UK Market Outlook and

RWE npower Strategy

UBS Reverse Roadshow 25 September 2014

Paul Massara, CEO RWE npower

All suppliers face a challenging environment due to changing socioeconomic and regulatory pressures
Market Challenges
Socio-economic

Regulatory Intervention

Media pressure
Political Football
Rising prices
Slower economy
Aging population
Focus on Fuel Poor
Geopolitical impacts on
wholesale prices

RWE npower Operational Challenges

SAP implementation Late Invoicing

Bad debt
Cost to serve
Customer complaints levels

Retail Market Review

Tariff Simplification
Bill simplification
SMART roll-out
Green Deal & ECO
Warm Home Discount
Electricity Market Reform
CMA referral

The impact of these challenges are also felt by our customers

As prices rise, customers will increasingly seek energy solutions to reduce their bills we
need to ensure it is RWE npower they trust to deliver these

RWE npower had strong earnings growth in the period 2009-13, driven by
improvements in both Domestic and B2B segments
Operating result, Total npower Retail, in m*

232

246

115

22

-47

2009

2010

2011

2012

*Source: 2012 2013 based on RWE AG annual report, converted to GBP. For 2009 2011 on a memorandum only basis.

2013

Domestic market returns are narrowing and broker reports expect 3-5% market
average
EBITDA, RWE npower Domestic only, in m*
EBITDA margin, in %

10

187
5.2

185
4.8

-0.5
-4.5

UK Domestic market returns, EBITDA margin, in %*

3-5% latest view

of range of
market returns**

8
6
4

-2.1

-16

-68
-153

2009

2010

2011

2012

2013

0
2009
-2

2010

2011

2012

2013

2014

-4
-6
-8

RWEn

Centrica

EDF

SPW

E.ON

SSE

Market average

Market pressures are decreasing margins: lower consumption, high discounted small suppliers,
increasing use of internet switching sites and political pressures
Whilst the reduction in returns are being driven by external factors, we are committed to
building customer and shareholder value
* Source: CSS market reports
5
** Estimated EBITDA margin based on capital markets forecast for UK market returns
Source: RBC capital markets reports, 11th September 2014

20

RWE npower has been tackling its key challenges by increasing

operational efficiency and through differentiation
Organisational Efficiency
Re-organisation

After the split with Generation in 2013, npower retail has been fully aligned to our
core customer segments

Reduce Costs

An aggressive strategy to tackle operating cost has helped drive npower towards
the market average by 2015

Outsourcing

A recent outsourcing exercise has helped npower become more flexible, improve
service and bring down costs

Differentiation and Diversification

NWOW (CTP)

Our Customer Transformation Programme (CTP) has further reduced OPEX

spend, whilst driving the business towards greater customer centricity.

Digital

RWE npower has a guiding ambition to be the most digitised energy company
across customer segments

Energy Solutions

Energy Solutions is a large, profitable, high growth opportunity for npower

Reorganisation of the retail business in January 2013 aligned to our

core customer segments

Executive Committee
1

2
Domestic Markets

3
SME Markets

Business
Units

4
I&C Markets

Energy Services

Sales Portfolio Management

External Affairs
Strategy
Support
Functions

Finance
HR
Risk Control

allowing us to better focus on our customer needs and build trust

7

Our Customer Transformation Programme has further reduced our

OPEX spend, whilst driving the business towards customer centricity

Transforming the customer service area has allowed us to beat the

Ofgem targets on late invoicing and complaints
Headlines:

Focus areas going forwards:

-Backlog volume: The Late Invoice backlog as of

Friday 29th August shows the backlog at 96,792

-Continue to push all of the day-to-day Billing

Taskforce activities to ensure the LI backlog
remains at 100k or less

-Transition Partner performance: Partner

performance continues to be very strong

-Complete the processing of a number of one-off

treatment buckets e.g. aged finals (complete
billing and processing credits / write-offs)

RWE npower has a guiding ambition to be the Most Digitised

Energy Company
Consumer
Support of SMART trials
Energy Services and core
energy integration
Consumer
Customer engagement
supporting NBA
Consumer
Integrated Self-Service
Enhanced sales engine

2014

B2B
Fully integrated service

B2B
Enhanced sales capability

>
>

B2B
Self-service capability

Consumer
> >40% customers with online account
> 42% Self-service

The Most
Digitised Energy
Company

Consumer
> 2.6m online accounts
> 8.8m self-service transactions
> >50% visits through mobile and
tablets
B2B
Aggressive online signup

Consumer
> 12m self-service transactions
> >70% customers with online
account
> Mobile the primary Digital Channel
> Significant SMART integration and
capability
B2B
Move to greater Digital engagement
from standard Self Service

2015

Target benefit areas

2016

>
>

Digital becomes primary channel

more online interactions than offline
Far greater data enablement and
enhancement
Greater utilisation of npower.com
internally, e.g. Agents
An Organisation led by Digital
thinking, capability and engagement

2017

Specific Strategic Objectives

1. CTP enablement: delivery of CTP initiatives (excluding pipeline) that are

dependent on digital.
2. Self-service: Development of further self-service capability and a drive to
migrate customers to digital channels
3. Fulfilment: digital fulfilment of comms to all online customers
4. Avoidance of losses: avoidance of losses through increased online sales
conversation..
5. Customer number growth in SME: improved sales capability will increase
online generated sales and go live conversion

1. Adopt a Digital First model and culture across npower

2. Deliver step change cost improvement through digital
enablement
3. Revolutionise customer experience through relevant and
personalised digital solutions
4. Unlock value through data driven customer engagement
and enhanced digital services

10

Energy Solutions is a large, profitable, high growth opportunity

markets all grow but at different rates and profitabilities
B2C is in a test and learn phase with
products like Nest

B2B Solutions markets worth a total of

10bn in 2013

11

Outlook beyond 2014: under all scenarios, getting costs down and
rapidly improving customer service are no regrets moves

Political uncertainty will

remain until after the May
2015 election and the CMA
investigation conclusion
September 2015

Total commitment to
improve customer
experience

12

Potential to move into

Energy Solutions