platform for wind turbines. We have a clearly defined focus. We want to maintain and expand upon our strong position in renewables.

Ladies and gentlemen, on that note, let me turn to the second major challenge we faced last year: negotiating Germany’s exit from coal with the Federal Republic, the federal government. RWE agreed to the compromise in exchange for regaining planning security for the company and its employees. We adopted a constructive attitude to the negotiations and went to the extreme limits of what is feasible for RWE. Let me briefly summarize the agreement.

By 2030, around 5 gigawatts of generation capacity in the Rhenish lignite mining region will be decommissioned in addition to the standby reserve. This means that including the standby reserve, on the whole, roughly 2/3 of the current generation capacity will be shut down. RWE alone will be responsible for almost all of the capacity production in Germany through to 2023. As early as this year, the first 300-megawatt unit will cease operation. Of course, shutting down the power stations also has major consequences for our opencast mines. More than 1.1 billion metric tons of coal reserves approved for mining, representing more than half of our coal, will remain in the ground. The Inden and Hambach opencast mines will be closed much earlier than originally planned. The Hambach Forest will be preserved.

In the meantime, we have submitted to the state Government of North Rhine-Westphalia a mining plan, which has been adjusted to reflect the aforementioned changes, as this requires completely new planning procedures. This is our contribution to developing a new lead decision for the Rhenish coal mining region, which the state government announced this year. The agreement negotiated with the federal government will lead to significant redundancies at RWE.

We believe that over the short term, that is up to 2023, more than 3,000 jobs will be lost. And in total, more than 6,000 jobs will disappear by 2030. As a result of this, the total number of employees in our lignite operations will decline by more than 60% in just 10 years. This underlines the huge impact that this agreement will have on RWE and its employees.

We want to ensure that its implementation at RWE is socially responsible so that no one is left in the lurch. We promised this to our employees. We’re going to live up to this promise. And we are very pleased that the federal government intends to facilitate a socially responsible reduction of the workforce, with statutory regulations for transition money and compensation for pension-related disadvantages is something that we truly appreciate.

So what is going to happen now? Legislation on coal — exiting coal is moving through the parliamentary process. The assumption is that it will be passed before the summer break. For us, one binding prerequisite for this is that the conclusion of a public law contract with the Federal Republic of Germany is a prerequisite, is the conclusion. And this is necessary, so that planning certainty is not limited to individual legislative proceeding periods.

Ladies and gentlemen, we have planning certainty for our conventional generation, and it’s full steam ahead for renewables. As you can see, we are pressing forward with our realignment. We are in great shape strategically, operatively and financially. Consequently, the Executive Board and the Supervisory Board will propose to the Annual General Meeting a dividend of EUR 0.80 per share for our shareholders for the past fiscal year. In doing so, we confirm the increase of EUR 0.10 per share, which we presented as a target a year ago. You can rely on RWE. For the current fiscal year, the Executive Board is targeting another dividend increase to EUR 0.85.

Ladies and gentlemen, starting this year, our financial reporting will be clearly oriented towards our strategic focus. This approach to reporting enables transparent financial management. It does not, however, lead to any changes in the corporate structures of our subsidiaries.

We have organized our segments as follows: offshore wind, this covers our global offshore wind farms; onshore wind and solar, this includes our wind and solar farms in North America, Europe and the Asia Pacific region; hydro, biomass gas, we report on our pump storage and run-of-river power stations, biomass fired power stations and gas-fired power plants in this segment, along with the minority interest in the Austrian energy utility Kelag; and fourthly, supply and trading. This segment includes our trading activities, the key account business and income from managing the gas storage facilities, which we’re taking over from Innogy.

These 4 segments represent the core business in which we want to grow both sustainably and profitably. But what does this really mean? We’re going to focus on 3 regions in wind and solar. In Europe, our first core region, we are already active in 9 countries. Germany and the United Kingdom are important markets. The ambitious European climate protection targets are a strong driving force for the continued expansion of wind and solar power. In order to reach them, more than 50 gigawatts of capacity needs to be added annually until 2030.

We intend to partake in this growth. We already have projects with a volume of approximately 12 gigawatts in planning. Around 1/3 of our renewables capacity is located in the U.S.A. and Canada, our second core region. The overall market there consisted of more than roughly 180 gigawatts of capacity at the end of 2030 — by 2020. By 2030, it should be more than 340 gigawatts. With around 10 gigawatts in prospective projects, our pipeline in North America is well filled.

Our third core geographic area is Asia Pacific. By 2030, the volume of installed capacity in this region is forecast to nearly triple to around 530 gigawatts. We want to participate in this growth and have taken the first steps to enter this market. For instance, we have concluded initial cooperation agreements with Japan. Countries such as Taiwan and Korea are also focal points. These markets of our core business are very promising, offering good opportunities for RWE to achieve value-added growth.

In the fifth segment, coal and nuclear, we have pooled generation from our German hard coal-fired and lignite-fired power plants as well as nuclear energy, for which well-defined deadlines are in place. Besides electricity generation, which will decrease over the years, the focus here lies above all on dismantling assets and recultivating opencast mining areas.

So that’s all for now on the structure of our new financial reporting. Let’s turn to our excellent business results for 2019, which will be presented in more detail by our CFO, Markus Krebber. Markus, the floor is yours. He’s probably delighted to present the figures to you, and it’s nice to present nice figures.

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Markus Krebber, RWE Aktiengesellschaft – CFO & Member of the Executive Board [3]

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Thank you very much, and welcome to the annual conference, ladies and gentlemen. Well, the part here was a very special one. Also, in financial terms, we made 2 upward corrections for operating targets for 2019 and still ended up exceeding them.

Our balance sheet has changed substantially as a result of this certain transaction with E.ON. We deconsolidated the Innogy operations, and we sold and included the activities we acquired from E.ON for the first time. And last but not least, we have to account for the consequences of the German and Dutch coal phase outs on our balance sheets.

And for the first time today, we can provide a longer-term outlook on our financial development. But first things first. I’d like to start with the encouraging business performance in 2019. Today, we will comment on the development of our operating activities based on the results for RWE stand-alone for the last time. From 2020 onwards, the new RWE will be presented completely in our financial figures, eliminating the need for the RWE stand-alone perspective.

In 2019, RWE posted excellent results, exceeding our forecast from March of last year by quite a large margin. Well, the adjusted EBITDA was projected to be around EUR 1.2 billion to EUR 1.5 billion. What we achieved was EUR 2.1 billion. In 2018, we earned EUR 1.5 billion. The adjusted net income amounted to EUR 1.2 billion, doubling the previous year’s figure of EUR 591 million.

First and foremost, the positive development was due to an exceptional trading performance and a very strong gas and LNG business. Supply and trading closed 2019 with an adjusted EBITDA of EUR 702 million, up from EUR 183 million the year before.

But also in the other segments, we registered good business performance. European power generated an adjusted EBITDA of EUR 453 million, up from EUR 334 million in the previous year. The main reason was the resumption of the payments from the British capacity market.

In the Lignite Nuclear segment, we also did slightly better than in the previous years, despite the halt to the clearance of Hambach Forest. Well, the result was improved by the acquisition of minority interest in the Gundremmingen and Emsland nuclear power plants from E.ON at the end of September 2019. However, also the somewhat higher electricity margin were another factor. The segment posted an adjusted EBITDA of EUR 374 million, up from EUR 356 million in 2018.

Now let us take a look at our balance sheet. In 2019, we had to account for the coal phase out and the execution of the transaction with E.ON. We publish information on the accounting treatment of the transaction with E.ON, which was implemented in September as part of our reporting on the third quarter.

And the fourth quarter now reflects our — the coal phase out. The German coal phaseout has driven up our mining provisions by about EUR 2 billion, our personnel provisions by about EUR 350 million and has resulted in impairments of power plants and opencast mines of about EUR 500 million. This represents a major portion of the total damage, which we estimate will amount to EUR 3.5 billion. These burdens are contrasted by the EUR 2.6 billion compensatory payment from the federal government, which is scheduled to be made over the next 15 years. The coal phase out in the Netherlands caused us to recognize for impairments of some EUR 700 million. This primarily relate to the Eemshaven power plant. This state-of-the-art station was only commissioned in 2014.

Our balance sheet bore the brunt of these burden as well, above all, because our strategic realignment strengthened our financials. Our net debt declined substantially over the course of the year and has hit an all-time low. Based on our definition after our realignment, it totals to EUR 7 billion. This corresponds to a leverage factor of 2.6 relative to the pro forma adjusted core business EBITDA for 2019.

In the midterm, this is not going to exceed the factor of 3, and we believe that this corresponds to a rating of BBB or better, even, which is not included is the mining provisions, which rose by EUR 2 billion to EUR 4.6 billion as a result of the coal phase out. We will back them with a separate financial portfolio in the future. It includes the compensation award amounting to EUR 2.6 billion for the government and the 15% stake in E.ON. As a result, the long-term lignite obligations are directly contrasted by a portfolio of financial receivables and assets. This does not change our group’s additional total liability. After a look at the equity ratio, it’s quite positive. The equity ratio improved considerably. It was approximately 27% as of the end of 2019. This corresponds to an increase of about 10 percentage points over the year.

Ladies and gentlemen, we’ve created a strong basis in order to continue growing sustainably and profitably. In our renewables business, we already have a regionally and technologically well-diversified portfolio with a stable earnings profile. 70% of our earnings in the offshore wind and onshore wind solar segments can be calculated in advance as they come from contracted or regulated business, and we wish to continue growing this business with resolve. We’re planning to make net investments of about EUR 5 billion in wind and solar energy. In the next 3 years, the capital expenditure will be the driver of our expected positive earnings performance. Now let’s turn to the individual segments.

In order to facilitate compares, we are presenting our forecast in relation to the pro forma results for 2019. They show the figures for the business performance, including the operations acquired from E.ON for the year as a whole. As of September, in the segment of offshore wind, we are targeting adjusted EBITDA of EUR 0.9 billion to EUR 1.1 billion. So on a pro forma basis, we posted EUR 961 million for last year. Well, the slight improvement is mainly due to the fact that our outlook is based on a normal wind year, whereas the wind volume in 2019 was lower, especially in the United Kingdom.

In onshore wind solar, we project adjusted EBITDA of between EUR 500 million and EUR 600 million in 2019. We achieved EUR 442 million. And the increase is mainly due to the addition of new capacities.

In hydro, biomass and gas, we recorded an adjusted EBITDA of EUR 671 million on a pro forma basis in 2019. This includes the payments from the British capacity market for 2019, but also a payment of around EUR 50 million for 2018. For this year, we expect a figure of between EUR 550 million and EUR 650 million. This will also include the first contribution from our Kingsland gas-fired power station, which was added to our fleet in February with a capacity of 382 megawatts. We expect for supply trading, that after its exceptional performance in 2019, to return to earnings within the long-term average, including the acquired gas storage activities. We anticipate adjusted EBITDA in the order of approximately EUR 250 million. In sum, we expect the core business to achieve adjusted EBITDA of approximately EUR 2.15 billion to EUR 2.45 billion.

For coal and nuclear, we pursue an adjusted EBITDA of between EUR 560 million in 2020. The pro forma figure for last year was EUR 340 million. The improvement will, in particular, be the result of higher secured electricity margins.

As a group on the back of these figures, as a group, we wish to — our aim is to record adjusted EBITDA of between EUR 2.7 billion and EUR 3 billion. Our adjusted EBIT for 2020 should become in between EUR 1.2 billion and EUR 1.5 billion, with an adjusted net income estimated to close the year at between EUR 0.85 billion and EUR 1.15 billion. For the first time in many years, we are confident enough to make a longer-term forecast and expect being able to increase our key earnings figures by between roughly 7% and 10% from 2020 to ’21.

Ladies and gentlemen, as you can see, RWE is set to start growing again because we have delivered what we promised. Thanks to our strict cost management, we have always maintained our profitability even during periods of low prices on the wholesale electricity market.

Over the past 3 years, we consistently met or exceeded our forecast results. We’ve bolstered our balance sheet. We’ve stabilized our rating and improved our gross risk profile. This is a very good for our shareholders. They benefit from a valuable company, the share price of which has displayed outstanding development in the last 3 years. On top of that, we are aiming to steadily increase the dividends. For 2018, we paid EUR 0.70. For 2019, we wish to pay EUR 0.80. For this year, we are targeting EUR 0.85. Our goal is to continuously increase the dividend in 2020 and beyond as a result of the positive development of our core business. And let me give the floor back to Rolf Martin.

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Rolf Martin Schmitz, RWE Aktiengesellschaft – Chairman of Executive Board, CEO & Labour Director [4]

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Thank you, Markus. Change, ladies and gentlemen, has been part of our DNA for the last 120 years. We know that every energy has its time. Today, it is to generate electricity in a carbon-neutral manner. The energy sector is making great progress towards achieving this goal, and the industry’s carbon dioxide emissions continue to fall.

In Germany, the energy sector will significantly exceed the sectoral targets for carbon emissions in 2020. At RWE, we are making an important contribution to this progress. Since 2012, RWE has lowered its carbon emissions by more than 50%. In 7 years, we cut emissions by 90 million metric tons of CO2, equivalent to roughly as much as all of the passenger cars in Germany emit in a single year. And of course, this helps achieve the goals of the Paris Climate Agreement.

In the Netherlands, we are in the process of retrofitting our hard coal-fired power plants to use biomass. And in the United Kingdom, our last coal-fired power station stopped generating electricity in December. In the U.K., our future portfolio will consist mainly of wind farms and gas-fired power plants.

Over the years to come, natural gas will be increasingly important in bridging the gap to the age of renewables. Over the long run, we intend to use green gas, which can be produced and used in a carbon neutral manner. As you know, hydrogen is also high on the agenda for many. I can only agree with this. As a fuel source and raw material, hydrogen can help to significantly reduce carbon dioxide emissions far beyond the electricity sector. In the quest for a carbon neutral industry, there is no way around hydrogen. With this in mind, we are participating in 3 innovative hydrogen projects in Germany, the Netherlands and the U.K.

Ladies and gentlemen, when it comes to investments to money, countries face global competition. Companies invest in places where they can best grow and prosper. That’s why it is very important for us that countries establish attractive market conditions for the expansion of wind and solar energy. In Europe, the green deal may create new incentives and set key standards. The President of the European Commission, Ursula von der Leyen, presented her initial proposals for this last December. Many details remain unknown, but the goal has been defined: cut carbon emissions as much as possible and as quickly as possible by harnessing technological progress and to do this in such a way that the economy and society benefit as well. This is a good idea because Europe can and should play a pioneering role in development. This would be a decisive step for Europe as a technology hotspot. And it is a symbol for change. Instead of getting bogged down in worries, the debate could be revitalized with a positive pioneering spirit.

Along with more optimism, sometimes, I would also like to see a much stronger commitment to the greater good from politicians and society. And because this is not always the case, and the greater good is increasingly eclipsed by individual interests, which are frequently advanced with great vigor, but a lack of willingness to compromise, often without even being able to listen to what the other side is saying. Protests can often lead to a stalemate.

In Germany, we are seeing this in particular with regard to the expansion of wind power in rural areas, or onshore wind power, which almost came to a complete still stand last year. If 90% of Germans support the expansion of wind power but are absolutely not willing to actually see wind turbines when they look out of the window, it will be very difficult to make progress in transforming the energy landscape in our densely-populated country. Even the construction of a Tesla factory to produce electric cars is no longer possible without lawsuits and occupations by activists.

Sometimes, it seems to me that the genie conjured up by this kind of approach to things cannot be put back into the bottle. For far too long, this kind of confrontation has been euphemized as civil disobedience and even promoted in some political circles. Take for example the illegal act [at Eemshaven] even if they were intended to support a presumably good cause. We witnessed the same in the opencast mining areas. The ripple effect abroad is devastating. Germany is being viewed as a location where investing makes no sense. The Tesla example that I just mentioned, is important in this regard. Fortunately, it was solved. And this comes at a moment of industrial transformation when we need inspiration and entrepreneurial spirit, in particular, from outside Germany. We are convinced that the best way we can improve the world is to shift our focus back to a pioneering spirit and appetite for innovations.

Ladies and gentlemen, let me summarize RWE’s excellent results for 2019. Number one, we have positioned the new RWE for a new beginning, and now we are growing and delivering. Second, our operating business activities reached the targets in 2019. And thirdly, our financial basis is robust. We will propose to our shareholders the payment of an increased dividend of EUR 0.80 per share.

It takes expertise, financial strength and a desire to forge ahead to put these kinds of results on the table and energy for a sustainable life, the energy of all of us for achieving these targets. That’s what RWE stands for.

And now we are looking forward to your questions.

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Questions and Answers

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [1]

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Yes. Thank you very much, Rolf. Thank you, Markus. Rolf just said that we’re going to start the Q&A session. If you’ve got tuned in via the phone, please contact the operator if you want to ask a question. Please bear in mind that if you are following this event via the video stream, you will have to mute the tone of your video stream because otherwise, there will be some feedback.

And questions — question to the operator. The first question, please?

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Operator [2]

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(Operator Instructions) First question is from [Archie Herning], [Irish Report].

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Unidentified Analyst, [3]

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I have 3 questions. Number one, concerning job costs, 6,000 jobs will be made redundant. When will the employees know exactly which power plants will be closed down? When will they be affected? And will they not be laid off? What are the risks that you see with regard to the corona crisis? It also hit your share price. And Mr. Schmitz, what are your personal plans? Mostly people want to leave when everything is best.

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Rolf Martin Schmitz, RWE Aktiengesellschaft – Chairman of Executive Board, CEO & Labour Director [4]

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Well, I don’t know if everything is best now. But my contract will end at the middle of next year. That’s when I’m going to turn 65. It’s always good to know when to leave. I’m starting to quote myself, and that’s pretty stupid. Now let me get back to the serious part of your question.

Our employees know which power plants will be dismantled or will be taken off the grid. That was agreed in the agreements with the federal government. And the impacts of the opencast mining system, the opencast mines, is also quite clear. We know which mines will stop operating.

We don’t — we haven’t figured everything out down to the last person, but we assume that there won’t be any redundancies for operational reasons. We have a very good tool or aid that we got from the federal republic of Germany. We have compensation. We have transition monies. We’re going to negotiate with the trade unions on how things are going to continue. Our employees have accepted this. Most of them are happy that we have planning security and that we know what is going to happen and that they can prepare for this. Nothing is worse than uncertainty.

Now with regard to — for corona, our pandemic plans are being adjusted continuously. We have a crisis team. We’re in close contact with the authorities. And if need be, we check how operational risks can be minimized. We split teams, shifts, et cetera. We are pursuing all important investments. We are a critical infrastructure in our business. And in mid-February, we issued a travel ban to — for trips to Asia. And then at the end of February, the North of Italy followed. And depending on the further development, there will be additional travel bans. Each business trip has to be considered critically and should be canceled if need be. And this applies to larger events in order to reduce the risks for business partners and employees. Of course, everything that relates to personnel protection was communicated to the staff. If employees were on holidays in one of the countries, are still on holidays, they are asked to prevent coming into contact with other employees for 14 days after coming back. And the same applies to the people living in the same household or people from the same household worked — spent time abroad.

And we also talked to contractors, asked whether they were in areas and countries of risk and that these shouldn’t be used if they spent time in these countries. So we are really doing a lot of things in order to reduce the further spread of the virus. Thank you very much.

The next question, please?

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Operator [5]

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Tom Kackenhoff, Reuters.

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Tom Käckenhoff, [6]

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To follow-up on the previous question, what are the consequences of the ban on entry to the United States, especially in the area of renewables, the renewables business for you, the ban that was issued by Mr. Trump? If this takes longer, what impact will that have on your renewables business in the U.S.? Based on the good development at RWE over the past 2 years, there has been speculation that RWE might become a takeover target. How do you see that? And how do you see the share price loss of RWE over the past few days? Does that have something to do with corona?

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Rolf Martin Schmitz, RWE Aktiengesellschaft – Chairman of Executive Board, CEO & Labour Director [7]

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Mr. Kackenhoff, concerning our employees in the United States, well, our business in the United States will not really be affected by travel bans to the United States. The business is a local business. Of course, we have individual teams that operate internationally in construction projects, for instance. But this is now being controlled then by our employees in the United States. But we don’t really see a major effect. But of course, it depends on how the crisis will develop. And of course, we depend on international supply chains. Our turbine manufacturers receive products from other areas in the world. And if there are further bans, this will have major effects. However, looking forward, we don’t see any direct impact.

The other question concerning the share price and the takeover target, I’ll address that later. If you look at the past 3 to 4 days, the response by the share price was a bit larger. But I would like to put that into perspective because it’s difficult to comment on individual days. If you’ve developed well, then, of course, you decline more if there’s a crisis situation. If you compare our share price to the beginning of the year or over the past 3 years, we were always amongst the best shares in the DAX after — from 2017 to 2020. Now we’re still almost at the same level at the beginning of January. Now we are maybe just 10% to 15% lower than in January, and the DAX, overall, dropped by 25% to 30%. So the developments were quite positive since the beginning of this year. I don’t see any specific effects, which the corona crisis will have on our share price.

Takeover targets? Well, it’s always difficult to comment on that. If somebody has a lot of money who wants to purchase something, then that’s beyond our control. But there’s not — we don’t see any indications towards companies or institution or groups being willing to purchase us. We want to make sure that the share price develops well. And I think that’s the best strategy looking forward, really taking care of what you can influence and not speculating on what others might be doing.

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [8]

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Thank you, Markus. And the next question, please?

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Operator [9]

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Benedikt Muller, Suddeutsche Zeitung.

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Benedikt Muller, [10]

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I have a few questions concerning you, Mr. Schmitz. You just said that you have to see sometimes, it’s better to pass the job on to younger people, but you want to continue to work until your contract ends? Or do you want to leave prematurely? And could you tell us something about how you started into the new year with regard to the utilization rate of coal power plants? We had a lot of strong wind and some other effects. Could you tell us something about that?

And if I look at the figures properly, your forecast for net income for 2020 is a bit lower than what you have for RWE stand-alone for 2019. Could you please put that in perspective and tell us whether this is a significant decline?

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Rolf Martin Schmitz, RWE Aktiengesellschaft – Chairman of Executive Board, CEO & Labour Director [11]

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First question, the Supervisory Board expects me to fulfill my contract. I can’t really decide whether I want to fulfill it or not. It’s being expected. And once you sign agreements, you should perform and fulfill them.

Well, what is bad for coal is good for wind. And since we have both, we benefit from individual developments on both sides. And so we’re quite relaxed. But comparison between 2020 to 2019, my colleague said that in trading, we had an excellent year in 2019. The forecast for 2020 is based on a normalized earnings situation. And as a result, there might be a decline in individual areas because you can’t have such an excellent year every year. Thank you very much.

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [12]

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Thank you very much, Mr. Muller. Are there any further questions?

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Operator [13]

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[Peter Zoberger], Dow Jones.

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Unidentified Analyst, [14]

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Can you exclude that there might be outages due to the corona crisis and whether a decision has been taken with a view to the general assembly on the 28th of April in Essen, then power station that for Uniper presumes that they will win the lawsuit. And do you think that you will have to buy power from the Datteln 4 power station?

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Rolf Martin Schmitz, RWE Aktiengesellschaft – Chairman of Executive Board, CEO & Labour Director [15]

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Well, outages because of corona, well, I can only speak for us. But I know that everybody is ready and prepared and that the contingency plans are in place. And of course, distribution is very important that this remains stable. And for such scenarios, for years, we’ve had plans. So this is not a surprise. But this has really been exercised and carefully planned.

And at the moment, we presume that on your second question, the general assembly will be conducted as planned. But of course, we will have to respond whenever things change. Well, on the Datteln 4 lawsuit, we will wait for further developments. And if there are obligations, then we will fulfill our obligations.

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [16]

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Thank you, [Mr. Zoberger]. Next question?

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Operator [17]

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Vera Eckert from Reuters.

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Vera Eckert, [18]

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Well, yes. You addressed hydrogen and the hydrogen strategy. And perhaps you could comment on the more specific milestones. So what projects are in the pipeline? And what will be put into practice at short notice?

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Rolf Martin Schmitz, RWE Aktiengesellschaft – Chairman of Executive Board, CEO & Labour Director [19]

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Well, we see that hydrogen will be very important for the future, but this hydrogen will not necessarily be produced in Germany because we do not have enough areas to produce sufficient renewables that, apart from the electrification that is in place, to also produce hydrogen. So it’s also set out in the plan of the government that we will only be able to bring that about at international level. And in international cooperation, we are conducting 1 pilot project in Lingen, that is we install an electrolytic installation. And we also cooperate with the Netherlands in order to gather experience there. And the same goes for the U.K. So there are different partners just to learn from each other, to learn how, for example, there’s an interplay between the renewable installations and hydrogen, when can hydrogen be used for renewables and how can hydrogen be used whenever it’s supposed to be used in industry. So this is something where we really need to learn a lot. And this is what we’re testing.

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [20]

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Thank you very much, Mrs. Eckert. Next?

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Operator [21]

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Stefan Schulte, via WAZ, the daily newspaper from Essen.

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Stefan Schulte, [22]

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Well, 2 questions left for me. First of all, Innogy. The asset swap has not been completed. That is the eco division has not been returned from Innogy. When do you expect a completion? And so what is your commitment until the full completion? Because if you want to push your growth path the way you want, you need to commit yourselves. Then you said something on the expansion of renewables. You addressed the citizens who protest against the erection of installations. But of course, there are legal regulations and frameworks, which are not sufficient. And perhaps, you can come in on that.

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Rolf Martin Schmitz, RWE Aktiengesellschaft – Chairman of Executive Board, CEO & Labour Director [23]

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Mr. Schulte, let me comment on your first question on Innogy. This is not really slow going. It’s within the road map we’ve set out last year — last week. There was the [immediate] Innogy’s general assembly, where we decided to squeeze out. And now this next step is to really swap the installations and the employees.

But we agreed right from the start with E.ON after the approval was given by the cartel office to work in this legal framework that is available to us and cooperate in this legal framework. And in practical term, this means that at the future, management team of RWE, 3 work within RWE, and 3 work within Innogy. And everything concerning the major investments, RWE will be the decision takers within the legal framework. So there’s full transparency and full reconciliation and coordination between the 2 companies. So we’re both clear about what’s going to happen.

And then the investment plans for Germany, there are investment plans, which cover all the different technologies. We will decide at short notice on an offshore wind farm. There are other projects on — in the solar area, and the solar cap should be removed. And what the distance regulation is concerned, I think this distance rule is not really the only problem. But for example, there’s no uniform basis for environmental studies, and the processes and the litigations are far too long. It’s really a matter of accelerating the litigations at the lawsuit. Of course, we wish to invest. But in a certain framework, I need to know whether or not I’m allowed to invest. And if takes that — if that takes too long, then we can not hold the money back for such a long period of time. But the government provides us with signals so that they have realized that there is a problem and they are working on it.

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [24]

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Thank you very much, Mr. Schulte. Are there any further questions?

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Operator [25]

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Vanessa Dezem from Bloomberg News. Since she doesn’t react, the next question comes from [Nora Krambambuli] from [Northern].

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Unidentified Participant, [26]

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Yes. Well, many questions have already been answered. Can you give us some more insights on the trading results of 2019 that is in LNG gas? And why do you expect decreased results for the years to come?

Then the Capital Markets Day, did I understand you correctly that as from 2023 on, lignite will not contribute to the EBITDA, so there is hardly any income that you expect from lignite?

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Rolf Martin Schmitz, RWE Aktiengesellschaft – Chairman of Executive Board, CEO & Labour Director [27]

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A little bit on trading results. What was special about 2019? Well, of course, there was no big difference to the previous years. So we didn’t enter greater risks. Well, the special thing was that was — well, we were fortunate, but it was also a provisional management that is the trading areas have already positive contributions. Normally, it’s a mixed picture. In some areas, we earn more. In others, we earn less. But last year, of course, the development was very good for all areas. And then just — we take a conservative view. And we say with the long-term risk that we are ready to enter, let’s say, EUR 250 million, then we will be glad to earn more. But I think we wish to remain conservative, and this is why the expectations are a little bit reduced.

Then the capital market? Well, the segment coal nuclear, which will only be exclusively coal because nuclear will be phased out by then, they — their contribution will be 0 to EUR 200 million.

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [28]

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Thank you, [Mrs. Krambambuli]. Are there any further questions?

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Operator [29]

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It’s Mrs. Dezem.

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Vanessa Dezem, [30]

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I couldn’t ask my question.

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [31]

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But now we hear you.

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Vanessa Dezem, [32]

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Can I now ask my question?

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [33]

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Yes, please.

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Vanessa Dezem, [34]

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So I would like to understand better on the coronavirus outbreak and how it can hurt RWE business. You’ve just mentioned that it can have a disruptive impact on the wind supply chain, for example. And also, we are hearing from analysts that it could hurt more power demand than gas demand in the region. And so I wanted to know a little bit more about that and wanted to also listen to your opinion.

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Rolf Martin Schmitz, RWE Aktiengesellschaft – Chairman of Executive Board, CEO & Labour Director [35]

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As I said, we have really prepared very well to remain fully functional. We do not have any problems in the supply chain and neither in the field of renewables. And we can’t see that the electricity consumption would go back. We don’t know what we will be in for. But the countries in which we are active at the moment such as the U.K., Netherlands and Germany, with conventional generation and many other countries with renewables. But at the moment, we don’t see any repercussions and that we cannot fulfill our obligations and our projects are postponed. There are other things are much more hard-hitting. The hurricane, for example, some wind mills or wind farms were lost during a hurricane offshore. So there are other things which might hit the business hard. But when it comes to the coronavirus, we don’t see any major repercussions for RWE.

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [36]

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Okay. Was it the answer? You had a second question? Thank you, Vanessa. Are there any further questions?

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Operator [37]

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[Nadine Chris] from [DPR].

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Unidentified Analyst, [38]

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That is 2 questions in outlook. It says that in the dividend, the E.ON participation is not included. Why is it so? And what is the share of renewables in power production? And how will the share development in the years to come?

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Rolf Martin Schmitz, RWE Aktiengesellschaft – Chairman of Executive Board, CEO & Labour Director [39]

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The dividend of E.ON is not included in the EBITDA. However, it’s reflected in the financial results because this is a financial participation for us. That is in the EBITDA and in the guidance, it’s not reflected, but in the adjusted net income reflecting the whole result, it’s included. And this is why the EBITDA seems to be a bit lower. But the EUR 1 billion or up to EUR 2 billion net income adjusted result, it’s included, but via the financial result.

Power production? I don’t know. Well, at the moment, share of renewables is 10% to 15%, and the rest is conventional because we are saying quite clearly, whereas we have a highly flexible gas-fired power station fleet and on — and also, solar is part of it. But renewables as a whole makes a share of 10% to 15%.

And the further development, well, the trend is that we increased renewables by 50%. And the share of coal-fired power stations will go down. Of course, we’re an operator of major gas-fired power station, so that needs to be included, too. And it will remain like this so that the share of renewables will be lower than that of conventional, but the aspiration and the target is to have a share higher than 50%.

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [40]

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Thank you. Next question, please?

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Operator [41]

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[Anneth Deckert] from [Suddeutsche Zeitung].

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Unidentified Analyst, [42]

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I would like to know more about the separate financial portfolio in which the money is placed that you get from the federal government, the EUR 2.6 billion, plus the E.ON participation dividend. Is this a separate — is it separate from a philosophical point of view? Or is it completely separate? Is there something like a CTA?

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Rolf Martin Schmitz, RWE Aktiengesellschaft – Chairman of Executive Board, CEO & Labour Director [43]

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Unfortunately, we only have CTAs for pension assets. So it is more or less a financial structure that we created here. But it depends, of course, on how we steer the business. We have to focus on net debt on the core business without E.ON. And we have, of course, the receivables for the federal government. But — and on the other hand, we have the provisions for lignite. That’s how we steer the business. That’s why it has to be recognized accordingly.

The dividend from E.ON is included in the financial result, and that’s not broken down to the individual segments. It’s more or less a corporate view that we use here. The distinction between the core business and the segment, nuclear and coal, goes to the EBITDA depreciation, et cetera. But we do not calculate an artificial net income for the various segments. That’s why the financial result is not reflected there.

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [44]

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Thank you very much, [Mrs. Deckert]. We still have 3 questions. Is that still possible? We still have some time, yes. Next question, please?

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Operator [45]

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Next question from [Claus Hafford] from [JPA].

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Unidentified Analyst, [46]

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I wanted to ask about the remaining hard coal-fired power plants of RWE. What are you planning to do with them? Are you going to participate in the auctions and the tenders? Or would you potentially also issue — start a lawsuit if you will not receive compensation? Or could they also be upgraded? Or we have 2 hard coal-fired power plants, like Ibbenbüren, which is going to be closed down over summer because we didn’t use it that much. And we will also see whether we might enter into an auction here. We have a second very state-of-the-art hydropower station, hard coal-fired power station, Westfalen, with 800 megawatts, and it will then continue operating until the early ’30s. Do you have the possibility to convert it to biomass, for instance?

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Rolf Martin Schmitz, RWE Aktiengesellschaft – Chairman of Executive Board, CEO & Labour Director [47]

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Conversion to biomass only makes sense if biomass is subsidized. Otherwise, it doesn’t make sense. It’s not financially viable. In Germany, such considerations do not exist. However, in the Netherlands, they do exist, and we would only be able to convert to other fuels if we have the corresponding incentive systems.

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [48]

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Thank you, Rolf. The next question, please?

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Operator [49]

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Karsten Wiedemann from Energate.

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Karsten Wiedemann, [50]

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Gas-fired power plants is my question. Mr. Schmitz, you said that they are necessary for the bridge, for the transition. Do you see sufficient incentives for building power plants? Do you need more megawatts of power plants?

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Rolf Martin Schmitz, RWE Aktiengesellschaft – Chairman of Executive Board, CEO & Labour Director [51]

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No. We don’t see any need for new gas-fired power plants. We always stress that you need certain schemes for that, capacity mechanisms, for instance. Power plant that is not connected to the grid continuously needs other incentives. A good example is available in the U.K.

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [52]

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Thank you, Rolf. Thank you, Mr. Wiedeman. Any other questions?

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Operator [53]

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Vanessa Dezem, Bloomberg News.

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Vanessa Dezem, [54]

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So I’d like to ask about natural gas prices and power prices in Europe. They are down almost [15%] in the past year. And then I would like to hear on the outlook for those markets and how it impacts RWE?

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Markus Krebber, RWE Aktiengesellschaft – CFO & Member of the Executive Board [55]

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Well, the long-term outlook is — it’s very difficult to give the long-term outlook because of the uncertainties, and that will depend very much on the impact of the coronavirus in the long run, whether there’s going to be a deep recession or whether things will start to recover after a couple of weeks, that will, of course, have an impact on the long-term electricity demand and the long-term demand for commodities. So it’s difficult to give a forecast at this juncture.

The direct effect on RWE for the next 2 to 3 years, today, we gave a long-term forecast, should be quite limited. Electricity production has been secured. We are now a bit quicker in doing so than in the past. And the only area where it is still unclear, uncertain, it’s minor.

But Rolf just mentioned the supply chains. We don’t see any major impact here. But if the situation would, of course, continue over quarters, months or quarters, then we can’t really say what the impact will be. We are now operating at short notice, and everything that we can prepare and do has been done. And we do hope that the situation will recover then.

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [56]

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Thank you very much, Markus. There’s still one question. Is that correct?

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Operator [57]

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The next question is from [Pete Haslaga], Dow Jones.

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Unidentified Analyst, [58]

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Another question concerning hydrogen. You mentioned that there’s a coal replacement bonus, but hydrogen is not really included in the coal exit law draft. If that existed, would that be a sufficient incentive to switch or convert to hydrogen in small-scale CHPs, for instance.

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Rolf Martin Schmitz, RWE Aktiengesellschaft – Chairman of Executive Board, CEO & Labour Director [59]

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Well, this — for the coal replacement bonus, the aim is to switch hard coal power plants to gas, and that doesn’t have anything to do with hydrogen. If you mix hydrogen into this whole scheme, there wouldn’t really be results. The aim is to increase conversion, but there will certainly be discussions on this. We represent the position or share the position of the association, the industry association. And there are certain — certainly other companies that are more affected by this than we are.

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [60]

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Now are there any further questions?

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Operator [61]

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No further questions.

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Stephanie Schunck, RWE Aktiengesellschaft – Head of Group Communication and Public Affairs [62]

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I would like to thank you very warmly, ladies and gentlemen, for your animated discussion, for your questions. We hope that we were able to provide you a good overview of our business at this annual press conference. If you have any further questions afterwards, please feel free to contact me or our press office, the team of Lothar Lambertz. And at this juncture, I would like to thank you again, and I would like to say that we are looking forward in talking to you personally next time. And until then, stay healthy. All the best, and thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

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