Yesterday, RWE also held its analysis conference ($RWE (-0,46%)) to present the results for the 2024 financial year.
Markus Krebber (CEO) and Michael Müller (CFO) gave a detailed insight into the developments and then answered the analysts' questions. Here is my summary of the key points:
Markus Krebber began with a positive review of 2024. Despite a decline in European commodity prices at the at the beginning of the year, RWE was able to keep its promises. The robust business portfolio enabled a strong operating and financial performance. As a sign of adaptability and capital allocation to shareholders, a share buyback program with a volume of EUR 1.5 billion was launched in the fourth quarter of last year. share buy-back program with a volume of EUR 1.5 billion was initiated.
Although the market for the demand for electricity are promising and significant investments in additional electricity generation capacity are capacity is required in all core markets, there is a higher uncertainty in the investment environment. RWE will therefore be more cautious when making additional more cautious commitments. The company is aiming for a conservative leverage ratio to ensure a strong balance sheet in volatile times. The internal requirements have been increased across all technologies and markets increasedand stricter investment stricter investment criteriacriteria, particularly in the USA.
This will lead to a significant reduction in the investment program by 2030. For the years 2025 to 2030, the planned investments were reduced by 25 % or EUR 10 billion compared to the capital market day 2023. Part of this optimization is an active sell-down and partnering strategy for the offshore portfolioto reduce the burden of tied-up capital during the construction phase. Nevertheless, projects with a total capacity of total capacity of 12.5 gigawatts under constructionwhich net committed investments of currently EUR 13 billion. at present.
These projects are expected to attractive returns deliver attractive returns. While the planned investments for 2025 are fully committed, there will be a high degree of flexibility in capital flexibility in the allocation of capital. The financial targets have been confirmedA EPS growth (CAGR) of 18 % from 2025 to 2027which is EUR 3 per share as well as the long-term target of EUR 4 adjusted earnings per share in 2030. The increased dividend for 2024 was confirmedand a a further increase of EUR 0.10 to EUR 1.20 per share for 2025 is targeted. The current share buyback program of EUR 1.5 billion will run until the second quarter of 2026.
Looking back on 2024, Krebber emphasized the strong financial and operational performance which is based on the robustness of the integrated generation portfolio was based. The adjusted EBITDA amounted to EUR 5.7 billion and exceeded the middle of the forecast range. The adjusted earnings per share amounted to EUR 3.1 and was also well above the middle of the forecast range. At the same time progress was made with decarbonization was achieved. The CO2 emissions fell by a further 13% in 2024 compared to the previous year. Over the course of the last twelve months six lignite-fired power plants with a total capacity of 2.4 gigawatts were decommissionedand the Dutch Amer power plant Amer power plant was converted to 100% biomass. The Science Based Targets Initiative (SBTi) confirmedthat RWE's climate targets for reducing emissions are compatible with the 1.5-degree pathway. path.
The updated capital allocation plans up to 2030 take into account the latest market developments. On the one hand, the power sector in Europe and the USA shows strong fundamentals. The demand for electricity is expected to increase significantlydriven by the general electrification and the need additional data centers to support the artificial intelligence. Power generation from renewable energies in combination with batteries and gas back-up should ensure the necessary additional supply. Significant investments are required in renewable energies, batteries and gas-fired power plants in all core markets. On the other hand, these massive investments require a stable and reliable investment framework which is currently associated with higher uncertainties is currently fraught with uncertainty. Questions about energy policy in the USA and geopolitical tensions have a potential impact on international trade. RWE is responding to this environment with a more cautious approach, higher return targets and stricter investment criteriaespecially in the USA.
The active portfolio management of the offshore wind business is part of the optimized capital allocation. The aim is to reduce the reduce the burden of tied-up capital for projects under construction. RWE pursues a systematic approach and reviews projects in all three phases (development, construction, operation) in terms of risk and capital intensity in order to determine the optimum time and scope for farm-downs. farm-downs for farm-downs.
Many important topics were covered in the subsequent Q&A session:
Peter Bisztyga (Bank of America) asked about the potential share of RWE in the planned 20 gigawatt CCGT power plants in Germanythe associated capital expenditurethe speed of implementation and the necessary framework conditions from the government. Markus Krebber believes that RWE is in a very good position to benefit from this project, particularly due to the advanced planning, good locations and preliminary contracts with suppliers. In view of a current market share of 20%, this could be an indicator of the potential. However, investments would only be made with very attractive returns, which are expected due to less competition. With regard to data centers Krebber sees three possibilities: Sale of significant PPA volumes, Sale of space no longer required and utilization of the existing infrastructure through long-term leasespossibly with 24/7 power supply and green PPAs. Further announcements in all three areas could follow this year.
Alberto Gandolfi (Goldman Sachs) addressed the EPS target for 2027 and noted that the current guidance no longer includes gains from asset rotations which were estimated at around EUR 300m (EUR 0.30 EPS) at the previous Capital Markets Day. He asked about the drivers for the 10% upgrade without these gains. Michael Müller confirmed the assumption regarding the asset rotations. Markus Krebber added that the higher return expectations and the flexibility between investments and share buybacks play a role here. Gandolfi also asked about the prioritization of share buybacks over investment opportunities such as the German infrastructure plan and whether there is a certain share price price at which share buybacks are preferred. Krebber emphasized that RWE aims for higher returns on new investments and will return capital to shareholders if these returns are not achieved. There is no specific share price formula, but the share price is part of the considerations. In the current market environment, a further share buyback would be more likely to be considered from 2026 if there is flexibility.
Deepa Venkateswaran (Bernstein) asked about the confidence in achieving the EPS target of EUR 4 for 2030despite capital expenditure being EUR 8.5bn lower than previously announced. Michael Müller explained that higher return expectationsthe balance between investments and share buybacks and potential adjustments to the cost structure are the decisive factors here.
Ahmed Farman (Jefferies) asked for a breakdown of the EUR 10bn CapEx reduction by gross reduction by gross reduction and farm-downs/disposals as well as an estimate of the expected proceeds from farm-downs/sales until 2027. Markus Krebber named the following areas with lower investments US offshore (no further planned), Hydrogen (significantly reduced) and US onshore (no more for the time being). The lower net offshore investments are partly due to farm-downs, but also to the reluctance to take on more merchant risk in the current situation.
Olly Jeffery (Deutsche Bank) asked whether RWE would also no further US onshore investments beyond 2025/26 and taking into account potential German gas-fired power plant investments and AR7 investments sufficient balance sheet capacity for further share buybacks in the order of magnitude of the current program. Markus Krebber referred to the Norfolk projectwhere a farm-down is being sought to limit net capital expenditure. The decision on capital allocation from 2026 onwards, including further share buybacks, will be made later in the year or early next year, taking into account return expectations and the share price.
Harry Wyburd (BNB Paribas Exane) asked about the current developments in the installation costs for renewable energies (onshore and offshore wind) and whether falling costs could improve the chances of success of future auctions. Markus Krebber currently sees a plateauing in costs and even expects the slowdown in the expansion of US offshore wind to ease the supply chain. easing in the supply chain. In his opinion, however, this will not automatically lead to a greater willingness on the part of developers to take on more merchant risk. He pleads for adapted subsidy modelssuch as inflation-adjusted bilateral CfDs with longer maturities to enable investment while reducing costs for consumers. Wyburd also asked about the risks in the supply chain for new gas-fired power plants. Krebber confirmed that the delivery times for gas turbines are currently long (approx. 2028)but that RWE can protect itself through reserved production slots for the planned projects. He indicated that this gives RWE a competitive advantage could give RWE a competitive advantage.
Rob Pulleyn (Morgan Stanley) missed the mention of Amprion and asked about the the status of the sales process for the 25.1 % stake and and whether the potential proceeds had already been taken into account in today's planning. Markus Krebber confirmed that options for Amprion are being examinedto solve the high capital requirements there, as RWE does not wish to invest further in the TSO business. A partial or full sale is possible and the potential proceeds are not yet included in the net not yet included in the net capital expenditure presented.
Piotr Dzieciolowski (Citi) asked about the implications of the higher yield requirements for the long-term targets and whether the lower CapEx requirement will have an impact on operating expenses (e.g. development costs). Michael Müller confirmed that this was all taken into account in the figures and that fewer investment opportunities would also have an impact on the cost structure.
Conclusion:
In the 2024 financial year, RWE achieved a strong operating and financial performance and exceeded expectations. For the future, however, the company is more cautiousinvestments, in response to the increased uncertainty in the global market and energy policy risks, particularly in the USA. The reduction of the investment program and the focus on higher returns indicate a more disciplined allocation of capital. At the same time, the company is underlining its commitment to attractive shareholder returns through the ongoing share buyback program and the goal of continuous dividend growth.
The offshore wind division continues to develop positively and RWE is focusing on farm-down partnershipsto conserve capital. Battery storage remain an important growth area. Overall, the conference gives the impression of a company that is leveraging its strengths, but at the same time is aware of the current challenges and reacts flexibly to them.
