Energy needs new impetus

EnBW 2020

Energy needs new impetus

2

Generation / Trading

Major changes in conditions in the energy industry necessitate strategic review

Grids Customers

› Technological developments: more diversity, modularity and granularity in the energy system

› New market participants: more competition and fragmentation of the value chain

› Regulatory framework conditions: undergoing constant change

In summary: conventional business models of large power supply companies no longer work

› Volatile electricity generation

detrimental to grid stability

› Investments of around € 50

billion in expanding the grid

through to 2030

› Conventional power stations

increasingly in back-up role

› Accelerating expansion of smart

grids

› Sustained trend towards

renewable energies

› Operating time of conventional

power stations in significant

decline, accompanied by partly

unsatisfactory margins

› Increasing volatility of prices

and volumes

› Downturn in demand for

electricity and gas

› - Renewables for the most part

in the hands of non-PSCs

(power supply companies)

› Increasingly active role of

customers with changing

requirements – customers

becoming producers and

"energy entrepreneurs"

3

Guidance for 20131

› Adjusted EBITDA -5% to -10% y/y

› Adjusted EBITDA of the Electricity and Trading Segment-30% to -40% y/y

Adjusted consolidated net income1

The changed market conditions are already reflected today in the decline in group profit

1 Figures rounded; figures of the financial year 2011 adjusted; figures in € million

2,343

2,859

Adjusted EBITDA1 Adjusted EBITDA1

Electricity Generation and Trading Business Segment

-18 %

2010 2012

652

964

-32 %

2010 2012

1,320

2,071

-36 %

2010 2012

4

The financial outlook is another pressing reason for a strategic review

› ... the consolidated net income will remain clearly in decline in the long term

› ... the profitability of the current conventional power station portfolio and of the nuclear energy will continue to fall

› ... EnBW's current business profile will not accord with the future distribution of earnings across the value chain

› ... consistent negative contributions will reduce the company's value and attractiveness in the capital markets and put constraints on financing scope

Without countermeasures ...

This is the reason why we need to ...

› ... develop new business models with optimised deployment of capital

› ... invest more in future and promising areas of growth and business

› ... initiate strategic and structural measures with improved efficiency without delay

5

We have set ourselves clear goals for our strategic realignment

›… restore EnBW's competitive edgeand open up long term, sustainable growth options

›... position EnBW as a player in the new energy policy concepts

›… differentiate EnBW from its competitors

›… define measurable goals and make a binding promise of performance

›… convince through its innovative implementation concept and management model

›… inspire EnBW employees

The EnBW 2020 Strategy is designed to ...

6

The EnBW 2020 Strategy is the result of a structured process over several months

Initialparameters

Keynote and core issues

Alternative strategies

EnBW Strategy House

Fundamental convictions of the Board of Management

Assumptions about the environmentthrough to 2020

Strengths/weaknessesanalysis

Filter Filter

October 2012 April 2013

Joint development: Strategy Team, Board of Management, external challenges

› Sustainable company

› Initial contacts› Customer

orientation› Restructuring of the

generation portfolio› Innovative ability› ...

7

Our Strategy House –a keynote and answers to three core questions

Keynote

Our target markets: Where shall we play?

Our strengths: How can we win?

Our organisation: What should our structure be?

8

EnBW 2020 Strategy – New energy concept. Safe. Hands on.The core components

› Two strategic "heartbeats", linked by system competence and market orientation , are given scope through a respectively optimized management model and control methodology:

› Customer proximity: › Innovative strength and product development

› Solution and 100% customer orientation

› Engine room of the new energy policy concepts: › Expansion, efficient and safe operation of the system-critical

infrastructure

› "Secure supply" product for commercial and industrial locations

› Partnership models and dialogue to promote strategic differentiation› Portfolio streamlining through stringent divestment and investment

programme

› Thorough modernisation of EnBW's corporate structure and processes

› Engine room of the new energy concept

The two heartbeatsof EnBW:

› Customer proximity

Reattaining financial strength and returning to profitability through a business model adjusted to accommodate changes in

the market

9

EnBW 2020 Strategy – New energy concept. Safe. Hands on.The specifics

Engine room of the new energy concept

Where shall we play?

How can wewin?

What should our structure be?

Customer proximity

New energy concept. Safe. Hands on.

› Wind onshore, offshore and hydropower

› Conventional generation located mainly in BaWü

› Transport and distribution grid infrastructure managed from BaWü into neighbouring regions (also as service provider)

› End customer business – electricity+ gas

› Energy-related services/ energy efficiency

› Trading and Origination

› Operational excellence

› Infrastructure in the energy industry

› Regulatory management

› Active opportunities for third parties to invest and participate

› System competence of energy

› Innovative capability and innovation management

› Strong brand portfolio

› Maximum efficiency

› Stringent cost orientation for defined quality level (target costing)

› Simplicity and standardisation

› Technological development partnerships

› Building up of an innovation campus

› Acquisition of / joint-venture with energy-related companies

› Stringent performance management

› Partnerships and fostering of dialogue

› Simple and functional

› Management with simple structures, flat hierarchies and lean processes

› From the region of BaWüintoD, A, CH and Turkey

10

What is actually meant by customer proximity andengine room of the new energy concept?

Special characteristics include:

› Customer oriented: knowing the needs of customers and anticipating developments at an early stage

› Innovative, so that ideas can be swiftly brought to the market

› Entrepreneurial: small and dynamic teams to test new business models; deliberately decoupled from ”weighty" group processes

Customer proximityfor instance: end customer business, energy-related services, and trading

Engine room of the new energy conceptfor instance: grids, renewables, conventional generation, and operations

› Two management models, each determined by the respective mandate, working hand in hand on the basis of system competence

› Not necessarily to separate companies. Instead, specific business activities and processes can be assigned accordingly in terms of content:

Special characteristics include:

› Efficient and safe construction and operation

› Simple in terms of the organisation and management of business

› Flexible in terms of plants, facilities, processes and costs

11

Customer proximity: Consistent leverage of system competence

Energy logistics consultancy,

decentralised portfolio

management

EnEffCo® energy efficiency

controlling to identify

and assess savings potential

EnBW grid

Energy efficiency

Translate efficient and innovative energy system confidence into decentralized market products

Counteract growing system complexity with grid-related services

Use energy know-how for smart home products and sustainable mobility concepts

Today Tomorrow And thereafter

Innovative grid concepts

Smart grid components

(adjustable local mains

transformer)

Technology and systems

“feed-in management” for

third party grid operators

Town of Gondelsheim:

upgrading of street

lighting

Smart integrated home

network for heating

and light control

Holistic energy

management applications,

private consumption optimizers

for renewable energy operators

Sale of smart

electricity meters with

software and apps

12

Customer proximity:Innovation campus for new business ideas – geared towards placing products swiftly in the market

Features of the innovation campus

› Market proximity: Consistent orientationtowards customer benefits and marketability – not only basic research

› Concentration: R&D, idea generation, product development and sales

› Entrepreneurship: Business modelsin start-up environment

› Methodology: Campus provides tools, resources

› Success driven: Management and control through an Innovation Advisory Board working with clear priorities and milestones

› Impact on culture: Ideas@EnBW

Process Facilitatedonline forums

Internal start-upsManagement and

control models

13

Engine room of the new energy concept –Renewable energies:Significant expansion of wind power

Development of onshorewind farms in Germany

Development ofwind farms in Turkey

Repowering with natural launch in northern Germany

› Partner models with citizens and communities

› Industrial scale

› Potential from repowering of 10,000 MW by 2020

1 2 3

EnBW

170

2011

1,000

29,000 46,000

2020 goal

30

750

1,700 20,000Factor 25Factor 5

2011 2020 goal

Installed capacity [MW] Installed capacity [MW] Distribution of repowering locations

Germany/whole EnBW proportion Turkey/whole

0 – 5 %

5 – 10 %

10 – 20 %

> 20 %

› Develop wind farms in Turkey ourselves

› Borusan EnBW Enerji as an excellent platform

14

Engine room of the new energy concept –Product: Secure supply through high grid qualityand central generation

› Significant expansion of our

transmission grids

› Better integration into the

European grid

› System services for third

parties as well

› EnBW plans, builds and

operates electricity and gas

grids for third parties as

well

› Efficient, safe supply of

power from conventional power stations

› EnBW share in conventional power generation in Baden-Württemberg around 70%

› "Smart“ expansion of

distribution grids for the

purpose of integrating

renewable energies and

securing high standards of

supply

15

Wind power

Hydropower

Conv. power generation /

participations

Distribution grids

Transport networks

Sales,operations,contracting

-1,700

-950

Implementation of the EnBW 2020 Strategy –Streamlining of the portfolio in all business segments

Investments and disinvestments as part of streamlining the portfolio (€ million)1 Explanation

› Focus on renewable energies expansion

› Value-adding withdrawal from conventional power generation and non-strategic investments not in Baden-Württemberg

› Strong growth through expanding the transport and distribution grids; partnership with municipalities by opening up the distribution grids

› Optimization for customers with low capital intensity; active pursuit of anorganic growth options

Engi

ne ro

om o

f the

new

ene

rgy

conc

ept

Cust

omer

pr

oxim

ity

1 Investments and disinvestments which are part of the strategic measures are in addition to the approved PR1315 budget and maintenance capex in existing business(figures, accumulated and rounded, from 2013-2020)

3,500

1,980

400

1,000

240 + X

2013-2020 aggregated

Overall share of regulated business rises from ~40% today to more than 50% in 2020

16

Implementation of the EnBW 2020 Strategysecures financial success and improves the business risk profile

Adjusted EBITDA 2020 at € 2.5 billion; of which ~40 % from strategic realignment

› Entrepreneurial response to drastic margin downturn in traditional business

› Significant portfolio changes in the period from 2012 to 2020

› Substantial improvement in the business risk profile through expanding regulated/quasi-regulated business, resulting in lower capital costs

› Sustained and positive value-added contribution after successful portfolio streamlining

Electricity Generation and Trading Renewable Energies Grids Sales / DSP*

-80 %

1.2

2012 2020

0.3

+300 %

0.2

2012 2020

0.8

+10 %

0.8

2012 2020

0.9

+150 %

0.2

2012 2020

0.5

17

Own platform to secure the implementation of the EnBW 2020 Strategy is already in place

EnBW 2020Programme Programme with long-term

experience encompassing the whole value chain

Profile of each individual project

Programme structure with 4 components

Clear programme governance

18

Structure reflects EnBW 2020 Strategy: Challenges and change requirements

› Intensive process of consultation lasting several months by the Board of Management on the topic of structure and governance

› Orientation concerning structure and management model based on best-practice companies, also from other sectors

› Discussion of the outcome of consultation with the Supervisory Board on 6 June 2013

› Initial situation:

› Current EnBW organisation: large number of business entities with committees at various levels and complex reconciliation processes

› Employee point of view: current structure as a huge deficit in terms of efficiency and room to manoeuvre

› Customer point of view: EnBW as a conglomerate of individual companies acting partly independently from one another

› Need for action: realignment of the organisation in accordance with efficiency standards and management in application of modern governance principles

19

One EnBW – New concept for structure and management model prior to implementation

› Significant reduction in the Group's complexity through combining companies

› New "One EnBW" management model with the following aims: more efficient processes, clear responsibilities, strengthening of the individual employee's responsibility, and team spirit among employees

› Restructuring of the financial organisation to achieve clear performance orientation

› Adjustment of task distribution at Board of Management level

Supervisory Board: Approval in principles on 6 June 2013

Concept for structureandmanagement model

Next steps:

› Current discussion on how to proceed with the employee representatives

› Decision by the Supervisory Board on the outcome within one month

› Immediate start to implementation

20

› Core activities combined under fewer companies

› Concentration of operational and functional responsibility respectively in one place

› Executive and supervisory bodies dismantled and/or streamlined

› Directly measurable efficiency throughreducing the Group's complexity

One EnBW reduces complexity and creates clear responsibilities

Formerly In future

› Core activities currently in nine companies

› Carrying out of operational and key functional tasks in companies, in parallel with management from HOL

› Large number of management and supervisory bodies; accordingly, complex and cumbersome opinion forming process

› High administrative outlay from running executive/supervisory bodies, reconciliation, annual accounts and independent auditors

21

EnBW 2020 Strategy – Summary

› EnBW 2020 Strategy is complete

› Concept of two heartbeats:

› consistent orientation towards areas of growth and customers

› clear support of the new energy concept

› Partnership models and dialogues strengthen EnBW's differentiation from the competition

› Consistent portfolio streamlining in order to achieve a considerably more stable business risk profile and a sustainable, positive contribution to value added

› Realignment of the organisation: New contact for structure and "One EnBW“ management model prior to implementation

› Consistent implementation of all measures based on the EnBW 2020 platform