UK Market Outlook and RWE npower Strategy

UBS Reverse Roadshow – 25 September 2014 Paul Massara, CEO RWE npower

Regulatory Intervention

Retail Market Review

Tariff Simplification

Bill simplification

SMART roll-out

Green Deal & ECO

Warm Home Discount

Electricity Market Reform

CMA referral

All suppliers face a challenging environment due to changing socio-

economic and regulatory pressures

Socio-economic

Media pressure

“Political Football”

Rising prices

Slower economy

Aging population

Focus on Fuel Poor

Geopolitical impacts on

wholesale prices

2

Market Challenges

SAP implementation – Late Invoicing

Bad debt

Cost to serve

Customer complaints levels

RWE npower Operational Challenges

The impact of these challenges are also felt by our customers

3

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*

4

-47

22

115

232 246

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

2009 2010 2011 2012 2013

Domestic market returns are narrowing and broker reports expect 3-5% market

average

EBITDA, RWE npower Domestic only, in £m*

185187

-16

-68-153

5.2 4.8

-4.5-2.1

-0.5

EBITDA margin, in %

2009 2010 2011 2012 2013

5

UK Domestic market returns, EBITDA margin, in %*

-8

-6

-4

-2

0

2

4

6

8

10

2009 2010 2011 2012 2013 2014 2015 2016 2017

3-5% latest view

of range of

market returns**

SSE

Market average

SPW

Centrica

E.ON

EDF

RWEn

* Source: CSS market reports

** Estimated EBITDA margin based on capital markets forecast for UK market returns

Source: RBC capital markets reports, 11th September 2014

Whilst the reduction in returns are being driven by external factors, we are committed to

building customer and shareholder value

Market pressures are decreasing margins: lower consumption, high discounted small suppliers,

increasing use of internet switching sites and political pressures

RWE npower has been tackling its key challenges by increasing

operational efficiency and through differentiation

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

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

Organisational Efficiency

Differentiation and Diversification

6

Sales Portfolio Management

Reorganisation of the retail business in January 2013 aligned to our

core customer segments

7

Executive Committee

Domestic Markets SME Markets I&C Markets Energy Services

External Affairs

Strategy

Finance

HR

Risk Control

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

1 2 3 4 Business

Units

Support

Functions

Our Customer Transformation Programme has further reduced our

OPEX spend, whilst driving the business towards customer centricity

8

Transforming the customer service area has allowed us to beat the

Ofgem targets on late invoicing and complaints

Headlines:

-Backlog volume: The Late Invoice backlog as of

Friday 29th August shows the backlog at 96,792

-Transition Partner performance: Partner

performance continues to be very strong

Focus areas going forwards:

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

Taskforce activities to ensure the LI backlog

remains at 100k or less

-Complete the processing of a number of one-off

treatment buckets e.g. aged finals (complete

billing and processing credits / write-offs)

9

RWE npower has a guiding ambition – to be the Most Digitised Energy Company

2014 2015 2016 2017

The Most

Digitised Energy

Company

Consumer

Integrated Self-Service

Enhanced sales engine

B2B

Self-service capability

Consumer

Customer engagement

supporting NBA

B2B

Enhanced sales capability

Consumer

Support of SMART trials

Energy Services and core

energy integration

B2B

Fully integrated service

Consumer

> 2.6m online accounts

> 8.8m self-service transactions

> >50% visits through mobile and

tablets

B2B

• Aggressive online signup

Target benefit areas Specific Strategic Objectives

Consumer

> >40% customers with online account

> 42% Self-service

> 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

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

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

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Energy Solutions is a large, profitable, high growth opportunity –

markets all grow but at different rates and profitabilities

B2B Solutions markets worth a total of

£10bn in 2013

B2C is in a test and learn phase with

products like Nest…

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Potential to move into

Energy Solutions

Total commitment to

improve customer

experience

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

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