RWE Aktiengesellschaft (RWE) Earnings Call Transcript & Summary

Welcome to the RWE conference call. Markus Krebber, CEO of RWE AG; and Michael Muller, CFO of RWE AG will inform you about the developments in fiscal year 2024. I will now hand over to Thomas Denny. Please go ahead.

Thank you, and good afternoon, ladies and gentlemen. Thanks for joining our RWE's conference call on full year 2024. Our CEO, Markus Krebber; and our CFO, Michael Muller, will first guide you to our presentation, and then we'll start our Q&A session. And with this, I hand over to you, Markus.

Yes. Thank you, Thomas, and a warm welcome to everyone. Despite some headwinds from a sharp decline in European commodity prices at the beginning of '24, we delivered on our promises. Our robust business portfolio has enabled us to put in a strong operational and financial performance, and we have proven our ability to adapt quickly and reallocate capital to our shareholders by introducing a EUR 1.5 billion share buyback program in Q4 of last year. Whilst the market fundamentals for power demand are promising and significant investments in additional power generation capacity are needed in all our core markets, we are experiencing higher uncertainty in the investment environment. We will, therefore, be even more cautious with regards to additional investment commitments. We will target the leverage ratio to be at the conservative end of our range to maintain a strong balance sheet in more uncertain and volatile times. We have increased our internal requirements across all technologies and markets. And we will apply stricter investment criteria, especially in the U.S. Consequently, we have significantly reduced our 2030 investment program. For the years '25 to 2030, we have cut our planned investments by 25% or EUR 10 billion compared to our Capital Market Day 2023. Part of our CapEx optimization is an active sell-down and partnering strategy for our Offshore portfolio to reduce the burden from capital employed under construction. With 12.5 gigawatt projects under construction across all technologies, our committed net cash investments currently stand at EUR 13 billion. These projects will deliver attractive returns. While our planned investments in '25 are fully committed, we have a high degree of flexibility in our capital allocation from '26 onwards. Our financial targets are confirmed. We expect EPS to grow from '25 to '27 at a CAGR of 18%, reaching EUR 3 per share. We also confirm our long-term target of EUR 4 adjusted earnings per share in 2030. We confirm our increased dividend for 2040 -- '24, and target another increase by EUR 0.10 to EUR 1.2 per share for 2025. And our current share buyback program of EUR 1.5 billion runs until Q2 '26. Let us briefly look back at 2024. We have delivered a strong financial and operational performance on the back of the robustness of our integrated generation portfolio. Adjusted EBITDA stood at EUR 5.7 billion and exceeded the midpoint of our guidance range. Adjusted earnings per share stood at EUR 3.1, also clearly exceeding the guidance midpoint. At the same time, we have made progress in decarbonization. In '24, our CO2 emission dropped by another 13% compared to the prior year. Over the last 12 months, we closed 6 lignite power plants with a total capacity of 2.4 gigawatt. And we have converted our Dutch plant Amer, to run on 100% biomass. After a thorough review process in December, the science-based target initiative confirms that RWE's climate targets to reduce its emissions are in line with the 1.5-degree pathway. Given the recent market developments, we have updated our capital allocation plans until 2030. On the one hand, the power sector continues to show strong fundamentals in Europe and the U.S. Power demand is expected to increase significantly, driven by general electrification and the need for additional data centers to fuel the search in artificial intelligence. Power generation from renewables in combination with batteries and the backup from gas is set to deliver the necessary additional supply. Significant investments are needed in renewables, batteries and gas generation in all our core markets. However, for massive investments, a stable and reliable investment framework is key. And unfortunately, here, we experienced much higher uncertainties. Questions over the energy policy direction in the U.S. and overall geopolitical tension have potential implications for international trade. We need to reflect this environment on our future investment decisions. And therefore, we now take a more cautious approach. We have increased our return targets. We have introduced stricter investment criteria, especially in the U.S. We will maintain our strong balance sheet in the current environment and target the more conservative end of our leverage range. Consequently, we have adjusted our 2030 investment program and reduced planned net investments by around 25% or EUR 10 billion. The period '25 to '30, we now plan to invest EUR 35 billion net. Part of our optimized capital allocation is an active portfolio management of our Offshore Wind business. Here, we also aim to reduce the burden from capital employed for projects under construction. We follow a systematic approach. We look at projects in all 3 phases of either development, construction or commercial operations, depending on the risk. In capital intensity, we decide about the optimal timing of farming down a project and the respective size. In some cases, we see value in keeping the project majority and other to deconsolidate and allow for projects finance, respectively. Page 7 shows that we have already implemented what we plan to do. We have successfully farmed down a minority stake in our 3-gigawatt U.K. Dogger Bank South project to Masdar, with the goal to partner early and reduce capital needs on our balance sheet. And we have partnered with TotalEnergies for our 800-megawatt OranjeWind Offshore project in the Netherlands as well as for our 4-gigawatt wind post development project of the German coast. And we will do more. We plan to further farm down stakes of our projects under construction. We are well advanced with the sell-downs of Thor and Nordseecluster and expect to be able to make a positive announcement shortly. For the Norfolk portfolio, we plan to farm down prior to FID as well as project finance after a CfD is secured. And finally, we will farm down 49% stake in our highly attractive project, Sofia, which will be commissioned next year. Under the new investment plan, we expect net cash investment of around EUR 19 billion from '25 to '27. As one should expect, for the current year, our net investments are committed. From '26 onwards, the share of uncommitted investments will increase significantly. This gives us a high degree of flexibility in our capital allocation. Executing our outside farm-downs of Sofia and Norfolk will increase flexibility further compared to what is indicated on Page 8. Further share buybacks are part of any capital allocation consideration going forward. We will decide on the optimal capital allocation for the flexible part early next year, and we expect clarity on future U.S. and German investments. Let's now take a closer look at our running investment program on Page 9. Currently, we have 12.5 gigawatts of capacity under construction, well balanced across technologies and regions. For the investment decisions taken, we have achieved an average IRR of 8.3% at FID, clearly exceeding our previous 8% target. We also actively risk manage our construction projects. All of our Offshore and Onshore Wind projects are on time and on budget. And we continuously reduced our merchant Offshore exposure by locking in attractive offtakes. For our Nordseecluster Offshore Wind projects, we have already secured the first 400 megawatts. We have signed a PPA with Tesla to supply clean electricity from a pan-European wind portfolio, including 100-megawatt from Nordseecluster. In addition, an agreement has been signed with TotalEnergies to supply 30,000 metric tons of green hydrogen per year for its refinery in Leuna from 2030. The hydrogen will be produced in our 300-megawatt electrolyzer currently under construction in Lingen, planning to use renewable electricity from our Nordseecluster Offshore Wind farm. With that, we have not only implicitly hedged 300-megawatt of Offshore Wind, but also contracted our H2 production from the electrolyzer investment. The supply chain for our U.S. Onshore Wind project is largely derisked. Equipment for projects under construction is secured, thanks to our well-established domestic supplier relations. We see only very limited tariffing risk. With all relevant permits in place, we don't have risk from federal permitting. Across our whole Onshore Wind and PV construction portfolio, more than 95% have secured offtake. For all future investment decisions, we have increased our return requirements. We have lifted the spread over WACC by 50 basis points to a new range of 150 to 350. Accordingly, our new average target IIA will be above 8.5%. And we have introduced very strict requirements for U.S. investments given the current market environment. We will only bring projects to FID that have all federal permits in place, where all relevant tariff risks mitigated, the offtake is secured and tax credits are safe harbor. Despite the discussed changes in the market environment and our reduced investment plans, we are set to deliver our earnings targets. We confirm our '27 and 2030 adjusted EPS targets, which we set out back at our Capital Markets Day in '23. Our strong existing portfolio, attractive returns from our committed investments and the flexibility in our capital allocation going forward will deliver an adjusted earnings per share CAGR of 18% from '25 to '27. We offer attractive midterm shareholder returns, with a current dividend yield of close to 4% and the target to increase the dividend by 5% to 10% per annum, through bottom line earnings growth with an 18% EPS CAGR to '27 and with our existing share buyback program of EUR 1.5 billion, which runs until Q2 '26. This dividend and the share buyback program, we will distribute almost EUR 4 billion in capital to shareholders until '27. Let me summarize. RWE is a highly attractive investment with a significant upside to its current valuation. We have a strong track record of operational and financial performance. In the last 5 years, we have outperformed our guidance every year. Our committed investments will deliver attractive returns, and we have a clear focus on capital allocation discipline, with high flexibility from '26 onwards. We have clear visibility on our EPS growth and have confirmed our mid- and long-term EPS targets for '27 and '30. And finally, we have a highly attractive shareholder remuneration through continuous dividend growth, and our current share buyback program will continue until next year. And with that, I hand over to Michael.

Yes. Thanks, Markus, and also good afternoon from my side. Let's first take a closer look at the financials for 2024. We've delivered a strong financial performance in 2024 and exceeded our expectations from November. Adjusted EBITDA stood at EUR 5.7 billion, thanks to a strong performance in our Flexible Generation and Supply & Trading businesses. Depreciation was minus EUR 2.1 billion due to a one-off effect on U.S. assets that were commissioned prior to the RWE E.ON asset swap. Our adjusted financial results improved due to lower tax interest and interest provisions. Additionally, interest during construction had a positive effect. At the bottom line, adjusted EPS exceeded the midpoint of the guidance range. 2025 will be the earnings trough as earnings in Flexible Generation and trading normalize. On '25 to '27, earnings will grow on the back of our investments. For Offshore Wind, we expect 2025 EBITDA to be in the range of EUR 1.3 billion to EUR 1.7 billion, which is comparable to '24. From 2025 to '27, the Offshore EBITDA CAGR amounts to 24%, driven by the commissioning of new assets. All our projects under construction are well underway, on time and on budget. The most advanced project is Sofia. We expect COD in the second half of 2026. To date, more than half of the Offshore foundations have been installed. The Offshore converter station, Onshore substation and the Onshore and Offshore export cables are in place. Last week, we saw the arrival of the turbine installation vessel, which will start installation shortly. In addition, the first 150 recycled blades have been manufactured and are ready for installation. We expect the first generation in revenues later this year. After commissioning, the project will benefit from a 15-year inflation-linked CfD. In addition, our Nordseecluster project in Germany is well underway, and we have signed all major supplier contracts. The fabrication of foundations and substations is progressing well, and first Offshore works to prepare for the installation of the foundations have started. We intend to bring the project online in 2027. Our 1.1 gigawatt Danish Offshore project tour is also progressing as planned. Onshore construction works are well underway, and 50% of the foundations have already been delivered to Eemshaven port. They will be installed this summer. We expect to commission the project in 2027. 2027 EBITDA is also driven by the effects from lease accounting of the long-term charter of installation vessels. At EBIT level, this effect is neutral. Our guidance does not include any [indiscernible]. Let's now turn to Onshore Wind and Solar. The increase in our '25 earnings is driven by organic growth. We expect adjusted EBITDA to be at EUR 1.65 billion to EUR 2.15 billion. And we expect further growth in the coming years. 2027 EBITDA will range between EUR 2.5 billion and EUR 3 billion. The implied annual growth rate stands at 20%. The key drivers for the development from 2025 to '27 are growth from our existing asset base already under construction. And we also expect earnings from projects that are not yet under construction. These FIDs are, of course, subject to our strict investment criteria, increased return requirements and depend on our capital allocation. Lower power prices will partly counteract the earnings growth. Similar to our Offshore guidance, we did not include book gains into our guidance for Onshore Solar. Over the last -- over the past few years, our Flexible Generation business benefited from high power prices and volatility. For the future, we assume normalized levels for both drivers. 2025 adjusted EBITDA is expected to range between EUR 1 billion and EUR 1.4 billion, in line with the midterm average we guided a year ago. For the Flexible Generation segment, we have introduced an EBITDA earnings floor. The earnings floor consists of capacity payments and regulated income as well as margins that we have already secured or that are very certain. For 2025, the EBITDA floor amounts to EUR 900 million. In 2027, adjusted EBITDA will range between EUR 1.1 billion and EUR 1.6 billion. This implies an annual growth rate of 6% from 2025 to '27, driven, in particular, by higher capacity payments in the U.K. and the commissioning of battery projects in Germany. However, our new EBITDA target is lower than expectation at the CMD due to lower margins and lower investments. The 2027 EBITDA floor stands at EUR 1 billion, driven by higher capacity and regulated payments. Let me highlight that these secured payments are set to continue for longer. Just last week, we secured more than 6.4 gigawatts in the U.K. T-4 capacity auction for the delivery year starting October 2028. This will provide us with an income of roughly GBP 400 million plus inflation. In 2024, our existing business generated an adjusted operating cash flow of EUR 5.9 billion. Despite lower EBITDA in '25, the business will continue to deliver strong cash flows going forward. For the coming years, we expect an adjusted operating cash flow of EUR 5 billion on average. This is driven by some cash contribution from our growing core business. The adjusted operating cash flow also includes the cash flow from our phase of business as well as cash financial result and cash taxes. Over the period from 2025 to '27, we also expect positive effects from working capital. In the current market environment, we will maintain our strong balance sheet. We will, therefore, target the more conservative end of our 3.0 to 3.5x leverage range. Our net to adjusted EBITDA leverage factor at the end of '24 stood at 2.0. For 2025, we will get closer to 3.0. And we will maintain our solid investment rating of Baa2 from Moody's and BBB+ from Fitch. Let me summarize. We have delivered a strong operational and financial performance in 2024, with adjusted EBITDA and net income both exceeding the midpoint of the guidance range. This was driven by a robust portfolio and in particular, by the strong performance of Flexible Generation and Supply & Trading. We have high visibility on our earnings growth in each segment until 2027. On the back of our robust portfolio, we will generate EUR 5 billion cash on average over the years 2025 to '27. And we will maintain our strong balance sheet and solid investment-grade rating. And with that, let me hand back to Thomas for Q&A.

Thank you, Michael. And with that, we start our Q&A process. Operator, please kick it off.

[Operator Instructions] And first, we have Peter Bisztyga from Bank of America.

Peter Bisztyga here. So two questions, if I may. First one on this 20 gigawatts of CCGT, the German -- or incoming German government is talking about. Could you scope out for us how much of that could be RWE installations? What sort of CapEx are we talking about here potentially for you? How quickly you turn around and the begin construction? And what sort of framework do you need from the government to do that investment, please? And then secondly, on data centers. Digitization is part of, again, the new German coalition strategy. I was wondering if you could talk about how you see the opportunity to monetize data centers, where you are in kind of discussions about using your land grid connections to site data centers, that would be very helpful.

Yes. Thank you, Peter. Let me start with the first one, the 20 gigawatt, I think we have a very good position to get -- if we get that framework and there is a clear willingness of the future coalition to get that done very fast and very pragmatic. So I would expect probably it's being simple gas plants and no additional burden on decarbonization. So -- it depends on, I mean, how successful we are, but I think we are very well advanced with planning. We have great sites. We have pre-contracts with suppliers. So we have reserved turbine slots. And our current market share in the German market is 20%. So maybe that gives you an indication. But in the end, we only invest if we have very good returns. And especially for that business, I would expect very attractive business cases because you have not so much competition. On data centers, I mean we have 3 angles to that. One is we sell significant PPA volumes to data center providers. And it's in the gigawatts in the last year, and we continue that. So seeing good demand and ongoing discussions for further PPAs. Second is, if we have land which we don't want to use in the future and where we don't see good opportunities for us to develop batteries or gas backup or whatever, we can sell it. And the third angle is to go for more sophisticated solutions to use our existing infrastructure where we make them available, maybe back them up with 24/7 power supply and green PPAs, but we would not sell the land there. We would lease it long term because we see it as an attractive opportunity for the future. And I wouldn't be surprised if you see more announcement on all 3 angles this year, but we will not promise anything. We will tell you about the delivery.

And we move on to a question from Alberto Gandolfi from Goldman Sachs.

I have 2. The first one is quite specific on earnings. I understand, Michael, that the 27 EPS does not include any asset rotation gain. Am I right in saying that in the 2023 CMD for 2027, you were assuming like EUR 250 million asset rotation gains. So it's like EUR 0.30 of EPS. So what I'm trying to understand is, one, is this correct? And two, it seems an underlying upgrade of 10% versus the previous plan like-for-like without -- excluding asset rotation. So where is it coming from? Is it just the buyback or anything else that you can maybe discuss below the EBITDA line? The second question is on capital allocation. You just recently announced a buyback for the first time in your history. So I was not expecting you to just already tell us something today. However, can you be, if possible, a bit more specific of where you rank your share buyback versus any opportunity, for instance, the Germany infrastructure plan. Is your balance sheet capable of coping with incremental investments and/or buyback and/or is there a share price at which you would rank share buyback at the top? I don't know if the shares are below EUR 35, I'm definitely going to extend the buyback and the shares are higher, we need to think about it. Is that how you're thinking about it? Or what's your logic, please?

Yes. So Alberto, I'll just start with the first one. So your assumption is right. So the CMD initially had like EUR 300 million of book gains incorporated in the numbers, which are not anymore incorporated now.

On the share buyback question, Alberto, so let me -- you asked a couple of questions. One was, what is the balance sheet good for in terms of additional investments? I mean, first, in this more unstable environment, we said we're going to go to the conservative end of our leverage target range. Of course, if the situation improves, we can go for higher leverage again, but not for the time being. I mean that may be a decision for the future. Then if you look at this chart where we say how much uncommitted capital CapEx we have until -- from '26 onwards. This is significant, and it does not yet include the planned farm-downs from Sofia and the Norfolk project. So if we are successful on that next year, it will be even more flexibility and headroom for capital -- flexible capital allocation decisions from '26 onwards. Now what is the metric? Of course, we don't have a formula, but you already touched upon the relevant questions. We need to achieve higher returns than in the current market environment. If we don't achieve higher returns for new capital commitments, then we will return the capital to the shareholders. Is there a specific share price? No, but it's part of the consideration. But maybe to give you a flavor, if we would need to take the decision in the current market environment and sitting now at '26 have the flexibility, the current market environment, we would go for an additional share buyback.

And next, we have Deepa Venkateswaran from Bernstein.

I had 2. Firstly, just on the 2030 EPS. Just wondering how you are confident about meeting the EUR 4 per share, although incrementally CapEx is lower by EUR 8.5 billion in today's announcement? I'm already assuming the EUR 1.5 billion before in the 9-month stage with the buyback. So that's the first question. So what are the levers to still keep the EPS for 2030? And second question is for the subsidiary free Offshore Wind projects, Thor and Nordseecluster, you do mention you will be farming it down and maybe something imminently in '25. Could I check whether your partners are therefore happy to take the PPA risk? Or are you signaling that you could be signing even more PPAs to make this farm down more attractive? If you could just talk about how that would work? And maybe it's more risk sharing rather than gains for those projects?

So Deepa, I take the questions. Let's first start with the 2030 EPS. I mean, first of all, one lever clearly is also our higher return expectations, which also should lead to higher EPS. The other one is, I mean, effectively, you can balance between investments and a combination of share buybacks, as we said. And so you either benefit on the side that you simply have less shares. And then obviously, also the less you invest, the less you then have say, depreciation financing costs and probably we would also then have to look at the platform and lower some of the P&L direct, so that would have an impact. Or the other direction, if the environment turns attractive, then you would actually stick to the investments and achieve attractive investments, yes. So it's ultimately that balance. And given that it's 2040 -- 2030, we do clearly see sufficient flexibility to steer towards that number. Second question on Thor and Nordseecluster, I mean, please excuse that we can't reveal any details yet. So there are conversations ongoing. And once we have more clarity, we will also obviously communicate to you the deal in more depth.

And from Jefferies, we now have Ahmed Farman with our next question.

Two questions from my side. My first question is just on the EUR 9 billion CapEx reduction program. Could you split that between, let's say, gross CapEx reduction and how much of that is farm-downs and disposals? And I guess a subpart to that is, is there any sense you can say about how much -- sort of how much of those sort of farm-downs disposal proceeds do you expect to 2027? My second question is just in terms of AR7 and the potential CCGTs in Germany, if those investments were to come through, would they be -- would they make a meaningful difference to the CapEx profile to 2027? Or would that be beyond that period?

Yes, Ahmed, I'll take the 2 questions. So one, on the CapEx, we see a net CapEx, and you can already see where we're going to invest less. One is what we already announced in the last call, U.S. Offshore, we do not expect any U.S. Offshore investments in the planned period. We will also significantly lower our hydrogen investments already announced in the last call, and we also see that going forward. We also expect significant lower CapEx at least in the next years, not additional committed CapEx in the next years in the U.S. before we have clarity about energy policy environment, permits and tariff risks. And we also expect significant less net Offshore CapEx. This partly comes from the announced farm-downs, but also given the environment we see, you have followed the auction in Denmark, in the Netherlands, there is no willingness to take additional merchant risk in the current environment. So we also expect those investments to be lower. And the second part of the question, I translated it into -- I mean, is what we announced as capital -- a flexible capital allocation sufficient to even go for a very successful AR7 and a good investment framework in the German gas plant build-out. And the answer is yes. So that would fit into the capital -- the flexible capital allocation we have announced.

And we move on to questions from Wanda Serwinowska from UBS.

Wander Serwinowska, UBS. Two questions from me. One is on the U.K., mostly. Can you share your thoughts on the wake and blockage effects that are ongoing disputes between the developers? And how does it impact your SCOE assumptions? And when we look at the U.K. Offshore Wind generation year-to-date, it seems that Triton Knoll, for example, is down 30% or 40% year-to-date versus last year. Is it the low wind speed? Or what is happening in the U.K.? And the second question is on the German policy. There's a lot of noise about the climate fund, infra funds, infrastructure fund and so on, but how RWE can benefit from the new energy policy apart from the CCGTs no longer hydrogen ready?

Yes, let me start with the last question first. So I think the clear positive sign is that the future of the next German government is getting back the economy on track as one of the key pillars of their future agenda. And we can expect significant spending from the government itself by loosening the debt break, and we can expect the government to support energy-intensive industry to stay competitive in the international markets. Both is a clear positive signal for future energy and power demand in Germany, where we are the largest beneficiary. And the third one is the clear intention to solve the security of supply problem with a build-out plan of 20 gigawatt of gas. Here, I think no government money is actually needed. We just need a good investment framework and then private money will do it. But I think the first -- so I don't expect any, let's say, competition from the infrastructure funds to our potential investments. But I think the overall business environment should be much better given the significant spending from the German government willingness to support energy-intensive industries. And of course, all the other methods which have been announced, which make our product cheaper, so lowering taxes on power to the bare minimum and supporting grid charges and things like that. The other one on the vacant blockage, I take that. I think Michael takes a specific one on the asset. I think there's a lot of noise now and in the specific, let's say, renewable releases, you can see it almost every day. It's overblown to be really. It's for us not a big topic. I mean we know the potential vacant blockage effects we have factored them in. It's not a new thing. I think we are definitely with all our assessment, what we see also when we talk with partners on the conservative end of that. I would say the current noise you see, especially because the legal round, how to sort it out and how to deal with it is unclear. And that is why everybody is positioning himself now. But for our investments, for our existing assets, we think we know what can happen worst case, and it is factored in.

Yes. And on the wind -- the whole winter, so also Q4 has seen low winds and indeed, also the first quarter has started with lower wins. So that's a fair assessment.

Can I just -- can I have one follow-up on the German politics? Markus, I think the CDU and SPD, they were thinking about bringing the assets from the strategic reserve or from the reserve capacity back to the merchant market to lower the power price. Do you think it's likely to happen? And is there anything RWE can bring on the table?

This is not political speculation where I typically refuse to enter the discussion. But I want to be very clear. I think this is not a great idea, and I have made that also clear to the decision-makers because on the surface, it sounds great bringing back these plants, but you're going to create significant negative effects because you would immediately dampen the investment appetite to go for batteries. But batteries are also needed not only for the high price side, they also needed for the negative prices to carry the power into the hours where it is needed. Second, you would give an incentive to close even more plants. That's definitely not wanted by the government because we could even think about closing our plant, you get a guaranteed cost coverage and then you can put them into the market and an additional margin, I think bad idea. And last bad incentive from that idea is you disincentivize long-term power purchase agreements because everybody who is a long-term contract doesn't suffer from the high prices. So only those who speculate short term suffer from the prices. And I think that incentive is also not wanted. So in a nutshell, I would be very surprised if that idea comes to life.

And from Deutsche Bank, we now have Olly Jeffery with our next question. Please go ahead.

First question for me, please, is you've already stipulated that part of the reason for cutting the EUR 10 billion or kind of being EUR 10 billion lower, sorry, in your net investments is due to expectations in the U.S. So I guess the question I have is, if you do no more investment in the U.S. Onshore beyond what's committed in 2025 and '26 and under a reasonable assumption for what you -- a reasonable outcome for what you might expect from the German gas auction and the level of investment you think you might require there and any investment you might require under AR7 under a reasonable outcome, do you still think under that scenario, you still have balance sheet capacity to do buybacks at least to the same size that you announced the EUR 1.5 billion in '26 and '27. Just trying to get a sense of if a reasonable outcome of the investments you expect, if you think you will still have balance sheet capacity to do buybacks if you wish to? And then just on the AR7, have you got any indication on the potential size of that and when we might expect to hear any views when we might spear further details on the AR7 auction and parameters in it?

Yes, Olly, maybe on the biggest part, the Norfolk project, what we said today is we want to farm down before FID. So we will not commit to further CapEx without having farmed it down. And we want to farm down to 50% and deconsolidate so that at CfD award, we can go for project finance. That gives you already an indication that the net-net CapEx from that is not very significant in our net net CapEx. On the gas plant in the U.S., I mean, this is now speculation how much you want to do. I mean we're going to answer the question on capital allocation, given the drivers we have set and one part of it is also share price and the returns we can expect, we will give that answer in -- when it's due when we have the capital allocation flexibility, which is in '26. So we decide that later this year, early next year.

And when do you expect to hear when AR7 process...

Sorry, I missed that one. So I think the consolidation is still swing -- full swing. The ministry is discussing with all relevant parties. I think they're going to come to a conclusion early. And from all indications, I get, they don't want to push the auction out to the last quarter. So we're probably going to see it in Q3, so we should get clarity maybe before the summer break.

And up next, we have Harry Wyburd from BNB Paribas Exane.

So a couple of relatively fundamental ones. The first one is on something that we don't talk about that much anymore in the sector [indiscernible] which is installed costs for renewables. And -- what are you seeing at the moment? The sort of last time we were focused on this installed costs, I'm thinking mainly for Onshore and Offshore Wind had sort of plateaued and stabilized and we were less worried about inflation. I guess you sort of mentioned the Danish and the Dutch auctions, developers not wishing to take merchant price risk, but a big component of this is obviously are installed costs going to come down and might that make those auctions more likely to succeed in the future. So interested to hear your views on what installed costs are doing, both turbine prices and the balance of spend. That's the first one. And then the second one on new build gas, the supply chain, what's your take on the supply chain here? So you sort of hear from other utilities, both European and U.S. that supply chain is quite stretched already in new build gas to sort of talk of some of the components interrelating with defense procurement as well. Is there a risk that it takes longer and is more expensive to build the 20 gigawatts of CCGTs than we currently expect? And what's the risk of having another sort of nonproductive capital employed situation like we've had in Offshore Wind emerging CCGTs if they're taking longer to build or you're struggling to get hold of critical components?

So Harry, what we see currently on the cost side when we buy, it is plateauing. It's definitely not going up further. Looking into the future, I would even expect an ease on the supply chain because given the slowdown in U.S. and actually a stop of U.S. Offshore Wind. So overall, I would expect on the wind side that the supply situation should get a bit easier. But I think that will not result into developers willing to take significant more merchant risk. We have always said the merchant risk you can take is depending on the market size and the depth of the PPA market. So we are good with the gigawatt in Denmark and the Netherlands, but we are not willing to do more -- and with Germany, we probably also have already reached the ceiling of what we are willing to take, and we -- I mean, also constantly farm down. So overall, in this uncertain environment, what I hear in the market, and we have the same view, there is very, very little appetite for merchant risk in -- or more merchant risk that have been auctioned in Offshore. And I think policymakers, and that's what we are telling them they need to adapt. It needs to move to, I mean, I think an inflation-adjusted double-sided CfD model to get the investments, you would also lower the investment returns. And I think especially when you now move to the U.K., they are heading the right direction because part of the consultation is even to extend the CfD period from 15 to 25 years and having a 25 inflation-adjusted government guaranteed income stream is, of course, much better. And would lower cost for consumers as well because you can go for higher leverage. On the new gas side, that's also a very, very interesting situation. I mean what I heard at CERAWeek last week from the big suppliers is that if you want to buy a gas turbine, you probably have a delivery date now '28. So it actually fits a bit with the German schedule if you are fast. But as I already said to a previous question, we have reserved certain production slots. So I think for what we want to buy -- for what we want to build, we have the supply chain secured. And I think that's more on a side note, if we would release the production slot, we could even make a bargain today.

Okay. That's quite interesting. So effectively, you've got a competitive advantage with your build slots. And do you think that's something that your competitors in the potential new build CCGT market have? Or do you think that's something that you could use to basically generate higher returns? It sounds like you could, right?

That's speculation, but I think we would not give away that benefit. That is clear. I mean that benefit of actively managing the supply chain. We have done the same in Offshore in certain cases, as you know, with securing equipment there. We want to keep that benefit for us. I mean that is clear.

And our next question now comes from Rob Pulleyn from Morgan Stanley.

So firstly, I haven't heard the word Amprion mentioned in any of the materials or in the call yet. Last we heard you started a sales process to sell the 25.1% stake. And I think there were some [indiscernible] that, that was just receiving or had received bids. And so maybe just ask for an update. And is that capital, shall we say, spoken for in the plan you presented today? Or is that, shall we say, unspoken for capital that could be used for additional distribution or commit to some of these other CapEx plans, which might firm up in due course? That's the first question. The second one is, as we look at 2027 guidance and accepting the obviously the same EPS and the cap gains has changed. Within the EBITDA range, there's 2 quite significant changes. One is on FlexGen, where HBG has gone down around about EUR 400 million delta for both the top and the bottom end, whilst Offshore Wind has gone up around EUR 200 million. Could you maybe give a bit of color as to what's going on there?

Yes, Rob, let me take the first one, Michael, then talks about the earnings profile. On Amprion, we have always said, given the significant capital needs they have, we're going to explore all options to find solutions to that because we think it shouldn't be RWE who is investing in the TSO business here. But we want to keep the cards close and want to keep all options. So we are in the market, yes, that is correct. But we are in the process of exploring what is the best solution for that. That could also end into partly selling it down, doesn't need to be, but could be. We are definitely -- we don't want to put investments into that anymore, but we want to find solutions for that. If we partly sell it down and get proceeds, these proceeds are not yet included in the net CapEx we have displayed in the presentation.

Yes. Rob, on EBITDA '27, fair observation. FlexGen indeed is lower on the back of lower expected prices in flexible generation. In Offshore, there are basically 3 main drivers. One is at the CMD, we still assumed OranjeWind to be fully consolidated. That is not anymore the case. As you know, we have sold it to 50% with TotalEnergies. So that is leading to a lower EBITDA. And on the positive, there are 2 effects. One is that's an accounting treatment around our leased ships. So what happens is that the lease itself since it's capitalized, goes through the EBITDA. So there's a positive EBITDA effect. But at the same time, the leases lead to a higher depreciation. So the positive effect in EBITDA is then compensated fully by higher depreciation so that the EBITDA -- the EBIT effect is the same as we had at the Capital Market Day. And the third positive effect -- the third effect is the positive effect is from Thor, where we now take those lease payments, which you know that are paid via a kind of CfD mechanism in the first 1 and 2 years. And what we have done now, we will distribute them as a lease payment over the entire life cycle of the project, and that leads to a slightly -- a higher EBITDA effect in '27 and '28.

That's very clear. .

So fundamentally, nothing has changed. .

Exactly. That's the key message. .

Got it. Got it. And sorry, Markus, whilst you're in the mood for follow-ups, I mean just on the first one, appreciating all options open on the TSO situation. I mean if you were to receive proceeds, could that go to higher distributions to shareholders in terms of revisiting the share buyback and/or dividend policy?

So we don't want that direct connection from EUR 1 going to that or that sort. I mean -- but as we said, the proceeds are not included in let's say, the flexible capital allocation path we have. So if we get some, it would increase that. What we do with it needs to be decided at the moment we have it and the decision needs to be taken. But don't -- no automatives.

And from HSBC, we now have [ Mika Becker ] with our next question.

Maybe coming a little bit more towards the end of the Q, a qualitative one. How conservative do you think your plan is now? I mean for some of your peers, we have gone through multiple iterations of downgrades. For you on the very positive side, there don't seem to be any execution issues. I mean your Offshore execution seems to go very well and the PPA signing, you seem quite confident. But on the future CapEx, like how confident are you that this is now the conservative plan, and we are not looking at further downgrades? That would be my first question. And the second one, just sort of like one topic we haven't touched upon yet is battery development. What are your current plans looking like? And sort of like what markets are you looking currently at for your battery ambitions?

Yes. So [ Mika ], I'll take the first one. I mean, I think you did a fair summary of the situation. I mean, we didn't have any difficulties with our Offshore business. It's progressing well. And I also laid that out in my speech that on all the current Offshore projects, we are on budget and on time. So very confident that we'll deliver that. And having said that, we are very confident that we'll also deliver the plan. I mean, by the way, also if you look at our performance in 2024, beginning of the year, we took a more conservative stance given the commodity price environment, but you also saw by the end of the year, we turned out to be actually above consensus, which demonstrates also the robustness of our portfolio and the ability to deliver.

On the CapEx plan and the batteries, maybe -- on the CapEx plan, whether it's conservative or not, I think what we want to convey is we're going to be disciplined with CapEx. And we are willing -- if the environment is not there and the investments are not attractive enough, we're going to reduce. And we have announced a share buyback in the last call. Now we announced that we go for lower CapEx until 2030 because we see higher risk and require higher returns. And let me take that opportunity to talk a bit about the market, and then I address your battery question. We are actually in a, let's say, you could call it very interesting, but also contradictory environment. You have 3 elements. One is the fundamental growth of the product power is there. You've got to see power demand going up in all markets. That means you need significant investments. What I also observe is that competition is actually easing. People are exiting, I can talk about big oil or others, they're exiting, and we see also some peers struggling under financial stress. But on the other hand, the investment environment is not that you like doing big investments in this environment because you have tariff risk, permit risk, energy policy uncertainty. It's a contradictory environment. But what it means is the company like ours who are able to invest with the balance sheet needs to be very disciplined, and we're going to urge our teams to push for higher returns. We need to achieve higher returns. If we cannot get them in that market environment, we shouldn't invest. That's a perfect lead to batteries, which is an investment we like very much in the current environment also from what we see, how they operate in the market and what returns they make. Our key battery markets are Germany, where we have commissioned significant battery capacity in the last weeks, over 200 megawatts. We have announced other investments of 600 megawatts. So you're going to see more battery investments there. We do battery investments in the U.K. and we also co-locate battery investments in the U.S., especially with solar. And this is an area where we have currently not scaled back our investment plans.

And next, we have a question from Piotr Dzieciolowski from Citi.

I have 2 questions. So the first one, I wanted to ask you about the implication for the long-term targets of this higher return threshold that you announced. You gave us a rule of thumb of 10x multiple contribution of whatever euro you spend on 2030 or more as you go. Is that the multiple is now lower, so 9x and this EUR 36 billion, which you have remaining to spend will contribute more? And can you say how much? And then does this -- assuming you get a lower CapEx, does this have an implication for your OpEx? You build up quite a machine to develop new projects. And it seems some of the pipeline maybe not meet your threshold, but maybe you can reduce some of the costs like we've seen a headline on the U.S. Offshore that you -- is it meaningful or that's not meaningful at all?

Yes. I mean, good question. I mean that is obviously all incorporated into the numbers. So that goes back to the question Deepa asked in the very beginning, why are you confident to achieve the 2030 numbers? Obviously, that is exactly the balance you will see. So with less investment opportunities, obviously, would also have an impact on the overall cost structure also in development. So that's very clear.

We move on to a question from Ingo Becker from Kepler Cheuvreux.

I've got 2 questions as well. First is on your Supply & Trading business. You're still guiding for EUR 100 million to EUR 500 million in EBITDA and given that you've basically exceeded that number quite materially for so many years now. I'm wondering how to look at that guidance. I think there was an understanding before that you would try to potentially so keep the trading guidance cautious in order for it to work as an offset if something in the renewables business goes wrong, in which case, in a normal environment, there's a good chance you keep surpassing that guidance. That would be the first question. And on the second, trying to understand your Slide 18. Can I ask on the '25 guidance? You give a range of EUR 1 billion to EUR 1.4 billion and a floor of EUR 900 million. What exactly is the difference between the low end of the range and the yet bit lower floor? And related to that, you are guiding for EUR 1 billion in '27 as a floor once again and a higher range of EUR 1.1 billion to EUR 1.6 billion, including additional expected earnings. Can I just clarify, I think you have been saying your distinction before was existing earnings and earnings from new assets, which would indicate investments. But now you say additional earnings. For example, the 2 points you're making from capacity payments, this is an additional income that comes without the CapEx outlay, I suppose, while your commissioning of battery projects does have some CapEx to it. Can I just ask without spending on expansion in that segment, what would be the range we would be looking for in '27, if that's possible to say?

Yes, Ingo, let me first start with the Supply & Trading business. I mean I can just give the standard answer. I mean the guidance we give is always based on kind of the long-term earnings expectations that we have in Supply & Trading. And as we always said, kind of if market conditions are attractive, there is upside to the numbers, but this is kind of the guidance we have done to the last years. And as you know, the last years have been very attractive in the actuals, but the guidance is kind of this EUR 100 million to EUR 500 million and nothing has changed with respect to the guidance this year. Second question on Flexible Generation. Look, what is the expected outcome of the 6 segments? That is exactly the guidance range. So for '25, we expect EUR 100 million to EUR 400 million. And for '27, we expect [Audio Gap] When we were on the road, people typically ask how can we best model that. And therefore, we felt maybe it's good to kind of give an earnings floor. And this is really a very conservative assessment. So we look through the margins and really identified those positions that we feel are very certain. And if you go through the different position, it's clearly capacity incomes in Germany and in the U.K. that have been locked in. It's also other regulated incomes that we have in the business. It's obviously also hedge margins. And it's also those incomes where we are very certain that they will realize in the actuals. And that leads you to the EUR 900 million. But as you rightly asked, there is a delta. And clearly, the lower end of what we effectively expect as an outcome is higher because we do believe that also some of the positions that are not fully certain yet, they will outturn at least in the lower range of the guidance. But having said that, there is also clearly upside, especially in tighter market. That's why the range is then EUR 1 billion to EUR 1.4 billion in '25 and EUR 1.1 billion to EUR 1.6 billion in '27. And the numbers obviously do include the upper range also those investments that we have taken. So there are additional battery investments Markus talked about included in the numbers.

Michael, can I just ask for the increase in capacity payments in the U.K. are in the EUR 1 billion floor figure for '27?

They are included in the EUR 1 billion, but if you go from '25 to '27, '25 obviously has already a higher share of hedged incomes. That's why even though the income from the capacity market is higher than EUR 100 million. So it's actually like EUR 200 million or even a little more than is the increase in the U.K. capacity market, but at the same time, you have less margins get hedged, and that's why the increase is only EUR 100 million. But that already gives you an indication that this is really kind of the conservative low end of what -- it's like -- it's a floor, a very conservative floor.

We do have a couple of follow-up questions. And first, we have one from Alberto Gandolfi from Goldman Sachs.

And those 2, I think, I guess, are for Michael again. One, I'm a bit surprised that you say no fundamental change at all because if I'm not mistaken, at the EBITDA, you said that you are removing about EUR 300 million from asset rotation gains, but I suspect the lease effect is about EUR 100 million to EUR 150 million, and it's fully eliminated at the EBIT level because the D&A goes up. So -- that's actually on an underlying basis, it sounds like an upgrade to me. Am I forgetting something or getting something wrong? That's the first. The second, please, is, when you talk about your 3x leverage, you don't seem to be thinking about your E.ON stake, which is EUR 5 billion. Can I ask you if at some point, if E.ON continues to perform very well and RWE is behind, isn't there like shouldn't you just basically sell E.ON stock to buy back your own stock? But how are you thinking about E.ON more broadly? Because your 3x leverage, if I actually adjust for this, which is a monetizable asset, is way lower than that. So again, am I right, how are you thinking about it?

Okay. So I go for the -- for my message on -- fundamentally, nothing has changed. I mean, you're right, the EUR 300 million is a change, but that's not just Offshore. So that was part of all the segments. And the other one with the leasing, I mean, that's just an accounting treatment. So if you look at the EBITDA number of -- nothing has changed, yes. So this leasing effect is just an accounting effect where it brings a higher EBITDA, but then also higher depreciation so that on EBIT, the effect is neutral.

Very clear. So if you still do even EUR 3 EPS, there is an upgrade somewhere above below the line, but there is somewhere an upgrade. Otherwise, it would be much lower EPS.

Yes. .

And Alberto, on the E.ON stake, you know that the lignite provisions are not part of our net debt definition because you have the offsetting E.ON stake against. So to sell E.ON, we need to incorporate the provisions into our net debt. And that's this ring-fenced approach that we say we're going to pay for the lignite provisions from the state claim we still have where we get annual payments. They're going to offset part of the negative cash flow of that business. And when we start utilizing the provisions, we have the E.ON stake. So it's kind of a virtual CTA. It's not a formal one, but it's a virtual one. It's a closed box of financial assets, E.ON, offsetting the lignite provisions.

And our next follow-up comes from Ahmed Farman from Jefferies.

Just one from my side. Markus, in one of the sort of the responses to the buyback versus CapEx questions, your response seem to imply to me that you're sort of suggesting that conditions -- market conditions will need to improve for you to -- for that sort of uncommitted CapEx that you show on Slide 8 to be translated into committed CapEx. My question is, is there -- are there any sort of specific clearing events in your mind for the next 12 months that will sort of help us, that will sort of help you make those decisions of sort of moving from that uncommitted flexible to the committed part?

I think you have 3 relevant factors other than the share price, Ahmed. As you rightly pointed out, to move from uncommitted to committed CapEx, we want to see the higher returns. We need to have a clear visibility of better returns than today. Second, the uncertainty, the risk part of it. It's currently very difficult to take investment decisions in parts of our business where you have looming permitting risk, tariff risk and so on. So if you have a more stable environment and you know you have foresight for the next 12 months, you are more comfortable. Even if the returns are higher, we are not willing to take significant more risk. That's a bad offset. And then the third element is the progress on our disposal program. So we have the plans. We are very far advanced with 2 of the disposals where we said you're going to expect -- you can expect an announcement shortly, and we not talk about quarters here, we talk about weeks. That gives us higher confidence about the headroom. And of course, also how are we -- how successful and when do we deliver the Sofia and the Norfolk farm now because that would even increase the uncommitted net CapEx.

And our final question today comes from Peter Bisztyga from Bank of America.

Yes. Two last ones for me, please. So firstly, on the U.K., what's your view on locational pricing? And if the government does decide to go for it, what could be the implications for your assets? And secondly, any change to your sort of view on the merits of investing in sort of U.S. CCGT? Do you think any interesting opportunities sort of could come up there? And is there any -- is that an area that you could use some of your flex for?

Yes. Thank you, Peter, for the questions. On the U.K. Our general view is, and we have also signed that industry letter, we think in an environment where you need billions of investments into the system to move from one pricing system to another one. It is a bad timing. I have no view what is a better system if you could introduce it overnight. But it's a question of, is this the right timing because you create significant uncertainties if you move from the one price zone into zonal pricing in the next year. So I think it's a bad idea. What would it mean for us? I mean, it depends on the details, but maybe 2 observations. I mean one is clearly that the U.K. government wants to ensure that investments happen. That's why part of the consultation for Offshore for the AR7 is also what kind of protection do you need in case we decide for zonal pricing. So I assume that all renewable investments are immunized against changes on solar pricing. And when you look at the map on the nonrenewable assets, you're going to see that all our CCGTs are in the south, so in the probably higher price. But I don't want to speculate on anything because fundamentally, even if you would benefit relatively to others, we think moving now from one system to the other is a huge disruption and it actually risks investment, and it shouldn't be done now. On the U.S. CCGT side, I mean, you see the valuation level of CCGTs in the U.S. And I can clearly rule out that here at our side is any plan for any M&A transaction, not only for CCGTs, but also no others. So there's no M&A in the card.

And as we have no further questions in the queue, I'd like to hand the call back over to you, Mr. Denny, for any additional or closing remarks.

Yes. Thank you, operator, and thank you, everyone, for dialing in today. Thank you, Markus and Michael, for your time. As you know, the IR team's at your disposal at any time, looking forward, on the one hand, for your questions, and secondly, to meet many of you during the roadshow that we are scheduled for the coming weeks. Have a great rest of the day. Bye-bye.

Thank you for joining today's call. Ladies and gentlemen, you may now disconnect.