EnBW 2020 Energy needs new impetus
Fundamental changes in conditions in the energy industry trigger need for strategic review Generation / Trading Grids Customers Sustained trend towards renewable energies Operating time of conventional power plants in steady decline, accompanied by partly unsatisfactory margins Increasing volatility of prices and volumes Volatile electricity generation detrimental to grid stability Investments of around 50 billion in expanding the grid through to 2030 Conventional power stations increasingly in back-up role Accelerating expansion of smart grids Downturn in demand for electricity and gas - Renewables for the most part in the hands of non-pscs (power supply companies) Increasingly active role of customers with changing needs customers becoming producers and "energy entrepreneurs" Technological developments: more diversity, modularity and granularity in the energy system New market participants: more competition and fragmentation of the value chain Regulatory framework conditions: undergoing constant change 2 In summary: Traditional business models of large utilities no longer an option
The changed market conditions leave their marks already today in group profit Adjusted EBITDA 1 Adjusted EBITDA 1 Electricity Generation and Trading Business Segment -18 % -36 % 2,859 2,343 2,071 1,320 2010 2012 2010 2012 Adjusted consolidated net income 1 964-32 % 652 Guidance for 2013 1 Adjusted EBITDA -5% to -10% y/y Adjusted EBITDA of the Electricity and Trading Segment -30% to -40% y/y 3 2010 2012 1 Figures rounded; figures of the financial year 2011 adjusted; figures in million
The financial outlook is another pressing reason for a strategic review Without countermeasures...... the consolidated net income will remain clearly in decline in the long run... the profitability of the current conventional power plant portfolio and of the nuclear energy will continue to fall... EnBW's current business profile will not accord with the future distribution of earnings across the value chain... consistent negative net contributions will reduce the company's value and attractiveness in the capital markets and put constraints on our financing capacity This situation requires us to...... develop new business models with optimised deployment of capital... invest more in future and promising areas of growth and business... initiate strategic and structural measures with improved efficiency without delay 4
We have set ourselves clear goals for our strategic realignment The EnBW 2020 Strategy is designed to... restore EnBW's competitiveness and open up long term, sustainable growth options... position EnBW as a player in the Energiwende differentiate EnBW from its competitors define measurable goals and make a tangible promise of performance convince through its innovative implementation concept and management model inspire EnBW employees 5
The EnBW 2020 Strategy is the result of a structured process over several months Joint development: Strategy Team, Board of Management, external challenges October 2012 April 2013 Initial parameters Core themes and issues Strategic alternatives EnBW Strategy House Fundamental convictions of the Board of Management Assumptions about the environment through to 2020 Strengths/ weaknesses analysis Sustainable company Initial contacts Customer orientation Restructuring of the generation portfolio Innovative ability... 6 Filter Filter
Our Strategy House a core theme and answers to three main questions Core theme Our target markets: Where shall we play? Our strengths: How can we win? Our organisation: What should our structure be? 7
EnBW 2020 Strategy Energiewende. Safe. Hands on. The core components The two heartbeats of EnBW: Customer proximity Engine room of the Energiewende Two strategic "heartbeats", linked by system competence and market orientation, are each given scope through a distinctive operating model: Customer proximity: Innovative strength and product development 100% customer and solution orientation Engine room of the Energiewende : Expansion, efficient and safe operation of the system-critical energy infrastructure "Secure supply" as product for commercial and industrial customers Partnership models and dialogue as a strategic differentiation Portfolio streamlining through a stringent divestment and investment programme Thorough modernisation of EnBW's corporate structure and processes 8 Reattaining financial strength and returning to profitability through a business model adjusted to accommodate changes in the market
EnBW 2020 Strategy Energiewende. Safe. Hands on. The specifics New energy concept. Safe. Hands on. Where shall we play? Customer proximity End customer business electricity + gas Energy-related services/ energy efficiency Trading and Origination From the region of BaWü into D, A, CH and Turkey Engine room of the new energy concept Wind onshore, offshore and hydropower Conventional generation located mainly in BaWü Transport and distribution grid infrastructure managed from BaWü into neighbouring regions (also as service provider) Operational excellence How can we win? System competence of energy Innovative capability and innovation management Strong brand portfolio Stringent performance management Partnerships and fostering of dialogue Infrastructure in the energy industry Regulatory management Active opportunities for third parties to invest and participate 9 What should our structure be? Building up of an innovation campus Acquisition of / joint-venture with energy-related companies Simple and functional Management with simple structures, flat hierarchies and lean processes Maximum efficiency Stringent cost orientation for defined quality level (target costing) Simplicity and standardisation Technological development partnerships
What is actually meant by customer proximity and engine room of the Energiewende? Two management models, each determined by the respective mandate, working back to back on the basis of system competence and market orientation Not necessarily to separate companies. Instead, specific business activities and processes can be assigned accordingly in terms of content: Customer proximity e.g.: end customer business, energy-related services, and trading Engine room of the new energy concept e.g.: grids, renewables, conventional power generation, and operations Specific features include: Customer insight based orientation: knowing the needs of customers and anticipating developments at an early stage Innovative, so that ideas can be swiftly brought to the market Entrepreneurial style: small and dynamic teams to test new business models; deliberately decoupled from heavy" group processes Specific features include: Efficient and safe construction and operation Simple in terms of the organisation and management of business Flexible in terms of plants, facilities, processes and costs 10
Customer proximity: Consistent leverage of system competence Today Tomorrow And thereafter Translate efficient and innovative energy system confidence into decentralized market products EnBW grid Energy efficiency EnEffCo energy efficiency controlling to identify and assess savings potential Energy logistics consultancy, decentralised portfolio management Counteract growing system complexity with grid-related services Town of Gondelsheim: upgrading of street lighting Technology and systems feed-in management for third party grid operators Innovative grid concepts Smart grid components (adjustable local mains transformer) Use energy know-how for smart home products and sustainable mobility concepts 11 Sale of smart electricity meters with software and apps Holistic energy management applications, private consumption optimizers for renewable energy operators Smart integrated home network for heating and light control
Customer proximity: Innovation campus for new business ideas geared towards placing products swiftly in the market Features of the innovation campus Market proximity: Consistent orientation towards customer benefits and marketability not only basic research Concentration: R&D, idea generation, product development and sales Entrepreneurship: Business models in start-up environment Methodology: Campus provides tools, resources Success driven: Management and control through an Innovation Advisory Board working with clear priorities and milestones Impact on culture: Ideas@EnBW Process Internal start-ups Facilitated online forums Management and control models 12
Engine room of the new energy concept Renewable energies: Significant expansion of wind power 1 Development of onshore 2 Development of 3 wind farms in Germany wind farms in Turkey Repowering with natural launch in northern Germany Installed capacity [MW] Installed capacity [MW] Distribution of repowering locations 29,000 46,000 Factor 5 1,000 170 2011 2020 goal 1,700 20,000 Factor 25 750 30 2011 2020 goal 0 5 % 5 10 % 10 20 % > 20 % EnBW Germany/whole EnBW proportion Turkey/whole Partner models with citizens and communities Industrial scale Develop wind farms in Turkey ourselves Borusan EnBW Enerji as an excellent platform Potential from repowering of 10,000 MW by 2020 13
Engine room of the Energiewende Product: Secure supply through high grid quality and central generation Significant expansion of our transmission grids Better integration into the European grid System services for third parties as well EnBW plans, builds and operates electricity and gas grids for third parties as well Efficient, safe supply of power from conventional power stations EnBW share in conventional power generation in Baden- Württemberg around 70% "Smart expansion of distribution grids for the purpose of integrating renewable energies and securing high standards of supply 14
Customer proximity Engine room of the new energy concept Implementation of the EnBW 2020 Strategy Streamlining of our portfolio in all business segments Investments and dinvestments as part of streamlining the portfolio ( million) 1 Explanation Wind power Hydropower Conv. power generation / participations Distribution grids 2013-2020 aggregated Transport networks Sales, operations, contracting -1,700-950 400 1,980 3,500 1,000 240 + X Focus on renewable energies expansion Value-adding exit from conventional power generation and non-strategic investments not in Baden-Württemberg Strong growth through expanding the transport and distribution grids; partnership with municipalities by opening up the distribution grids Optimization for customers with low capital intensity; active pursuit of anorganic growth options 15 Overall share of regulated business rises from ~40% today to more than 50% in 2020 1 Investments and disinvestments which are part of the strategic measures are in addition to the approved PR1315 budget and maintenance capex in existing business (figures, accumulated and rounded, from 2013-2020)
Implementation of the EnBW 2020 Strategy secures financial success and improves the business risk profile Electricity Generation and Trading Renewable Energies Grids Sales / DSP* -80 % +300 % +10 % +150 % 1.2 0.8 0.8 0.9 0.3 0.2 0.2 0.5 2012 2020 2012 2020 2012 2020 2012 2020 Adjusted EBITDA 2020 at 2.5 billion; of which ~40 % from strategic realignment Commercial response to drastic margin downturn in traditional business Significant portfolio changes in the period from 2012 to 2020 Substantial improvement in the business risk profile through expanding regulated/quasiregulated business, resulting in lower capital costs 16 Sustained and positive value-added contribution after successful portfolio streamlining
A dedicated platform to secure the implementation of the EnBW 2020 Strategy is already in place EnBW 2020 Programme Programme structure with 4 components An experienced team Profile of each individual project Clear programme governance 17
Structure follows Strategy: Challenges and requirements Initial status: Current EnBW organisation: large number of business entities with numerous committees at various levels and a complex reconciliation processes Employee point of view: current structure seen as a huge deficit in terms of efficiency and room to manoeuvre Customer point of view: EnBW seen as a conglomerate of individual companies acting partly independently from one another Need for action: realignment of the organisation in accordance with highest efficiency standards and management in application of modern governance principles 18 Intensive process of consultation lasting several months by the Board of Management on the topic of structure and governance Orientation concerning structure and management model based on best-practice companies, also from other industrial sectors Discussion of the outcome of consultation with the Supervisory Board on 6 June 2013
One EnBW New concept for structure and management model ready to implement Concept for structure and management model Significant reduction in the Group's complexity through combining companies New "One EnBW" management model with the following objectives: more efficient processes, clear responsibilities, strengthening of the individual employee's responsibility, and team spirit among employees Restructuring of the financial organisation to achieve clear performance orientation Adjustment of accountabilities at Board of Management Supervisory Board: Approval in principles on 6 June 2013 Next steps: Negotiation of terms with employee representatives Decision by the Supervisory Board within a month Immediate start of implementation 19
One EnBW reduces complexity and creates clear responsibilities Formerly In future Core activities currently in nine companies Carrying out of operational and key functional tasks in companies, in parallel with management from HOL Core activities combined in a minimum of companies Concentration of operational and functional responsibility respectively in one place Large number of management and supervisory bodies; accordingly, complex and cumbersome opinion forming process Executive and supervisory bodies dismantled and/or streamlined High administrative outlay from running executive/supervisory bodies, reconciliation, annual accounts and independent auditors Directly measurable efficiency through reducing the Group's complexity 20
EnBW 2020 Strategy Summary EnBW 2020 Strategy is complete Concept of two heartbeats: consistent orientation towards areas of growth and customers clear support of the new energy concept Partnership models and dialogues strengthen EnBW's differentiation from the competition Consistent portfolio streamlining in order to achieve a considerably more stable business risk profile and a sustainable, positive contribution to value added Realignment of the organisation: New contact for structure and "One EnBW management model prior to implementation Consistent implementation of all measures based on the EnBW 2020 platform 21