Gunhild Grieve - Head of Investor Relations Rolf Martin Schmitz - Chairman of the Board, Chief Executive Officer Markus Krebber - Member of the Executive Board, Chief Executive Officer of RWE Supply & Trading

Alberto Gandolfi - Goldman Sachs Vincent Gilles - Credit Suisse Nick Ashworth - Morgan Stanley Sam Arie - UBS Deepa Venkateswaran - Bernstein Peter Bisztyga - Bank of America Merrill Lynch John Musk - RBC Lueder Schumacher - Societe Generale Martin Brough - Deutsche Bank Chris Lee - JPMorgan [ABRUPT START]

Thank you very much. Good afternoon to everyone on the phone and to those who are joining us on the webcast. I am joined here by Rolf Martin Schmitz and Markus Krebber for today's presentation. In light of last night's announcement, we will focus our presentation on the transaction with E.ON. With regards to our fiscal 2017 numbers and to 2018 outlook, you can find all the information in our usual slide deck on our website. So without further ado, let me hand over to Rolf.

Thank you Gunhild and good afternoon ladies and gentlemen. Today, we cannot only look back at a very successful first year for the new RWE, but also look ahead to an exciting future. Before I go into the details on the sea change deal, we have agreed with E.ON that we very quickly highlight what we accomplished last year. RWE's core business performed strongly last year. Supply and Trading start its profitability. Commercial asset optimization achieved above average earnings per dilution. And our efficiency program is well on track. Adjusted EBITDA therefore came in above our expectations and adjusted net income is at the upper end of the bell curve. I am also pleased that we have restated a dividend for fiscal 2017. Both the Executive and Supervisory Boards were proposed in which operational dividend of €0.50 as well as a special dividend of €1 per share as part of the refund of the nuclear fuel tax to the AGM next month. In mid-2017, we saw the discussions on the responsibility for nuclear waste disposal come to a successful conclusion. We were able to transfer the full amount of €6.8 billion to the government at the first possible date without any negative implication for our balance sheet, rating or liquidity situation. The conclusion of the public contract with the German government also provides us with a high level of legal certainty. Finally, the new setup of RWE is to gaining of financial flexibility was also acknowledged but the rating agencies as a confirmation of our investment grade rating. The strengthening of our financial position as well as a new setup of the company has paved the way for us to embark on the next transformational step for RWE. At our Capital Market Day last year, we committed ourselves to the value maximizing management of our innogy stake. We believe yesterday's announcement goes a step further. With this exchange transaction, we are transforming RWE into a leading European generation company providing both clean, renewable power as well as a security of supply. The combination of innogy and E.ON's renewables businesses will also create one of the largest platforms in Europe in this field. In offshore wind, we will become the second-largest operator. The scale of the combined operations will provide scope for efficiencies and a platform for attractive growth opportunities. Our leading trading platform will provide the commercial link between renewables and our flexible conventional generation portfolio. With renewables becoming increasingly competitive and moving towards deregulation, we see attractive opportunities to optimize the combined portfolio. The transaction will significantly enhance our earnings and cash flow profile. In addition to the strong earnings accretion, we will diversify our earnings mix. The dividend which we currently receive from innogy will be replaced by strong cash flows from the new operating assets which will also grow in the future, a good foundation for an attractive dividend development. The strong earnings and cash flows will also strengthen our financial position and support continued investments in both renewables and flexible backup capacity. Page six shows the shape of RWE after the conclusion of the transaction. At that point, we will be a fully operational company again. The combined renewables business will provide us with a strong new operating segment which we will also have access to an attractive portfolio of financial assets. The assumption of innogy's gas storage supports Supply & Trading ambitions to grow its gas and energy business. With gas gaining in importance, the storage facilities will become more attractive again in future. Lastly, by taking over E.ON's minority stake in our nuclear plants, Gundremmingen and Emsland, we consolidate the legal ownership. We already have operational control of these plants and also own enough production volumes to run them at full capacity under their planned shutdown in 2021 and 2022. Our financial portfolio will provide additional financial flexibility. It will be complemented the stakes in E.ON and Kelag which offers stable and attractive dividend for you. Let's now have a look at the combined generation portfolio. Together, with the two renewables portfolio of innogy and E.ON, we will have a highly diversified and well financed generation mix. Over 60% of the capacity will be CO2-free or low emission. This includes our highly efficient gas fleet. The renewable capacity will clearly de-risk our generation portfolio with regards to carbon. However, I would like to briefly commend on our efforts to reduce CO2 in our conventional generation fleet. Since 2012, we have continuously reduced carbon emissions. Last year alone, we brought down our emissions by more than 10% compared to the previous year. And this at a time when CO2 emissions are stagnating in Germany. We will continue to strive to bring down emissions. But CO conventional generation fleet which is reliable and flexible plant is an important part of the future energy system. The new combination allows us to provide both clean as well as reliable energy, something which will become increasingly important if energy transition is to be successful. Over time, renewables will have to be operated in the wholesale market, either because their subsidy schemes expire or they need to prevail in highly competitive auctions. Our commercial asset optimization is ideally positioned to integrate and increasing merge and renew its portfolio with our flexible generation portfolio to extract value by optimizing this combined portfolio. On page eight, you can see that this transaction is also transformational for the renewables business. Combining the two platforms of innogy and E.ON will create the third largest renewables player in Europe. In offshore wind, we will become the second largest player. The focus of the two renewables business is currently on onshore and offshore wind. However, both players have ambitions to grow in solar as well as battery storage solutions and have recently taken steps to develop their capabilities in this area. Regionally, the combined portfolio is well balanced. In addition, E.ON platform provides a strong operating onshore wind platform in the U.S., a market where innogy intends to grow and has recently agreed to acquire a development pipeline. We are convinced that a large portfolio provides the scale to prevail in this increasingly competitive market and scope for optimization. At the same time, there is financial headroom to develop this business further as we see attractive growth opportunities in onshore and offshore wind as well as solar. Now that I have covered these main points of the strategic rationale of the transaction, I will turn it over to Marcus who will provide you with the transaction parameters and financial impact of the deal.

Yes. Thank you Rolf and good morning or good afternoon, ladies and gentlemen. Let's now have a more detailed look at the different components and financial impact of this transformational but also rather complex transaction. Slide 10 shows the key transaction parameters. Fundamentally, the transaction is an exchange of assets. E.ON will acquire our 76.8% stake in innogy for an equity value of €17.1 billion which equals €40 per share. The minority shareholders of innogy will get €40 cash offer from E.ON. This implies an equity evaluation of innogy of €22 billion and an enterprise value of €43 billion. This is equivalent to an implied EV/EBITDA multiple of 10.5, based on expected 2018 earnings. In exchange for the value of €17.1 billion, we will get the renewables businesses of E.ON and innogy. This excludes minor renewable assets held by the different regional companies as well as a 20% stake in Rampion. Furthermore, we receive innogy's German and Czech gas storage business as well as its 37.5% stake in Kelag. In addition, we will take over E.ON's minority stakes in our nuclear power plants Gundremmingen and Emsland. We will also receive shares in E.ON amounting to 16.7% stake post-transaction. These shares are entitled to dividend payments from fiscal 2019 onwards. For all the efforts we receive, especially the renewables businesses, we are entitled to the economic success from January 2018 onwards. For technical reasons, we will also receive the innogy dividend for fiscal 2017 and 2018. Therefore the transaction includes a balancing cash payment of €1.5 billion from us to E.ON. Rolf already mentioned the strengthening of our financial profile. With regards to our earnings, we see a step change as our EBITDA will double as a result of the transaction. Income from dividends will be of minor importance in the future with over 90% of earnings coming from operational businesses. Renewables will account for approximately 60% of pro forma EBITDA. In addition, we will have a higher degree of visibility for our medium term earning development as approximately 50% of our expected operating EBITDA will come from contracted businesses, such as capacity payments for conventional power generation, ROCs, CfDs, PPA's or fixed feed-in tariffs for the renewables business. The transaction will also improve our financial position. As a result of the transaction, we will only assume approximately €2.8 billion of debt to our standalone balance sheet. The additional debt only comprises provisions and some tax credit liabilities. As you can see on slide 12, the majority relates to long-term provisions attached to the operating assets we take over. There is no capital market debt transfer to us. The limited cash requirements we might have from this transaction can financed through our own liquidity and funds. Since we are becoming a mostly operating company, we can also look at traditional leverage ratios again which do not make much sense for RWE standalone now. Post-transaction, we expect our net debt to EBITDA to be between 2.5 and below three times. We expect this to be in line with our current investment grade rating which we are strongly committed to maintain. We have the financial headroom to support all existing growth ambitions in both renewables business. In addition, the financial portfolio provides additional financial flexibility. Let me take the opportunity to preempt one of your obvious questions about our British pound hybrid which has the first call date in 2019: We have not taken a final decision with regard to our hybrid program. Currently, we want to keep all options open and will decide in due course when we will refine our financing strategy for the combined business in all details. Ladies and gentlemen, slide 13 gives you the major milestones as well as the main steps until closing. The first milestone was reached yesterday with the signing of the agreement between E.ON and RWE. This will be followed by the launch of the public tender offer of EON for the minority shareholders of innogy. At this time, we will also start the merger control and regulatory review processes. Once all regulatory approvals have been received in relation to the combination of E.ON and innogy, we can conclude the first part of the deal. We will transfer our 76.8% stake in innogy to E.ON for which we will get 440 million shares in E.ON as well as minorities in our nuclear power plants. At the same time, E.ON will receive the payment of €1.5 billion. In the second step, E.ON will implement steps further to gain full control of innogy under corporate law. Once this is finalized, the final transaction steps will take place. We will receive the innogy and E.ON renewables businesses, the gas storage activities as well as the stake in Kelag. We currently expect the whole transaction to be closed by year-end 2019. As you can see, the transaction is complex and will take almost two years to complete. During this time, we will continue to steer the company with our economic view on RWE standalone and we will provide full disclosure and transparency on its main KPIs. This will be important as the transaction will have significant implications for our IFRS group results. We will therefore also stick to our current dividend strategy that the distributable cash flow will be fully available for the dividend. In this respect, we are not looking at an individual year but planning horizon. Furthermore, we smooth the short-term volatility of our trading business. At our Capital Market Day last year, we already envisaged some potential upside. With a stronger balance sheet and the positive development in our operations, we target a dividend of €0.70 per share for 2018 and to further increase in 2019. We believe this provides a clear and attractive prospect for our shareholders until the closing of the transaction. Before we come to your questions, let me reiterate the strong strategic rationale for this transaction and the compelling outlook for RWE. For RWE, this is a unique combination of existing business model of a provider of security capacity with the growing market of renewables. Our leading commercial asset management and trading capabilities will ensure that we can extract additional value from the combination of the combined platforms. This will become even more important as more and more renewable assets will become merged over time. Under the new structure, we will be ideally positioned to actively shape the energy transition and grow our business long-term. With a strong operational earnings profile, the outlook for attractive dividends is promising as well. I will not go into the details of our 2017 results. Gunhild already mentioned that you can find all the details in the usual format on our website. However, let me just address one question upfront which we receive frequently at the moment and which relates to our carbon exposure. Our implicit fuel hedging approach allows a more flexible hedging than the old linear hedge path. We have made use of that and have already to-date hedged our implicit financial carbon short position until the end of 2022. That's for the next five years. And now to your questions. I am guessing that you have a lot. Gunhild?

Thank you Marcus. Yes. You probably have you plenty of questions. I would still ask you stick to the two question rule. We will of course take all the questions and if we need several rounds we will do so. So operator, we could have the first questions, please?

[Operator Instructions]. We will take the first question from Alberto Gandolfi, Goldman Sachs. Your line is now open.

Thank you and good afternoon everyone. I will go with a couple of questions. Thanks for taking the time to go through the transaction and answering the questions. So the first one is, I noticed the recurrent use of the word strong when it comes to talking about accretion and growth. So could elaborate a little bit more please on the accretion and growth? You are certainly talking about getting about €2 billion of extra EBITDA, let's say, on a two-year basis and there is an extra €3 billion of liabilities with quite low cost of debt. So I was wondering if you can talk about mid-teens type of accretion or whatever indication you can? Double digit? Low single digit? I am trying to basically see if we can narrow it down a little bit. And if you cannot, could you perhaps talk about how the deal would upgrade your mid-term growth prospects considering that renewables seem to be the fastest growing activity in the utility portfolio? Second question is about dividends. Clearly, this is transforming the cash flow that the company can generate. So I was wondering, have you thought about what are you going to be? Are you going to be a growth company which will dedicate its capital headroom basically to invest and grow? Will you be also taking care of dividends? Will you set dividend on cash flow? On earnings? Thank you so much for that.

Okay. Alberto, I think there were three questions and not two, but we are going to answer them all.

Thank you.

The first one on the accretion. I mean it is difficult for us to give you a full-fledged pro forma statement because that would implicitly give the guidance for our generation business which is difficult to do a full-year time horizon because this transaction for the first full year which is reflected in the results will be 2020. But from our guidance, you see that the midpoint of our EBITDA guidance is around €1.55 billion and we said we expect EBITDA to double. So you can see what we implicitly assumed for the renewables business which is more or less in line with what the analysts on average also assume for the two renewables businesses. I think the market expect, if you combine E.ON's and innogy's renewables business EBITDA to grow significantly over the next four or five years, at least 40% to 50%. I think that is an assumption which is not unreasonable. But it still leaves the question, what happens to conventional generation over that period of time? And there I would ask you to form your own opinion. On liabilities, yes, you are right. I mean, on a consolidated basis, we take onboard additional €2.8 billion in debt. And I will give you all the details, which are not in detailed level in the presentation. It is an additional €800 million we have to consolidate for nuclear decommissioning. It's around €150 million asset retirement obligation which comes as gas storage business. It's around €600 million tax equity credit for the renewables business of E.ON on in the U.S. And it's around €1.25 billion for asset retirement obligations and pension for the entire renewables businesses, so for both. So it's €2.8 billion. And now maybe you will ask, how we can reconcile that to what E.ON probably has presented a couple of hours earlier. We have an additional €700 million non-consolidated debt in the minority offshore impact of innogy. But that is all we take onboard as debt. So we don't take any market debt. On dividend, I mean, let's give us some time to think it through. It is too early to talk about dividend policy from 2020 onwards now. Most likely, it will be more based on the traditional adjusted net income metrics but what the payout ratio will be depends on the investment prospects we have from 2020 onwards. And then we know what the two renewables businesses will invest over the next three years, but we cannot tell you as such now what they are going to invest from 2020 for the next five years. And that, of course, how attractive these investments are will determine how much we pay to shareholders and how much we invest into growth. But we care about dividends, that's clear.

Is that okay, Alberto?

Thank you. That's all. Thank you.

Thank you. Next question, please.

We have another question from Vincent Gilles, Credit Suisse. Your line is now open.

Yes. Good afternoon everyone, again. Two questions, please. The first one is, it must be the first time I go on such a call and the word synergy is not pronounced by the management. But I am sure there must be some synergies between the renewables generation business, let's call it this way and the traditional generation business. Maybe you can help us go through what you believe you can save extra revenues, cost saving, whatever you believe would be synergies there, would be helpful. And the second one related to this is, can you help us understand how you are going to run the generation business in the future, given that now you rally offer every single source of generation as a technology from traditional, nuclear up to renewables? So how does it change the business? I think we all get a vague understanding of that. But maybe you can help us really pinpoint exactly how you are going to change the company from that point of view? Thank you.

What we feel is that there are not a lot of synergies between, because the synergies between renewables business and conventional generation business are very low. There maybe some €50 million in the synergies between the two renewables businesses, between and E.ON what's coming from innogy and that's why we expect that not much. Therefore, we have not discussed this in detail. We will further on go with the de-de-central holding and now we have the power, we have the lignite and nuclear, we have gas, hard coal and biomass. We a new part then with renewables, onshore and offshore and solar and Supply & Trading. These are just new part of our business like the other ones but we will do it in de-central way.

That's answering your question, Vincent?

If you could elaborate a bit further, it would be interesting. But I guess we have no time for that. So, yes.

Okay. Thank you. Next question please.

The next question is from Nick Ashworth, Morgan Stanley. Please go ahead, sir.

Hi. Good morning everybody. A couple of questions. Firstly, in terms of the debt bearing capacity for future RWE, you alluded to the fact that the leverage level would be between 2.5 and three times when this is done. Have you spoken to credit rating agencies about this? Is that a level that they are comfortable with? Do you think it could in time be a little bit higher than that? And then secondly, how do you feel now about further consolidation in thermal generation? I saw a headline there connecting you to assets elsewhere in thermal generation. Is that still something that you are looking at? Or will all of the balance sheet headroom, will that be put to use with renewables? Thank you.

Yes. Nick, on the leverage ratio, we said after completion of the transaction, we will be somewhere between 2.5 and definitely below 3.0. And EBITDA of renewables, given all projects will come online, will grow significantly. So we will come down pretty fast. We have, of course, talked to the rating agencies. We are in constant dialogues. But it will take some time to discuss it entirely through and to convert that. Also the discussion into target metrics, that's too early now. But we feel very comfortable with the 2.5 to three and whether that would be the upper or the lower end, we are going to see over time. On consolidation, as we said before, we will explore all opportunities and that has not stopped with the announcement of this transaction also on the conventional side and maybe if there is on one side, it is balance sheet headroom, but please keep in mind we still have a very liquid, maybe even more liquid than before, financial portfolio, now the E.ON stake, which we could use to invest further into our operating business. So we see currently no limitations in terms of how much we could invest. The limitation is more on the investment side.

Okay. Understood. Thank you.

Thank you Nick. Next question, please.

The next question is from Sam Arie, UBS. Please go ahead.

Hi. Good afternoon. Thanks for the presentation. My questions, firstly on the carbon exposure. So obviously there have been a lot of questions about the exposure of the legacy business to rising carbon price. With the new renewables portfolio and as much as their assets in there that have wholesale market price exposure, e.g., on the ROCs or come off of feed-in tariffs, you seem now to have an offsetting positive carbon price exposure. I just wondered if you have done any math that can help us quantify what the carbon price exposure will be of the new combine business? That will be very helpful. And then my second question, which is a bit of a technical on the deal dynamic, but I think we understand from the E.ON call just now that the balance of asset exchanges and so on is designed to you receiving an equivalent in kind of the €40 being offered to the innogy minority. Can I just ask, if the innogy minorities were people through a combination that could end up with slightly higher by that price, does that affect in any way what you receive from E.ON? Or if you will share the rest of the transaction stake? Thank you.

The last one is pretty easy. It's between E.ON and us. It's a done deal at the parameters we have just described. It's based on the €40. So there will be no increase if something happens on the minority side. On carbon, as I have elaborated, we are financially hedged until the end of 2022. So that gives us a very comfortable position with potential moving carbon prices until then. So now if you kind of numbers on how the carbon exposure looks like beyond 2022, it's very difficult. I mean it depends on what remains on the commercial side but also how the renewable portfolio evolves over time. We will do that we have full transparency on maybe German energy policy and the development of the renewable portfolio by the end of 2019, but now it's too early to translate that into quantitative figures. If the E.ON share price goes up, then we have directly more in our pocket because then we have a bigger value in E.ON, because this is 16.7% is not a fixed price.

Very helpful. Thank you.

Thank you Sam. Next question, please.

The next question is from Deepa Venkateswaran, Bernstein. Please go ahead.

Thank you. Two questions from my side as well. So one is, this is a little bit of a reversal of your previous strategy of IPO-ing the various businesses, including renewables and taking it back. So I was wondering, what's the driver of this change? Is it really the innogy's profit warning? Was that the main driver? Or was there something else? And secondly, in terms of the renewables businesses, now these will be run by E ON's and innogy. So you need to obviously make sure that these projects are done on time, well within budget, done within the deadline for the U.S. PTC. But there are also things like offshore wind auctions coming up, FIDs need to be taken. So how do you ensure A, that the existing projects are executed? And then B, projects that will need FID in 2018 or 2019, are done so that when you acquire theses businesses in 2020, you can start executing on them? So if you can just help explain how that will work in practice? Thank you.

Yes. See, first there is no combination or no linkage to the profit warning. It's coming from the difference now what renewables business is. You know, two years ago, that was a regulated business. Renewables business was regulated. And now it's much more competitive. It's an auction, it's organized and so on. And therefore it does not fit to E.ON and not really fit to innogy. That's the first point. The second point is, innogy and E.ON has seen that they do not have the capital power, the financial power for all these three businesses, renewables, retail and grid. Therefore it was to decide which will they go further on and which we do further on. And we decided that we can combine good retail and good business with E.ON and that the other part, the renewables business and so far electricity producing business with us. I would say, it makes very easy, if I would be the management board of one of these newest companies, I would do all my best because later on, we have to decide with whom we will go further on and that's the incentive we can give.

And what about the FID process for new projects? May be you have take commercial decisions on bid pricing, et cetera on some of the auctions, how would you influence that or not?

Deepa, we have agreed that, the beauty of the concept is that commercially the renewables business, assuming the transaction goes through, which we currently assume, commercially it's already with us from January 1. So there is no incentive for innogy or E.ON to do any investments also because we have to pay for the investment but we also get the economic benefits of the businesses. So there is no misalignment of incentives. And we have also agreed that to the extent legally possible, we will have joint investment and financing committees, but only to the extent where it's allowed that we get involved, until closing one. So we think we have done everything which is possible to ensure that business runs as it should.

Okay. So just to clarify. So if innogy is participating in an auction in the U.K. for 2019 for Dogger Bank, then you would a way to influence what is the bid price that is submitted?

No. We cannot interfere in the operating business until closing one, all three companies are independent and partly competitive.

Okay. So you have to trust the innogy management team to be able to bid at a return that is acceptable to you then?

Exactly and same as E.ON management team.

Okay. All right. Thank you.

Thank you Deepa. Next question, please.

The next question is from Peter Bisztyga, Bank of America Merrill Lynch. Please go ahead.

Yes. Good afternoon. Just a question on your geographic exposure. Clearly, once you have acquired the renewables businesses, you are going to have a much broader geographic footprint. Would you consider investing in conventional generation in those new regions? So that's my first question. And then the second one, it's a quick one on E.ON. Is there a specific lockout period for your 16.7% stake?

We will not invest in conventional generation in other areas as we are in Benelux, U.K. and Germany. We will not go to the other markets where the others are there. The second, one?

And on the second question, Peter, we have some agreements with E.ON. The first one is, we will not increase the stake. So we will not buy additional E.ON shares. The second one is that we will not sell to competitors. And then we have the market usual selldown restrictions that we ensure that we do not when we start selling down negatively influence the share price of E.ON.

Okay. Thank you.

Thank you Peter. Next question, please.

The next question is from John Musk, RBC. Please go ahead.

Yes. Hi guys. Just one actually for me. I think at the beginning, you talked around the gas storage business in quite a positive light and the expected recovery you thought might come through there. Just wanting to get some clarity on what you think the drivers of that will be? Your new friends at E.ON were talking up their electricity business rather than their gas business earlier today.

John, the gas storage business is a business which is now maybe definitely at the bottom in Europe and if we really transform and that the political will, the entire generation business, power generation business, when it comes to security of supply, especially in Germany, to get because we phase out nuclear and we phased out over time, many long period of time, coal, then it all will depends on gas. And as you have already seen this winter, especially in the U.K., but also on the continent that flexibility in gas has increased significantly in value given the shortage we have seen. And we think it's definitely a good idea to go long gas flexibility, that is nothing else you take when you buy gas storages. The price level is, as we know that business from RWE times and innogy times very well, currently the valuation is very, very attractive.

That okay, John?

Yes. That's great. Thank you.

And I think one of your colleagues has published, I think three or four days an interesting piece, discussing the potential turnaround of gas storages. Very timed.

Next question, please.

The next question is from Lueder Schumacher, Societe Generale. Please go ahead.

Hi. Good afternoon. Two questions from me. The first one is on the rationale for including the minority stakes in the nukes in the deal, given that it effectively leads to you taking on €800 million of nuclear provisions. That's the first one. The second one is on your CO2 hedges. You mentioned that you are now fully hedged until the end of 2022. I seem to recall that it's not too long ago that you stopped hedging for phase four. Have you stepped up to your hedging given that CO2 just seems to be going up and up?

So the first question, which is the minority stake, it makes it a little bit easier. We see some potential in the decommissioning of the plant that maybe we will not use all the provisions for that. And it was one of the parts which makes the deal easier for both sides. That's one of the reasons. And we have the electricity contingence to fulfill all the obligations until the end of 2021 and the end of 2022. Therefore we have discussed this last year before this year in anyway. And it was one additional part of the whole agreement.

Yes. Lueder, on carbon, to be clear what I meant, we are financially fully hedged. We have not covered our entire carbon short position. But to the extent we needed that we have achieved the market pass-through factor. The market pass-through factor of carbon is currently around 0.6, 0.7. Our intensity is much higher and we have hedged to the extent that we are financially carbon flat. So if carbon moves up, power prices will move up accordingly. For the rest, we are hedged. And you are right. I mean we have a much dynamic hedge approach and you will see that we use a different fuel and carbon rates we have to hedge, maybe much more flexible than we have done in the past with linear. And one of the reason you are speculating is, if you have seen that carbon market might become tighter, most probably one of the reason why we have stepped up carbon hedging, yes.

Very intriguing. So just one follow-up question. What is the average carbon intensity of your entire generation portfolio, post the transaction, just to put this in relation to the 0.6, 0.7 you mentioned for the German market?

I cannot give you a credible number for the post transaction one because that depends on how exactly you derive the carbon exposure of the renewables portfolio and correlations between the different markets and the development and so on. So it's not a reliable number. I am not willing to give it now. Let's give it another year. For the existing portfolio we run, the carbon intensity is around 1.1. That's 1.1, one to 1.1 per kilowatt-hour.

Okay. Although you couldn't give us a specific number --

No. That was too high. That was for coal alone. I think it's lower. It's below one, but above the 0.6, 0.7.

We will come back to you later with the exact number.

Okay. Thank you.

Thank you. Next question, please.

The next question is from Martin Brough, Deutsche Bank. Please go ahead.

Thank you, yes. I had a couple of questions. One was, just understanding to the extent that you have visibility already on the tax impacts of the deal? Obviously you have a lot of tax losses which you haven't recognized on the balance sheet at this point. Will that be used to offset any potential taxes of the transaction? Or would you expect a tax impact there? And also when you are bringing profitable activities in like renewables, will carryforward tax losses be a benefit to you? And then the second question was around the JV retail business. As I understand it, if the raw competition issues around the combination of the equity stake in JV retail with E.ON's U.K. retail business, are there some agreements already in place between E.ON and yourselves around the treatment of that? Could you expand on that? If you have sort given an agreement to buy at certain price subject to there being any issues there? Thank you.

On the tech side, we will have a very minor tax the impact from the transaction. It will be very low million, three-digit number, around €150 million. And on the tax losses carryforward, we are going to decide when we take over the renewables business what that means in accounting. But we have not factored anything in the current transaction parameters. So that would only be pure asset.

With the JV retail business, we think that the deal between innogy and SSE will go further on and therefore there has been only minority share in the company and we do not see a problem.

Okay. But in the event that there was a problem, do you have an agreement in place of how to deal with them without you end up with you taking an equity stake?

We have the extensive agreement with E.ON how we approach the merger clearance. But for the SSE npower transaction, I think it was also mentioned at the press conference earlier this morning that we expect that transaction to clear before this large transaction between E.ON and RWE will go through. So the problem is more or less solved with the listed entity where you have a minority stake when we approach this transaction.

Okay. Thanks.

Thank you. Next question, please.

The next question is from Chris Lee, JPMorgan. Please go ahead.

Good afternoon. Just two questions, please. One just on dividend policy post deal closing. I apologize if I missed it. But could you give an idea of the impact of the renewables businesses as you absolve them on group free cash flow and how that may play out in the dividend? And then secondly, just in terms of farm down proceeds within innogy or E.ON if there were a farm down to occur between now and the transaction closing, what impact that would have on the economics of the transaction? Thank you.

Yes. Any farm-down proceeds will be ours because as we have the economic interest already from January 18 onwards, all investments, all farm-down proceeds but also the profit the business makes is with us. So that is why the business can independently optimize it and we will get the proceeds. So there's no misalignment in incentives. On dividend policy and cash flow, that's too early to tell what the renewables business will contribute to bottomline cash flow will depend on how much CapEx we are going to see from 2020 onwards. And that is pure speculation of how attractive the investments are in the 2020. So we will come back to you when you have more clarity, maybe end of 2019.

Thank you very much.

Thank you. Are there any further questions?

There are currently no further questions via the telephone lines.

Okay. Then thank you very much everybody. We are going to be on the road over the next few weeks and hope to see you all. Otherwise, you know where to find us and just give us a call and we can catch up on any follow-up questions you might have. Thank you.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.