Gunhild Grieve - Head of Investor Relations Markus Krebber - Chief Financial Officer

Vincent Gilles - Credit Suisse Ahmed Farman - Jefferies LLC Peter Crampton - Macquarie Capital Inc. Sam Arie - UBS Mark Lewis - Barclays Capital Inc. Michel Debs - Citigroup Deepa Venkateswaran - Sanford C. Bernstein & Co., LLC James Sparrow - BNP Paribas Alberto Gandolfi - Goldman Sachs Nicholas Ashworth - Morgan Stanley Andrew Moulder - CreditSights Ltd

Welcome to the RWE Conference Call. Markus Krebber, CFO of RWE AG will inform you about the developments on the first three quarters of 2016. I will now hand over to Gunhild Grieve.

Thank you. Good morning to everyone on the phone and to those who are joining us via webcast. This is the first time the new RWE, so RWE after the innogy IPO is reporting its quarterly numbers. Although I'm sure that I've met most of you several times during my eight years with the Company it's the first time in my new role as Head of Investor Relations. I'm looking forward to working on the new equity story and I'm convinced that this part of the business has a great future although the environment is still very tough. I'm joined here by Markus Krebber who became a Board member of RWE on October 1 and CFO on October 15. I believe some of you know him already from his function as the CEO and formerly CFO of our trading activities. Before I hand over to Markus, I would like to make a short comment on the reporting structure for Q1 to Q3. Because the IPO of innogy took place in Q4, the interim statement of the RWE Group for the first nine months 2016 is still under the old reporting structure. The outlook however is given according to the new structure were innogy will be reported under a single line. As Bernhard already reported all the details of innogy’s financials last Friday we will not cover innogy’s business segments in detail. And with this, I hand over to Markus.

Thank you, Gunhild, and good morning ladies and gentlemen. As Gunhild mentioned I have already had the opportunity to meet with some of you over the last few years in my previous role. Now I'm very much looking forward to working with you in my new capacity as CFO of RWE. That being said let's go straight into the highlights of our presentation on Page 3. Here I want to start by mentioning the successful listing of innogy at the beginning of October. In addition to innogy’s 10% primary component RWE additionally placed some 73.4 million shares from our holding at the same time and received roughly €2.6 billion. This provided us with a solid liquidity position and increases our financial flexibility for upcoming funding requirements. With the IPO of innogy life as two independent companies became a reality. The corporate governance of RWE and innogy is clearly defined and separated and the operational management of RWE was seamlessly taken over by the new team. Our operational performance in the first three quarters of the year developed as expected. I will come to the details in a minute. We can also confirm the outlook for the Group for this year's main earnings figures. Finally, the government has published draft law on the transfer of financing and duties of disposal of nuclear waste. They were largely in line with our expectations however we still need to clarify some key aspects of the framework. At this point we will also be able to finalize our funding consideration, more about our current thinking on this topic in a moment. Ladies and gentlemen, Slide 4 shows the structure of the new RWE. Before I come to the numbers of the first nine months, let me highlight the following. The new RWE will concentrate on the operational management on Conventional Power Generation and Trading/Gas Midstream. According to the agreement of basic principles between innogy and RWE we will manage our participation as a pure financial asset. This guarantees the independence of innogy which is not only in there, but also our best interest. Nevertheless I should point out that we will continue to fully consolidate energy as a majority holding in our Group accounts. Let us now have the closer look at the numbers for the first nine months. On Slide 5, you see the divisional operating results. Gunhild mentioned already that the new RWE structure is not yet reflected in the nine months report at the IPO took place in Q4. As Bernhard already provided all the facts for innogy at the end of last week let me focus on RWE’s two operational divisions. Here we see a mixed picture in the earnings trend. Operational result for conventional power generation was slightly better than the same period 2015. We saw operational improvements from our efficiency program, positive one-off effects from the sale of land in the UK and compensation payments in the context of our Hamm power plant. These effects over compensated lower realized generation margins mainly in our lignite and nuclear generation field. Margins in our hard coal and gas power station were more stable and in some cases even improved. Trading/Gas Midstream Division shows a strong decline year-on-year. Also we had a positive operation result in Q3, this were not enough to offset the trading loss we made in Q2. Slide 6, shows the reconciliation of earnings down to adjusted net income. Let me point out the following here. The net income for the first nine months is affected by negative one-off effects which were already partly explained in H1. First, the non-operating results significantly negative and down year-on-year. This is mainly due to timing effects from asymmetrical accounting for derivatives which we used to hedge against price volatility. As you might remember these derivatives are accounted at fair value whereas the underlying transactions are only recognized when they are realized. These timing differences result in short-term earning effects which are neutralized over time. Second, financial result is impacted by realized losses from the sale of securities. In the same period in 2015, we realized profits. The tax rate for the reconciliation of reported net income and adjusted net income stands now at 33% and 36% respectively. In H1 it was much lower. For the year as a whole our outlook is significantly below 30% which we can confirm from today’s point of view. The reason for the higher tax rate in Q1 to Q3 is mainly due to a periodic tax burdens caused by among other losses from the sale of securities, which are not tax deductible This had a relative figure impact on the low earnings in Q1 to Q3 than in H1 and for the expected full-year 2016. The bridge from EBITDA to cash flows from operating activities is shown on Slide 7. The reconciliation from EBITDA to FFO is explained by the net utilization of provisions of around €1 billion and cash effective tax and interest payments of around €1.1 billion. The negative change in working capital is largely driven by variation margins and the phasing out of the termination of sub working capital measures. We decided to stop these measures on the back of economics considerations and our more comfortable liquidity situation. For the full-year, we expect to see a strong improvement in the cash flow from operating activities compared to the low figure in Q3. This is mainly driven by a seasonally strong fourth quarter FFO as well as an improvement in working capital. On Slide 8, you can see the details of our net debt development. It increased by €2 billion since end of last year mainly for two reasons. First, we had a negative cash balance, second we saw an increase in pension provisions. This was driven by lower discount rates in Germany which came down to 1.3% from 2.4% at the end of last year. Corresponding figures for the UK pension provisions are 2.2% and 3.6% respectively and especially the strong decline of the British pound compared to the euro led to a fixed included improvement of our corresponding debt of approximately €1 billion. Net debt as of September 30 does not yet include the proceeds from the IPO of innogy. On the one hand this will improve net debt by approximately €4.6 billion. On the other hand, we will see an opposing effect from the risk premium under nuclear provisions for intermediate and final storage which we expect in total to be approximately €1.8 billion. Taking these aspects into account and assuming no further changes in discount rates for pension provisions in our expect net debt of the end of the year to be in the order of 2015. In H1, 2016 our outlook was moderately above previous year. As previously mentioned, we can confirm our guidance for the Group as a whole. Due to the positive earnings development we have seen so far in Conventional Power Generation, we have upgraded our outlook for this division to in the order of 2015 from significantly below 2015. This is also the reason from today’s standpoint we expect to end the year at the upper end of the guidance corridor. As we will report innogy’s activities in one-line in our annual report 2016 and thereafter, we have also adopted this reporting structure for the outlook. Innogy’s operating results for 2015 amounted to $3.50 billion. We expected this year’s operating result to be moderately below 2015. Let us now have a look at the most recent developments around the transfer of the nuclear waste disposal and storage provisions. Slide 10 provides the key facts from the draft law as published on October 19. I mentioned before that - provides some clarity on the framework, it's still ex-clarity on some key issues. First and most importantly, we need legal certainty for the future and therefore looking to draw up a bilateral contract between the operators and the government. Second, the interfaces and conditions for the transfer of the waste and storage facilities have to be clearly defined. And thirdly, certain aspects of the payment such as timing and interest charges on the provision and risk premium need to further clarification. We are in constructive discussions with the government on these points and we hope to have kind of clarity on the legislator process soon. The main focus for RWE will be then to establish the best way to finance our portion of the liabilities. With this in mind, let us look at Slide 11 which shows the current liquidity position of RWE standalone. After the placement of innogy shares we have ample liquidity on our balance sheet. However, not all can be used for financing purposes. First, there are some $3 billion to $3.5 billion in net financial assets not readily available to use. These include mainly financial receivables like collaterals as well as funds which are earmarked to pay back all outstanding commercial papers of $1.8 billion. Seconds, there is committed credit line for innogy of $1 billion in place in order to support innogy’s liquidity management until the end of 2018. And finally, we need approximately $2 billion to $3 billion of liquidity for our day-to-day business. Taking all this into consideration there is currently approximately $5 billion to $6 billion fee liquidity available. As part of our mid-term planning, we will evaluate over the next few weeks the best way to fund the amount which the government has stipulated to be transferred to the external fund. After looking at the liquidity situation of RWE you might also want to better understand our overall leverage situation on a standalone basis, so there is out innogy being consolidated. Slide 12, shows our net debt adjusted for innogy as of September 30. This number does not yet include the $2.6 billion receipts from the innogy placement nor the risk premium under nuclear provisions. It also still includes some debt which will be transferred to innogy over the coming weeks and expect by intercompany loans does not affecting our net debt position on the net basis. The $8.7 billion of net debt which remains at RWE is dominated by our long-term provisions for nuclear, mining and pensions. Our financial liabilities are actually more than covered by our financial assets even result in any consideration of our innogy shareholdings. To conclude my remarks today, let me give you a sneak preview on what we are working on at the moment. After presenting to you full-year results, we plan to update you on our strategy and management agenda at the end of March. At the same time, we will give you an overview of the key financial performance indicators which we use to steer the Company as well as additional information on our operating divisions. Last, but not least, we plan to provide a new and clear dividend policy. With this, we now enter the Q&A session. I am curious about your questions and remarks and I'm sure you're curious which question I am able and willing to answer being only 30 days in my new role.

Before we go to the Q&A, let me quickly introduce three new members to our IR team. Along with [Markus and Martin] who you know already quite well, we have Sabine Gathmann, Lenka Zikmundova and Jérôme Hördemann in our team. You can find their contact details on our website. When starting a new job as tempting as it is to rip up the roof up and start a fresh, it's also important that we don't throw the baby out of the bathwater. Therefore with this in mind I'm going to be sticking with RWE’s two questions rule in order to give everyone the chance for their questions, but you can of course also queue up for a second round. Operator, please.

Thank you. We will now begin our question-and-answer session. [Operator Instructions] The first question is from Vincent Gilles, Credit Suisse.

Yes, good morning, everyone. I got two questions please. The first one would be you’re mentioning your expectation at the net debt, net economic debt would be the same at the end of 2016 as in the end of 2015? What would be your pension provisions if you reflected now the recent change in bond yields and I know it’s a bit difficult just to give us a feel for how much the debt could improve as the situation has clearly changed since the end of September? And the second question would be a bit of guidance on the working capital in the fourth quarter. It's always one of the important quarters here and maybe we can understand a bit more where we will be in terms of cash flow by the end of the year? Thank you very much.

Good morning, Vincent. On the net debt question I mean the guidance is based only on the two major components so the IPO proceeds and reflecting the risk premium of 1.8 billion also into a provision and we have assumed pension provisions to be stable. Of course the recent increase in interest rate had a positive effect but I mean it's difficult to judge where we stand with our pension assets because it’s a net basis. So I mean just to give you an indication the 20 basis points would reside on a gross basis into an improvement of around 0.5 billion. And second question on working capital. We expect the working capital to be a cash flow effect on the working capital changes in Q4 to be positive. So we expect a very strong cash flow as typically from our operations and a positive effect from working capital, but we also see cyclically higher investment in Q4, so overall we expected positive cash balance for Q4 as well.

Thank you very much. But just to make sure I understood correctly you said 0.5 billion of delta on pension provision corresponding to how much in basis point?

20.

20 basis points. Thank you very much.

Please keep in mind that’s a cross view, right because we need…

It’s very clear. Thank you very much.

Thank you. The next question is from Ahmed Farman, Jefferies.

Yes. Hi, everyone. Thank you for taking my question. Just the first one on your divisional guidance for Conventional Power Generation, can you help us understand a little bit more how on the improvement in guidance relates to one of the facts and how much is the result of improvement in underlying operations practice? And then the second one relates to the recent sort of rally in power prices, I appreciate the spark spreads have had not moved much outside of UK and on the outright position you’re largely hedged. But wondering if you have started to see any earnings benefit as a result of higher spark spreads or more efficient optimization in the spot market or is it just simply the case that even if power prices hold at current levels for RWE any material earning benefits, we unlikely to see any earning benefit till 2019? Thank you.

Yes. Ahmed. Good morning first of all. Let me start with your question regarding the division power generation. The improvement here it's a mixed picture and we have of course one-off effects we mentioned the sale of land in the UK which was already reported in H1. This is the medium double-digit million number and then settlement with regard to the Hamm power plant, which is new in Q3 that is the high double-digit million number and the faster realization of efficiency improvement that is around €100 million and we see some margin improvement that’s also kind of an answer to your second question regarding power price and the impact on our revenues. I mean as you mentioned the positions are largely hedged for 2017, so we don't see huge effect there, but do see some margin increases especially in those markets which are tight and show more volatility especially from the optimization result and to be clearly mentioned here is the UK.

Okay. Thank you.

Thank you. The next question is from Peter Crampton, Macquarie.

Good afternoon. Two questions if I may. First, you are talking about a revised dividend policy and just wondering if you can provide a bit more color on what a revised policy would look like given that currently the dividend is suspended. And then secondly, based on your innogy shareholding and the guidance we have from innogy looking at €600 million to €700 million of innogy dividends coming toward RWE. And I was just wondering what kind of thoughts you have on how much this could be passed on to RWE shareholders? Thank you.

Thank you, Peter. I will not give you [anything] on our future dividend policy. That it's too early because too many things are influx, we need to know exactly what are the final terms and conditions on the nuclear deal we are currently in discussion with the government about. And the innogy share, I mean it’s a combination dividend, in innogy what we do is innogy dividend, it’s related because the new RWE we’re looking at it from a financial point of view because we have communicated that we want to keep 51% of innogy, so it is one of our business segment fully consolidated. But on the other hand, it is also appears that the innogy shareholding as a financial asset is somewhat linked to our provisions. And now we need to figure out exactly how we - from a financial point of view you feel that and when we have that figured out after we have clarity on the nuclear side then we can give you a clear guidance. I mean maybe that reveals a little bit how we think about it, but I cannot be clear on now because first I want clarity on some key cornerstones before I talk about it.

Okay. Thank you.

Thank you. The next question is from Sam Arie, UBS.

Hi, thank you for taking the question. And I had two actually, the first is around the leverage and I think that you are saying that at the end of this year, you expect the leverage to be in a similar place to where it was end of last year €25 billion, €26 billion. And I think in the past we talked about target for getting the leverage to four times or thereabout below. Do you still have a target leverage and relatedly do you have a sort of target run out look for the credit rating? And then my second question is around the climate action plan that went through government this week and if you could comment on the expected impact on the lignite assets in particular? Thank you.

Good morning, Sam. I mean on the leverage, yes we said we’re going to be at the end of the year, everything has being equal with the additional risk premium for the nuclear funding and the innogy proceeds at around €25.5 billion. We have no kind of leverage target anymore for the fully consolidated figures. And your second question on the climate action plan, I mean it's much too early. It's kind of a pledge what the government intends to do, all the details will be worked out starting 2018 so after the next election in Germany. So it would be pure speculation.

Okay, thank you. Can I just quick follow-up on the first part of that, so understood on the leverage target, how about on the credit rating. Can you comment on that briefly?

Sorry I miss that. I mean the target is to - let’s say we want to keep our investment grade rating.

Okay. That's fine. Thank you very much.

Thank you. The next question is from Mark Lewis, Barclays.

Yes. Good morning, everybody. I actually had a follow-up question to Sam’s on the climate action plan. I appreciate that as the plan as we have it at the moment only contains targets, but no real policy measures in terms of how those targets will be achieved. It is difficult for you to comment in detail, but I wonder if you could just give us your view really on how far emissions in the power sector would have to full - if this is confirmed after the next election, I mean judging from the report. I haven't actually seen the final government report itself. I'm not sure it's even publicly available at the moment, but based on comments I've read on various different news sites, it looks like we're looking at a 55% reduction from current levels, so I guess the power sector is currently emitting about 315 million tons a year that is the number in 2015. We'd be looking at going down to between 140 million and 150 million tons by 2030. Would you agree with those numbers and if so how far away from your current base case scenario planning would that be if that's not too difficult a question to answer?

No it's not too difficult Mark. I think the numbers we’re also in discussion within the government. I haven't seen the final confirm from numbers. I think they are slightly higher than what you mentioned. I think we just need to wait maybe a couple of hours before they publish the final report. I think what is important also for us that what has changed over the last couple of days is that they have also said clearly before that you decide on various specific measures they want an assessment of the consequences for all kind of stakeholders. So that’s the base in Germany for households electricity prices because somebody has to pay for it and also for the affected regions and I think this is very important and they want to set up a commission which to us looks into an assessment of the consequences and then propose specific actions.

Okay. Thanks very much.

Thank you. The next question is from Michel Debs, Citigroup.

Good morning. I have two questions please. The first one relates to plant closures, you have a slide at the back of presentation showing capacity measures. And my question is fairly simple. There are a number of capacity closures that are earmarked for 2017, 2018, could you give us a sense either as a total number or a per megawatt number of the cost savings you make on EBITDA and on maintenance CapEx when you closers the capacity? And my second question relates to the dividend, I'm coming to that again, I'm sorry. I understand it's too early to give us a dividend policy or to tell us what you do with the money coming from innogy is this fine, but we just want to understand the way you think about this? Are you going to think about your dividend taking the balance sheet leverage and credit rating as the first consideration or would you think about dividend distribution as a function of cash flow irrespectively of the balance sheet? Which comes first, the cash generation or the balance sheet? And I know they're linked, but I would like to understand what you pay out? Thank you.

Michel, thanks for the questions. I mean the first one we don't answer. I mean the capacity closures you see on Slide 19 in the back-up are also related to the security result. So we decommission, but we still have the plan ready. So there are some cost associated to that. And especially in the lignite area, it's a very complex interdependent system, so to really allocate some cost savings to specific measures is very difficult. So apology we don't - we can't be clear on that one. The second one on dividends and what comes first. We need some time also to have our discussions with the rating agencies because I mean RWE is now kind of a strange animal because if you look at fully consolidated figures, there is not the economic shoes of how we're going to steer the Company. But on the other hand, the innogy shares are not a pure financial assets which on a net debt basis not taken into consideration so far. And I think we need this discussion first before I can tell you what - the kind of cornerstones of our future dividend policy. And in addition to the complexity is that of course cash flows for the dismantling and decommissioning of nuclear plants or something else where we have the financial investment innogy again which are something else and operating cash flows. Yes, so please give me the time to work that out with the team and then we can provide you all the details when we discuss future policy and we meet next time.

Thank you for that. The quick follow-up if I may. Does this mean that it is possible that you do not resume paying cash dividends out of [indiscernible]?

Sorry, can you ask that again I think it’s a hypothetical question which is hard to answer.

It is. But my question is given the fact that you do not have at this point in time all the elements that you need to build your own vision and your policy. Does this mean that we have to keep in mind that possibly if rating agencies are tough on you and if the timing of the nuclear decommissioning cash flows is a diverse. You may not be able to resume a cash dividend payment in 2017 or 2018? Is that the rest?

That’s much too early to give an answer to that.

Thank you very much.

I don't want to speculate.

Thank You. Could we have the next question please?

Thank you. The next question is from Deepa Venkateswaran, Bernstein.

Thank you. I have just one question. If I look at Exhibit L or chart l1 were you talk about the liquidity that is available. I understand that you've taken off around 1 billion for providing innogy with some credit. Is it fair to also assume that if you needed to pay the government you would then avail this 2.5 billion credit line in order to meet this 6.8 billion? And that you don't need to sell any innogy shares in the next six to nine months for that?

Deep thanks for the question and hello. I mean the first statement the innogy credit line is we provide this committed credit line until the end of 2018. This was part of the agreement when we split the liquidity between innogy and RWE. So we have most of the liquidity on RWE level. Knowing that we need to fund - the nuclear fund in order to give innogy some time to build their own access to get markets we have provided this in terms of liquidity line that it's a background to the 1 billion committed line on 2018. And I mean speculation whether we're going to use 2.5 syndicated credit line I think it's the wrong speculation. These are usually back up our liquidity lines for either commercial paper or operational liquidity to fund very I mean an ongoing funding requirement with short-term liquidity it is difficult. But on the other hand if you see on Page 11, that we have around 5.6 billion and it’s maybe another 12-month that we’re going to pay. It is not a situation where we need to be concerned about anything.

Okay. Thank you.

Thank you. The next question is from James Sparrow, BNP Paribas.

Yes. Hi, everyone. I’ve just got a couple of questions on the credit side if I could. First of all going back to the issue of the rating, the agency has made a few noises around the innogy rating which is obviously the restructuring is being positive for them. Potentially negative for RWE just interested for your thoughts on how important investment grade rating is given the abandoned liquidity you have and if you say - if you would go some investment grade whether that would have any practical impact? And then the second question is regarding hybrids you obviously inherited, a large portfolio of corporate hybrids. Just wondered if you could give us any sort of indication of how you think about their role within your capital structure? I appreciate there are things you can’t say because of the rating agency methodology, but I just wondered whether you can give any indication of what you think would be the ideal portion of the hybrid debt within the balance sheet? Thank you.

Thank you, James. And hello I mean let’s start with the thought so first and unfortunately I cannot give you any indication on the hybrids we will take the decision regarding the first hybrid when we have to take it. So that’s also too early. I want to understand all the implications from the funding from the discussion with the rating agency before we take any decision on the restructuring of our liability side. On credit rating there was maybe some noise, but let's start with the positive news. First, both Fitch and Moody's have reaffirmed the rating of RWE and expect the decision from Standard & Poor's within the next week. And then we're going to have a discussion with them in winter and early spring and then we know how they think about it, we have our thoughts on how you look at the RWE. And I think I have given you some indications on that and I thought, I mean, of course the innogy shareholdings are in a way linked to our provisions.

Okay. Thanks. I appreciate that. Maybe if I could just follow-up on just a point of clarity then maybe. On Slide 12 when you're talking about the debt and the debt not yet pushed down to innogy, can you confirm that you're not talking about hybrids there? Thanks.

Yes. I mean the hybrids - hybrids will stay on the RWE balance sheet.

That are mainly that private placements and EIB loan we are talking about here.

Okay. Correct. Thanks.

Thank you. The next question is from Alberto Gandolfi, Goldman Sachs.

Yes. Hi, good morning there. I have two on my side as well; the first one is on conventional power generation. Could you help us out navigate through the 2017 drivers I mean we know your power prices are now roughly €5 per megawatt hour. UK spreads are doing better that the fuel talks that’s the beginning of a capacity payment. So could you narrow us down where you see that business evolving? I understand you can't give a guidance, but at least the trend, the trajectory let’s say of CPG was maybe a little bit of basis fleet. And the other one that for - you are guiding at the top end of your range for this year. If I just simply look at Bloomberg consensus analysis just over €500 million regarding for about €700 million. For 2017 consensus is about - is more that €670 million, so would you still be comfortable with 2017 numbers in consensus where they are? Thank you.

Alberto, good morning. I will not comment on what I think about the consensus 2017. And on conventional power generation, please keep in mind and we will also review that information that if you look at the average hedge price it was around €35 in 2016 and €30 in 2017, so €5 delta on an outright position which is around 90 to 100 terawatt hours I mean you need lots of measures to offset that. That gives you a directional answer to your question where we see that result of the division’s conventional power generation going in 2017.

Okay. Thank you.

Thank you. The next question is from Nick Ashworth, Morgan Stanley.

Hi. Good morning, everybody. Firstly, you talked a little bit about efficiency gains across the business. Can you just elaborate a little bit more on the ongoing program that is still the legacy program [indiscernible] anything new that’s been implemented there. And then secondly in terms of CapEx, there is any change of guidance for this year, but aside from that also how are you thinking about CapEx in the medium-term. Are there any areas of growth that you would like to be looking at? So could cash flow be diverted or some cash flow will be diverted to growth CapEx in time, how do you think about that at the moment?

Hi, Nick. Your first question on efficiency gains, I mean, the efficiency gains where we said we realized faster than originally planned were from the old program. We will give you a full update what we intend to do in the future years in the Capital Markets Day in March next year. So these were not yet new programs. And on CapEx, I mean let’s talk about the operational business of RWE, so conventional power generation and trading, there we currently don't have any plans other than day-to-day CapEx.

And in terms of this year there is no change to Gartner’s already set out or…

No.

Okay, perfect. Thank you.

Thank you. The next question is from Andrew Moulder, CreditSights.

Yes. Hi. Just a couple of questions really. I mean one, I'm sure it's a stupid question, but when I look at your Slide 7 and you show the EBITDA to cash flow for RWE. You've got cash flow from operations of $0.6 billion. If I look at the innogy presentation from two days ago they have a cash flow from operations of $1.7 billion. Now I'm not sure that I am 100% clear on the accounting here, but if $1.7 billion is coming from innogy and your fully consolidating innogy in RWE figures, does that mean that you really go about negative cash flow from operations of over a $1 billion in the RWE operations? That's my first question. And my second question, I just want to understand a little bit about your hybrid treatment. I did hear the answer that you gave James a minute ago. But RWE had previously said that they would sort of treat hybrid bondholders in a responsible why possibly in a sort of investor friendly way. Is that still the intention at RWE? Thank you.

Andrew thanks. I mean do you thought - yes, that is still our intention - our hybrid holders in a reasonable way. And on your innogy, the delta of innogy’s result when we have two effects here. I mean the first one is the utilization of provisions which is much higher at RWE standalone. And then part of the cash flow from operations is also the working capital movement where the negative effect was on the RWE standalone side. And then please keep in mind that we have a much higher negative financial result at RWE level and on innogy. So the additional funding requirements for RWE are still a delta between innogy’s cash flow operation and ours.

Okay. I’m still not 100% clear, just to be maybe 100% clear the $0.6 billion that RWE is showing includes the full $1.7 billion that innogy…

You mean the - now I got you mean the first one. Yes, the $0.6 billion, yes that fully includes innogy’s cash flow from operating activities, yes.

Okay. Thank you.

Thank you. [Operator Instructions] The next question is from Vincent Gilles, Credit Suisse.

Yes. Hi, again. Follow-up question on trading, we spend a lot of time on conventional generation your second leg. Can you explain to us the swing versus last year of your trading earnings? I understand obviously the guidance for the full-year is according to what happened in the first nine months, but if you could help us get a feeling for what a sustainable that means number could be would be very helpful? Thank you.

Yes, Vincent, please answer the question. I mean the losses were already explained in the last call by Bernhard, because the losses we suffer from all happened in Q2. So in Q3 we had an operating result which was in line with expectation which was slightly above €50 million and that is also an indication of what we on average expect from the segment, it is around $200 million operating results a year, but of course it is the most volatile business we have in our portfolio. Does that answer your question?

Yes, it does.

Thank you. The next question is from Sam Arie, UBS.

Sam.

Yes, thank you. Just one more question from my side and I'm coming back I'm afraid again to the dividend question although I understand what you are able to say today. Can you just comment for us on the municipal shareholders because I suppose one of the side of the IPO with some of those shareholders might rotate that holding that of RWE and innogy? On the screen that it looks like that hasn't really happened yet although I think we can't quite see the municipal shareholdings exactly that prudent RWE GmbH, if I'm right. So can you tell us if there's been any movement in the municipal shareholdings or if you have any expectations around that? Thank you.

Yes. I mean it was never the plan that municipalities’ shareholders become shareholders of innogy. I'm not aware of any plans of them to invest in to innogy yet. Some of them have decided to sell their RWE shares. And I think partly also executed already. And I think that’s the situation on that side.

And so would we see that I think the RWE GmbH holding is about 15%. If municipalities have sold down their shares, we see that 15% change or would it not be visible to us?

It’s really below 15%.

So that was they actually went already below 15% the few weeks ago there was a notice to us that they went already below 15%.

Okay. All right thank you very much.

Thank you. The next question is from [Richard Aleman, Macro Securities].

Hi. I just wanted to come back to the dividend question one more time, but maybe just not understanding quite what you're saying. I understand you need to speak to the rating agencies with regard to the way that you’ll treat your innogy holding and that aspect against future provisions and also I understand that you need to get a clear understanding of where your cash flow will be. But you’ve talked about actually having a revised dividend policy, but at the same time you answered the question on whether you may or may not pay a cash dividend next year with saying it's too early to say? Can you just clarify whether you actually do believe you'll have a dividend policy? Why would you put it into the slides and more specifically are you actually saying that in effect in the answer that last question on cash dividends that is more likely to be set by a view of cash cover of the dividends going forward? Thank you.

I mean of course we currently have to spend at the dividend there was old dividend policy in place which was given the situation we were in not so clear it had lot of expect mentioned. I mean we are striving to provide you with a clear dividend framework and policy in spring next year that you have a much better expectation of what dividend we will pay given the earnings development. And whether that is linked to earrings or cash flow we need some time to figure that out. I mean especially given the situation that following the nuclear funding solution. We're in a situation where we see huge cash flows, negative cash flows from the dismantling and decommissioning compared to the underlying - which are very high compared to the underlying business how we treat that cash flow in our dividend policy.

But at the same time you just confirm that you have no significant growth CapEx to spend. The working capital will adjust.

Yes.

Even though you’re hedging is €5 less. Obviously if you look at the cash flows from innogy dividends that should provide rating agencies with some comfort is so I am just trying to grapple with the idea of why you said there is a revised dividend policy or its current zero and you don't seem to indicate whether you can have one or two?

I mean I do understand and I also support what you’re saying about how it would look from a credit point of view at our figures, but we need to discuss it. I mean talking about a nuclear dividend policy. What we meant by that is that we don't want this mix bag of policy but a much clearer on. It's much easier for you to form you expectation than the not so much speculation, but please accept that I cannot speculate now whether we pay 2017 a dividend or not.

Okay. Thank you.

Thank you. The next question is from James Sparrow, BNP Paribas.

Yes, hi. It's just another follow-up question on the credit side really and just trying to understand to what extent is a credit rating important to innogy’s business going forward and say if you were to end up some investment grade with that matter what impact would it have actually on your day-to-day business for innogy? Thanks.

Given that we want to separate the Company and we have also set it up fully separated already. And knowing it you also know innogy’s business plan and we know our financials I actually don't see the huge risks that innogy drops below investment grade I mean not at all. I think you can never attempt to rule something out, but I don't see a situation where innogy would drop too non-investment grade.

But if it were to be the case I mean would be an impact on your trading business, I mean does it presumably its contingency you must be considering you're on two negative outlooks?

But I think we have that situation before when we were much closer to potential downgrade. I think that situation has from our standpoint is the successful innogy IPO and having innogy stakes available have significantly improved. And I mean now revisiting the old contingency plan, of course we would survive including the entire trading and hedging business also a non-investment [trade stock].

Okay. Thank you.

Thank you. The last question is from Andrew Moulder, CreditSights.

Yes, hi. Probably not often you get credit investment asking about the dividend. But I just want to understand perhaps a little bit. Is there any sense that the dividend that RWE pays might actually be a direct consequence of the dividend that innogy pays up to RWE and you might just use that dividend that innogy pays up to you to pay perhaps the hybrid coupons and the dividend to RWE shareholders. Is that something that you're thinking about?

That depend on two aspects, first one is what is the cash flow or the cash balance of the operating business of RWE? And the second one is how do we financially steer the company in future, so how do we link innogy shareholdings and innogy dividends to our provisions and especially the much faster utilization of our provisions now? I mean you can now - speculation you could look at it and say we're not going to sell innogy, we want to keep it and of course we need funds for the utilization of provisions. If you start reducing your financial assets innogy you can also from the proceeds pay the utilization of provisions. I mean we need to figure out how we're going to balance that in future. And you are asking exactly the right question. We have exactly the same questions here on the table and need more time and that’s 30 days to figure it out and do it.

We’ll get all this information I guess in March, is that the intention?

All detail, yes.

Great. Thank you.

Thank you. We just received one last question. The last question is from [indiscernible].

Hi, gentlemen. Thank you for taking my question. I'm afraid on average and I know you don't want to answer certain number of questions on that topic because it’s not clear now for you. But would it be possible could we imagine that you would call the non-core 2017 hybrids though coming soon and replace them at innogy level. For example, would it be possible and I want to know there if it’s possible too, would you be ready to sell some innogy stake not because we have some cash outflows to fund or refinance debt for example, but if you are to protect your rating, innogy rating? Thank you very much.

There were no plans when we split the companies and discussed liquidity and also capital structure on RWE and innogy side there were no plans to move hybrids to innogy. On the other two questions on speculation whether we call, what we do is innogy shares I don’t want to comment at this moment.

Thank you very much.

Thank you. We have some further questions. The next question is from Alberto Gandolfi, Goldman Sachs.

Yes, hi. Apologies for the follow-up. Just to be clear I mean when you talk about the upper end of your guidance and you talk about the $3.1 billion EBIT for instance and you still talk about the $700 million for the underlying net income. If I look at the financial results you just reported even if you talk about the significantly below 30% tax rate, I mean the $700 million maybe looks more challenging than the $3.1 billion EBIT let me say. And so was wondering could you maybe tell us what’s type of non-recurring items you have reading the financial expenses for the nine months 2016 or maybe there something in the minority lines that we’re thinking about, but if you can help us navigate a little bit between the EBIT and net income because the $3.1 billion personally might look a little bit doable, but $700 million a bit more challenging? Thank you.

Things are better. I mean for us the $700 million do not look more challenging, it’s pretty much absolutely there's no additional structure or something on the adjusted net income side. The financial result is fully reflected in the adjusted net income and we have suffered some losses from the sale of financial assets and securities in the financial result. So the financial result in the first quarter is lower than three quarter of our existing financial result that might explain the difference.

Okay. Thank you.

Thank you. The next question is from Andrew Moulder, CreditSights.

Yes. Sorry third question, my promise this is the last one. I'm going to ask. On the hybrid bonds I know you’ve answered a lot of questions about them. I just want to be clear, do you know or have you had approval from the rating agencies that the equity that was issued at innogy could be seen as a replacement for the equity content of the 2017 hybrid if you decide to call and not replace it with another hybrid bond?

Andrew, we are in discussions with the rating agency regarding this topic.

But you haven't had a positive or negative answer either why.

We are in discussions, yes.

Okay. Thank you.

Thank you. There are no further questions. I hand back to the speakers.

Thank you very much. Thank you for your many questions today. And as always the IR team is still at your disposal. Good afternoon and yes I hope to see you soon somewhere in London on here in Essen. Bye.

Thank you.

Ladies and gentleman, thank you for your attendance. This call is being concluded. You may now disconnect.