Securing flexible financing Markus Coenen Head of Group Finance, - PowerPoint PPT Presentation

Securing flexible financing Markus Coenen Head of Group Finance, RWE AG RWE Credit Day London, 9 October 2012

2012 in financial terms so far H1 2012 operating performance: EBITDA +9%, operating result +9%, recurrent net income on last year’s level Confirmation of guidance for FY 2012 Completion of hybrid bond programme – € 2 billion in total volume (in several currencies) achieved Confirmation of A3 (negative outlook) by Moody‘s; downgrade to BBB+ (stable outlook) by Standard & Poor’s Bond maturity in October 2012 (€ 1.8 bn) will be repaid out of cash RWE Credit Day I 9 October 2012 18

Our main financial targets > Securing access to money markets and capital markets at all times Targeting a healthy and efficient > Leverage factor (net debt to EBITDA mid term below or equal to 3.0) as an balance sheet operational instrument > Mid-term target to cover investments and dividends by cash flow from operating activities > Ample liquidity from strong operational cash flows and committed Strong liquidity back-up line profile > Commercial Paper market can easily be accessed > Smooth maturity profile > Defined minimum liquidity to cover volatile trading business and collateralization > Long-term and fixed interest financing matching a long-term business Prudent financial policy > Conservative definition of net debt (including all major long-term provisions) > 73% of pension obligations funded by Contractual Trust Agreement (CTA) RWE Credit Day I 9 October 2012 19

Capital market debt maturities and sources of financing Capital market debt maturities 1 Strong sources of financing 1 in € bn MTN programme 2,5 € 30 bn (up to 30 years) 20,0 20 € 16.2 bn ) 2 2,0 16 1,5 12 Commercial paper $ 5.0 bn (up to 1 year) 1,0 8 € 0.4 bn 0,5 4 Fully committed 0,0 0 for liquidity syndicated loan 2012 2017 2022 2027 2032 2037 back-up (€ 4.0 bn up to Nov. 2016) Maturities of debt issued Hybrids (first call dates) € 0.0 bn Accumulated outstanding debt (incl. hybrids) Balanced profile with limited maturities up to end of 2014 (~€ 4.3 billion) 2 Bonds outstanding under the MTN-programme, 1 RWE AG and RWE Finance B.V., i.e. excluding hybrid. Including hybrid: € 20.0 bn as of September 30, 2012 RWE Credit Day I 9 October 2012 20

Following S&P‘s revision of the financial risk profile, RWE is now at BBB+ Financial risk profile Minimal Modest Inter- Signifi- Aggressive Highly mediate cant leveraged Excellent AAA AA A A- BBB -- Business risk profile Strong AA A A- BBB BB BB- Satis- A- BBB+ BBB BB+ BB- B+ factory Fair -- BBB- BB+ BB BB- B Weak -- -- BB BB- B+ B- Vulnerable -- -- -- B+ B CCC+ RWE Credit Day I 9 October 2012 21

Recent rating actions reflect S&P’s and Moody’s cautious view on the sector Date Agency Before Current Company 08/2012 S&P A-/stable A-/watch neg. 07/2012 S&P A-/stable A-/negative 07/2012 S&P A/negative A-/stable 07/2012 S&P A-/negative BBB+/stable 07/2012 Moody’s A1/watch neg. A1/negative 05-06/2012 Moody’s A3/negative Baa1/watch neg. 05/2012 Moody’s A3/stable Baa1/watch neg. 06/2012 S&P A-/watch neg. BBB+/stable 03/2012 Moody’s A2/stable A2/negative 02/2012 S&P BBB/watch neg. BB+/negative 02/2012 Moody’s Baa3/negative Ba1/negative 02/2012 Moody’s A2/stable A2/negative RWE Credit Day I 9 October 2012 22

RWE‘s CDS and peers > RWE‘s Credit Default Swap moved in line with the market after the downgrade Credit Default Swaps 26 July 2012 Last price before downgrade bps 180 160 140 iTraxx Industrials 5Y 120 RWE CDS 5Y 100 EnBW CDS 5Y E.ON CDS 5Y 80 Vattenfall CDS 5Y 60 40 02.07.2012 16.07.2012 30.07.2012 13.08.2012 27.08.2012 10.09.2012 24.09.2012 RWE Credit Day I 9 October 2012 23

RWE‘s 2015 bond > RWE‘s 2015 bond (2 bn €) also did not show any reaction to the downgrade Rendite RWE 2015er Anleihe Yield of RWE‘s 2015 bond % 1,3 26 July 2012 Last price before downgrade 1,1 0,9 RWE 5% 2015 0,7 0,5 02.07.12 16.07.12 30.07.12 13.08.12 27.08.12 10.09.12 24.09.12 RWE Credit Day I 9 October 2012 24

RWE‘s hybrid bonds > RWE‘s hybrid bonds were also unaffected by the downgrade Yield of RWE‘s hybrid bonds in EUR, GBP and USD RWE Hybride in EUR, GBP und USD 7,0 % 26 July 2012 Last price before downgrade 6,5 GBP (2019) 6,0 USD (2017) 5,5 5,0 EUR (2015) 4,5 4,0 02.07.2012 16.07.2012 30.07.2012 13.08.2012 27.08.2012 10.09.2012 24.09.2012 RWE Credit Day I 9 October 2012 25

Completion of capital measures to strengthen our balance sheet Equity measure of € 2.1 bn in December 2011 > Accelerated bookbuilt offering with partial claw-back > Use of 28 million treasury shares with subscription rights > Use of authorised capital – 52 million new shares – without subscription rights > 14.3% of share capital issued at a price of 26 € per share Completion of € 2.0 bn hybrid programme (50% equity credit) Volume Currency (mn) Volume € (mn) > CHF Nov 2011 250 204 > GBP March 2012 750 897 USD April 2012 500 377 > USD Tap July 2012 500 395 > CHF July 2012 150 125 > 1.997 RWE Credit Day I 9 October 2012 26

Counterparty risk: banking sector is still affected by uncertainty and mistrust Observations at the credit market Development reference index* since Sep 2011 350 325 With the extension of the European sovereign 300 crisis uncertainty and mistrust concerning the spread in bp 275 credit standing of banks reached new all time 250 highs: 225 200 > RWE’s internal reference index* for bank 175 CDS reached all time high end of 2011 150 30.09.2011 30.11.2011 31.01.2012 31.03.2012 31.05.2012 31.07.2012 30.09.2012 > CDS spreads are extremely volatile and reference index (average of system relevant banks) react nervous on market rumours Money market rates negative in the short term > For several months especially CDS spreads 2,00 of Spanish and Italian banks are under 1,75 pressure 1,50 1,25 > ECB's move to cut its deposit rate to zero 1,00 led to negative short term deposit quotes 0,75 in % 0,50 > Banks with strong credit standing are 0,25 reluctant to accept deposits from corporates 0,00 -0,25 O/N 1W 2W 1M 2M 3M 4M 5M 6M 9M 1y * The reference index used is the average 5y CDS of 29 large EONIA (30.09.11) EONIA (28.09.12) banks which are systemically important financial institutions according to the Financial Stability Board (FSB). money market curve (30.09.11) money market curve (28.09.12) RWE Credit Day I 9 October 2012 27

RWE adjusts bank limit allocation due to changing market conditions > RWE’s internal base limit for the counterparty risk is Credit indicators derived from the amount of equity and the rating of the financial counterparty > Minimum rating of the three rating agencies S&P, Moody’s Equity and Fitch is considered. However, general rating downshift of banking sector has been considered by slight reduction of rating requirements for credit limits > Reference index has been changed from iTraxx Senior Rating AA- Financials to the average 5y CDS of the 29 so called A- BBB+ system relevant banks BBB > The basis limit is reduced if the CDS of the counterparty is higher than the reference index CDS > Bank exposures and limits are updated daily > O/N deposits are moved to banks with lower CDS levels or into money market funds invested in strong government securities RWE Credit Day I 9 October 2012 28