RWE AG
Annual Report 2017

Plain-text annual report

Powering. Reliable. Future. Yesterday, today and tomorrow. Annual Report 2017 A reliable partner for the energy transition When RWE started supplying Germany with electricity 120 years ago, the modern industrial age was just starting. We have pushed ahead with electrification, played our part in shaping the development of industry and prepared for the energy of the future with foresight. Electricity is the lifeblood of our modern digitised society. It is the source of prosperity and progress. Electricity gives us light, heating, industrial production, communications, medical services, mobility and much, much more. And, now, as in the past, RWE plays a key role in all of this. Our world is increasingly electric. This is a trend which goes beyond mere digitisation. More and more households are heated with electricity and more and more drivers charge their cars instead of filling them. At the same time, the demands faced by utilities continue to grow and evolve. Society expects energy to be produced in an increasingly environmentally friendly manner, paving the way to creating a sustainable energy system. The modern vision is that most electricity will be generated from solar, wind and hydroelectric power – energy sources which are at the mercy of the elements. At the same time, demand for energy will continue to grow. Despite this, electricity always has to be available when it is needed. At affordable prices. These are huge challenges. But, working as a team, we have overcome much bigger hurdles in the past. At RWE, we do not merely support the transformation of the energy sector, we make it possible. Our modern power plants partner with renewables, adjusting flexibly to the ups and downs in wind and solar generation, making an important contribution to security of supply. A world undergoing fundamental change needs a strong, reliable partner, conscious of its responsibility to play its part in this modern transformation. That’s why RWE has thousands of employees, working passionately for a common goal... ... now as in the past: Powering. Reliable. Future. Our title picture blends the past with the future. At the same site where Rheinisch-Westfälische Elektrizitätswerk was founded on 25 April 1898, we will be opening our new corporate headquarters in the spring of 2020 to the north of Essen city centre. This is where we commissioned our first power station in 1900 at the site of the Victoria Mathias colliery. All of RWE’s employees in Essen will unite at this new location, where we will continue to pursue our goal of powering a reliable future. CONTENTS To our investors Interview with the CEO The Executive Board of RWE AG Supervisory Board report RWE on the capital market Combined review of operations Strategy and structure Innovation Economic environment Political environment 1 1.1 1.2 1.3 1.4 1.5 Major events 1.6 1.7 1.8 Business performance Financial position and net worth Notes to the financial statements of RWE AG (holding company) Presentation of the RWE Group with innogy as a pure financial investment 1.9 1.10 Disclosure relating to German takeover law 1.11 Compensation report 1.12 Development of risks and opportunities 1.13 Outlook 2 Responsibility statement 3 6 8 13 17 18 25 28 34 37 41 52 58 60 61 63 74 83 86 3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 Consolidated financial statements Income statement Statement of comprehensive income Balance sheet Cash flow statement Statement of changes in equity Notes List of shareholdings (part of the notes) Boards (part of the notes) Independent auditor‘s report Information on the auditor Further information Five-year overview Imprint Financial calendar 87 88 89 90 91 92 93 153 185 190 196 197 198 199 2017 KEY FIGURES AT A GLANCE RWE Group Power generation External electricity sales volume External gas sales volume External revenue Adjusted EBITDA Adjusted EBIT Income before taxes Net income Adjusted net income Cash flows from operating activities Capital expenditure Property, plant and equipment and intangible assets Financial assets Free cash flow1 billion kWh billion kWh billion kWh € million € million € million € million € million € million € million € million € million € million € million Number of shares outstanding (annual average) thousands Earnings per share Adjusted net income per share Dividend per common share Dividend per preferred share Net debt Workforce3 2017 2016 202.2 261.1 254.1 44,585 5,756 3,646 3,056 1,900 1,232 – 1,754 2,629 2,260 369 – 3,849 614,745 3.09 2.00 1.502 1.502 216.1 264.6 265.1 45,833 5,403 3,082 – 5,807 – 5,710 777 2,352 2,382 2,027 355 809 614,745 – 9.29 1.26 – 0.13 € € € € € million 31 Dec 2017 31 Dec 2016 20,227 59,547 22,709 58,652 +/– % – 6.4 – 1.3 – 4.1 – 2.7 6.5 18.3 152.6 133.3 58.6 – 174.6 10.4 11.5 3.9 – 575.8 – 133.3 58.7 – – – 10.9 1.5 1 Changed term; see explanation on page 56. 2 Dividend proposal for RWE AG’s 2017 fiscal year, subject to the passing of a resolution by the 26 April 2018 Annual General Meeting. 3 Converted to full-time positions. To our investors > Interview with the CEO 3 “POWERING. RELIABLE. FUTURE. – THIS IS RWE” But looking back at last year, we mustn’t lose sight of one thing: the government refunded RWE the 1.7 billion euros in nuclear fuel tax payments made in the past. At the beginning of June, just before your 60 th birthday, the German Constitutional Court announced that the tax was null and void. Did that feel like an early birthday present? When the judgement was pronounced, I really did think: “What a great birthday present!” Another one of my initial reactions was: It’s great that the justice system still works. This is my personal opinion. From the company’s point of view, the refund is a big financial boost. However, we will pass some of the funds on to our shareholders. Holders of RWE common shares didn’t receive a dividend the last two times around, and our preferred shareholders only received the minimum share in profits. By paying a special dividend of one euro – in addition to the normal dividend of 50 cents – we want to thank them for their patience and loyalty. Of course, this is all subject to the approval of the Annual General Meeting. Let’s stick with nuclear energy: RWE transferred the liability for the costs of interim and final storage to the federal government and in exchange paid about 7 billion euros to the new state disposal fund. Does that deal with nuclear energy once and for all? No, by no means. First of all, we have to ensure the safe operation of our power plants until 2022. It will also take some time to dismantle them. This demanding task will keep us busy for at least 20 years. Despite this, the legal reorganisation of nuclear waste management was a milestone. As processing and financing interim and final storage are now handled by one entity – the federal government – major risks which we faced previously have been eliminated. Otherwise, politicians could have drawn out the search for a final storage site indefinitely, demanding that the additional costs be covered by the energy companies. The principle that applies now is: those in charge of processing also bear the costs. In addition, now we know exactly where our responsibility ends and the government’s starts, as we clarified the details in a contract. Admittedly, the 7 billion euros was a high price to pay to transfer the liability to the state. This is much more than the provisions we had formed for interim and final storage. But the legal certainty this gave us was worth it. Rolf Martin Schmitz on the security of German electricity generation, RWE’s climate protection roadmap and the company’s earnings prospects Mr. Schmitz, 2017 was year one after innogy’s public listing and your appointment as CEO of RWE. What would you say looking back on 2017? We can be quite proud of our accomplishments last year. We gave RWE a strategy that is clear to and accepted by the public and the capital market. Our motto is ‘Powering. Reliable. Future.’ – this is RWE. This is what we’re about. Things also went well in operating terms. Adjusted EBITDA, our most important earnings indicator, was even better than forecast, amounting to 5.8 billion euros. Our share also performed well. RWE’s common stock increased by 44 percent in 2017, making it the third-strongest share in the DAX. Last but not least, teamwork across the new RWE is blossoming and I’m extremely happy about that. This is a very good basis for 2018. You touched on the good development in operating terms. What were the main success factors? There were several: the most important factor in quantitative terms was the significantly improved performance of the trading business after its poor showing in 2016. In addition, we achieved above-average income from the commercial optimisation of our power plant deployment. By the way, this was one of the reasons why our EBITDA exceeded expectations. And we mustn’t forget our ongoing cost- cutting programme: in 2017, we already achieved more than half of our target volume for 2019. I’m especially proud of that, because it shows that we work hard to achieve success and demonstrates that our employees are our most valuable asset. They did an outstanding job in 2017. 4 RWE Annual Report 2017 Nevertheless, RWE is still exposed to substantial political risks. Just think of the exit from coal. Were you relieved that the coalition agreement between the Christian Democrats/ Christian Social Union and the Social Democrats remains vague on this point? I would be relieved if we had a clear and, most importantly, reliable regulatory framework for our coal-fired power stations. This is important for us to be able to shape the structural change in the Rhenish lignite mining region in a way that is both economically viable and socially acceptable. This structural change is a long-term process for which we need certainty with regard to planning. But the coalition agreement does give reason to be optimistic: the framework and details of the exit from coal will be established by a commission. This can be useful if it is an open and constructive process. Renouncing the German emission reduction target for 2020 was also a good move. It is useless to parade unachievable goals. However, the new government parties set reduction goals for every branch of industry for 2030, which are very ambitious. They require the energy sector to lower its greenhouse gas emissions more than the average: by over 60 % compared to 1990. Is that even possible? The real question is, “At what price?” Therefore, we must get together to come up with a way of achieving this goal intelligently, without putting security of supply at risk or creating big divides in industrial policy. This is an ambitious task for the commission which will have to address this matter. The commission’s name “Growth, Structural Change and Employment” gives reason to hope that economic and social matters will play a central role. The government is obviously considering determining a fixed date for putting a halt to electricity generation from coal. What do you think of this? Not much. No one can predict how the world will have changed by 2040 or 2050. Just consider the change we have experienced in the last 20 years alone. Politicians should set realistic emission-reduction goals and create a framework which ensures that these goals are achieved. It should be left up to the companies how they adapt to this framework and which technologies they use. Over-regulation is always counterproductive. What do you tell environmental activists, politicians and investors who accuse you of not doing enough to combat climate change? I explain to them that RWE already has a roadmap for reducing emissions, which is in line with the goals of the Paris Climate Convention. We aim to reduce our carbon dioxide emissions by between 40 and 50 percent by 2030 compared to 2015. We are serious about this, as demonstrated by our recent past: we have reduced emissions every year since 2012. They dropped by 11 percent in 2017 alone. The most important pillar of our emission reduction strategy is the phase-out of lignite production. We also have a clear roadmap for this. In October 2017, we put the first two lignite units into standby: they have not generated any electricity since then. The next two units will follow this year. By 2030, we will have closed the first of our three opencast mines as well as the nearby Weisweiler power station. After that, by the middle of the century, electricity generation from lignite in the Rhineland will be history. Nevertheless, you have reason to fear that policymakers may find that this roadmap isn’t ambitious enough. I tip my hat to all other sectors like heating and transportation that manage to reduce emissions as fast as us. Of course, every once in a while, politicians will call for additional power plant closures, as was recently the case with the exploratory talks for a government made up of the Christian Democratic Union/Christian Social Union, the Green Party and the Free Democratic Party. But we mustn’t lose sight of reality: last year alone, six coal units were shut down in Germany. Another ten will probably follow by 2020. Furthermore, Germany is phasing out nuclear energy at the same time. If the predictions of the four German transmission system operators materialise, in two years the country may face situations where it cannot meet its demand for electricity from its own production. The expansion of renewables doesn’t help much here, as solar and wind farms do not generate electricity reliably. The situation may become dire once the nuclear phase-out has been completed at the end of 2022, if not earlier. It would be risky to rely on other countries as they are also shutting down power plants and renewables are on the rise there. By then, the dark doldrums as experienced in January 2017 could also cause problems for our neighbours. To our investors > Interview with the CEO 5 What does this mean in terms of the dividend: Will RWE shareholders have to wait another two years for the regular dividend to be raised above 50 euro cents? When proposing the dividend, we orientate ourselves more to the medium-term earnings prospects and less towards the electricity price we achieved in the past. My fellow board member Markus Krebber and I intend to propose an increased regular dividend of 70 euro cents for fiscal 2018. Therefore, our shareholders will feel the recovery of electricity prices a little earlier than our books. A brief word about innogy: the profit warning in December 2017 led to a loss in trust on the capital market. What do you expect of management? Right after the profit warning, the Supervisory Board of innogy made a statement on it. It believes that our subsidiary’s strategy is right, but wants more cost discipline and a more focused growth and investment strategy. We endorse this and it is in the interests of our own shareholders. We mustn’t forget that the significant drop in innogy’s share price following the profit warning also dragged down the RWE share price. innogy announced that it will limit net investments to 2.5 billion euros this year. All capital expenditure exceeding this limit must be financed by selling assets or investments. I welcome this – and the fact that our subsidiary wants to keep the dividend constant at 1.60 euros compared to 2017. Irrespective of the developments at innogy, what is the biggest challenge for the RWE Group in the current fiscal year? We must do our homework with as much vigour as before. The most important task remains reducing costs in conventional electricity generation. We expect that generation capacity will become tighter and that this will stimulate electricity prices. But we haven’t reached that point yet and until then, we must do everything we can to secure the profitability of our power stations. On the political stage, the talks on Germany’s exit from coal will be of utmost importance. What I wish for in general is more recognition for what we stand for. We make sure that there is always as much electricity as necessary – every day, hour and second. This is not a walk in the park. It’s a demanding task that throws up increasingly bigger challenges. If politicians realise and reward this, I am confident that they will chart the right course. Nevertheless, the Dutch government aims to exit from coal by 2030 and wants to introduce a minimum price for carbon dioxide in the Netherlands. To be honest, none of this seems logical to me, not even the minimum price for carbon dioxide. One of the major political moves last year was the EU’s strengthening of the European Emission Trading System. The system was modified to enable the participating sectors to achieve the greenhouse gas emission goals for 2030. The reform was the main reason why emissions certificates cost twice as much today as they did a year ago. In February, they achieved the ten euro mark. This demonstrates that emissions trading works and I ask myself why there should still be a need for national carbon taxes. Such solo efforts will only shift emissions abroad. But the climate doesn’t respect country borders. Effective climate protection should keep the whole of Europe in mind and, ideally, be global. One of the positive developments last year was the turnaround in German wholesale electricity forwards after the record lows in the beginning of 2016. When will we see this reflected in our books? I wouldn’t speak of a turnaround yet: electricity prices slipped again at the beginning of 2018. What is true is that 2017 was a good year with regard to the development of electricity forwards. However, it will take a while for this to become visible in our earnings. We sell the electricity from our power stations up to three years in advance. As a result, changes in market prices are reflected in our books with a significant time lag. This was very advantageous to us when electricity prices plummeted from 2008 to the beginning of 2016. Now we face the opposite situation. Does this mean that the RWE Group’s earnings will decline this year? Yes, it’s safe to assume that. We realised an average price of 31 euros per megawatt hour with our German lignite-fired and nuclear power stations for 2017. The comparable figure for 2018 is three euros below that. Based on about 90 terawatt hours of electricity generated, this represents a shortfall of nearly 300 million euros. Furthermore, the Gundremmingen B nuclear power station, which we had to shut down at the end of 2017, stopped contributing to earnings. Moreover, I do not believe that income from the optimisation of our power plant dispatch will be as high as last year. Earnings achieved by innogy will probably not match the 2017 level, either. We forecast adjusted EBITDA of 4.9 billion to 5.2 billion euros for the RWE Group, much less than in 2017. However, I hope that we have reached the low point in conventional electricity generation and that things will pick up no later than 2020. 6 RWE Annual Report 2017 THE EXECUTIVE BOARD OF RWE AG Dr. Rolf Martin Schmitz Dr. Markus Krebber To our investors > The Executive Board of RWE AG 7 Dr. Rolf Martin Schmitz Chairman of the Executive Board and Chief Executive Officer Dr. Markus Krebber Chief Financial Officer Born in 1957 in Mönchengladbach; doctorate in engineering; Planning Engineer at STEAG AG from 1986 to 1988; various positions, including Head of Corporate Development and Economic Policy, at VEBA AG from 1988 to 1998; Member of the Executive Board of rhenag Rheinische Energie AG from 1998 to 2001; Member of the Board of Management of Thüga AG from 2001 to 2004; Chairman of the Board of Directors of E.ON Kraftwerke GmbH from 2004 to 2005; Chairman of the Executive Board of RheinEnergie AG and Managing Director of Stadtwerke Köln from 2006 to 2009; Chief Operating Officer National of RWE AG from May 2009 to September 2010; Chief Operating Officer of RWE AG from October 2010 to October 2016 and concurrently Deputy Chairman of the Executive Board of RWE AG from July 2012 to October 2016; Chairman of the Executive Board and Chief Executive Officer of RWE AG since October 2016; concurrently Labour Director of RWE AG since May 2017. Born in 1973 in Kleve; Banker; doctorate in economics; Management Consultant at McKinsey & Company from 2000 to 2005; various management positions at Commerzbank AG from 2005 to 2012; Managing Director and Chief Financial Officer of RWE Supply & Trading GmbH from November 2012 to August 2016; Chief Executive Officer of RWE Supply & Trading GmbH from March 2015 to May 2017; Chief Financial Officer of RWE AG since October 2016. Group-level responsibilities • Accounting • Business Services • Controlling & Risk Management • Finance & Credit Risk • Investor Relations • Portfolio Management /Mergers & Acquisitions • Tax Group-level responsibilities • Corporate Business Development • Corporate Transformation • Group Communications & Public Affairs • Group Strategy • Human Resources • Internal Audit & Compliance • Legal 8 RWE Annual Report 2017 SUPERVISORY BOARD REPORT “After the reorganisation that took place in 2016, the task at hand last year was to bring the Group’s new structure to life and sharpen the profiles of both RWE and innogy. We accomplished this wonderfully.” Fiscal 2017 was the first full financial year for the RWE Group in its new organisational structure: the RWE subsidiary innogy looked after the renewable energy, grids and retail businesses, while the parent company focused on conventional power generation and energy trading. RWE AG was very happy with the way last year went. The starting point was the company’s refinement of its strategy. RWE AG has summed up its business model nicely: ‘Powering. Reliable. Future.’ RWE is a guarantor of a reliable supply of electricity. This topic is still not considered sufficiently in debates on the energy industry, but it will become more important, as security of supply is a product with a future – and those who offer such products have a future themselves. One of the positive developments last year was the continued recovery of German wholesale electricity forward prices. This has made the long-term earnings prospects in conventional electricity generation more favourable, despite the persistent uncertainties surrounding energy policy. In addition, RWE’s financial position improved. This was predominantly because the government had to refund the nuclear fuel tax RWE had paid in earlier years. Operational factors also played a role, e. g. the continued cost reductions and the revitalised trading business. They were instrumental in the Group meeting – and in some cases beating – its profit targets. This positive accomplishment is rounded off by the encouraging development of our share price: RWE common stock was among the top performers in the DAX in 2017. Now let me go into the work we did on the Supervisory Board in the financial year that just ended. Once again, we fulfilled all of the duties imposed on us by German law and the Articles of Incorporation. We advised the Executive Board on running the company and monitored its actions attentively. Moreover, we were consulted on all fundamental decisions. The Executive Board informed us of all material aspects of business developments, the earnings situation as well as the risks and the management thereof both verbally and in writing. This was done regularly, extensively and in a timely fashion. Decisions were taken on the basis of detailed reports and draft resolutions submitted by the Executive Board. The Supervisory Board had ample opportunity to concern itself with these in its plenary sessions and its committees. We were also informed by the Executive Board of projects and transactions of special importance or urgency between meetings. To our investors > Supervisory Board report 9 We passed the resolutions required of us by law or the Articles of Incorporation. Where necessary, we did so by circular. As Chairman of the Supervisory Board, I was constantly in touch with the Chairman of the Executive Board, enabling us to discuss events of material significance to the Group’s situation and development without any delay. Last year, the Supervisory Board convened for five ordinary meetings. The shareholder and employee representatives on the Supervisory Board consulted on the agenda items of the plenary sessions in advance. The following table provides an overview of the attendance of the members of the corporate bodies at the meetings of the Supervisory Board and its committees: Attendance at meetings in fiscal 2017 by Supervisory Board member1 Supervisory Board Executive Committee Audit Committee Dr. Werner Brandt, Chairman Frank Bsirske, Deputy Chairman Reiner Böhle Sandra Bossemeyer Ute Gerbaulet (since 27 April) Reinhold Gispert (since 27 April) Arno Hahn (until 27 April) Andreas Henrich Prof. Dr. Hans-Peter Keitel Dr. h. c. Monika Kircher Martina Koederitz (until 27 April) Monika Krebber Harald Louis Dagmar Mühlenfeld Peter Ottmann Günther Schartz Dr. Erhard Schipporeit Dr. Wolfgang Schüssel Ullrich Sierau Ralf Sikorski Marion Weckes Leonhard Zubrowski 5/5 5/5 2/5 5/5 3/3 3/3 2/2 4/5 4/5 4/5 0/2 5/5 5/5 5/5 5/5 5/5 5/5 5/5 5/5 5/5 5/5 5/5 1/1 1/1 1/1 1/1 1/1 1/1 1/1 1/1 5/62 3/3 3/3 6/6 6/6 5/6 6/6 5/6 Personnel Affairs Committee 4/4 4/4 1/4 4/4 4/4 4/4 Nomination Committee Strategy Committee 1/1 1/1 1/1 2/2 2/2 1/1 1/1 2/2 2/2 2/2 1 Attendance is indicated by the ratio of the number of meetings attended by the Supervisory Board member to the total number of meetings during the individual’s term as a member of the corporate body in question. Only the committees that convened in the year under review are listed. 2 Werner Brandt was no longer a member of the Audit Committee in 2017, but attended meetings as a guest. Main points of debate of the Supervisory Board meetings. In all five meetings we were informed by the Executive Board of RWE’s financial situation as well as of major political and economic developments relevant to the company, and assisted the Board by providing advice. Now I would like to address the main points of our sessions in more detail. • We dedicated our meeting on 8 March 2017 to RWE AG’s future strategic orientation within the operating activities for which the company is responsible. The Executive Board informed us about this extensively and presented us with RWE’s new motto ‘Powering. Reliable. Future.’ Other subjects discussed were the financial statements of the parent company for fiscal 2016, the agenda of the Annual General Meeting of 27 April 2017, and the appointment of the independent auditors for fiscal 2017. 10 RWE Annual Report 2017 • At the second meeting, which was held on the day before the Annual General Meeting, the Executive Board reported on matters of energy policy, e. g. the new EU limits for nitrous oxide and mercury emissions of power plants and the German Act on the Modernisation of the Grid Fee Structure. More detailed commentary on this can be found on page 34 et seq. We were also informed thoroughly of the development of economic framework conditions such as wholesale electricity prices, and of the capital market’s view of our company and its strategy. • Current developments in nuclear energy were the focus of our third meeting, which took place on 23 June 2017. We concerned ourselves in detail with the law on the reorganisation of responsibility for nuclear waste disposal, which had entered into force a week before. Also on the agenda was the public law contract occasioned by the aforementioned law between RWE and the Federal Republic of Germany that envisages legally securing the transfer of liability for interim and final storage costs to the federal government. In this context, we also explored proposals made by the Executive Board to reorganise RWE’s nuclear energy business and charged it with implementing the presented concept. Another topic was the German Constitutional Court’s ruling that the German nuclear fuel tax was null and void. In this matter, we advised the Executive Board on the use of the refunded taxes. • In our fourth session, which took place on 22 September 2017, we addressed non-financial reporting. This became legally mandatory for German listed companies with more than 500 employees for financial years beginning after 31 December 2016. We concerned ourselves extensively with the new legal requirements, determined the contents of RWE’s non-financial report, and passed the resolution to submit it to an external auditor. A further important subject was the conditions in Colombia’s hard coal mines and RWE’s involvement in the Bettercoal initiative, which promotes improvement in the global supply chain. In the same meeting, we also discussed the new recommendations of the German Corporate Governance Code (GCGC), which were published in the German Federal Gazette on 24 April 2017. RWE has pre viously essentially met the additional requirements. Nevertheless, we took the changes to the Code as an opportunity to introduce a provision into our Rules of Procedure on the Chairman of the Supervisory Board’s communication with investors. Furthermore, we refined the competency profile for members of the Supervisory Board, establishing that at least six shareholder representatives have to be independent. More detailed information on this can be found in our latest Corporate Governance Report, which has been published on the internet at www.rwe.com/corporate_governance. The statement of compliance issued by the Executive Board and the Supervisory Board of RWE AG on 14 December 2017 can also be found there. RWE fully complied with the recommendations of the version of the Code before and after its amendment in 2017. • One of the recommendations of the GCGC is that the Supervisory Board regularly subject its work to an efficiency audit. We conducted such a test in the fourth quarter of 2017, and its results were the topic of our fifth meeting, which was held on 14 December 2017. The audit confirmed that we work together very constructively and trustingly. However, it also high lighted room for improvements, the implementation of which we debated extensively. Another point of focus of that meeting was the Executive Board’s planning for 2018 and its outlook for the two following fiscal years. The members of the Executive Board answered our questions in this regard and explained important issues clearly. We adopted the company’s planning following a thorough review. Supervisory Board committees. Last year, the Supervisory Board had six standing committees and the project-related NewCo IPO Committee, which was created at the end of 2015 in order to assist in the placement of innogy shares in the capital market. These committees are charged with preparing topics and resolutions for Supervisory Board meetings. In certain cases, they exercise decision- making powers conferred on them by the Supervisory Board. The committee chairmen regularly informed the Supervisory Board of their work. In the year under review, a total of 14 committee meetings were held, on which I would like to report in more detail. Attendance by individual is presented in the table on page 9. • The Executive Committee convened once. Its members discussed the company’s planning for fiscal 2018 as well as the outlook for 2019 and 2020 in depth and prepared their adoption by the Supervisory Board. To our investors > Supervisory Board report 11 • The Audit Committee was in session six times. It concerned itself extensively with the interim and annual financial statements of RWE AG and the Group, together with the combined review of operations. The Committee discussed the financial statements in detail with the Executive Board before they were published. The independent auditors participated in the debates and reported on the results of their audit and/or audit-like review; at all times, the Committee was vigilant that quality standards were adhered to. It submitted a recommendation to the Supervisory Board regarding the election of the independent auditors for fiscal 2017 by the Annual General Meeting. Furthermore, it prepared the grant of the audit award to the independent auditors including the fee agreement and set the priorities of the audit for fiscal 2017. The Committee was regularly informed of the effectiveness of the accounting-related internal control system. This did not reveal any issues that would call the effectiveness of the control system into question. Furthermore, the Committee dealt with compliance and with the schedule and results of the internal audit. In this context, the Committee held consultations on the new legal requirements imposed on the non-financial reporting of companies and prepared a resolution by the Supervisory Board on this matter. New policies introduced by International Financial Reporting Standards (IFRS) were also on the agenda. The Committee was regularly informed about the spot checks performed by the German Financial Reporting Enforcement Panel (DPR) on the financial statements of the parent company and the Group for the period ending on 31 December 2016. The DPR did not find any errors. In addition, the Committee discussed the risk situation of the RWE Group in the wake of the German Corporate Control and Transparency Act (KonTraG), data protection, cyber security as well as legal and tax issues. In-house experts were consulted when necessary. • During the year being reviewed, the Personnel Affairs Committee held four meetings, at which the staff-related decisions of the Supervisory Board were prepared. Amongst the matters discussed were the level of bonuses and share-based payments granted to the Executive Board. • The members of the Nomination Committee convened in one session, in which they consulted on the candidates for the by-elections to the Supervisory Board to be proposed at the Annual General Meeting on 27 April 2017. • The Strategy Committee held two meetings. At the beginning of 2017, it assisted in the work performed by company management on the continued development of the strategy, the results of which were presented to the Supervisory Board in its March session. At its second meeting at the end of the year, the Committee was informed by the Executive Board about the implementation of the new strategy. • The Mediation Committee pursuant to Section 27, Paragraph 3 of the German Co-Determination Act did not have to meet in 2017. • The NewCo IPO Committee did not convene last year, either. Conflicts of interest. The members of the Supervisory Board are obliged by law and the GCGC to immediately disclose any conflicts of interest they have. No such notifications were made in the year under review. Financial statements for fiscal 2017. PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft scrutinised and issued an unqualified auditor’s opinion on the 2017 financial statements of RWE AG, which were prepared by the Executive Board in compliance with the German Commercial Code, the financial statements of the Group, which were prepared in compliance with IFRS pursuant to Section 315a of the German Commercial Code, the combined review of operations for RWE AG and the Group, and the accounts. In addition, PricewaterhouseCoopers found that the Executive Board had established an appropriate early risk detection system. The company was elected independent auditor by the Annual General Meeting on 27 April 2017 and commissioned by the Supervisory Board to audit the financial statements of RWE AG and the Group. 12 RWE Annual Report 2017 The annual report and the audit reports for 2017 as well as documents supporting the annual financial statements were submitted to the members of the Supervisory Board in good time. Furthermore, the Executive Board commented on the documents in the Supervisory Board’s balance sheet meeting of 7 March 2018. The independent auditors reported at this meeting on the material results of the audit and were available to provide supplementary information. The Audit Committee had previously concerned itself in depth with the financial statements of RWE AG and the Group, as well as audit reports, during its meeting on 6 March 2018, with the auditors present. It recommended that the Supervisory Board approve the financial statements as well as the appropriation of profits proposed by the Executive Board. At its meeting on 7 March 2018, the Supervisory Board reviewed the financial statements of RWE AG and the Group, the combined review of operations for RWE AG and the Group, and the Executive Board’s proposal regarding the appropriation of distributable profit and the Group’s separate non-financial report. No objections were raised as a result of this review. As recommended by the Audit Committee, the Supervisory Board approved the results of the audits of the financial statements of RWE AG and the Group and approved both financial statements. The 2017 financial statements are therefore adopted. The Supervisory Board concurs with the Executive Board’s proposal regarding the appropriation of profits, which envisages paying a dividend of €1.50 per share bearing dividend entitlements. The sum consists of two components: the regular dividend of €0.50 and a one-time special payment of €1.00 through which we would like RWE shareholders to benefit from the refund of the nuclear fuel tax by the government. Personnel changes in the Supervisory Board and Executive Board. In the year under review, we bade farewell to Martina Koederitz and Arno Hahn, who left the Supervisory Board. They both retired from their office with effect from the end of the Annual General Meeting on 27 April 2017. The Essen District Court appointed Reinhold Gispert to the Supervisory Board to succeed Arno Hahn as employee representative. The Annual General Meeting appointed Ute Gerbaulet to the Super visory Board as shareholder representative in place of Martina Koederitz. Another staff matter concerned Monika Kircher, who had been appointed to the Supervisory Board by court order in October 2016. This appointment was replaced by an AGM resolution. There was also a personnel change on the Executive Board of RWE AG: Uwe Tigges, who was responsible for human resources and held the post of Labour Director, resigned from his office on the Executive Board as of the end of the day on 30 April 2017. Responsibility for human resources was assumed by the Chairman of the Executive Board Rolf Martin Schmitz. The Supervisory Board appointed Rolf Martin Schmitz new Labour Director with effect from 1 May 2017. On behalf of the Supervisory Board, I want to thank Martina Koederitz, Arno Hahn and Uwe Tigges for their commitment to the company and wish them all the best for their future professional endeavours. A good fiscal year – thanks to our employees. Having reported on our work in detail, I would now like to turn my attention to RWE’s employees, whose dedication, motivation and skills played their part in the commercial success of the company yet again in 2017. I would like to express my heartfelt thanks to you all – also on behalf of my colleagues. After the reorganisation that took place in 2016, the task at hand last year was to bring the Group’s new structure to life and sharpen the profiles of both RWE and innogy. We accomplished this wonderfully. Thanks to the 60,000 staff members throughout the Group, we can look back on a good 2017 and look forward with confidence. On behalf of the Supervisory Board Dr. Werner Brandt Chairman Essen, 8 March 2017 To our investors > RWE on the capital market 13 RWE ON THE CAPITAL MARKET Buoyed by the expansionary monetary policy of leading central banks and a robust economy, the DAX advanced by 13 % last year. At one point, it clearly surpassed the 13,000 point mark, recording an all-time high. RWE shares performed even better: our common stock closed the year up 44 %. The development of our share price demonstrated that the capital market’s trust in RWE’s financial strength has increased since innogy’s successful IPO. The refund by the government of the nuclear fuel tax we had paid in earlier years and the continuation of the recovery of German wholesale electricity prices were also received positively. Performance of the RWE common share compared with the DAX % (average weekly figures) 100 80 60 40 20 0 – 20 31 Dec 2016 RWE common share DAX 31 M ar 2017 30 Jun 2017 30 Sep 2017 31 Dec 2017 Source: Bloomberg. Positive sentiment on stock markets thanks to robust economy. The German stock market continued its upward trend in 2017. The DAX exceeded the 13,000 point mark for the first time ever. Although it closed the month of December slightly lower, at 12,918 points, it still achieved a good performance for the year of 13 %. Major stimulus came from the favourable economic trends in both Europe and the USA. The leading central banks’ continued extremely expansive monetary policy also contributed to the good sentiment on stock markets. In the autumn, the US government provided additional stimulus by passing a pro- economy tax reform. The strong euro had a slightly dampening effect on the development of the DAX, as it drove up the price of exports from the European currency zone. RWE common shares up 44 %. RWE investors benefited from an especially strong return in 2017. Our common stock increased in price by 44 % to €17.00 over the course of the year. RWE preferred shares rose to €14.33; including the preferred dividend of €0.13, they achieved a total return of 66 %. Our stock therefore clearly outperformed the STOXX Europe 600 Utilities sector index (+10 %). They fared well in part due to the reorganisation of the RWE Group and the successful IPO of our subsidiary innogy last year. Since then, investor trust in the financial solidity of RWE AG and the future viability of its key business areas has improved considerably. The increase in German wholesale electricity prices also contributed to this. RWE shares gained additional momentum when the German Constitutional Court ruled in early June that the nuclear fuel tax was null and void (see page 37). After the elections to the German Lower House of Parliament in September, the talks to form the coalition unsettled RWE investors because calls for an accelerated coal phase-out were voiced. The RWE share experienced a severe setback in December due to the profit warning issued by innogy, which made a downward correction to its earnings outlook for 2017 and 2018. 14 RWE Annual Report 2017 RWE share indicators Earnings per share1 Adjusted net income per share1 Cash flows from operating activities per share1 Dividend per common share Dividend per preferred share Dividend payment Dividend yield on common shares3 Dividend yield on preferred shares3 Common share price End of fiscal year High Low Preferred share price End of fiscal year High Low € € € € € € million % % € € € € € € 2017 3.09 2.00 – 2.85 1.502 1.502 9222 8.8 10.5 17.00 23.14 11.80 14.33 17.46 8.87 2016 – 9.29 1.26 3.83 – 0.13 5 – 1.5 11.82 15.95 10.17 8.72 11.61 7.95 2015 – 0.28 1.83 5.43 – 0.13 5 – 1.5 11.71 25.68 9.20 8.94 19.62 7.33 2014 2.77 2.09 9.04 1.00 1.00 615 3.9 5.3 25.65 32.83 24.95 18.89 25.61 18.89 2013 – 4.49 3.76 7.81 1.00 1.00 615 3.8 4.3 26.61 31.90 20.74 23.25 29.59 20.53 Number of shares outstanding (annual average) thousands 614,745 614,745 614,745 614,745 614,745 Market capitalisation at the end of the year € billion 10.3 7.1 7.1 15.5 16.2 1 In relation to the annual average number of shares outstanding. 2 Dividend proposal for RWE AG’s 2017 fiscal year, subject to the passing of a resolution by the 26 April 2018 Annual General Meeting. 3 Ratio of the dividend per share to the share price at the end of the fiscal year. Dividend proposal for fiscal 2017. The Supervisory and Executive Boards of RWE AG will propose to the Annual General Meeting on 26 April 2018 a dividend of €1.50 per common and preferred share. The sum is made up of the regular dividend of €0.50 and a special payment of €1.00 through which we want to enable our shareholders to benefit from the nuclear fuel tax refund. Broad international shareholder base. At the end of 2017, an estimated 86 % of the total of 614.7 million RWE shares (including 39 million non-voting preferred shares) were held by institutional investors, and 14 % were held by individuals (including employees). Institutional investors from Germany owned 29 % of RWE (previous year: 27 %). In other countries on the European continent, this investor group held 14 % (previous year: 20 %) of RWE’s subscribed capital. In North America, the United Kingdom and Ireland, it accounted for a combined 40 % (previous year: 35 %). RWE AG’s single- largest shareholders are RW Holding, in which municipalities have pooled their shares, KEB Holding, which is backed by the City of Dortmund, and the US asset management company BlackRock. Based on their latest voting right notifications, the three companies each held about 5 % of the voting rights. At the end of 2016, a large portion of the RWE shares held by municipalities was still pooled in RWEB GmbH, which accounted for 14 % of the voting rights. However, this pooling was reversed last year. The free float of our common shares considered by Deutsche Börse in terms of index weighting was 89 % at year-end. Only the shares held by RW Holding and KEB Holding were deducted. Stakes held by asset management companies like BlackRock are classified by Deutsche Börse as free float as long as they do not exceed 25% of the capital stock. About 1 % of RWE shares are owned by our current and former staff members. Last year, 4,900 people, or 35 % of all eligible individuals, participated in RWE AG’s employee stock ownership plan, buying a total of 340,920 common shares. The programme enables the employees of our German subsidiaries to take shares in the company on preferential terms. We spent €3 million on this in the year under review. The personnel of innogy SE and its subsidiaries were not included in the employee stock ownership plan, as they qualify for an innogy stock ownership plan, which was launched in 2017. To our investors > RWE on the capital market 15 Shareholder structure of RWE AG 1 1 % Employee shareholders 5 % KEB Holding AG 13 % Private shareholders 5 % RW Holding AG 5 % BlackRock, Inc. 71 % Other institutional shareholders 86 % Institutional shareholders: 29 % Germany 22 % USA/Canada 18 % UK/Ireland 14 % Continental Europe excluding Germany 3 % Rest of the world 1 As of the end of 2017; percentages reflect shares in the subscribed capital. Sources: RWE data and notifications of shareholders in accordance with the German Securities Trading Act (WpHG). RWE represented on numerous stock markets. In Germany, RWE shares are traded on the stock markets in Frankfurt am Main, Düsseldorf, Berlin, Hamburg, Hanover, Munich and Stuttgart, as well as via electronic platforms such as Xetra. They are also available on some stock markets in the rest of Europe. In the USA, instead of our shares being traded, RWE is represented via American Depositary Receipts (ADRs) in a Level 1 ADR programme. ADRs are share certificates issued by US depositary banks, representing a certain number of a foreign company’s deposited shares. Under RWE’s programme, one ADR represents one common share. Ticker symbols of RWE shares Reuters: Xetra Reuters: Frankfurt Stock Exchange Bloomberg: Xetra Bloomberg: Frankfurt Stock Exchange German Securities Identification Number (WKN) International Securities Identification Number (ISIN) American Depositary Receipt (CUSIP Number) Common share RWEG.DE RWEG.F RWE GY RWE GR 703712 DE0007037129 74975E303 Preferred share RWEG_p.DE RWEG_p.F RWE3 GY RWE3 GR 703714 DE0007037145 – 01 Combined review of operations 18 RWE Annual Report 2017 1.1 STRATEGY AND STRUCTURE The European energy sector is undergoing fundamental change and only utilities that evolve will survive over the long term. Such a change has occurred at RWE – in both organisational and strategic terms. We started by strengthening our renewable energy, grid and retail operations by pooling them in the new subsidiary innogy, which we listed on the stock exchange. Then we explored how to position ourselves in conventional electricity generation and energy trading over the long term. Our mission statement is to ensure security of supply in times of increasingly volatile feed-ins of electricity from renewable sources. We are accomplishing this primarily with our flexible power plants. Furthermore, we intend to take advantage of the opportunities that will arise due to the progress made in electricity storage technologies. RWE in a nutshell. The RWE Group is one of the leading suppliers of electricity and gas in Europe. Through its companies – including innogy – it covers all stages of the energy value chain, running the gamut from lignite production and electricity generation from gas, coal, nuclear and renewables, to energy trading and the operation of distribution networks as well as the supply of electricity, gas and innovative energy solutions. In fiscal 2017, the Group recorded revenue of €44.6 billion. The Group’s major markets are Germany, the United Kingdom, the Benelux region and Eastern Europe. In electricity generation from renewables, its regional footprint is larger, including countries such as Spain and Italy, and in the future the USA. A detailed presentation of the Group’s structure and the segments’ operating activities can be found on page 20 et seqq. New demands placed on energy utilities. The traditional business model for energy utilities is increasingly coming under pressure. With the continuing expansion of renewables, the focus of conventional power generation in Europe is shifting away from maximising the production of electricity and moving towards providing adequate capacities which can smooth out the fluctuations in solar and wind feed-ins. As a result of this, revenue streams for power plants are heading in the direction of market-oriented capacity payments for security of supply. This trend has progressed quite a long way in some European markets, such as the United Kingdom for example. In Germany, however, politicians have decided not to introduce a capacity market for the time being. A further challenge is integrating the rising volume of decentralised electricity feed-ins from renewables into the network. This makes the grid business more complex technologically. In the retail business, one of the main trends is that customers want to use energy more efficiently and take advantage of the opportunities opened up by digitisation. Furthermore, households and businesses are producing more of their own electricity and sometimes taking on the role of energy managers who sell their power generation independently. One Group – two future-oriented companies. We are convinced that we will be best placed to rise to the challenges of the changing energy sector if we reflect the various aspects of these challenges in our organisational structure. Therefore, we pooled the renewables, grid and supply businesses in a new subsidiary called innogy SE and listed it on the stock market. As part of the initial public offering, 73.4 million innogy shares from RWE AG’s holding and another 55.6 million shares from a capital increase by innogy SE were placed with a wide range of investors. As a result, RWE AG’s interest in innogy dropped to 76.8 %. Additional information on this can be found on page 37 et seq. of the 2016 Annual Report. With its mix of renewables, smart grids and innovative retail solutions, innogy has excellent business potential and the tools to be a driving force in transforming the energy sector. Its listing has advantages in accessing financing on the capital market. The proceeds of €2.0 billion from the capital increase will mainly be used for growth projects. RWE AG also benefits from this reorganisation, because it has given the company additional financial flexibility. RWE AG used the proceeds of €2.6 billion from the sale of innogy shares to finance the new German nuclear energy fund (see page 35). As a result of the reorganisation, RWE AG’s operating focus now lies on conventional electricity generation and energy trading. innogy is included in the consolidated financial statements as a fully consolidated company, but in practice, the company is held as a pure financial investment. A comprehensive agreement guarantees innogy that it can act independently in business matters and that RWE AG will only exercise its influence as the majority owner by way of the legally mandated bodies of the Supervisory Board and the Annual General Meeting. Accordingly, innogy also decides independently on its strategy. Our subsidiary provides more detailed information on this in its latest annual report. We also address this in this chapter, but mainly focus on the business activities for which RWE AG is responsible in operating terms. Combined review of operations > Strategy and structure 19 Framework conditions for power plants remain difficult. The reliable supply of electricity continues to be taken for granted in our main generation markets, i. e. Germany, the United Kingdom and the Benelux region. However, this is increasingly being called into question by the progressive expansion of renewable energy: electricity feed-ins dependent on the weather and time of day have risen considerably as a result of mounting wind and solar power capacity, whereas the utilisation and profitability of conventional power stations has tended to decrease. In Germany and the Netherlands in particular, numerous power plants have already been shut down temporarily or definitively because they can no longer cover their operating costs. This trend has slowed somewhat recently. However, over the long term, conventional generation assets will certainly have much fewer load hours than before with which to cover their fixed costs. Political guidelines are another reason for the declining amount of reliable generation capacity. The German government accelerated the country’s nuclear phase-out after the reactor accident at Fukushima in March 2011. At present, seven nuclear power plants are in operation in Germany, with a combined net capacity of 9.5 GW. Pursuant to the German Nuclear Energy Act, they must be shut down successively by the end of 2022. Electricity generation from coal is also on the decline, as a result of the ambitious climate protection goals in our core markets. For example, the new Dutch government sets out in its coalition agreement its intention to exit from coal completely by 2030. The United Kingdom aims to achieve the same goal in the middle of the next decade. Germany is also in the process of reducing electricity generation from coal, even though the room for manoeuvre is limited due to the nuclear phase-out. In 2015, it was decided to take eight German lignite-fired power plants with a total net installed capacity of 2.7 GW off the market. The stations – including five owned by RWE – are successively being decommissioned from 2016 to 2019, after which they will be on standby to ensure security of supply for a period of four years each, before being shut down for good. It cannot be ruled out that the new German government will accelerate the exit from coal and force us to shut down further stations. According to surveys conducted by the German Association of Energy and Water Industries (BDEW), conventional power stations in Germany with over 20 GW in total installed net capacity will have stopped operating by the end of 2022. The German Network Agency also expects the number of power stations to decrease substantially. Renewable generation capacity is set to continue rising, but wind turbines and solar panels cannot guarantee security of supply due to the significant fluctuation in their utilisation. Electricity storage technologies also rapidly reach their limits – at least at present. It is impossible to predict if and when they will meet the technical and commercial requirements needed in order to make a major contribution to security of supply. RWE’s strategic mission: we stand for security of energy supply. Owing to the developments outlined above, the reliability of electricity supply will become a critical factor in the success of the energy transition. This is the basis of our business model: we consider ourselves the backbone of security of supply in our key regions. We express this with our motto ‘Powering. Reliable. Future.’ This means that, in the long run, our contribution to the supply of energy will consist less of producing kilowatt hours and increasingly of providing generation capacity when needed. We expect that the security we provide will be compensated appropriately sooner or later. This is already the case in the United Kingdom, where a general capacity market was introduced on 1 October 2017. In addition to revenue from electricity sales, UK power plant operators receive a payment for making their capacity available and therefore contributing to security of supply. So far, German politicians have not adopted the UK model, concentrating instead on improving the functionality of the existing market. They believe that phases of tight supply will result in price spikes that are high enough to keep the required amount of generation capacity on the market. Experts from the Federation of German Industries (BDI) estimate that, in the long run, back-up capacity of more than 80 GW will be needed to ensure security of supply in Germany. We intend to cover a portion of this primarily with our flexible power stations to begin with, supplemented later by the increased use of storage technologies to the extent that it is technically possible and economically feasible to do so. 20 RWE Annual Report 2017 Group structure with three operating segments and the financial investment innogy. RWE AG reorganised its core business following the IPO of innogy SE. Since 2017, it has consisted of three instead of the former two operating segments (divisions). The former ‘Conventional Power Generation’ Division has been split into the ‘Lignite & Nuclear’ and ‘European Power’ Divisions. To ensure comparability between 2017 and 2016 figures, we also present the prior- year figures according to the new structure. The third operating segment is ‘Supply & Trading’ (formerly ‘Trading/ Gas Midstream’). This is only a change in name and does not affect the nature of the business. The segment structure is rounded off by innogy as the fourth division, which operates independently. We state individual activities outside the segments in the item ‘other, consolidation’. In particular, this item currently includes RWE AG and its 25.1 % stake in the transmission system operator Amprion. We present the RWE Group’s four segments in more detail below. (1) Lignite & Nuclear. This is where we report our German electricity generation from lignite and nuclear energy as well as lignite production in the Rhineland. These activities are overseen by RWE Power. This segment also includes our 50.9 % stake which we are about to sell in the Hungarian company Mátra, which produces lignite and generates electricity from this energy source. It also comprises our interests in the Dutch nuclear power plant operator EPZ (30 %) and in Germany-based URANIT (50 %), which holds a 33 % interest in the uranium enrichment specialist Urenco. Due to their relatively low and stable fuel costs, lignite-fired and nuclear power stations are primarily used for base load. The significant decline in German wholesale electricity prices seen from the middle of 2008 to the beginning of 2016 caused these assets to become much less profitable. By reducing costs significantly, we managed to limit the earnings shortfalls. We are continuing our austerity policy although wholesale electricity prices have picked up again since then. We want to reduce annual expenditure in the Lignite & Nuclear segment by about €200 million until 2019 compared to 2016 with our current efficiency-enhancement programme. We have already achieved a large part of this goal. Lignite-fired and nuclear power stations will become a less important part of our generation portfolio although their earnings prospects are brighter now. This is largely due to the framework established by energy policy in Germany. The nuclear energy sector is on a legal phase-out schedule with firm dates by which the stations have to be taken offline. Accordingly, Unit B of our Gundremmingen nuclear power plant was forced to stop producing electricity as of 31 December 2017. Since then, two RWE nuclear power stations remain in operation: Gundremmingen C and Emsland. We have permission to operate these stations until the end of 2021 and the end of 2022, respectively, after which they must also be shut down. There is also a time limit on the use of lignite to generate electricity. This is a result of European and national climate protection goals. Germany aims to reduce greenhouse gas emissions by between 80 % and 95 % by 2050 compared to 1990. Our strategy is in line with this very ambitious plan: it envisages a complete exit from lignite-based power generation by the middle of the century. The early shutdown of our five lignite units mentioned earlier is a first step in this direction. On 1 October 2017, units P and Q at Frimmersdorf were put on standby, with units E and F at Niederaussem to follow twelve months from then and unit C at Neurath to follow another twelve months thereafter. Our carbon dioxide emissions in the Rhenish lignite mining region will therefore fall by some 15 % below the level seen in 2015. We intend to increase this ratio to between 40 % and 50 % by the end of the next decade, as coal reserves in the opencast mine in Inden will have been depleted by then and we will shut down the Weisweiler power station, among other things. Thereafter, falling capacity utilisation levels and closures of additional lignite-fired units will lead to further declines in carbon dioxide emissions before our most modern lignite-fired power plants are taken offline when opencast mining comes to an end at Hambach and Garzweiler. (2) European Power. Our electricity generation from gas, hard coal and biomass is subsumed under this segment. Here, the geographic focus is on Germany, the United Kingdom and the Benelux region. The segment also contains our 70 % stake in the Denizli gas-fired power station in Turkey, some hydroelectric power plants in Germany and Luxembourg and RWE Technology International, which specialises in project management and engineering services. All of these activities are overseen by RWE Generation. Combined review of operations > Strategy and structure 21 assets receive compensation under the German Combined Heat and Power Act or as back-up power stations. We currently plan to build an open-cycle gas turbine at Gundremmingen, our Bavarian nuclear site, which would be used to stabilise the grid. One prerequisite is that we place the winning bid in the call for tenders for the project by the transmission system operator in charge. We do not plan to build new hard coal-fired power plants. Besides this being unprofitable, political considerations also play a role. In the Netherlands, where exiting from coal is at the very top of the energy policy agenda, we want to convert our Amer 9 and Eemshaven hard coal-fired power stations for increased biomass co-firing. This will give us two advantages: it will enable us to improve our carbon footprint significantly and increase the acceptance of the power stations among the public and political decision-makers. We intend to make more use of storage technologies, with a view to supplying people with energy reliably. Investing in storage is usually unprofitable at present. One reason for this is that the scarcity premiums obtainable on the market are still too low and the available technologies are still too costly because they are not mature. Nevertheless, we are preparing to expand storage capacity by conducting pilot projects. One example is the new 6 MW battery storage unit, which we installed next to the Herdecke pumped storage power station on the Ruhr river. The unit is used to maintain grid stability. Above and beyond that, we are exploring how to bridge extended periods of oversupply and shortages of electricity. A promising option is the use of excess wind and solar power to generate heat. The saved fuel (e. g. gas) would then be available to produce electricity during later periods of scarcity. We are also looking into recyclable batteries that can be used to cover brief periods of extreme shortage. The economic and political environment is also challenging for our gas and hard coal-fired power stations, which usually cover medium and peak loads. The rapid expansion of renewable energy in Germany has resulted in a significant decline in the use of these assets compared to the beginning of the decade. In some cases, their margins are far below the levels common at that time. We have temporarily taken some German and Dutch gas-fired power plants offline that can no longer cover their fixed operating costs. The stations have been mothballed and can come back online as soon as market conditions allow. Furthermore, we have shut down several hard coal-fired power stations. The most recent examples are the Voerde A/B units on the Lower Rhine, which were taken offline as of 1 April 2017. RWE held a 25 % stake in them and marketed their electricity. Besides temporary and permanent power plant closures, we have taken additional measures to cut costs and will also do so in the future. Within the scope of our ongoing efficiency- enhancement programme, we aim to reduce costs in the European Power segment by about €100 million by 2019 compared to the 2016 level. We have made good progress in this respect. Despite the persistent pressure from consolidation, we believe the European Power segment has long-term growth prospects. We expect that our stations will become more profitable as secured generation capacity becomes tight. In the long run, this should benefit gas-fired power stations in particular. As their margins have already recovered somewhat, we were able to bring some mothballed stations back online, for example Unit G of the Gersteinwerk power station in Werne (Westphalia). Due to the German nuclear phase-out and the closure of additional coal-fired units, gas will become an increasingly important energy source in the coming years in order to secure electricity supply. Gas-fired power stations emit less carbon dioxide than coal-fired power plants and are therefore accepted more by the public as a partner to renewable energy. In terms of power plant capacity, gas is already our most important fuel, and its share of our generation portfolio will continue to rise. For example, we are planning to build a combined-cycle gas turbine power plant with an installed capacity of up to 2,500 MW and/or an open-cycle gas turbine with a capacity of up to 300 MW at our site at Tilbury in the UK. Our investment decision will depend in part on whether we manage to secure the compensation we need for the project in the UK capacity market auctions. We have identified growth options consisting of acquiring existing assets in Germany and the Benelux region, which to date do not have capacity markets. Building new generation capacity is usually unprofitable in these regions, unless the 22 RWE Annual Report 2017 (3) Energy Trading. This segment encompasses the multi-faceted activities of RWE Supply & Trading, which acts as the commercial centre for the RWE Group. Its core business, energy trading, forms the economic link between the elements of our value chain, the regional markets and the various energy commodities. RWE Supply & Trading concentrates on trading in electricity, natural gas, coal, oil, CO2 certificates and biomass. It increasingly conducts these activities outside of Europe, for example in New York, Singapore and Mumbai. The company is also responsible for sourcing the fuel needed to produce electricity and heat and marketing the electricity generated by RWE power plants. One objective is to limit price risks. On top of that, the segment generates added value by the commercial optimisation of our power plant dispatch. The resulting earnings are reported under the Lignite & Nuclear and European Power segments. RWE Supply & Trading also markets its expertise to major European customers outside of the RWE Group, offering services ranging from traditional energy supply contracts and comprehensive energy management solutions to complex risk management concepts. Another focal point of RWE Supply & Trading’s activities is the gas business. We enter into long-term supply agreements with producers, organise gas transportation by booking pipelines and optimise the timing of our deliveries using leased gas storage facilities. We also conclude transactions involving liquefied natural gas (LNG). The objective is to tap into synergies between the pipeline-bound gas business and overseas LNG trading. RWE Supply & Trading intends to establish itself as one of Europe’s leading gas intermediaries. To this end, the company also looks at markets outside of RWE’s core regions. The principle underlying this approach is, the greater the size and diversification of the procurement and supply portfolios, the greater the chances to commercially optimise them. RWE Supply & Trading also leverages its know-how to make short to medium-term investments in energy assets or energy companies, for which value-enhancing measures can be taken in order to fetch high returns upon resale (referred to as principal investments). At the end of 2017, RWE Supply & Trading had a portfolio of nine investments in a variety of activities, a large portion of which was in the USA. They range from the coal mine operator Blackhawk Mining and the developer of renewable energy projects Walden Green Energy to the specialist for energy storage solutions Stem. The attractiveness of principal investments was proven by our investment in the Lynemouth hard coal-fired power station in the north of England: we purchased the plant in 2012 and then established the basis for its conversion to biomass firing using state subsidies. In early 2016, the power station was sold on to an investor for a profit. (4) innogy. Our subsidiary innogy is responsible for business involving renewable energy, distribution networks and retail. Its strategy is designed to spur structural change in the energy sector. • Renewables. innogy plans, builds and operates facilities for the generation of electricity from renewable sources. In terms of generation capacity, the company’s strongest presence is currently in Germany and the United Kingdom, followed by Spain, the Netherlands and Poland. In terms of energy sources, the focus is on onshore and offshore wind, as well as hydroelectric power. innogy further expanded its generation capacity last year: milestones were the inauguration of the Dutch wind farm Zuidwester (90 MW) and the commissioning of the Nordsee One offshore wind farm (332 MW) north of the Isle of Juist, in which innogy holds a 13.5 % stake. Furthermore, our subsidiary has set the stage for the continued expansion of its wind power capacity by acquiring a project portfolio with over 2 GW in the USA and securing a state subsidy contract for the Triton Knoll offshore wind project in the UK. Moreover, by acquiring Belectric Solar & Battery at the beginning of 2017, innogy has become a global player in the supply of ground-mounted solar farms and battery storage units. Belectric built one of Germany’s largest battery storage facilities in Chemnitz, which was officially inaugurated in August 2017, and is currently constructing Israel’s most powerful solar farm together with a local partner. We report on some of the projects mentioned here in detail on page 38 et seq. • Grid & Infrastructure. Networks are the backbone of the energy transition, and their operators can generally earn stable returns. innogy manages electricity distribution networks in Germany, Hungary, Poland and Slovakia. Moreover, it is active in the gas distribution network business in Germany, the Czech Republic and Croatia. Conditions in its home market Germany pose the greatest challenge: rising volumes of electricity feed-ins from renewables, which are dependent on the weather and time of day, and an increasing number of small, decentralised generation facilities are making network operation an increasingly complex technical feat, but at the same time, are also opening up growth opportunities. In order to ensure a reliable supply of electricity in this environment, innogy must invest in maintaining and expanding network infrastructure. The company is developing new control technologies and testing them in field trials so that networks can be used more effectively and flexibly. A trailblazing Combined review of operations > Strategy and structure 23 project in relation to engineering and testing such technologies is the ‘Designetz’ project that was launched in 2017 and is the result of innogy joining forces with a number of partners in order to work on a blueprint for the energy network of the future (see page 27). A co-operative venture with Deutsche Telekom also aims to develop new business models relating to the grid: the two companies want to use synergies through the joint expansion of the energy and fibre-optic network in rural areas. Furthermore, innogy took a 17.5 % interest in eluminocity, a startup with headquarters in Munich and Denver, which specialises in intelligent street lighting, smart city sensor technology and high-quality charging stations for electric vehicles. • Retail. At the end of last year, innogy supplied 15.9 million customers with electricity and around 6.6 million with gas in eleven European markets. Our subsidiary is one of the largest suppliers of electricity and gas in Germany, the Netherlands and the United Kingdom. It has a leading position in at least one of these products in several other European markets. In the long run, it intends to focus on markets with attractive framework conditions, in which it can rank among the three leading suppliers. These requirements are not met in the United Kingdom. Against this backdrop, innogy agreed with its competitor SSE to merge its UK retail business with a large portion of the retail activities of SSE to form an independent company listed on the stock exchange (see page 38). Challenges and opportunities also result from changes in customer needs. Increasing numbers of households and businesses want to use energy more efficiently and profit from the opportunities of digitisation. Therefore, innogy does not limit itself to the traditional supply of electricity and gas. Instead, the company also develops innovative products and services enabling its customers to use energy intelligently while taking advantage of the newest technologies. This also involves entering into partnerships. One example is the long-term co-operation with the leading consumer electronics manufacturer Medion initiated in the middle of 2017 that consists of combining innogy’s software platform with Medion’s smart home products. E-mobility is another of innogy’s important business fields. One of the activities in this area is building charging infrastructure. This often involves our subsidiary forging partnerships with private enterprises. For example, the company agreed with Tank & Rast to set up and operate over 100 fast charging stations at the company’s motorway restaurants and service stations. The German Ministry of Transportation and Digital Infrastructure granted innogy about €3 million in subsidies for the installation of over 1,000 new charging stations. RWE AG’s management system. Ensuring sustainable growth in shareholder value is at the heart of our business policy. To manage the Group companies, RWE AG deploys a groupwide planning and controlling system, which ensures that resources are used efficiently, and provides timely, detailed insight into the current and prospective development of the company’s assets, financial position and net worth. Based on the targets set by RWE’s Executive Board and our expectations regarding the development of the business, once a year we formulate our medium-term plan, in which we forecast the development of key financial indicators. This plan contains the budget figures for the next fiscal year and planned figures for the following years. The Executive Board submits the plan to the Supervisory Board, which reviews and approves it. The Supervisory Board occasionally requests adjustments to be made prior to giving its approval. During the fiscal year, we produce internal forecasts linked to the budget. The Executive Boards of RWE AG and the main operating units meet regularly to analyse the interim and annual financial statements and update the forecasts. In the event that the updated forecast figures deviate significantly from the budget figures, the underlying reasons are analysed and countermeasures are taken if necessary. We also immediately notify the capital market in the event that published forecasts need to be modified. Some of the key indicators we use in managing our operational business and assessing the financial situation are adjusted EBITDA, adjusted EBIT, adjusted net income and net debt. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortisation. In order to improve its explanatory power in relation to the development of ordinary activities, we remove non-operating or aperiodic effects, which are shown in the non-operating result. Capital gains or losses, temporary effects from the fair valuation of derivatives, impairments and other material special items are filtered out. Subtracting operating depreciation and amortisation from adjusted EBITDA yields the adjusted EBIT, the development of which has a significant influence on the variable compensation of our employees. Adjusted net income is another key operating indicator. We calculate this by correcting net income for all major special items (including the entire non-operating result) along with the related income taxes. Since 2016, we have used this indicator as a factor in determining the share-based payment of our senior management. We face particular challenges in relation to climate protection, especially since high carbon dioxide emissions also involve high business risks. By expanding its activities in renewables, the RWE Group is making an important contribution to electricity generation that is gentle on the environment. Furthermore, our new-build power plant programme completed in 2015 has established the basis to replace old, emission-intensive assets with cutting-edge generation capacity. The carbon dioxide emissions of our power stations have dropped steadily in the last five years. We expect this trend to continue, above all due to the decommissioning of coal-fired power plants. Based on current planning, our emissions in our core markets Germany, the United Kingdom and the Benelux region will decrease by between 55 million and 65 million metric tons of carbon dioxide by 2030 compared to 2015 (141 million metric tons). These figures relate to our current generation portfolio and are in line with long-term European and national climate protection goals. Further information on our strategy and our measures in relation to CR can be found in our separate non-financial report on the Group in accordance with Section 315b, Paragraph 3 of the German Commercial Code, which will be published as part of our CR Report and does not form part of the combined review of operations. The CR Report is entitled ’Our responsibility‘ and can be accessed on the internet at www.rwe.com/cr-report. 24 RWE Annual Report 2017 We primarily use the internal rate of return as a yield indicator for assessing investment projects. The Group’s financial position is analysed using cash flows from operating activities, amongst others. We also attach special importance to the development of free cash flow, the definition of which we changed in 2017. It is the result of deducting capital expenditure from cash flows from operating activities and adding to them proceeds from divestments and asset disposals. Net debt is another indicator of RWE’s financial strength. Essentially, it consists of net financial debt together with provisions for pensions and similar obligations, for nuclear waste management, for mining damage (e. g. the recultivation of opencast mining sites) and for the dismantling of wind farms. One half of the liabilities from hybrid bonds is recognised in net debt. In compliance with International Financial Reporting Standards, we recognise innogy as a fully consolidated company in the consolidated financial statements. In other words, the Group figures include our subsidiary’s revenue, expenses, cash flows, assets, debt, etc. However, this approach only reflects innogy’s operating independence to a limited extent. Therefore, for management purposes, we also use key figures in which our subsidiary is subsumed as a pure financial investment under ‘other financial assets’. Further details on this can be found on page 60. Sustainability – a standard we hold ourselves to. We can only succeed over the long term if we ensure society’s acceptance by embracing our corporate responsibility (CR). In order to focus on the various aspects of this responsibility, we maintain a dialogue with all our stakeholder groups, such as shareholders, employees, customers, politicians, associations and non-governmental organisations. Since the reorganisation of the Group, RWE AG has defined its main task as ensuring security of supply. We also give great importance to environmental management and occupational safety. We have already achieved very high standards in these areas and we intend to maintain these. Other key areas for us include ensuring compliance with the Code of Conduct and the compliance regulations of RWE and making sure that our suppliers adhere to internationally recognised environmental and social standards. Combined review of operations > Innovation 25 1.2 INNOVATION Innovation is the key to long-term commercial success. This holds true more than ever for energy utilities like RWE. In numerous research and development projects, we look for technical solutions to make opencast mines more profitable, power plants less emissions-intensive, and grids more intelligent. We are also innovative with regard to the development of new business models that satisfy customers’ future needs and expand our offering beyond the sale of electricity and gas. In our daily operations, we benefit from the ingenuity and entrepreneurial spirit of our employees. Once again they had thousands of good ideas in 2017, which will allow us to achieve millions of euros in savings. With around 490 inventions, we are in the vanguard of Europe’s utilities. The RWE Group is innovative in many ways. Our main motivation is to remain competitive over the long term in a dramatically changing environment as well as to be a driving force behind this transformation. With a groupwide tally of around 1,480 patents and patent registrations, based on roughly 490 inventions, we are in the vanguard of Europe’s most innovative utilities. Last year, we worked on more than 320 research and development (R & D) projects and filed patent applications for 76 inventions. Our R & D projects frequently involve co-operating with external partners from the engineering and chemical industries, or with research institutions. As a result of this, we usually only have to bear a portion of the project costs. The RWE Group’s operating R & D spending amounted to €182 million in 2017 (previous year: €165 million). A total of about 550 of our employees were solely or partially dedicated to R & D activities. RWE AG: solutions for more economic opencast mining, lower emissions and new ways of using carbon dioxide. The reorganisation of the RWE Group changed the responsibilities for research and development: innovation in the areas of renewable energy, grids and retail is now in the hands of our subsidiary innogy. RWE AG is responsible for the R & D activities of the areas of the Group under its management. Its measures are primarily dedicated to conventional electricity generation. They aim to make the operation of our opencast mines and power stations more profitable and reduce emissions. Another major area of research is the use of lignite and carbon dioxide through conversion to fuel or starting materials for the chemical industry. We will present a small selection of RWE AG’s important R & D projects, followed by a brief insight into the innovative work done by innogy and ending with an employee’s idea, which is representative of many others. Opencast mining: more efficient processes thanks to digital control. In the Hambach opencast mine, we explored the options offered by digitisation to make lignite production more profitable. This was done in a four-year EU research project in which we co-operated with Delft University of Technology (Netherlands). Controlling opencast mines digitally is as complex as mining the lignite itself as it also involves many steps that dovetail each other: huge bucket- wheel excavators in the terraced opencast mines scoop up the coal and its covering layers and place it on conveyor belts on which it is transported to a distributor. This is where the loads are sent off on various transport routes: the lignite is either placed in interim storage in a coal bunker or supplied directly to the surrounding power stations and processing plants – either via belt conveyor systems or the works railway, depending on the distance. The overburden often travels several kilometres on conveyor belts before it reaches the spent side of the mine where it is used to refill the pits resulting from mining. To ensure that this process runs with clockwork precision, the heavy equipment and material flows must be dispatched accurately. Numerous influences and effects must be considered when making every single decision. Our research project has demonstrated how this can be done with digital support. It was completed successfully in October 2017. Now RWE is working on turning the methods designed within the scope of the project into dispatch aids applicable to the operation of opencast mines. Our goal is to have a software module by 2020 with which our mining engineers can optimise processes in opencast mines working either on their office computers or using tablets on site. For the reliable operation of power stations: coal analysis ‘on the fly’. Operating lignite-fired power plants as smoothly as possible requires us to have precise knowledge of the composition of the coal that we use. Not all coal is the same, as it can contain various degrees of trace elements such as iron, calcium and magnesium. Unfavourable mixtures of these can leave deposits in the furnace during combustion, forcing the lignite unit to be shut down temporarily for cleaning. To prevent this, we analyse the composition of the coal before it reaches the power plant. This involves regularly taking samples from the conveyor belt, preparing and analysing 26 RWE Annual Report 2017 them – a process that is fully automated. We are currently testing a new device in the Fortuna coal bunker of the Garz weiler opencast mine based on an alternative method: Germany’s first online coal analyser featuring innovative radio metric measuring technology. The apparatus analyses the quality of the coal in real time, i. e. as it passes the analyser on the conveyor belt – up to 10,000 metric tons per hour. If the new online coal analyser proves itself in continuous operation, it may be used in our opencast lignite mines. We expect this to reduce maintenance costs while improving the availability of our power plants. Reducing emissions: flue gas with less mercury thanks to rotary hearth furnace coke. We aim to operate all of our power stations in the most environmentally friendly manner. The legislator already imposes strict requirements on us in this regard, for example in relation to mercury emissions. The introduction of new EU-wide limits makes the framework conditions for operating our lignite-fired power plants even tighter. Today, we already manage to remove and capture most of the mercury from flue gases. As a result, our stations are far below the currently applicable threshold values. Independently of that, for years we have been conducting in-depth research into ways to further decrease mercury emissions on a large scale and at reasonable cost. We are focusing primarily on a method using rotary hearth furnace coke from Rhenish lignite produced by RWE. We already use this substance as a mercury separator, albeit only in our processing plants, in which we convert lignite into briquettes or powdered lignite for the cement and lime industry. Now we are testing whether and how rotary hearth furnace coke can be used to lower the emissions of power stations. We are doing this with the help of a pilot plant in the Coal Innovation Centre at the Niederaussem power station, which has been running since October 2017. This involves very finely ground rotary hearth furnace coke being mixed with water and introduced into the power plant’s flue gas ducts, which are much larger than those of the processing facilities. We will make use of the findings to design a demonstration plant for permanent operation, which we will start building at Niederaussem in 2018. New uses for carbon dioxide: from CO2 to diesel. We have been working on a method for removing carbon dioxide from flue gases in power stations for a long time. We have developed one of the world’s leading technologies in this field in co-operation with BASF and Linde in the Coal Innovation Centre at Niederaussem. It was tested in a pilot plant that has put in more than 60,000 operating hours since 2009 and has proven its efficiency, delivering carbon dioxide separation rates of over 90 %. Within the scope of three EU subsidy projects, we are now going one step further: we plan to use the carbon dioxide from the pilot plant, water and electricity to produce fuel and starting materials for the chemical industry in various test facilities at the Niederaussem site. In every production method, the carbon dioxide is used to create a replacement for fossil fuels such as oil and gas. The projects are called OCEAN, LOTER.CO2M and ALIGN-CCUS and differ from one another mainly by virtue of their target products. In OCEAN, oxalic acid, a basis for high-quality chemical products, is obtained from carbon dioxide. In LOTER.CO2M, the focus lies on the simple and efficient production of methanol, a starting material for a variety of chemical products and one of the most produced chemicals worldwide. Last but not least, the ALIGN-CCUS project is dedicated to the production of dimethyl ether (DME), which is of interest particularly as a replacement for diesel. It burns nearly soot-free and does not produce much nitrous oxide. DME can be used in vehicle engines and power units. The latter can be used to cover peak loads during low levels of electricity feed-ins from renewable energy (e. g. in the event of lulls). Furthermore, DME can be used to chemically store excess electricity over extended periods of time while taking up little space. We have set ourselves the goal for 2020 of running a power unit’s diesel engine on DME produced by our test plant. The unit will initially be configured to generate 240 kW and be as large as a freight container. However, it is modular and therefore expandable. It can be used to supply electricity decentrally, for instance to bridge periods until networks are expanded. In the projects described above, we work with a variety of renowned industrial and scientific partners, including RWTH Aachen, the Universities of Duisburg-Essen and Genoa, Mitsubishi Hitachi Power Systems Europe, the independent engineering service provider for internal combustion engines and vehicle technology FEV, and the Jülich Research Centre. The projects receive approximately €3 million in EU subsidies and are scheduled to run for a maximum of four years. More detailed information on this and RWE AG’s other R & D projects can be found at www.rwe.com/innovation. Combined review of operations > Innovation 27 Savings thanks to the experience and knowledge of our employees. Day-to-day operations are a fertile breeding ground for good ideas. Many of our employees harness their experience to help move the company forward with innovation. Last year, Group employees submitted around 2,300 suggestions for improvements to the idea managers at their respective companies. We estimate the economic benefit of their suggestions amounts to about €8 million in the first year of implementation. For example, an employee of RWE Power discovered that bulldozer performance in the Garzweiler opencast mine can be increased by making small adjustments to the blade. The bulldozer uses the blade to push material in order to level paths for heavy equipment, among other things. The employee realised that loose and muddy material often failed to stick to the front of the blade, falling off to the sides instead. The employee’s idea was to fit big ‘ears’ made of thick-walled sheet metal to the sides of the blade in order to do a better job of keeping the bulldozed material in front of it. This put the ball in the court of RWE Power’s Equipment Department, which upgraded one of our vehicles to these specifications. A test with the modified blade demonstrated that a third more material could be moved. The first step will involve upgrading four of the bulldozers used in the Garzweiler opencast mine. We estimate that associated costs will total just under €11,000 – money well spent, as this can result in over €80,000 in annual savings based on approximately 5,000 hours of bulldozing work carried out every year. innogy SE: focus on renewable energy, smart grids and new retail products. The RWE Group is also pushing forward with innovation in renewables, distribution networks and supply. Our subsidiary innogy has a wide range of innovative undertakings which are presented in detail at www.innogy.com/ innovation. Some of them enable it to make valuable contributions to the success of the energy transition, e. g. the ‘Designetz’ project. Spearheaded by innogy, a research consortium aims to develop a sustainable concept for integrating renewable energy into the supply system. The main challenge consists of finding a way to network the large number of decentralised electricity generators and users in both rural and urban areas intelligently. The consortium partners include municipal utilities, renowned research institutes and large technology firms. Designetz is scheduled to be rolled out in North Rhine-Westphalia, Rhineland-Palatinate and Saarland. These states, in which over a quarter of Germany’s population lives, are ideally suited to conducting field trials for the decentralised energy landscape of the future, as they are home to areas with very high levels of electricity from renewables as well as heavily industrialised areas of consumption. Designetz is part of the ‘Intelligent Energy Showcase – Digital Agenda for the Energy Transition’ (SINTEG) subsidy programme of the German Federal Ministry for Economic Affairs and Energy. The Ministry attaches such high importance to Designetz that it has provided it with about €30 million in subsidies. Innovation Hub at innogy: a platform for the development of new business models. Companies seeking to survive over the long term in a market undergoing dynamic change must ensure today that they have compelling offers to satisfy the customer needs of the future. At the Innovation Hub, a platform created in 2014, trailblazing ideas and business models concerning all things energy and beyond are developed. Special attention is paid to the possibilities offered by digitisation. The ambition is to bring products and services to market maturity which allow customers to use energy more efficiently and improve their quality of life. An example of this is ‘Fresh Energy’, a new solution consisting of a smart meter and a smartphone app. The smart meter records the energy consumption of all household appliances. The data is presented in a manner that is easy to understand, enabling the user to identify ‘power hungry’ appliances. Moreover, customers are only invoiced for the electricity they have actually used, without any advance or back payments. 28 RWE Annual Report 2017 1.3 ECONOMIC ENVIRONMENT The market prospects of our power stations improved somewhat in 2017. Buoyed by rising hard coal quotations, wholesale electricity prices continued the course for recovery on which they embarked at the beginning of 2016. Purchases of base-load power made in 2017 for the following calendar year cost an average of €32 per MWh, €5 more than in 2016. However, this will only affect our earnings in the future. We had sold forward most of our electricity generation for 2017 in earlier years. The realised margins were significantly down on 2016. However, the profit margins of our Continental European gas-fired power stations improved. Economic upturn continues. Based on initial estimates, worldwide economic output was some 3 % higher last year than in 2016. The Eurozone is estimated to have recorded more than 2 % growth. Germany’s gross domestic product (GDP) is likely to have risen by about the same percentage. Stimulus came primarily from consumer spending. GDP in the Netherlands rose by approximately 3 %. By contrast, Belgium posted growth of just under 2 %. The same applies to the United Kingdom, our most important market outside of the currency union, which benefited from the expanding service sector, but felt the adverse effects of the impending exit from the EU. The economies of our major Central Eastern European markets displayed much more dynamic development. Available data indicates that GDP increased by over 4 % in Poland and the Czech Republic, with Hungary and Slovakia recording a gain of more than 3 %. Temperatures slightly above average. Whereas the economic trend significantly affects the energy needs of industrial enterprises, residential energy consumption is influenced more by weather conditions. The lower the outside temperature, the more gas and electricity is needed for heating purposes. Meteorological data for 2017 shows that weather conditions were relatively mild throughout the whole of Europe. Average temperatures were mostly slightly higher than the relevant ten-year average, despite the very cold weather in January. The comparison to the previous year is varied: overall, it was slightly warmer than in 2016 in the United Kingdom and the Netherlands, whereas it was colder in large parts of Eastern Europe. The average temperature for the year measured in Germany was on a par with the previous year. Wind conditions more favourable than in 2016. In addition to energy consumption, the generation of electricity – particularly from wind farms – is also subject to weather-related influences. On the whole, wind levels at innogy’s generation sites were slightly less favourable than the long-term average. However, they improved over the prior year in nearly all countries, with the exception of Spain. Run-of-river power stations are also subject to weather conditions. Their electricity production depends on precipitation and melt water volumes. In Germany, where most of the RWE Group’s hydroelectric power plants are located, these volumes were relatively low in 2017, when compared to the long-term average and the preceding year. Higher energy consumption in RWE’s core markets. The economic growth stimulated energy consumption in our core markets, whereas the trend towards saving energy had a dampening effect. Based on preliminary calculations by the Federal Association of the German Energy and Water Industries (BDEW), German demand for electricity in 2017 was 0.7 % up year on year. Estimates indicate a rise of about 1 % in the Netherlands. Electricity consumption is likely to have advanced by between 2 % and 3 % in Poland, Slovakia and Hungary, whereas it dropped by some 2 % in the United Kingdom. In relation to gas, volume increases in our Continental European markets were contrasted by a decline in the United Kingdom. Based on pro-forma BDEW figures, gas consumption rose by 6 % year on year in Germany, in part because the market conditions for gas-fired power plants improved, allowing these stations to be used more. According to estimates, gas consumption was up 2 % in the Netherlands, and 1 % in the Czech Republic. By contrast, gas demand in the United Kingdom decreased by approximately 2 % compared to 2016, in part due to the relatively mild weather. Combined review of operations > Economic environment 29 One-year forward prices of gas on the TTF wholesale market €/MWh (average weekly figures) 2016 forward 2017 forward 2018 forward 24 22 20 18 16 14 12 2015 2016 2017 Source: RWE Supply & Trading. Stabilisation of TTF wholesale gas quotations. Following a lengthy decline, wholesale gas prices recovered somewhat in Western Europe. Averaged for the year, spot prices at the important Dutch Title Transfer Facility (TTF) amounted to €17 per MWh, €3 more than in 2016. In TTF forward trading, contracts for delivery in the following calendar year (2018 forward) were also settled for an average of €17 per MWh. By comparison, in 2016 the price paid for the 2017 forward was €15. Residential tariffs typically react to developments on the wholesale market with a time lag. They were still significantly marked by the slump of earlier years. Based on available data, gas became 3 % and 1 % cheaper for German and UK households, respectively. In the Czech Republic, residential customer tariffs were essentially unchanged, whereas they were up 2 % year on year in the Netherlands. Developments affecting industrial customers were as follows: prices were up 1 % in Germany, 5 % in the Netherlands and 6 % in the United Kingdom. This was contrasted by a 7 % decline in tariffs in the Czech Republic. One-year forward prices of coal deliveries to Amsterdam/Rotterdam/Antwerp US$/metric ton of coal (average weekly figures) 2016 forward 2017 forward 2018 forward 90 80 70 60 50 40 30 2015 2016 2017 Source: RWE Supply & Trading. 30 RWE Annual Report 2017 Hard coal much more expensive than in 2016. Quotations in international hard coal trading bottomed out at the beginning of 2016, after which they rose considerably. In 2017, coal imports including freight and insurance via the ARA ports (Amsterdam/Rotterdam/Antwerp) were quoted at an average of US$84 (€75) per metric ton in spot trading, up US$24 compared to 2016. The 2018 forward (API 2 Index) traded at US$74 (€65) per metric ton, US$20 higher than the comparable figure for the previous year. This is in part due to robust Chinese economic activity and its revitalising impact on the country’s demand for coal. In 2016, Beijing had curbed domestic coal production through regulatory intervention. However, the restrictions were loosened after a while. Freight rates, i. e. overseas shipping costs, are an important price component in international hard coal trading. They also displayed a clear upward trend. In 2017, the standard route from South Africa to Rotterdam cost an average of just under US$7 per metric ton, compared to slightly more than US$4 in the previous year. The rise in fuel costs had a price- increasing effect. Furthermore, excess ocean freight capacity built up in the past decreased somewhat. Forward prices of CO2 emission allowances (EU Allowances) €/metric ton of CO2 (average weekly figures) December 2016 forward December 2017 forward December 2018 forward 9 8 7 6 5 4 2015 2016 2017 Source: RWE Supply & Trading. Reform of European Emissions Trading System (ETS) gives rise to speculation over CO2 certificates. Prices in European trading of carbon dioxide emission allowances also increased. Last year, a European Union Allowance (EUA), which confers the right to emit a metric ton of CO2, was quoted at an average of €6. This information relates to forward contracts which fall due in December 2018. By comparison, in 2016, an EUA in contracts for December 2017 cost slightly more than €5. There are still many more emission allowances on the market than companies need to cover their carbon dioxide emissions, but the EU Parliament and the European Council have initiated a package of measures that puts the EU in a position to reduce the surplus of certificates substantially (see page 34). In the last rounds of negotiation on this package in the second half of 2017, EUAs rose in price considerably, reaching the €8 mark at the end of the year. However, the measures adopted by the EU will not come to bear until after 2018. Furthermore, Brexit brings with it risks: it is still unclear if and when the United Kingdom will leave the ETS. In the event of an early withdrawal, industrial enterprises with a local domicile will put large numbers of emission allowances they no longer require on the market, thereby increasing the oversupply. The possibility of such a scenario had a dampening effect on EUA prices in 2017. Combined review of operations > Economic environment 31 One-year forward prices of base-load electricity on the wholesale market €/MWh (average weekly figures) 2016 forward 2017 forward 2018 forward 70 60 50 40 30 20 2015 2016 2017 Germany Netherlands United Kingdom Source: RWE Supply & Trading. Wholesale electricity prices markedly up year on year. In our major generation markets, wholesale electricity prices continued the upward trend on which they had embarked in 2016. The recovery of hard coal quotations played an important role. Hard coal-fired power plants set the prices on the electricity market for many hours during the year, especially in Germany. If their fuel costs rise, this has a knock-on effect on electricity prices. In Germany, the average spot price of base-load power was €34 per MWh in 2017, €5 more than in the previous year. Prices also rose in forward trading. Last year, the 2018 base-load forward cost an average of €32 per MWh. By comparison, the 2017 forward traded for €27 per MWh in 2016. In the United Kingdom, our second-largest generation market, wholesale electricity quotations are typically much higher than in Germany. The average spot price of base-load electricity amounted to £45 (€52) per MWh, up £5 on the level witnessed in 2016. The 2018 forward traded for £44 (€50) per MWh, £3 higher than the previous year’s comparable figure. In the Netherlands, where we have our third-largest generation position, base-load power traded for an average of €39 per MWh on the spot market. Relative to 2016, it rose in price by €7. Forward contracts for 2018 were quoted at €36 per MWh, €5 more than what was paid for the 2017 forward in the prior-year period. 32 RWE Annual Report 2017 Clean dark spreads¹ forward trading €/MWh (average weekly figures) 2016 forward 2017 forward 2018 forward 15 10 5 0 -5 2015 2016 2017 Germany Netherlands United Kingdom Source: RWE Supply & Trading. 1 Price of base-load electricity minus the cost of hard coal and CO2 emission allowances based on a power plant efficiency of 35 % to 37 %; including CO2 tax in the UK. Clean spark spreads¹ forward trading €/MWh (average weekly figures) 15 10 5 0 – 5 – 10 – 15 – 20 2016 forward 2017 forward 2018 forward 2015 2016 2017 Germany Netherlands United Kingdom Source: RWE Supply & Trading. 1 Price of base-load electricity minus the cost of gas and CO2 emission allowances based on a power plant efficiency of 49 % to 50 %; including CO2 tax in the UK. Sustained pressure on electricity generation margins. The margins of our conventional power plants are the difference between the price of electricity and the costs (including taxes) of the fuel and CO2 emission allowances required to produce it. We generally source the fuel for our hard coal and gas-fired power plants from liquid markets at prevailing conditions. Therefore, the generation costs of these stations can change significantly. The margins are referred to as clean dark spreads for hard coal-fired power plants and clean spark spreads for gas-fired power plants. The two above graphs illustrate the development of the aforementioned spreads in our main generation markets since 2015, based on the respective year-forward transactions. Taking the annual average figures as a basis, clean dark spreads were clearly on a downward trend over the entire three-year reporting period presented, particularly in the United Kingdom. Margins of gas-fired power stations displayed much more favourable development, picking up continually in both Germany and the Netherlands. In the United Kingdom, clean spark spreads were the highest in absolute terms, but in 2017 failed to match the very good level recorded the year before. Combined review of operations > Economic environment 33 Significant increase in German industrial electricity prices. Electricity bills are greatly determined by grid fees, levies and taxes. This applies above all to households. In Germany and the United Kingdom, where the share of the total price accounted for by state-mandated components is growing steadily, residential tariffs rose by an average of 2 % and 7 % compared to 2016. In the Netherlands and Poland, households had to pay about 1 % and 3 % more than in the previous year. By contrast, residential tariffs declined by 3 % and 4 % in Hungary and Slovakia. The regional differences in the development of industrial electricity prices were even greater: they increased by 8 % in Germany and 3 % in the United Kingdom, whereas they dropped by 1 % in the Netherlands, 7 % in Poland, 8 % in Hungary and by as much as 11 % in Slovakia. The cost of the fuel used to generate electricity from nuclear energy and lignite is generally more stable. We produce lignite from our own opencast mines. There are no reliable market prices for it due to its limited tradability. We cover our uranium consumption via long-term contracts at firm conditions. Owing to their relatively stable fuel costs, the margins of lignite-fired and nuclear power plants generally develop in line with wholesale electricity prices and they have mirrored the significant upward trend of the latter since 2016. RWE electricity from lignite and nuclear energy sold for an average of €31 per MWh. We sell forward most of the output of our power stations and secure the prices of the required fuel and emission allowances in order to reduce short-term volume and price risks. Therefore, the income we earned from our power plants in the year under review depended on these types of forward contracts for 2017, which we had concluded up to three years in advance. Overall, our 2017 power production sold for a lower price compared to the previous year. For electricity from our German lignite-fired and nuclear power plants, we achieved an average of €31 per MWh (previous year: €35 per MWh). As a result, income from these stations was significantly lower than in 2016. The effects of the abolishment of the German nuclear fuel tax have not been considered here. Our hard coal-fired stations also recorded declining margins. Conversely, our gas-fired power plants, the production of which we sell forward closer to delivery, already benefited from the most recent recovery of wholesale electricity prices. In sum, their margins and deployment times were higher than in the previous year. 34 RWE Annual Report 2017 1.4 POLITICAL ENVIRONMENT In 2017, policymakers made trailblazing decisions regarding the energy sector. One of the most important ones related to the European Emissions Trading System: following a lengthy tug of war, the European Parliament and the Council of Ministers reached an agreement on a reform to strengthen this climate protection tool. The most important course set in Germany related to nuclear energy: it was established by law that the government will take over the processing and financing of the interim and final storage of radioactive waste. It will receive the capital required for this from a fund, into which the power plant operators made payments in the middle of 2017. This regulation is appropriate. As a result, our political risks in relation to nuclear energy decreased considerably. European emissions trading reform adopted. In February 2018, the European Parliament gave the go-ahead for a fundamental reform of the European Emissions Trading System (ETS). The European Council had already given its informal approval in December 2017. This was preceded by trilateral talks held by representatives of the two bodies and the EU Commission, which led to an agreement in November. The objective of the reform is to strengthen the ETS and bring it in line with the European greenhouse gas reduction goal for 2030. By then, branches of industry participating in the ETS must reduce their emissions by 43 % compared to 2005. Therefore, the number of CO2 certificates issued will be lowered by 2.2 % annually during the fourth trading period, which runs from 2021 until 2030. The current reduction rate is 1.74 %. Another objective of the amendment to the ETS is to reduce the existing glut of allowances on the market more quickly. This will be done by transferring a much larger volume of allowances into the ‘market stability reserve’ (MSR) compared to what is prescribed by current legislation. The MSR, which will be used from 2019 onwards, is a tool that will give the EU more flexibility in bringing the supply of certificates in line with demand. The new regulation envisages withholding up to 24 % of the volume allocated on the market annually from 2019 to 2023 and transferring it to the MSR. It also envisages cancelling MSR emission allowances exceeding the volume allocated to the market in the preceding year from 2023 onwards. In addition, it will allow member states to cancel certificates relating to power plants closed as a result of emission-reduction measures. EU imposes stricter limits on air pollutant emissions. The European Union has passed new regulations for limiting air pollutant emissions of new power plants, which must also be complied with by existing stations from 2021 onwards. A corresponding implementing regulation entered into force in August 2017. By and large, the standards are appropriate and feasible. However, they go beyond what is achievable at present in relation to nitrous oxides and mercury. The implementing regulation must now be translated into national law, which in Germany will involve an amendment to the thirteenth Federal Emission Control Act. The EU has given member states room for manoeuvre within which they can set their own thresholds. We hope that German policymakers will consider technical and economic feasibility as well as the need for a secure supply of electricity. Only once the Federal Emission Control Act has been amended can we estimate the consequences that this will have for our power plants. The need to implement extensive retrofits or to shut down individual stations early cannot be ruled out. European Council wants to exclude coal-fired power stations from capacity markets. In the middle of December 2017, the member states in the European Council agreed on a joint position on the redesign of energy law. One of the main topics was the determination of minimum standards that national governments must observe if they have introduced capacity mechanisms or intend to do so. The countries agreed that power plants emitting more than 550 grams of carbon dioxide per kilowatt hour may only be compensated for their capacity if their annual emissions do not exceed 700 kilograms per kilowatt of installed capacity. This rule should apply to new and existing plant from 2026 and 2030 onwards, respectively. There are no provisions governing the level of the payments until then – with the exception that compensation for existing stations, which do not meet the 550 gram criterion, must be reduced by 5 % per year from 2026 to 2030. If the concepts of the European Council are implemented in the planned EU Electricity Market Regulation, coal-fired power stations and old gas-fired power plants would not be able to participate in capacity markets. A modern lignite-fired power plant would be allowed to operate for a maximum of 750 hours per year in order to remain within the annual emission contingent of 700 kg/kW. This would only represent about 10 % of its normal capacity utilisation. The service life of a modern hard coal-fired power station would be limited to roughly 950 hours per annum. If Germany introduced a capacity market, a large portion of the country’s secured generation capacity would be excluded from it. Very little would be gained in terms of security of supply. Combined review of operations > Political environment 35 At the end of February 2018, the Industry Committee of the European Parliament debated the matter and established its standpoint. The Committee’s position is generally in line with the concept of the Council. It is actually a proponent of even tighter regulation in certain areas. Now the Parliament and Council have to agree on a joint position. This will involve trilateral negotiations with representatives of the Commission, which will probably carry on into the second half of 2018. New law on nuclear waste disposal in force – utilities pay into the nuclear energy fund. The law on the reorganisation of the responsibility for nuclear waste disposal in Germany entered into force on 16 June 2017. This was half a year after being passed by the Lower House of Parliament, as it was subject to EU clearance. The law is largely in line with the recommendations submitted in April 2016 by the Commission for the Review of the Financing of the Nuclear Phase-out tasked by the German government. Accordingly, the federal government will handle the processing and financing of the interim and final storage of radioactive waste, whereas responsibility for shutting down and dismantling the stations as well as for packaging radioactive waste will continue to be borne by the companies. The tasks transferred to the federal government will be financed by a fund into which power plant operators have paid. On 3 July 2017, the companies transferred the full amount of €24.1 billion to the fund’s accounts at the Deutsche Bundesbank. RWE’s share amounted to €6.8 billion. This ends the liability of nuclear power plant operators for the costs of intermediate and final storage. In order to provide a legal basis for this, on 26 June the companies involved concluded a public law contract with the Federal Republic of Germany. This contract provides the companies with a higher level of legal certainty related to the release from liability and also establishes details on the conditions of transferring radioactive waste to the Federal authorities. Based on this contract, numerous legal disputes between the utilities and the state over nuclear energy related issues were terminated, and the companies involved withdrew their claims. Germany reforms grid fee structure. The German Act on the Modernisation of the Grid Fee Structure (NEMoG) entered into force on 22 July 2017. The new legislation introduced through NEMoG governs the gradual uniformity of transmission system fees. This measure was triggered by the fact that the four German transmission system operators mainly pass their network operation, maintenance and expansion costs through to the grid users in their respective balancing zones. Therefore, there are significant regional differences among transmission grid fees, which account for approximately a quarter of grid costs. Now the fees will be aligned in annual increments from 2019 to 2023. The details of the implementation will be set out in a regulation. As a result of NEMoG, grid fees will tend to rise in western and southern Germany and fall in the north and east. Energy-intensive industries in the balancing zone of Amprion, which is situated in North Rhine-Westphalia, Rhineland-Palatinate and Saarland as well as parts of Lower Saxony and Bavaria, are among the losers of the reform: they will have additional costs, which will be significant in some cases. The second key part of NEMoG is the partial abolition of the compensation received by operators of decentralised generation units for ‘avoided grid fees’. So far, the justification for the payments has been that the higher network levels experience relief when electricity is fed into the local distribution system and also used locally and that this could reduce the cost of expanding the supra-regional network, amongst other things. However, the German government points out that the expansion of renewable energy increasingly leads to a local oversupply of decentrally generated electricity, which results in feed-ins back into the higher-voltage network. As regards the reduction in compensation for avoided grid fees, NEMoG distinguishes between units with volatile generation volumes (e. g. wind farms) and those with controllable production (e. g. combined heat and power stations). Concerning the former generation units, the law envisages new plant no longer receiving compensation from 2018 onwards and fees for existing stations being gradually reduced. The following applies to units with controllable generation: new plant will no longer be subsidised from 2023 onwards, whereas old stations will continue to receive compensation. However, NEMoG also introduces limitations for the latter type of plant: the law stipulates that the basis for calculating avoided grid fees (which is derived from the grid costs) will be frozen at the 2016 level from 2018 onwards. It also envisages no longer taking into account certain grid costs in the future. Some RWE power stations are affected by these two adjustments. By contrast, operators of generation units that are covered by the German Renewable Energy Act (EEG) are not disadvantaged by the reform, as income from avoided grid fees results in a commensurate reduction in compensation under the EEG. ramifications of the coalition agreement for the energy sector, as a lot depends on the details of the climate protection package. To this end, the government intends to enter into a broad-based dialogue involving all affected companies. The measures will then be written into a new national climate and energy agreement by the end of 2018. Incremental capping of energy prices for UK households. In the United Kingdom, policymakers have begun to cap energy prices for certain customer groups. The first of this type of measure entered into force in April 2017. It applies to households with prepayment meters and is limited to three years. In February 2018, this scheme was expanded to standard-tariff customers that receive a price reduction as low-income households, known as the ‘warm home discount’. This regulation has a limited term and will be abolished by no later than the end of 2019. The government envisages all customers with standard-rate tariffs benefiting from a price cap in the future. In October 2017, the Department for Business, Energy and Industrial Strategy presented a corresponding bill to the UK Parliament for review. It stipulates that the planned price cap will expire at the end of 2020. However, policymakers reserve the right to prolong it for up to three years. The review of the bill was completed in February 2018. A revised bill is expected to be submitted to Parliament in the spring, with the legislative and approval steps scheduled to be taken by the end of 2018. Although there is no certainty on the details of the general price capping, it will probably have negative effects on the earnings of utilities. 36 RWE Annual Report 2017 German Network Agency decides to introduce new general productivity target for gas network operators. At the end of last year, the German Network Agency, which is the federal network regulator, determined the minimum efficiency improvements that it expects of gas network operators from 2018 onwards. Accordingly, companies must increase productivity by 0.49 % above the general rate. In addition, network operators which have been found to have inefficiencies on the basis of cost audits will be obliged to achieve additional increases. The aforementioned rate of increase is preliminary. This indicator – usually referred to as the ‘general sectoral productivity factor’ – is one of the key levers in the concept of German incentive-based regulation for network operators. Within the scope of this concept, the regulatory authorities establish revenue caps for each five-year regulatory period. These caps are adjusted on an annual basis – depending on the productivity increases demanded of companies, among other things. The third regulation period for gas began at the start of 2018, and for electricity it will begin a year later. The federal and state governments had set the general sectoral productivity factor at 1.25 % and 1.5 % per year for the first two regulatory periods. This determination has now been made by the Network Agency for the first time. The Federal Association of the German Energy and Water Industries (BDEW) and the network operators are of the opinion that the earlier rates were too high. The BDEW believes that they should be reduced to zero, as it feels that anything above this level implies that the network operators’ progress in terms of productivity is above average or that increases in wages and the cost of materials and capital employed in the grid business are below those of the economy in general. New Dutch government aims for exit from coal by 2030. In mid-October 2017, after more than 200 days of negotiations, the new Dutch government concluded its coalition agreement. It reflects the intent of the four coalition parties, under the leadership of Prime Minister Mark Rutte, to take ambitious steps to reduce greenhouse gas emissions. One objective is for the country to stop generating electricity from coal completely by 2030. Five hard coal-fired power stations are currently in operation in the Netherlands, including two owned by RWE. Furthermore, the new government intends to introduce a national carbon price floor, making CO2 emissions in the electricity sector more expensive. The goal behind these and further measures is to lower the country’s greenhouse gas emissions by 49 % by 2030 compared to the 1990 level. In spite of this, the government is putting a stop to the subsidisation of biomass co-firing: it intends to discontinue this completely from 2024 onwards. However, subsidies already pledged to RWE will probably not be affected by this. At present, it is impossible to predict the Combined review of operations > Major events 37 1.5 MAJOR EVENTS A number of pleasing events occurred for RWE last year. One was that the constitutional judges in Karlsruhe declared the German nuclear fuel tax null and void, resulting in the federal government refunding us the €1.7 billion in taxes we had paid in earlier years. We want to pay part of this sum to our shareholders as a special dividend in early May 2018. There was also some good news from innogy: our subsidiary paved the way for the continued expansion of its wind portfolio and positioned itself as an international supplier of solar farms and battery storage units by acquiring Belectric Solar & Battery. Furthermore, innogy came up with a convincing solution for its beleaguered UK retail customer business: together with its competitor SSE, it wants to create a strong, independent retail company in the United Kingdom. In the following, we will present the major events that occurred in 2017 and the beginning of 2018. We have limited ourselves to events that have not been commented on in detail elsewhere in this report. Events in the fiscal year German Constitutional Court declares nuclear fuel tax null and void. In the middle of April 2017, the German Constitutional Court ruled that the German Nuclear Fuel Tax Act was in violation of basic law and thus null and void. The decision was announced on 7 June. The Act had been passed by the German Lower House of Parliament at the end of October 2010 without involving the Upper House and expired at the end of 2016. It obligated the operators of nuclear power plants to pay a tax on the fuel used in their stations. Since 2011, RWE had filed appeals in court and with the authorities due to the doubts it had in relation to the Act’s conformity with EU legislation and the German constitution. The Hamburg Fiscal Court shared our concerns and submitted the matter to the Constitutional Court. The constitutional judges found that the federal legislator was not authorised to introduce the nuclear fuel tax because it is not classified as a consumption tax within the meaning of Article 106 of German Basic Law. We had made payments totalling some €1.7 billion during the levy period, which was from 2011 to 2016. We were refunded this sum in addition to accrued interest. We recognised the tax refund in the non-operating result and the interest in the other financial result. This did not affect adjusted EBITDA or adjusted net income. RWE AG Executive Board plans special dividend of €1 from nuclear fuel tax refund. Due to the reimbursement of the nuclear fuel tax at the beginning of May 2018, the Executive Board of RWE AG plans to pay a special dividend of €1 per share in addition to the regular dividend of €0.50 per share. We announced this in June 2017 after consulting with the Supervisory Board. The dividend proposal will be submitted to the Annual General Meeting on 26 April 2018 for the passage of a corresponding resolution. Based on the total of 614.7 million RWE shares, including 39 million preferred shares, the planned special disbursement amounts to €615 million. We are using most of the tax refund to increase our financial strength. RWE sheds majority stake in Mátra. In the middle of December, RWE Power and EnBW signed a contract for the joint sale of their shareholdings of 50.9 % and 21.7 % in the Hungarian electricity generator Mátrai Erőmű Zrt. (Mátra for short). The buyer is a consortium made up of EP Holding, which is based in the Czech Republic, and Hungarian investor Lőrinc Mészáros. The transaction is scheduled for completion in the spring of 2018. Our rationale for the sale is that we want to focus our conventional electricity business on the core markets Germany, the United Kingdom and the Benelux region. Mátra specialises in producing and generating electricity from lignite. The company has slightly more than 2,000 people on its payroll and has a net generation capacity of about 840 MW. Further divestments in the generation business. We completed the sale of the following investments and assets last year: • Unit 5 of the Hamborn CHP station: the plant was sold to its former leaseholder thyssenkrupp Steel Europe (TKSE) at the end of May. It is located on the premises of the steel mill of TKSE in Duisburg, Germany, which is its operator. The unit is gas-fired and has a nominal electric capacity of 225 MW (net). • Stakes in two residential property companies in the Rhenish lignite mining region: the interests of 50 % and 15 % held by RWE Power in Wohnungsbaugesellschaft für das Rheinische Braunkohlenrevier GmbH (WBG) and GSG Wohnungsbau Braunkohle GmbH were acquired by the Gelsenkirchen-based real estate company Vivawest in July. The price is a mid-range double-digit million euro amount. Together, WBG and GSG own approximately 1,800 rented apartments and 1,200 garages and parking spaces in 320 buildings in the Cologne-Aachen-Grevenbroich area. In addition, they manage some 150 residential units for third parties. The companies’ original objective was to offer housing to miners, but there is hardly any need for this now. 38 RWE Annual Report 2017 • Littlebrook power plant site: in September, we sold most of the site to the UK property investor Tritax Big Box REIT plc. A smaller part had already been sold to the transmission system operator National Grid in August. The property sales resulted in total euro proceeds in the upper double-digit million range. The Littlebrook site is situated on the banks of the River Thames in Dartford, east of London. Until the end of March 2015, we operated an oil-fired power plant there. Due to stricter emission limits for large combustion plants, the station had to be shut down. innogy and SSE intend to combine UK retail operations. At the beginning of November, innogy and its British competitor SSE agreed to establish an independent retail company in the United Kingdom by merging operations. innogy will transfer its entire UK retail business to the new company. SSE will contribute its residential customer business and its activities in the field of energy solutions but retain corporate customer sales and the Irish business. The merged retail company is expected to have a premium listing on the London Stock Exchange. innogy will take a 34.4 % non-controlling interest in the company, and SSE intends to demerge its 65.6 % interest to its shareholders. The transaction is subject to approval from the competition and regulatory authorities and SSE’s shareholders. Including the listing, the deal is expected to close in the fourth quarter of 2018 or the first quarter of 2019. Until then, innogy and SSE will run their retail operations completely independently of one another. This transaction is happening against the backdrop of the difficult framework conditions in the UK supply market, which is characterised by extremely high competitive pressure and continued political intervention to the detriment of the companies. In this challenging environment, the creation of a large independent retail company provides additional opportunities to win customers through attractive offers and good service. innogy’s UK renewables business will not be affected by the transaction. This is an area in which our subsidiary wants to continue growing, in particular by investing in wind farm projects. innogy receives subsidy contract for Triton Knoll offshore wind farm and becomes project’s sole owner. In the middle of August, innogy won a tender for the Triton Knoll offshore wind project from the UK Department for Business, Energy and Industrial Strategy. The decision was reached by way of an auction. The project, which involves the construction of wind turbines with a combined capacity of approximately 860 MW off the eastern coast of England, has an estimated investment volume of £2 billion. The state guarantees £74.75 in compensation for each MWh of electricity fed into the grid from the wind farm for a period of 15 years. Until recently, Statkraft also held a stake in Triton Knoll, but in October 2017 the Norwegian energy utility sold its 50 % interest to innogy, which is now the project’s sole owner. The Triton Knoll site has favourable wind conditions and moderate water depths. All of the permits necessary for the wind farm have already been obtained. The final investment decision is scheduled to be made in the middle of 2018 and, based on current plans, the turbines could start being commissioned in 2021. In the United Kingdom, renewable energy has been subsidised via a mechanism called ‘contract for difference’ (CfD) since April 2015. If the price received by an operator on the wholesale market is lower than a guaranteed payment, the operator is reimbursed the difference. If the price is higher, the payment must be made by the operator. Projects qualifying for subsidies are chosen as follows: if a subsidy pool for a certain generation technology is large enough, all applicants receive a CfD. If the pool is insufficient, an auction determines who receives the awards. Acquisition of Belectric Solar & Battery and wind power project pipeline in the USA. Last year, innogy took further steps for the successful implementation of its growth strategy. In early January 2017, it acquired the ground-mounted solar collector and battery storage specialist Belectric Solar & Battery GmbH for €74 million. The acquired company is headquartered in Kolitzheim, Germany, and has built solar collectors with a total net installed capacity of over 1.6 GW since its inception in 2001. Belectric is also the operator of a large number of these units. Furthermore, the company develops turnkey, large-scale battery storage solutions. Combined review of operations > Major events 39 In the USA, innogy secured a project pipeline for onshore wind turbines with a total net installed capacity of over 2 GW. The seller is the British investment company Terra Firma Capital Partners. The transaction was contractually agreed in December 2017 and is scheduled to be completed in the second quarter of 2018. It requires the approval of the Committee on Foreign Investment in the United States. The acquired project portfolio encompasses more than 20 ventures distributed over seven states and in various phases of development. innogy will review the projects for profitability and keep all of its options open in terms of financing and ownership structure for the time being. Zuidwester and Nordsee One wind farms officially go online. Last year, two large wind energy projects in which innogy was involved were completed successfully. First the wind farms constructed as part of the Noordoostpolder large-scale project were inaugurated in mid-June, including the innogy wind farm Zuidwester with a capacity of 90 MW. Zuidwester is located at the IJsselmeer. Its twelve onshore turbines are currently some of the most powerful in the world, capable of generating 7.5 MW each. They replace 50 smaller turbines installed in the 1980s and 1990s. As a result of this, the capacity of Zuidwester has increased six-fold. innogy has invested approximately €150 million in this wind farm, which has been generating electricity at full capacity since early 2017. Numerous companies are participating in Noordoostpolder. A total of 86 turbines with a total capacity of around 430 MW, located nearshore in the IJsselmeer and onshore along the dyke, have been built within the scope of Noordoostpolder. In December, the Nordsee One offshore wind farm, with a generation capacity of 332 MW, was completed. Nordsee One is located approximately 40 kilometres north of the East Frisian Isle of Juist. Its main owner is the Canadian power utility Northland Power. innogy holds a 13.5 % stake. The wind farm has been generating electricity with all 54 of its turbines since September 2017. However, the construction work lasted until the end of the year. A total of €1.2 billion was invested in the project. Starting shot for UK capacity market. The first twelve-month period of the UK capacity market began on 1 October 2017. During this period, the generators are paid £6.95 per kilowatt for the availability of the generation capacity that they guarantee. The payment was determined in early 2017 by way of an auction, in which all RWE stations involved qualified for a combined 7.9 GW in capacity payments. The bidding procedure involved a total of 59.3 GW in generation capacity, of which 54.4 GW won a contract. It was the fourth auction for the UK capacity market. The three preceding ones related to later periods. The auction procedure is as follows: the state calls for tenders for a certain amount of secured capacity. The participants submit bids as a minimum payment that they require for keeping their plant available during a pre- defined period. For old stations, this period generally lasts for twelve months, and for new stations, it can be extended to 15 years. The auction determines the level of the payment at which supply and demand are in line with each other. This is the amount received by all bidders which have submitted offers for a subsidy at or below that level. Participation in the capacity auctions is voluntary and technology-neutral. Plants that already receive other subsidies do not qualify. The first capacity auction was held in December 2014 and related to the period from October 2018 to September 2019, whereas the two following auctions each covered the next twelve months. This is because the original plan was to begin making payments in October 2018. To avoid supply shortfalls, which may have occurred if hard coal-fired power plants had been forced by the market to shut down, the UK government expedited the start of the capacity market by a year. RWE equips Eemshaven and Amer 9 hard coal-fired power stations for biomass co-firing. In the first half of 2017, we decided to retrofit our hard coal-fired power plants Eemshaven and Amer 9 for co-firing with biomass. The Dutch state approved subsidies of up to €2.6 billion for the two plants. Along with the retrofits, the subsidies will also finance the additional expenses for procuring fuel. We will receive these funds over a period of eight years. The subsidies are allocated so that Eemshaven can achieve a biomass ratio of 15 % and Amer 9 a ratio of 80 % (instead of the previous 35 %). The Eemshaven power station has a net installed capacity of 1,554 MW and has been generating electricity since 2014. Amer 9 has a net capacity of 643 MW and has been in operation since 1993. In the event of a retrofit to achieve the aforementioned ratios, we would produce environmentally friendly electricity using a total of 2.5 million metric tons of biomass per year, allowing us to lower our annual CO2 emissions by roughly 4 million metric tons. We will mainly source the ‘green’ fuel in Europe and America, ensuring that the requirements of the Dutch sustainability protocol for biomass are satisfied. The protocol was developed by the 40 RWE Annual Report 2017 Dutch government together with energy companies and non-governmental organisations and has been proven in tests. Gundremmingen B nuclear power station shut down. Unit B of the Gundremmingen nuclear power plant was taken offline for good on 31 December 2017. The station’s decommissioning is mandated by law as a result of the government’s decision in 2011 to phase out nuclear energy. Unit C, which is identical and adjacent to Unit B at the Gundremmingen site, has permission to produce electricity until the end of 2021. RWE and E.ON hold stakes of 75 % and 25 % in the two units, respectively. Gundremmingen B had a net installed capacity of 1,284 MW and was commissioned in 1984 after eight years of construction. Since then, except during brief downtimes for inspection and maintenance, it contributed to the supply of electricity around the clock, both reliably and with zero carbon emissions. At approximately 330 billion kWh, its cumulative generation corresponds to half the amount consumed in Germany in a year. Peter Terium leaves innogy. The Chairman and CEO of innogy SE, Peter Terium, left the company on 19 December 2017 by amicable and mutual agreement with the Supervisory Board. His successor had not yet been chosen when the review of operations was prepared. Uwe Tigges, who is in charge of the human resources office on the Executive Board, is the Board’s Interim Chairman. In connection with this personnel decision, the Supervisory Board of innogy SE emphasised that it is generally supportive of the course charted by the Executive Board, but that it wishes that cost discipline be given a higher priority. Mr. Terium had held various positions in the RWE Group since 2003. He assumed chairmanship of the Executive Board of RWE AG in July 2012 and did the same at innogy SE in April 2016. After the successful IPO of our subsidiary in October 2016, he only worked for innogy. Mr. Terium was instrumental in the company advancing to become a trailblazer of sustainable and intelligent energy supply. Events after the close of the fiscal year UK capacity market auction for 2021/2022: RWE secures payment for 6.6 GW in generation capacity. Two further auctions for the UK capacity market were held at the beginning of 2018. The focus was on the bidding process for the delivery period from 1 October 2021 to 30 September 2022, which ended after three days on 8 February 2018. With the exception of the Aberthaw hard coal-fired power plant and some small new-build projects, all RWE stations entered in the auction qualified for a capacity payment. Together, they account for 6.6 GW of secured capacity. However, the £8.40/kW capacity payment (before adjustment for inflation) determined by the tender was far below market expectations. Existing stations and new build projects with a total of 74.2 GW in generation capacity entered the auction, 50.4 GW of which received a capacity payment. A few days before, a further auction took place, relating to the period from 1 October 2018 to 30 September 2019. An auction had already been held for this period in December 2014, at which stations accounting for a combined 49.3 GW (including 8.0 GW of RWE) qualified for a payment of £19.40/kW. The recent auction served the purpose of closing remaining capacity gaps. Additional generation capacity of 5.8 GW was auctioned at a price of £6.00/kW. RWE had participated in the procedure with a small unit, which will not receive a payment. Combined review of operations > Business performance 41 1.6 BUSINESS PERFORMANCE The RWE Group achieved its earnings goals for 2017. This was mainly thanks to a greatly improved performance in energy trading. In addition, we posted above-average income from the commercial optimisation of our power plant deployment. This is why our adjusted EBITDA was actually slightly higher than anticipated, totalling €5.8 billion, whereas adjusted net income was at the upper end of the forecast range, amounting to €1.2 billion. However, the encouraging overall picture should not belie the fact that the margins of our coal-fired and nuclear power stations have deteriorated further. The significant decline in electricity prices of earlier years came to bear here. However, we slightly cushioned the margin drops through our ongoing efficiency programme. Business performance in 2017: What we forecast and what we accomplished Outlook vs. actual Adjusted EBITDA Lignite & Nuclear European Power Supply & Trading innogy Adjusted net income 2016 actual € million Outlook for fiscal 20171 2017 actual € million Forecast fulfilled? 5,403 1,079 377 – 139 4,203 777 €5.4 billion to €5.7 billion 5,756 Actual > Outlook Significantly below previous year Significantly below previous year Significantly above previous year Moderately above previous year €1.0 billion to €1.3 billion 671 463 271 4,331 1,232 Yes Actual > Outlook Yes Yes Yes 1 See page 87 et seq. of the 2016 Annual Report and page 13 of the Interim statement on the first quarter of 2017. Qualifiers such as ‘moderately’ or ‘significantly’ indicate percentage deviations from the previous year’s figures. Electricity production 6 % down on previous year. In the financial year that just came to a close, the RWE Group produced 202.2 billion kWh of electricity. In 2017, 37 % of our electricity generation was from lignite, 27 % from gas, 15 % from both hard coal and nuclear, and 6 % from renewables. Power production was 6 % lower year on year. The contribution made by hard coal dropped considerably. Unfavourable market conditions played a role. Furthermore, the Voerde A/B hard coal-fired power station was shut down as of 1 April 2017. The two units each had a net installed capacity of 695 MW and belonged to Steag (75 %) and RWE (25 %). As the sole marketer, we disclosed its electricity as part of our generation. There were no major changes in the amounts of electricity that we generated from other energy sources. Our gas-fired power plants increased their production slightly, because market conditions improved in Continental Europe. In the United Kingdom, however, some of these stations were taken offline for extended periods of time for retrofits. We also posted a marginal gain in electricity generation from renewables. This was mainly because innogy commissioned new wind turbines and utilisation of existing wind power capacity rose due to the weather. Conversely, dry weather curtailed the production output of German hydroelectric power stations. Volumes also shrank due to the sale of the 33.3 % stake in the wind energy producer Zephyr Investments Limited in July 2016 (see 2016 Annual Report, page 40): based on contractually agreed electricity purchases, our reporting had included a portion of the generation and capacity of Zephyr’s UK wind farm portfolio. In lignite- based power generation, opposing factors almost neutralised each other. There was a decline in outages owing to damage at power plants and scheduled maintenance. At the same time, however, two lignite units with net installed capacities of 284 MW and 278 MW were decommissioned as of 1 October 2017 and put into legally-mandated standby (see page 20). In addition to our in-house generation, we procure electricity from external suppliers. In the year being reviewed, these purchases totalled 76.0 billion kWh (previous year: 65.3 billion kWh). In-house generation and power purchases combined for 278.2 billion kWh in total electricity production (previous year: 281.4 billion kWh). 42 RWE Annual Report 2017 Power generation Gas Lignite Hard coal Nuclear Renewables Total Pumped storage, other Billion kWh Lignite & Nuclear European Power of which: Germany1 United Kingdom Netherlands/Belgium innogy RWE Group 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 – – 74.2 74.3 – – 30.3 30.1 52.9 52.6 7.4 6.3 32.4 36.2 9.3 1.0 6.9 0.7 – – – – – – – – – – 29.3 44.2 13.3 22.4 2.6 6.7 13.4 15.1 0.1 0.1 – – – – – – – – – – 53.9 53.3 74.2 74.3 29.4 44.3 30.3 30.1 – 1.1 0.7 0.4 – – 1.1 0.7 0.4 – 10.2 11.3 10.0 11.1 0.7 2.4 0.4 2.6 105.2 104.8 85.7 100.5 2.4 2.6 – – – – – – 23.8 35.4 22.7 11.3 32.0 43.3 22.0 10.8 3.1 3.0 202.2 216.1 1 Including electricity from generation assets not owned by RWE that we can deploy at our discretion on the basis of long-term agreements. In 2017, it amounted to 6.3 billion kWh (previous year: 10.6 billion kWh). One of Europe’s biggest power producers, with 43.3 GW in generation capacity. At the end of 2017, we had a total installed power generation capacity of 43.3 GW, giving us a leading market position in Europe. This figure includes the two lignite units that we put into standby and mothballed stations which are not currently operated for economic reasons. It also includes plants owned by third parties that we can deploy at our discretion on the basis of long-term agreements. Our generation capacity declined by 3.1 GW last year. This was primarily because we shut down the Voerde A/B hard coal-fired power station (1,390 MW) as of 1 April 2017 and the Gundremmingen B nuclear power station (1,284 MW) as of 31 December 2017. At innogy, the closure of two hard coal units of the Saarland-based subsidiary VSE led to a drop in capacity, whereas the commissioning of new wind turbines had a counteracting effect. The sale of the Hungarian lignite- based electricity generator Mátra contractually agreed in December 2017 (see page 37) did not affect the disclosed generation capacity, as the transaction had not closed as of the balance-sheet date. In terms of generation capacity, gas is our major source of energy. At the end of 2017, it accounted for 35 %. Lignite was in second place with 25 %, followed by hard coal, with 17 %. Renewables and nuclear energy had a share of 10 % and 6 %, respectively. The geographic focus of our generation business is Germany, where 59 % of our installed capacity is located. The United Kingdom and the Netherlands follow, accounting for shares of 22 % and 13 %, respectively. Power generation capacity As of 31 Dec 2017, in MW Lignite & Nuclear European Power of which: Germany1 United Kingdom Netherlands /Belgium Turkey innogy RWE Group Gas Lignite Hard coal Nuclear Renewables 460 11,017 14,382 3,867 6,662 3,066 787 234 – – – – – – – 7,292 3,675 1,560 2,057 – 10 2,770 – – – – – – 15,076 11,017 7,302 2,770 23 261 55 55 151 – 3,864 4,148 Pumped storage, other 27 2,792 2,528 264 – – 137 2,956 Total Total 31 Dec 2016 14,297 24,727 15,764 26,116 10,125 11,518 8,541 5,274 787 4,245 8,546 5,265 787 4,531 43,269 46,411 1 Including generation capacity not owned by RWE that we can deploy at our discretion on the basis of long-term agreements. As of the end of 2017, it amounted to 2,986 MW (previous year: 4,373 MW). Combined review of operations > Business performance 43 Significant decline in CO2 emissions. Last year, our power stations emitted 132.4 million metric tons of carbon dioxide. Our own plants accounted for 129.3 million metric tons, and the remaining 3.1 million metric tons came from contractually secured capacity. Compared to 2016, our CO2 emissions declined by 15.9 million metric tons, or 11 %. Specific emissions, i. e. carbon dioxide emissions per megawatt hour of electricity generated, also declined, dropping from 0.686 to 0.655 metric tons. This was mainly because last year we produced much less electricity from coal. Since the beginning of the third emissions trading period, which started on 1 January 2013, the countries of Western Europe have only allocated free emission allowances to energy utilities in exceptional cases. Of the 131.0 million metric tons of carbon dioxide that we emitted in EU countries in 2017, we were only able to cover 1.6 million metric tons with such allocations. In the previous year, we had received free certificates for 4.5 million metric tons, more than half of which were for unit 5 of the Hamborn CHP station, which has since been sold. Emissions balance Million metric tons of CO2 Lignite & Nuclear European Power1 of which: Germany2 United Kingdom Netherlands /Belgium innogy RWE Group CO2 emissions 2017 88.5 43.3 14.1 14.0 13.8 0.6 2016 88.6 59.0 24.7 19.1 14.0 0.7 132.4 148.3 Free allocation of CO2 certificates 2016 2017 0.7 0.6 0.6 – – 0.3 1.6 0.8 3.4 3.4 – – 0.3 4.5 Shortage of CO2 certificates 2017 87.8 41.3 13.5 14.0 13.8 0.3 2016 87.8 54.4 21.3 19.1 14.0 0.4 129.4 142.6 1 Includes the CO2 emissions of our gas-fired power station in the Turkish town of Denizli, which amounted to 1.4 million metric tons in 2017 (previous year: 1.2 million metric tons). As Turkey does not participate in European emissions trading, we do not need emission allowances for these volumes. 2 Including generation capacity not owned by RWE that we can deploy at our discretion on the basis of long-term contracts. In 2017, these stations emitted a total of 3.1 million metric tons of CO2 (previous year: 7.1 million metric tons). 91.3 million metric tons of lignite produced. The fuel used by our power stations is procured by our generation companies either directly on the market or via RWE Supply & Trading. We source lignite from proprietary opencast mines. In our main mining region, which is west of Cologne, we produced 91.3 million metric tons of lignite last year (previous year: 90.5 million metric tons), of which 79.3 million metric tons were used to generate electricity in our power plants. The remainder was used to manufacture refined products (e. g. lignite briquettes) and, to a limited extent, to generate process steam and district heat. 44 RWE Annual Report 2017 External electricity sales volume Residential and commercial customers Industrial and corporate customers Distributors Total Billion kWh Lignite & Nuclear European Power Supply & Trading innogy RWE Group2 2017 0.2 – – 50.4 50.6 2016 0.2 – – 52.3 52.6 2017 – 2.2 35.6 70.7 2016 – 2.4 30.3 73.5 108.5 106.2 2017 12.0 5.2 – 84.8 102.0 2016 12.5 5.0 – 79.3 96.8 2017 12.2 7.4 35.61 205.9 261.1 2016 12.7 7.4 39.31 205.1 264.6 1 Including volume effects of the sale of self-generated electricity on the wholesale market. If these sales volumes exceed the purchases made for supply purposes, the difference is recognised in the sales volume. This was not the case in fiscal 2017, whereas in 2016, there was a positive balance of 9.0 billion kWh. 2 Including volumes subsumed under ‘other, consolidation’. Electricity sales volume slightly down year on year. In the year under review, RWE sold 261.1 billion kWh of electricity to external customers, slightly less than in 2016. One reason for this decline was that our generation output shrank and RWE Supply & Trading therefore sold less electricity from RWE power plants on the wholesale market (see footnote 1 to the above table). Furthermore, innogy lost customers in the residential and corporate retail business, above all in the United Kingdom and the Netherlands. However, our subsidiary offset these sales shortfalls by adding new customers and intensifying its supply activities with existing customers at German distributors. External gas sales volume Residential and commercial customers Industrial and corporate customers Distributors Total Billion kWh Supply & Trading innogy RWE Group 2017 – 100.6 100.6 2016 – 102.9 102.9 2017 26.8 67.6 94.4 2016 24.7 83.1 107.8 2017 0.7 58.4 59.1 2016 0.3 54.1 54.4 2017 27.5 226.6 254.1 2016 25.0 240.1 265.1 Gas supply volume down 4 %. At 254.1 billion kWh, gas sales were 4 % lower year on year, despite marginal gains in the Supply & Trading division. A major reason for this was that industrial and corporate customers served by innogy switched suppliers. This comes to bear especially in sales volumes in Eastern Europe. Our subsidiary also suffered declines in volumes in the residential sector due to competition. However, these were moderate and predominantly related to the Dutch and UK businesses. Similar to electricity, the aforementioned drops in sales were contrasted by higher deliveries to German distributors. Combined review of operations > Business performance External revenue € million Lignite & Nuclear European Power Supply & Trading innogy Other, consolidation RWE Group Natural gas tax /electricity tax RWE Group (excluding natural gas tax /electricity tax) 45 +/– % – 1.4 – 5.9 – 12.5 – 1.7 – 76.1 – 2.7 – 4.1 – 2.7 2017 2016 1,176 728 3,189 39,475 17 44,585 2,151 42,434 1,193 774 3,646 40,149 71 45,833 2,243 43,590 External revenue slightly lower year on year. The RWE Group generated €44,585 million in external revenue. This figure includes natural gas and electricity tax. Compared to the preceding year, our revenue declined by 3 %. €31,665 million stemmed from the sale of electricity and €10,012 million from the sale of gas. We recorded declines of 3 % for both products, primarily due to the drop in supply volumes. The development of revenue was slightly affected by changes in foreign exchange rates. On average, sterling, our most important foreign currency, dropped from €1.22 to €1.14. As a consequence, revenue generated in the UK was lower when converted to euros. Adjusted EBITDA € million Lignite & Nuclear European Power1 Supply & Trading innogy Other, consolidation RWE Group 1 Thereof UK: €205 million (2017) and €270 million (2016). Adjusted EBITDA of €5.8 billion slightly higher than forecast. In the fiscal year that just ended, we achieved adjusted EBITDA of €5,756 million. Compared to 2016, this represents a rise of 7 %, primarily due to a significantly improved performance in energy trading. In addition, costs incurred to operate and maintain distribution networks dropped, while declining generation margins weighed on earnings. The outlook that we published in March 2017 envisaged adjusted EBITDA in the range of €5.4 billion to €5.7 billion (see 2016 Annual Report, page 87 et seq.). We closed the reporting year slightly above this range in part due to unexpectedly high revenue from the commercial optimisation of our power plant dispatch. 2017 2016 671 463 271 4,331 20 5,756 1,079 377 – 139 4,203 – 117 5,403 +/– % – 37.8 22.8 295.0 3.0 117.1 6.5 The following is a breakdown by segment: • Lignite & Nuclear: Here, adjusted EBITDA experienced a significant decline as expected, dropping by 38 % to €671 million. The main reason for this is that we realised lower wholesale prices for the generation from our lignite-fired and nuclear power stations than in 2016. We had already sold forward nearly all of the production of these plants in earlier years. Another reason for the decline in earnings was that in 2016 adjusted EBITDA included one-off income from the reversal of mining provisions. Moreover, the earnings of Mátra in Hungary deteriorated. Due to the company’s impending sale, we stopped recognising the earnings it achieved after 1 April 2017 in adjusted EBITDA, recording them instead in the non-operating result. A positive effect was felt from the fact that we no longer have to pay a nuclear fuel tax. In addition, we benefited from the resolute continuation of our efficiency-enhancement programme. 46 RWE Annual Report 2017 • European Power: Adjusted EBITDA in this segment rose by 23 % to €463 million. We therefore exceeded the March forecast, which had envisaged a significant decline. Two factors were instrumental in this: we achieved above- average earnings from the commercial optimisation of our power plant deployment, and the sale of the former Littlebrook power plant site resulted in a book gain, which we had not planned (see page 38). The rise in adjusted EBITDA can also be traced back to efficiency-enhancing measures. Whereas the market conditions for our hard coal-fired power stations worsened, they improved for our gas-fired power plants. Our accrual of provisions for impending losses from an electricity procurement contract in the preceding year had a major effect on the development of earnings. However, we also recorded exceptional income in 2016: it stemmed in part from property sales, the reversal of restructuring provisions, and the final settlement of damage caused to the new hard coal-fired power plant at Hamm (Westphalia). • Supply & Trading: Here, adjusted EBITDA grew from – €139 million to €271 million. The significant rise in earnings we had forecast was therefore achieved. The main reason for this was the normalisation of our trading performance compared to the extremely weak performance in the prior year. Moreover, we posted substantial earnings in the gas business. A counteracting effect was felt because adjusted EBITDA for 2016 included our profit on the sale of the Lynemouth hard coal-fired power station in the United Kingdom (see page 22). • innogy: At €4,331 million, adjusted EBITDA of our subsidiary met our forecast, rising by 3 % compared to 2016. The grid business was the main contributor: in Germany, network operation and maintenance costs declined. In addition, the reversal of provisions resulted in a profit, whereas 2016 was burdened by the accrual of provisions. Moreover, in the Czech Republic, transit volumes in the gas distribution network were above average in 2017 due to the weather. innogy also posted a gain in renewable energy, albeit only to a moderate extent. One-off income resulting from the revaluation of our subsidiary’s shares in the Triton Knoll offshore wind project played a role. The commissioning of new wind turbines and improved wind conditions also contributed to the increase in earnings. However, this was contrasted by negative effects of the reduction in the use of German hydroelectric power stations and the weak British pound. Furthermore, the previous year’s figure included one-off income from minor divestments. Adjusted EBITDA in retail declined slightly, in part due to a drop in income from the reversal of provisions for legal risks in Germany. Efficiency-improving measures provided relief in the UK retail business, which is run by the innogy subsidiary npower. However, npower continued to have difficulty in coping with the high competitive pressure. Many of the company’s customers switched providers or could only be retained by offering them contracts with more favourable conditions. In addition, there was a rise in upfront costs. An increase in standard tariffs for electricity and gas, which became effective in the middle of March, only partially offset the aforementioned burdens. Adjusted EBIT € million Lignite & Nuclear European Power1 Supply & Trading innogy Other, consolidation RWE Group 1 Thereof UK: €40 million (2017) and €97 million (2016). 2017 2016 399 155 265 2,816 11 3,646 664 – 37 – 145 2,735 – 135 3,082 +/– % – 39.9 518.9 282.8 3.0 108.1 18.3 Combined review of operations > Business performance 47 Adjusted EBIT characterised by significant drop in operating depreciation. Adjusted EBIT rose by 18 % to €3,646 million. The percentage increase was therefore much bigger than for adjusted EBITDA. The backdrop to this is that adjusted EBIT includes operating depreciation and amortisation, which decreased considerably. This drop is largely because we recognised substantial impairments in the 2016 consolidated financial statements (see 2016 Annual Report, page 48) and the asset base for scheduled depreciation was therefore lower. 2017 118 – 719 – 479 1,241 161 2016 94 – 799 – – 5,956 – 6,661 +/– € million 24 80 – 479 7,197 6,822 • Unlike in the prior year, we recognised a goodwill impairment loss of €479 million. It relates to innogy’s UK retail business, the medium-term earnings prospects of which have worsened. • The earnings stated under ‘other’ improved by €7,197 million to €1,241 million. The main reason was that the financial statements for the preceding year included significant one-off burdens, including impairments of €4.3 billion for power plants and other property, plant and equipment. We also recognised impairment losses in 2017 primarily related to the Hungarian lignite-based power generator Mátra. However, at €0.3 billion, they were far below the figure recorded in the prior year. Another factor contributing to the improvement in earnings was that the German government refunded us the €1.7 billion in nuclear fuel tax levied from 2011 to 2016 after the German Constitutional Court declared the levy null and void (see page 37). In addition, splitting the Conventional Power Generation division into the Lignite & Nuclear and European Power segments led to one-off effects, which were positive on balance (see page 107 in the Notes). Non-operating result € million Capital gains/losses Impact of derivatives on earnings Goodwill impairment losses Other Non-operating result Reconciliation to net income: substantial exceptional income from the nuclear fuel tax refund. The reconciliation from adjusted EBIT to net income was characterised by the positive effects we felt from the refund of the German nuclear fuel tax. However, opposing effects of impairments also came to bear. The non-operating result, in which we recognise certain one- off effects which are not related to operations or to the period being reviewed, improved by €6,822 million to €161 million. Its components developed as follows: • Book gains on the disposal of investments and assets totalled €118 million (previous year: €94 million). This includes income we achieved through the sale of Unit 5 of the Hamborn CHP station in Germany and stakes in two residential property companies in the Rhenish lignite mining region. More detailed information on the aforementioned transactions can be found on page 37. • Changes in the value of certain derivatives which we use to hedge against price fluctuations reduced earnings by €719 million (previous year: €799 million). Pursuant to International Financial Reporting Standards (IFRS), derivatives are accounted for at fair value at the corresponding balance-sheet date, whereas the transactions which are hedged with the derivatives are only recognised as a profit or loss when they are realised. These timing differences result in short-term effects on earnings, which are neutralised over time. 48 RWE Annual Report 2017 Financial result € million Interest income Interest expenses Net interest Interest accretion to non-current provisions Other financial result Financial result 2017 220 – 907 – 687 – 261 197 – 751 2016 271 – 914 – 643 – 1,288 – 297 – 2,228 +/– € million – 51 7 – 44 1,027 494 1,477 Our financial result improved by €1,477 million to – €751 million. Its components changed as follows: • Net interest decreased by €44 million to – €687 million. Last year, we sold a portion of the securities we held in order to pay into the nuclear energy fund, resulting in a reduction in interest income. Furthermore, hybrid bond buybacks in October 2017 led to one-off expenses because the repurchase prices were above the issue prices. A positive effect was felt from the fact that we redeemed several bonds with relatively high coupons in 2016 and 2017 and that we took advantage of very low market interest rates when raising debt capital. • The interest accretion to non-current provisions improved by €1,027 million to – €261 million. This is in part due to the contribution to the nuclear energy fund, as this caused the level of the provisions that accrue interest to become much lower. Furthermore, we apply a lower real discount rate to the portion of the nuclear energy obligations remaining with RWE. This is one of the reasons why the interest accretion was lower. The reduction in interest had already been considered in the 2016 consolidated financial statements by a corresponding increase in provisions and had been reflected as a negative one-off effect in the interest accretion. • The ‘other financial result’ rose by €494 million to €197 million. This item includes the interest which we received from the German government on the nuclear fuel tax which has been refunded. This played a major role in improving earnings. Moreover, we booked much lower losses from the sale of securities than in 2016. Reconciliation to net income Adjusted EBITDA Operating depreciation, amortisation and impairment losses Adjusted EBIT Non-operating result Financial result Income before taxes Taxes on income Income of which: Non-controlling interests RWE AG hybrid capital investors’ interest Net income/income attributable to RWE AG shareholders Adjusted net income Earnings per share Adjusted net income per share Number of shares outstanding (annual average) Effective tax rate 2017 2016 5,756 – 2,110 3,646 161 – 751 3,056 – 741 2,315 373 42 1,900 1,232 3.09 2.00 614.7 24 5,403 – 2,321 3,082 – 6,661 – 2,228 – 5,807 323 – 5,484 167 59 – 5,710 777 – 9.29 1.26 614.7 6 +/− % 6.5 9.1 18.3 102.4 66.3 152.6 – 329.4 142.2 123.4 – 28.8 133.3 58.6 133.3 58.7 – – € million € million € million € million € million € million € million € million € million € million € million € million € € millions % Combined review of operations > Business performance 49 Income before tax grew by €8,863 million to €3,056 million. Our effective tax rate was 24 % and therefore below the (theoretical) standard rate of 32.5 %. A major factor was that we were able to offset tax losses from previous years, for which no deferred tax assets were recognised, against current earnings. Earlier, we did not believe that we could use the loss carryforwards for an extended period of time due to a lack of tax gains. However, this became possible in 2017 because the nuclear fuel tax refund made a substantial contribution to earnings. The low effective tax rate was also due to the fact that we booked tax income for earlier years following tax audits. A counteracting impact was felt from the goodwill impairment to the UK retail business, which reduced earnings, but did not affect taxes. After taxes, we generated income of €2,315 million (previous year: – €5,484 million). Non-controlling interests rose by €206 million to €373 million, partly due to the fact that 23.2 % of the shares in innogy have been held by third parties since the IPO. The impairments recognised at Mátra in Hungary and in innogy’s UK retail business had a counteracting impact. Hybrid capital investors accounted for €42 million of our earnings (previous year: €59 million). This sum corresponds to our finance costs after tax. It relates solely to the £750 million hybrid bond, which is classified as equity under IFRS, because it has a theoretically perpetual tenor. The remainder of RWE’s hybrid capital is classified as debt, and we record interest accrued on it in the financial result. The decline in the hybrid capital investors’ interest is largely because the costs of hybrid financing reduced taxes in the year under review, whereas this was not the case in 2016. The aforementioned developments resulted in significantly improvemed net income of €1,900 million (previous year: – €5,710 million). Based on the 614.7 million in RWE shares outstanding, earnings per share amounted to €3.09 (previous year: – €9.29). Reconciliation to adjusted net income Original figures 2017 Adjustment € million Adjusted EBIT Non-operating result Financial result Income before taxes Taxes on income Income of which: Non-controlling interests RWE AG hybrid capital investors’ interest Net income/income attributable to RWE AG shareholders 3,646 161 – 751 3,056 – 741 2,315 373 42 1,900 – – 161 – 309 – 470 111 – 359 309 – – 668 Adjusted figures 2017 3,646 – – 1,060 2,586 – 630 1,956 682 42 1,232 Adjusted figures 2016 3,082 – – 1,818 1,264 – 37 1,227 391 59 777 Adjusted net income 59 % up year on year. Adjusted net income totalled €1,232 million, which was at the upper end of the forecast range of €1.0 billion to €1.3 billion. It differs from net income in that the non-operating result and further material special items along with their impact on income taxes are deducted from it. For example, adjusted net income does not contain the effects of the nuclear fuel tax refund. It grew considerably compared to the figure recorded a year before (€777 million). The improvement in operating earnings and the financial result came to bear here, whereas taxes on income and non-controlling interests had counteracting effects. 50 RWE Annual Report 2017 Capital expenditure on property, plant and equipment and on intangible assets € million 2017 2016 +/– € million Lignite & Nuclear European Power Supply & Trading innogy Other , consolidation RWE Group Capital expenditure on financial assets € million Lignite & Nuclear European Power Supply & Trading innogy Other, consolidation RWE Group 269 147 7 1,839 – 2 2,260 267 66 4 1,679 11 2,027 2 81 3 160 – 13 233 2017 2016 +/– € million 1 1 30 327 10 369 1 4 56 290 4 355 – – 3 – 26 37 6 14 More capital spent on power stations, IT and financial assets. The RWE Group’s capital expenditure totalled €2,629 million in the financial year that just ended. This was 10 % above the previous year’s figure and within the anticipated range of €2.5 billion to €3.0 billion. Our capital expenditure on property, plant and equipment and intangible assets totalled €2,260 million, 11 % more than in 2016. A large portion of these funds was used to maintain and modernise opencast mining equipment, power stations, grids and IT infrastructure, expand renewables and develop innovative products and services. The increase over 2016 is due in part to retrofits to power stations in the United Kingdom. Furthermore, innogy stepped up its capital expenditure on IT. At €369 million, spending on financial assets was 4 % higher than in 2016. It was mostly attributable to innogy, the single-largest transaction of which was the acquisition of Belectric Solar & Battery (see page 38). Combined review of operations > Business performance Workforce 1 Lignite & Nuclear European Power Supply & Trading innogy Other2 RWE Group 51 +/– % 1.2 – 0.6 6.4 4.3 – 83.6 1.5 31 Dec 2017 31 Dec 2016 13,132 2,656 1,156 42,393 210 59,547 12,980 2,672 1,086 40,636 1,278 58,652 1 Converted to full-time positions. 2 At 31 December 2017, almost only employees of the holding company, RWE AG, were stated here. The previous year’s figure included employees of the in-house service providers RWE Group Business Services (922) and RWE Service (243), which have since been dissolved. Additional personnel due to the acquisition of Belectric. As of 31 December 2017, the RWE Group had 59,547 people on its payroll, of which 35,344 worked at sites in Germany and 24,203 at locations in other countries. Part-time positions were calculated in these figures on a pro-rata basis. Headcount rose slightly compared to the end of 2016: 509 employees were added in Germany, and 386 were added abroad. One of the reasons was that innogy acquired Belectric Solar & Battery at the beginning of 2017. At the segment level, staff figures were also affected by intragroup transfers. Major changes resulted from folding RWE Group Business Services and RWE Service (‘other’ item) into an RWE subsidiary and transferring most of their personnel to operating Group companies. The headcount does not include young adults in professional training programmes. At the end of 2017, 2,215 young adults were learning a profession at RWE, nearly as many as in the previous year. 52 RWE Annual Report 2017 1.7 FINANCIAL POSITION AND NET WORTH The RWE Group’s financial position and net worth improved further in the financial year that just ended. The refund of the nuclear fuel tax by the German government played an important role in this. It helped us to reduce net debt and increase our equity ratio. However, our contribution to the German nuclear energy fund also placed a heavy financial burden on us in 2017. Therefore, our operating cash flow was negative. Last year, we successfully completed the transfer of debt from RWE AG to innogy. In addition, our subsidiary established the last preconditions for being able to refinance itself independently through banks and on the capital market. Financing of the RWE Group. Responsibility for financing within the RWE Group has rested on two shoulders since the IPO of innogy in October 2016: innogy obtains financing for the business transferred to it, while RWE AG limits itself to financing the activities which remain under its operational management. Companies which are controlled by RWE AG or innogy SE only raise debt capital in specific cases, for example if it is more advantageous economically to make use of local credit and capital markets. RWE AG and innogy SE act as co-ordinators when subsidiaries assume a liability. This allows for the central management and monitoring of financial risks. Moreover, this strengthens our position when negotiating with banks, business partners, suppliers and customers. Flexible tools for raising debt capital. As part of the reorganisation of the RWE Group, we laid the groundwork to ensure that RWE AG and innogy SE can fulfil their financing tasks completely independently of each other. This process was concluded in October 2017. Both companies have a range of tools which they can use in addition to cash flows from operating activities to meet their financing needs. • RWE AG’s and innogy’s Debt Issuance Programmes (DIPs) give the companies latitude in procuring debt capital on the capital market over the long term. A DIP is a framework prospectus for the flexible issuance of senior bonds. RWE AG updated its programme in May 2017: the new DIP has a total volume of €10 billion. It is the successor programme to our former DIP, which had a volume of €30 billion, related to the RWE Group as a whole and was suspended in 2016. Since April 2017, innogy has had its own DIP, which allows a total of €20 billion in senior bonds to be issued. Under this programme, the company issued two bonds with an aggregate volume of €1.6 billion last year (see page 54). • RWE AG has a Commercial Paper Programme for short-term refinancing that enables it to raise funds equivalent to up to US$5 billion on the money market. We used a maximum of only €0.7 billion of this headroom in the past financial year. Since the end of 2016, innogy has also had a Commercial Paper Programme. It has a funding framework of €3 billion. Up to €1.5 billion thereof was used. • Furthermore, RWE AG and innogy can resort to lines of credit granted them by international bank syndicates. These types of instrument serve to secure liquidity. Until recently, RWE AG had a credit line agreement with a volume of €4 billion, of which €1.5 billion had been transferred to innogy on an intra-group basis. On 6 October 2017, our subsidiary then took out its own line of credit, with a volume of €2 billion. It expires in October 2022, but can be prolonged twice for a year at a time. Moreover, the credit line can be topped up by €1 billion. Both options are subject to the approval of the consortium of banks. innogy cancelled its participation in RWE AG’s existing line of credit when it concluded the new credit line agreement. RWE AG’s existing credit line was adjusted thereafter and now has a volume of €3 billion. It expires in March 2021. So far, neither RWE AG nor innogy have made use of their lines of credit. • Additional financial headroom for operating activities is provided by sureties which RWE AG and innogy SE have been granted by banks. A surety is a security or declaration of a guarantee by a bank on commission from the customer. The purpose is to collateralise transactions. The aforementioned financing instruments do not contain conditions mandating compliance with specific limits in terms of leverage or capital structure. Their use is not subject to a specific rating. Combined review of operations > Financial position and net worth 53 RWE Group bonds: maturities/first possible call dates (as of 31 Dec 2017) € billion 2.0 1.5 1.0 0.5 0.0 Year 2018 ’19 ’20 ’21 ’22 ’23 ’24 ’25 ’26 ’27 ’28 ’29 ’30 ’31 ’32 ’33 ’34 ’35 ’36 ’37 ’38 ’39 ’40 ’41 ’42 ’43 Senior bonds innogy SE1 Hybrid bonds RWE AG (first possible call dates) 1 A small residual amount of a senior bond transferred to innogy remained with RWE AG; see commentary in the text. Immediately after the public listing, we took the necessary steps to implement the debt transfer externally in relation to creditors. In early 2017, innogy replaced RWE AG as the guarantor for the public senior bonds, and in relation to the private issues, as the debtor. This was preceded by a vote of the bondholders, which is provided for in such cases by the German Debt Securities Act. The quorums and majorities necessary for a change in guarantor and debtor were achieved. Two senior bonds to which the Act could not be applied were transferred by a bond swap in December 2016. In one case, involving a bond with a volume of €500 million maturing in 2037, a small residual amount remained with RWE AG. Our two EIB loans were transferred to innogy in July 2017 after receiving creditor approval. On completion of the debtor exchange, the corresponding intra-group loans were redeemed or reduced. innogy takes over the bulk of RWE’s capital market debt. As part of the Group’s financial reorganisation, innogy assumed most of RWE AG’s capital market debt. We laid the foundation for this in the run-up to the IPO of innogy. The debt transfer was completed in the middle of last year. In relation to the publicly-traded senior bonds issued by our former Dutch subsidiary RWE Finance B.V., the transfer was effected at the end of 2015 when we sold the issuer to a predecessor of innogy SE. Despite this sale, however, RWE AG was still the guarantor of the bonds at that point in time. In relation to the private placements made by RWE AG itself, the debt was initially transferred only in economic terms. To do this, internal lending agreements were concluded, in which the obligations of RWE AG to service the bonds were mirrored by corresponding payment obligations of innogy to RWE AG. Loans of €645 million and £350 million from the European Investment Bank (EIB) were economically allocated to innogy in the same manner. Above and beyond this, our subsidiary assumed obligations amounting to €2.9 billion vis-à-vis RWE AG, which cover the majority of the liabilities from RWE’s hybrid bonds. The above measures were completed before innogy was listed on the stock market in October 2016. 54 RWE Annual Report 2017 Bond volume drops to €14.0 billion. At the end of 2017, the Group had bonds with a total nominal volume of an equivalent of €14.0 billion outstanding, compared to €14.7 billion a year before. The total of 24 issues are denominated in euros, sterling, US dollars and yen. We concluded hedges to manage our currency exposure. Taking such transactions into account, the RWE Group’s debt broke down into 62 % in euros and 38 % in sterling on the balance-sheet date. At the end of the year, our senior bonds outstanding had an average remaining maturity of nine years. The nominal volume of RWE AG hybrid bonds declined by €2.0 billion to €1.9 billion. This was mainly because we redeemed three bonds on the earliest possible date during the financial year that just ended: these were bonds of CHF 250 million (5.25 % coupon; redeemed in April), CHF 150 million (5 %; July) and US$1 billion (7 %; October). In addition to the redemptions, we bought back hybrid bonds with a total nominal value equivalent to €585 million in October of last year. Of this sum, €161 million was allocable to our €700 million bond (2.75 % coupon; earliest possible redemption in 2020), €268 million to our €550 million bond (3.5 %; 2025) and US$183 million to our US$500 million bond (6.625 %; 2026). This was preceded by a public buyback offer with a target volume of €550 million on 26 September. The only hybrid bond of which we did not buy any paper was the one with a volume of £750 million (7 %; 2019). The selection of paper bought back was based on yield considerations, amongst others. The nominal volume of senior bonds, which are almost fully allocable to innogy SE, rose by €1.3 billion to €12.1 billion. This was primarily due to two new issuances: innogy placed a €750 million senior bond with a tenor of eight years and a coupon of 1 % in April. This was followed in October by the company’s first ‘green’ bond, which has a nominal value of €850 million, a tenor of ten years and a coupon of 1.25 %. Green bonds are special-purpose financial vehicles, the issuance proceeds of which may only be used for projects with a positive effect on the environment. innogy will use the funds to refinance wind farms in Germany, the United Kingdom and the Netherlands. These plants are either under construction or in operation. Shortly after the end of the reporting year, innogy took advantage of the favourable interest environment to issue a further senior bond. At the end of January 2018, the company placed paper with a nominal volume of €1 billion, a tenor of eleven-and-a-half years and a coupon of 1.5 %. Proceeds from this issuance will serve to refinance liabilities that fall due, among other things. Significantly lower borrowing costs. In 2017, the cost of debt for RWE AG was 2.5 %, compared to 4.0 % in the pre- vious year. This was calculated for the liabilities allocable to the Group parent from bonds, commercial paper and bank loans by the end of the year under review. Only hybrid bonds classified as debt pursuant to International Financial Reporting Standards were considered. The main reason for the decline in the cost of capital was that the redemption and buyback of hybrid bonds eliminated relatively high coupon payments. innogy calculated a cost of debt as of the balance- sheet date of 4.1 %, which was stable compared to 2016. Credit rating of RWE AG (as of 31 Dec 2017) Moody’s Standard & Poor’s1 Non-current financial liabilities Senior debt Subordinated debt (hybrid bonds) Current financial liabilities Outlook 1 At our request, Standard & Poor’s withdrew its RWE rating after the balance-sheet date. Baa3 Ba2 P–3 Stable BBB– BB A–3 Stable Fitch BBB BB+ F3 Stable Combined review of operations > Financial position and net worth 55 Rating agencies confirm RWE’s investment-grade rating. The factors determining cost of debt also include the assessment of our creditworthiness by independent rating agencies. In 2017, the three leading agencies confirmed their credit ratings for RWE as a result of their regular rating reviews. In June, Moody’s and Standard & Poor’s announced that they kept their rating of our long-term creditworthiness at ‘Baa3’ and ‘BBB –’, respectively. In April, the agency Fitch confirmed its ‘BBB’ rating of RWE, which is one notch higher. All three agencies therefore issued an investment-grade rating for RWE – with a stable outlook. However, Standard & Poor’s withdrew its RWE rating in February 2018 at our request. As next to no RWE senior bonds are outstanding due to the transfer of debt to innogy, we therefore deem the ratings by Moody‘s and Fitch sufficient. By contrast, innogy continues to receive credit grades from all three agencies. They are a notch higher than those for RWE: innogy has been assigned a rating of ‘Baa2’ (negative outlook) by Moody’s, ‘BBB’ (stable outlook) by Standard & Poor’s and ‘BBB+’ (stable outlook) by Fitch. One of the reasons for the good grades is that innogy has a relatively stable earnings profile due to its high share of regulated business. The company provides detailed information on its credit rating in its 2017 Annual Report. Cash flow statement € million Funds from operations Change in working capital Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Effects of changes in foreign exchange rates and other changes in value on cash and cash equivalents Total net changes in cash and cash equivalents Cash flows from operating activities Minus capital expenditure1 Plus proceeds from divestitures/asset disposals1 Free cash flow 1 This item solely relates to items with an effect on cash. 2017 2016 – 1,545 – 209 – 1,754 2,691 – 1,536 – 19 – 618 – 1,754 – 2,580 485 – 3,849 3,013 – 661 2,352 – 4,570 4,282 – 24 2,040 2,352 – 2,308 765 809 +/– € million – 4,558 452 – 4,106 7,261 – 5,818 5 – 2,658 – 4,106 – 272 – 280 – 4,658 Operating cash flows: significant decline due to contribution to the German nuclear energy fund. In the year under review, the RWE Group recorded negative cash flows from operating activities amounting to – €1,754 million (previous year: €2,352 million). The endowment of the German nuclear energy fund curtailed our liquidity by about €7 billion (see page 35). Excluding this, operating cash flows improved substantially compared to 2016. One reason for this is the reimbursement of the €1.7 billion in nuclear fuel tax paid from 2011 to 2016. Investing activities led to cash flows of €2,691 million. In the year being reviewed, we liquidated a large volume of current securities and short-term cash investments in order to finance the contribution to the nuclear energy fund. Our capital expenditure on property, plant and equipment and financial assets had a counteracting effect. In the prior year, cash outflows from investing activities totalled €4,570 million, in part owing to significant purchases of securities, which we had funded using proceeds from the IPO of innogy. 56 RWE Annual Report 2017 Cash flows from financing activities amounted to – €1,536 million as opposed to the high cash flows of €4,282 million in 2016 resulting from the public listing of innogy. In the reporting year, €4.9 billion in financial liabilities were redeemed, contrasted by a total of €4.0 billion in refinancing. Additional outflows resulted from a total of €603 million in dividends paid to co-owners of fully consolidated RWE companies and hybrid capital investors, €206 million of which was allocable to dividends paid by innogy to its minority shareholders. On balance, the presented cash flows from operating, investing and financing activities caused our cash and cash equivalents to decline by €618 million. The high level of cash outflows resulting from the payment made into the nuclear energy fund also characterised the development of free cash flow, which amounted to – €3,849 million (previous year: €809 million). Since 2017 we are using a new definition of free cash flow: it now includes spending on financial assets and proceeds from divestments and asset disposals. The year-earlier figure was adjusted accordingly. Lower net debt thanks to nuclear fuel tax refund. As of 31 December 2017, our net debt amounted to €20.2 billion, down €2.5 billion compared to 2016. We had anticipated a stable level. The decline is partially due to the reimbursement of the nuclear fuel tax, which was not foreseeable when we issued the forecast at the beginning of 2017. Furthermore, provisions for pensions decreased by €1.3 billion. The background to this is that the plan assets, with which we cover most of our pension obligations, increased due to positive market developments. Moreover, we raised the discount rates used to calculate the net present value of the German pension obligations. The new rates average 2.0 % throughout the Group as opposed to 1.8 % in the 2016 financial statements and reflect the most recent development of market interest rates. Besides the aforementioned factors, divestments also contributed to the drop in debt, whereas investing activities and our dividend payments had a counter- acting effect. The contribution to the nuclear energy fund did not have an impact on the level of net debt, because our nuclear energy provisions declined by the same amount. Net debt € million Cash and cash equivalents Marketable securities Other financial assets Financial assets Bonds, other notes payable, bank debt, commercial paper Hedge transactions related to bonds Other financial liabilities Financial liabilities Net financial debt Provisions for pensions and similar obligations Surplus of plan assets over benefit obligations Provisions for nuclear waste management Mining provisions Provisions for dismantling wind farms Adjustment for hybrid capital Plus 50 % of the hybrid capital stated as equity Minus 50 % of the hybrid capital stated as debt Net debt 31 Dec 2017 31 Dec 2016 +/– € million 3,933 5,131 1,863 10,927 15,099 27 2,102 17,228 6,301 5,420 – 103 6,005 2,322 359 – 77 470 – 547 20,227 4,576 10,065 1,621 16,262 15,921 – 263 2,263 17,921 1,659 6,761 – 29 12,699 2,363 334 – 1,078 471 – 1,549 22,709 – 643 – 4,934 242 – 5,335 – 822 290 – 161 – 693 4,642 – 1,341 – 74 – 6,694 – 41 25 1,001 – 1 1,002 – 2,482 Combined review of operations > Financial position and net worth 57 Stable off-balance-sheet obligations from electricity and commodity purchases. Net debt does not include our off-balance-sheet obligations, which largely stem from long-term fuel and electricity purchase agreements. As of the balance-sheet date, payment obligations from material procurement contracts amounted to €26.2 billion for fuel (previous year: €26.0 billion) and €7.1 billion for electricity (previous year: €7.4 billion). These figures are based on assumptions regarding the prospective development of commodity prices. For further commentary on our off-balance-sheet obligations, please see page 144 et seq. in the Notes. Equity ratio rises to 17.4 %. As of the cut-off date for the financial statements, the RWE Group had a balance-sheet total of €69.1 billion. This was €7.3 billion less than in the preceding year, primarily due to the payment made into the nuclear energy fund. Our contribution of roughly €7 billion was stated as part of current provisions on the previous year’s balance sheet. Therefore, they dropped considerably. At the same time, cash outflows reduced current assets. The decrease in the balance-sheet total was also driven by a decline in derivatives, which fell by €2.2 billion on the assets side of the balance sheet and by €1.4 billion on the equity and liabilities side. By contrast, the refund of the nuclear fuel tax by the government extended the balance sheet. Due, among other things, to the last factor mentioned, the RWE Group’s equity rose by €4.0 billion to €12.0 billion. Its share in the balance-sheet total (equity ratio) was 17.4 %, up 6.9 percentage points on the previous year’s level. Group balance sheet structure Assets Non-current assets of which: Intangible assets Property, plant and equipment Current assets of which: Receivables and other assets1 Assets held for sale Total Equity and liabilities Equity Non-current liabilities of which: Provisions Financial liabilities Current liabilities of which: Provisions Other liabilities2 Liabilities held for sale Total 1 Including financial accounts receivable, trade accounts receivable and income tax refund claims. 2 Including trade accounts payable and income tax liabilities. 31 Dec 2017 31 Dec 2016 € million % € million 45,694 66.2 45,911 12,383 24,904 23,365 12,487 128 69,059 11,991 36,774 19,249 14,414 20,294 5,137 12,259 111 69,059 17.9 36.1 33.8 18.1 0.2 100.0 17.4 53.3 27.9 20.9 29.3 7.4 17.8 0.2 100.0 12,749 24,455 30,491 14,122 – 76,402 7,990 39,646 20,686 16,041 28,766 12,175 14,449 – 76,402 % 60.1 16.7 32.0 39.9 18.5 – 100.0 10.5 51.9 27.1 21.0 37.6 15.9 18.9 – 100.0 58 RWE Annual Report 2017 1.8 NOTES TO THE FINANCIAL STATEMENTS OF RWE AG (HOLDING COMPANY) The financial statements of RWE AG reflect significantly improved earnings. After recording losses due to significant impairments recognised for power plants in 2016, we posted a net profit of €1.4 billion in the year under review. The refund of the nuclear fuel tax by the government contributed to this. It was also one of the reasons why RWE AG’s equity ratio improved by 7.7 percentage points to 17.9 %. Financial statements. RWE AG prepares its financial statements in compliance with the rules set out in the German Commercial Code and the German Stock Corporation Act. The financial statements are submitted to Bundesanzeiger Verlag GmbH, located in Cologne, Germany, which publishes them in the Federal Gazette. The financial statements of RWE AG can be ordered directly from us and are also available on the internet at www.rwe.com/reports. Balance sheet of RWE AG (abridged) € million Assets Financial assets Accounts receivable from affiliated companies Other accounts receivable and other assets Marketable securities and cash and cash equivalents Total assets Equity and liabilities Equity Provisions Accounts payable to affiliated companies Other liabilities Total equity and liabilities Income statement of RWE AG (abridged) € million Income from financial assets Net interest Other income and expenses Taxes on income Net profit/net loss Transfer to other retained earnings (previous year: withdrawal) Distributable profit 31 Dec 2017 31 Dec 2016 24,901 4,811 505 3,951 34,168 6,104 2,368 22,623 3,073 34,168 32,115 8,218 753 4,887 45,973 4,697 2,419 32,136 6,721 45,973 2017 2016 2,268 − 339 − 345 − 172 1,412 − 490 922 − 1,240 − 368 1,176 − 569 − 1,001 1,006 5 Combined review of operations > Notes to the financial statements of RWE AG (holding company) 59 Assets. RWE AG had €34.2 billion in total assets as of 31 December 2017. This represents a decline of €11.8 billion compared to the previous year. Accounts receivable from and payable to affiliated companies dropped considerably. One reason for this was that innogy assumed the capital market debt of RWE AG in 2017 and that the corresponding intra-group loans were redeemed or reduced with effect from the debtor exchange (see page 53). Furthermore, a dividend claim vis-à-vis RWE Downstream Beteiligungs GmbH that arose in 2016 ceased to exist because the company, which holds our 76.8 % stake in innogy, made a corresponding dividend payment to RWE AG in the year under review. The decline in total assets is also due to the fact that RWE AG sold securities held as current and non-current assets. We used the proceeds to redeem a loan granted us by RWE Power and to offset the loss incurred by that company in the preceding year. As of 31 December 2017, RWE AG’s equity ratio was 17.9 %, which was much higher than in the prior year (10.2 %). In addition to the aforementioned effects, the net profit we posted in 2017 also came to bear. Financial position. RWE AG is set up solidly in financial terms and has a number of flexible financing tools at its disposal. Leading rating agencies certify our high creditworthiness. A detailed presentation of RWE’s financial position and financing activity in the year under review has been made on page 52 et seqq. Earnings position. In 2017, RWE AG’s earnings position improved significantly compared to the previous year, which was characterised by substantial one-off burdens. Income from financial assets rose by €3,508 million to €2,268 million. Following the power plant impairments recognised in 2016, RWE’s two large generation companies returned to profitability in the reporting year. RWE Power benefited from the nuclear fuel tax refund, while RWE Generation profited from the successful commercial optimisation of power plant deployment among other things. Net interest improved by €29 million to –€339 million. Our reduction in the volume of hybrid bonds outstanding last year through redemptions and buybacks resulting in less spend on financing came to bear here. The net amount from other income and expenses decreased by €1,521 million to –€345 million in part due to the non- recurrence of positive one-off effects seen in the prior year: in 2016, the reorganisation of the RWE Group had revealed hidden reserves in the investments. With a tax expense of €172 million (previous year: €569 million), RWE AG achieved a net profit of €1,412 million in fiscal 2017 after the loss of €1,001 million recorded in the preceding year. We also expect a net profit in the 2018 financial year, albeit lower than in 2017. The distributable profit of €922 million reflects the planned dividend payment to our shareholders: the Supervisory and Executive Boards of RWE AG will propose to the Annual General Meeting on 26 April 2018 that a dividend of €1.50 be paid per common and preferred share for fiscal 2017. The sum is made up of the regular dividend of €0.50 and a special payment of €1.00 with which RWE shareholders are to partake of the nuclear fuel tax refund. Corporate governance declaration in accordance with Section 289f and Section 315d of the German Commercial Code. On 15 February 2018, the Executive Board of RWE AG issued a corporate governance statement in accordance with Section 289f and Section 315d of the German Commercial Code and published it on the internet at www.rwe.com/corporate-governance-declaration. 60 RWE Annual Report 2017 1.9 PRESENTATION OF THE RWE GROUP WITH INNOGY AS A PURE FINANCIAL INVESTMENT Since the public listing of our subsidiary innogy on the stock exchange, we have been managing it as a pure financial investment. A comprehensive agreement ensures that the company can conduct its business operations independently. Accordingly, when developing the planning for the RWE Group, we also consider Group figures in which innogy is not included as a fully consolidated company, but instead at the investment’s fair value plus the dividend payment. In this chapter, we present some of these non-IFRS figures and explain how we calculated them. Full consolidation only reflects the status of the investment in innogy to a limited extent. Pursuant to International Financial Reporting Standards (IFRS) we must include companies that are indirectly or directly controlled by RWE AG in the Group’s financial statements on a fully consolidated basis. This means that the income, expenses, cash flows, assets, liabilities, etc. of these activities are considered in the Group figures. innogy is fully consolidated in the Group’s financial statements, as we hold a majority stake of 76.8 % in the company. However, this representation only partially reflects the manner in which we manage our subsidiary. For us, innogy has the status of a pure financial investment, which we expect to deliver an attractive, reliable dividend. This is set out in a comprehensive agreement which stipulates that our subsidiary can act independently in business matters and that RWE AG may only exercise its influence as the majority owner by way of the legally mandated bodies, i. e. the Super- visory Board and the Annual General Meeting. Adjusted figures. For planning purposes, we adopt a presentation that does not conform with IFRS and deviates from the principle of full consolidation. This involves assigning innogy to the ‘other financial assets’ line item on the balance sheet. The figure stated is calculated by multiplying the number of shares we hold in innogy with the share price on the stock market as of the cut-off date for the financial statements. Key figures for the RWE Group including innogy as a financial investment that is not fully consolidated1 € million Adjusted EBITDA Adjusted EBIT Income before tax Net income Adjusted net income Net financial debt Net debt Adjusted EBITDA for 2017 only includes innogy’s dividend payment of €683 million, whereas for adjusted EBITDA in 2016, innogy was considered based on the contribution of its companies to the RWE Group’s income from investments and income from investments accounted for using the equity method, which totalled €730 million. innogy no longer has a direct effect on the RWE Group’s non-operating result or financial result. However, RWE’s figures are modified further, as we treat business transactions between the rest of the Group and innogy as transactions with third parties. Adjusted EBITDA better than expected. The following is an overview of some key financial indicators calculated applying the aforementioned method. These figures trend in the same direction as they would if innogy were fully consolidated. At €2,066 million, adjusted EBITDA slightly exceeded our expectations, rising by 7 % compared to 2016. Adjusted net income amounted to €973 million, which is at the upper end of the range which we had forecast, after having been slightly negative in 2016 (– €20 million). We also displayed positive development regarding net debt: it dropped by 34 % to €4,510 million, primarily due to the nuclear fuel tax refund. 2017 2016 2,066 1,474 2,320 2,160 973 – 6,070 4,510 1,928 1,077 – 5,795 – 5,807 –20 – 9,999 6,858 +/– % 7.2 36.9 140.0 137.2 – 39.3 –34.2 1 Figures not calculated according to IFRS. In addition to recognising innogy as a financial investment, this relates to the following items: supply and service agreements of the rest of the Group with innogy have all been accounted for as executory contracts, although they would have had to be measured at fair value according to IAS 39. We have not formed provisions for contingent losses from these transactions. Figures for supply and service relationships with external third parties and associated provisions have been accounted for as in the IFRS consolidated financial statements. The same applies to the accounting effects of hedges and deferred taxes. Combined review of operations > Disclosure relating to German takeover law 61 1.10 DISCLOSURE RELATING TO GERMAN TAKEOVER LAW The following disclosure is in accordance with Section 315a, Paragraph 1 and Section 289a, Paragraph 1 of the German Commercial Code as well as with Section 176, Paragraph 1, Sentence 1 of the German Stock Corporation Act. The information relates to company-specific regulations for example adjustments to the capital structure by the Executive Board and in the event of a change of control of the company. At RWE, these provisions are in line with the standards of German listed companies. Composition of subscribed capital. RWE AG’s subscribed capital consists of 575,745,499 no-par-value common shares and 39,000,000 no-par-value preferred shares without voting rights, each in the name of the bearer. They account for 93.7 % and 6.3 % of the subscribed capital, respectively. Holders of preferred shares are given priority when distributable profit is distributed. Pursuant to the Articles of Incorporation, it is appropriated in the following order: 1) to make any back payments on shares of the profit allocable to preferred shares from preceding years; 2) to pay a preferred share of the profit of €0.13 per preferred share; 3) to pay the share of the profit allocable to common shares of up to €0.13 per common share; and 4) to make equal payments of potential further portions of the profit allocable to common and preferred shares, unless the Annual General Meeting decides in favour of a different appropriation. The composition of the subscribed capital and the rights and obligations of the shareholders comply with the requirements of the law and the Articles of Incorporation. Shares in capital accounting for more than 10 % of voting rights. As of 31 December 2017, no holding in RWE AG exceeded 10 % of the voting rights. In the middle of the year, RWEB GmbH had informed us that its share of the voting rights had fallen from 14.18 % to 2.70 %. Limitation of share transfers. Within the scope of the employee share plan of RWE AG, 340,920 RWE common shares were issued to employees in the financial year that just ended. These securities must be held until 31 December 2018. Corporation Act in conjunction with Article 16, Paragraph 6 of the Articles of Incorporation of RWE AG. According to the aforementioned provision in the Articles of Incorporation, unless otherwise required by law or the Articles of Incorporation, the Annual General Meeting shall adopt all resolutions by a simple majority of the votes cast or – if a capital majority is required – by the simple majority of the capital stock represented when the resolution is passed. Pursuant to Article 10, Paragraph 9 of the Articles of Incorporation, the Supervisory Board is authorised to pass resolutions to amend the Articles of Incorporation that only concern the wording without changing the content. Executive Board authorisations for implementing share buybacks. Pursuant to a resolution passed by the Annual General Meeting on 16 April 2014, RWE AG is authorised to buy back up to 10 % of its capital stock as of the entry into force of said resolution or – if this figure is lower – at the exercise of this authorisation in shares of any kind until 15 April 2019. At the Executive Board’s discretion, the acquisition shall be made on the stock exchange or via a public purchase offer. Shares purchased in this way may then be cancelled. Furthermore, the purchased shares may be transferred to third parties or sold otherwise in connection with mergers or acquisitions of companies, parts of companies, operations, or of stakes in companies. Shares that are not sold on the stock exchange or through a tender to all shareholders may only be sold for cash. Moreover, in such cases, the sale price may not be significantly lower than the price at which the shares are listed on the stock market. The company may transfer shares bought back to the holders of option or convertible bonds. The company may also use the shares to fulfil its obligations resulting from employee share schemes. In the aforementioned cases, shareholder subscription rights are waived. These authorisations may be exercised in full or in part, or once or several times for partial amounts. Appointment and dismissal of Executive Board members / amendments to the Articles of Incorporation. Executive Board members are appointed and dismissed in accordance with Section 84 et seq. of the German Stock Corporation Act in conjunction with Section 31 of the German Co-Determination Act. Amendments to the Articles of Incorporation are made pursuant to Section 179 et seqq. of the German Stock Executive Board authorisation for the issuance of new shares. Pursuant to the resolution passed by the Annual General Meeting on 16 April 2014, the Executive Board is authorised to increase the company’s capital stock, subject to the Supervisory Board’s approval, by up to €314,749,693.44 until 15 April 2019, through the issuance of up to 122,949,099 62 RWE Annual Report 2017 new bearer common shares in return for contributions in cash or in kind (authorised capital). These authorisations may be exercised in full or in part, or once or several times for partial amounts. In principle, shareholders are entitled to subscription rights. However, subject to the approval of the Supervisory Board, the Executive Board may waive such rights in the following cases: they may be waived in order to prevent the number of shares allocated from the subscription resulting in fractional amounts (fractions of shares). Subscription rights may also be waived in order to issue shares in exchange for contributions in kind for the purposes of mergers or acquisitions of companies, parts of companies, operations, or of stakes in companies. Subscription rights may be waived in the event of a cash capital increase if the price at which the new shares are issued is not significantly lower than the price at which shares are quoted on the stock market and the portion of the capital stock accounted for by the new shares, for which subscription rights are waived, does not exceed 10 % in total. Furthermore, subscription rights may be waived in order to offer shares to potential holders of convertible or option bonds commensurate to the rights to which they would be entitled as shareholders on conversion of the bond or on exercise of the option. The Executive Board is authorised, subject to the approval of the Supervisory Board, to determine the further details and conditions of the share issuance. In sum, the capital stock may not be increased by more than 20 % through the issuance of new shares waiving subscription rights. Effects of a change of control on debt financing. Our debt financing instruments often contain clauses that take effect in the event of a change of control. The following rule applies to a residual amount of a senior bond remaining with RWE AG after the transfer of debt to innogy (see page 53): in the event of a change of control in conjunction with a drop in RWE AG’s credit rating below investment-grade status, creditors may demand immediate redemption. In such cases, RWE AG has the right to cancel its subordinated hybrid bonds within the defined change of control period; if this does not occur, the annual compensation payable on the hybrid bonds increases by 500 basis points. RWE AG’s €3 billion syndicated credit line also includes a change-of-control clause, which essentially has the following content: in the event of a change of control or majority at RWE, further drawings are suspended until further notice. The lenders shall enter into negotiations with us on a continuation of the credit line. Should we fail to reach an agreement with the majority of them within 30 days from such a change of control, the lenders may cancel the line of credit. Effects of a change of control on Executive Board and executive compensation. Members of the Executive Board of RWE AG have the special right to terminate their employment contract in the event that shareholders or third parties obtain control over the company and this would be linked to significant disadvantages for the Executive Board members in question. In such a case, they may resign from their position within six months of the change of control with cause by giving three months’ notice and request the termination of their employment contract and receive a one-off payment. The amount of the one-off payment shall correspond to all compensation due until the end of the contractually agreed term of service, but no more than three times the total contractual annual compensation. Share-based compensation is not included in this. This is in line with the currently valid recommendations of the German Corporate Governance Code. In the new Strategic Performance Plan presented on page 66 et seq., it is stipulated for the Executive Board and executives of RWE AG and subordinated associated companies that in the event of a change of control the granted performance shares which have already been finally determined but not yet been paid out, shall be paid out early. The pay-out amount shall correspond to the number of performance shares multiplied by the sum of the average closing price of the RWE common share over the last 30 trading days prior to the announcement of the change of control and the amount of dividend paid out per share up to that point in time, calculated starting from the time when the final number of performance shares was fully granted. All conditionally granted performance shares at the time of the change of control shall expire without replacement or compensation. Combined review of operations > Compensation report 63 1.11 COMPENSATION REPORT We believe that performance-oriented and transparent supervisory and management board compensation is a key element of good corporate governance. In this chapter, we have provided information on the structure and level of the compensation of the Supervisory Board and Executive Board of RWE AG. In addition to the requirements of German stock corporation and commercial law, we also consider the recommendations of the German Corporate Governance Code concerning the design and presentation of compensation systems. Structure of Supervisory Board compensation The remuneration of the Supervisory Board is governed by the provisions of the Articles of Incorporation of RWE AG. Accordingly, the Chairman of the Supervisory Board receives fixed compensation of €300,000 per fiscal year. Their Deputy receives €200,000 per fiscal year. The other members of the Supervisory Board receive fixed compensation of €100,000 and additional remuneration for committee mandates according to the following rules. Members of the Audit Committee receive additional remuneration of €40,000. This additional payment is increased to €80,000 for the Chair of this committee. With the exception of the Nomination Committee, the members and the Chairs of all the other Supervisory Board committees receive an additional €20,000 and €40,000 in compensation, respectively. Remuneration for a committee mandate is only paid if the committee is active at least once in the fiscal year. In addition to the remuneration paid, out-of-pocket expenses are refunded to the members of the Supervisory Board. Supervisory Board members also receive income from the exercise of Supervisory Board mandates at subsidiaries of RWE AG. The members of the Supervisory Board imposed on themselves the obligation, subject to any obligations to relinquish their pay, to use 25 % of the total compensation paid (before taxes) to buy RWE shares and to hold them for the duration of their membership of the Supervisory Board of RWE AG. Last year, all of the members who do not donate their compensation met this self-imposed obligation for their compensation for 2016. For the new members elected to the Board in April 2017, this self-imposed obligation will apply to the compensation for fiscal 2017, which was paid out at the start of fiscal 2018. Supervisory Board members who concurrently hold several offices in this body only receive compensation for the highest- paid position. Compensation is prorated if a Supervisory Board member only performs a function for part of a fiscal year. Level of Supervisory Board compensation In total, the remuneration of the Supervisory Board (including compensation for committee mandates at subsidiaries, but excluding out-of-pocket expenses) amounted to €3,637,000 in fiscal 2017 (previous year: €3,228,000). Of this sum, €459,000 (previous year: €442,000) was remuneration paid for mandates on committees of the Supervisory Board and €877,000 (previous year: €482,000) was remuneration paid for mandates at subsidiaries. The rise in compensation for the exercise of mandates is due in part to the fact that certain individuals also belong to the Supervisory Board of innogy SE and that they only received prorated compensation for the exercise of this mandate in 2016. 64 RWE Annual Report 2017 The remuneration of all individuals who have served on the Supervisory Board in 2016 and/or 2017 is shown in the following table. Supervisory Board compensation1 Fixed compensation Compensation for committee offices Compensation for mandates at subsidiaries2 Total compensation3 € ‘000 Dr. Werner Brandt, Chairman Dr. Manfred Schneider, Chairman (until 20 April 2016) Frank Bsirske, Deputy Chairman Reiner Böhle Sandra Bossemeyer Dieter Faust (until 20 April 2016) Ute Gerbaulet (since 27 April 2017) Reinhold Gispert (since 27 April 2017) Roger Graef (until 20 April 2016) Arno Hahn (until 27 April 2017) Andreas Henrich Maria van der Hoeven (20 April 2016 until 14 October 2016) Manfred Holz (until 20 April 2016) Prof. Dr. Hans-Peter Keitel Dr. h. c. Monika Kircher Martina Koederitz (20 April 2016 until 27 April 2017) Monika Krebber Frithjof Kühn (until 20 April 2016) Hans Peter Lafos (until 20 April 2016) Harald Louis Christine Merkamp (until 20 April 2016) Dagmar Mühlenfeld Peter Ottmann Günther Schartz Dr. Erhard Schipporeit Dagmar Schmeer (until 20 April 2016) Prof. Dr.-Ing. Ekkehard D. Schulz (until 20 April 2016) Dr. Wolfgang Schüssel Ullrich Sierau Ralf Sikorski Marion Weckes Dr. Dieter Zetsche (until 20 April 2016) Leonhard Zubrowski Total3 2017 300 2016 240 – 200 100 100 – 68 68 – 32 100 – – 100 100 32 100 – – 100 – 100 100 100 100 – – 100 100 100 100 – 100 91 200 100 70 30 – – 30 100 70 49 30 100 21 70 70 30 30 70 30 100 70 70 70 30 30 100 100 100 70 30 100 2017 2016 – – – 20 20 – – 26 – 13 – – – 20 – – 20 – – 20 – 20 20 20 80 – – 40 40 40 40 – 20 24 – – 20 14 12 – – – 40 – – 6 20 – – 14 6 – 14 – 20 14 14 56 – 12 34 40 40 28 – 20 2,301 2,303 459 442 2017 300 2016 130 2017 600 2016 393 – 200 120 – – – 14 – 18 – – – – – 38 67 – – 40 – – – – – – – – – 50 – – 30 877 – 86 48 – 12 – – – 54 – 12 6 – – 33 – – 12 – – – 8 2 – – – – – 50 – – 30 482 – 400 240 120 – 68 108 – 63 100 – – 120 100 71 187 – – 160 – 120 120 120 180 – – 140 140 190 140 – 150 91 286 168 84 55 – – 30 194 70 61 42 120 21 103 84 36 42 84 30 120 92 85 126 30 42 134 140 190 98 30 150 3,637 3,228 1 Supervisory Board members who joined or retired from the corporate body during the year receive prorated compensation. 2 Compensation for exercising mandates at subsidiaries is only included for periods of membership of the Supervisory Board of RWE AG. 3 The commercial rounding of certain figures can result in inaccurate sums. Combined review of operations > Compensation report 65 Structure of Executive Board compensation Principles of Executive Board compensation. The structure and level of the Executive Board’s remuneration are determined by the Supervisory Board of RWE AG and reviewed on a regular basis to determine whether they are appropriate and in line with the market. The compensation system described in the following has been applied since 1 October 2016. It ensures that remuneration reflects individual performance, company performance and the development of the RWE share over the long term. Executive Board compensation is composed of non-performance- based and performance-based components. The former consists of the fixed salary, the pension instalment as well as fringe benefits. The performance-based components include the bonus and a share-based payment, the latter of which is a long-term compensation component. Recipients of Executive Board compensation. In the financial year that just ended, Rolf Martin Schmitz, Markus Krebber and Uwe Tigges received compensation for their work on the Executive Board of RWE AG. Rolf Martin Schmitz has been a member of the Executive Board since 1 May 2009 and its Chairman since 15 October 2016. Markus Krebber was appointed to the corporate body with effect from 1 October 2016 and has been in charge of finance since 15 October 2016. Uwe Tigges belonged to the Executive Board from 1 April 2013 to 30 April 2017. He was in charge of human resources and was the Labour Director. He resigned from his office in order to focus on his work on the Executive Board of innogy SE, which he joined on 1 April 2016. As of 1 May 2017, his tasks on the Executive Board of RWE AG were transferred to Rolf Martin Schmitz, who has since also been the company’s Labour Director. All of the members of the Executive Board entered into employment contracts based on the current compensation system with effect from 1 October 2016. Uwe Tigges, who belonged to the Executive Boards of RWE AG and innogy SE at the time, received his contract from innogy SE. Non-performance-based Executive Board compensation Fixed compensation and pension instalments. All Executive Board members receive a fixed salary, which is paid in twelve monthly instalments. As a second fixed compensation component, members of the Executive Board are entitled to a pension instalment for every year of service, which is determined on an individual basis. The pension instalment is paid in cash or retained in part or in full in exchange for a pension commitment of equal value through a gross compensation conversion. RWE has concluded a reinsurance policy to finance the pension commitment. The accumulated capital may be drawn upon on retirement, but not before the Executive Board member turns 62. Members of the Executive Board of RWE reach the established age limit when they are 63 years old. They can be reappointed for one year at a time thereafter, but may not hold office beyond their 65th birthday. When retiring, Executive Board members can choose between a one-time payment and a maximum of nine instalments. They and their surviving dependants do not receive any further benefits. Vested retirement benefits from earlier activities within the RWE Group remain unaffected by this. The vested retirement benefits acquired by Uwe Tigges were transferred from RWE AG to innogy SE upon termination of his employment contract. A different rule applies to Rolf Martin Schmitz, who was appointed to the Executive Board before the pension instalments were introduced. He was granted a pension benefit, which remains. Fringe benefits. Non-performance-based compensation components also include fringe benefits, primarily consisting of the use of company cars and accident insurance premiums. 66 RWE Annual Report 2017 Performance-based Executive Board compensation Bonus. Executive Board members receive a bonus, which is based on the economic performance of the company and the degree to which they achieve their individual goals and the collective goals of the Executive Board. The starting point for calculating the bonus is what is referred to as the ‘company bonus’, which depends on the level of adjusted EBIT and is determined as follows. Share-based payment. Executive Board members are granted a share-based payment according to RWE AG’s Strategic Performance Plan (SPP). The SPP rewards the achievement of long-term goals. The key determinants of its success are the level of adjusted net income and the performance of the RWE common share (return on share price development and dividend) over a period of several years. By linking compensation to the development of the share price over the long term, the SPP motivates the Executive Board to consider the interests of the company’s owners when taking decisions. The Supervisory Board sets a target for adjusted EBIT at the beginning of every fiscal year. After the end of the fiscal year, the actual level of adjusted EBIT achieved is compared with the target figure. If the figures are identical, the target achievement is 100 %. In this case, the company bonus equals the contractually agreed baseline bonus. If adjusted EBIT is more or less than the established target, target achievement increases or decreases by a factor of 2.5. If adjusted EBIT is exactly 120 % of the target figure, the target achievement amounts to 150 %. The latter figure is also the cap, which cannot be exceeded even if adjusted EBIT is higher. The lower limit is reached if adjusted EBIT is exactly 80 % of the target figure. In this case, the target achievement for the company bonus amounts to 50 %. If the EBIT figure is lower than the 80 % threshold, no company bonus is paid out. The performance of individual Executive Board members is considered by multiplying the company bonus by a performance factor. It may vary between 0.8 and 1.2. The value achieved depends on the following criteria, each of which is weighted by one-third: (1) achievement of the individual targets, (2) collective performance of the Executive Board, and (3) performance in corporate responsibility (CR) and employee motivation. Success in CR depends on the achievement of environmental and social goals and is documented in our sustainability reporting. Employee motivation is measured with a motivation index, which is based on anonymous surveys of employee commitment and satisfaction. After the end of every financial year, the Supervisory Board evaluates the individual performance of the Executive Board members relative to the above three criteria and determines their individual performance factor. This is done in line with the binding goals and targets which it sets at the beginning of the financial year. The bonus determined in this manner is paid out in full to the Executive Board members after the end of the fiscal year. The SPP is based on conditionally granted performance shares. Performance shares are granted as of 1 January of every fiscal year. The SPP’s conditions envisage a transitional tranche in fiscal 2016 (year of introduction) and three more regular tranches for 2017, 2018 and 2019. The Executive Board members receive a grant letter for each tranche. The – preliminary – number of performance shares is calculated based on the gross grant amount mentioned in the grant letter by dividing the grant amount by the average closing quotation of the RWE share on the last 30 days of trading on Xetra before the grant. The granted performance shares have a term of four years (vesting period). After the end of the first year, the number of fully granted performance shares is determined. It depends on the adjusted net income achieved by the RWE Group for the year. The actual figure is compared to a pre-defined target figure. Determining this target figure is the responsibility of the Supervisory Board, which orientates itself towards the approved medium-term plan in doing so. If the target figure is achieved exactly, 100 % of the conditionally granted performance shares of the tranche is fully allocated. If the target figure is exceeded, the final grant is more than 100 % and vice-versa. Similar to determining the company bonus, there is an upper limit and a lower limit. If adjusted net income reaches or exceeds the upper threshold, 150 % of the conditionally granted performance shares is fully vested. If it is at the lower threshold, the final grant amounts to 50 %. If the actual figure is lower than the threshold, all of the conditionally granted performance shares from the tranche lapse. This means that the final number of performance shares can vary from 0 % to 150 % of the conditionally granted performance shares. Combined review of operations > Compensation report 67 The fully vested performance shares are fully paid out in cash to the member of the Executive Board after the end of the four-year vesting period. The level of the payment depends on the performance of the RWE common share. It corresponds to the finalised number of performance shares multiplied by the average closing quotation of the RWE share of the last 30 days of trading on Xetra before the end of the vesting period added to the cumulative dividend paid during the holding period. However, a cap applies in this case as well: even in the event of extremely good share performance, the payment is limited to a maximum of 200 % of the initial gross grant amount. The performance shares remain unaffected after an Executive Board member leaves the body at the end of his or her contract and are paid out as planned at the end of the four-year vesting period. If an Executive Board member voluntarily leaves the company early or is dismissed with good cause, all performance shares which have not yet reached the end of the plan’s duration lapse. The SPP also contains a demerit provision. This empowers the Supervisory Board to punish infractions by Executive Board members, for example for serious violations of the company’s Code of Conduct, by reducing or completely voiding ongoing SPP tranches. The members of the Executive Board are obligated to reinvest 25 % of the payment (after taxes) in RWE shares. The shares must be held until at least the end of the third year after conclusion of the vesting period. Compensation for exercising mandates. During the past fiscal year, members of the RWE AG Executive Board were paid to exercise supervisory board mandates at affiliates. This income is deducted from the bonus and therefore does not increase the total remuneration. Upon introduction of the SPP in October 2016, the Executive Board members were granted share-based payments retroactively and in full for 2016, the transitional year. With regard to the introductory 2016 tranche, the final number of performance shares depends on the level of adjusted net income in 2017 and its relation to the target figure for 2017. This solution was chosen because, upon being granted in October 2016, it no longer made sense to establish a 2016 target figure for adjusted net income. Shares of total compensation accounted for by the individual components. Assuming that both the company and the Executive Board members achieve their performance targets to a degree of 100 %, the compensation structure roughly breaks down as follows: the base salary accounts for around 30 % of total remuneration. Approximately 30 % is allocable to short-term variable compensation, i.e. the bonus. As a long-term compensation component, the SPP accounts for about 40 % of total remuneration. In 2016, the Supervisory Board established target figures for adjusted net income for the planned SPP tranches (2016 to 2019). As part of this, the aforementioned upper and lower thresholds were also determined. The Supervisory Board is only able to subsequently adjust these figures to a very limited degree and only in predefined situations, in order to be able to take into account the effects of capital measures, acquisitions, disposals or regulatory changes which were not known or foreseeable when the target figures were determined. RWE AG therefore complies with the recommendations of the German Corporate Governance Code (GCGC), in that – as a rule – changes to the performance targets or comparison parameters should not be subsequently made. Limitation of Executive Board compensation. As set out earlier, the level of variable compensation components is limited. The company bonus amounts to a maximum of 150 % of the contractually agreed bonus budget. Multiplying this by the individual performance factor (0.8 to 1.2), it is possible to reach a maximum of 180 % of the bonus budget. With regard to share-based payment under the SPP, payout of the performance shares after the completion of the vesting period is limited to a maximum of 200 % of the grant budget. Based on the above maximum values, a cap can also be derived for the total compensation (see the diagram overleaf). 68 RWE Annual Report 2017 Range of Executive Board compensation Budget: 100 % Strategic Performance Plan (100 %) Bonus (100 %) 40 % 30 % Floor: 30 % Cap: 164 % Strategic Performance Plan (Maximum: 200 %) 80 % Bonus (Maximum: 180 %) 54 % Fixed salary 30 % Fixed salary 30 % Fixed salary 30 % Payment dates. Executive Board members receive their fixed salary in twelve monthly instalments. The pension instalment is paid out at the end of the year, insofar as it is not converted into a pension commitment. After the fiscal year, the Supervisory Board determines the target achievement for the company bonus and the individual performance factor. The bonus is paid out in the month of the Annual General Meeting (AGM) which attends to the financial statements of RWE AG. After the end of the four-year vesting period, the performance shares from the SPP are paid out, during the month of the Annual General Meeting held in the following year. As explained earlier, Executive Board members must invest 25 % of the payment in RWE common shares and may not liquidate these shares until after three additional calendar years have passed from completion of the four-year vesting period. As a result, it takes a total of seven years for Executive Board members to obtain the full amount of their compensation. Executive Board compensation payment timeline for a fiscal year Bonus Payment in the month in which the AGM is held Strategic Performance Plan Payment in the month in which the AGM is held 25 % reinvestment in RWE shares End of the minimum holding period Pension instalment Payment at year-end Fixed salary Monthly payment Fiscal year Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Combined review of operations > Compensation report 69 Pension scheme. Until the introduction of the pension instalment as of 1 January 2011 described earlier, pension benefits were granted to the members of the Executive Board. Of the Executive Board members in 2017, this only applies to Rolf Martin Schmitz; the pension commitment made to him in 2009 will remain unchanged. It entitles him to life-long retirement benefits in the event of retirement from the Executive Board of RWE AG upon turning 60, permanent disability, early termination or non-extension of the employment contract by the company. In the event of death, surviving dependants are entitled to the benefits. The amount of Rolf Martin Schmitz’s qualifying income and the level of benefits determined by the duration of service are taken as a basis for his individual pension and surviving dependants’ benefits. Change in corporate control. If shareholders or third parties obtain control over the company and this results in major disadvantages for the Executive Board members, they have a special right of termination. They have the right to resign from the Executive Board and to request that their employment contract be terminated in combination with a one-off payment within six months of the change of control. A change of control as defined by this provision occurs when one or several shareholders or third parties acting jointly account for at least 30 % of the voting rights in the company, or if any of the aforementioned can exert a controlling influence on the company in another manner. A change of control also occurs if the company is merged with another legal entity, unless the value of the other legal entity is less than 50 % of the value of RWE AG. On termination of their employment contracts, Executive Board members receive a one-off payment equalling the compensation due until the end of the term of their contract: this amount will not be higher than three times their total contractual annual compensation. The share-based payments under the SPP are not considered here. In the event of a change of control, all of the fully vested performance shares under the SPP that have not been paid out are paid out early. All performance shares granted under the SPP on a preliminary basis lapse on the date of the change of control. Early termination and severance cap. Following a recommendation of the GCGC, the Executive Board’s employment contracts include a provision stipulating that if an Executive Board mandate is otherwise terminated early without due cause, a severance payment of no more than the remuneration due until the end of the employment contract and no more than two total annual compensations including fringe benefits is made (severance cap). Level of Executive Board compensation The following section presents the compensation granted to the Executive Board members of RWE AG for their work in fiscal 2017. It was calculated in compliance with the rules set out in the German Commercial Code. Total compensation for fiscal 2017. Pursuant to the calculation regulations of the German Commercial Code, the total compensation of the Executive Board for fiscal 2017 amounted to €7,274,000. This includes sums received by Uwe Tigges through to 30 April 2017 for his dual offices on the Executive Board of RWE AG and innogy SE. These emoluments were paid by innogy SE and were refunded by RWE AG on a prorated basis. Total compensation in 2016 amounted to €15,486,000. This figure includes the sums received by Peter Terium and Bernhard Günther until they resigned from the Executive Board of RWE AG on 14 October 2016. Level of individual compensation components. In 2017, non-performance-based components, i.e. the fixed salary of the Executive Board members, fringe benefits and the pension instalment, amounted to €2,342,000 (previous year: €4,471,000). Pursuant to the German Commercial Code, the annual service cost of the pension commitment to Rolf Martin Schmitz is not recognised as compensation, as opposed to the pension instalment of €255,000 paid to Markus Krebber (previous year: a prorated €64,000). The pension instalment of €85,000 paid to Uwe Tigges for the period ending on 30 April 2017 is included in this figure (previous year: €255,000 for the full year). In 2017, performance-based components, consisting of the Executive Board members’ bonuses and grants under the SPP, amounted to a total of €4,932,000 (previous year: €11,015,000). This and the following figures for 2017 70 RWE Annual Report 2017 consider the prorated compensation of Uwe Tigges until his resignation. Accordingly, the prior-year figures also include the compensation paid to Peter Terium and Bernhard Günther until their resignation. Of the performance-based components of the Executive Board members, €2,365,000 (previous year: €4,115,000) was attributable to the bonus for fiscal 2017 paid directly and €2,567,000 (previous year: €2,987,000) to the allocation of performance shares under the SPP. As set out on page 66, the level of the bonus largely depends on adjusted EBIT. For fiscal 2017, the Supervisory Board had set a target of €3,573 million (100 % target achievement) and a cap of €4,288 million (150 % target achievement). Including adjustments, this resulted in an actual figure of €3,676 million. Accordingly, the degree to which the target was achieved was 107 %. In calculating the actual figure, adjustments were made in order to account for structural differences between actual and target figures. These differences result in particular from impairments or unscheduled special items (e. g. sales proceeds). The following table summarises the short-term remuneration paid in accordance with the German Commercial Code for fiscal 2017. Short-term Executive Board compensation1 Dr. Rolf Martin Schmitz Dr. Markus Krebber Uwe Tigges Peter Terium Dr. Bernhard Günther Total since 1 Oct 2016 until 30 Apr 2017 until 14 Oct 2016 until 14 Oct 2016 € ‘000 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Non-performance-based compensation Fixed compensation 960 960 750 188 250 750 Fringe benefits (company car, accident insurance) Other payments (pension instalments) Total Performance-based compensation 15 19 20 4 7 20 – 975 – 255 979 1,025 64 256 85 342 255 1,025 Direct bonus payment 1,168 962 643 133 213 861 Compensation for mandates2 Bonus Total 138 1,306 2,281 150 1,112 2,091 203 846 1,871 78 211 467 – 213 555 20 881 1,906 – – – – – – – – 1,050 23 360 1,433 1,224 27 1,251 2,684 – – – – – – – – 563 1,960 3,511 24 42 90 191 778 340 870 2,342 4,471 635 2,024 3,815 25 660 1,438 341 2,365 4,707 300 4,115 8,586 1 The table is based on the Group perspective. The figures include all the emoluments received by Uwe Tigges, Peter Terium and Bernhard Günther for their work on the Executive Boards of RWE AG and innogy SE until they resigned from the Executive Board of RWE AG. Pursuant to the German Commercial Code, RWE AG may only state in its separate financial statements the partial amounts that are allocable to it in economic terms. Only Uwe Tigges worked for both companies in fiscal 2017. In the separate financial statements of RWE AG, he is allocated non-performance-based compensation of €171,000 and performance-based compensation of €107,000. 2 In 2017, the compensation for exercising intragroup supervisory board offices was fully set off against the bonus. Share-based payment according to the Strategic Performance Plan. In fiscal 2017, Rolf Martin Schmitz and Markus Krebber were granted performance shares under the SPP of RWE AG, whereas Uwe Tigges received performance shares under the SPP of innogy, which has a similar structure. The following overview shows the volume of performance shares issued. The main factor in determining the ratio of the number of performance shares granted on a preliminary basis to the final number of performance shares granted was the adjusted net income of the RWE Group in fiscal 2017. The Supervisory Board established an actual figure of €806 million for this. The amount differs from the figure mentioned on page 48 (€1,232 million) because more adjustments were necessary, as required by the SPP conditions. These adjustments are the same as the ones made to calculate the actual figure for adjusted EBIT (see above). Based on a target of €686 million (grant of 100 %) and a cap of €1,086 million (grant of 150 %) the final grant amounts to 115 % of the performance shares granted on a preliminary basis. The allocation ratio for Uwe Tigges was aligned to innogy’s adjusted net income and was 88 % in 2017. Combined review of operations > Compensation report 71 Long-term incentive payment1 Strategic Performance Plan Dr. Rolf Martin Schmitz Dr. Markus Krebber since 1 Oct 2016 Uwe Tigges until 30 Apr 2017 Tranche Company Grant date Fair value at grant date Share price (average) Number of performance shares allocated on a provisional basis Measurement date of performance conditions Target achievement in relation to adjusted net income Final number of fully granted performance shares End of the vesting period Year € ‘000 € 2017 RWE AG 2016 RWE AG 2017 RWE AG 2016 2017 2016 RWE AG innogy SE innogy SE 1 Jan 2017 1 Jan 2016 1 Jan 2017 1 Jan 2016 1 Jan 2017 1 Jan 2016 1,250 11.62 769 13.78 988 11.62 247 13.78 329 32.07 706 37.13 107,573 55,787 84,983 17,915 10,264 19,021 31 Dec 2017 31 Dec 2017 31 Dec 2017 31 Dec 2017 31 Dec 2017 31 Dec 2017 % 115 115 115 115 88 88 123,709 64,155 97,730 20,602 9,032 16,738 31 Dec 2020 31 Dec 2019 31 Dec 2020 31 Dec 2019 31 Dec 2020 31 Dec 2019 1 From the Group perspective, the compensation stated for Uwe Tigges under the SPP of innogy SE is share-based. In accordance with the German Commercial Code, the separate financial statements of RWE AG are based on a different perspective: as the payment depends on the innogy share instead of on the development of the RWE share, the SPP compensation received by UWE Tigges is classified as non-share-based and is only included in total remuneration once the payment conditions are met. The table below shows the level of provisions formed for share-based payment obligations under the SPP. Addition of provisions for long-term share-based incentive payments € ‘000 Dr. Rolf Martin Schmitz Dr. Markus Krebber Uwe Tigges Peter Terium Dr. Bernhard Günther Total since 1 October 2016 until 30 April 2017 until 14 October 2016 until 14 October 2016 Obligations under the former pension scheme. The service cost of pension obligations to Rolf Martin Schmitz amounted to €538,000 in 2017 (previous year: €229,000). This is not a compensation component in accordance with the German Commercial Code. As of year-end, the net present value of the defined benefit obligation determined in accordance with International Financial Reporting Standards (IFRS) amounted to €12,391,000 (previous year: €13,923,000). The value of the pension obligation determined according to the German Commercial Code totalled €9,287,000 (previous year: €9,894,000). The pension obligation for 2017 decreased by €607,000 (previous year: increase of €435,000). 2017 2016 592 393 124 – – 1,109 141 46 134 143 82 546 Based on the emoluments qualifying for a pension as of 31 December 2017, the projected annual pension of Rolf Martin Schmitz on retiring from the company as of the expiry of his appointment amounts to €556,000 (previous year: €484,000). This includes vested pension benefits due from former employers transferred to RWE AG. 72 RWE Annual Report 2017 Recommendations of the German Corporate Governance Code According to the version of the German Corporate Governance Code (GCGC) published on 7 February 2017, the total remuneration of management board members comprises the monetary compensation elements, pension commitments, other awards, fringe benefits of all kinds and benefits from third parties which were granted or paid in the financial year with regard to management board work. Item 4.2.5, Paragraph 3 of the Code lists the compensation components that should be disclosed. Unlike under German commercial law, according to the GCGC the annual service cost of pension benefits is also part of total compensation. The GCGC provides specific examples for the recommended presentation of management board compensation based on model tables, which distinguishes between ‘benefits granted’ and ‘benefits received’. • According to the GCGC, benefits or compensation are granted when a binding commitment to such is made to the manage ment board member. In deviation from German commercial law, it is not relevant to what extent the management board member has already provided the services being remunerated. • The term ‘benefits received’ defines the extent to which the management board member has already received payments. In this regard, the relevant aspect is the time at which the amount being paid is sufficiently certain and not the actual time of the payment. This distinction made in the Code can be illustrated with the example of the bonus: the contractually agreed and promised budgeted bonus for the fiscal year in question is considered ‘granted’. Conversely, the benefits received table shows the bonus level which will actually be paid with a high degree of probability. In this regard, it is not relevant that no payment actually took place during the year in question. The payment date is deemed to have been reached when the indicators and results needed to determine target achievement (and therefore the bonus) are known with sufficient certainty. The Code assumes that this is already the case at the end of the year. As a result, the one-year Executive Board bonuses are stated in the reporting year in the benefits granted table. In the following, we present the compensation of the Executive Board of RWE AG in the manner recommended by the GCGC, based on the sample tables. Benefits granted € ‘000 Fixed compensation Pension instalment Fringe benefits Total fixed compensation One-year variable compensation Bonus Multi-year variable compensation SPP 2016 tranche1 (term: 2016–2019) SPP 2017 tranche (term: 2017–2020) Total variable compensation Total Service cost Total compensation Dr. Rolf Martin Schmitz since 1 May 2009, Chief Executive Officer since 15 Oct 2016 Dr. Markus Krebber since 1 Oct 2016, Chief Financial Officer since 15 Oct 2016 2016 2017 2016 2017 960 – 19 979 900 900 769 769 – 1,669 2,648 229 2,877 960 – 15 975 1,100 1,100 1,250 – 1,250 2,350 3,325 538 3,863 2017 (Min) 960 – 15 975 0 0 0 – 0 0 975 538 1,513 2017 (Max) 960 – 15 975 1,980 1,980 2,500 – 2,500 4,480 5,455 538 5,993 2017 (Min) 750 255 20 750 255 20 1,025 1,025 713 713 988 – 988 1,701 2,726 – 0 0 0 – 0 0 1,025 – 2017 (Max) 750 255 20 1,025 1,283 1,283 1,975 – 1,975 3,258 4,283 – 2,726 1,025 4,283 188 64 4 256 178 178 247 247 – 425 681 – 681 1 The grant contains the contractual bonus retention for the period up to 30 September 2016, which was transferred to the 2016 tranche of the SPP on this one occasion. Combined review of operations > Compensation report 73 Benefits granted € ‘000 Fixed compensation Pension instalment Fringe benefits Total fixed compensation One-year variable compensation Bonus Multi-year variable compensation SPP 2016 tranche1 (term: 2016–2019) SPP 2017 tranche (term: 2017–2020) Total variable compensation Total Service cost Total compensation Uwe Tigges Chief HR Officer/Labour Director until 30 Apr 2017 2016 2017 750 255 20 1,025 713 713 706 706 – 1,419 2,444 – 2,444 250 85 7 342 238 238 329 – 329 567 909 – 909 2017 (Min) 250 85 7 342 0 0 0 – 0 0 342 – 342 2017 (Max) 250 85 7 342 428 428 658 – 658 1,086 1,428 – 1,428 1 The grant contains the contractual bonus retention for the period up to 30 September 2016, which was transferred to the 2016 tranche of the SPP on this one occasion. Benefits received € ‘000 Fixed compensation Pension instalment Fringe benefits Total fixed compensation One-year variable compensation Bonus1 Multi-year variable compensation Bonus retention 2013–2015 (released) SPP 2016 tranche (term: 2016–2019) SPP 2017 tranche (term: 2017–2020) Total variable compensation Total Service cost Total compensation Dr. Rolf Martin Schmitz since 1 May 2009, Chief Executive Officer since 15 Oct 2016 Dr. Markus Krebber since 1 Oct 2016, Chief Financial Officer since 15 Oct 2016 Uwe Tigges Chief HR Officer/ Labour Director until 30 Apr 2017 2017 960 – 15 975 1,306 1,306 0 – 0 0 1,306 2,281 538 2,819 2016 960 – 19 979 1,112 1,112 947 947 0 – 2,059 3,038 229 3,267 2017 750 255 20 1,025 846 846 0 – 0 0 846 1,871 – 1,871 2016 188 64 4 256 211 211 0 – 0 0 211 467 – 467 2017 250 85 7 342 213 213 0 – 0 0 213 555 – 555 2016 750 255 20 1,025 881 881 723 723 0 0 1,604 2,629 – 2,629 1 The bonus includes compensation for exercising intragroup supervisory board offices; also see the table ‘Short-term Executive Board compensation’ on page 70. 74 RWE Annual Report 2017 1.12 DEVELOPMENT OF RISKS AND OPPORTUNITIES RWE’s risk position is significantly affected by changes in the regulatory framework in the energy sector. State intervention with the object of reducing greenhouse gas emissions could have a very negative effect on us, in particular if it leads to an accelerated exit from coal-based electricity generation. This applies first and foremost to our home market Germany. The development of prices on wholesale markets for electricity, fuel and emission allowances also exposes us to substantial risks – as well as opportunities, as demonstrated by the recovery of electricity prices in the last two years. The RWE Group rests on a solid foundation in both financial and organisational terms. One of the key elements of this foundation is our risk management, which has proven itself over many years, enabling us to identify, assess and control risks systematically. Redistribution of risk management responsibilities in the RWE Group. The restructuring of the RWE Group also involved the reorganisation of our risk management. Since its public listing in October 2016, innogy SE has controlled its risks independently – as well as those of its subsidiaries. As regards all of the other Group companies, responsibility remains with RWE AG. The manner in which RWE AG records innogy’s risks has also changed. Since we fully consolidate our subsidiary in the Group’s financial statements, but manage it as a financial investment, our analysis essentially focuses on the market value of our investment in innogy and changes in this value. We map the risk of losses in value inter alia using a mathematical model which tracks the history of the investment’s share price. Furthermore, innogy provides us with semi-annual reports on its individual risks. Based on this information, we determine whether the market value risk we have calculated for the investment in innogy needs to be corrected. If, for example, we were to find that the individual risks reported by innogy have been underestimated, we would put the risk of negative changes in market value into a higher category. The following is a detailed presentation of RWE AG’s risk management. Corresponding information regarding innogy can be found in our subsidiary’s latest annual report. Organisation of RWE AG’s risk management. The primary responsibility for our risk management lies with the Executive Board of RWE AG. It monitors and manages the overall risk of the Group and its operational subsidiaries. In doing so, it determines the risk appetite of RWE and defines upper limits for risk positions. At the level below the Executive Board, the Controlling & Risk Management Department has the task of applying and developing the risk management system. It derives detailed limits for the individual business fields and operating units from the risk caps set by the Executive Board. Its tasks also include checking the identified risks for completeness and plausibility and aggregating them. In so doing, it receives support from the Risk Management Committee, which is composed of the heads of the following five RWE AG departments: Accounting, Controlling & Risk Management (Chair), Corporate Business Development, Finance & Credit Risk and Legal. The Controlling & Risk Management Department provides the Executive Board and the Supervisory Board of RWE AG with regular reports on the company’s risk exposure. A number of additional organisational units and committees have been entrusted with risk management tasks: • Financial risks and credit risks are managed by the Finance & Credit Risk Department, which reports directly to the CFO of RWE AG. • The Accounting Department is responsible for risks involved in financial reporting. It also reports directly to the CFO of RWE AG and uses an accounting-related internal control system, which is described on page 82. • The Internal Audit & Compliance Department monitors compliance with RWE’s Code of Conduct. One of its main focal points is avoiding corruption risks. It reports to the CEO of RWE AG or, if members of the Executive Board are affected, directly to the Chairman of the Supervisory Board and the Chairman of the Supervisory Board’s Audit Committee. • In so far as they relate to the conventional electricity generation, energy trading and gas businesses, risks from changes in commodity prices are monitored by RWE Supply & Trading. • Strategies to limit market risks from the generation business are approved by the Commodity Management Committee. This is an expert body which currently consists of the CFO of RWE AG, members of the management of RWE Supply & Trading and a representative of the Controlling & Risk Management Department. Combined review of operations > Development of risks and opportunities 75 • The strategic guidelines for the management of financial assets (including the funds of RWE Pensionstreuhand e.V.) are determined by the Asset Management Committee. This body also currently attends to this task for the financial investments of innogy SE. Its members include the CFO of RWE AG, the head of the Finance & Credit Risk Department, the head of the Portfolio Management/Mergers & Acquisitions Department and the head of Financial Asset Management from the Portfolio Management/Mergers & Acquisitions Department. The heads of the innogy Finance and Controlling & Risk Departments and the CFO of innogy’s Grid & Infrastructure Division are also members. • There is also a committee at RWE AG which supports the accounting teams and the functions of high relevance to accounting in preventing the incorrect financial reporting of risks (see page 82). Under the expert management of the aforementioned organisational units, RWE AG and its operating subsidiaries are responsible for identifying risks early, assessing them correctly and managing them in compliance with central standards. The Internal Audit Department regularly assesses the quality and functionality of our risk management system. RWE AG risk matrix Potential damage1 Category V Category IV Category III Category II Category I 1 % ≤ P ≤ 10 % 10 % < P ≤ 20 % 20 % < P ≤ 50 % P > 50 % Low risk Medium risk High risk Probability of occurrence (P) Potential damage Earnings risks2 Potential impact on net income – compared to adjusted EBITDA3 and equity4 Indebtedness/liquidity/equity risks2 Potential impact on net debt and equity Category V Category IV Category III Category II Category I ≥ 50 % of equity ≥ €8 billion ≥ 100 % of adjusted EBITDA and < 50 % of equity ≥ €4 billion and < €8 billion ≥ 40 % and < 100 % of adjusted EBITDA ≥ €2 billion and < €4 billion ≥ 20 % of EBITDA and < 40 % of adjusted EBITDA ≥ €1billion and < €2 billion < 20 % of adjusted EBITDA < €1 billion 1 In relation to the aggregated level of damage from 2018 to 2020. 2 innogy is not included in the figures as a fully consolidated company, but as a pure financial investment (see page 60). 3 Average for 2018 to 2020 derived from the medium-term plan. 4 Equity as of 30 September 2017 (€14,990 million). 76 RWE Annual Report 2017 Risk management as a continuous process. Risks and opportunities are defined as negative or positive deviations from expected figures. Their management is an integral and continuous part of operating processes. We assess risks every six months, using a bottom-up analysis. We also monitor risk exposure between the regular survey dates. The Executive Board of RWE AG is immediately notified of any material changes. Our executive and supervisory bodies are updated on the risk exposure on a quarterly basis. Our analysis normally covers the three-year horizon of our medium-term plan, but can extend beyond that for long-term risks. We evaluate risks to determine their impact on net income on the one hand and on net debt and equity on the other hand. We calculate the probability of occurrence for all risks as well as their potential damage. Risks that share the same cause are aggregated to a single risk. We analyse the material individual risks of the RWE Group using a matrix in which the risks’ probability of occurrence and potential net damage are represented, i.e. taking account of hedging measures such as hedge transactions. Depending on their position in the matrix, we distinguish between low, medium and high risks. Based on this analysis, we determine whether there is a need for action and initiate measures to mitigate the risks if necessary. We have made adjustments to the method used to quantify risks. Whereas in 2016 we used key figures in which innogy was included as a fully consolidated company, we now record our subsidiary as a purely financial investment. Details on this approach can be found on page 60. This change caused the figure for equity, which we use as a basis to scale earnings risks, to increase significantly. A second change in methodology relates to the effects which risks can have on net income. We now calculate them as percentages of adjusted EBITDA instead of adjusted EBIT. Adjusted EBITDA is the more important management parameter. Since it does not include depreciation or amortisation, it comes closer to the cash flows from operating activities, which are of huge significance especially for managing our power plant portfolio. Due to the adjustments described above, the limits that we use to categorise earnings risks changed substantially. By contrast, the limits that we use to classify the effects of risks on net debt and equity have not changed. Risk classes1 Market risks Regulatory and political risks Legal risks Operational risks Financial risks Creditworthiness of business partners Other risks Classification of the highest single risk 31 Dec 2017 31 Dec 2016 Medium High Medium Medium High Medium Low Medium High Medium Low Medium Medium Medium 1 In the risk assessment as of 31 December 2017, innogy is only recorded based on the risk of changes in the market value of our investment in the company, whereas in the risk assessment as of 31 December 2016, innogy’s individual risks were still considered. Main risks for the RWE Group. As presented in the table above, our main risks can be classified into seven groups, depending on their nature. The highest individual risk determines the classification of the risk of the entire risk class. As mentioned earlier, we consider innogy in the assessment as a pure financial investment, the aggregated total risk of which consists of declines in its share price. The individual risks of our subsidiary, on which we provide information on page 80 et seq., are no longer presented separately in our risk matrix. As we record the possibility of a decline in innogy’s share price in our matrix, the financial risks have been reclassified from ‘medium’ to ‘high’. We also classify our regulatory and political risks as ‘high’. This assessment did not change compared to the previous year. Combined review of operations > Development of risks and opportunities 77 In the following, we discuss the main risks and opportunities and explain what measures have been taken to counter the threat of negative developments. • Market risks. In most of the countries in which we are active the energy sector is characterised by the free formation of prices. Declines in quotations on wholesale electricity markets can cause power plants and electricity procurement contracts concluded at fixed prices to become less economically feasible and, in some cases, even unprofitable. In such events, we may have to recognise impairments or form provisions. Following an extended downward trend, in 2016 and 2017, wholesale electricity prices picked up again in our most important generation markets, Germany, the United Kingdom and the Netherlands. The main reason for this was that fuel quotations recovered, especially of hard coal. It cannot be ruled out that this upward trend stops or that electricity prices decrease substantially again. However, there is also a chance that this recovery continues and that future realisable generation margins rise further. In addition to fuel costs, demand for electricity and the amount of generation capacity available to meet it are also decisive to the development of wholesale electricity prices. Risks also exist here due to the expansion of electricity storage. For example, the increased use of batteries could result in households with photovoltaic units becoming inde- pendent from the regular electricity market. Conversely, the electrification of the heating and transportation sec- tor would have positive effects on demand for electricity. Above and beyond this, we expect the ongoing reduction of secured generation capacity in our home market Germany to increasingly lead to shortages with high electricity prices. We assess the price risks to which we are exposed on the procurement and supply markets taking account of current forward prices and expected volatility. For our power plants, we limit margin risks by selling most of our electricity forward and securing the prices of the fuel and CO2 emission allowances needed for its generation. Our goal is to limit the consequences of negative price developments and tap into additional earnings potential. RWE Supply & Trading plays a central role when it comes to managing commodity price risks. It functions as the Group’s interface to the global wholesale markets for electricity and energy commodities. The company markets large portions of our power generation and purchases the necessary fuels and CO2 certificates needed to produce electricity. The role of RWE Supply & Trading as internal transaction partner makes it easier for us to limit the risks associated with price volatility on energy markets. However, the trading transactions are not exclusively intended to reduce risks. To a limited degree, the company also takes commodity positions to achieve a profit. Our risk management system for energy trading is firmly aligned with best practice as applied to the trading businesses of banks. As part of this, transactions are concluded with third parties only if the credit risks are within approved limits. There are guidelines governing the treatment of commodity price risks and associated credit risks. Our subsidiaries constantly monitor their commodity positions. Risks associated with trades conducted by RWE Supply & Trading for its own account are monitored daily. The Value at Risk (VaR) is of central importance for risk measurement in energy trading. It specifies the maximum loss from a risk position not exceeded with a given probability over a certain period of time. The VaR figures within the RWE Group are based on a confidence interval of 95 %. The assumed holding period for a position is one day. This means that, with a probability of 95 %, the daily loss will not exceed the VaR. The VaR for commodity positions in the trading business of RWE Supply & Trading may not rise above €40 million. In the financial year that just closed, it averaged €10 million (previous year: €17 million), and the daily maximum was €15 million (previous year: €34 million). In the middle of 2017, we pooled the management of our gas portfolio and our liquefied natural gas (LNG) business in a new organisational unit at RWE Supply & Trading and established a VaR cap of €12 million for these activities. The average VaR measured from the foundation of the organisation unit until the end of 2017 was €3 million. Additionally, we have set limits for each trading desk. Furthermore, we develop extreme scenarios and factor them into stress tests, determine their consequences for earnings, and take countermeasures if we deem the risks to be too high. 78 RWE Annual Report 2017 We also apply the VaR concept to measure the extent to which the commodity price risks that we are exposed to outside the trading business can affect the RWE Group’s adjusted EBITDA. To this end, we calculate the overall risk for the Group on the basis of the commodity risk positions of the individual companies; this overall risk mainly stems from power generation. As the majority of our generation position is already fully hedged for 2018, only minor market price risks remain for this year. Additionally, profit opportunities arise, because we are able to adapt our power plant deployment to short-term market developments flexibly. In certain cases, financial instruments used to hedge commodity positions are presented as on-balance-sheet hedging relationships in the consolidated financial statements. This also applies to the financial instruments we use to limit interest and currency risks. More detailed information can be found in the Notes to the consolidated financial statements on page 141 et seqq. Our biggest market risks remain unchanged in the ‘medium’ category. • Regulatory and political risks. Energy supply is a long-term business and companies involved in this industry are particularly dependent on a stable, reliable framework. Stricter thresholds for emissions can result in massive declines in earnings, if the transition periods are too short and existing plants have to be shut down early. This kind of risk emanates from the German Climate Action Plan 2050, which was adopted at the end of 2016 (see page 33 of the 2016 Annual Report). According to the Plan, by 2030 the energy sector must lower its emissions by more than 60 % compared to the level of 1990. We view this target as being very ambitious and see a risk that coal-fired power stations may have to be decommissioned earlier than planned. In the Netherlands, the new government is planning a complete exit from coal by 2030, and it intends to make carbon dioxide emissions by power plants more expensive by introducing a CO2 tax. Such measures can place a huge burden on us. In a dialogue with policymakers, we want to point out the possible negative effects of an overly ambitious path of emissions reductions, in particular with regard to security of supply. We are also exposed to risks in the field of nuclear energy, albeit to a much lesser extent than in the past. Last year, a German law redistributing responsibility for nuclear waste management between the federal government and the power plant operators was enacted (see page 35). Since the companies made contributions to the new nuclear energy fund in the middle of 2017, they have no longer been liable for the costs of interim and final storage. We have reaffirmed this in legal terms with the Federal Republic of Germany by way of a contract. However, we are exposed to cost risks associated with disposal tasks for which we remain responsible in operating and financial terms. For example, it cannot be ruled out that the dismantling of nuclear power stations will be more expensive than planned. Another issue that has been clarified is the legality of the German nuclear fuel tax, which had been levied from 2011 to 2016. The German Constitutional Court declared the tax null and void, upon which the Federal government refunded us the €1.7 billion in tax payments made plus interest (see page 37). This caused one of our major opportunities to materialise. However, it cannot be ruled out that nuclear fuel may be taxed again, this time fulfilling the constitutional requirements. Even in the present political environment, we are exposed to risks associated for example with approvals when building and operating production facilities. This particularly affects our opencast mines and power stations. The danger here is that new-build projects receive late or no approval, or granted approvals are withdrawn. Depending on the progress of construction work and the contractual obligations to suppliers, this can have a very negative financial impact. We try to limit this risk as much as possible by preparing our applications for approval with great care and ensuring that approval processes are handled competently. For us, the regulatory and political risks of most significance are those resulting from intervention to limit carbon emissions and make them more expensive. As in the preceding year, we classified these risks as ‘high’. • Legal risks. Individual RWE Group companies are involved in litigation and arbitration proceedings due to their operations or the acquisition of companies. Out-of-court claims have been filed against some of them. Furthermore, companies from the RWE Group are directly involved in various procedures with public authorities or are at least affected by their outcomes. We have accrued provisions for possible losses resulting from pending proceedings before ordinary courts and arbitration courts. Combined review of operations > Development of risks and opportunities 79 Risks may also result from exemptions and warranties that we granted in connection with the sale of shareholdings. Exemptions ensure that the seller covers the risks that are identified within the scope of due diligence, the probability of occurrence of which is, however, uncertain. In contrast, warranties also cover risks that are unknown at the time of sale. The hedging instruments described above are standard procedure in sales of companies and equity holdings. The maximum classification of our legal risks is ‘medium’. There was no change in this regard compared to the previous year. • Financial risks. The volatility of market interest rates, foreign exchange rates and share prices can have a significant effect on our financial position. Above all, the development of innogy’s share price is important to us. A crash on the stock markets and negative developments at innogy can cause the market value of our stake in the company to decline significantly. This risk has partially materialised: the innogy share dropped considerably in value in December 2017 due to a profit warning issued by management. However, innogy may well regain the trust of the capital market and its share price may recover. • Operational risks. RWE operates technologically complex, interconnected production facilities. During their construction and modernisation, delays and cost increases can occur, for example due to accidents, material defects, late deliveries or time-consuming approval processes. We counter this through diligent plant and project management as well as high safety standards. We also regularly inspect and maintain our facilities. Nevertheless, it is impossible to prevent occasional outages. If economically viable, we take out insurance policies. In relation to capital expenditure on property, plant and equipment and intangible assets, there is a risk that the return may fall short of expectations. Furthermore, prices paid for acquisitions may retrospectively prove to be too high. However, it is also possible that the returns on investments turn out to be higher than originally assumed. We conduct extensive analyses to try and map the financial and strategic effects of transactions as realistically as possible. Moreover, RWE has specific accountability provisions and approval processes in place to prepare and implement investment decisions. Our business processes are supported by secure data processing systems. Nevertheless, we cannot rule out a lack of availability of IT infrastructure or a breach in data security. Our high security standards are designed to prevent this. In addition, we regularly invest in hardware and software upgrades. We now classify our operating risks as ‘medium’ as opposed to ‘low’ in the previous year. This is because we anticipate higher wholesale electricity prices than before. If this expectation materialises, power station outages would result in more significant drops in margins. However, our assumptions concerning the frequency of such events have not changed. RWE holds other shares besides those in innogy. The average VaR for the share price risk of this paper was €2 million (previous year: €8 million). We are exposed to foreign exchange risks primarily owing to our business activities in the United Kingdom. Furthermore, energy commodities such as coal and oil are traded in US dollars. Companies which are overseen by RWE AG have their currency risks managed by the parent company. RWE AG aggregates the risks to a net financial position for each currency and hedges it if necessary. In 2017, the average VaR for RWE AG’s foreign currency position was less than €1 million. The same applies to the prior year. We differentiate between several categories of interest rate risks. For example, rises in interest rates can lead to reductions in the price of the securities we hold. This primarily relates to fixed-interest bonds. The VaR for the interest rate-related price risk of capital investments was €5 million on average at RWE AG (previous year: €9 million). Moreover, increases in interest rates cause our financing costs to rise. We measure this risk using the cash flow at risk (CFaR), applying a confidence level of 95 % and a holding period of one year. The average CFaR at RWE AG was €3 million. Due to the reorganisation, there is no average figure for the prior year. Furthermore, market interest rates have an effect on our provisions, as they are the point of reference for the discount rates used for determining the net present values of obligations. This means that in the case of declining market interest rates our provisions generally rise and vice versa. 80 RWE Annual Report 2017 Risks and opportunities from changes in the price of securities are controlled by a professional fund management system. Range of action, responsibilities and controls are set out in internal guidelines which the Group companies are obliged to adhere to when concluding financial transactions. All financial transactions are recorded using special software and are monitored by RWE AG. The conditions at which we can finance our business on the debt capital market are dependent on the credit ratings we receive from international rating agencies. As set out on page 55, Moody’s and Fitch place our long-term creditworthiness in the investment grade category with a stable outlook. However, the agencies may change their assessments and lower our credit rating at any time. This can result in additional costs if we have to raise debt capital or hedge trades. We classify our financial risks as ‘high’ because they now also contain the share price risk associated with our stake in innogy (previous year: ‘medium’). • Creditworthiness of business partners. Our business relations with key accounts, suppliers, trading partners and financial institutions expose us to credit risks. Therefore, we track the creditworthiness of our partners closely and assess their credit standing based on internal and external ratings, both before and during the business relationship. Transactions that exceed certain approval thresholds and all trading transactions are subject to a credit limit, which we determine before the transaction is concluded and adjust if necessary, for instance in the event of a change in creditworthiness. At times, we request cash collateral or bank guarantees. Credit risks and the utilisation of the limits in the trading and financing business are measured daily. We agree on collateral when concluding over-the-counter trading transactions. Furthermore, we enter into framework agreements, e.g. those of the European Federation of Energy Traders (EFET). For financial derivatives, we make use of the German master agreement for forward financial transactions or the master agreement of the International Swaps and Derivatives Association (ISDA). As in the past, our risks stemming from the creditworthiness of our business partners do not exceed the category ‘medium’. • Other risks. This risk class includes reputation risks and risks associated with non-compliance and criminal offences committed by employees of the Group. It also encompasses the possibility of planned divestments not being implemented, for example owing to regulatory requirements or the lack of acceptable bids. We consider other risks to be low. Including innogy, we had classified them as ‘medium’ in the previous year. innogy’s risk exposure. The development of the market value of our 76.8 % shareholding in innogy is mainly affected by the individual risks of our subsidiary. We have outlined some of these risks below. Detailed information on this topic can be found in innogy’s current annual report. • Earnings in the renewable energy business strongly depend on state subsidy systems. Here, there is a risk that the realisable compensation declines and new projects cease to be attractive. This can lead to investment undertaking being broken off. Reductions in the subsidisation of existing generation units cannot be fully ruled out. The revenue of these plants is also exposed to the risk of unfavourable market developments to the extent that it is partly determined by wholesale electricity prices. This particularly applies to wind farms when subsidies have expired. If such risks materialise, impairments may have to be recognised for these plants or they may have to be sold below their carrying amount. However, these plants can earn unexpectedly high returns if wholesale electricity prices increase. • In the grid business, risks arise predominantly from the regular adjustments to the regulatory framework. In Germany, the new five-year regulatory period began on 1 January 2018 for gas network operators and on 1 January 2019 this will be the case for electricity network operators. Major decisions regarding these periods by the regulatory authorities are still pending. For example, cost reviews are yet to be completed for innogy’s network companies, and the maximum allowable revenues must be established. There is the risk that regulatory authorities set low revenue caps and require the companies to achieve significant cost savings. However, it is also possible that the network operators are granted favourable conditions. Margins realisable in the gas storage business, which is assigned to the Grid & Infrastructure division, depend in part on seasonal differences in gas prices. If the differences are significant, high income can be achieved. In contrast, declines in differences can reduce earnings and lead to impairments. Combined review of operations > Development of risks and opportunities 81 innogy monitors these and other risks continuously and takes countermeasures where necessary. The company does not currently see any risks that may jeopardise its existence. Overall assessment of RWE’s risk and opportunity situation: general assessment by company management. As demonstrated by the contents of this chapter, RWE’s risk exposure is largely influenced by the development of economic and regulatory framework conditions and the market value of its majority interest in innogy. Regulatory risks arise inter alia from the German climate protection plan adopted at the end of 2016, which is to be concretised this year. We see the danger that we may have to shut down other coal-fired power plants in addition to the lignite-fired stations that are on standby. We may also experience significant burdens in the Netherlands if the government’s current plans to exit from coal are implemented. By contrast, risk exposure in nuclear energy has dropped. It is now established by law how responsibility for nuclear waste management is divided between the Federal government and the power plant operators. In addition, the legal uncertainty over the nuclear fuel tax has been eliminated. As the German Constitutional Court declared the levy null and void and we were refunded the tax payments made, one of our most important opportunities materialised. Market conditions in electricity generation have a significant influence on our earnings. German wholesale prices appear to have emerged from their trough. They are currently far above the record low recorded at the beginning of 2016. To a great extent, this is because global prices for hard coal have recovered. Should these trends reverse and electricity prices drop sharply once again, significant earnings shortfalls are to be expected, possibly as well as a downgrade of our credit rating and additional costs for hedging trading transactions. However, prices may continue to trend upwards and generation margins may improve. Such a development may then occur in Germany if the nuclear phase-out and additional power plant closures cause reliably available generation capacity to become tighter. • innogy faces significant competitive pressure in the retail business. When competition is tough, cost disadvantages and a weak performance on the market can quickly lead to declines in margins and customer losses. innogy mitigates the risk of sales and margin declines with customer retention measures, a differentiated price policy and a high quality of service in all of its retail markets. Our subsidiary does justice to changing customer demands by supplementing its offering with innovative products. In addition to the competitive landscape, regulatory intervention can also curtail earnings in the retail business. One such example is the cap on residential customer tariffs in the United Kingdom. As set out on page 36, households with prepayment tariffs are given price protection for a limited period. The same applies to low- income customers that receive a price reduction known as the ‘warm home discount’. The government’s plans envisage all standard-tariff customers benefiting from contractual price caps. This would cause margins in the UK supply business to deteriorate further. In view of the difficult market environment in the United Kingdom, innogy and SSE agreed to strengthen their UK retail operations by combining them to form a new, publicly listed company (see page 38). • innogy has identified general risks and opportunities affecting all areas, inter alia in connection with investing activities. Our subsidiary intends to spur structural change in the energy sector and seize growth opportunities in doing so. Accordingly, substantial amounts of capital are spent on modernising grids, expanding renewable energy and developing innovative retail offerings. Capital expenditure on property, plant and equipment and financial assets can lead to returns below expectations. The price for acquiring companies may prove to have been too high in retrospect. Vice-versa, capital expenditure can be more profitable than originally assumed. innogy is also exposed to risks in relation to IT security. The damage that can potentially be caused by cyber attacks has risen due to progressive digitisation, the increasing interconnectivity of devices via the internet, and the mounting complexity of software and hardware. innogy has taken extensive technical and organisational measures in order to protect itself from such dangers. Another general risk results from changes in interest rates. Due to the expansionary monetary policy of leading central banks, market interest rates are currently low. Should they fall further, an upward adjustment may have to be made to the company’s pension provisions. A rise in interest rates would usually lead to a decline in pension provisions, but would have the added disadvantage that refinancing would become more costly. 82 RWE Annual Report 2017 In view of the regulatory pressure and the market risks in the energy sector, utilities such as RWE must see to it that they are crisis-proof. On the strength of ambitious efficiency- enhancing programmes, strict investing discipline and the IPO of innogy, we have given the Group a solid financial foundation. By analysing the effects of risks on our liquidity and pursuing a conservative financing strategy, we ensure that we always have enough cash and cash equivalents in order to meet our payment obligations punctually. We have strong operating cash flows, considerable liquid funds and great financial leeway, thanks to our commercial paper programme and the unused line of credit. We budget our liquidity with foresight, based on the short, medium and long-term funding needs of our Group companies, and have a significant amount of minimum liquidity on a daily basis. Thanks to our comprehensive risk management system and the measures for safeguarding our financial and earning power described earlier, we are confident that we can manage the current risks to RWE. At the same time, we are working hard to ensure that this remains the case in the future. resources, procurement, trading and IT – all of which play an important role in financial reporting – are members of this Committee. We subject the ICS to a comprehensive review every year. As a first step, we examine whether the risk situation is presented appropriately and whether suitable controls are in place for the identified risks. In a second step, we test the effectiveness of the controls. If the ICS reviews are based on accounting- related processes, e. g. the receipt and processing of invoices in our service centre in Cracow, the preparation of financial statements and consolidation, they are conducted by employees from the Accounting Department. The representatives of the finance, human resources, purchasing, trading and IT functions certify whether the agreed ICS quality standards are adhered to by their respective areas. The Internal Audit Department and external auditing firms are also involved in the ICS reviews. The results of the reviews are documented in a report to the Executive Board of RWE AG. The review conducted in 2017 once again demonstrated that the ICS is an effective system. Our ICS reviews do not cover innogy SE or its subsidiaries. However, these entities apply the aforementioned process analogously. The results obtained are considered in the assessment of the ICS of RWE AG. Within the scope of external reporting, the members of the Executive Board of RWE AG took an external half-year and full-year balance-sheet oath, confirming that the prescribed accounting standards have been adhered to and that the figures give a true and fair view of the net worth, financial position and earnings. When in session, the Supervisory Board‘s Audit Committee regularly concerns itself with the effectiveness of the ICS. Once a year, the Executive Board of RWE AG submits a report on this to the committee. Report on the accounting-related internal control system: statements in accordance with Sec. 289, Para. 4, and Sec. 315, Para. 4 of the German Commercial Code. Risks associated with financial reporting reflect the fact that our annual, consolidated and interim financial statements may contain misrepresentations that could have a significant influence on the decisions made by their addressees. Our accounting-related Internal Control System (ICS) aims to detect potential errors that result from non-compliance with accounting standards. The foundations of the ICS are our basic principles, which are set out in RWE’s Code of Conduct and, first and foremost, include our ambition to provide complete, objective, correct, clear and timely information, as well as the company’s groupwide guidelines. Building on this, minimum requirements for the accounting-related IT systems are designed to ensure the reliability of data collection and processing. An effective ICS enables the mitigation of the risk of material misrepresentations. However, it cannot eliminate it entirely. RWE AG is responsible for the design and monitoring of the ICS. These tasks are performed by the Accounting Department. Additionally, there is a group-wide set of rules for designing and monitoring the ICS. We also created the ICS Committee. Its objective is to ensure that the ICS is applied throughout the Group following uniform principles, meeting high ambitions in terms of correctness and transparency. Representatives from the Accounting, Controlling & Risk Management and Internal Auditing & Compliance departments, along with the representatives from the areas of finance, human Combined review of operations > Outlook 83 1.13 OUTLOOK Although the decline German wholesale electricity prices halted at the beginning of 2016, we continue to feel the consequences in 2018. The margins of our power stations, which we realised through forward sales for 2018, were down year on year. Therefore, in 2018, the RWE Group will probably fall short of the operating result achieved last year. We anticipate adjusted EBITDA of between €4.9 billion and €5.2 billion and adjusted net income of between €0.7 billion and €1.0 billion. We will continue to benefit from our ongoing efficiency-enhancement programme. Our participation in the UK capacity market will also have an increasingly positive effect on our earnings. Electricity production for 2018 nearly completely sold forward. In the last two years, the wholesale prices of electricity and major energy commodities trended back upwards following a prolonged downward spiral. Their development depends on a number of factors, which are almost impossible to predict. However, the future development of these prices is only of secondary importance to our earnings in the current fiscal year, as we have already sold almost all of our electricity generation for 2018 and secured the prices of the required fuel and emission allowances. The 2018 price we achieved for electricity from our German lignite-fired and nuclear power stations is below last year’s average of €31 per MWh. Adjusted EBITDA in 2018: range of €4.9 to €5.2 billion expected. We anticipate that the RWE Group’s operating earnings in the financial year underway will be weaker than in 2017. We forecast adjusted EBITDA in the range of €4.9 billion to €5.2 billion. This would be significantly less than last year. The main reasons for this are lower generation margins, less income from special items and increased startup costs for innogy’s growth projects. Assuming relatively stable operating depreciation, adjusted EBIT is also likely to drop considerably. Adjusted net income is expected to decline to between €0.7 billion and €1.0 billion. It differs from net income under International Financial Reporting Standards in that the non-operating result, which is characterised by one-off effects, and further material special items (including applicable taxes) are deducted from it. Experts predict that the economy will remain robust. Based on initial forecasts for 2018, the global economy will expand by some 3 %, roughly as much as last year. The economy of the Eurozone is predicted to grow by about 2 %. The German Council of Economic Experts is of the opinion that the country will record a gain of 2.2 %. The Dutch economy is expected to outgrow the Eurozone yet again, with the Belgian economy failing to keep pace with it. Experts anticipate an increase of 1.5 % in the United Kingdom. The general situation in the economies of the RWE Group’s most important markets in Central Eastern Europe is unlikely to change much compared to 2017: posting growth of 3 % to 4 %, Poland, the Czech Republic, Hungary and Slovakia may well remain clearly above the European average. Demand for energy probably higher than in 2017. Our forecast for this year’s energy consumption is based on assumed economic developments. In addition, we anticipate that temperatures in 2018 will be normal and therefore lower overall than in 2017, which was characterised by relatively mild weather. If these conditions materialise, we expect that demand for electricity will be stable or rise marginally in Germany, the Netherlands and the United Kingdom. The stimulus of expanding economies and the possibly colder weather will be contrasted by the dampening effects of the increasingly efficient use of energy. Similar to 2017, electricity consumption in Poland, Hungary and Slovakia is expected to rise by between 2 % and 3 %. We anticipate a general rise in gas usage. This is based on assumed normalised temperatures and a commensurate increase in the need for heating. In addition, the predicted economic growth should stimulate demand for gas. Stimulus may also come from the electricity generation sector, if the market conditions for gas-fired power plants improve further. We anticipate opposing effects from the trend towards saving energy. 84 RWE Annual Report 2017 Earnings forecast for 2018 € million Adjusted EBITDA of which: Lignite & Nuclear European Power Supply & Trading innogy Adjusted net income We expect earnings at the divisional level to develop as follows: • Lignite & Nuclear: Adjusted EBITDA is anticipated to decline to between €350 million and €450 million. As mentioned earlier, most of this year’s electricity generation has already been placed on the market. In sum, the margins realised were lower than in 2017. Moreover, the Gundremmingen B nuclear power station will stop contributing to earnings as we had to shut it down at the end of 2017. However, we are confident of being able to profit from further efficiency-enhancing measures. • European Power: Adjusted EBITDA of this segment is expected to total between €300 million and €400 million. This would put it below last year’s figure, which benefited from one-off income from property sales. Earnings contributed by the commercial optimisation of our power plant deployment are unlikely to match the high level achieved in 2017. Furthermore, we anticipate declining margins from electricity forward sales. By contrast, the premiums that we receive for participating in the UK capacity market will increase. • Supply & Trading: We expect to post annual average adjusted EBITDA in the order of €200 million in this segment over the long term. We estimate a range of €100 million to €300 million for 2018. This assumes a normal trading performance. Earnings in the gas business are likely to close the year down on the above-average figure recorded in 2017. 2017 actual Forecast for 2018 5,756 671 463 271 4,331 1,232 4,900 – 5,200 350 – 450 300 – 400 100 – 300 4,100 – 4,200 700 – 1,000 • innogy: Our subsidiary anticipates adjusted EBITDA of between €4.1 billion and €4.2 billion, slightly less than in 2017. Earnings in the retail business may well decline considerably, in part due to rising startup costs for future-oriented projects. Moreover, exceptional income is likely to be lower than in 2017. This also applies to the Grid & Infrastructure division, which is expected to close fiscal 2018 slightly down year on year. If transit volumes in the Czech gas distribution network return to normal levels after the positive effect of the weather in 2017, they may contribute to the decline in earnings. innogy anticipates stable earnings in the field of renewable energy. The commissioning of new generation capacity will have a positive effect. Assuming average weather conditions, the capacity utilisation of wind turbines and run-of-river power stations will improve. This will be contrasted by higher costs incurred to develop new projects. In addition, last year’s earnings benefited from income from the revaluation of the Triton Knoll wind power project. Combined review of operations > Outlook 85 Outlook for the RWE Group with innogy as a pure financial investment. For management purposes, we also use Group figures in which innogy is included as a pure financial investment instead of as a fully consolidated company. More detailed information on how these figures are calculated can be found on page 60. Adjusted EBITDA in 2018 calculated taking this approach is expected to total between €1.4 billion and €1.7 billion (last year: €2.1 billion). The figure predicted for adjusted net income is between €0.5 billion and €0.8 billion (last year: €1.0 billion). We expect net debt to post a moderate rise (last year: €4.5 billion). Capex budget subject to counter-financing measures. Most of the capital spent in the RWE Group is attributable to innogy. Our subsidiary plans a net capital expenditure in the order of €2.5 billion in 2018. Gross capex exceeding this amount will be financed with proceeds from divestments and asset disposals. As before, the investment magnets are the maintenance and modernisation of distribution grids and the expansion of renewable energy. We plan to spend about €400 million in capital on property, plant and equipment in conventional power generation, primarily to maintain and modernise power stations and opencast mines. Some of the funds have been earmarked for small growth projects, e. g. the conversion of our Dutch hard coal-fired power stations to biomass co-firing. Net debt probably higher year on year. Our net debt is likely to increase moderately in the current fiscal year. A major reason for this is the dividend payments to RWE shareholders and co-owners of fully consolidated RWE companies. Our forecast for net debt is based on the assumed stability of market interest levels and – in turn – of the discount factors that we use to calculate provisions. Forward-looking statements. This report contains forward-looking statements regarding the future development of the RWE Group and its companies as well as economic and political developments. These statements are assessments that we have made based on information available to us at the time this document was prepared. In the event that the underlying assumptions do not materialise or unforeseen risks arise, actual developments can deviate from the developments expected at present. Therefore, we cannot assume responsibility for the correctness of these statements. References to the internet. The contents of pages on the internet and publications to which we refer in the review of operations are not part of the review of operations and are merely intended to provide additional information. The corporate governance declaration in accordance with Section 289a as well as Section 315d of the German Commercial Code is an exception. 86 RWE Annual Report 2017 2 RESPONSIBILITY STATEMENT To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the Group review of operations includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group. Essen, 26 February 2018 The Executive Board Schmitz Krebber 03 Consolidated financial statements 88 RWE Annual Report 2017 3.1 INCOME STATEMENT € million Revenue (including natural gas tax /electricity tax) Natural gas tax /electricity tax Revenue Other operating income Cost of materials Staff costs Depreciation, amortisation and impairment losses Other operating expenses Income from investments accounted for using the equity method Other income from investments Financial income Finance costs Income before tax Taxes on income Income of which: non-controlling interests of which: RWE AG hybrid capital investors’ interest of which: net income /income attributable to RWE AG shareholders Basic and diluted earnings per common and preferred share in € Note (1) (1) (1) (2) (3) (4) (5), (10) (6) (7), (13) (7) (8) (8) (9) (26) 2017 44,585 2,151 42,434 3,608 31,326 4,704 2,939 3,686 302 118 2,315 3,066 3,056 741 2,315 373 42 1,900 3.09 2016 45,833 2,243 43,590 1,435 33,397 4,777 6,647 4,323 387 153 1,883 4,111 − 5,807 − 323 − 5,484 167 59 − 5,710 − 9.29 Consolidated financial statements > Income statement Statement of comprehensive income 3.2 STATEMENT OF COMPREHENSIVE INCOME € million1 Income Actuarial gains and losses of defined benefit pension plans and similar obligations Income and expenses of investments accounted for using the equity method (pro rata) Income and expenses recognised in equity, not to be reclassified through profit or loss Currency translation adjustment Fair valuation of financial instruments available for sale Fair valuation of financial instruments used for hedging purposes Note (13) (21) (27) (27) Income and expenses of investments accounted for using the equity method (pro rata) (13), (21) Income and expenses recognised in equity, to be reclassified through profit or loss in the future Other comprehensive income Total comprehensive income of which: attributable to RWE AG shareholders of which: attributable to RWE AG hybrid capital investors of which: attributable to non-controlling interests 1 Figures stated after taxes. 89 2016 − 5,484 − 629 37 − 592 − 59 78 976 − 17 978 386 − 5,098 − 5,284 59 127 2017 2,315 1,346 − 85 1,261 174 44 818 –15 1,021 2,282 4,597 3,996 42 559 90 RWE Annual Report 2017 3.3 BALANCE SHEET Assets € million Non-current assets Intangible assets Property, plant and equipment Investment property Investments accounted for using the equity method Other non-current financial assets Financial receivables Other receivables and other assets Income tax assets Deferred taxes Current assets Inventories Financial receivables Trade accounts receivable Other receivables and other assets Income tax assets Marketable securities Cash and cash equivalents Assets held for sale Equity and liabilities € million Equity RWE AG shareholders’ interest RWE AG hybrid capital investors’ interest Non-controlling interests Non-current liabilities Provisions Financial liabilities Other liabilities Deferred taxes Current liabilities Provisions Financial liabilities Trade accounts payable Income tax liabilities Other liabilities Liabilities held for sale Note 31 Dec 2017 31 Dec 2016 (10) (11) (12) (13) (14) (15) (16) (17) (18) (15) (16) (19) (20) Note (21) (23) (24) (25) (17) (23) (24) (25) 12,383 24,904 43 2,846 1,109 359 1,187 236 2,627 12,749 24,455 63 2,908 1,055 403 1,175 219 2,884 45,694 45,911 1,924 1,745 5,405 4,892 445 4,893 3,933 128 23,365 69,059 1,968 1,471 4,999 7,418 234 9,825 4,576 30,491 76,402 31 Dec 2017 31 Dec 2016 6,759 940 4,292 11,991 19,249 14,414 2,393 718 36,774 5,137 2,787 5,077 100 7,082 111 20,294 69,059 2,754 942 4,294 7,990 20,686 16,041 2,196 723 39,646 12,175 2,142 5,431 131 8,887 28,766 76,402 Note (30) Consolidated financial statements > Balance sheet Cash flow statement 3.4 CASH FLOW STATEMENT € million Income Depreciation, amortisation, impairment losses /write-backs Changes in provisions Changes in deferred taxes Income from disposal of non-current assets and marketable securities Other non-cash income /expenses Changes in working capital Cash flows from operating activities Intangible assets /property, plant and equipment /investment property Capital expenditure Proceeds from disposal of assets Acquisitions, investments Capital expenditure Proceeds from disposal of assets /divestitures Changes in marketable securities and cash investments Cash flows from investing activities (before initial /subsequent transfer to plan assets) Initial /subsequent transfer to plan assets Cash flows from investing activities (after initial /subsequent transfer to plan assets) Net change in equity (incl. non-controlling interests) Dividends paid to RWE AG shareholders and non-controlling interests Issuance of financial debt Repayment of financial debt Cash flows from financing activities Net cash change in cash and cash equivalents Effects of changes in foreign exchange rates and other changes in value on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents at beginning of the reporting period of which: reported as ‘Assets held for sale’ Cash and cash equivalents at beginning of the reporting period as per the consolidated balance sheet Cash and cash equivalents at the end of the reporting period of which: reported as ‘Assets held for sale’ Cash and cash equivalents at end of the reporting period as per the consolidated balance sheet 91 2016 − 5,484 6,670 2,043 − 1,136 − 227 1,147 − 661 2,352 − 2,027 238 − 281 527 − 2,587 − 4,130 − 440 − 4,570 4,514 − 407 5,732 − 5,557 4,282 2,064 − 24 2,040 2,536 − 14 2,522 4,576 4,576 2017 2,315 2,583 − 7,045 39 − 267 830 –209 − 1,754 − 2,235 324 − 345 162 4,975 2,881 − 190 2,691 − 64 − 603 3,996 − 4,865 − 1,536 – 599 –19 –618 4,576 4,576 3,958 − 25 3,933 92 RWE Annual Report 2017 3.5 STATEMENT OF CHANGES IN EQUITY Statement of changes in equity € million Sub- scribed capital of RWE AG Addi- tional paid-in capital of RWE AG Retained earnings and distribut- able profit Note (21) Accumulated other Comprehensive Income Currency trans- lation adjust- ments Fair value measure- ment of financial instruments Available for sale Used for hedging purposes RWE AG share- holders’ interest RWE AG hybrid capital investors’ interest Total Non-con- trolling interests Balance at 1 Jan 2016 1,574 2,385 3,612 5 22 − 1,751 5,847 950 Capital paid in Dividends paid1 Income Other comprehensive income Total comprehensive income Other changes Balance at 31 Dec 2016 1,574 2,385 Capital paid out Dividends paid1 Income Other comprehensive income Total comprehensive income Other changes − 5 − 5,710 − 745 − 6,455 2,196 − 652 − 5 1,900 1,110 3,010 14 160 160 165 139 139 Balance at 31 Dec 2017 1,574 2,385 2,367 304 1 Following reclassification of non-controlling interests to other liabilities as per IAS 32. 37 37 59 34 34 93 − 5 − 5,710 − 67 59 974 426 974 − 5,284 59 − 777 2,196 2,754 − 5 1,900 942 − 60 42 2,097 1,948 − 250 8,894 1,948 − 322 167 − 5,484 − 40 127 372 4,294 − 45 − 480 373 386 − 5,098 2,568 7,990 − 45 − 545 2,315 813 2,096 186 2,282 813 3,996 14 36 6,759 42 16 940 559 − 36 4,597 − 6 4,292 11,991 Consolidated financial statements > Statement of changes in equity Notes 93 3.6 NOTES Basis of presentation RWE AG, headquartered at Huyssenallee 2, 45128 Essen, Germany, These consolidated financial statements were prepared for the fiscal is the parent company of the RWE Group (‘RWE’ or ‘Group’). RWE is year from 1 January to 31 December 2017. a supplier of electricity and natural gas in Europe. The consolidated financial statements for the period ended 31 De- completeness and accuracy of the consolidated financial statements cember 2017 were approved for publication on 26 February 2018 and the Group review of operations, which is combined with the The Executive Board of RWE AG is responsible for the preparation, by the Executive Board of RWE AG. The statements were prepared in review of operations of RWE AG. accordance with the International Financial Reporting Standards (IFRSs) applicable in the EU, as well as in accordance with the supple- We employ internal control systems, uniform groupwide directives, mentary accounting regulations applicable pursuant to Sec. 315e, and programmes for basic and advanced staff training to ensure Para. 1 of the German Commercial Code (HGB). The previous year’s that the consolidated financial statements and combined review of figures were calculated according to the same principles. operations are adequately prepared. Compliance with legal regula- tions and the internal guidelines as well as the reliability and viabili- A statement of changes in equity has been disclosed in addition to ty of the control systems are continuously monitored throughout the income statement, the statement of comprehensive income, the the Group. balance sheet and the cash flow statement. The Notes also include segment reporting. In line with the requirements of the German Corporate Control and Transparency Act (KonTraG), the Group’s risk management system Several balance sheet and income statement items have been enables the Executive Board to identify risks at an early stage and com bined in the interests of clarity. These items are stated and take countermeasures, if necessary. explained separately in the Notes to the financial statements. The income statement is structured according to the nature of The consolidated financial statements, the combined review of oper- expense method. ations, and the independent auditors’ report are discussed in detail by the Audit Committee and at the Supervisory Board’s meeting on The consolidated financial statements have been prepared in euros. financial statements with the independent auditors present. The Unless specified otherwise, all amounts are stated in millions of results of the Supervisory Board’s examination are presented in the euros (€ million). Due to calculation procedures, rounding differences report of the Supervisory Board on page 8 et seqq. may occur. 94 RWE Annual Report 2017 Scope of consolidation In addition to RWE AG, the consolidated financial statements con- Furthermore, six companies are presented as joint operations (pre- tain all material German and foreign companies which RWE AG con- vious year: six). Of these, Greater Gabbard Offshore Winds Limited, trols directly or indirectly. In determining whether there is control, UK, is a material joint operation of the RWE Group. Greater Gabbard in addition to voting rights, other rights in the company contracts or holds a 500 MW offshore wind farm, which innogy operates together articles of incorporation and potential voting rights are also taken with Scottish and Southern Energy (SSE) Renewables Holdings. into consideration. Innogy Renewables UK owns 50 % of the shares and receives 50 % of the power generated (including green power certificates). The Material associates are accounted for using the equity method, and wind farm is a key element in the offshore portfolio of the segment principal joint arrangements are accounted for using the equity innogy. method or as joint operations. Joint operations result in pro-rata inclusion of the assets and liabilities, and the revenues and expenses, First-time consolidation and deconsolidation generally take place in accordance with the rights and obligations due to RWE. when control is transferred. A company is deemed to be an associate if there is significant influ- In total, sales of shares which led to a change of control resulted in ence on the basis of voting rights between 20 % and 50 % or on the sales proceeds from disposals amounting to €19 million, which basis of contractual agreements. In classifying joint arrangements which are structured as independent vehicles, as joint operations, were reported in other operating income and other operating expens- es (previous year: €62 million). Of this, €14 million (previous year: or as joint ventures, other facts and circumstances – in particular €8 million) pertained to the remeasurement of remaining shares. delive ry relationships between the joint arrangement and the parties participating in such – are taken into consideration, in addition to Within the framework of purchases and sales of subsidiaries and legal form and the contractual agreements. other business units which resulted in a change of control, purchase prices amounted to €159 million (previous year: €55 million) and Investments in subsidiaries, joint ventures, joint operations or asso- sales prices amounted to €5 million (previous year: €84 million). ciates which are of secondary importance from a Group perspective All sales prices were paid in cash. The purchase prices amounted to are accounted for in accordance with IAS 39. €134 million and were paid in cash; €25 million in liabilities were assumed. In relation to this, cash and cash equivalents (excluding The list of Group shareholdings pursuant to Sec. 313, Para. 2 of the ‘Assets held for sale’) were acquired in the amount of €25 million German Commercial Code (HGB) is presented on page 153 et seqq. (previous year: €0 million) and were disposed of in the amount of €5 million (previous year: €1 million). The following summaries show the changes in the number of fully- consolidated companies, investments accounted for using the equity Acquisitions method, and joint ventures: Number of fully consolidated companies 1 Jan 2017 First-time consolidation Deconsolidation Mergers 31 Dec 2017 Number of investments and joint ventures accounted for using the equity method 1 Jan 2017 Acquisitions Other changes 31 Dec 2017 Germany Abroad Total Belectric At the beginning of January 2017, innogy SE acquired a 100 % stake in Belectric Solar & Battery GmbH and gained control of the company. 135 180 315 The company constructs turnkey solar farms and battery storage facilities. Furthermore, it is active in the operation and maintenance (O&M) of solar farms. 15 – 2 – 6 22 – 1 – 2 37 – 3 – 8 142 199 341 Germany Abroad Total 70 2 72 17 2 – 1 18 87 2 1 90 Consolidated financial statements > Notes 95 The initial accounting of the business combination is presented in The assets and liabilities assumed within the scope of the first-time the following table together with the assumed assets and liabilities: consolidation are presented in the following table: Balance-sheet items € million Non-current assets Current assets Non-current liabilities Current liabilities Net assets Cost Goodwill IFRS carrying amounts (fair value) at first-time consolidation 56 87 7 63 73 74 1 Balance-sheet items € million Non-current assets Current assets Non-current liabilities Current liabilities Net assets Cost Goodwill IFRS carrying amounts (fair value) at first-time consolidation 174 5 18 85 76 94 18 The fair value of the receivables included in non-current and current The fair value of the total consideration paid for the acquisition of assets amounted to €24 million and corresponded to the gross amount of the receivables that are fully recoverable. Statkraft’s 50 % stake on the date of acquisition was €47 million. The fair value of the old shares amounted to €47 million. As a result, a total of €94 million was recognised as a cost within the scope of Since its first-time consolidation, the company has contributed the initial consolidation. €204 million to the Group’s revenue and – €11 million to the Group’s income. The fair value of the receivables included in non-current and current The purchase price amounted to €74 million and included a condi- tional payment obligation of €7 million, cash and cash equivalents of Since its first-time consolidation, the company has contributed €49 million and assumed liabilities of €18 million. The conditional €0 million to the revenue and – €1 million to the income of the assets amounted to €2 million. payment obligation depends on the occurrence of legal and tax risks Group. and can lead to a nominal payment of between €0 and a maximum of €7 million, which would bear an interest rate equivalent to EURIBOR The goodwill essentially reflects expected future benefits and plus 3 %. synergy effects. The goodwill essentially reflects expected future benefits and The initial accounting of the business combination has not yet been synergy effects. completed definitively due to the transaction’s complex structure. Offshore wind project In October 2017, innogy SE gained control of Great Britain-based If all of the business combinations in the period under review had already been completed by 1 January 2017, the Group’s income and Triton Knoll Offshore Wind Farm Limited, which was previously in- revenue would total €2,317 million and €44,599 million, respectively. cluded in the consolidated financial statements using the equity method. Having acquired Statkraft’s 50 % interest, innogy SE is now the sole owner of Triton Knoll – an offshore wind project with a planned capacity of 860 megawatts. Assets held for sale and disposal groups The fair value of the old shares amounted to €47 million. The first- Mátra In the middle of December 2017, RWE Power sold Hungary-based time consolidation of Triton Knoll and the associated change in the Mátrai Erőmű Zrt. (Mátra) to a consortium. Mátra is assigned to the status of the old shares resulted in income of €47 million, which Lignite & Nuclear segment. The transaction is subject to approval has been recognised as ‘other operating income’ on the income from the relevant antitrust authorities and the Hungarian Energy statement. Authority. It is expected to be completed in the first quarter of 2018. 96 RWE Annual Report 2017 As of 31 December 2017, the assets and liabilities of this company presented in the following table were stated as held for sale on the Consolidation principles balance sheet. Balance-sheet items € million Non-current assets Current assets Non-current liabilities Current liabilities Net assets IFRS carrying amounts (fair value) 27 101 73 38 17 The financial statements of German and foreign companies included in the scope of the Group’s financial statements are prepared using uniform accounting policies. On principle, subsidiaries whose fiscal years do not end on the Group’s balance-sheet date (31 December) prepare interim financial statements as of this date. Three subsidiaries have a different balance-sheet date of 31 March (previous year: one). Different fiscal years compared to the calendar year stem from tax-related reasons or country-specific regulations. Business combinations are reported according to the acquisition method. This means that capital consolidation takes place by offset- ting the purchase price, including the amount of the non-controlling €301 million in impairment losses were recognised in depreciation interests, against the acquired subsidiary’s revalued net assets at and amortisation. Furthermore, €12 million from the valuation of the time of acquisition. In doing so, the non-controlling interests can assets and liabilities held for sale were recognised in other operating either be measured at the prorated value of the subsidiary’s identi- income. fiable net assets or at fair value. The subsidiary’s identifiable assets, liabilities and contingent liabilities are measured at full fair value, Income and expenses directly recognised in equity (accumulated regard less of the amount of the non-controlling interests. Intangible other comprehensive income) amounted to €47 million as of the assets are reported separately from goodwill if they are separable balance-sheet date. Other disposals Residential property management companies Per a purchase agreement dated 9 February 2017, RWE Power AG from the company or if they stem from a contractual or other right. In accordance with IFRS 3, no new restructuring provisions are recogni sed within the scope of the purchase price allocation. If the purchase price exceeds the revalued prorated net assets of the acquir ed subsidiary, the difference is capitalised as goodwill. If the purchase price is lower, the difference is included in income. sold its 50 % stake in Wohnungsbaugesellschaft für das Rheinische In the event of deconsolidation, the related goodwill is derecognised Braunkohlenrevier Gesellschaft mit beschränkter Haftung and its with an effect on income. Changes in the ownership share which 15 % stake in GSG Wohnungsbau Braunkohle GmbH to Vivawest do not alter the ability to control the subsidiary are recognised with- GmbH. The sale led to total proceeds in the medium double-digit out an effect on income. By contrast, if there is a change in control, million euro range. The investments had been assigned to the the remaining shares are revalued with an effect on income. Lignite & Nuclear segment. Hamborn 5 CCGT power station RWE Generation sold the Hamborn 5 CCGT power station to thyssen- krupp Steel Europe (TKSE) with effect from 31 May 2017. Legal Expenses and income as well as receivables and payables between consolidated companies are eliminated; intra-group profits and loss- es are eliminated. owner ship of the CCGT leased and operated by TKSE was thus trans- For investments accounted for using the equity method, goodwill is ferred as well. The asset was assigned to the European Power seg- not reported separately, but rather included in the value recognised ment within the RWE Group. for the investment. In other respects, the consolidation principles described above apply analogously. If impairment losses on the equi ty Properties At the end of July 2017, we reached an agreement with Tritax Big value become necessary, we report such under income from invest- ments accounted for using the equity method. The financial state- Box REIT plc that it would purchase most of the site of our former ments of investments accounted for using the equity method are power station Littlebrook. The transaction became effective in the prepared using uniform accounting policies. middle of September 2017. A smaller part of the site was sold to the transmission system operator National Grid. This transaction was completed at the beginning of August. The land sales resulted in total euro proceeds in the upper double-digit million range. The former power plant site is assigned to the European Power segment within the RWE Group. Consolidated financial statements > Notes 97 For joint operations, the assets and liabilities and the expenses and Functional foreign currency translation is applied when converting income of the companies which are attributable to RWE are report- the financial statements of companies outside of the Eurozone. As ed. In the event that RWE’s shareholding differs from the share of the principal foreign enterprises included in the consolidated finan- the output from the activity to which RWE is entitled (share of out- cial statements conduct their business activities independently in put), the assets, liabilities, expenses and revenue are recognised in their national currencies, their balance-sheet items are translated accordance with the share of output. Foreign currency translation into euros in the consolidated financial statements using the aver- age exchange rate prevailing on the balance-sheet date. This also applies for goodwill, which is viewed as an asset of the economically autonomous foreign entity. We report differences to previous-year translations in other comprehensive income without an effect on In their individual financial statements, the companies measure non- income. Expense and income items are translated using annual aver- monetary foreign currency items at the balance-sheet date using the age exchange rates. When translating the adjusted equity of foreign exchange rate in effect on the date they were initially recognised. companies accounted for using the equity method, we follow the Monetary items are converted using the exchange rate valid on the same procedure. balance-sheet date. Exchange rate gains and losses from the measure- ment of monetary balance-sheet items in foreign currency occurring The following exchange rates (among others) were used as a basis up to the balance-sheet date are recognised on the income statement. for foreign currency translations: Exchange rates in € 1 US dollar 1 pound sterling 100 Czech korunas 100 Hungarian forints 1 Polish zloty Accounting policies Average Year-end 2017 0.88 1.14 3.80 0.32 0.24 2016 0.91 1.22 3.70 0.32 0.23 31 Dec 2017 31 Dec 2016 0.83 1.13 3.92 0.32 0.24 0.95 1.17 3.70 0.32 0.23 Intangible assets are accounted for at amortised cost. With the exception of goodwill, all intangible assets have finite useful lives market it. Furthermore, asset recognition requires that there be a sufficient level of certainty that the development costs lead to future and are amortised using the straight-line method. Useful lives and cash inflows. Capitalised development costs are amortised over methods of amortisation are reviewed on an annual basis. the time period during which the products are expected to be sold. Research expenditures are recognised as expenses in the period in Software for commercial and technical applications is amortised which they are incurred. over three to five years. ‘Operating rights’ refer to the entirety of the permits and approvals required for the operation of a power An impairment loss is recognised for an intangible asset if the recov- plant. Such rights are generally amortised over the economic life of erable amount of the asset is less than its carrying amount. A special the power plant, using the straight-line method. Easement agree- regulation applies for cases when the asset is part of a cash-generating ments in the electricity and gas business, and other easement rights, unit. Such units are defined as the smallest identifiable group usually have useful lives of 20 years. Concessions in the water busi- of assets which generates cash inflows; these inflows must be largely ness generally have terms of up to 25 years. Capitalised customer independent of cash inflows from other assets or groups of assets. relations are amortised over a maximum period of up to ten years. If the intangible asset is a part of a cash-generating unit, the impair- Goodwill is not amortised; instead it is subjected to an impairment If goodwill was allocated to a cash-generating unit and the carrying test once every year, or more frequently if there are indications of amount of the unit exceeds the recoverable amount, the allocated ment loss is calculated based on the recoverable amount of this unit. impairment. goodwill is initially written down by the difference. Impairment losses which must be recognised in addition to this are taken into account Development costs are capitalised if a newly developed product or by reducing the carrying amount of the other assets of the cash- process can be clearly defined, is technically feasible and it is the generating unit on a prorated basis. If the reason for an impairment company’s intention to either use the product or process itself or loss recognised in prior periods has ceased to exist, a write-back to 98 RWE Annual Report 2017 intangible assets is performed. The increased carrying amount re- Impairment losses and write-backs on property, plant and equip- sulting from the write-back may not, however, exceed the amortised ment are recognised according to the principles described for cost. Impairment losses on goodwill are not reversed. intangib le assets. Property, plant and equipment is stated at depreciated cost. Bor- rowing costs are capitalised as part of the asset’s cost, if they are Investment property consists of all real property held to earn rental income or for long-term capital appreciation rather than for use in incurred directly in connection with the acquisition or production of production or for administrative purposes. This property is measured a ‘qualified asset’. What characterises a qualified asset is that a at depreciated cost. Transaction costs are also included in the initial considerable period of time is required to prepare it for use or sale. If measurement. Depreciable investment property is de preciated over necessary, the cost of property, plant and equipment may contain 16 to 50 years using the straight-line method. Fair values of invest- the estimated expenses for the decommissioning of plants or site ment property are stated in the Notes and are determined using restoration. Maintenance and repair costs are recognised as expenses. internationally accepted valuation methods such as the discounted cash flow method or are derived from the current market prices of With the exception of land and leasehold rights, as a rule, property, comparable real estate. plant and equipment is depreciated using the straight-line method, unless in exceptional cases another depreciation method is better Impairment losses and write-backs for investment property are also suited to the usage pattern. We calculate the depreciation of RWE’s recognised according to the principles described for intangible assets. typical property, plant and equipment according to the following useful lives, which apply throughout the Group: Useful life in years Buildings Technical plants Thermal power plants Wind turbines Electricity grids Water main networks Gas and water storage facilities Gas distribution facilities Mining facilities Mining developments Other renewable generation facilities Investments accounted for using the equity method are initially accounted for at cost and thereafter based on the carrying amount of their prorated net assets. The carrying amounts are increased or reduced annually by prorated profits or losses, dividends and all 9 – 54 other changes in equity. Goodwill is not reported separately, but 10 – 60 up to 23 20 – 45 10 – 80 10 – 60 10 – 40 3 – 25 44 – 52 4 – 40 rather included in the recognised value of the investment. Goodwill is not amortised. An impairment loss is recognised for investments accounted for using the equity method, if the recoverable amount is less than the carrying amount. Other financial assets are comprised of shares in non-consolidated subsidiaries and in associates /joint ventures not accounted for using the equity method, as well as other investments and non-current marketable securities. These assets are shown in the category ‘Avail- able for sale’. This category includes financial instruments which are neither loans or receivables, nor financial investments held to ma- turity, and which are not measured at fair value through profit or loss. Upon recognition and in the following periods, they are recorded Property, plant and equipment held under a finance lease is capital- at fair value as long as such can be de termined reliably. Initial meas- ised at the fair value of the leased asset or the present value of the urement occurs as of the settlement date. Unrealised gains and losses minimum lease payments, depending on which is lower. They are are stated as other comprehensive income, with due consideration of depreciated using the straight-line method over the expected useful any deferred taxes. Gains or losses are recognised on the income life or the lease term, whichever is shorter. statement upon sale of the finan cial instruments. If there are objec- For operating leasing transactions, in which RWE is the lessee, the impairment loss is recognised with an effect on income. Such indica- minimum leasing payments are recognised as an expense over the tions can be that there is no longer an active market for a financial term of the lease. If RWE is the lessor, the minimum leasing payments asset or that a debtor is ex periencing significant financial difficulties, are recognised as income over the term of the lease. or is possibly delinquent on payments of interest and principal. tive, material indications of a reduction in the value of an asset, an Consolidated financial statements > Notes 99 Receivables are comprised of financial receivables, trade accounts receivable and other receivables. Aside from financial derivatives, receivables and other assets are stated at amortised cost. Allow- ances for doubtful accounts are based on the actual default risk. If the net realisable value of inventories written down in earlier peri- ods has increased, the reversal of the write-down is recognised as a reduction of the cost of materials. As a rule, the amounts of receivables are corrected through the use Nuclear fuel assemblies are stated at depreciated cost. Depreciation of an allowance account, in accordance with internal Group guide- is determined by operation and capacity, based on consumption lines. Prepayments received from customers for consumption which and the reactor’s useful life. is yet to be metered and billed are netted out against trade accounts receivab le of the utilities. Inventories which are acquired primarily for the purpose of realising a profit on a short-term resale transaction are recognised at fair Loans reported under financial receivables are stated at amortised value less costs to sell. Changes in value are recognised with an effect cost. Loans with interest rates common in the market are shown on on income. the balance sheet at nominal value; as a rule, however, non-interest or low-interest loans are disclosed at their present value discounted using an interest rate commensurate with the risks involved. CO2 emission allowances and certificates for renewable energies are accounted for as intangible assets and reported under other assets. Allowances which are purchased and allowances allocated Securities classified as current marketable securities essentially consist of marketable securities held in special funds as well as fixed- interest securities which have a maturity of more than three months and less than one year from the date of acquisition. All of these se- curities are classified as ‘Available for sale’ and are stated at fair value. The transaction costs directly associated with the acqui sition free of charge are both stated at cost and are not amortised. of these securities are included in the initial measurement, which occurs on their settlement date. Unrealised gains and losses are in- Deferred taxes result from temporary differences in the carrying amount in the separate IFRS financial statements and tax bases, cluded in other comprehensive income without an effect on income, with due consideration of any deferred taxes. If there are objective, and from consolidation procedures. Deferred tax assets also include material indications of a reduction in value, an impairment loss is tax reduction claims resulting from the expected utilisation of ex- recognised with an effect on income. The results of sales of securi- isting loss carryforwards in subsequent years. Deferred taxes are ties are also recognised on the income statement. capitalised if it is sufficiently certain that the related economic advantages can be used. Their amount is assessed with regard to the tax rates applicable or expected to be applicable in the specific Cash and cash equivalents consist of cash on hand, demand de- posits and current fixed-interest securities with a maturity of three country at the time of realisation. The tax regulations valid or adopted months or less from the date of acquisition. as of the balance-sheet date are key considerations in this regard. Deferred tax assets and deferred tax liabilities are netted out for each company and /or tax group. Inventories are assets which are held for sale in the ordinary course of business (finished goods and goods for resale), which are in the process of production (work in progress – goods and services) or which are consumed in the production process or in the rendering of ser- vices (raw materials including nuclear fuel assemblies and excavated earth for lignite mining). Assets are stated under Assets held for sale if they can be sold in their present condition and their sale is highly probable. Such assets may be certain non-current assets, asset groups (‘disposal groups’) or operations (‘discontinued operations’). Liabilities intended to be sold in a transaction together with assets are a part of a disposal group or discontinued operations, and are reported separately under Liabilities held for sale. Non-current assets held for sale are no longer depreciated or amor- tised. They are recognised at fair value less costs to sell, as long as Insofar as inventories are not acquired primarily for the purpose of this amount is lower than the carrying amount. realising a profit on a short-term resale transaction, they are carried at the lower of cost or net realisable value. Production costs reflect the full costs directly related to production; they are determined based on normal capacity utilisation and, in addition to directly allocab le costs, they also include adequate portions of required mate rials and production overheads. They also include production- related depre- ciation. Borrowing costs, however, are not capitalised as part of the cost. The determination of cost is generally based on average values. The usage of excavated earth for lignite mining is calculated using the ‘first in – first out’ method (FIFO). 100 RWE Annual Report 2017 Gains or losses on the valuation of specific assets held for sale and vious year, for Germany, in particular the ‘Richttafeln 2005 G’ by of disposal groups are stated under income from continuing opera- Klaus Heubeck, and the Standard SAPS Table S2PA of the current tions until final completion of the sale. year for the United Kingdom, taking into consideration future chang- The stock option plans are accounted for as cash-settled share-based payment. At the balance-sheet date, a provision is recognis ed in the amount of the prorated fair value of the payment obligation. Changes in the fair value are recognised with an effect on income. The fair es in mortality rates). The provision derives from the balance of the actuarial present value of the obligations and the fair value of the plan assets. The service cost is disclosed in staff costs. Net interest is included in the financial result. value of options is determined using generally accepted valuation Gains and losses on the revaluation of net debt or net assets are methodologies. Provisions are recognised for all legal or constructive obligations to third parties which exist on the balance-sheet date and stem from fully recognised in the fiscal year in which they occur. They are re- ported outside of profit or loss, as a component of other comprehen- sive income in the statement of comprehensive income, and are immediately assigned to retained earnings. They remain outside profit past events which will probably lead to an outflow of resources, or loss in subsequent periods as well. and the amount of which can be reliably estimated. Provisions are carried at their prospective settlement amount and are not offset In the case of defined contribution plans, the enterprise’s obligation against reimbursement claims. If a provision involves a large number is limited to the amount it contributes to the plan. Contributions to of items, the obligation is estimated by weighting all possible out- comes by their probability of occurrence (expected value method). the plan are reported under staff costs. All non-current provisions are recognised at their prospective settle- on obligations under public law, in particular the German Atomic ment amount, which is discounted as of the balance-sheet date. In Energy Act and the Disposal Fund Act, and on restrictions from oper- the determination of the settlement amount, any cost increases like- ating licenses. These provisions are measured using estimates, which ly to occur up until the time of settlement are taken into account. are based on and defined in contracts, on information from internal Waste management provisions in the nuclear energy sector are based and external specialists (e.g. experts). If necessary, the cost of property, plant and equipment may contain the estimated expenses for the decommissioning of plants or site Obligations existing as of the balance-sheet date and identifiable restoration. Decommissioning, restoration and similar provisions are when the balance sheet is being prepared are recognised as provi- recognised for these expenses. If changes in the discount rate or sions for mining damage to cover land recultivation and remediation changes in the estimated timing or amount of the payments result in of mining damage that has already occurred or been caused. The changes in the provisions, the carrying amount of the respective provisions must be recognised due to obligations under public law, asset is increased or decreased by the corresponding amount. If the such as the German Federal Mining Act, and formulated, above all, decrease in the provision exceeds the carrying amount, the excess in operating schedules and water law permits. Provisions are gener- is recognised immediately through profit or loss. ally fully related to the degree of mining in question. Such provi- sions are measured at full ex pected cost or according to estimated As a rule, releases of provisions are credited to the expense account compensation payments. Cost estimates are based on external on which the provision was originally recognised. expert opinions to a significant extent. Provisions for pensions and similar obligations are recognised for defined benefit plans. These are obligations of the company to pay future and ongoing post-employment benefits to entitled current and former employees and their surviving dependents. In particular, the obligations refer to retirement pensions. Individual commit- A provision is recognised to cover the obligation to submit CO2 emission allowances and certificates for renewable energies to the respective authorities; this provision is measured at the carrying amount of the CO2 allowances or certificates for renewable energies capitalised for this purpose. If a portion of the obligation is not ments are generally oriented to the employees’ length of service covered with the available allowances, the provision for this portion and compensation. is measured using the market price of the emission allowances or certificates for renewable energies on the reporting date. Provisions for defined benefit plans are based on the actuarial pres- ent value of the respective obligation. This is measured using the projected unit credit method. This method not only takes into account the pension benefits and benefit entitlements known as of the balance- sheet date, but also anticipated future increases in salaries and pension benefits. The calculation is based on actuarial reports, taking into account appropriate biometric parameters (as in the pre- Consolidated financial statements > Notes 101 Liabilities consist of financial liabilities, trade accounts payable, income tax liabilities and other liabilities. Upon initial recognition, these are stated at fair value including transaction costs and are the amounts that were recognised in equity until this point in time are recognised on the income statement in the period during which the asset or liability affects the income statement. If the transac- carried at amortised cost in the periods thereafter (except for deriva- tions result in the recognition of non-financial assets or liabilities, tive financial instruments). Liabilities from finance lease agree- for example the acquisition of property, plant and equipment, ments are either measured at the fair value of the leased asset or the the amounts recognised in equity without an effect on income are present value of minimum lease payments, depending on which included in the initial cost of the asset or liability. amount is lower. For subsequent measurements, the minimum lease payments are divided into the financ ing costs and repayment portion The purpose of hedges of a net investment in foreign operations is of the outstanding debt. Financ ing costs are distributed over the to hedge the currency risk from investments with foreign functional term of lease in such a manner that a steady interest rate is created currencies. Unrealised gains and losses from such hedges are rec- for the outstanding debt. ognised in other comprehensive income until disposal of the foreign Other liabilities include advances and contributions in aid of con- operation. struction and building connection that are carried as liabilities by IAS 39 stipulates the conditions for the recognition of hedging the utilities and are generally amortised and included in income over relatio nships. Amongst other things, the hedging relationship must the useful life of the corresponding asset. be documented in detail and be effective. According to IAS 39, a Furthermore, certain non-controlling interests are also included in hedging relationship is effective when the changes in the fair value of the hedging instrument are within 80 % to 125 %, both prospec- other liabilities. Specifically, this pertains to purchase price obliga- tively and retrospectively, of the opposite change in the fair value tions from rights to tender non-controlling interests (put options). of the hedged item. Only the effective portion of a hedge is recog- Derivative financial instruments are recognised as assets or liabili- ties and measured at fair value, regardless of their purpose. Changes in this value are recognised with an effect on income, unless the nised in accordance with the preceding rules. The ineffective portion is recognis ed immediately on the income statement with an effect on income. instruments are used for hedge accounting purposes. In such cases, Contracts on the receipt or delivery of non-financial items in accord- recognition of changes in the fair value depends on the type of ance with the company’s expected purchase, sale or usage require- hedging transaction. ments (own-use contracts) are not accounted for as derivative finan- cial instruments, but rather as executory contracts. If the contracts Fair value hedges are used to hedge assets or liabilities carried on contain embedded derivatives, the derivatives are accounted sepa- the balance sheet against the risk of a change in their fair value. The rately from the host contract, insofar as the economic characteristics following applies: changes in the fair value of the hedging instru- and risks of the embedded derivatives are not closely related to the ment and the fair value of the respective underlying transactions are economic characteristics and risks of the host contract. Written op- recognised in the same line item on the income statement. Hedges tions to buy or sell a non-financial item which can be settled in cash of unrecognised firm commitments are also recognised as fair value are not own-use contracts. hedges. Changes in the fair value of the firm commitments with re- gard to the hedged risk result in the recognition of an asset or liabili ty with an effect on income. Contingent liabilities are possible obligations to third parties or existing obligations which will probably not lead to an outflow of economic benefits or the amount of which cannot be measured Cash flow hedges are used to hedge the risk of variability in cash reliab ly. Contingent liabilities are only recognised on the balance flows related to an asset or liability carried on the balance sheet or sheet, if they were assumed within the framework of a business related to a highly probable forecast transaction. If a cash flow combination. The amounts disclosed in the Notes correspond to the hedge exists, unrealised gains and losses from the hedging instru- exposure at the balance-sheet date. ment are initially stated as other comprehensive income. Such gains or losses are only included on the income statement when the hedged underlying transaction has an effect on income. If forecast transactions are hedged and such transactions lead to the recogni- tion of a financial asset or financial liability in subsequent periods, 102 RWE Annual Report 2017 Management judgements in the application of accounting policies. Management judgements are required in the application of accounting policies. In particular, this pertains to the following Deferred tax assets are recognised if realisation of future tax bene- fits is probable. Actual future development of income for tax pur- poses and hence the realisability of deferred tax assets, however, aspects: may deviate from the estimation made when the deferred taxes are • With regard to certain contracts, a decision must be made as to capitalised. whether they are to be treated as derivatives or as so-called own- Further information on the assumptions and estimates upon which use contracts, and be accounted for as executory contracts. these consolidated financial statements are based can be found in • Financial assets must be allocated to the categories ‘Held to the explanations of the individual items. maturi ty investments’, ‘Loans and receivables’, ‘Financial assets available for sale’, and ‘Financial assets at fair value through All assumptions and estimates are based on the circumstances and profit or loss’. forecasts prevailing on the balance-sheet date. Furthermore, as of the • With regard to ‘Financial assets available for sale’, a decision balance-sheet date, realistic assessments of overall economic condi- must be made as to if and when reductions in value are to be tions in the sectors and regions in which RWE conducts ope rations are recognised as impairments with an impact on income. taken into consideration with regard to the prospective development • With regard to assets held for sale, it must be determined if they of business. Actual amounts may deviate from the estima ted amounts can be sold in their current condition and if the sale of such is if the overall conditions develop differently than expected. In such highly probable. If both conditions apply, the assets and any related liabilities must be reported and measured as ‘Assets cases, the assumptions, and, if necessary, the carrying amounts of the affected assets and liabilities are adjusted. held for sale’ or ‘Liabilities held for sale’, respectively. Management estimates and judgements. Preparation of consoli- dated financial statements pursuant to IFRS requires assumptions and estimates to be made, which have an impact on the recognised As of the date of preparation of the consolidated financial state- ments, it is not presumed that there will be any material changes compared to the assumptions and estimates. value of the assets and liabilities carried on the balance sheet, on income and expenses and on the disclosure of contingent liabilities. Capital management. The focus of RWE’s financing policy is on ensuring uninterrupted access to the capital market, in order to Amongst other things, these assumptions and estimates relate to the accounting and measurement of provisions. With regard to non-current provisions, the discount factor to be applied is an impor- tant estimate, in addition to the amount and timing of future cash flows. The discount factor for pension obligations is determined on the basis of yields on high quality, fixed-rate corporate bonds on the financial markets as of the balance-sheet date. The impairment test for goodwill and non-current assets is based on certain assumptions pertaining to the future, which are regularly adjusted. Property, plant and equipment is tested for indications of impair ment on each cut-off date. Power plants are grouped together as a cash-generating unit if their production capacity and fuel needs are centrally managed as part of a portfolio, and it is not possible to ascribe individual contracts and cash flows to the specific power plants. enable the efficient refinancing of maturing debts at all times. This goal is pursued by maintaining a solid rating and by targeting positive operating cash flow. During the reporting period, RWE’s capital structure changed signifi- cantly mainly due to the payment made into the fund for financing nuclear waste disposal, the reimbursement of the nuclear fuel tax, the hybrid bond buyback programme, and the bonds issued and redeemed by innogy SE. These and further measures resulted in a decrease in financial assets and thus contributed to a significant rise in net financial debt to €6.3 billion (previous year: €1.7 billion). By contrast, provisions of relevance to net debt declined by €8.1 billion to €14.0 billion (previous year: €22.1 billion) primarily as payments were made to the fund for financing nuclear waste disposal. On aver- age, provisions have a very long duration and are significantly influ- enced by external factors such as the general level of interest rates. A precise calculation of net debt and net financial debt is presented on page 56 of the review of operations. Upon first-time consolidation of an acquired company, the identi- fiable assets, liabilities and contingent liabilities are recognised at fair value. Determination of the fair value is based on valuation Due to the strategic treatment of our subsidiary innogy SE as a financial investment and the ensuing separation of finances, the following commentary distinguishes between RWE and innogy. methods which require a projection of anticipated future cash flows. Consolidated financial statements > Notes 103 innogy SE’s successful IPO has caused RWE AG’s capital structure to change fundamentally. Non-junior bonds issued by innogy SE are currently rated ‘A-’ with a stable outlook by Fitch and ‘BBB’ with a stable outlook by Standard & Net debt remains a point of reference. It is calculated by adding material non-current provisions to and deducting the net assets of funded pension obligations from net financial debt. Excluding the liabilities transferred to innogy SE, the liabilities of RWE AG of rele- vance to net debt primarily consist of hybrid bonds and provisions for pensions, nuclear waste management and mining. At the same time, RWE’s share in the market capitalisation of innogy SE exceeds these liabilities significantly. Against this backdrop, financial indica- tors relating to net indebtedness are only of limited informational value. RWE AG’s approach with regard to provisions is essentially based on a balance sheet structure management system. Accordingly, finan- cial assets are to cover 100 % and 75 % of the payments made from the provisions in the next five and ten years, respectively. Due to the strengthened capital structure, the balance sheet struc- ture was optimised further. Hybrid capital outstanding was reduced to about €1.9 billion within the scope of the hybrid bond buyback programme. Further financial requirements are to be fulfilled by operating liquidity management. RWE’s credit rating is influenced by a number of qualitative and quantitative factors. These include aspects such as the amount of cash flows and debt as well as market conditions, competition, and the political framework. Our hybrid bonds also support our rating. The leading rating agencies, Moody’s and Fitch, classify part of hybrid capital as equity. RWE’s creditworthiness is currently rated ‘Baa3’ by Moody’s and ‘BBB’ by Fitch. Our rating thus remains in the investment-grade range. The short-term credit ratings for RWE are ‘P-3’ and ‘F3’, respectively. Poor’s. Moody’s current rating is ‘Baa2’ with a negative outlook. innogy SE thus has an investment grade rating. The creditworthiness grades issued for short-term innogy bonds are ‘F-2’, ‘A-2’ and ‘P2’. Changes in accounting regulations The International Accounting Standards Board (IASB) has approved amendments of existing International Financial Reporting Standards (IFRSs), which became effective for the RWE Group as of fiscal 2017: • Amendments to IAS 7 Cash Flow Statements Disclosure Initiative (2016) • Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses (2016) • Annual Improvements to IFRS 2014–2016 Cycle (2016). This relates to the changes and clarifications to IFRS 12 included in the collective standard. First-time application of these changes has no material effect on the consolidated financial statements. New accounting standards The IASB has adopted further standards and amendments to stand- ards, which were not yet mandatory in the European Union (EU) in fiscal 2017. The most important changes are presented below. EU endorsement is still pending in some cases. IFRS 9 Financial Instruments (2014) replaces the previous regula- tions of IAS 39 on financial instruments. The standard contains amended regulations on measurement categories for financial assets and includes some smaller changes in relation to the measure ment Among other things, innogy manages its capital structure on the of financial liabilities. Fair value measurement without an effect on basis of financial indicators. One key indicator is the debt factor, income is stipulated for certain debt instruments reported under which is calculated using net debt. Net debt is calculated by adding assets. It also contains regulations on the impairment of assets and material non-current provisions to net financial debt, and subtract- hedge accounting. The rules on impair ment will now apply to ex- ing the surplus of plan assets over benefit obligations. The debt fac- pected losses. The new regulations on hedge accounting are intended tor is the ratio of net debt to adjusted EBITDA. During the reporting to enable better reporting of the risk management activities in the period, it was 3.6 (previous year: 3.7). consolidated financial statements. To this end, IFRS 9 expands the range of underlying transactions qualifying for hedge accounting and simplifies effectiveness testing, amongst other things. The new Standard becomes effective for fiscal years starting on or after 1 January 2018. As regards the classification and measurement of financial assets, RWE does not anticipate any material effects on the recognition of investments in debt instruments with a total carrying amount of approximately €5.2 billion. In the future, a portion of our cash 104 RWE Annual Report 2017 investments in debt instruments will continue to be accounted for RWE has concluded its IFRS 15 contract analysis. We no longer using the equity method without an effect on profit or loss (about anticipate there to be a significant impact on the following matters: €1.4 billion). Debt instruments with a carrying amount of approxi- mately €3.8 billion, which were measured at fair value without an • Energy supply contracts with households containing free giveaways effect on profit or loss according to IAS 39, will be measured at fair or goods at a reduced price. According to IFRS 15, free gifts may value with an effect on profit or loss in the future. be recognised as separate performance obligations, to which a The option to recognise changes in fair value in other comprehen- which revenue must be recognised when control is transferred. sive income is exercised for the lion’s share of investments in equity For goods that are offered at a reduced price, the allocation of instruments with a total carrying amount of approximately €1.6 bil- the entire transaction price may also lead to a change in revenue, lion. A small portion is measured at fair value with an effect on profit unlike the current accounting treatment according to IAS 18. portion of the transaction price must be allocated, as a result of or loss. No material changes are expected as regards the classification of for customers. Warranties and guarantees may either represent an financial assets that have been measured at amortised cost so far. assurance that the product complies with contractually agreed • Contracts with households including warranties and guarantees In sum, the recognition of expected losses pursuant to the new im- this. According to IFRS 15, products containing assurances going pairment model will result in the earlier recognition of impairments, higher volatility on the income statement, and lower equity at the beyond this constitute separate performance obligations, to which a portion of the transaction price must be allocated. Warranties time of transition. The financial assets held by RWE are expected to that only assure contractually agreed specifications are accounted be additionally impaired in the range of €15 million to €35 million for according to the principles of IAS 37. specifications or may include assurances that go above and beyond as of the transition date. No material changes are anticipated concerning the recognition of contract with a customer. If the company assumes that these • Contract costs are additional costs incurred for the initiation of a financial liabilities. costs can be recovered, they are generally capitalised and written down depending on the transfer of these goods or services to the RWE’s previous hedge accounting can be continued. No additional customer. If the expected depreciation period is not more than hedge accounting relationships are designated due to IFRS 9. The one year, the contract costs are simply offset with an effect on exercise of the fair value option for own-use contracts is not envis- expenses when said costs are incurred. The implementation of aged. Under IFRS 9, instruments for hedging foreign currency risks this new rule under IFRS 15 will be limited to changes in presenta- continue to be fully designated. Foreign currency base risks are not tion and disclosure in the Notes. excluded. Resulting ineffectivities do not have a material impact on RWE’s consolidated financial statements. The possibility of exclud- • Payments made to customers for sales purposes are generally rec- ing the fair value component for options in hedge accounting is not ognised with a revenue-reducing effect. A payment on conclusion exercised. In the transition to the classification and measurement of a contract results in the recognition of an asset that must be methods pursuant to IFRS 9, RWE will not restate any previous-year reversed with a revenue-reducing effect over the term of the con- figures and will thus adjust retained earnings as of 1 January 2018, tract. If the payment that is to be made for sales-related purposes in order to recognise the impacts from first-time application of the falls due in the future, a provision is formed, which is reversed standard. upon payment. IFRS 15 Revenue from Contracts with Customers (2014) inclu ding • Contracts with households often grant the customer the right to Amendments to IFRS 15, Effective Date of IFRS 15 (2015) and early cancellation of the contract. If the customer can cancel the Clarifications to IFRS 15 Revenue from Contracts with Customers (2016) will replace IAS 18 Revenue and IAS 11 Construction Con- tracts and the associated interpretations. The new standard does contract with one-month’s notice, the contractual term amounts to just one month under IFRS 15. not distinguish between different types of orders and performance. • Contracts with business customers often include agreed ranges It establishes uniform criteria as to when revenue is realised for a that allow the customer to deviate from the contractually agreed performance obligation at a point in time or over time. Therefore, purchase volume. Such contracts also include provisions on pen- revenue is recognised when the customer obtains control of the alty payments that must be made if the actual purchasing volume agreed goods and services and can benefit from such. Application falls outside of the agreed range. If these penalty payments are of the new standard is required for annual periods beginning on classified as significant and consumption is not determined based or after 1 January 2018. RWE will make use of the modified retro- on the monthly measurement of the purchase volume, this can spective method for the first-time application as of 1 January 2018. have effects on the recognition of received prepayments. Consolidated financial statements > Notes 105 The following effects of applying IFRS 15 for the first time have The following standards, amendments to standards, and interpre- been identified: tations are not expected to have any material effects on RWE’s consolida ted financial statements: • As regards regulatory fees, in particular in the field of renewa- ble energy, individual situations were identified in which RWE • Amendments to IAS 40 Transfers of Investment Property (2016) qualifies as agent pursuant to IFRS 15 but not pursuant to IAS 18. • Annual Improvements to IFRS Standards 2014-2016 Cycle (2016). This results in a decrease in the revenue and cost of materials in This relates to the amendments and clarifications to IFRS 1 and the Grid division within the innogy segment by about €2.5 billion, IAS 28 contained in the collective standard. as performance bonuses of the transmission system operator no • Amendments to IFRS 2 Classification and Measurement of Share- longer qualify as revenue pursuant to the direct marketing model based Payment Transactions (2016) of the German Renewable Energy Act. This does not have an • Amendments to IFRS 9: Prepayment Features with Negative impact on income. Compensation (2017) • Amendments to IAS 28 Long-term Interests in Associates and • The first-time application of IFRS 15 will also change the state- Joint Ventures (2017) ment of unrealised changes in the fair values of commodity • Annual Improvements to IFRS Standards 2015-2017 Cycle (2017). derivatives. From 1 January 2018 onwards, they will no longer be The collective standard contains amendments and clarifications to recognised under revenue or the cost of materials as they will be IFRS 3 and IFRS 11 as well as to IAS 12 and IAS 23. stated as part of other operating income instead. The reclassifi- cation will stabilise revenue. This will not have an effect on income. • Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and an Associate or Joint Venture (2014). First-time application of these amendments in the EU was delayed • Compared to the current guidance, the presentation and disclo- indefinitely. sure requirements under IFRS 15 are more detailed. RWE has re- • IFRS 17 Insurance Contracts (2017) viewed the new disclosure notes and modified its systems and • Application of IFRS 9 Financial Instruments in conjunction with processes in order to comply with the new requirements. IFRS 4 Insurance Contracts (2016) IFRS 16 Leases (2016) will replace IAS 17 Leases and the related interpretations IFRIC 4, SIC-15 and SIC-27. According to the new • Amendments to IAS 19 Plan Amendment, Curtailment or Settlement (2018) • IFRIC 22 Foreign Currency Transactions and Advance Considera- standard on leases, aside from short-term leases (less than 12 months) tion (2016) and leases of low-value assets, all leases are to be reported on the • IFRIC 23 Uncertainty over Income Tax Treatments (2017) balance sheet. Consequently, regardless of economic ownership of the leased asset, the lessee must recognise a right-of-use asset and a corresponding lease liability in the amount of the present value of the lease payments. For lessors, the new Standard does not result in any significant changes to the current accounting treatment pur- suant to IAS 17 and still requires the classification of leases. The new standard becomes effective for fiscal years starting on or after 1 January 2019. RWE will not apply IFRS 16 early in 2018 in conjunction with IFRS 15 and will apply the modified retrospective method in transitioning to IFRS 16. The effects of IFRS 16 on the consolidated financial statements are being currently reviewed. Based on initial preliminary assessments, the application of IFRS 16 will cause RWE’s depreciation and amortisation to increase annually by a low triple-digit million euro amount from fiscal 2019 onwards, whereas the curtailment of the financial result is expected to be in low, double-digit million euro range. By contrast, other operating expenses receive relief in the amount of the two aforementioned effects. In consequence, RWE does not anticipate that this will have an impact on net income. Furthermore, based on the current preliminary assessment, RWE’s net financial debt is expected to increase by a low single-digit billion euro amount as a consequence of the implementation of IFRS 16. 106 RWE Annual Report 2017 Notes to the Income Statement (1) Revenue As a rule, revenue is recorded when the goods have been delivered A breakdown of revenue by division and geographical region is or the services have been rendered, and the risks related to the goods contained in the segment reporting on page 145 et seqq. or services have been transferred to the customer. To improve the presentation of business development, we report customer in the year under review or the previous year. revenue generated by energy trading operations as net figures, reflecting realised gross margins. Energy trading revenue is generated The item ‘Natural gas tax/electricity tax’ comprises the taxes paid in the Supply & Trading segment. By contrast, we report electricity, directly by Group companies. RWE did not generate more than 10 % of revenues with any single gas, coal and oil transactions that are subject to physical settlement on a gross basis. In fiscal 2017, gross revenue (including energy trading) totalled €86,725 million (previous year: €87,208 million). (2) Other operating income Other operating income € million Income from own work capitalised Income from changes in finished goods and work in progress Release of provisions Cost allocations /refunds Disposal and write-back of current assets (excluding marketable securities) Disposal and write-back of non-current assets including income from deconsolidation Income from derivative financial instruments Compensation and insurance benefits Rent and lease Remeasurement gain in step acquisitions Miscellaneous 2017 2016 312 11 112 137 33 649 29 58 94 19 2,154 3,608 252 11 208 68 77 273 37 128 18 363 1,435 The refund of the €1,797 million in nuclear fuel taxes paid in earlier (3) Cost of materials periods contained in the ‘Miscellaneous’ item is based on a decision by the German Constitutional Court dated 7 June 2017. The nuclear fuel tax levied until 31 December 2016 could not be reconciled with constitutional rules, becoming null and void retroactively. The Cost of materials € million Cost of raw materials and of goods for resale refund includes the €100 million share economically attributable Cost of purchased services to E.ON. 2017 2016 19,132 12,194 31,326 20,977 12,420 33,397 Income from the disposal of non-current financial assets and loans is disclosed under income from investments if it relates to invest- The cost of raw materials also includes expenses for the use and ments; otherwise it is recorded as part of the financial result as is the income from the disposal of current marketable securities. dispo sal of spent nuclear fuel assemblies. This item also includes expen ses for CO2 emission allowances. A total of €42,140 million in energy trading revenue (previous year: €41,375 million) was netted out against cost of materials. Consolidated financial statements > Notes 107 (4) Staff costs Staff costs € million Wages and salaries Cost of social security, pensions and other benefits The division of the former Conventional Power Generation segment into the two new Lignite & Nuclear and European Power segments 2017 2016 had resulted in the division of the former cash-generating unit for 3,738 3,840 ment. The impairment test occasioned by this resulted in a write-up the German power plant portfolio due to the resulting new manage- 966 4,704 937 4,777 of €401 million for the Lignite & Nuclear cash-generating unit, which is recognised in other operating income (recoverable amount: €1.4 billion). In contrast, an impairment of €321 million was recog- nised for the new cash- generating unit for the German power plant portfolio in the European Power segment and provisions for Number of employees 2017 2016 impending losses were formed (recoverable amount: €0.0 billion). Employees covered by collective agreements and other employees Employees not covered by collective agreements 46,757 12,576 59,333 46,543 12,530 59,073 These effects stem from the non- recurrence of the compensatory effects of the division of the cash- generating unit. The assets are divided between the new cash- generating units analogously to the division of the former Conven tional Power Generation segment into the two new Lignite & Nuclear and European Power segments, as presented in segment reporting on page 146. The recoverable The number of employees is arrived at by conversion to full-time positions, meaning that part-time and fixed-term employment relation- amounts were determined on the basis of the fair values less costs to sell. In this context, the valuation models and parameters valid ships are included in accordance with the ratio of the part-time work as of 31 December 2016 were applied. or the duration of the employment to the annual employment time. On average, 1,998 trainees were employed (previous year: 2,070). In the year under review, an impairment loss of €301 million was Trainees are not included in the personnel headcount. recognised for property, plant and equipment of the Hungarian company Mátrai Erőmű Zrt. (Mátra) that is stated as being held for sale in the Lignite & Nuclear segment due to the intended sale (5) Depreciation, amortisation and impairment losses (recoverable amount: €0 billion). The recoverable amount corresponds Depreciation, amortisation and impairment losses € million Intangible assets Property, plant and equipment Investment property 2017 2016 purchase price offers available on the date of the classification as to the fair value less costs to sell that was derived from the binding ‘held for sale’. It is assigned to Level 2 of the fair value hierarchy. 717 2,212 10 2,939 254 6,388 In the previous year, €3,695 million of the impairment losses recog- nised in the former Conventional Power Generation segment were 5 allocable to the German power plant portfolio, €168 million to a 6,647 Turkish power station unit, €106 million to the Scottish biomass- fired power plant Markinch and €58 million to N.V. Elektriciteits- Produktiemaatschappij Zuid-Nederland EPZ, Borssele/Netherlands, In respect of amortisation on intangible assets, €27 million (previous which is presented as a joint operation. year: €26 million) pertained to customer bases of acquired enterprises. Impairments € million Intangible assets Property, plant and equipment Investment property 2017 2016 latory framework conditions underlying the annual impairment The deteriorated commercial assumptions and more difficult regu- 488 375 6 869 25 4,354 1 4,380 test resulted in an impairment to the goodwill of the ‘Retail UK’ cash- generating unit within the innogy segment. Therefore, an impairment loss of €479 million was recognised (recoverable amount: €1.5 billion). The envisaged merger of the retail activities of innogy and SSE in Great Britain did not result in a reassessment of the im- pairment. 108 RWE Annual Report 2017 In the year under review, an impairment loss of €16 million was recog- rights recognised in intangible assets), essentially due to deteriorated nised for gas storage facilities in the innogy segment (€12 million regulatory framework conditions in Poland (recoverable amount: of which for property, plant and equipment and €4 million of which €0.2 billion). for intangible assets) (recoverable amount: €0.0 billion), essentially due to changed price expectations. In the previous year, impairment Other impairments on intangible assets and property, plant and losses of €204 million were recognised for gas storage facilities, of equipment were recognised primarily on the basis of cost increases which €186 million were allocable to property, plant and equipment and changes in price expectations. and €18 million were allocable to intangible assets (recoverable amount: €0.1 billion). Recoverable amounts are determined on the basis of fair values less costs to sell using valuation models based on planned cash flows. Furthermore, an impairment loss of €20 million was recognised for The valuation models used discount rates ranging from 4.25 % to property, plant and equipment for the construction of offshore wind 5.50 % (previous year: 4.00 % to 9.75 %). Our key planning assump- farms in the innogy segment due to permanent decreases in value (recoverable amount: €0.1 billion). In the prior year, €97 million of the impairment loss was attributable to onshore wind farms in tions relate to the development of wholesale prices of electricity, crude oil, natural gas, coal and CO2 emission allowances, retail prices of electricity and gas, market shares and regulatory framework con- Poland (of which €90 million were attributable to property, plant ditions. Based on the use of internal planning assumptions, the deter- and equipment and €7 million were attributable to the operating mined fair values are assigned to Level 3 of the fair value hierarchy. (6) Other operating expenses Other operating expenses € million Maintenance and renewal obligations Additions to provisions Concessions, licenses and other contractual obligations Structural and adaptation measures Legal and other consulting and data processing services Disposal of current assets and decreases in values (excluding decreases in the value of inventories and marketable securities) Disposal of non-current assets including expenses from deconsolidation Insurance, commissions, freight and similar distribution costs General administration Advertising Expenses from derivative financial instruments Lease payments for plant and grids as well as rents Postage and monetary transactions Fees and membership dues Exchange rate losses Other taxes (primarily on property) Miscellaneous 2017 790 362 438 76 279 179 109 149 141 268 36 129 73 117 221 319 2016 320 1,787 443 − 108 267 239 36 178 128 268 46 130 61 136 17 78 297 3,686 4,323 The ‘Miscellaneous’ item contains the €100 million share of the refund In the previous year, expenses for structural and adaptation measures of the nuclear fuel tax paid in earlier periods economically allocable included income of €79 million from the release of provisions for to E.ON. restructuring measures. Consolidated financial statements > Notes 109 (7) Income from investments Income from investments includes all income and expenses which income from investments accounted for using the equity method have arisen in relation to operating investments. It is comprised of and other income from investments. Income from investments € million Income from investments accounted for using the equity method Income from non-consolidated subsidiaries of which: amortisation / impairment losses on non-consolidated subsidiaries Income from other investments of which: impairment of shares in other investments Income from the disposal of investments Income from loans to investments Other income from investments Expenses of €19 million (previous year: €8 million) included in the item ‘Income from loans to investments’ relate exclusively to impair- ment losses. (8) Financial result Financial result € million Interest and similar income Other financial income Financial income Interest and similar expenses Interest accretion to Provisions for pensions and similar obligations (including capitalised surplus of plan assets) Provisions for nuclear waste management as well as to mining provisions Other provisions Other finance costs Finance costs 2017 2016 302 − 29 − 37 41 − 18 104 2 118 420 2017 220 2,095 2,315 907 120 146 − 5 1,898 3,066 − 751 387 − 9 − 17 28 − 18 120 14 153 540 2016 271 1,612 1,883 914 134 876 277 1,910 4,111 − 2,228 The financial result breaks down into net interest, interest accretion In the year under review, €2 million in borrowing costs were capital- to provisions, other financial income and other finance costs. ised as costs in connection with the acquisition, construction or production of qualifying assets (previous year: €7 million). The under- Interest accretion to provisions contains the annual amounts of lying capitalisation rate ranged from 3.8 % to 4.4 % (previous year: accrued interest. It is reduced by the imputed interest income on from 4.4 % to 5.0 %). plan assets for the coverage of pension obligations. Net interest essentially includes interest income from interest-bearing securities and loans, income and expenses relating to marketab le securities, and interest expenses. 110 RWE Annual Report 2017 Net interest € million Interest and similar income Interest and similar expenses 2017 2016 220 907 − 687 271 914 − 643 Due to the utilisation of tax loss carryforwards unrecognised in prior years, current taxes on income were reduced by €272 million (pre- vious year: €4 million). Expenses from deferred taxes declined by €33 million (previous year: €121 million), due to reassessments of and previously unrecognised tax carryforwards. Net interest stems from financial assets and liabilities, which are allocated to the following categories: Interest result by category € million Loans and receivables Financial assets available for sale Financial liabilities carried at (amortised) cost 2017 2016 149 71 − 907 − 687 173 98 − 914 − 643 Income taxes recognised in other comprehensive income € million Fair valuation of financial instruments available for sale Fair valuation of financial instruments used for hedging purposes Actuarial gains and losses of defined benefit pension plans and similar obligations1 1 Including valuation allowances. 2017 2016 − 3 8 − 171 − 166 5 − 579 430 − 144 Other financial income includes €130 million in gains realised from the disposal of marketable securities (previous year: €199 million). Taxes in the amount of €16 million (previous year: €6 million) were It also includes €257 million in interest income on portions of the offset directly against equity. nuclear fuel tax paid by RWE and refunded in 2017. €243 million thereof is allocable to RWE shareholders. Of the other finance costs, €109 million (previous year: €318 million) stem from realised losses on the disposal of marketable securities. (9) Taxes on income Taxes on income € million Current taxes on income Deferred taxes 2017 2016 702 39 741 819 − 1,142 − 323 Of the deferred taxes, €27 million is related to temporary differences (previous year: – €1,521 million). In the year under review, changes in valuation allowances for deferred tax assets amounted to – €342 million (previous year: €1,460 million). Current taxes on income contain €128 million in net tax income (previous year: expenses of €92 million) relating to prior periods. Consolidated financial statements > Notes 111 Tax reconciliation € million Income before tax Theoretical tax expense Differences to foreign tax rates Tax effects on Tax-free domestic dividends Tax-free foreign dividends Other tax-free income Expenses not deductible for tax purposes Accounting for associates using the equity method (including impairment losses on associates’ goodwill) Unutilisable loss carryforwards, utilisation of unrecognised loss carryforwards, write-downs on loss carryforwards, recognition of loss carryforwards Income on the disposal of investments Changes in foreign tax rates Other allowances for deferred taxes in the RWE AG tax group Other changes in deferred taxes from Group restructuring Other Effective tax expense Effective tax rate in % The theoretical tax expense is calculated using the tax rate for the RWE Group of 32.5 % (previous year: 31.9 %). This is derived from the prevailing 15 % corporate tax rate, the solidarity surcharge of 5.5 %, and the Group’s average local trade tax rate. 2017 3,056 993 –39 − 57 − 3 − 20 130 − 6 − 214 –20 21 − 44 741 24.2 2016 − 5,807 − 1,852 − 62 − 55 − 5 − 3 42 − 46 1,247 64 − 6 752 − 560 161 − 323 5.6 112 RWE Annual Report 2017 Notes to the Balance Sheet (10) Intangible assets Intangible assets € million Cost Development costs Concessions, patent rights, licences and similar rights Customer relationships and similar assets Goodwill Prepayments Total Balance at 1 Jan 2017 1,047 2,816 2,915 11,664 6 18,448 Additions /disposals due to changes in the scope of consolidation Additions Transfers Currency translation adjustments Disposals Balance at 31 Dec 2017 Accumulated amortisation /impairment losses Balance at 1 Jan 2017 Additions /disposals due to changes in the scope of consolidation Amortisation /impairment losses in the reporting period Transfers Currency translation adjustments Disposals Balance at 31 Dec 2017 Carrying amounts Balance at 31 Dec 2017 Cost Balance at 1 Jan 2016 Additions /disposals due to changes in the scope of consolidation Additions Transfers Currency translation adjustments Disposals Balance at 31 Dec 2016 Accumulated amortisation /impairment losses Balance at 1 Jan 2016 Additions /disposals due to changes in the scope of consolidation Amortisation /impairment losses in the reporting period Transfers Currency translation adjustments Disposals Balance at 31 Dec 2016 Carrying amounts Balance at 31 Dec 2016 3 74 – 29 – 30 228 837 630 3 104 – 5 – 18 225 489 348 143 92 39 – 3 33 3,054 4 8 3 – 83 37 2,810 17 – 10 29 – 4 167 203 9 – 126 298 11,671 31 18,403 2,410 2,658 1 – 2 107 5 4 31 2,493 27 – 84 37 2,564 479 – 6 474 5,699 1 717 – 104 293 6,020 561 246 11,197 31 12,383 1,137 2,790 3,319 11,979 31 67 13 – 42 43 2,816 11 112 – 6 – 401 8 2,915 1 – 393 35 11,664 2,312 3,040 29 120 2 – 17 36 2,410 26 – 400 8 2,658 1 1 – 34 107 8 – 144 27 1,047 664 – 33 108 – 1 – 82 26 630 417 7 – 1 5 – 5 6 1 – 1 19,232 119 179 11 – 980 113 18,448 6,017 – 4 254 1 – 499 70 5,699 406 257 11,663 6 12,749 Consolidated financial statements > Notes 113 In the reporting period, the RWE Group’s total expenditures on Mid-term business plans are based on country-specific assumptions research and development amounted to €182 million (previous year: regarding the development of key economic indicators such as gross €165 million). domestic product, consumer prices, interest rate levels and nominal wages. These estimates are, amongst others, derived from macro- Goodwill breaks down as follows: economic and financial studies. Goodwill € million Grid & Infrastructure Germany Grid & Infrastructure Eastern Europe Retail Netherlands /Belgium Retail Germany Retail United Kingdom Retail Eastern Europe Renewables Supply & Trading 31 Dec 2017 31 Dec 2016 Our key planning assumptions for the business segments active in 2,736 1,159 2,704 923 1,525 429 715 1,006 11,197 2,768 1,107 2,670 928 2,070 409 705 1,006 11,663 Europe’s electricity and gas markets relate to the development of wholesale prices of electricity, crude oil, natural gas, coal and CO2 emission allowances, retail prices of electricity and gas, market shares and regulatory framework conditions. The discount rates used for business valuations are determined on the basis of market data. With regard to cash-generating units, during the period under review they ranged from 3.25 % to 5.50 % after tax (previous year: 4.00 % to 5.75 %). For the extrapolation of future cash flows going beyond the detailed planning horizon, we used a growth rate of 0.0 % (previous year: 0.0 % to 1 %). As a rule, the growth rate for each division is derived In the third quarter of every fiscal year, an impairment test is per- from experience and expectations of the future and does not exceed formed to determine if there is any need to write down goodwill. In the long-term average growth rates of the respective markets in which the course of this, goodwill is allocated to the cash-generating units. the Group companies are active. The annual cash flows assumed for the years after the detailed planning horizon include capital In the year under review, goodwill increased by €53 million (pre- expenditure in the amount necessary to maintain the scope of busi- vious year: €0 million) as a result of first-time consolidations. In the ness. The growth rates assumed for the cash flows are determined cash-generating units Retail Germany and Grid & Infrastructure taking account of additionally necessary expansion investments. Germany, changes in current redemption liabilities from put options resulted in a €36 million decrease in goodwill without an effect on The deterioration in commercial assumptions and more difficult income (previous year: increase of €92 million). regulatory framework conditions underlying the impairment test conducted in the third quarter resulted in an impairment to the The recoverable amount of the cash-generating unit is determined, goodwill of the Retail UK cash-generating unit within the innogy seg- which is defined as the higher of fair value less costs to sell or value ment. An impairment loss of €479 million was recognised (recover- in use. Fair value is the best estimate of the price that an independ- able amount: €1.5 billion). The envisaged merger of the retail activi- ent third party would pay to purchase the cash-generating unit as of ties of innogy and SSE in Great Britain did not result in a different the balance-sheet date. Value in use reflects the present value of assessment of the impairment. The fair value less costs to sell was the future cash flows which are expected to be generated with the determined using an enterprise valuation model based on cash flow cash-generating unit. budgets and a discount rate of 5.50 % after taxes (previous year: 4.75 %). Fair value less costs to sell is assessed from an external perspective and value in use from a company-internal perspective. Values are determined using a business valuation model, based on planned future cash flows. These cash flows, in turn, are based on the busi- ness plan, as approved by the Executive Board and valid at the time of the impairment test. They pertain to a detailed planning period of three years. In certain justifiable cases, a longer detailed planning period is taken as a basis, insofar as it is necessary due to economic or regulatory conditions. The cash flow plans are based on experi- ence as well as on expected market trends in the future. If available, market transactions in the same sector or third-party valuations are taken as a basis for determining fair value. Based on the use of inter- nal planning assumptions, the determined fair values are assigned to Level 3 of the fair value hierarchy. 114 RWE Annual Report 2017 With the exception of the Retail UK cash-generating unit in the The Retail Netherlands/Belgium cash-generating unit exhibited the innogy segment, as of the balance-sheet date, the recoverable smallest surplus of recoverable amount over the carrying amounts. amounts of the cash-generating units – determined as the fair value The recoverable amount was €1.4 billion higher than the carrying less costs to sell – were higher than their carrying amounts. The amount. Impairment would have been necessary if the calculations surpluses react especially sensitively to changes in the discount rate, had used an after-tax discount rate increased by more than 2.1 per- the growth rate and cash flows in terminal value. centage points to above 5.8 %, a growth rate decreased by more than 2.3 percentage points to below – 2.3 %, or cash flows reduced by more than €57 million in terminal value. Consolidated financial statements > Notes (11) Property, plant and equipment Property, plant and equipment € million Cost Balance at 1 Jan 2017 Additions /disposals due to changes in the scope of consolidation Additions Transfers Currency translation adjustments Disposals Balance at 31 Dec 2017 Accumulated depreciation /impairment losses Additions /disposals due to changes in the scope of consolidation Amortisation /impairment losses in the reporting period Transfers Currency translation adjustments Disposals Additions Balance at 31 Dec 2017 Carrying amounts Balance at 31 Dec 2017 Cost Balance at 1 Jan 2016 Additions /disposals due to changes in the scope of consolidation Additions Transfers Currency translation adjustments Disposals Balance at 31 Dec 2016 Accumulated depreciation /impairment losses 115 Total Land, land rights and buildings incl. buildings on third-party land Technical plant and machinery Other equipment, factory and office equipment Prepayments and plants under construction 7,339 74,257 2,152 1,708 85,456 – 149 92 30 41 197 7,156 – 950 1,477 237 – 121 620 74,280 – 6 138 1 8 170 2,123 – 149 215 – 2 20 88 6 – 890 1,829 – 53 421 404 – 11 142 4 151 4,429 54,187 1,505 162 825 – 273 – 10 95 2,317 915 – 8 27 83 851 – 943 2,532 – 5 – 82 1,082 85,876 61,001 – 1,058 2,213 – 2 – 29 743 410 60,972 2,727 20,093 618 1,466 24,904 7,489 73,967 2,246 1,710 85,412 – 214 122 107 – 68 97 7,339 57 1,854 171 – 1,186 606 74,257 15 132 – 21 – 25 195 2,152 – 30 324 – 261 – 25 10 1,708 – 172 2,432 – 4 – 1,304 908 85,456 Balance at 1 Jan 2017 4,439 54,126 1,521 Balance at 1 Jan 2016 4,206 49,358 1,569 922 56,055 Additions /disposals due to changes in the scope of consolidation Amortisation /impairment losses in the reporting period Transfers Currency translation adjustments Disposals Additions Balance at 31 Dec 2016 Carrying amounts Balance at 31 Dec 2016 – 216 479 42 – 30 36 6 43 5,719 – 8 – 472 512 2 3 176 – 16 – 20 191 4,439 54,126 1,521 2,900 20,131 631 14 – 19 – 3 – 1 915 793 – 170 6,388 – 1 – 525 738 8 61,001 24,455 116 RWE Annual Report 2017 Property, plant and equipment in the amount of €82 million (pre- €250 million) was attributable to assets leased under finance leases. vious year: €87 million) were subject to restrictions from land charges, These assets essentially consist of technical plant and equipment. chattel mortgages or other restrictions. Of the total carrying amount Disposals of property, plant and equipment resulted from sale or of property, plant and equipment, €248 million (previous year: decommissioning. (12) Investment Property Investment Property € million Cost Balance at 1 Jan 2017 Additions Transfers Disposals Investment Property € million Cost 205 Balance at 1 Jan 2016 Additions Transfers Disposals 4 40 Balance at 31 Dec 2017 169 Balance at 31 Dec 2016 Accumulated depreciation /impairment losses Accumulated depreciation /impairment losses Balance at 1 Jan 2017 142 Balance at 1 Jan 2016 Depreciation /impairment losses in the reporting period Transfers Disposals Write-backs Balance at 31 Dec 2017 Carrying amounts Balance at 31 Dec 2017 10 2 28 Depreciation /impairment losses in the reporting period Transfers Disposals Write-backs 126 Balance at 31 Dec 2016 Carrying amounts 43 Balance at 31 Dec 2016 218 2 15 205 146 5 1 9 1 142 63 As of 31 December 2017, the fair value of investment property appraisers. Of the carrying amount of investment property, €0 million amounted to €115 million (previous year: €127 million), of which (previous year: €4 million) is attributable to assets leased under €19 million is assigned to Level 2 (previous year: €23 million) and finance leases. Rental income in the reporting period amounted to €96 million is assigned to Level 3 (previous year: €104 million) of €13 million (previous year: €12 million). Direct operating expenses the fair value hierarchy. Of the fair value, €41 million (previous year: totalled €9 million (previous year: €8 million). €48 million) is based on valuations by external, independent Consolidated financial statements > Notes 117 (13) Investments accounted for using the equity method Information on material and non-material investments in associates and joint ventures accounted for using the equity method is presented in the following summaries: Material investments accounted for using the equity method € million Balance sheet1 Non-current assets Current assets Non-current liabilities Current liabilities Share of equity2 Goodwill Carrying amounts Statement of comprehensive income1 Revenue Income Other comprehensive income Total comprehensive income Dividends (prorated) RWE shareholding 1 Figures based on shareholding of 100 % in KEH. 2 Figures based on proportional share of equity in KEH and KELAG. Amprion GmbH, Dortmund KELAG-Kärntner Elektrizitäts-AG / Kärntner Energieholding Beteiligungs GmbH, (KEH) Klagenfurt /Austria 31 Dec 2017 31 Dec 2016 31 Dec 2017 31 Dec 2016 3,607 2,609 1,092 3,238 474 3,062 2,092 648 2,627 472 474 472 1,626 1,607 370 874 277 354 198 552 318 837 261 341 198 540 12,418 12,210 1,320 1,383 142 – 25 117 28 25 % 142 – 8 134 21 25 % 90 – 4 86 20 90 – 6 84 30 49 % 49 % Amprion GmbH, headquartered in Dortmund, Germany, is a trans- mission system operator (TSO) for the electricity sector, pursuant to KELAG-Kärntner Elektrizitäts-AG, headquartered in Klagenfurt, Austria, is a leading Austrian energy supplier in the fields of elec- the German Energy Act (EnwG). Amprion’s main shareholder is a tricity, district heating and natural gas. Via innogy SE, RWE has a consortium of financial investors led by Commerz Real, a subsidiary share of 49 % in Kärntner Energieholding Beteiligungs GmbH (KEH), of Commerzbank. which is KELAG’s largest shareholder. 118 RWE Annual Report 2017 Non-material investments accounted for using the equity method Associates Joint ventures € million Income (pro-rata) Other comprehensive income Total comprehensive income Carrying amounts 31 Dec 2017 31 Dec 2016 31 Dec 2017 31 Dec 2016 172 – 78 94 203 10 213 1,317 1,403 59 – 22 37 503 115 14 129 494 The RWE Group holds shares with a book value of €97 million (pre- subject to temporary restrictions or conditions in relation to their vious year: €98 million) in associates and joint ventures, which are distributions of profits, due to provisions of loan agreements. (14) Other non-current financial assets Other non-current financial assets € million Non-consolidated subsidiaries Other investments Non-current securities 31 Dec 2017 31 Dec 2016 254 617 238 280 535 240 1,109 1,055 Non-current securities primarily consist of fixed-interest marketable of the Pre-Retirement Part-Time Work Act (AltTZG) and from the securities and shares of listed companies. Long-term securities management of long-term working hours accounts pursuant to Sec. amounting to €87 million and €12 million (previous year: €102 mil- 7e of the German Code of Social Law (SGB IV), respectively. This lion and €15 million) were deposited in a trust account for RWE AG coverage applies to the employees of RWE AG as well as to the and its subsidiaries, in order to cover credit balances stemming from employees of Group companies. the block model for pre-retirement part-time work, pursuant to Sec. 8a (15) Financial receivables Financial receivables € million Loans to non-consolidated subsidiaries and investments Collateral for trading activities Other financial receivables Accrued interest Miscellaneous other financial receivables 31 Dec 2017 31 Dec 2016 Non-current Current Non-current Current 237 122 359 5 1,051 117 572 1,745 249 154 403 5 719 86 661 1,471 Companies of the RWE Group deposited collateral for the trading For the miscellaneous other financial receivables, there is limited activities stated above for exchange-based and over-the-counter control in the amount of €260 million (previous year: €87 million) transactions. These are to guarantee that the obligations from the related to the financing of the pension commitments of three com- transactions are discharged even if the development of prices is not panies in the innogy segment. favourable for RWE. Regular replacement of the deposited collateral depends on the contractually agreed thresholds, above which collat- eral must be provided for the market value of the trading activities. Consolidated financial statements > Notes 119 (16) Other receivables and other assets Other receivables and other assets € million Derivatives Capitalised surplus of plan assets over benefit obligations Prepayments for items other than inventories CO2 emission allowances Miscellaneous other assets of which: financial assets of which: non-financial assets 31 Dec 2017 31 Dec 2016 Non-current Current Non-current 1,014 103 70 1,187 1,127 60 3,249 217 121 1,305 4,892 3,483 1,409 1,080 29 66 1,175 1,120 55 Current 5,414 305 208 1,491 7,418 5,699 1,719 The financial instruments reported under miscellaneous other assets basis differences’) in the amount of €441 million (previous year: are measured at amortised cost. Derivative financial instruments are €463 million), as it is neither probable that there will be any distri- stated at fair value. The carrying values of exchange-traded derivatives with netting agreements are offset. butions in the foreseeable future, nor will the temporary differences reduce in the foreseeable future. €4,135 million and €3,572 million (17) Deferred taxes Deferred tax assets and liabilities principally stem from the fact that measurements in the IFRS statements differ from those in the tax of the gross deferred tax assets and liabilities, respectively, will be realised within twelve months (previous year: €3,018 million and €2,764 million). bases. As of 31 December 2017, no deferred tax liabilities were recog- The following is a breakdown of deferred tax assets and liabilities nised for the difference between net assets and the carrying value by item: of the subsidiaries and associates for tax purposes (known as ‘outside Deferred taxes € million Non-current assets Current assets Exceptional tax items Non-current liabilities Provisions for pensions Other non-current liabilities Current liabilities Tax loss carryforwards Corporate income tax (or comparable foreign income tax) Trade tax Gross total Netting Net total 31 Dec 2017 31 Dec 2016 Assets 1,525 1,401 932 1,252 2,734 7,844 328 12 8,184 – 5,557 2,627 Liabilities 1,619 2,312 748 11 325 1,260 6,275 6,275 – 5,557 718 Assets 1,302 1,262 1 1,786 1,030 1,756 7,137 334 12 7,483 – 4,599 2,884 Liabilities 1,340 2,075 874 161 183 689 5,322 5,322 – 4,599 723 120 RWE Annual Report 2017 As of 31 December 2017, RWE reported deferred tax claims which results from the exercise of discretionary tax treatment options. exceeded the deferred tax liabilities by €417 million (previous year: Instead of the loss carryforwards that, as planned, are not usable, €370 million), in relation to companies which suffered a loss in the this causes future current tax write-downs to increase without the current or previous period. The basis for the formation of deferred current estimation of the planned unusability of these additional tax assets is the judgement of the management that it is likely that amounts changing in the foreseeable future. the companies in question will generate taxable earnings, against which unutilised tax losses and deductible temporary differences €2,440 million in corporate income tax loss carryforwards for which can be applied. no deferred tax claims have been recognised will primarily apply to the following nine years. The other loss carryforwards are also sub- The capitalised tax reduction claims from loss carryforwards result ject to time-limited deduction limitations (mostly up to nine years), from the expected utilisation of previously unused tax loss carryfor- but they are expected to be used within the legal time limits. wards in subsequent years. It is sufficiently certain that these tax carryforwards will be realised. deferred tax assets were recognised amounted to €12,185 million As of 31 December 2017, temporary differences for which no At the end of the reporting period, corporate income tax loss (previous year: €9,748 million). carryforwards and trade tax loss carryforwards for which no deferred tax claims have been recognised amounted to €2,513 million In the year under review, a deferred tax expense of €14 million and €344 million, respectively (previous year: €7,935 million and €3,139 million). The decline in these loss carryforwards mainly arising from the currency translation of foreign financial statements was offset against equity (previous year: €38 million). (18) Inventories Inventories € million Raw materials, incl. nuclear fuel assemblies and earth excavated for lignite mining Work in progress – goods /services Finished goods and goods for resale Prepayments 31 Dec 2017 31 Dec 2016 998 200 719 7 1,144 196 627 1 1,924 1,968 The carrying amount of inventories acquired for resale purposes was value and were deposited with clearing banks as collateral in the €58 million (previous year: €69 million). Of this, €44 million related amount of €185 million in the previous year. to gas inventories (previous year: €45 million), €10 million related to coal inventories (previous year: €18 million) and €4 million related (20) Cash and cash equivalents to biomass inventories (previous year: €6 million). The fair value of gas and coal inventories is determined every month on the basis of the current price curves of the relevant indices for gas (e.g. NCG) and coal (e.g. API#2). Biomass inventories are also measured at the end of each month, using the corresponding index prices depending on the location (e.g. ARA harbours). The valua- tions are based on prices which can be observed directly or indirect- ly (Level 2 of the fair value hierarchy). Differences between the fair value and the carrying value of inventories acquired for resale purpos- Cash and cash equivalents € million Cash and demand deposits 31 Dec 2017 31 Dec 2016 3,924 4,535 Marketable securities and other cash investments (maturity less than three months from the date of acquisition) 9 3,933 41 4,576 es are recognised on the income statement at the end of the month. RWE keeps demand deposits exclusively for short-term cash positions. (19) Marketable securities Of the current marketable securities, €4,065 million were fixed- interest creditworthiness criteria. Such criteria include their rating from one of the three renowned rating agencies – Moody’s, Standard & Poor’s marketable securities (previous year: €9,171 million) with a mat- and Fitch – their equity capital and the prices for credit default swaps. urity of more than three months from the date of acquisition, and As in the previous year, interest rates on cash and cash equivalents For cash investments, banks are selected on the basis of various €828 million were stocks and profit-participation certificates (pre- were at market levels in 2017. vious year: €654 million). Marketable securities are stated at fair Consolidated financial statements > Notes 121 (21) Equity A breakdown of fully paid-up equity is shown on page 92. The subscribed capital of RWE AG is structured as follows: Subscribed capital Common shares Preferred shares 31 Dec 2017 Number of shares 31 Dec 2016 Number of shares in ’000 575,745 39,000 614,745 in % 93.7 6.3 in ’000 575,745 39,000 in % 93.7 6.3 100.0 614,745 100.0 31 Dec 2017 Carrying amount € million 31 Dec 2016 Carrying amount € million 1,474 100 1,574 1,474 100 1,574 Common and preferred shares are no-par-value bearer share certifi- In fiscal 2017, RWE AG purchased a total of 340,960 RWE com- cates. Preferred shares have no voting rights. Under certain condi- mon shares for a purchase price of €7,634,911.49 on the capital tions, preferred shares are entitled to payment of a preference market. This is equivalent to €872,857.60 of the capital stock dividend of €0.13 per share, upon allocation of the company’s profits. (0.06 % of subscribed capital). Employees of RWE AG and its sub- sidiaries received a total of 340,920 common shares for capital Pursuant to a resolution passed by the Annual General Meeting on formation under the employee share plan and 40 common shares 16 April 2014, the Executive Board was authorised to increase the for service anniversaries. This generated total proceeds of company’s capital stock with the Supervisory Board’s approval by up €7,581,949.81. The differences to the purchase price were offset to €314,749,693.44 until 15 April 2019 through the issue of up to against freely available retained earnings. 122,949,099 bearer common shares in return for contributions in cash and /or in kind (approved capital). In certain cases, with the Furthermore, 4,080 RWE common shares were purchased on the approval of the Supervisory Board, the subscription rights of share- capital market by innogy SE for a purchase price of €74,822.64. holders can be excluded. This is equivalent to €10,444.80 of the capital stock (0.00066 % of subscribed capital). Employees of innogy SE and its subsidiaries re- Pursuant to a resolution passed by the Annual General Meeting on ceived 4,000 common shares for service anniversaries and a total of 16 April 2014, the Company was authorised until 15 April 2019 to 80 common shares for capital formation under the employee share plan. acquire any kind of shares of the Company up to a volume of 10 % This generated total proceeds of €67,171.02. The difference to the of the capital stock at the time when this authorisation becomes purchase price was recognised by innogy SE with an effect on expenses. effective, or if the following is lower, at the time when this authori- sation is exercised. Based on the authorisation, the Executive Board Pursuant to IAS 32, the following hybrid bond issued by Group is also authorised to cancel treasury shares without a further resolu- companies must be classified as equity. tion by the Annual General Meeting. Moreover, the Executive Board is authorised to transfer or sell such shares to third parties under certain conditions and excluding shareholders’ subscription rights. Furthermore, treasury shares may be issued to holders of option or convertible bonds. The Executive Board is also authorised to use the treasury shares to discharge obligations from future employee share schemes; in this regard, shareholders’ subscription rights shall be excluded. Hybrid bonds Issuer RWE AG Nominal value £750 million First call date 2019 Coupon in % p.a.1 7.0 1 Until the first call date. Proceeds from the bond issue were reduced by the capital procure- ment costs and added to equity, taking account of taxes. Interest No treasury shares were held as of 31 December 2017. payments to bondholders will be booked directly against equity, after deduction of taxes. Such payments can be deferred by the company; under certain circumstances, however, they must be made up again, for example if the Executive Board and Supervisory Board propose to the Annual General meeting that a dividend be paid. 122 RWE Annual Report 2017 As a result of equity capital transactions with subsidiary companies which did not lead to a change of control, the share of equity attrib- Dividend proposal We propose to the Annual General Meeting that RWE AG’s distribut- utable to RWE AG’s shareholders changed by a total of – €4 million able profit for fiscal 2017 be appropriated as follows: (previous year: €1,425 million) and the share of equity attributable to other shareholders changed by a total of – €15 million (previous Distribution of a dividend of €0.50 and a special dividend of €1.00 year: €1,162 million). In the previous year, the shares of the Group’s from the nuclear fuel tax refund per individual dividend-bearing equity attributable to RWE AG shareholders rose substantially due to common and preferred share. the difference between the consideration received for the shares sold and the carrying amount allocable to the shares sold within the Dividend scope of the IPO of innogy SE. Accumulated other comprehensive income reflects changes in the fair values of financial instruments available for sale, cash flow Profit carryforward Distributable profit €922,118,248.50 €97,501.60 €922,215,750.10 hedges and hedges of the net investment in foreign operations, Based on a resolution of RWE AG’s Annual General Meeting on as well as changes stemming from foreign currency translation 27 April 2017, the dividend for fiscal 2016 amounted to €0.13 per adjustments from foreign financial statements. dividend-bearing preferred share. Distribution for holders of com- mon shares was suspended. The dividend payment to shareholders of RWE AG amounted to €5 million. As of 31 December 2017, the share of accumulated other compre- hensive income attributable to investments accounted for using the equity method amounted to €11 million (previous year: €26 million). During the reporting year, €13 million in differences from currency translation which had originally been recognised without an effect on income were realised as an expense (previous year: income of €1 million). Income and expenses of investments accounted for using the equity method which had previously been recognised pro rata without an effect on income were realised in the amount of €0 million as an expense (previous year: €2 million) during the year under review. Consolidated financial statements > Notes 123 Non-controlling interests The share ownership of third parties in Group entities is presented in this item. The income and expenses recognised directly in equity (other comprehensive income – OCI) include the following non-controlling interests: Non-controlling interests in OCI € million Actuarial gains and losses of defined benefit pension plans and similar obligations Pro-rata income and expenses of investments accounted for using the equity method Income and expenses recognised directly in equity, not to be reclassified through profit or loss Currency translation adjustment Fair valuation of financial instruments available for sale Fair valuation of financial instruments used for hedging purposes Pro-rata income and expenses of investments accounted for using the equity method Income and expenses recognised directly in equity, to be reclassified through profit or loss in the future Material non-controlling interests of the innogy Group: Subsidiaries with material non-controlling interests € million Balance sheet Non-current assets Current assets Non-current liabilities Current liabilities Statement of comprehensive income Revenue Other comprehensive income Total comprehensive income Cash flows from operating activities Non-controlling interests Dividends paid to non-controlling interests Income of non-controlling interests Shareholdings of non-controlling interests In addition to the 23.2 % share accounted for by non-controlling interests disclosed, there are also non-controlling interests in sub- sidiaries of innogy SE. 2017 165 – 14 151 35 5 − 2 – 3 35 186 2016 182 − 29 153 − 219 18 2 6 − 193 − 40 innogy Group 31 Dec 2017 31 Dec 2016 36,502 10,312 22,913 12,649 41,119 722 1,871 2,654 4,135 469 492 23.2 % 36,239 10,651 24,442 11,781 41,549 − 457 1,329 2,674 3,997 231 219 23.2 % 124 RWE Annual Report 2017 (22) Share-based payment For executives of RWE AG and innogy SE as well as of subordinate innogy SE. Executives receive a number of conditionally granted vir- tual shares (performance shares). The final number of virtual shares affiliates, Long Term Incentive Plans (LTIPs) are in place as share- in a tranche is determined based on the achievement of the adjust- based payment systems known as Strategic Performance Plans ed net income target. Each of the issued LTIP SPP tranches has a (SPPs) and the predecessor model Beat 2010, which is being phased term of four years before payment is possible. The prerequisite for out. The expenses associated with these are borne by the Group participating in the plan was the renouncement of the options of companies which employ the persons holding notional stocks. the predecessor model Beat 2010 which had not yet lapsed. The This LTIP SPP was introduced in 2016. It uses an internal performance tions. The plan has expired with the exception of some immaterial large majority of the participants made such renouncement declara- target (adjusted net income) derived from the mid-term planning and remaining components. takes into account the development of share prices of RWE AG and RWE AG SPP Start of term Number of conditionally granted performance shares Term 2016 tranche 1 Jan 2016 486,436 4 years 2017 tranche 1 Jan 2017 1,338,027 4 years Performance target Adjusted net income Adjusted net income Cap/number of performance shares Cap/payment amount Determination of payment Change in corporate control/merger 150 % 200 % 150 % 200 % The payment amount is calculated on the basis of the determined number of performance shares multiplied by the sum of a) the mathematical average of the closing share price of the RWE common share (ISIN DE 000703129), with all available decimal places, in Xetra trading of Deutsche Börse AG (or a successor trading system which subsequently takes the place of the Xetra system) for the last 30 trading days prior to the end of the vesting period rounded according to standard commercial practice to two decimal places, and b) the dividend paid per share for the fiscal years between the determination of the final number of perfor- mance shares and the end of the vesting period. Dividends do not bear interest and are not reinvested. If a dividend payment occurs during the 30-day period for calculating the share price in accordance with item a), the share prices of the trading days leading up to the payment (CUM share prices) are adjusted by the dividend, as the dividend would otherwise be considered twice. Payment amount = (number of finally granted performance shares) x (mathematical average of the share price + dividends paid) The payment amount calculated in this manner is limited to no more than 200 % of the grant amount. A change in corporate control (‘change of control’) shall occur if a) a shareholder gains control in accordance with Sec. 29 of the German Securities Acquisition and Takeover Act (WpÜG) by holding at least 30 % of the voting rights including third-party voting rights attributable to it in accordance with Sec. 30 WpÜG, or b) a control agreement in accordance with Sec. 291 of the Stock Corporation Act (AktG) is concluded with RWE AG as the dependent company, or c) RWE AG is merged with another legal entity that does not belong to the Group in accordance with Sec. 2 of the German Company Transformation Act (UmwG), unless the value of the other legal entity is less than 50 % of the value of RWE AG based on the agreed conversion rate; in such a case, item a) shall not apply. In the event of a change of control, all of the performance shares which have been fully granted and have not been paid out shall be paid out early. The payment amount is determined according to the exercise con- ditions, with the deviation that the last 30 trading days prior to the announcement of the change in control is to be used; plus the dividends paid per share in the fiscal years between the determination of the final number of performance shares and the time of the change in control. The payment amount calculated in this manner shall be paid to the plan participant together with his or her next salary payment. All conditionally granted performance shares as of the effective date of the change of control shall lapse without consideration. Form of settlement Payment date Cash settlement Cash settlement 2020 2021 Consolidated financial statements > Notes 125 innogy SE SPP Start of term Number of conditionally granted performance shares Term 2016 tranche 1 Jan 2016 352,834 4 years 2017 tranche 1 Jan 2017 1,178,133 4 years Performance target Adjusted net income Adjusted net income Cap/number of performance shares Cap/payment amount Determination of payment Change in corporate control/merger 150 % 200 % 150 % 200 % The payment amount is calculated on the basis of the determined number of finally granted performance shares multiplied by the sum of a) the mathematical average of the closing share price (including all available decimal places) of the innogy SE share (ISIN DE 000A2AADD2) in Deutsche Börse AG’s Xetra trading (or a successor trading system which subsequently takes the place of the Xetra system) for the last 30 trading days prior to the end of the vesting period rounded to two decimal places according to standard commercial practice and b) the dividends paid per share for the fiscal years between the determination of the final number of per- formance shares and the end of the vesting period. Dividends do not bear interest and are not reinvest- ed. If a dividend payment occurs during the 30-day period for calculating the share price in accordance with item a), the share prices of the trading days leading up to the payment (CUM share prices) are ad- justed by the dividend, as the dividend would otherwise be considered twice. Payment amount = (number of finally granted performance shares) x (mathematical average of the share price + dividends paid) The payment amount calculated in this manner is limited to no more than 200 % of the grant amount. A change in corporate control (‘change of control’) shall occur if a) a shareholder obtains control in the sense of Sec. 29 of the German Securities Acquisition and Takeover Act (WpÜG) by acquiring at least 30 % of the voting right, including the voting rights of third parties which can be attributed to the shareholder pursuant to Sec. 30 of WpÜG, whereby RWE AG or an RWE Group company may no longer have control in the sense of Sec. 29 of WpÜG (30 % of the voting rights), or b) a control agreement in accordance with Sec. 291 of the Stock Corporation Act (AktG) is concluded with a company which is not part of the RWE Group with innogy SE as the dependent company, or c) innogy SE is merged with another legal entity that does not belong to the Group in accordance with Sec. 2 of the German Company Transformation Act (UmwG), unless the value of the other legal entity is less than 50 % of the value of innogy SE based on the agreed conversion rate; in such a case, item a) shall not apply. In the event of a change of control, all of the performance shares which have been fully granted and have not been paid out shall be paid out early. The payment amount is determined according to the exercise con- ditions, with the deviation that the last 30 trading days prior to the announcement of the change in control is to be used; plus the dividends paid per share in the fiscal years between the determination of the final number of performance shares and the time of the change in control. The payment amount calculated in this manner shall be paid to the plan participant together with his or her next salary payment. All conditionally granted performance shares as of the effective date of the change of control shall lapse without consideration. Form of settlement Payment date Cash settlement Cash settlement 2020 2021 126 RWE Annual Report 2017 The fair value of the performance shares conditionally granted un- der SPP included the following sums on the grant date: Performance Shares from the RWE AG SPP € 2016 tranche 2017 tranche Fair value per share 13.78 11.62 Performance Shares from the innogy SE SPP € 2016 tranche 2017 tranche Fair value per share 37.13 32.07 The fair values of the tranches are based on RWE AG’s/innogy SE’s granted SPP (= option strike) established in the plan conditions, the current share price plus the dividends per share which have already discount rates relative to the remaining term as well as the volatili- been paid to the shareholders during the term of the corresponding ties and expected dividends of RWE AG/innogy SE were considered in tranche. The limited payment per SPP was implemented via a sold determining the option price. The performance shares displayed the call option. The option value calculated using the Black Scholes following development in the fiscal year that just came to a close Model was deducted. The maximum payments per conditionally Performance Shares from the RWE AG SPP 2016 tranche 2017 tranche Outstanding at the start of the fiscal year Granted Change (granted/expired) Paid out 486,436 – 40,401 1,338,027 Outstanding at the end of the fiscal year 446,035 1,338,027 Payable at the end of the fiscal year Performance Shares from the innogy SE SPP 2016 tranche 2017 tranche Outstanding at the start of the fiscal year Granted Change (granted/expired) Paid out 352,834 107,738 1,178,133 Outstanding at the end of the fiscal year 460,572 1,178,133 Payable at the end of the fiscal year During the period under review, expenses for the share-based pay- ment system totalled €19 million (previous year: €5 million). As of the balance-sheet date, provisions for cash-settled share-based payment programmes amounted to €25 million (previous year: €6 million). Consolidated financial statements > Notes 127 (23) Provisions Provisions € million Provisions for pensions and similar obligations Provisions for nuclear waste management Provisions for mining damage Other provisions Staff-related obligations (excluding restructuring) Restructuring obligations Provisions for taxes Purchase and sales obligations Provisions for dismantling wind farms Other dismantling and retrofitting obligations Environmental protection obligations Interest payment obligations Obligations to deliver CO2 emission allowances/certificates for renewable energies Miscellaneous other provisions 31 Dec 2017 31 Dec 2016 Non-current Current Total Non-current Current 5,420 5,725 2,263 13,408 723 234 1,620 1,208 359 587 108 398 604 5,841 19,249 280 60 340 844 83 349 321 1 78 38 11 1,600 1,472 4,797 5,137 5,420 6,005 2,323 6,761 5,404 2,288 13,748 14,453 1,567 317 1,969 1,529 360 665 146 409 1,600 2,076 10,638 24,386 430 914 1,643 1,219 334 465 123 391 714 6,233 7,295 75 7,370 633 220 312 289 34 19 41 1,627 1,630 4,805 20,686 12,175 Total 6,761 12,699 2,363 21,823 1,063 1,134 1,955 1,508 334 499 142 432 1,627 2,344 11,038 32,861 Provisions for pensions and similar obligations. The company pension plan consists of defined contribution and employer and employees. In the event that RWE terminates the ABP pension plan, ABP will charge a termination fee. Amongst other defined benefit plans. The defined benefit commitments mainly things, this depends on the number of participants in the plan, the relate to pension benefits based on final salary. amount of salary and the age structure of the participants. As of 31 December 2017, we had around 2,000 active participants in the In the reporting period, €45 million (previous year: €44 million) plan ( previous year: approximately 2,100). was paid into defined contribution plans. This includes payments made by RWE for a benefit plan in the Netherlands which covers the RWE transferred assets to RWE Pensionstreuhand e.V. within the commitments of various employers. This fund does not provide the framework of a contractual trust arrangement (CTA) in order to participating companies with information allowing for the pro-rata finance the pension commitments of German Group companies. allocation of defined benefit obligations, plan assets and service There is no obligation to provide further funds. From the assets held cost. In the consolidated financial statements, the contributions in trust, funds were transferred to RWE Pensionsfonds AG to cover are thus recognised analogously to a defined contribution plan, pension commitments to most of the employees who have already although this is a defined benefit plan. The pension plan for em- retired. RWE Pensionsfonds AG falls under the scope of the Act on ployees in the Netherlands is administered by Stichting Pensioen- the Supervision of Insurance Undertakings and oversight by the Fede- fonds ABP (see www.abp.nl/). Contributions to the pension plan ral Financial Supervisory Agency (BaFin). Insofar as a regulatory defi- are calculated as a percentage rate of employees’ salaries and are cit occurs in the pension fund, supplementary payment shall be paid by the employees and employers. The rate of the contributions requested from the employer. Independently of the aforementioned is determined by ABP. There are no minimum funding obligations. rules, the liability of the employer shall remain in place. The boards Approximately €20 million in employer contributions will be paid to of RWE Pensionstreuhand e.V. and RWE Pensionsfonds AG are the ABP pension fund in fiscal 2018 (previous year: €16 million). The responsible for ensuring that the funds under management are used contributions are used for all of the beneficiaries. If ABP’s funds are in compliance with the contract and thus fulfil the requirements for insufficient, it can either curtail pension benefits and future recognition as plan assets. post-employment benefits, or increase the contributions of the 128 RWE Annual Report 2017 In the United Kingdom, it is legally mandated that defined benefit The last technical valuations of the RWE and innogy ESPS sections plans are provided with adequate and suitable assets to cover were carried out on 31 March 2016. In sum, they showed a financ- pension obligations. The corporate pension system in the United ing deficit of £574.6 million. RWE, innogy and the trustees subse- Kingdom is managed by the sector-wide Electricity Supply Pension quently prepared a plan for annual payments to rectify this deficit. Scheme (ESPS), in which RWE and innogy each have their own These payments were calculated for the period from 2017 to 2025. dedicated independent sections. The sections are managed by trustees The amounts determined were as follows: £106 million for 2017, which are elected by members of the pension plans or appointed £76 million annually for 2018 to 2021, and £39.6 million annually by the funding companies. The trustees are responsible for managing for 2022 to 2025. In October 2016, an early payment in a nominal the pension plans. This includes investments, pension payments and amount of £45.4 million was made. The next valuation has to occur financing plans. The pension plans comprise the benefit obligations by 31 March 2019. From this point in time, the company and the and plan assets for the subsidiaries of the innogy Group and the trustees have 15 months to approve the technical valuation. RWE Group. It is required by law to assess the required financing of the pension plans once every three years. This involves measuring The payments to settle the deficit are charged to the participating pension obligations on the basis of conservative assumptions, which companies on the basis of a contractual agreement. Above and deviate from the requirements imposed by IFRS. The underlying beyond this, payments are regularly made to finance the newly actuarial assumptions primarily include the projected life expectancies arising benefit obligations of active employees which increase of the members of the pension plans as well as assumptions the pension claims. relating to inflation, imputed interest rates and the market returns on the plan assets. Provisions for defined benefit plans are determined using actuarial methods. We apply the following assumptions: Calculation assumptions in % Discount rate Wage and salary growth rate Pension increase rate 31 Dec 2017 31 Dec 2016 Germany Foreign 1 Germany 2.00 2.35 2.30 3.20 1.80 2.35 Foreign 1 2.50 3.30 1.00, 1.60 and 1.75 2.10 and 3.00 1.00, 1.60 and 1.75 2.20 and 3.10 1 Pertains to benefit commitments to employees of the RWE Group in the UK. Composition of plan assets (fair value) 31 Dec 2017 31 Dec 2016 € million Equity instruments, exchange-traded funds Interest-bearing instruments Real estate Mixed funds 3 Alternative investments Other 4 Of which: Level 1 pursuant to IFRS 13 1,699 Of which: Level 1 pursuant to IFRS 13 254 2,109 Foreign 2 662 4,793 364 544 102 922 193 8 Of which: Level 1 pursuant to IFRS 13 3,145 Of which: Level 1 pursuant to IFRS 13 761 2,458 Foreign 2 761 4,653 800 936 100 988 169 7 Germany 1 3,225 6,603 50 1,427 1,345 381 Germany 1 3,559 6,874 17 1,326 1,412 241 13,429 2,709 6,570 2,371 13,031 4,981 6,571 3,226 1 Plan assets in Germany primarily pertain to assets of RWE AG and other Group companies which are managed by RWE Pensionstreuhand e.V. as a trust, as well as to assets of RWE Pensionsfonds AG. 2 Foreign plan assets pertain to the assets of two UK pension funds for covering benefit commitments to employees of the RWE Group in the UK. 3 Includes equity and interest-bearing instruments. 4 Includes reinsurance claims against insurance companies and other fund assets of provident funds. Consolidated financial statements > Notes 129 The investment policy in Germany is based on a detailed analysis of term. Furthermore, in order to achieve consistently high returns, there the plan assets and the pension commitments and the relation of is also investment in products which offer relatively regular positive these two items to each other, in order to determine the best possi- returns over time. This involves products with returns which fluctu- ble investment strategy (Asset Liability Management Study). Using ate similar to those of bond investments, but which achieve an addi- an optimisation process, portfolios are identified which can earn the tional return over the medium term, such as so-called absolute return best targeted results at a defined level of risk. One of these efficient products (including funds of hedge funds). portfolios is selected and the strategic asset allocation is determined; furthermore, the related risks are analysed in detail. In the United Kingdom, the capital investment takes account of the structure of the pension obligations as well as liquidity and risk mat- The focus of the strategic investment policy is on domestic and foreign ters. The goal of the investment strategy in this context is to main- government bonds. In order to increase the average yield, corporate tain the level of pension plan funding and ensure the full financing bonds with a higher yield are also included in the portfolio. The ratio of the pension plans over time. To reduce financing costs, higher-risk of equities in the portfolio is lower than that of bonds. Investment investments are also made, with a view to earning surplus returns. occurs in various regions. The investment position in equities is in- The capital investment focusses on government and corporate bonds. tended to earn a risk premium over bond investments over the long Pension provisions for pension commitments changed as follows: Changes in pension provisions € million Balance at 1 Jan 2017 Current service cost Interest cost/income Return on fund assets less interest components Gain/loss on change in demographic assumptions Gain/loss on change in financial assumptions Experience-based gains/losses Currency translation adjustments Employee contributions to funded plans Employer contributions to funded plans 1 Benefits paid by funded plans 2 Changes in the scope of consolidation/transfers Past service cost General administration expenses Change in capitalised surplus of plan assets Balance at 31 Dec 2017 of which: domestic of which: foreign Present value of pension commitments Fair value of plan assets Capitalised surplus of plan assets 26,334 325 501 – 145 – 528 – 89 – 246 12 – 1,069 278 – 57 25,316 18,613 6,703 19,602 29 381 744 – 233 12 476 – 980 3 – 6 19,999 13,429 6,570 74 103 103 Total 6,761 325 120 – 744 – 145 – 528 – 89 – 13 – 476 – 89 275 – 57 6 74 5,420 5,287 133 1 Of which: €190 million from initial and subsequent transfers to plan assets and €286 million in cash flows from operating activities. 2 Contained in cash flows from operating activities. 130 RWE Annual Report 2017 Changes in pension provisions € million Balance at 1 Jan 2016 Current service cost Interest cost /income Return on fund assets less interest components Gain /loss on change in demographic assumptions Gain /loss on change in financial assumptions Experience-based gains /losses Currency translation adjustments Employee contributions to funded plans Employer contributions to funded plans 1 Benefits paid by funded plans 2 Changes in the scope of consolidation Past service cost General administration expenses Change in capitalised surplus of plan assets Balance at 31 Dec 2016 of which: domestic of which: foreign Present value of pension commitments Fair value of plan assets Capitalised surplus of plan assets 24,804 290 632 110 3,031 − 664 − 1,064 13 − 1,037 278 − 59 26,334 19,266 7,068 18,977 15 498 1,409 − 970 13 637 − 953 − 9 19,602 13,031 6,571 14 29 29 1 Of which: €382 million from initial and subsequent transfers to plan assets and €255 million in cash flows from operating activities. 2 Contained in cash flows from operating activities. Changes in the actuarial assumptions would lead to the following changes in the present value of the defined benefit obligations: Sensitivity analysis of pension provisions € million Change in the discount rate by + 50 /− 50 basis points – In Germany – Outside Germany Change in the wage and salary growth rate by − 50 /+ 50 basis points – In Germany – Outside Germany Change in the pension increase rate by − 50 /+ 50 basis points – In Germany – Outside Germany Increase of one year in life expectancy – In Germany – Outside Germany Change in the present value of defined benefit obligations 31 Dec 2017 31 Dec 2016 – 1,370 – 485 – 151 – 61 – 937 – 350 − 1,418 − 522 − 151 − 65 − 991 − 380 1,554 554 158 71 1,027 394 772 245 Total 5,842 290 134 − 1,409 110 3,031 − 664 − 94 − 637 − 84 278 − 59 9 14 6,761 6,264 497 1,602 596 159 76 1,087 416 779 260 Consolidated financial statements > Notes 131 The sensitivity analyses are based on the change of one assumption In fiscal 2017, past service costs predominantly consisted of effects each, with all other assumptions remaining unchanged. Actual related to restructuring measures in Germany and the remeasurement developments will probably be different than this. The methods of of one of our pension schemes. In the previous year, the past service calculating the aforementioned sensitivities and for calculating the cost was primarily based on restructuring measures in Germany. pension provisions are in agreement. The dependence of pension provisions on market interest rates is limited by an opposite effect. Domestic company pensions are subject to an obligation to review The background of this is that the commitments stemming from for adjustment every three years pursuant to the Act on the company pension plans are primarily covered by funds, and mostly Improvement of Company Pensions (Sec 16 of the German Company plan assets exhibit negative correlation with the market yields of Pension Act (BetrAVG)). Additionally, some commitments grant fixed-interest securities. Consequently, declines in market interest annual adjustments of pensions, which may exceed the legally rates are typically reflected in an increase in plan assets, whereas mandated adjustment obligation. rising market interest rates are typically reflected in a reduction in plan assets. Some domestic pension plans guarantee a certain pension level, taking into account the statutory pension (total retirement earnings The present value of pension obligations, less the fair value of the schemes). As a result, future reductions in the statutory pension can plan assets, equals the net amount of funded and unfunded pension result in higher pension payments by RWE. obligations. The recognised amount of pension provisions totalled €3,694 million The weighted average duration of the pension obligations was 16 years in Germany (previous year: 16 years) and 16 years outside for funded pension plans (previous year: €4,883 million) and of Germany (previous year: 16 years). €1,726 million for unfunded pension plans (previous year: €1,878 million). In fiscal 2018, payments for defined benefit plans are expected to amount to €400 million (previous-year target: €500 million), as direct benefits and payments into plan assets. Provisions for nuclear energy and mining Balance at 1 Jan 2017 Additions Unused amounts released Interest accretion Amounts used Balance at 31 Dec 2017 Changes in the scope of consoli- dation, currency adjustments, transfers € million Provisions for nuclear waste management Provisions for mining damage 12,699 2,363 15,062 469 75 544 − 111 − 111 24 109 133 − 7,187 − 69 − 7,256 − 44 − 44 6,005 2,323 8,328 Provisions for nuclear waste management are recognised in the full amount for the nuclear power plants Biblis A and B, Mülheim- €24.1 billion into the fund. RWE’s share totalled €6.8 billion, con- sisting of the base amount pursuant to the German Nuclear Waste Kärlich, Emsland and Lingen, and at a rate of 75 % for the nuclear Disposal Fund Act plus €5.0 billion in interest as well as a 35.47 % power plant Gundremmingen A, B and C, in accordance with RWE’s risk surcharge in the amount of €1.8 billion. The obligation reported share in the nuclear obligations. Provisions for waste disposal for the under provisions for nuclear waste management in the balance Dutch nuclear power plant Borssele are included at a rate of 30 %, in sheet is somewhat higher, at €7.0 billion, because it included obli- line with RWE’s stake. gations resulting from E.ON’s minority share in the Emsland nuclear power plant, which was attributable to E.ON in an economic sense. The law on the restructuring of responsibilities for nuclear waste disposal was enacted on 16 June 2017. According to the law, the RWE’s remaining provisions for nuclear waste disposal are almost Federal government is responsible for handling and financing the exclusively reported as non-current provisions, and their settlement intermediate and final storage of radioactive waste, while responsi- amount is discounted to the balance-sheet date. Based on the cur- bility for the decommissioning and dismantling of the facilities and rent state of planning, we will use most of these provisions by 2045. packing of the radioactive waste remains with the companies. The The discount rate calculated on the basis of the current level of responsibilities transferred to the Federal government are financed market interest rates was 0.6 % as of the balance-sheet date (previous from a fund, which is paid into by the plant operators. On 3 July 2017, year: 0.4 %). The escalation rate based on expectations with regard the nuclear power plant operators paid the full funding sum of to general increases in wages and prices, and productivity growth 132 RWE Annual Report 2017 was 1.5 % (previous year: 1.3 %). As a result, the real discount rate The provisions of the law on the reassignment of responsibility for used for nuclear waste management purposes, which is the differ- nuclear waste disposal stipulates that accountability for the ence between the discount rate and the escalation rate, amounted shutdown and dismantling of the assets as well as for packaging to – 0.9 % (previous year: – 0.9 %). An increase ( decrease) in this rate radioactive waste remains with the companies. The shutdown and by 0.1 percentage point would reduce ( increase) the present value dismantling process encompasses all activities following the final of the provision by roughly €50 million. termination of production by the nuclear power plant until the plant site is removed from the regulatory scope of the Nuclear Energy Act. Excluding the interest accretion, additions to provisions for nuclear Actual dismantling begins after a several-year post-operation phase, waste management amount to €469 million (previous year: €1,851 mil- during which the fuel assemblies, operating equipment and radio- lion). Besides quantity- related increases in the provisions, additions active operational waste are removed from the facility and the approval to provisions are due to the fact that the current estimates resulted process is completed. Dismantling operations essentially consist of in a net increase in the anticipated nuclear waste management the dismantling of the facilities, removal of the radio active contami- costs. The interest accretion in the additions to provisions for nuclear nation from the structures, radiation protection, and regulatory waste management amounted to €24 million (previous year: monitoring of the dismantling measures and residual operations. €1,303 million). Of the changes in provisions, €272 million (previous year: €349 million) was capitalised under the corresponding costs Provisions for the residual operation of nuclear power station facili- of nuclear power plants and fuel elements still in operation. Prepay- ties that cover all steps that must be taken largely independent of ments for services in the amount of €8 million (previous year: €166 million) were deducted from these provisions. In the reporting dismantling and disposal but are necessary to ensure that the assets are safe and in compliance with permits or are required by the author- period, we also used provisions of €131 million for the decommis- ities are stated separately. In addition to works monitoring and facility sioning of nuclear power plants (previous year: €135 million). Decom- protection, these mainly include radiation and fire protection as well missioning and dismantling costs had originally been capitalised in a as infrastructural adjustments. corresponding amount and reported under the cost of the power plants. The German Nuclear Energy Act (AtG) requires RWE to harmlessly clude all work done to dismantle plants, parts of plants, systems and dispose of radioactive materials and dismantled or decommissioned components as well as on buildings that must be dismantled to radioactive components of facilities or to properly dispose of such comply with the Nuclear Energy Act. They also consider the conven- as radioactive waste (final direct storage). We took the transfer of tional dismantling of nuclear power plant facilities to fulfil legal or Provisions for the dismantling of nuclear power plant facilities in- the obligation to implement and finance the interim and final other obligations. storage of nuclear waste as an occasion to subdivide our remaining provisions for nuclear waste management. In the future, we will Provisions for residual material processing and waste management structure them to reflect the residual operation of nuclear power include the costs of processing radioactive operational waste pro- plants, the dismantling of nuclear power station facilities as well duced during the plant’s service life and that will be produced by as the cost of residual material processing and radioactive waste dismantling operations. This includes the various processes for treatment facilities. Provisions for nuclear waste management € million Residual operation Dismantling Processing of residual material and waste management 31 Dec 2017 31 Dec 2016 waste to third parties commissioned by the Federal government for conditioning, packaging of the low-level and intermediate-level radio- active waste in suitable containers and the transportation of such 2,577 1,766 1,662 6,005 2,195 1,673 8,831 12,699 intermediate storage. This item also contains the cost of transport- ing the waste produced by recycling and the cost of the proper pack- aging of spent nuclear fuel elements, i.e. the cost of loading and procuring freight and interim storage containers. In the previous year, this item also included the amount transferred to the fund. Consolidated financial statements > Notes 133 Commissioned by the plant operator, the internationally renowned company NIS Ingenieurgesellschaft mbH (NIS), Alzenau, assesses the Provisions for mining damage also consist almost entirely of non-current provisions. They are reported at the settlement amount prospective residual operation and dismantling costs for the nuclear discounted to the balance-sheet date. In addition to continuous power plants on an annual basis. The costs are determined specifi- recultivation of opencast mine sites until 2045, this is expected to cally for each facility and take into consideration the current state of cover a large part of the claims for site restoration of lignite open- the art, regulatory requirements and previous practical experience cast mining areas for the period 2030 to 2100. The cost estimates from ongoing and completed dismantling projects. Additionally, cur- are to a great extent based on external expert opinions. rent developments are also incorporated into the cost calculations. They also include the cost of conditioning and packaging radioactive Due to the long-term nature of the obligations, both the escalation waste generated during dismantling operations and the transporta- rate and the discount rate are determined as the average values for tion of such waste to third parties commissioned by the Federal gov- a longer period in the past. Since the development of inflation has ernment for intermediate storage. In addition, further cost estimates an impact both on the fulfilment amounts and the level of interest for the disposal of radioactive waste are based on contracts with rates, this approach results in a consistent real discount rate specific foreign reprocessing companies and other disposal companies. Further- to the provisions, as the difference between the discount rate and more, they are based on plans by internal and external experts, in the escalation rate. Due to developments in long-term interest rates particular GNS Gesellschaft für Nuklear-Service mbH, (GNS) Essen. on the capital markets, the discount rate was lowered from 4.4 % to In terms of their contractual definition, provisions for nuclear waste management break down as follows: into consideration anticipated future increases in costs and prices, as well as a risk premium, declined to the same degree, from 3.1 % 4.2 % in the 2017 reporting year. The escalation rate, which takes Provisions for nuclear waste management € million Provisions for nuclear obligations, not yet contractually defined Provisions for nuclear obligations, contractually defined 31 Dec 2017 31 Dec 2016 is the difference between the discount rate and the escalation rate, to 2.9 %. The real discount rate applied for mining purposes, which thus remained unchanged at 1.3 %. An increase (decline) in the real discount rate by 0.1 percentage point would reduce (increase) 4,453 4,046 the present value of the provision by around €70 million. 1,552 6,005 8,653 12,699 Excluding the interest accretion, additions to provisions for mining damage amounted to €75 million (previous year: €154 million) in the reporting period. The reason for this was quantity-induced increases in the obligatory volume, of which €48 million (previous The provision for obligations which are not yet contractually defined year: €108 million) was capitalised under ‘Property, plant and equip- covers the costs of the remaining operational phase of the operat- ment’. Releases of provisions in the amount of €111 million (pre- ing plants, the costs of dismantling as well as the residual material vious year: €203 million) resulted in part from the fact that current processing and waste treatment costs incurred in connection with estimates led to a reduction in the anticipated costs of restoration. waste produced as a result of shutdowns. The interest accretion increased provisions for mining damage by €109 million (previous year: €99 million). Provisions for contractually defined nuclear obligations relate to all obligations the value of which is specified in contracts under civil law. The obligations include the anticipated residual costs of repro- cessing and returning the resulting radioactive waste. These costs stem from existing contracts with foreign reprocessing companies and with GNS. Moreover, these provisions also include the costs for transport and intermediate storage containers for and the loading of spent fuel assemblies within the framework of final direct storage. Furthermore, this item also includes the amounts for the professional packaging of radioactive operational waste as well as the in-house personnel costs incurred for the residual operation of plants which are permanently decommissioned. The previous year’s figure also included the sum transferred to the fund. 134 RWE Annual Report 2017 Other provisions Balance at 1 Jan 2017 Additions Unused amounts released Interest accretion Amounts used Balance at 31 Dec 2017 Changes in the scope of consoli- dation, currency adjust- ments, transfers € million Staff-related obligations (excluding restructuring) Restructuring obligations Provisions for taxes Purchase and sales obligations Provisions for dismantling wind farms Other dismantling and retrofitting obligations Environmental protection obligations Interest payment obligations Obligations to deliver CO2 emission allowances/ certificates for renewable energies Miscellaneous other provisions 1,063 1,134 1,955 1,508 334 499 142 432 1,627 2,344 11,038 719 119 347 591 11 62 8 14 1,814 685 4,370 − 24 − 39 − 76 − 349 − 29 − 22 − 4 − 26 − 219 − 788 − 3 1 − 4 49 33 1 − 22 55 576 − 855 8 6 − 5 114 1 − 40 − 175 − 370 − 764 − 43 − 265 − 223 – 21 – 2 − 11 − 1,801 − 537 − 3,667 1,567 317 1,969 1,529 360 665 146 409 1,600 2,076 10,638 Provisions for taxes primarily consist of income taxes. for restructuring obligations to provisions for staff-related obliga- tions as soon as the underlying restructuring measure has been Provisions for staff-related obligations mainly consist of provisions for pre-retirement part-time work arrangements, severance, out- specified. This is the case if individual contracts governing socially acceptable payroll downsizing are signed by affected employees. standing vacation and service jubilees and performance-based pay components. Based on current estimates, we expect most of these to be used from 2018 to 2025. Provisions for purchase and sales obligations primarily relate to contingent losses from pending transactions. Provisions for restructuring obligations pertain mainly to meas- ures for socially acceptable payroll downsizing. We currently expect most of these to be used from 2018 to 2025. In so doing, sums earmarked for personnel measures are reclassified from provisions From the current perspective, it is expected that the majority of the provisions for the dismantling of wind farms will be used from 2020 to 2037, and the other dismantling and retrofitting obliga- tions are expected to be used from 2018 to 2060. (24) Financial liabilities Financial liabilities € million Bonds payable1 Commercial paper Bank debt Other financial liabilities Collateral for trading activities Miscellaneous other financial liabilities 1 Including hybrid bonds classified as debt as per IFRS. 31 Dec 2017 31 Dec 2016 Non-current Current Non-current Current 12,059 1,333 1,022 14,414 990 456 261 389 691 2,787 13,619 1,434 988 16,041 100 532 236 569 705 2,142 Consolidated financial statements > Notes 135 €12,633 million of the non-current financial liabilities were interest- In October 2017, RWE AG bought back a nominal €585 million in bearing liabilities (previous year: €14,859 million). hybrid bonds outstanding as part of a hybrid bond buyback pro- gramme. The partial repurchase was allocated as follows: The legal transfer of RWE AG’s liabilities arising from senior bonds to innogy SE was completed successfully at the end of February 2017. • €161 million to the bond with an earliest call date in 2020 As a result, innogy SE replaced RWE AG as guarantor of the publicly • €268 million to the bond with an earliest call date in 2025 placed bonds and as debtor of the privately placed bonds. Loans of • US$183 million to the bond with an earliest call date in 2026 €645 million and £350 million granted us by the European Investment Bank (EIB) were also transferred by RWE AG to innogy SE via a debt- innogy issued its first senior bond on 5 April 2017. The bond has a or exchange in the middle of July 2017. volume of €750 million, a tenor of eight years, and a coupon of 1 %. innogy placed a further bond on 12 October 2017 – a green bond At the earliest possible dates, RWE AG cancelled and redeemed a with a volume of €850 million, a tenor of ten years, and a coupon of hybrid bond of CHF 250 million at the beginning of April 2017, of 1.25 %. innogy SE redeemed a €100 million mature bond in Novem- CHF 150 million at the end of July 2017, and of US$1,000 million in ber 2017. the middle of October 2017. The following overview shows the key data on the major bonds of the RWE Group as of 31 December 2017: Bonds payable Issuer innogy Finance B.V. innogy Finance B.V. innogy Finance B.V. innogy Finance B.V. innogy Finance B.V. innogy Finance B.V. innogy Finance B.V. innogy Finance B.V. innogy Finance B.V. innogy Finance B.V. innogy Finance B.V. innogy Finance B.V. innogy SE innogy Finance B.V. RWE AG/innogy SE innogy Finance B.V. innogy SE innogy SE innogy SE RWE AG RWE AG RWE AG Other Bonds payable 4 Outstanding amount €980 million €1,000 million €750 million £570 million €1,000 million £500 million £488 million €800 million €750 million €850 million £760 million €600 million US$50 million £600 million €489 million 1 £1,000 million JPY20 billion €100 million €150 million €539 million 3 €282 million 3 US$317 million 3 Various Carrying amount € million Coupon in % Maturity 990 999 748 643 999 561 548 800 744 839 858 596 41 673 479 1,111 98 98 146 536 281 260 1 13,049 5.125 6.625 1.875 6.5 6.5 5.5 July 2018 January 2019 January 2020 April 2021 August 2021 July 2022 5.625 December 2023 3.0 1.0 1.25 6.25 5.75 3.8 4.75 3.5 6.125 4.76 2 3.5 3.55 2.75 3.5 6.625 Various January 2024 April 2025 October 2027 June 2030 February 2033 April 2033 January 2034 October 2037 July 2039 February 2040 December 2042 February 2043 April 2075 April 2075 July 2075 Various 1 Of which, €21 million is allocated to RWE AG and €468 million to innogy SE. 2 After swap into euro. 3 Hybrid bonds classified as debt as per IFRS. 4 Including hybrid bonds classified as debt as per IFRS. 136 RWE Annual Report 2017 Other financial liabilities contain finance lease liabilities. Lease Liabilities arising from finance lease agreements have the following agreements principally relate to capital goods in the electricity maturities: business. Liabilities from finance lease agreements € million Due in the following year Due after 1 to 5 years Due after 5 years Maturities of minimum lease payments 31 Dec 2017 31 Dec 2016 Nominal value Discount Present value Nominal value Discount Present value 11 41 197 249 1 1 11 40 197 248 15 37 201 253 1 1 15 36 201 252 €85 million (previous year: €96 million) of the financial liabilities are secured by mortgages. (25) Other liabilities Other liabilities € million Tax liabilities Social security liabilities Restructuring liabilities Derivatives Advances and contributions in aid of construction and building connection Miscellaneous other liabilities of which: financial debt of which: non-financial debt The principal component of social security liabilities are the amounts payable to social security institutions. Of the miscellaneous other liabilities, €1,451 million (previous year: €1,488 million) relate to financial debt in the form of current purchase price obligations from rights granted to tender non-controlling inter- ests (put options). 31 Dec 2017 31 Dec 2016 Non-current Current Non-current Current 6 975 1,168 244 2,393 1,033 1,360 725 66 3,282 168 2,841 7,082 5,337 1,745 7 765 1,187 237 2,196 816 1,380 829 65 4,938 159 2,896 8,887 7,143 1,744 Consolidated financial statements > Notes 137 Other information (26) Earnings per share Basic and diluted earnings per share are calculated by dividing corporate business plan data. Current market interest rates correspond- ing to the remaining maturity or maturity are used for discounting. the portion of net income attributable to RWE shareholders by the average number of shares outstanding; treasury shares are not Derivative financial instruments are recognised at their fair values taken into account in this calculation. The earnings per share are as of the balance-sheet date, insofar as they fall under the scope of the same for both common and preferred shares. IAS 39. Exchange-traded products are measured using the published Earnings per share Net income for RWE AG shareholders Number of shares outstanding (weighted average) Basic and diluted earnings per common and preferred share Dividend per common share Dividend per preferred share 1 Proposal for fiscal 2017. 2017 2016 products are measured on the basis of publicly available broker closing prices of the relevant exchange. Non-exchange traded quotations or, if such quotations are not available, on generally € million 1,900 – 5,710 accepted valuation methods. In doing so, we draw on prices on thousands 614,745 614,745 company-specific planning estimates are used in the measurement active markets as much as possible. If such are not available, € € € 3.09 1.501 1.501 process. These estimates encompass all of the market factors which – 9.29 other market participants would take into account in the course of price determination. Assumptions pertaining to the energy sector 0.13 and economy are made within the scope of a comprehensive process with the involvement of both in-house and external experts. (27) Reporting on financial instruments Financial instruments are divided into non-derivative and derivative. Non-derivative financial assets essentially include other non-current Measurement of the fair value of a group of financial assets and financial liabilities is conducted on the basis of the net risk exposure per business partner, in accordance with IFRS 13.48. financial assets, accounts receivable, marketable securities and cash The following overview presents the classifications of financial and cash equivalents. Financial instruments in the category ‘Availa- instruments measured at fair value in the fair value hierarchy ble for sale’ are recognised at fair value, and other non-derivative prescribed by IFRS 13. In accordance with IFRS 13, the individual financial assets at amortised cost. On the liabilities side, non-deriva- levels of the fair value hierarchy are defined as follows: tive financial instruments principally include liabilities recorded at amortised cost. • Level 1: Measurement using (unadjusted) prices of identical financial instruments formed on active markets; The fair value of financial instruments ‘Available for sale’ which are • Level 2: Measurement on the basis of input parameters which reported under other financial assets and securities is the published are not the prices from Level 1, but which can be observed for exchange price, insofar as the financial instruments are traded on an the financial instrument either directly (i.e. as price) or indirectly active market. The fair value of non-quoted debt and equity instru- (i.e. derived from prices); ments is determined on the basis of discounted expected payment • Level 3: Measurement using factors which cannot be observed on flows, taking into consideration macro-economic developments and the basis of market data. Fair value hierarchy € million Other financial assets Derivatives (assets) of which: used for hedging purposes Securities Derivatives (liabilities) of which: used for hedging purposes Total 2017 1,109 4,263 1,456 4,893 4,257 643 Level 1 Level 2 Level 3 80 3,168 208 4,230 1,456 1,725 4,253 643 821 33 4 Total 2016 1,055 6,494 2,175 9,825 5,703 1,240 Level 1 Level 2 Level 3 64 2 6,776 8 202 6,455 2,175 3,049 5,685 1,240 789 37 10 138 RWE Annual Report 2017 The development of the fair values of Level 3 financial instruments is presented in the following table: Level 3 financial instruments: Development in 2017 Balance at 1 Jan 2017 € million Other financial assets Derivatives (assets) Derivatives (liabilities) 789 37 10 Level 3 financial instruments: Development in 2016 Balance at 1 Jan 2016 € million Other financial assets Derivatives (assets) Derivatives (liabilities) 608 57 21 Changes in the scope of consolidation, currency adjustments and other − 48 1 Changes in the scope of consolidation, currency adjustments and other 74 2 Amounts recognised in profit or loss generated through Level 3 financial instruments relate to the following line items on the income statement: Level 3 financial instruments: Amounts recognised in profit or loss € million Revenue Cost of materials Other operating income/expenses Income from investments Financial income/finance costs Total 2017 Of which: attributable to financial instruments held at the balance-sheet date 16 – 4 15 − 3 − 3 21 16 – 4 15 2 − 2 27 Changes Balance at 31 Dec 2017 Recognised in profit or loss With a cash effect 10 15 4 Changes 7 13 28 Recognised in profit or loss With a cash effect 70 − 20 – 10 821 33 4 Balance at 31 Dec 2016 789 37 10 Of which: attributable to financial instruments held at the balance-sheet date 13 − 28 20 − 10 − 5 100 − 33 − 41 Total 2016 13 − 28 20 − 13 − 8 Level 3 derivative financial instruments essentially consist of energy equal, rising gas prices cause the fair values to increase, whereas purchase agreements, which relate to trading periods for which declining gas prices cause them to drop. A change in pricing by there are no active markets yet. The valuation of such depends on + /−10 % would cause the market value to rise by €6 million or the development of gas prices in particular. All other things being decline by €6 million. Consolidated financial statements > Notes 139 The following impairments were recognised on financial assets which fall under the scope of IFRS 7 and are reported under the balance-sheet items stated below: Impairments on financial assets € million Other non-current financial assets Financial receivables Trade accounts receivable Other receivables and other assets Balance at 1 Jan 2017 Additions Transfers Currency translation adjustments Disposals Balance at 31 Dec 2017 127 54 9 11 179 233 24 – 2 14 241 469 157 8 − 4 233 397 11 – 2 7 2 Impairments on financial assets € million Other non-current financial assets Financial receivables Trade accounts receivable Other receivables and other assets Balance at 1 Jan 2016 Additions Transfers Currency translation adjustments Disposals Balance at 31 Dec 2016 133 32 − 21 17 127 279 7 − 36 17 233 627 99 − 42 − 37 178 469 11 11 As of the cut-off date, there were unimpaired, past due receivables falling under the scope of IFRS 7 in the following amounts: Total 840 235 13 − 4 265 819 Total 1.050 138 − 99 − 37 212 840 Receivables, past due € million Financial receivables Trade accounts receivable Other receivables and other assets Receivables, past due € million Financial receivables Trade accounts receivable Other receivables and other assets Gross amount as of 31 Dec 2017 Receiva- bles, past due, impaired 2,345 5,808 4,509 12,662 18 474 3 495 Gross amount as of 31 Dec 2016 Receiva- bles, past due, impaired 2,108 5,467 6,801 14,376 14 638 8 660 Receivables not impaired, past due by: less than 30 days 31 to 60 days 61 to 90 days 91 to 120 days over 120 days 343 343 40 40 33 33 25 25 138 4 142 Receivables not impaired, past due by: less than 30 days 31 to 60 days 61 to 90 days 91 to 120 days over 120 days 283 283 51 51 29 29 27 27 28 125 2 155 140 RWE Annual Report 2017 Financial assets and liabilities can be broken down into categories with the following carrying amounts: Carrying amounts by category € million Financial assets recognised at fair value through profit or loss of which: held for trading Financial assets available for sale Loans and receivables Financial liabilities recognised at fair value through profit or loss of which: held for trading Financial liabilities carried at (amortised) cost 31 Dec 2017 31 Dec 2016 2,807 2,807 6,002 11,692 3,614 3,614 19,754 4,319 4,319 10,880 11,738 4,463 4,463 22,448 The carrying amounts of financial assets and liabilities within the €4,393 million ( previous year: €5,290 million) to Level 2 of the fair scope of IFRS 7 basically correspond to their fair values. The only value hierarchy. deviations are for bonds, commercial paper, bank debt and other financial liabilities. The carrying amount of these is €17,201 million The following net results from financial instruments as per IFRS 7 (previous year: €18,183 million), while the fair value amounts to were recognised on the income statement, depending on the €19,167 million (previous year: €20,541 million). Of this, €14,774 mil- category: lion (previous year: €15,251 million) is related to Level 1 and Net gain/loss by category € million Financial assets and liabilities recognised at fair value through profit or loss of which: held for trading Financial assets available for sale Loans and receivables Financial liabilities carried at (amortised) cost 2017 − 591 − 591 158 1,906 − 619 2016 − 1,742 − 1,742 127 192 − 1,084 The net result as per IFRS 7 essentially includes interest, dividends the value of financial instruments available for sale which had origi- and results from the measurement of financial instruments at fair value. nally been recognised without an effect on income was realised as income (previous year: expense of €58 million). In fiscal 2017, changes of €74 million (previous year: €20 million) after taxes in the value of financial assets available for sale were rec- The following is an overview of the financial assets and financial liabil- ognised in accumulated other comprehensive income without an ities which are netted out in accordance with IAS 32 or are subject effect on income. Above and beyond this, €30 million in changes in to enforceable master netting agreements or similar agreements: Netting of financial assets and financial liabilities as of 31 Dec 2017 Gross amounts recognised Amounts set off Net amounts recognised Related amounts not set off Net total € million Derivatives (assets) Derivate (liabilities) 8,204 8,291 – 7,419 − 7,264 785 1,027 − 118 Financial instruments Cash collateral received/ pledged – 305 − 318 480 591 Consolidated financial statements > Notes 141 Netting of financial assets and financial liabilities as of 31 Dec 2016 Gross amounts recognised Amounts set off Net amounts recognised Related amounts not set off Net total € million Derivatives (assets) Derivate (liabilities) 8,359 8,441 – 7,221 – 7,695 1,138 746 – 185 Financial instruments Cash collateral received/ pledged – 520 – 181 618 380 The related amounts not set off include cash collateral received The Group’s other financial transactions are recorded using central- and pledged for over-the-counter transactions as well as collateral ised risk management software, with RWE AG and innogy SE each pledged in advance for exchange transactions. monitoring their own transactions. As a utility enterprise with international operations, the RWE Group For commodity operations, risk management directives have been is exposed to market, credit and liquidity risks in its ordinary business established by RWE AG’s Controlling & Risk Management Department. activity. We limit these risks via systematic, groupwide risk manage- These regulations stipulate that derivatives may be used to hedge ment. The range of action, responsibilities and controls are defined price risks, optimise power plant schedules and increase margins. in binding internal directives. Market risks stem from changes in exchange rates and share prices as well as interest rates and commodity prices, which can have an influence on business results. Furthermore, commodity derivatives may be traded, subject to limits. Compliance with limits is monitored daily. innogy does not hold derivatives for trading purposes. Risks stemming from fluctuations in commodity prices and financial market risks (foreign currency risks, interest rate risks, securities RWE AG manages its fully consolidated subsidiary innogy as a finan- risks) are monitored and managed by RWE using indicators such as cial investment and exercise its control over innogy SE via the legal Value at Risk (VaR), amongst other things. In addition, for the bodies of the Supervisory Board and its majority influence at the management of interest rate risk, a Cash Flow at Risk (CFaR) is deter- Annual General Meeting. One of the results of this is that RWE and mined. innogy exclusively manages financial risks using these key innogy each have their own independent management of interest figures amongst others. rate, currency, liquidity and credit risks. In accordance with this, the risk figures from these areas are reported for the respective parts of Using the VaR method, RWE and innogy determine and monitor the the Group. maximum expected loss arising from changes in market prices with a specific level of probability during specific periods. Historical price Due to the RWE Group’s international profile, currency management volatility is taken as a basis in the calculations. With the exception is a key issue. Sterling and US dollar are two important currencies of the CFaR data, all VaR figures are based on a confidence interval for the RWE Group. In certain cases, fuels are traded in these two of 95 % and a holding period of one day. For CFaR, a confidence in- currencies. In addition, RWE does business in the UK currency area. terval of 95 % and a holding period of one year is taken as a basis. The companies of the RWE Group are required to hedge their for- eign currency risks via RWE AG or innogy SE, depending on which In respect of interest rate risks, RWE and innogy distinguish between part of the Group they belong to. Only these two companies them- two risk categories: on the one hand, increases in interest rates can selves may maintain open foreign currency positions, subject to result in declines in the prices of securities from the holdings of predefined limits, or approve such limits for their Group companies. RWE and innogy. This pertains primarily to fixed-rate instruments. A VaR is determined to quantify securities price risk. As of the balance- Interest rate risks stem primarily from financial debt and the Group’s sheet date, it amounted to €2.7 million for RWE (previous year: interest-bearing investments. We hedge against negative changes €13.4 million) and €3.2 million for innogy (previous year: €5.0 million). in value caused by unexpected interest-rate movements using non - On the other hand, financing costs also increase along with the level derivative and derivative financial instruments. The financial liabilities of interest rates. The sensitivity of interest expenses to increases in and interest-bearing bonds transferred to innogy SE within the scope market interest rates is measured with CFaR. As of 31 December 2017 of the realignment of RWE are managed exclusively by innogy SE. this amounted to €3.7 million for RWE (previous year: €0.7 million) and €10.8 million for innogy (previous year: €1.0 million). Unlike in Opportunities and risks from changes in the values of non-current the previous year, innogy’s CFaR as of 31 December 2017 was calcu- securities are centrally controlled by a professional fund manage- lated on the basis of the budgeted financing requirement instead of ment system operated by RWE AG. This also includes fund manage- the former method, which was merely based on the assumption of ment for the assets of the innogy subgroup. the refinancing of maturing debt. Taking account of the new method, the figure for innogy as of 31 December 2016 would have been €6.1 million. 142 RWE Annual Report 2017 As of 31 December 2017, the VaR for foreign currency positions was One of our most important instruments to limit market risk is the less than €1 million for RWE (previous year: less than €1 million) conclusion of hedging transactions. The instruments most commonly and also less than €1 million for innogy (previous year: €1.1 million). used are forwards and options with foreign currency, interest rate This corresponds to the figure used internally, which also includes swaps, interest rate currency swaps, and forwards, options, futures the underlying transactions for cash flow hedges. and swaps with commodities. As of 31 December 2017, the VaR for risks related to the RWE share Maturities of derivatives related to interest rates, currencies, equities, portfolio amounted to €2.7 million for RWE (previous year: €1.4 mil- indices and commodities for the purpose of hedging are based on lion) and €3.0 million for innogy (previous year: €4.0 million). the maturities of the underlying transactions and are thus primarily short term and medium term in nature. Hedges of the foreign cur- As of 31 December 2017, VaR for the commodity positions of the rency risks of foreign investments have maturities of up to 21 years. trading business of RWE Supply & Trading amounted to €7.9 million (previous year: €9.4 million). This corresponds to the figure used All derivative financial instruments are recognised as assets or liabili- for management purposes. ties and are measured at fair value. When interpreting their positive and negative fair values, it should be taken into account that, with In the middle of 2017, we pooled responsibility for the management the exception of trading in commodities, these financial instruments of our gas portfolio and our liquefied natural gas (LNG) business in are generally matched with underlying transactions that carry offset- a new organisational unit and established a VaR cap of €12 million. The VaR for the gas and LNG business of RWE Supply & Trading ting risks. pooled in the year under review amounted to €2.2 million and corre- Hedge accounting pursuant to IAS 39 is used primarily for mitigating sponds to the key figure used for internal control. currency risks from net investments in foreign entities with foreign Additionally, stress tests are carried out on a monthly basis in relation interest rate risks from non-current liabilities, as well as for price risks functional currencies, risks related to foreign currency items and to the trading and pooled LNG and gas business of RWE Supply & from sales and purchase transactions. Trading to model the impact of commodity price changes on the earnings conditions and take risk-mitigating measures if necessary. Fair value hedges are used to limit market price risks related to fixed- In these stress tests, market price curves are modified, and the com- interest loans and liabilities. Fixed-interest instruments are trans- modity position is revalued on this basis. Historical scenarios of formed into variable-rate instruments, thereby hedging their fair value. extreme prices and realistic, fictitious price scenarios are modelled. In Hedging instruments used are interest rate swaps and interest rate the event that the stress tests exceed internal thresholds, these sce- currency swaps. In the case of fair value hedges, both the derivative narios are then analysed in detail in relation to their impact and prob- as well as the underlying hedged transaction (in relation to the ability, and – if necessary – risk-mitigating measures are considered. hedged risk) are recorded at fair value with an effect on income. As of the reporting date, the fair value of instruments used as fair value Commodity risks of the Group’s power generation companies belong- hedges amounted to €10 million (previous year: €27 million). ing to the Lignite & Nuclear and European Power segments are transferred on the basis of available market liquidity – in accordance In the year under review, a gain of €17 million (previous year: with Group guidelines – at market prices to the Supply & Trading €15 million) was recognised from adjustment of the carrying segment, where they are hedged. In accordance with the approach amounts of the underlying transactions with hedged risk, while for long-term investments for example, it is not possible to manage a loss of €17 million (previous year: €15 million) stemming from commodity risks from long-term positions or positions which cannot changes in the fair value of the hedges was recognised. Both of be hedged due to their size and the prevailing market liquidity using these are reported in the financial result. the VaR concept. As a result, these positions are not included in the VaR figures. Above and beyond open production positions which Cash flow hedges are primarily used to hedge against foreign currency have not yet been transferred, the Group companies belonging to the and price risks from future sales, investment and purchase trans- Lignite & Nuclear and European Power segments are not allowed to actions. Hedging instruments consist of forwards and options with maintain significant risk positions, according to a Group guideline. foreign currency and interest rates, and forwards, futures and swaps Commodity price risks in the innogy segment can exist in relation to with commodities. Changes in the fair value of the hedging instru- the renewable generation positions, in the gas storage business ments – insofar as they affect the effective portion – are recorded and in the retail business separate from fixed price products. As of under other comprehensive income until the underlying transaction 31 December 2017, the aggregated commodity price risk for 2018 is realised. As a rule, the ineffective portion of changes in value is in the innogy segment, which was calculated based on the as yet recognised in profit or loss. Upon realisation of the underlying trans- unhedged commodity risk positions of the divisions in the innogy action, the hedge’s contribution to income from accumulated other segment, was €20 million. comprehensive income is recognised on the income statement. As of the reporting date, the recognised fair value of instruments used as cash flow hedges amounted to €478 million (previous year: €622 million). Consolidated financial statements > Notes 143 The future sales and purchase transactions hedged with cash flow RWE and innogy review counterparty default risks before contracts hedges are expected to be realised in the following five years and are concluded. Both companies mitigate counterparty risks by defin- recognised in profit or loss. The hedge of future capital expenditures ing limits which are adjusted if necessary for reasons of creditwor- concluded in a single case is expected to be realised in the following thiness. The credit risk is constantly monitored across all divisions. 29 years and recognised in profit or loss. RWE and innogy initiate countermeasures if necessary. In the year under review, changes of €950 million after taxes in RWE and innogy employ guarantees, cash collateral and other forms of the fair values of instruments used for cash flow hedges (previous security as well as credit insurance policies to protect against defaults. year: €504 million) were disclosed under accumulated other comprehensive income without an effect on income. These changes The maximum balance-sheet default risk is derived from the carrying in value reflect the effective portion of the hedges. values of the receivables stated in the balance sheet. If default risks materialise, they are recognised through impairments. The default Income of €0 million was recognised with an effect on income in risks for derivatives correspond to their positive fair values. Risks relation to the ineffective portions of cash flow hedges (previous can also stem from financial guarantees and loan commitments for year: €11 million). external creditors. As of 31 December 2017, these obligations amounted to €161 million (previous year: €171 million). As of Above and beyond this, during the reporting period changes of 31 December 2017, default risks were balanced against credit €148 million after taxes in the value of cash flow hedges which had originally been recognised without an effect on income were collateral, financial guarantees, bank guarantees and other collater- als amounting to €1.4 billion (previous year: €2.0 billion). Of this, realised as income (previous year: expense of €504 million). €0 billion relates to financial receivables (previous year: €0 billion), €0.5 billion to trade receivables (previous year: €0.5 billion), The cost of non-financial assets increased by €208 million (previous €0.4 billion to derivatives used for hedging purposes (previous year: year: €204 million), due to changes in the value of cash flow €0.5 billion) and €0.5 billion to other derivatives (previous year: hedges reported in other comprehensive income and not recognised €1.0 billion). There were no material defaults in fiscal 2017 or the in profit or loss. previous year. Hedges of net investment in a foreign operation are used to hedge the foreign currency risks of net investment in foreign entities Liquidity risks. As a rule, RWE Group companies refinance with RWE AG or innogy SE, depending on which part of the Group they whose functional currency is not the euro. We use bonds with various belong to. In this regard, there is a risk that liquidity reserves will terms in the appropriate currencies, interest rate currency swaps, prove to be insufficient to meet financial obligations in a timely and other currency derivatives as hedging instruments. If there are manner. In 2018, bonds with a volume of approximately €1.0 billion changes in the exchange rates of currencies in which the bonds (previous year: €1.4 billion) and liabilities owed to banks of €0.3 billion used for hedging are denominated or changes in the fair value of (previous year: €0.1 billion) are due. Short-term debt must additionally interest rate currency swaps, this is recorded under foreign cur- be repaid. rency translation adjustments in other comprehensive income. As of the reporting date, the fair value of the bonds amounted to As of 31 December 2017, holdings of cash and cash equivalents and €3,693 million (previous year: €1,546 million) and the fair value current marketable securities amounted to €8,826 million (previous of the swaps and forwards (net asset position) amounted to year: €14,401 million). €325 million (previous year: €279 million). During the year under review, expense of €16 million (previous year: €2 billion syndicated credit line, which expires in October 2022. It income of €21 million) was recognised on the income statement in may be prolonged twice by a year at a time. Furthermore, the credit relation to the ineffective portions of hedges of net investment in line can be topped up by €1 billion. innogy SE cancelled its partici- Since the beginning of October 2017, innogy SE has had its own foreign operations. Credit risks. In the fields of finance and commodities, RWE primarily has credit relationships with banks and other trading partners. pation in RWE AG’s existing €4 billion credit line by concluding the new credit line. When innogy SE exited RWE AG’s credit line, it was reduced to €3 billion in October 2017. It expires in March 2021. As of the balance-sheet date, US$0.5 billion (previous year: US$0.5 billion) innogy has such relationships primarily with banks and other business of RWE AG’s US$5 billion commercial paper programme (previous year: partners with good creditworthiness within the scope of large-scale US$5 billion) was used. projects such as the construction of wind farms. 144 RWE Annual Report 2017 As of 31 December 2017, innogy SE had a commercial paper pro- €12.1 billion at innogy SE (previous year: €10.7 billion in total at gramme with a volume of €3 billion, but this programme has not RWE AG and innogy SE). Accordingly, the medium-term liquidity risk yet been used. Above and beyond this, RWE and innogy can finance can be classified as low for both RWE AG and innogy. themselves using €10 billion and €20 billion debt issuance pro- grammes, respectively; as of the balance-sheet date, outstanding Financial liabilities falling under the scope of IFRS 7 are expected to bonds from this programme amounted to €0 billion at RWE and result in the following (undiscounted) payments in the coming years: Redemption and interest payments on financial liabilities € million Bonds payable 1 Bank debt Liabilities arising from finance lease agreements Other financial liabilities Derivative financial liabilities Collateral for trading activities Redemption liabilities from put options Miscellaneous other financial liabilities Carrying amount 31 Dec 2017 13,049 1,594 248 1,464 4,257 389 1,451 5,601 Redemption payments Interest payments 2018 2019 to 2022 From 2023 2018 2019 to 2022 From 2023 990 262 11 712 3,429 389 1,451 5,525 4,495 810 41 92 385 7,677 522 197 684 447 666 35 12 41 1,912 84 28 105 3,189 3 434 296 30 74 1 Including hybrid bonds classified as debt as per IFRS, taking into account the earliest possible call date. Redemption and interest payments on financial liabilities € million Bonds payable 1 Bank debt Liabilities arising from finance lease agreements Other financial liabilities Derivative financial liabilities Collateral for trading activities Redemption liabilities from put options Miscellaneous other financial liabilities Redemption payments Interest payments 2017 2018 to 2021 From 2022 2017 2018 to 2021 From 2022 Carrying amount 31 Dec 2016 13,719 1,421 1,670 252 1,441 5,703 569 1,488 6,064 129 15 630 4,953 569 1,488 6,007 5,972 819 37 86 333 6,360 723 201 746 417 774 35 12 50 2,313 108 30 145 3,656 21 445 340 40 36 1 Including hybrid bonds classified as debt as per IFRS, taking into account the earliest possible call date. Above and beyond this, as of 31 December 2017, there were finan- cial guarantees for external creditors in the amount of €90 million (28) Contingent liabilities and financial commitments As of 31 December 2017, the amount of capital commitments totalled (previous year: €104 million), which are to be allocated to the first €489 million (previous year: €384 million). This mainly consisted year of repayment. Additionally, Group companies have provided of investment in property, plant and equipment. There were also loan commitments to third-party companies amounting to €71 million unrecognised obligations to provide loans or other financial means (previous year: €67 million), which is callable in 2018. to joint ventures, which amounted to €10 million (previous year: Detailed information on the risks of the RWE Group and on the €26 million). objectives and procedures of the risk management is presented on Commitments from operating leases refer largely to rental arrange- page 74 et seqq. in the review of operations. ments for power generation and supply plants as well as rent and Consolidated financial statements > Notes 145 lease contracts for storage and administration buildings. Minimum lease payments have the following maturity structure: (29) Segment reporting RWE is divided into four (previous year: three) segments, which are separated from each other based on functional criteria. Operating leases € million Due within 1 year Due after 1 to 5 years Due after 5 years Nominal value 31 Dec 2017 31 Dec 2016 With effect from 1 January 2017, the former Conventional Power 265 685 1,261 2,211 243 665 1,142 2,050 Generation segment was divided into the two new Lignite & Nuclear and European Power segments. In order to ensure the comparability of the figures for fiscal 2017 with those of the previous years, we have adjusted the latter to reflect the new structure. Furthermore, we have renamed the Trading/Gas Midstream segment Supply & Trading. This is purely a name change and has not changed the We have made long-term contractual purchase commitments for nature of the business conducted in the segment. supplies of fuels, including natural gas in particular. Payment obligations stemming from the major long-term purchase contracts German electricity generation from lignite and nuclear fuel is sub- amounted to €26.2 billion as of 31 December 2017 (previous year: sumed in the Lignite & Nuclear segment. This includes the Rhenish €26.0 billion), of which €1.3 billion is due within one year (previous opencast lignite mining operations. year: €1.7 billion). Gas purchases by the RWE Group are partially based on long-term The European Power segment encompasses the German, British, Dutch/Belgian and Turkish power generation business via gas and take-or-pay contracts. The conditions in these contracts, which have hard coal-fired power stations, the Scottish biomass-fired power terms up to 2036 in some cases, are renegotiated by the contractual plant Markinch, and the project management and engineering special- partners at certain intervals, which may result in changes in the ist RWE Technology International. The segment is supplemented by reported payment obligations. Calculation of the payment obligations several hydroelectric power stations in Germany and Luxembourg. resulting from the purchase contracts is based on parameters from the internal planning. The Supply & Trading segment contains energy and commodities trading, the marketing and hedging of the RWE Group’s electricity Furthermore, RWE has long-term financial commitments for purchas- position and the gas midstream business. This segment is the es of electricity. As of 31 December 2017, the minimum payment responsibility of RWE Supply & Trading, which also supplies certain obligations stemming from the major purchase contracts totalled major industrial and commercial customers with electricity and €7.1 billion (previous year: €7.4 billion), of which €0.6 billion is due natural gas. within one year (previous year: €0.4 billion). Above and beyond this, there are also long-term purchase and service contracts for uranium, The innogy segment essentially covers business in renewables, grids conversion, enrichment and fabrication. and supply. Along with electricity generation, activities in the field of renewables include the development and implementation of pro- We bear legal and contractual liability from our membership in various jects to expand capacities. Wind and hydro electric power are the associations which exist in connection with power plant projects, two dominant production technologies. The main production sites profit- and loss-pooling agreements and for the provision of liability are located in Germany, the United Kingdom, the Netherlands, cover for nuclear risks, amongst others. Poland, Spain and Italy. The second main area of innogy’s business is the operation of distribution networks in Germany, the Czech On the basis of a mutual benefit agreement, RWE AG and other parent Republic, and in Slovakia, Hungary and Poland. The third pillar of companies of German nuclear power plant operators undertook to innogy’s business is the supply of electricity, gas and energy solu- provide approximately €2,244 million in funding to liable nuclear tions in Germany, the Netherlands, Belgium, the United Kingdom, power plant operators to ensure that they are able to meet their the Czech Republic, Slovakia, Hungary, Poland and a few other payment obligations in the event of nuclear damages. From 1 Jan- Central Eastern European countries. The innogy segment also includes uary 2018, onwards, RWE AG has a 21.347 % contractual share in holding activities, internal service providers and consolidation the liability, plus 5 % for damage settlement costs. effects of innogy SE. RWE AG and its subsidiaries are involved in official, regulatory and ‘Other, consolidation’ covers consolidation effects, RWE AG and anti-trust proceedings, litigation and arbitration proceedings related the activities of other business areas which are not presented to their operations and are affected by the results of such. In some separately. These activities primarily include our non-controlling cases, out-of-court claims are also filed. However, RWE does not expect interest in the German transmission system operator Amprion. any material negative repercussions from these proceedings on the RWE Group’s economic or financial position. 146 RWE Annual Report 2017 Segment reporting Divisions 2017 € million External revenue (incl. natural gas tax/electricity tax) Intra-group revenue Total revenue Adjusted EBIT Operating income from investments Operating income from investments accounted for using the equity method Operating depreciation, amortisation and impairment losses Impairment losses Adjusted EBITDA Carrying amount of investments accounted for using the equity method Capital expenditure on intangible assets, property, plant and equipment and investment property Lignite & Nuclear European Power Supply & Trading innogy Other, consolidation RWE Group 1,176 2,993 4,169 399 63 63 272 311 671 64 269 728 4,165 4,893 ² 155 10 − 2 308 41 463 105 147 3,189 13,634 16,823 265 − 16 6 16 271 3 7 39,475 2,591 42,066 2,816 289 197 1,515 540 4,331 2,214 1,839 17 44,585 − 23,383¹ − 23,366 11 34 44 9 17 20 460 − 2 44,585 3,646 380 302 2,110 925 5,756 2,846 2,260 1 Of which: consolidation of intra-group revenue – €23.383 million and intra-group revenue of other companies €0 million. 2 Of which: total revenue from power generation in the United Kingdom of €2.166 million. Regions 2017 € million External revenue 1, 2 Germany 26,288 EU UK 7,419 Other EU 7,902 Rest of Europe 311 Intangible assets, property, plant and equipment and investment property 18,660 6,930 11,418 Other RWE Group 514 322 42,434 37,330 1 Excluding natural gas tax/electricity tax. 2 Broken down by the region in which the service was provided. Segment reporting Divisions 2016 € million External revenue (incl. natural gas tax/electricity tax) Intra-group revenue Total revenue Adjusted EBIT Operating income from investments Operating income from investments accounted for using the equity method Operating depreciation, amortisation and impairment losses Impairment losses Adjusted EBITDA Carrying amount of investments accounted for using the equity method Capital expenditure on intangible assets, property, plant and equipment and investment property Lignite & Nuclear European Power Supply & Trading innogy Other, consolidation RWE Group 1,193 3,489 4,682 664 67 66 415 2,780 1,079 60 267 774 4,732 5,506 ² − 37 13 8 414 1,288 377 130 66 3,646 15,734 19,380 − 145 − 22 6 17 − 139 3 4 40,149 1,811 41,960 2,735 368 276 1,468 327 4,203 2,256 1,679 71 45,833 − 25,766 ¹ − 25,695 − 135 38 37 18 3 − 117 459 11 45,833 3,082 464 387 2,321 4,415 5,403 2,908 2,027 1 Of which: consolidation of intra-group revenue – €27,982 million and intra-group revenue of other companies €2,216 million. 2 Of which: total revenue from power generation in the United Kingdom of €2.820 million. Consolidated financial statements > Notes 147 Regions 2016 € million External revenue 1, 2 Germany 24,990 EU UK 9,196 Other EU 8,437 Rest of Europe 589 Intangible assets, property, plant and equipment and investment property 17,928 7,573 11,454 Other RWE Group 378 312 43,590 37,267 1 Excluding natural gas tax/electricity tax. 2 Broken down by the region in which the service was provided. Products € million External revenue 1 of which: electricity of which: gas 1 Excluding natural gas tax/electricity tax. RWE Group 2017 42,434 30,568 8,971 2016 43,590 31,420 9,208 Notes on segment data. We report revenue between the segments as RWE intra-group revenue. Internal supply of goods and services is settled at arm’s length conditions. Adjusted EBITDA is used for inter- nal management. The following table presents the reconciliation of adjusted EBITDA to adjusted EBIT and income before tax: Reconciliation of income items € million Adjusted EBITDA – Operating depreciation, amortisation and impairment losses Adjusted EBIT + Non-operating result + Financial result Income before tax 2017 2016 5,756 5,403 − 2,110 − 2,321 3,646 161 − 751 3,056 3,082 − 6,661 − 2,228 − 5,807 Income and expenses that are unusual from an economic perspective, the disposal of investments or non-current assets not required for or stem from exceptional events, prejudice the assessment of operations, impairment of the goodwill of fully consolidated compa- operating activities. They are reclassified to the non-operating result. nies, as well as effects of the fair valuation of certain derivatives. Amongst other things, these can include book gains or losses from Non-operating result € million Capital gains/losses Impact of derivatives on earnings Goodwill amortisation Other Non-operating result More detailed information is presented on page 47. 2017 2016 118 − 719 − 479 1,241 161 94 − 799 − 5,956 − 6,661 148 RWE Annual Report 2017 (30) Notes to the cash flow statement The cash flow statement classifies cash flows according to operating, Flows of funds from the acquisition and sale of consolidated companies are included in cash flows from investing activities. investing and financing activities. Cash and cash equivalents in the Effects of foreign exchange rate changes and other changes in cash flow statement correspond to the amount stated in the balance value are stated separately. sheet. Cash and cash equivalents consist of cash on hand, demand deposits and fixed-interest marketable securities with a maturity of Cash flows from financing activities include €5 million (previous three months or less from the date of acquisition. year: €5 million) which was distributed to RWE shareholders, Among other things, cash flows from operating activities include: to non-controlling shareholders, and €60 million (previous year: €538 million (previous year: €335 million) which was distributed €67 million) which was distributed to hybrid capital investors. • cash flows from interest income of €188 million (previous year: Furthermore, cash flows from financing activities include purchas- €295 million) and cash flows used for interest expenses of es of €19 million (previous year: €2 million) and sales in the €950 million (previous year: €904 million) amount of €0 million (previous year: €2,591 million) of shares in • €908 million (previous year: €627 million) in taxes on income paid subsidiaries and other business units which did not lead to a (less refunds) change of control. • income from investments, corrected for items without an effect on cash flows, in particular from accounting using the equity Changes in liabilities from financing activities are presented in the method, amounted to €349 million (previous year: €333 million) following table: Statement of changes in financial liabilities 1 Jan 2017 Inrease/repay- ment accord- ing to the cash flow statement Changes in the scope of con- solidation Currency effects Changes in fair values Other changes 31 Dec 2017 € million Current financial liabilities Non-current financial liabilities Other items 2,142 16,041 – 209 – 322 − 338 − 39 − 13 175 − 144 862 2,787 − 377 – 915 14, 414 The amount stated in the ‘Other items’ line item contains cash-effective Water concession agreements contain rules for the right and obli- changes resulting from derivative financial instruments and margin gation to provide water and wastewater services, operate the asso- payments, which are recognised in cash flows from financing activities ciated infrastructure, such as water utility plants, as well as to in the cash flow statement. implement capital expenditure. Concessions in the water business generally have terms of up to 25 years. Restrictions on the disposal of cash and cash equivalents amounted to €38 million (previous year: €19 million). (31) Information on concessions In the fields of electricity, gas and water supply, there are a number (32) Related party disclosures Within the framework of their ordinary business activities, RWE AG and its subsidiaries have business relationships with numerous companies. These include associated companies and joint ventures, of easement agreements and concession contracts between RWE Group which are classified as related parties. In particular, this category companies and the governmental authorities in the areas we supply. includes material investments of the RWE Group which are accounted for using the equity method. Easement agreements are used in the electricity and gas business to regulate the use of public rights of way for laying and operating lines for public energy supply. These agreements are generally limited to a term of 20 years. After expiry, there is a legal obligation to transfer ownership of the local distribution facilities to the new operator, for appropriate compensation. Consolidated financial statements > Notes 149 Business transactions were concluded with major associates and joint ventures, resulting in the following items in RWE’s consolidated financial statements: Key items from transactions with associates and joint ventures € million Income Expenses Receivables Liabilities Associated companies Joint ventures 2017 3,553 2,992 247 168 2016 3,661 3,001 329 147 2017 90 74 145 8 2016 86 148 182 3 The key items from transactions with associates and joint ventures In total, the compensation of the Executive Board amounted to mainly stem from supply and service transactions. In addition to €7,274,000 (previous year: €15,486,000). This contains share-based supply and service transactions, there are also financial links with payments amounting to €2,567,000 (192,556 RWE and 10,264 joint ventures. During the reporting period, income of €7 million (previous year: €4 million) was recorded from interest-bearing loans innogy performance shares) granted within the framework of the LTIP SPP. In the previous year, share-based payments amounting to to joint ventures. As of the balance-sheet date, financial receivables €2,987,000 (73,702 RWE and 53,107 innogy performance shares) accounted for €142 million of the receivables from joint ventures were granted. (previous year: €177 million). All transactions were completed at arm’s length conditions, i.e. on principle the conditions of these Including compensation from subsidiaries for the exercise of mandates, transactions did not differ from those with other enterprises. the Supervisory Board received total compensation of €3,637,000 €285 million of the receivables (previous year: €371 million) and (previous year: €3,228,000) in fiscal 2017. The employee representa- €139 million of the liabilities (previous year: €107 million) fall tives on the Supervisory Board have labour contracts with the due within one year. Other obligations from executory contracts respective Group companies. Remuneration occurs in accordance amounted to €1,426 million (previous year: €1,203 million). with the relevant contractual conditions. Above and beyond this, the RWE Group did not execute any material During the period under review, no loans or advances were granted transactions with related companies or persons. to members of the Executive or Supervisory Boards. With regard to fiscal 2017, in addition to the members of the Execu- Former members of the Executive Board and their surviving tive Board and Supervisory Board of RWE AG, the Executive Board dependants received €10,699,000 (previous year: €11,653,000), members and Supervisory Board members of innogy SE are deemed of which €918,000 came from subsidiaries (previous year: to be key management personnel for the RWE Group. The following €1,305,000). As of the balance-sheet date, €146,430,000 (previous infor mation pertains to total compensation pursuant to IAS 24. year: €159,950,000) were accrued for defined benefit obligations Key management personnel (Executive and Supervisory Board dependants. Of this, €8,601,000 was set aside at subsidiaries to former members of the Executive Board and their surviving members) received €22,121,000 in short-term compensation com- ( previous year: €14,808,000). ponents for fiscal 2017 (previous year: €13,832,000). Additionally, share-based payments within the framework of LTIP SPP amounted to Information on the members of the Executive and Supervisory €3,183,000 (previous year: €1,131,000) and their pension service Boards is presented on page 185 et seqq. of the Notes. costs amounted to €538,000 (previous year: €229,000). Provisions totalling €32,624,000 (previous year: €23,775,000) were formed for obligations vis-à-vis key management personnel. The compensation model and compensation of the Executive and Supervisory Boards of RWE AG calculated pursuant to the German Commercial Code is presented in the compensation report, which is included in the review of operations. 150 RWE Annual Report 2017 (33) Auditor’s fees The fees for audit services primarily contain the fees for the audit national tax-related matters as well as review of resolutions of the tax authorities. Other services primarily include compensation for of the consolidated financial statements and for the audit of the IT project consulting. The higher fees in the previous year were financial statements of RWE AG and its subsidiaries, along with mainly related to the IPO of innogy SE. An expense of €5 million was the review of the interim statements. In the previous year, fees for recognised for this. the review of the combined financial statements prepared for the IPO of innogy SE are also included here. Other assurance services RWE recognised the following fees as expenses for the services ren- include fees for review of the internal controlling system, as well dered by the auditors of the consolidated financial statements, as expenses related to statutory or court-ordered requirements. In PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft particular, the fees for tax services include compensation for consul- (PwC) and companies belonging to PwC’s international network: tation in the preparation of tax returns and other national and inter- PwC network fees € million Audit services Other assurance services Tax services Other services 2017 2016 Total 17.5 3.4 0.3 3.2 24.4 Of which: Germany 10.9 3.2 0.3 0.8 15.2 Total 19.5 5.0 0.4 2.6 27.5 Of which: Germany 12.4 4.6 0.3 2.6 19.9 (34) Application of Sec. 264, Para. 3 and Sec. 264b of the German Commercial Code (35) Events after the balance-sheet date In the period from 1 January 2018 until the completion of the con- In fiscal 2017, the following German subsidiaries made partial use of solidated financial statements on 26 February 2018, the following the exemption clause included in Sec. 264, Para. 3 and Sec. 264b of significant events occurred: the German Commercial Code (HGB): Placement of an innogy bond • BGE Beteiligungs-Gesellschaft für Energieunternehmen mbH, On 24 January 2018, innogy placed a bond with a volume of Essen €1 billion and a tenor of 11.5 years. The bond was issued by innogy • GBV Dreißigste Gesellschaft für Beteiligungsverwaltung mbH, Finance B.V. and backed by innogy SE. Based on a coupon of 1.5% Essen and an issue rate of 98.785%, the annual yield amounts to 1.617%. • Kernkraftwerk Lingen Gesellschaft mit beschränkter Haftung, Lingen (Ems) Acquisition of Regionetz GmbH • KMG Kernbrennstoff-Management Gesellschaft mit beschränkter In early January 2018, based on a contractual agreement innogy Haftung, Essen obtained control over the ‘Grids‘ division of Stadtwerke Aachen AG • Rheinbraun Brennstoff GmbH, Cologne (STAWAG) and will include this in its consolidated financial state- • Rheinische Baustoffwerke GmbH, Bergheim ments from the first quarter of 2018 onwards. • RV Rheinbraun Handel und Dienstleistungen GmbH, Cologne • RWE Downstream Beteiligungs GmbH, Essen • RWE Rheinhessen Beteiligungs GmbH, Essen • RWE Technology International GmbH, Essen • RWE Trading Services GmbH, Essen Consolidated financial statements > Notes 151 Additionally, an agreement was reached to fold regionetz GmbH, The portion of the enterprise value of the former regionetz GmbH a 100 % shareholding of innogy and thus a fully consolidated corresponding to STAWAG’s prorated capital share in the future company of the RWE Group, into Regionetz GmbH, Aachen Regionetz GmbH is taken as the basis for the cost of the company (‘INFRAWEST GmbH’ prior to renaming), with retroactive commercial acquired by innogy. Any positive difference between this amount effective to 1 January 2018. As consideration for granting a majority and the RWE Group’s share of net assets in the former STAWAG share in regionetz GmbH, innogy will obtain a minority interest of ‘Grids‘ division is recognised as goodwill; any negative difference the shares in Regionetz GmbH, 100 % of which were previously held would be reported as income. by STAWAG. According to the contractual agreement, innogy will have a controlling position in accordance with IFRS 10 and will thus The effects of the initial recognition of the business combination fully consolidate Regionetz GmbH, in which it will hold a capital have not yet been determined definitively due to the complex struc- share of less than 50 %. ture of the transaction. The company will essentially operate electricity, gas, heat and water When the consolidated financial statements of the RWE Group were distribution networks for the City of Aachen, Greater Aachen and prepared, the assets and liabilities assumed as part of the merger parts of the Districts of Heinsberg and Düren. Its assets and liabili- of INFRAWEST GmbH had not yet been determined definitively. ties will comprise the operation of the merging regionetz GmbH Consequently, it is not possible to present the information on the as a contribution by innogy and the ‘Grids’ division that is to be fair values of the assets assumed, including assumed receivables carved out of STAWAG and has been contractually controlled by innogy since the beginning of 2018 as a contribution by STAWAG. and liabilities, or the information on the factors which may comprise goodwill, or any necessary information on an acquisition at a price below market value. In the RWE Group, this merger, which is to occur in several steps, will be reported as the acquisition of the former STAWAG ‘Grids‘ divi- sion at the start of 2018. The accounting treatment of the assets and liabilities of the merging regionetz GmbH in the RWE Group is not affected by the transaction. The assets and liabilities of the acquired company (former STAWAG ‘Grids’ division) will be recognised at fair value in RWE’s consolidated financial statements. After completion of the transaction, non-con- trolling interests will be reported within equity, in the amount of the capital share in Regionetz GmbH allocable to STAWAG. As part of this combination, an equity capital transaction thus occurs, within the framework of which a third party also obtains – via its capital share in the merged company – a corresponding share in the opera- tions of the former regionetz GmbH, which was previously fully con- trolled by innogy and has now been folded into the merged company. 152 RWE Annual Report 2017 (36) Declaration according to Sec. 161 of the German Stock Corporation Act The declarations on the German Corporate Governance Code prescribed by Sec. 161 of the German Stock Corporation Act (AktG) have been submitted for RWE AG and innogy SE and have been made permanently and publicly available to shareholders on the Internet pages of RWE AG1 and innogy SE 2. Essen, 26 February 2018 The Executive Board Schmitz Krebber 1 www.rwe.com/statement-of-compliance-2017 2 www.innogy.com/statement-of-compliance-2017 Consolidated financial statements > List of shareholdings (part of the notes) 153 3.7 LIST OF SHAREHOLDINGS (PART OF THE NOTES) List of shareholdings as per Sec. 285 No. 11 and No. 11a and Sec. 313 Para. 2 (in relation to Sec. 315 e I) of HGB as of 31 December 2017 Shareholding in % Equity Net income/loss Direct I. Affiliated companies which are included in the consolidated financial statements Aktivabedrijf Wind Nederland B.V., Zwolle/Netherlands An Suidhe Wind Farm Limited, Swindon/United Kingdom Andromeda Wind S.r.l., Bolzano/Italy Artelis S.A., Luxembourg/Luxembourg A/V/E GmbH, Halle (Saale) Bayerische Bergbahnen-Beteiligungs-Gesellschaft mbH, Gundremmingen Bayerische Elektrizitätswerke GmbH, Augsburg Bayerische-Schwäbische Wasserkraftwerke Beteiligungsgesellschaft mbH, Gundremmingen Belectric Solar & Battery - Group - (pre-consolidated) Belectric France S.à.r.l., Vendres/France Belectric GmbH, Kolitzheim Belectric Israel Ltd., Be’er Scheva/Israel Belectric Italia S.R.L., Latina/Italy Belectric Photovoltaic India Private Limited, Mumbai/India Belectric PV Dach GmbH, Kolitzheim Belectric Solar & Battery GmbH, Kolitzheim Belectric Solar Ltd., Iver/United Kingdom hoch.rein Beteiligungen GmbH, Kolitzheim Jurchen Technology GmbH, Helmstadt Jurchen Technology India Private Limited, Mumbai/India ka-tek GmbH, Kolitzheim Padcon GmbH, Kitzingen Solar Holding Poland GmbH, Kolitzheim BGE Beteiligungs-Gesellschaft für Energieunternehmen mbH, Essen 100 Bilbster Wind Farm Limited, Swindon/United Kingdom Bristol Channel Zone Limited, Swindon/United Kingdom BTB-Blockheizkraftwerks, Träger- und Betreibergesellschaft mbH Berlin, Berlin Budapesti Elektromos Muvek Nyrt., Budapest/Hungary Carl Scholl GmbH, Cologne Carnedd Wen Wind Farm Limited, Swindon/United Kingdom Cegecom S.A., Luxembourg/Luxembourg Channel Energy Limited, Swindon/United Kingdom CR-Immobilien-Vermietungsgesellschaft mbH & Co. KG Cottbus, Cottbus Dromadda Beg Wind Farm Limited, Tralee/Ireland EGG Holding B.V. - Group - (pre-consolidated) Bakker CV Installatietechniek B.V., Zwaagdijk/Netherlands EGG Holding B.V., Meppel/Netherlands Energiewacht Facilities B.V., Zwolle/Netherlands Energiewacht Steenwijk B.V., Zwolle/Netherlands Energiewacht VKI B.V., Dalfsen/Netherlands Energiewacht-A.G.A.S.-Deventer B.V., Deventer/Netherlands Energiewacht-Gazo B.V., Zwolle/Netherlands € '000 181,751 21,271 7,593 39,002 3,358 26,445 24,728 62,953 62,802 € '000 – 30,270 – 171 2,078 2,928 1,289 1,014 1 8,288 – 10,7222 4,317,938 3,006 – 2,087 19,783 663,195 638 – 3,475 11,071 – 17,207 – 1,134 3,005 23,121 1 14 – 101 1 56,796 28 – 115 1,171 – 789 454 – 156 1,0422 Total 100 100 51 90 76 100 100 62 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 55 100 100 100 100 8 100 100 100 100 100 100 100 100 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. 154 RWE Annual Report 2017 I. Affiliated companies which are included in the consolidated financial statements GasWacht Friesland B.V., Gorredijk/Netherlands GasWacht Friesland Facilities B.V., Leeuwarden/Netherlands N.V. Energiewacht-Groep, Zwolle/Netherlands Sebukro B.V., Amersfoort/Netherlands ELE Verteilnetz GmbH, Gelsenkirchen Electra Insurance Limited, Hamilton/Bermuda Elektrizitätswerk Landsberg GmbH, Landsberg am Lech ELMU DSO Holding Korlátolt Felelosségu Társaság, Budapest/Hungary ELMU Halozati Eloszto Kft., Budapest/Hungary ELMU-ÉMÁSZ Energiakereskedo Kft., Budapest/Hungary ELMU-ÉMÁSZ Energiaszolgáltató Zrt., Budapest/Hungary ELMU-ÉMÁSZ Halozati Szolgáltató Kft., Budapest/Hungary ELMU-ÉMÁSZ Ügyfélszolgálati Kft., Budapest/Hungary ÉMÁSZ DSO Holding Korlátolt Felelosségu Társaság, Miskolc/Hungary ÉMÁSZ Halozati Kft., Miskolc/Hungary Emscher Lippe Energie GmbH, Gelsenkirchen Energiedirect B.V., Waalre/Netherlands Energienetze Berlin GmbH, Berlin Energies France S.A.S. - Group - (pre-consolidated) Centrale Hydroelectrique d'Oussiat S.A.S., Paris/France Energies Charentus S.A.S., Paris/France Energies France S.A.S., Paris/France Energies Maintenance S.A.S., Paris/France Energies Saint Remy S.A.S., Paris/France Energies VAR 1 S.A.S., Paris/France Energies VAR 3 S.A.S., Paris/France SAS Île de France S.A.S., Paris/France Energiewacht N.V. - Group - (pre-consolidated) EGD-Energiewacht Facilities B.V., Assen/Netherlands Energiewacht installatie B.V., Assen/Netherlands Energiewacht N.V., Veendam/Netherlands Energiewacht West Nederland B.V., Assen/Netherlands energis GmbH, Saarbrücken energis-Netzgesellschaft mbH, Saarbrücken Energy Resources B.V., 's-Hertogenbosch/Netherlands Energy Resources Holding B.V., 's-Hertogenbosch/Netherlands Energy Resources Ventures B.V., 's-Hertogenbosch/Netherlands envia Mitteldeutsche Energie AG, Chemnitz envia SERVICE GmbH, Cottbus envia TEL GmbH, Markkleeberg envia THERM GmbH, Bitterfeld-Wolfen enviaM Beteiligungsgesellschaft Chemnitz GmbH, Chemnitz enviaM Beteiligungsgesellschaft mbH, Essen Shareholding in % Equity Net income/loss Direct Total € '000 € '000 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 72 100 100 100 100 59 100 100 100 100 100 883 31,327 1,447 714,231 768,337 6,888 6,076 102 739 272,100 281,341 56,917 – 52,980 25 31,131 1 1,045 432 – 6 33,850 5,456 85 0 731 – 6 9,270 36,492 – 1,100 1 – 1622 39,434 2,9822 136,964 27,002 140,154 44,326 24,421 22,750 1 2,529 53,963 236 1,709,000 203,052 3,316 18,998 63,463 56,366 1,362 3,004 1 1 175,723 31,707 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. Consolidated financial statements > List of shareholdings (part of the notes) 155 Shareholding in % Equity Net income/loss Direct Total I. Affiliated companies which are included in the consolidated financial statements eprimo GmbH, Neu-Isenburg Essent Belgium N.V., Antwerp/Belgium Essent CNG Cleandrive B.V., 's-Hertogenbosch/Netherlands Essent Energie Verkoop Nederland B.V., 's-Hertogenbosch/Netherlands Essent EnergieBewust Holding B.V., 's-Hertogenbosch/Netherlands Essent Energy Group B.V., Arnhem/Netherlands Essent IT B.V., Arnhem/Netherlands Essent Nederland B.V., Arnhem/Netherlands Essent N.V., 's-Hertogenbosch/Netherlands Essent Power B.V., Arnhem/Netherlands Essent Retail Energie B.V., 's-Hertogenbosch/Netherlands Essent Sales Portfolio Management B.V., 's-Hertogenbosch/Netherlands Essent Wind Nordsee Ost Planungs- und Betriebsgesellschaft mbH, Helgoland Eszak-magyarorszagi Aramszolgáltató Nyrt., Miskolc/Hungary EuroSkyPark GmbH, Saarbrücken EVIP GmbH, Bitterfeld-Wolfen EWV Energie- und Wasser-Versorgung GmbH, Stolberg FAMIS Gesellschaft für Facility Management und Industrieservice mbH, Saarbrücken Fri-El Anzi Holding S.r.l., Bolzano/Italy Fri-El Anzi S.r.l., Bolzano/Italy Fri-El Guardionara Holding S.r.l., Bolzano/Italy Fri-El Guardionara S.r.l., Bolzano/Italy GasNet, s.r.o., Ústí nad Labem/Czech Republic GBV Dreißigste Gesellschaft für Beteiligungsverwaltung mbH, Essen Geas Energiewacht B.V., Enschede/Netherlands Gemeinschaftskraftwerk Bergkamen A beschränkt haftende OHG, Bergkamen Georgia Biomass Holding LLC, Savannah/USA Georgia Biomass LLC, Savannah/USA GfV Gesellschaft für Vermögensverwaltung mbH, Dortmund 100 Great Yarmouth Power Limited, Swindon/United Kingdom Green Gecco GmbH & Co. KG, Essen GridServices, s.r.o., Brno/Czech Republic GWG Grevenbroich GmbH, Grevenbroich Harryburn Wind Farm Limited, Swindon/United Kingdom Hof Promotion B.V., Eindhoven/Netherlands Immobilien-Vermietungsgesellschaft Schumacher GmbH & Co. Objekt Kundenzentren KG, Düsseldorf innogy Aqua GmbH, Mülheim an der Ruhr innogy Benelux Holding B.V., 's-Hertogenbosch/Netherlands innogy Bergheim Windparkbetriebsgesellschaft mbH, Hanover innogy Beteiligungsholding GmbH, Essen innogy Brise Windparkbetriebsgesellschaft mbH, Hanover € '000 4,600 94,680 – 12 € '000 1 6,633 – 12 102,820 – 25,400 – 4 – 534 – 266,782 – 4 – 106 – 3,357 715,800 – 3,986,800 7,737,300 18 691,420 272,828 256 299,368 558 11,347 49,347 4,180 7,310 6,631 10,721 10,304 901,564 25 13,889 6,277 56,342 38,248 103,680 0 96,827 35,261 23,648 – 1,426 – 66 – 115 233,106 87,300 43,772 144,800 700,384 1 15,517 282 1 13,570 1,326 – 31 1,472 1,379 2,502 177,959 1 1,633 594 1,055 17,163 92,908 0 5,001 30,234 4,250 – 1,445 – 135 949 1 2,990,200 2,269,100 25 3,895,026 226 1 – 1 1 100 100 100 100 100 100 100 100 100 100 100 100 100 54 51 100 54 100 51 100 51 100 100 100 100 51 100 100 100 100 51 100 60 100 100 8 100 100 100 100 100 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. 156 RWE Annual Report 2017 I. Affiliated companies which are included in the consolidated financial statements innogy Business Services Benelux B.V., Arnhem/Netherlands innogy Business Services Polska Sp. z o.o., Krakow/Poland Innogy Business Services UK Limited, Swindon/United Kingdom innogy Ceská republika a.s., Prague/Czech Republic innogy Company Building GmbH, Berlin innogy Energetyka Trzemeszno Sp. z o.o., Wroclaw/Poland innogy Energie, s.r.o., Prague/Czech Republic innogy Energo, s.r.o., Prague/Czech Republic innogy Evendorf Windparkbetriebsgesellschaft mbH, Hanover innogy Finance B.V., 's-Hertogenbosch/Netherlands innogy Gas Storage NWE GmbH, Dortmund innogy Gas Storage, s.r.o., Prague/Czech Republic innogy Gastronomie GmbH, Essen innogy Grid Holding, a.s., Prague/Czech Republic Innogy Gym 2 Limited, Swindon/United Kingdom Innogy Gym 3 Limited, Swindon/United Kingdom Innogy Gym 4 Limited, Swindon/United Kingdom innogy Hörup Windparkbetriebsgesellschaft mbH, Hanover innogy Hungária Tanácsadó Kft., Budapest/Hungary innogy indeland Windpark Eschweiler GmbH & Co. KG, Eschweiler innogy Innovation GmbH, Essen innogy International Participations N.V., 's-Hertogenbosch/Netherlands innogy IT Magyarország Kft., Budapest/Hungary innogy Italia S.p.A., Milan/Italy innogy Kaskasi GmbH, Hamburg innogy Lengerich Windparkbetriebsgesellschaft mbH, Gersten innogy Lüneburger Heide Windparkbetriebsgesellschaft mbH, Walsrode innogy Metering GmbH, Mülheim an der Ruhr innogy Mistral Windparkbetriebsgesellschaft mbH, Hanover innogy Netze Deutschland GmbH, Essen innogy New Ventures LLC, Palo Alto/USA innogy Offshore Wind Netherlands B.V., 's-Hertogenbosch/Netherlands innogy Polska Contracting Sp. z o.o., Wroclaw/Poland innogy Polska S.A., Warsaw/Poland innogy Renewables Benelux B.V., 's-Hertogenbosch/Netherlands innogy Renewables Beteiligungs GmbH, Dortmund Innogy Renewables Ireland Limited, Dublin/Ireland innogy Renewables Polska Sp. z o.o., Warsaw/Poland Innogy Renewables UK Holdings Limited, Swindon/United Kingdom Innogy Renewables UK Limited, Swindon/United Kingdom Innogy Renewables US LLC, Delaware/USA innogy SE, Essen innogy Seabreeze II GmbH & Co. KG, Essen Shareholding in % Equity Net income/loss Direct Total 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 77 100 € '000 – 1,992 5,310 20,289 2,139,381 1,868 1,974 204,051 19,988 25 10,907 350,087 539,594 275 1,143,966 – 11,240 – 11,239 – 33,715 26 2,457 60,722 130,038 9,380,116 1,159 12,198 99 25 25 25 578 497,854 34,703 – 2,527 5,722 424,028 – 17,936 7,350 – 811 208,516 1,939,665 1,524,877 52,032 8,926,111 13,386 € '000 3,951 1,259 – 13,350 209,039 – 657 235 123,410 742 1 1,546 1 12,496 1 150,629 – 6,265 – 6,266 – 18,804 1 – 56 1,761 1 438,700 72 6,770 1 1 1 1 1 1 – 7,113 384 0 100,446 – 3,253 1 – 807 – 82,713 314,574 142,590 – 614 907,605 – 19,149 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. Consolidated financial statements > List of shareholdings (part of the notes) 157 I. Affiliated companies which are included in the consolidated financial statements innogy Slovensko s.r.o., Bratislava/Slovakia Innogy Solutions Ireland Limited, Dublin/Ireland innogy solutions Kft., Budapest/Hungary innogy Solutions s.r.o., Banská Bystrica/Slovakia innogy Sommerland Windparkbetriebsgesellschaft mbH, Hanover innogy South East Europe s.r.o., Bratislava/Slovakia innogy Spain, S.A.U.- Group - (pre-consolidated) Danta de Energías, S.A., Soria/Spain Explotaciones Eólicas de Aldehuelas, S.L., Soria/Spain General de Mantenimiento 21, S.L.U., Barcelona/Spain Hidroeléctrica del Trasvase, S.A., Barcelona/Spain innogy Spain, S.A.U., Barcelona/Spain Innogy Stallingborough Limited, Swindon/United Kingdom innogy Stoen Operator Sp. z o.o., Warsaw/Poland innogy Süderdeich Windparkbetriebsgesellschaft mbH, Süderdeich innogy TelNet GmbH, Essen innogy Titz Windparkbetriebsgesellschaft mbH, Essen innogy Wind Onshore Deutschland GmbH, Hanover innogy Windpark Bedburg GmbH & Co. KG, Bedburg innogy Windpower Netherlands B.V., 's-Hertogenbosch/Netherlands innogy Zákaznické služby, s.r.o., Ostrava/Czech Republic innogy Zweite Vermögensverwaltungs GmbH, Essen INVESTERG - Investimentos em Energias, SGPS, Lda. - Group - (pre-consolidated) INVESTERG - Investimentos em Energias, Sociedade Gestora de Participações Sociais, Lda., São João do Estoril/Portugal LUSITERG - Gestão e Produção Energética, Lda., São João do Estoril/Portugal Isoprofs B.V., Meijel/Netherlands iSWITCH GmbH, Essen It's a beautiful world B.V., Amersfoort/Netherlands Kernkraftwerk Gundremmingen GmbH, Gundremmingen Kernkraftwerk Lingen Gesellschaft mit beschränkter Haftung, Lingen (Ems) Kernkraftwerke Lippe-Ems Gesellschaft mit beschränkter Haftung, Lingen (Ems) KMG Kernbrennstoff-Management Gesellschaft mit beschränkter Haftung, Essen Knabs Ridge Wind Farm Limited, Swindon/United Kingdom Koprivnica Opskrba d.o.o., Koprivnica/Croatia Koprivnica Plin d.o.o., Koprivnica/Croatia Kraftwerksbeteiligungs-OHG der RWE Power AG und der PreussenElektra GmbH, Lingen/Ems Krzecin Sp. z o.o., Warsaw/Poland Lechwerke AG, Augsburg Leitungspartner GmbH, Düren LEW Anlagenverwaltung Gesellschaft mit beschränkter Haftung, Gundremmingen LEW Beteiligungsgesellschaft mbH, Gundremmingen Shareholding in % Equity Net income/loss Direct Total 100 100 100 100 100 100 99 95 100 60 100 100 100 100 100 100 100 51 100 100 100 100 74 100 100 100 75 100 99 100 100 75 75 88 100 90 100 100 100 € '000 8,240 4,771 1,952 1,177 26 1,058 € '000 7,841 823 – 51 147 1 – 54 131,098 – 2,7952 – 8,334 676,069 106 25 25 77,373 93,613 – 36,246 1,572 350,026 16,907 – 28 25 4,691 92,527 20,034 432,269 696,225 8,901 285 8,786 144,433 12,763 522,812 100 290,715 471,290 – 181 45,951 1 1 1 1 6,172 70 1,109 1 6102 – 155 1 1,262 8,343 1 1 1 426 0 0 – 66 – 4,583 123,149 1 8,644 14,983 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. 158 RWE Annual Report 2017 I. Affiliated companies which are included in the consolidated financial statements LEW Netzservice GmbH, Augsburg LEW Service & Consulting GmbH, Augsburg LEW TelNet GmbH, Neusäß LEW Verteilnetz GmbH, Augsburg Little Cheyne Court Wind Farm Limited, Swindon/United Kingdom Mátrai Erömü Zártkörüen Müködö Részvénytársaság, Visonta/Hungary MI-FONDS 178, Frankfurt am Main MI-FONDS F55, Frankfurt am Main MI-FONDS G50, Frankfurt am Main MI-FONDS G55, Frankfurt am Main MI-FONDS J55, Frankfurt am Main MI-FONDS K55, Frankfurt am Main MITGAS Mitteldeutsche Gasversorgung GmbH, Halle (Saale) Mitteldeutsche Netzgesellschaft Gas mbH, Halle (Saale) Mitteldeutsche Netzgesellschaft Strom mbH, Halle (Saale) Mittlere Donau Kraftwerke AG, Munich ML Wind LLP, Swindon/United Kingdom NEW AG, Mönchengladbach NEW Netz GmbH, Geilenkirchen NEW Niederrhein Energie und Wasser GmbH, Mönchengladbach NEW NiederrheinWasser GmbH, Viersen NEW Smart City GmbH, Mönchengladbach NEW Tönisvorst GmbH, Tönisvorst NEW Viersen GmbH, Viersen Nordsee Windpark Beteiligungs GmbH, Essen Npower Business and Social Housing Limited, Swindon/United Kingdom Npower Commercial Gas Limited, Swindon/United Kingdom Npower Direct Limited, Swindon/United Kingdom Npower Financial Services Limited, Swindon/United Kingdom Npower Gas Limited, Swindon/United Kingdom Npower Group plc, Swindon/United Kingdom Npower Limited, Swindon/United Kingdom Npower Northern Limited, Swindon/United Kingdom Npower Yorkshire Limited, Swindon/United Kingdom Npower Yorkshire Supply Limited, Swindon/United Kingdom NRW Pellets GmbH, Erndtebrück Octopus Electrical Limited, Swindon/United Kingdom OIE Aktiengesellschaft, Idar-Oberstein Park Wiatrowy Nowy Staw Sp. z o.o., Warsaw/Poland Park Wiatrowy Opalenica Sp. z o.o., Warsaw/Poland Park Wiatrowy Suwalki Sp. z o.o., Warsaw/Poland Park Wiatrowy Tychowo Sp. z o.o., Warsaw/Poland Piecki Sp. z o.o., Warsaw/Poland Shareholding in % Equity Net income/loss Direct Total 100 100 100 100 100 59 51 100 100 100 100 100 100 75 100 100 408 51 404 100 100 100 100 98 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 € '000 87 1,250 8,358 139,816 44,436 299,124 800,195 606,114 1,323,501 286,700 15,589 124,357 129,245 25 4,171 5,113 82,464 175,895 95,699 15,587 46,613 825 13,961 13,330 8,087 3,985 1,270 101,838 – 172 – 215,893 263,741 211,895 – 1,084,270 – 729,513 0 312 2,440 11,190 59,111 18,317 52,536 25,459 21,091 € '000 1 1 7,117 1 5,702 – 29,258 20,504 18,336 – 23,448 10,963 287 26,180 37,289 1 1 0 5,038 65,248 28,498 36,406 12,169 136 1,674 6,689 1 17 3,097 – 23,280 15 3,085 142,740 – 4,568 – 47,961 – 33,057 0 1 0 1 – 8,524 – 4,842 – 6,330 – 17,680 – 12,703 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. Consolidated financial statements > List of shareholdings (part of the notes) 159 I. Affiliated companies which are included in the consolidated financial statements Plus Shipping Services Limited, Swindon/United Kingdom Powerhouse B.V., Almere/Netherlands PS Energy UK Limited, Swindon/United Kingdom Regenesys Holdings Limited, Swindon/United Kingdom Regenesys Technologies, Swindon/United Kingdom regionetz GmbH, Eschweiler Rheinbraun Brennstoff GmbH, Cologne Rheinische Baustoffwerke GmbH, Bergheim Rheinkraftwerk Albbruck-Dogern Aktiengesellschaft, Waldshut-Tiengen Rhein-Sieg Netz GmbH, Siegburg rhenag Rheinische Energie Aktiengesellschaft, Cologne Rhenas Insurance Limited, Sliema/Malta Rhyl Flats Wind Farm Limited, Swindon/United Kingdom RL Besitzgesellschaft mbH, Gundremmingen RL Beteiligungsverwaltung beschr. haft. OHG, Gundremmingen RUMM Limited, Ystrad Mynach/United Kingdom RV Rheinbraun Handel und Dienstleistungen GmbH, Cologne RWE & Turcas Güney Elektrik Üretim A.S., Ankara/Turkey RWE Aktiengesellschaft, Essen RWE Cogen UK (Hythe) Limited, Swindon/United Kingdom RWE Cogen UK Limited, Swindon/United Kingdom RWE Cogen UK Trading Limited, Swindon/United Kingdom RWE Corner Participations B.V., 's-Hertogenbosch/Netherlands RWE Downstream Beteiligungs GmbH, Essen RWE East, s.r.o., Prague/Czech Republic RWE Eemshaven Holding B.V., 's-Hertogenbosch/Netherlands RWE Eemshaven Holding II B.V., Geertruidenberg/Netherlands RWE Energie S.R.L., Bucharest/Romania RWE Energija d.o.o., Zagreb/Croatia RWE Generation Belgium N.V., Antwerp/Belgium RWE Generation NL B.V., Arnhem/Netherlands RWE Generation NL Participations B.V., Arnhem/Netherlands RWE Generation NL Personeel B.V., Arnhem/Netherlands RWE Generation SE, Essen RWE Generation UK Holdings plc, Swindon/United Kingdom RWE Generation UK plc, Swindon/United Kingdom RWE Hrvatska d.o.o., Zagreb/Croatia RWE Ljubljana d.o.o., Ljubljana/Slovenia RWE Markinch Limited, Swindon/United Kingdom RWE Nuclear GmbH, Essen RWE Personeel B.V., Geertruidenberg/Netherlands RWE Plin d.o.o., Zagreb/Croatia RWE Power Aktiengesellschaft, Cologne and Essen Shareholding in % Equity Net income/loss Direct Total 100 100 100 100 100 100 100 100 77 100 67 100 50 100 100 100 100 70 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 € '000 27,283 48,818 – 874 0 0 113,360 82,619 9,236 31,664 20,774 159,949 58,270 167,609 114,039 362,958 91 36,694 304,549 € '000 – 834 5.900 – 885 0 9 1 1 1 1,757 1 45,836 224 8,733 13,636 34,371 – 259 1 0 6,103,456 1,411,691 11,050 164,341 0 35,259 13,874,855 311 20 – 53,422 – 8,512 706 71,040 229,496 380,771 12,152 264,673 3,057,822 1,591,465 9,553 399 – 102,179 99,858 – 40 181 2,037,209 1,430 2,262 0 5,153 1 92 – 14,751 – 67,163 – 8,088 – 1,063 3,542 157,231 – 1,764 7,215 1 1,823,646 – 302,609 – 2,705 – 1,702 – 11,228 1 – 40 – 328 1 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. 160 RWE Annual Report 2017 I. Affiliated companies which are included in the consolidated financial statements RWE Rheinhessen Beteiligungs GmbH, Essen RWE Supply & Trading Asia-Pacific PTE. LTD., Singapore/Singapore RWE Supply & Trading CZ, a.s., Prague/Czech Republic RWE Supply & Trading CZ GmbH, Essen RWE Supply & Trading GmbH, Essen RWE Supply & Trading (India) Private Limited, Mumbai/India RWE Supply & Trading Participations Limited, London/United Kingdom RWE Supply & Trading Switzerland S.A., Geneva/Switzerland RWE Technology International GmbH, Essen RWE Technology Tasarim ve Mühendislik Danismanlik Ticaret Limited Sirketi, Istanbul/Turkey RWE Technology UK Limited, Swindon/United Kingdom RWE Trading Americas Inc., New York City/USA RWE Trading Services GmbH, Essen RWEST Middle East Holdings B.V., 's-Hertogenbosch/Netherlands RWW Rheinisch-Westfälische Wasserwerksgesellschaft mbH, Mülheim an der Ruhr SARIO Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Würzburg KG, Würzburg SRS EcoTherm GmbH, Salzbergen Stadtwerke Düren GmbH, Düren Südwestsächsische Netz GmbH, Crimmitschau Süwag Energie AG, Frankfurt am Main Süwag Grüne Energien und Wasser GmbH, Frankfurt am Main Süwag Vertrieb AG & Co. KG, Frankfurt am Main Syna GmbH, Frankfurt am Main Taciewo Sp. z o.o., Warsaw/Poland The Hollies Wind Farm Limited, Swindon/United Kingdom Transpower Limited, Dublin/Ireland Triton Knoll Offshore Wind Farm Limited, Swindon/United Kingdom Überlandwerk Krumbach GmbH, Krumbach Verteilnetz Plauen GmbH, Plauen VKB-GmbH, Neunkirchen Volta Energycare N.V., Houthalen-Helchteren/Belgium Volta Limburg B.V., Schinnen/Netherlands Volta Service B.V., Schinnen/Netherlands Volta Solar B.V., Heerlen/Netherlands Volta Solar VOF, Heerlen/Netherlands VSE Aktiengesellschaft, Saarbrücken VSE Net GmbH, Saarbrücken VSE Verteilnetz GmbH, Saarbrücken VWS Verbundwerke Südwestsachsen GmbH, Lichtenstein/Sa. Východoslovenská distribucná, a.s., Kosice/Slovakia Shareholding in % Equity Net income/loss Direct Total 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 8 90 504 100 78 100 100 100 100 100 100 100 75 100 50 100 100 100 95 60 51 100 100 98 100 € '000 57,840 2,729 1,072,918 100,669 446,778 612 9,143 28,012 12,463 847 1,442 19,421 5,735 3,348 79,480 – 10,112 16,561 27,378 1,117 € '000 1 3,861 104,400 337 1 237 – 1,639 22,646 1 66 341 8,572 1 0 9,609 417 1,398 5,414 47 581,905 104,750 6,441 680 8,053 18,033 496 4,576 75,427 5,576 22 42,998 – 310 30,894 102 523 1,377 213,863 14,393 3,109 26,908 600,975 1 1 1 – 6,988 – 159 – 136 – 875 634 1 3,633 – 68 6,327 0 154 1,143 43,070 2,307 1 2,266 30,626 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. Consolidated financial statements > List of shareholdings (part of the notes) 161 I. Affiliated companies which are included in the consolidated financial statements Východoslovenská energetika a.s., Kosice/Slovakia Východoslovenská energetika Holding a.s., Kosice/Slovakia Wendelsteinbahn GmbH, Brannenburg Wendelsteinbahn Verteilnetz GmbH, Brannenburg Westerwald-Netz GmbH, Betzdorf-Alsdorf Westnetz GmbH, Dortmund Windpark Kattenberg B.V., Zwolle/Netherlands Windpark Zuidwester B.V., 's-Hertogenbosch/Netherlands WKN Windkraft Nord GmbH & Co. Windpark Wönkhausen KG, Hanover WTTP B.V., Arnhem/Netherlands 2. CR Immobilien-Vermietungsgesellschaft mbH & Co. Objekt MEAG Halle KG, Düsseldorf Shareholding in % Equity Net income/loss Direct Total 100 494 100 100 100 100 100 100 100 100 € '000 123,008 576,445 3,318 38 9,875 281,306 205 10,785 1,138 11,954 8 – 720 € '000 1,870 15,824 556 1 1 1 242 – 359 240 300 459 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. 162 RWE Annual Report 2017 II. Affiliated companies which are not included in the consolidated financial Shareholding in % Equity Net income/loss statements due to secondary importance for the assets, liabilities, financial position and profit or loss of the Group Direct Total Adensis GmbH, Dresden Agenzia Carboni S.R.L., Genoa/Italy Alfred Thiel-Gedächtnis-Unterstützungskasse GmbH, Essen 50 Alte Haase Bergwerks-Verwaltungs-Gesellschaft mbH, Dortmund Alvarado Solar S.L., Barcelona/Spain AQUAVENT Gesellschaft für Umwelttechnik und regenerierbare Energien mbH, Lützen Aura Merger Sub LLC, Dover/USA Belectric Australia Pty. Limited, Victoria/Australia Belectric Chile Energia Fotovoltaica LTDA, Santiago de Chile/Chile Belectric Espana Fotovoltaica S.L., Madrid/Spain Belectric Inc., San Mateo/USA Belectric International GmbH, Kolitzheim Belectric Inversiones Latinoamericana S.L., Madrid/Spain Belectric JV GmbH, Kolitzheim Belectric Mexico Fotovoltaica S.de R.L. de C.V., Bosques de las Lomas/Mexico Belectric Polska Sp. z o.o., Warsaw/Poland Belectric PV 10 (SARL), Vendres/France Belectric PV 5 (SARL), Vendres/France Belectric PV 6 (SARL), Vendres/France Belectric PV 9 (SARL), Vendres/France Beteiligungsgesellschaft Werl mbH, Essen bildungszentrum energie GmbH, Halle (Saale) Bioenergie Bad Wimpfen GmbH & Co. KG, Bad Wimpfen Bioenergie Bad Wimpfen Verwaltungs-GmbH, Bad Wimpfen Bioenergie Kirchspiel Anhausen GmbH & Co. KG, Anhausen Bioenergie Kirchspiel Anhausen Verwaltungs-GmbH, Anhausen Biogas Schwalmtal GmbH & Co. KG, Schwalmtal Biogasanlage Schwalmtal GmbH, Schwalmtal Burgar Hill Wind Farm Limited, Swindon/United Kingdom Catalina-Cypress Holding Limited, Swindon/United Kingdom Causeymire Two Wind Farm Limited, Swindon/United Kingdom Ciriè Centrale PV s.a.s. (SRL), Rome/Italy Clavellinas Solar, S.L., Barcelona/Spain Climagy Photovoltaikprojekt GmbH & Co. KG, Kolitzheim Climagy Photovoltaikprojekt Verwaltungs-GmbH, Kolitzheim Climagy PV-Freifeld GmbH & Co. KG, Kolitzheim Climagy PV-Freifeld Verwaltungs-GmbH, Kolitzheim Climagy PV-Sonnenanlage GmbH & Co. KG, Kolitzheim Climagy PV-Sonnenanlage Verwaltungs-GmbH, Kolitzheim Climagy Sonneneinstrahlung GmbH & Co. KG, Kolitzheim Climagy Sonneneinstrahlung Verwaltungs-GmbH, Kolitzheim Climagy Sonnenkraft GmbH & Co. KG, Kolitzheim 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 100 51 100 51 100 66 99 100 100 100 100 100 100 100 100 100 100 100 100 100 100 € '000 322 284 5,113 – 70,051 3,111 – 494 – 1,034 21 – 478 45 192 14 – 471 – 149 – 5 – 8 – 5 – 15 1,182 613 2,266 32 166 31 787 44 0 0 – 5 – 29 29 – 29 29 – 25 29 – 16 24 – 30 € '000 62 5 0 – 2,572 3 2,292 3 370 – 662 – 17 647 29 – 47 – 5 – 107 – 45 – 2 – 2 0 – 2 499 138 162 1 28 1 – 119 4 0 3 0 0 3 – 3 0 – 5 0 – 6 0 – 3 0 – 4 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. Consolidated financial statements > List of shareholdings (part of the notes) 163 II. Affiliated companies which are not included in the consolidated financial Shareholding in % Equity Net income/loss statements due to secondary importance for the assets, liabilities, financial position and profit or loss of the Group Direct Total € '000 € '000 Climagy Sonnenkraft Verwaltungs GmbH, Kolitzheim Climagy Sonnenstrom GmbH & Co. KG, Kolitzheim Climagy Sonnenstrom Verwaltungs GmbH, Kolitzheim Climagy Stromertrag GmbH & Co. KG, Kolitzheim Climagy Stromertrag Verwaltungs-GmbH, Kolitzheim Clocaenog Wind Farm Limited, Swindon/United Kingdom Cloghaneleskirt Energy Supply Limited, Tralee/Ireland COMCO MCS S.A., Luxembourg/Luxembourg Curns Energy Limited, Dublin/Ireland DigiKoo GmbH, Essen Doggerbank Project 3B Innogy Limited, Swindon/United Kingdom Doggerbank Project 3C Limited, Swindon/United Kingdom Doggerbank Project 3D Limited, Swindon/United Kingdom Doggerbank Project 3E Limited, Swindon/United Kingdom Doggerbank Project 3F Limited, Swindon/United Kingdom E & Z Industrie-Lösungen GmbH, Essen easyOptimize GmbH, Essen Eko-En 1 Sp. z o.o., Warsaw/Poland El Algarrobo (SpA), Santiago de Chile/Chile El Chañar (SpA), Santiago de Chile/Chile El Navajo Solar, S.L., Barcelona/Spain El Pimiento (SpA), Santiago de Chile/Chile El Solar SpA, Santiago de Chile/Chile El Tamarugo (SpA), Santiago de Chile/Chile ELMU-ÉMÁSZ Energiatároló Kft., Budapest/Hungary Energenti plus d. o. o., Cerknica/Slovenia Energetyka Wschod Sp. z o.o., Wroclaw/Poland Energiegesellschaft Leimen GmbH & Co. KG, Leimen Energiegesellschaft Leimen Verwaltungsgesellschaft mbH, Leimen energienatur Gesellschaft für Erneuerbare Energien mbH, Siegburg Energieversorgung Timmendorfer Strand GmbH & Co. KG, Timmendorfer Strand Energy Ventures GmbH, Saarbrücken enervolution GmbH, Bochum enviaM Erneuerbare Energien Verwaltungsgesellschaft mbH, Markkleeberg enviaM Neue Energie Management GmbH, Halle (Saale) enviaM Zweite Neue Energie Management GmbH, Halle (Saale) Eólica de Sarnago, S.A., Soria/Spain ESK GmbH, Dortmund Fernwärmeversorgung Saarlouis-Steinrausch Investitionsgesellschaft mbH, Saarlouis "Finelectra" Finanzgesellschaft für Elektrizitäts-Beteiligungen AG, Hausen/Switzerland Free Electrons LLC, Palo Alto/USA 100 100 100 100 100 100 100 100 70 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 75 75 64 51 100 100 100 100 100 52 100 100 100 100 28 – 28 28 – 16 27 0 286 0 0 – 4 0 – 3 0 0 3 127 3 3 0 3 3 3 3 19,759 – 2,771 1,305 1,619 – 4,795 – 1,028 1 1 1 1 1 21 98 198 28 112 3,196 6 48 35 26 1,563 128 7,567 9,760 0 0 3 0 0 0 3 6 20 14 1 4 155 – 2 1 2 1 3 – 32 1 1 34 3 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. 164 RWE Annual Report 2017 II. Affiliated companies which are not included in the consolidated financial Shareholding in % Equity Net income/loss statements due to secondary importance for the assets, liabilities, financial position and profit or loss of the Group Direct Fresh Energy GmbH, Berlin FUCATUS Vermietungsgesellschaft mbH & Co. Objekt Recklinghausen KG, Düsseldorf Fundacja innogy w Polsce, Warsaw/Poland Gazules I Fotovoltaica S.L., Barcelona/Spain Gazules II Solar S.L., Barcelona/Spain GBV Dreiunddreißigste Gesellschaft für Beteiligungsverwaltung mbH, Essen GBV Einunddreißigste Gesellschaft für Beteiligungsverwaltung mbH, Essen GBV Siebte Gesellschaft für Beteiligungsverwaltung mbH, Essen GBV Vierunddreißigste Gesellschaft für Beteiligungsverwaltung mbH, Essen GBV Zweiunddreißigste Gesellschaft für Beteiligungsverwaltung mbH, Essen GKB Gesellschaft für Kraftwerksbeteiligungen mbH, Cottbus Goole Fields II Wind Farm Limited, Swindon/United Kingdom 100 100 100 Green Gecco Verwaltungs GmbH, Essen GWG Kommunal GmbH, Grevenbroich Hennef (Sieg) Stromnetz GmbH & Co. KG, Hennef Infraestructuras de Aldehuelas, S.A., Barcelona/Spain Infrastrukturgesellschaft Netz Lübz mbH, Hanover innogy Charge Tech GmbH, Dortmund innogy Consulting Americas, LLC, Cambridge/USA innogy Consulting GmbH, Essen innogy Dritte Vermögensverwaltungs GmbH, Essen innogy e-Mobility Limited, London/United Kingdom innogy e-mobility US LLC, Delaware/USA innogy Energetyka Zachod Sp. z o.o., Wroclaw/Poland innogy indeland Windpark Eschweiler Verwaltungs GmbH, Eschweiler INNOGY INNOVATION CENTER LTD, Tel Aviv/Israel innogy Innovation UK Ltd., London/United Kingdom innogy Middle East & North Africa Ltd., Dubai/UAE innogy Offshore Wind Netherlands Participations I B.V., 's-Hertogenbosch/Netherlands innogy Offshore Wind Netherlands Participations II B.V., 's-Hertogenbosch/Netherlands innogy Offshore Wind Netherlands Participations III B.V., 's-Hertogenbosch/Netherlands innogy Offshore Wind Netherlands Participations IV B.V., 's-Hertogenbosch/Netherlands innogy Polska Solutions Sp. z o.o., Warsaw/Poland innogy Renewables Canada Inc., Vancouver/Canada Innogy Renewables US Wind Holdings LLC, Dover/USA innogy Seabreeze II Verwaltungs GmbH, Essen innogy Solar Netherlands B.V., 's-Hertogenbosch/Netherlands innogy Stiftung für Energie und Gesellschaft gGmbH, Essen Total 62 € '000 € '000 9 94 100 100 100 100 100 100 100 100 100 100 51 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 0 40 25 30 100 21 25 268 38 100 100 428 16 3,833 100 196 41 20 0 37 3 3 1 1 1 – 4 1 – 24 3 1 – 470 0 0 – 16 3 3 4,626 1 3 3 71 6 – 135 3 1,602 – 1,488 0 0 0 0 148 2,562 53 0 0 0 0 0 – 2,119 3 7 3 54,968 – 3,104 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. Consolidated financial statements > List of shareholdings (part of the notes) 165 II. Affiliated companies which are not included in the consolidated financial Shareholding in % Equity Net income/loss statements due to secondary importance for the assets, liabilities, financial position and profit or loss of the Group Direct Total € '000 innogy TelNet Holding, s.r.o., Prague/Czech Republic innogy Turkey Energi Anonim Sirketi, Istanbul/Turkey Innogy US Renewable Projects LLC, Delaware/USA innogy Ventures GmbH, Essen innogy Ventures Vermögensverwaltung 4 GmbH, Essen innogy Ventures Vermögensverwaltung 5 GmbH, Essen innogy Windpark Bedburg Verwaltungs GmbH, Bedburg innogy Windpark Jüchen A44n GmbH & Co. KG, Essen Innogy Windpark Jüchen A44n Verwaltungs GmbH, Essen Inversiones Belectric Chile LTDA, Santiago de Chile/Chile Jerez Fotovoltaica S.L., Barcelona/Spain Jurchen Technology USA Inc., San Mateo/USA Kieswerk Kaarst GmbH & Co. KG, Bergheim Kieswerk Kaarst Verwaltungs GmbH, Bergheim Kiln Pit Hill Wind Farm Limited, Swindon/United Kingdom Korproject Energy Sp. z o.o., Warsaw/Poland KWS Kommunal-Wasserversorgung Saar GmbH, Saarbrücken Las Vaguadas I Fotovoltaica S.L., Barcelona/Spain Las Vaguadas II Solar S.L., Barcelona/Spain Lech Energie Gersthofen GmbH & Co. KG, Gersthofen Lech Energie Verwaltung GmbH, Augsburg Lemonbeat GmbH, Dortmund Lochelbank Wind Farm Limited, Swindon/United Kingdom Lößnitz Netz GmbH & Co. KG, Lößnitz Lößnitz Netz Verwaltungs GmbH, Lößnitz Mátrai Erömü Központi Karbantartó KFT, Visonta/Hungary Middlemoor Wind Farm Limited, Swindon/United Kingdom Mitteldeutsche Netzgesellschaft Gas HD mbH, Halle (Saale) Mitteldeutsche Netzgesellschaft mbH, Chemnitz MotionWerk GmbH, Essen Netzwerke Saarwellingen GmbH, Saarwellingen NEW b_gas Eicken GmbH, Schwalmtal NEW Re GmbH, Mönchengladbach NEW Windenergie Verwaltung GmbH, Mönchengladbach NEW Windpark Linnich GmbH & Co. KG, Mönchengladbach NEW Windpark Viersen GmbH & Co. KG, Mönchengladbach Novar Two Wind Farm Limited, Swindon/United Kingdom Npower Northern Supply Limited, Swindon/United Kingdom NRF Neue Regionale Fortbildung GmbH, Halle (Saale) Oranje Wind Power B.V., 's-Hertogenbosch/Netherlands Oranje Wind Power C.V., 's-Hertogenbosch/Netherlands Oschatz Netz GmbH & Co. KG, Oschatz 100 100 100 100 100 100 51 100 100 100 100 100 51 51 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 60 100 100 95 100 100 100 100 100 100 100 100 75 – 31 720 0 52,749 43 284 34 – 24 8 1,108 30 0 195 9 25 € '000 – 1 – 359 0 – 3,688 9 9 2 – 16 8 – 9 3 – 3 501 0 0 3 61 3 3 – 1 0 9.952 – 3.169 0 10 27 3.306 0 25 21 50 – 879 10,035 25 20 0 0 172 0 – 3 0 72 0 1 – 1 9 1 11 50 0 – 10 3 0 0 30 3 3 561 217 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. 166 RWE Annual Report 2017 II. Affiliated companies which are not included in the consolidated financial Shareholding in % Equity Net income/loss statements due to secondary importance for the assets, liabilities, financial position and profit or loss of the Group Direct Total Oschatz Netz Verwaltungs GmbH, Oschatz Park Wiatrowy Dolice Sp. z o.o., Warsaw/Poland Park Wiatrowy Elk Sp. z o.o., Warsaw/Poland Park Wiatrowy Gaworzyce Sp. z o.o., Warsaw/Poland Park Wiatrowy Msciwojów Sp. z o.o., Warsaw/Poland Park Wiatrowy Prudziszki Sp. z o.o., Warsaw/Poland Park Wiatrowy Smigiel I Sp. z o.o., Warsaw/Poland Photovoltaikkraftwerk Götz GmbH & Co. KG, Kolitzheim Photovoltaikkraftwerk Götz Verwaltungs GmbH, Kolitzheim Photovoltaikkraftwerk Groß Dölln Infrastruktur GmbH & Co. KG, Kolitzheim Photovoltaikkraftwerk Groß Dölln Infrastruktur Verwaltungs-GmbH, Kolitzheim Photovoltaikkraftwerk Reinsdorf GmbH & Co. KG, Kolitzheim Photovoltaikkraftwerk Reinsdorf Verwaltungs GmbH, Kolitzheim Photovoltaikkraftwerk Tramm GmbH & Co. KG, Kolitzheim Photovoltaikkraftwerk Tramm Netzanschluss GmbH & Co. KG, Kolitzheim Photovoltaikkraftwerk Tramm Netzanschluss Verwaltungs GmbH, Kolitzheim Photovoltaikkraftwerk Tramm PV-Finanzierung GmbH & Co. KG, Kolitzheim Photovoltaikkraftwerk Tramm PV-Finanzierung Verwaltungs GmbH, Kolitzheim Photovoltaikkraftwerk Tramm Verwaltungs-GmbH, Kolitzheim PI E&P Holding Limited, George Town/Cayman Islands PI E&P US Holding LLC, New York City/USA Powerhouse Energy Solutions S.L., Madrid/Spain Primus Projekt GmbH & Co. KG, Hanover PT Rheincoal Supply & Trading Indonesia, PT, Jakarta/Indonesia Qualitas-AMS GmbH, Siegen Quintana Fotovoltaica SLU, Madrid/Spain RD Hanau GmbH, Hanau REV LNG SSL BC LLC, Ulysses/USA Rheinland Westfalen Energiepartner GmbH, Essen rhenagbau GmbH, Cologne ROTARY-MATRA Kútfúró és Karbantartó KFT, Visonta/Hungary Rowantree Wind Farm Ltd., Swindon/United Kingdom RWE & Turcas Dogalgaz Ithalat ve Ihracat A.S., Istanbul/Turkey RWE Australia Pty. Ltd., Brisbane/Australia RWE Enerji Toptan Satis A.S., Istanbul/Turkey RWE Ingen!us Limited, Swindon/United Kingdom RWE Innogy Serbia d.o.o., Belgrade/Serbia RWE NSW PTY LTD, Sydney/Australia RWE Pensionsfonds AG, Essen RWE Power Climate Protection China GmbH, Essen RWE Power Climate Protection Clean Energy Technology (Beijing) Co., Ltd., Beijing/China RWE Power Climate Protection GmbH, Essen 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 85 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 € '000 26 1,039 618 1,104 269 39 675 – 29 29 – 15 28 – 28 29 – 29 – 27 27 – 17 27 29 4,550 4,539 26 359 238 0 5,601 5,369 4,058 775 0 976 74 6,179 1,187 75 30,938 3,757 25 2,072 23 € '000 0 – 65 602 – 1,806 – 1,720 – 21 – 1,956 – 3 0 – 4 0 – 3 0 – 5 – 6 0 – 3 0 0 0 – 12 0 – 172 6 3 3 0 – 178 1 1 – 26 0 62 – 19 – 3,131 – 2,062 4 0 34 1 7 1 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. Consolidated financial statements > List of shareholdings (part of the notes) 167 II. Affiliated companies which are not included in the consolidated financial Shareholding in % Equity Net income/loss statements due to secondary importance for the assets, liabilities, financial position and profit or loss of the Group RWE Power Climate Protection Southeast Asia Co., Ltd., Bangkok/Thailand RWE Power International Ukraine LLC, Kiev/Ukraine RWE Rhein Oel Ltd., London/United Kingdom RWE SUPPLY TRADING TURKEY ENERJI ANONIM SIRKETI, Istanbul/Turkey RWE Trading Services Ltd., Swindon/United Kingdom RWE-EnBW Magyarország Energiaszolgáltató Korlátolt Felelösségü Társaság, Budapest/Hungary RWEST PI FRE Holding LLC, New York City/USA RWEST PI LNG HOLDING LLC, New York City/USA RWEST PI LNG 1 LLC, New York City/USA RWEST PI LNG 2 LLC, New York City/USA RWEST PI WALDEN HOLDING LLC, New York City/USA RWEST PI WALDEN 1 LLC, New York City/USA Santa Severa Centrale PV s.a.s. (SRL), Rome/Italy Scarcroft Investments Limited, Swindon/United Kingdom Scharbeutzer Energie- und Netzgesellschaft mbH & Co. KG, Scharbeutz SchlauTherm GmbH, Saarbrücken SEG Solarenergie Guben GmbH & Co. KG, Guben SEG Solarenergie Guben Management GmbH, Halle (Saale) Sofia Offshore Wind Farm Holdings Limited, Swindon/United Kingdom SOLARENGO Energia, Unipessoal, Lda., Cascais/Portugal Solarkraftwerk Herlheim GmbH & Co. KG, Kolitzheim Solarkraftwerk Herlheim Verwaltungs GmbH, Kolitzheim Solarkraftwerk Meuro GmbH & Co. KG, Kolitzheim Solarkraftwerk Meuro Verwaltungs GmbH, Kolitzheim Solarkraftwerk Oberspiesheim GmbH & Co. KG, Kolitzheim Solarkraftwerk Oberspiesheim Verwaltungs GmbH, Kolitzheim SP Solarprojekte GmbH & Co. KG, Kolitzheim SP Solarprojekte 1 GmbH & Co. KG, Kolitzheim SP Solarprojekte 1 Verwaltungs-GmbH, Kolitzheim SP Solarprojekte 2 GmbH & Co. KG, Kolitzheim SP Solarprojekte 2 Verwaltungs-GmbH, Kolitzheim SP Solarprojekte 3 Verwaltungs-GmbH, Kolitzheim SP Solarprojekte 4 GmbH & Co. KG, Kolitzheim SP Solarprojekte 4 Verwaltungs-GmbH, Kolitzheim SP Solarprojekte 5 GmbH & Co. KG, Kolitzheim SP Solarprojekte 5 Verwaltungs-GmbH, Kolitzheim SP Solarprojekte 6 GmbH & Co. KG, Kolitzheim SP Solarprojekte 6 Verwaltungs-GmbH, Kolitzheim SP Solarprojekte 7 GmbH & Co. KG, Kolitzheim SP Solarprojekte 7 Verwaltungs-GmbH, Kolitzheim Stadtwerke Korschenbroich GmbH, Mönchengladbach Storage Facility 1 Ltd., Slough/United Kingdom Direct Total € '000 € '000 100 100 100 100 100 70 100 100 100 100 100 100 100 100 51 75 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 59 0 – 1 1,344 1,227 391 9,708 5,593 1,331 4,688 6,318 6,320 – 151 0 4,371 301 3,159 0 – 28 28 – 29 28 – 27 28 5 0 0 – 35 94 20 – 5,375 0 0 0 – 30 0 0 0 199 82 – 1 3 0 3 – 4 0 – 3 0 – 5 0 3 3 3 3 3 3 3 3 3 3 3 3 3 3 46 – 6 3 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. 168 RWE Annual Report 2017 II. Affiliated companies which are not included in the consolidated financial Shareholding in % Equity Net income/loss statements due to secondary importance for the assets, liabilities, financial position and profit or loss of the Group Direct Total € '000 € '000 Stromnetz Friedberg GmbH & Co. KG, Friedberg Stromnetz Pulheim Verwaltung GmbH, Pulheim Sun Data GmbH, Kolitzheim Sunpow 1 Sp. z o.o., Warsaw/Poland Sunrise Energy Generation Pvt. Ltd., Mumbai/India Süwag Vertrieb Management GmbH, Frankfurt am Main SVFR 12 (SAS), Vendres/France Thermolux S.a.r.l., Luxembourg/Luxembourg TWS Technische Werke der Gemeinde Saarwellingen GmbH, Saarwellingen ucair GmbH, Berlin Versuchsatomkraftwerk Kahl GmbH, Karlstein am Main Verwaltungsgesellschaft Energieversorgung Timmendorfer Strand mbH, Timmendorfer Strand Verwaltungsgesellschaft Scharbeutzer Energie- und Netzgesellschaft mbH, Scharbeutz VKN Saar Geschäftsführungsgesellschaft mbH, Ensdorf VSE - Windpark Merchingen GmbH & Co. KG, Saarbrücken VSE - Windpark Merchingen VerwaltungsGmbH, Saarbrücken VSE Agentur GmbH, Saarbrücken VSE Call centrum, s.r.o., Kosice/Slovakia VSE Ekoenergia, s.r.o., Kosice/Slovakia VSE-Stiftung gGmbH, Saarbrücken Wärmeversorgung Schwaben GmbH, Augsburg Warsun Project Sp. z o.o., Warsaw/Poland Wasser-Netzgesellschaft Kolpingstadt Kerpen GmbH & Co. KG, Kerpen WEK Windenergie Kolkwitz GmbH & Co. KG, Kolkwitz WIJA GmbH, Bad Neuenahr-Ahrweiler Windkraft Hochheim GmbH & Co. KG, Hochheim Windpark Büschdorf GmbH, Perl Windpark Eekerpolder B.V., 's-Hertogenbosch/Netherlands Windpark Eschweiler Beteiligungs GmbH, Stolberg Windpark Oostpolderdijk B.V., 's-Hertogenbosch/Netherlands Windpark Paffendorf GmbH & Co. KG, Essen Windpark Paffendorf Verwaltungs GmbH, Essen Windpark Verwaltungsgesellschaft mbH, Lützen Windpark Wadern-Felsenberg GmbH, Wadern WK Solar Project Sp. z o.o., Warsaw/Poland WKH Windkraft Hochheim Management GmbH, Halle (Saale) 2. CR Immobilien-Vermietungsgesellschaft mbH & Co. Objekt Naumburg KG, Düsseldorf 4Motions GmbH, Leipzig 100 100 100 100 100 100 100 100 51 85 80 51 51 51 100 100 100 100 100 100 100 100 100 100 100 100 100 100 59 100 100 100 100 100 100 100 8 100 74 69 27 – 110 98 4,721 573 27 27 32 2,800 63 131 72 92 2,571 86 – 1,184 481 2,820 3 3 70 3 4 1 – 2 – 484 1,699 9 31 1 1 1 – 30 1 116 17 – 39 – 8 55 3 3 – 1,143 19 70 3 3 9,767 – 321 3 3 3 0 3 3 3 0 3 31 – 711 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. Consolidated financial statements > List of shareholdings (part of the notes) 169 III. Joint operations Shareholding in % Equity Net income/loss EnergieRegion Taunus - Goldener Grund - GmbH & Co. KG, Bad Camberg Gas-Netzgesellschaft Kolpingstadt Kerpen GmbH & Co. KG, Kerpen Gas-Netzgesellschaft Kreisstadt Bergheim GmbH & Co. KG, Bergheim Greater Gabbard Offshore Winds Limited, Reading/United Kingdom Netzgesellschaft Südwestfalen mbH & Co. KG, Netphen N.V. Elektriciteits-Produktiemaatschappij Zuid-Nederland EPZ, Borssele/Netherlands Direct Total 49 49 49 50 49 30 € '000 29,913 4,211 3,656 1,170,493 12,264 € '000 1,767 1,155 1,167 85,301 11 59,162 6,674 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. IV. Affiliated companies of joint operations Shareholding in % Equity Net income/ loss EnergieRegion Taunus - Goldener Grund Verwaltungsgesellschaft mbH, Bad Camberg Gas-Netzgesellschaft Kolpingstadt Kerpen Verwaltungs-GmbH, Kerpen Direct Total € '000 € '000 100 100 27 31 1 2 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. 170 RWE Annual Report 2017 V. Joint ventures accounted for using the equity method Shareholding in % Equity Net income/loss AS 3 Beteiligungs GmbH, Essen AVU Aktiengesellschaft für Versorgungs-Unternehmen, Gevelsberg BEW Netze GmbH, Wipperfürth Budapesti Disz- es Közvilagitasi Korlatolt Felelössegü Tarsasag, Budapest/Hungary C-Power N.V., Oostende/Belgium Energie Nordeifel GmbH & Co. KG, Kall FSO GmbH & Co. KG, Oberhausen Galloper Wind Farm Holdco Limited, Swindon/United Kingdom Gwynt Y Môr Offshore Wind Farm Limited, Swindon/United Kingdom Innogy Venture Capital GmbH, Dortmund Konsortium Energieversorgung Opel beschränkt haftende oHG, Karlstein PRENU Projektgesellschaft für Rationelle Energienutzung in Neuss mbH, Neuss Rain Biomasse Wärmegesellschaft mbH, Rain SHW/RWE Umwelt Aqua Vodogradnja d.o.o., Zagreb/Croatia Société Electrique de l'Our S.A., Luxembourg/Luxembourg Stadtwerke Dülmen Dienstleistungs- und Beteiligungs-GmbH & Co. KG, Dülmen Stadtwerke Lingen GmbH, Lingen (Ems) Stromnetz Gersthofen GmbH & Co. KG, Gersthofen Stromnetz Günzburg GmbH & Co. KG, Günzburg SVS-Versorgungsbetriebe GmbH, Stadtlohn TCP Petcoke Corporation, Dover/USA URANIT GmbH, Jülich Zagrebacke otpadne vode d.o.o., Zagreb/Croatia Direct Total 515 50 615 50 27 33 50 25 50 755 675 50 755 50 40 50 40 49 49 30 50 50 48 € '000 38,579 99,413 6,534 30,358 211,124 8,374 43,453 – 144,596 – 102 472 32,775 178 5,693 410 513 27,700 13,471 443 2,999 20,340 22,310 70,733 205,257 € '000 1,486 14,400 – 63 465 12,431 5,427 14,372 8,955 – 845 75 5,467 – 2 521 – 26 4,0892 4,942 11 12 141 2,953 8,0672 114,500 24,027 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. Consolidated financial statements > List of shareholdings (part of the notes) 171 VI. Associates accounted for using the equity method Shareholding in % Equity Net income/loss Amprion GmbH, Dortmund ATBERG - Eólicas do Alto Tâmega e Barroso, Lda., Ribeira de Pena/Portugal Belectric Gulf Limited, Abu Dhabi/UAE Dortmunder Energie- und Wasserversorgung GmbH (DEW 21), Dortmund Direct 25 EnergieServicePlus GmbH, Düsseldorf Energieversorgung Guben GmbH, Guben Energieversorgung Hürth GmbH, Hürth Energieversorgung Oberhausen AG, Oberhausen ENNI Energie & Umwelt Niederrhein GmbH, Moers e-regio GmbH & Co. KG, Euskirchen EWR Aktiengesellschaft, Worms EWR Dienstleistungen GmbH & Co. KG, Worms EWR GmbH - Energie und Wasser für Remscheid, Remscheid Freiberger Stromversorgung GmbH (FSG), Freiberg Gas- und Wasserwerke Bous-Schwalbach GmbH, Bous GNS Gesellschaft für Nuklear-Service mbH, Essen Grosskraftwerk Mannheim Aktiengesellschaft, Mannheim HIDROERG - Projectos Energéticos, Lda., Lisbon/Portugal Innogy Renewables Technology Fund I GmbH & Co. KG, Dortmund Kärntner Energieholding Beteiligungs GmbH, Klagenfurt/Austria KELAG-Kärntner Elektrizitäts-AG, Klagenfurt/Austria Kemkens B.V., Oss/Netherlands KEW Kommunale Energie- und Wasserversorgung AG, Neunkirchen MAINGAU Energie GmbH, Obertshausen medl GmbH, Mülheim an der Ruhr Mingas-Power GmbH, Essen Nebelhornbahn-Aktiengesellschaft, Oberstdorf Total 25 40 49 40 49 45 25 106 20 43 26 50 20 30 49 28 40 32 785 49 136 49 29 47 39 40 27 € '000 1,651,100 4,283 2,465 188,831 2,501 16,895 4,961 32,345 32,915 85,218 74,307 135,649 83,816 10,038 14,137 34,950 114,141 12,601 26,907 844,507 817,158 35,548 74,764 34,833 21,829 7,002 5,361 PEARL PETROLEUM COMPANY LIMITED, Road Town/British Virgin Islands 107 2,401,402 Pfalzwerke Aktiengesellschaft, Ludwigshafen Projecta 14 GmbH, Saarbrücken Propan Rheingas GmbH & Co KG, Brühl Recklinghausen Netzgesellschaft mbH & Co. KG, Recklinghausen RheinEnergie AG, Cologne Rhein-Main-Donau AG, Munich Schluchseewerk Aktiengesellschaft, Laufenburg Baden Siegener Versorgungsbetriebe GmbH, Siegen SpreeGas Gesellschaft für Gasversorgung und Energiedienstleistung mbH, Cottbus SSW Stadtwerke St. Wendel GmbH & Co. KG, St. Wendel Stadtwerke Aschersleben GmbH, Aschersleben Stadtwerke Bernburg GmbH, Bernburg (Saale) Stadtwerke Bitterfeld-Wolfen GmbH, Bitterfeld-Wolfen Stadtwerke Duisburg Aktiengesellschaft, Duisburg Stadtwerke Emmerich GmbH, Emmerich am Rhein 27 50 30 50 20 22 50 25 33 50 35 45 40 20 25 244,154 38,315 7,737 16,030 886,918 110,169 59,339 24,872 34,516 20,215 17,459 32,759 20,039 189,336 12,115 € '000 158,100 595 2,065 11 75 1,241 11 13,699 11 14,006 7,914 7,941 14,920 1,283 3,178 29,8492 6,647 2,234 977 89,6652 86,993 9,313 11,550 11,183 11 6,333 419 341,238 51,212 2,090 898 1,112 154,826 0 2,809 4,586 5,944 2,223 2,969 6,306 1,812 4,700 11 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. 172 RWE Annual Report 2017 VI. Associates accounted for using the equity method Shareholding in % Equity Net income/loss Stadtwerke Essen Aktiengesellschaft, Essen Stadtwerke Geldern GmbH, Geldern Stadtwerke GmbH Bad Kreuznach, Bad Kreuznach Stadtwerke Kamp-Lintfort GmbH, Kamp-Lintfort Stadtwerke Kirn GmbH, Kirn Stadtwerke Meerane GmbH, Meerane Stadtwerke Merseburg GmbH, Merseburg Stadtwerke Merzig GmbH, Merzig Stadtwerke Neuss Energie und Wasser GmbH, Neuss Stadtwerke Radevormwald GmbH, Radevormwald Stadtwerke Ratingen GmbH, Ratingen Stadtwerke Reichenbach/Vogtland GmbH, Reichenbach im Vogtland Stadtwerke Saarlouis GmbH, Saarlouis Stadtwerke Velbert GmbH, Velbert Stadtwerke Weißenfels GmbH, Weißenfels Stadtwerke Willich GmbH, Willich Stadtwerke Zeitz GmbH, Zeitz SWTE Netz GmbH & Co. KG, Ibbenbüren Vliegasunie B.V., De Bilt/Netherlands Wasser- und Energieversorgung Kreis St. Wendel GmbH, St. Wendel wbm Wirtschaftsbetriebe Meerbusch GmbH, Meerbusch Xelan SAS, Saint-Denis La Plaine/France Zagrebacke otpadne vode-upravljanje i pogon d.o.o., Zagreb/Croatia Zwickauer Energieversorgung GmbH, Zwickau Direct Total 29 49 25 49 49 24 40 50 25 50 25 24 49 50 24 25 24 33 605 28 40 34 31 27 € '000 128,679 12,875 39,925 14,868 2,154 14,846 22,092 15,906 88,344 6,037 55,812 13,835 37,022 82,005 24,825 13,981 21,379 36,751 9,949 22,960 23,543 264 2,887 43,360 € '000 27,426 3,094 11 3,678 268 2,443 4,108 3,135 14,761 2,445 5,465 1,786 4,586 11 4,981 4,144 3,645 4,988 1,642 1,867 4,336 – 159 3,548 10,466 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. Consolidated financial statements > List of shareholdings (part of the notes) 173 VII. Companies which are not accounted for using the equity method due to secondary importance for the assets, liabilities, financial position and profit or loss of the Group Abwasser-Gesellschaft Knapsack, Gesellschaft mit beschränkter Haftung, Hürth Alt Han Company Limited, London/United Kingdom Ascent Energy LLC, Wilmington/USA Awotec Gebäude Servicegesellschaft mbH, Saarbrücken Bäderbetriebsgesellschaft St. Ingbert GmbH, St. Ingbert Balve Netz GmbH & Co. KG, Balve Bayerische Ray Energietechnik GmbH, Garching Biogas Wassenberg GmbH & Co. KG, Wassenberg Biogas Wassenberg Verwaltungs GmbH, Wassenberg Breer Gebäudedienste Heidelberg GmbH, Heidelberg Breitband-Infrastrukturgesellschaft Cochem-Zell mbH, Cochem Brüggen.E-Netz GmbH & Co. KG, Brüggen Brüggen.E-Netz Verwaltungs-GmbH, Brüggen CARBON Climate Protection GmbH, Langenlois/Austria CARBON Egypt Ltd., Cairo/Egypt CECEP Ningxia New Energy Resources Joint Stock Co., Ltd., Yinchuan/China Centralny System Wymiany Informacji Sp. z o.o., Poznan/Poland Conjoule GmbH, Essen DES Dezentrale Energien Schmalkalden GmbH, Schmalkalden Deutsche Gesellschaft für Wiederaufarbeitung von Kernbrennstoffen AG & Co. oHG, Gorleben Dii GmbH, Munich Discovergy GmbH, Aachen Dorsten Netz GmbH & Co. KG, Dorsten EfD Energie-für-Dich GmbH, Potsdam ELE-GEW Photovoltaikgesellschaft mbH, Gelsenkirchen ELE-RAG Montan Immobilien Erneuerbare Energien GmbH, Bottrop ELE-Scholven-Wind GmbH, Gelsenkirchen Elsta B.V., Middelburg/Netherlands Elsta B.V. & CO C.V., Middelburg/Netherlands EMDO S.A.S., Paris/France Energie BOL GmbH, Ottersweier Energie Mechernich GmbH & Co. KG, Mechernich Energie Mechernich Verwaltungs-GmbH, Mechernich Energie Nordeifel Beteiligungs-GmbH, Kall Energie Schmallenberg GmbH, Schmallenberg Energiepartner Dörth GmbH, Dörth Energiepartner Elsdorf GmbH, Elsdorf Energiepartner Hermeskeil GmbH, Hermeskeil Energiepartner Kerpen GmbH, Kerpen Energiepartner Niederzier GmbH, Niederzier Energiepartner Projekt GmbH, Essen Energiepartner Solar Kreuztal GmbH, Kreuztal Shareholding in % Equity Net income/loss Direct Total 33 21 50 48 49 25 49 32 32 45 21 25 25 50 49 25 20 40 33 31 20 24 49 49 49 50 30 25 25 30 50 49 49 33 44 49 40 20 49 49 49 40 € '000 461 0 8,312 91 86 1,251 1,248 38 504 – 592 3,249 29 2,347 – 1,366 18,645 280 1,256 288 5,805 29 64 50 667 47,499 47,722 35 4,194 31 26 29 32 49 23 26 49 24 € '000 231 0 – 985 – 9 6 3 551 71 1 224 45 556 2 1,291 – 1,067 59 3 9 28 745 – 124 3 833 6 39 15 142 33,814 33,892 3 3 451 2 1 1 3 7 0 1 3 23 – 1 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. 174 RWE Annual Report 2017 VII. Companies which are not accounted for using the equity method due to secondary importance for the assets, liabilities, financial position and profit or loss of the Group Energiepartner Wesseling GmbH, Wesseling Energie-Service-Saar GmbH, Völklingen Energieversorgung Bad Bentheim GmbH & Co. KG, Bad Bentheim Energieversorgung Bad Bentheim Verwaltungs-GmbH, Bad Bentheim Energieversorgung Beckum GmbH & Co. KG, Beckum Energieversorgung Beckum Verwaltungs-GmbH, Beckum Energieversorgung Horstmar/Laer GmbH & Co. KG, Horstmar Energieversorgung Kranenburg Netze GmbH & Co. KG, Kranenburg Energieversorgung Kranenburg Netze Verwaltungs GmbH, Kranenburg Energieversorgung Marienberg GmbH, Marienberg Energieversorgung Niederkassel GmbH & Co. KG, Niederkassel Energieversorgung Oelde GmbH, Oelde Energotel, a.s., Bratislava/Slovakia energy4u GmbH & Co. KG, Siegburg ENERVENTIS GmbH & Co. KG, Saarbrücken Erdgasversorgung Industriepark Leipzig Nord GmbH, Leipzig Erdgasversorgung Schwalmtal GmbH & Co. KG, Viersen Erdgasversorgung Schwalmtal Verwaltungs-GmbH, Viersen Erneuerbare Energien Rheingau-Taunus GmbH, Bad Schwalbach eShare.one GmbH, Dortmund Esta VOF, Ridderkerk/Netherlands evm Windpark Höhn GmbH & Co. KG, Höhn EWV Baesweiler GmbH & Co. KG, Baesweiler EWV Baesweiler Verwaltungs GmbH, Baesweiler FAMOS - Facility Management Osnabrück GmbH, Osnabrück Fassi Coal Pty. Ltd., Newcastle-Rutherford/Australia Fernwärmeversorgung Zwönitz GmbH (FVZ), Zwönitz First River Energy LLC, Denver/USA Focal Energy Photovoltaic Holdings Limited, Nicosia/Cyprus Foton Technik Sp. z o.o., Warsaw/Poland FSO Verwaltungs-GmbH, Oberhausen Gasgesellschaft Kerken Wachtendonk mbH, Kerken Gas-Netzgesellschaft Bedburg GmbH & Co. KG, Bedburg Gas-Netzgesellschaft Elsdorf GmbH & Co. KG, Elsdorf Gasnetzgesellschaft Mettmann GmbH & Co. KG, Mettmann Gas-Netzgesellschaft Rheda-Wiedenbrück GmbH & Co. KG, Rheda-Wiedenbrück Gas-Netzgesellschaft Rheda-Wiedenbrück Verwaltungs-GmbH, Rheda-Wiedenbrück Gasnetzgesellschaft Wörrstadt mbH & Co. KG, Saulheim Gasnetzgesellschaft Wörrstadt Verwaltung mbH, Wörrstadt Geiger Netzbau GmbH, Mindelheim Gemeindewerke Bad Sassendorf Netze GmbH & Co. KG, Bad Sassendorf Gemeindewerke Bad Sassendorf Netze Verwaltung GmbH, Bad Sassendorf Shareholding in % Equity Net income/loss Direct Total 30 50 25 25 34 34 49 25 25 49 49 25 20 49 33 50 50 50 25 25 50 33 45 45 49 40 50 36 50 50 50 49 49 49 25 49 49 49 49 49 25 25 € '000 27 – 1,796 2,919 31 5,410 59 2,300 1,698 29 3,007 2,745 8,260 6,805 25 1,090 436 3,109 37 479 – 655 2,420 30 100 – 7,259 3,296 – 1,321 1,476 162 34 4,405 1,301 1,000 2,184 32 – 159 2,129 29 € '000 2 – 6 566 2 3,117 2 308 206 2 1,173 164 2,685 1,293 0 513 6 3,654 1 48 3 10 – 550 1,047 1 3 405 331 – 7,479 – 4 32 0 588 3 202 0 3 3 785 2 – 184 302 2 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. Consolidated financial statements > List of shareholdings (part of the notes) 175 VII. Companies which are not accounted for using the equity method due to secondary importance for the assets, liabilities, financial position and profit or loss of the Group Gemeindewerke Bissendorf Netz GmbH & Co. KG, Bissendorf Gemeindewerke Bissendorf Netz Verwaltungs-GmbH, Bissendorf Gemeindewerke Everswinkel GmbH, Everswinkel Gemeindewerke Namborn GmbH, Namborn Gemeinschaftswerk Hattingen Gesellschaft mit beschränkter Haftung, Essen GfB, Gesellschaft für Baudenkmalpflege mbH, Idar-Oberstein GfS Gesellschaft für Simulatorschulung mbH, Essen Gichtgaskraftwerk Dillingen GmbH & Co. KG, Saarbrücken GISA GmbH, Halle (Saale) GkD Gesellschaft für kommunale Dienstleistungen mbH, Cologne G&L Gastro-Service GmbH, Augsburg GNEE Gesellschaft zur Nutzung erneuerbarer Energien mbH Freisen, Freisen GREEN GECCO Beteiligungsgesellschaft mbH & Co. KG, Troisdorf GREEN GECCO Beteiligungsgesellschaft-Verwaltungs GmbH, Troisdorf GREEN Gesellschaft für regionale und erneuerbare Energie mbH, Stolberg Green Solar Herzogenrath GmbH, Herzogenrath Greenergetic GmbH, Bielefeld Greenplug GmbH, Hamburg HaseNetz GmbH & Co. KG, Gehrde HCL Netze GmbH & Co. KG, Herzebrock-Clarholz Heizkraftwerk Zwickau Süd GmbH & Co. KG, Zwickau hmstr GmbH, Saarbrücken Hochsauerland Netze GmbH & Co. KG, Meschede Hochsauerland Netze Verwaltung GmbH, Meschede H.W.B. Solar Ltd., Be’er Scheva/Israel innogy International Middle East, Dubai/UAE innogy.C3 GmbH, Essen IWW Rheinisch-Westfälisches Institut für Wasserforschung gemeinnützige GmbH, Mülheim an der Ruhr Kavernengesellschaft Staßfurt mbH, Staßfurt KAWAG AG & Co. KG, Pleidelsheim KAWAG Netze GmbH & Co. KG, Abstatt KAWAG Netze Verwaltungsgesellschaft mbH, Abstatt KDT Kommunale Dienste Tholey GmbH, Tholey KEN Geschäftsführungsgesellschaft mbH, Neunkirchen KEN GmbH & Co. KG, Neunkirchen KEVAG Telekom GmbH, Koblenz Kiwigrid GmbH, Dresden KlickEnergie GmbH & Co. KG, Neuss KlickEnergie Verwaltungs-GmbH, Neuss KnGrid, Inc., Laguna Hills/USA Kommunale Dienste Marpingen GmbH, Marpingen Kommunale Netzgesellschaft Steinheim a. d. Murr GmbH & Co. KG, Steinheim a. d. Murr Shareholding in % Equity Net income/loss Direct Total 49 49 45 49 52 20 31 25 24 50 35 49 21 21 49 45 35 49 25 25 40 25 25 25 30 49 25 30 50 49 49 49 49 50 46 50 20 65 65 42 49 49 € '000 2,786 27 6,935 828 2,045 13 56 30,989 9,184 55 29 13 52,921 38 677 3,822 921 610 2.180 3.254 1.000 5.643 27 – 1.972 901 886 14.561 2.328 29 1.307 52 2.845 2.236 9,302 – 832 21 2,672 4,968 € '000 511 0 498 48 – 189 – 64 3 4,445 3,584 4 4 – 5 2,003 1 15 404 – 2,361 – 2 356 0 352 3 1.453 1 3 0 3 11 0 841 153 1 82 0 60 501 – 7,605 – 664 – 1 9 – 9 348 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. 176 RWE Annual Report 2017 VII. Companies which are not accounted for using the equity method due to secondary importance for the assets, liabilities, financial position and profit or loss of the Group Kommunalwerk Rudersberg GmbH & Co. KG, Rudersberg Kommunalwerk Rudersberg Verwaltungs-GmbH, Rudersberg Kraftwerk Buer GbR, Gelsenkirchen Kraftwerk Wehrden GmbH, Völklingen KSG Kraftwerks-Simulator-Gesellschaft mbH, Essen KSP Kommunaler Service Püttlingen GmbH, Püttlingen KÜCKHOVENER Deponiebetrieb GmbH & Co. Kommanditgesellschaft, Bergheim KÜCKHOVENER Deponiebetrieb Verwaltungs-GmbH, Bergheim KVK Kompetenzzentrum Verteilnetze und Konzessionen GmbH, Cologne LDO Coal Pty. Ltd., Ruthersford/Australia Mainzer Wärme PLUS GmbH, Mainz MeteringSüd GmbH & Co. KG, Augsburg MNG Stromnetze GmbH & Co. KG, Lüdinghausen MNG Stromnetze Verwaltungs GmbH, Lüdinghausen Moravske Hidroelektrane d.o.o., Belgrade/Serbia Murrhardt Netz AG & Co. KG, Murrhardt Naturstrom Betriebsgesellschaft Oberhonnefeld mbH, Koblenz Netzanbindung Tewel OHG, Cuxhaven Netzgesellschaft Bedburg Verwaltungs GmbH, Bedburg Netzgesellschaft Betzdorf GmbH & Co. KG, Betzdorf Netzgesellschaft Bühlertal GmbH & Co. KG, Bühlertal Netzgesellschaft Elsdorf Verwaltungs-GmbH, Elsdorf Netzgesellschaft Grimma GmbH & Co. KG, Grimma Netzgesellschaft Hüllhorst GmbH Co. KG, Hüllhorst Netzgesellschaft Korb GmbH & Co. KG, Korb Netzgesellschaft Korb Verwaltungs-GmbH, Korb Netzgesellschaft Kreisstadt Bergheim Verwaltungs-GmbH, Bergheim Netzgesellschaft Lauf GmbH & Co. KG, Lauf Netzgesellschaft Leutenbach GmbH & Co. KG, Leutenbach Netzgesellschaft Leutenbach Verwaltungs-GmbH, Leutenbach Netzgesellschaft Maifeld GmbH & Co. KG, Polch Netzgesellschaft Maifeld Verwaltungs GmbH, Polch Netzgesellschaft Ottersweier GmbH & Co. KG, Ottersweier Netzgesellschaft Rheda-Wiedenbrück GmbH & Co. KG, Rheda-Wiedenbrück Netzgesellschaft Rheda-Wiedenbrück Verwaltungs-GmbH, Rheda-Wiedenbrück NFPA Holdings Limited, Newcastle Upon Tyne/United Kingdom NiersEnergieNetze GmbH & Co. KG, Kevelaer NiersEnergieNetze Verwaltungs-GmbH, Kevelaer Novenerg limited liability company for energy activities, Zagreb/Croatia Offshore Trassenplanungs-GmbH OTP i.L., Hanover pear.ai Inc., San Francisco/USA Peißenberger Wärmegesellschaft mbH, Peißenberg prego services GmbH, Saarbrücken Shareholding in % Equity Net income/loss Direct Total 50 50 50 33 31 40 50 50 75 40 45 34 25 25 51 49 25 25 49 49 50 49 49 49 50 50 49 50 50 50 49 49 50 49 49 25 51 51 50 50 40 50 50 € '000 167 25 5,113 93 564 153 41 39 135 – 185 7,632 404 20,440 27 3,700 2,790 159 699 2,288 33 7,670 1,416 28 30 759 1,528 27 6,162 28 2,033 3,079 29 2,017 6,167 33 64 163 € '000 6 1 0 63 26 49 – 15 0 80 1,435 1,346 – 21 2,841 2 – 16 229 0 – 12 3 3 159 4 507 3 99 1 2 54 104 1 644 0 158 483 2 273 507 2 0 0 9 5,905 – 2,624 – 433 5,097 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. Consolidated financial statements > List of shareholdings (part of the notes) 177 VII. Companies which are not accounted for using the equity method due to secondary importance for the assets, liabilities, financial position and profit or loss of the Group Propan Rheingas GmbH, Brühl PV Projects GmbH & Co. KG, Kolitzheim PV Projects Komplementär GmbH, Kolitzheim Recklinghausen Netz-Verwaltungsgesellschaft mbH, Recklinghausen Renergie Stadt Wittlich GmbH, Wittlich Rhegio Natur Dienstleistungen GmbH, Rhede RIWA GmbH Gesellschaft für Geoinformationen, Kempten RurEnergie GmbH, Düren Sandersdorf-Brehna Netz GmbH & Co. KG, Sandersdorf-Brehna Selm Netz GmbH & Co. KG, Selm SHS Ventures GmbH & Co. KGaA, Völklingen Sofia Offshore Wind Farm Limited, Reading/United Kingdom SolarProjekt Mainaschaff GmbH, Mainaschaff SPX, s.r.o., Zilina/Slovakia SSW Stadtwerke St. Wendel Geschäftsführungsgesellschaft mbH, St. Wendel Stadtentwässerung Schwerte GmbH, Schwerte Städtische Werke Borna GmbH, Borna Städtisches Wasserwerk Eschweiler GmbH, Eschweiler Stadtwerke - Strom Plauen GmbH & Co. KG, Plauen Stadtwerke Ahaus GmbH, Ahaus Stadtwerke Aue GmbH, Aue Stadtwerke Dillingen/Saar GmbH, Dillingen Stadtwerke Dülmen Verwaltungs-GmbH, Dülmen Stadtwerke Gescher GmbH, Gescher Stadtwerke Geseke Netze GmbH & Co. KG, Geseke Stadtwerke Geseke Netze Verwaltung GmbH, Geseke Stadtwerke Goch Netze GmbH & Co. KG, Goch Stadtwerke Goch Netze Verwaltungsgesellschaft mbH, Goch Stadtwerke Haan GmbH, Haan Stadtwerke Kerpen GmbH & Co. KG, Kerpen Stadtwerke Kerpen Verwaltungs-GmbH (in Gründung), Kerpen Stadtwerke Langenfeld GmbH, Langenfeld Stadtwerke Oberkirch GmbH, Oberkirch Stadtwerke Roßlau Fernwärme GmbH, Dessau-Roßlau Stadtwerke Schwarzenberg GmbH, Schwarzenberg/Erzgeb. Stadtwerke Siegburg GmbH & Co. KG, Siegburg Stadtwerke Steinfurt GmbH, Steinfurt Stadtwerke Unna GmbH, Unna Stadtwerke Verl Netz GmbH & Co. KG, Verl Stadtwerke Vlotho GmbH, Vlotho Stadtwerke Wadern GmbH, Wadern Stadtwerke Waltrop Netz GmbH & Co. KG, Waltrop Stadtwerke Weilburg GmbH, Weilburg Shareholding in % Equity Net income/loss Direct Total € '000 28 50 50 49 30 25 33 30 49 25 50 25 50 33 50 48 37 25 49 36 24 49 50 25 25 25 25 25 25 25 25 20 33 49 28 49 33 24 25 25 49 25 20 51 377 24 28 27 1,282 10,454 4,826 4,003 185 0 45 153 124 51 5,316 2,209 5,699 11,086 12,851 6,929 29 3,307 3,880 26 2,886 29 € '000 2 285 0 1 – 1 3 369 – 138 175 778 – 15 0 – 2 11 4 0 885 683 1,442 0 1,656 1,968 0 661 837 1 319 2 20,454 1,604 3 3 500 608 418 1,327 0 250 3,217 3 123 875 318 874 8,551 7,192 1,599 14,551 100 10,945 15,110 4,880 4,678 2,862 8,177 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. 178 RWE Annual Report 2017 VII. Companies which are not accounted for using the equity method due to secondary importance for the assets, liabilities, financial position and profit or loss of the Group Stadtwerke Werl GmbH, Werl STEAG Windpark Ullersdorf GmbH & Co. KG, Jamlitz Stromnetz Diez GmbH & Co. KG, Diez Stromnetz Diez Verwaltungsgesellschaft mbH, Diez Stromnetz Euskirchen GmbH & Co. KG, Euskirchen Stromnetz Günzburg Verwaltungs GmbH, Günzburg Stromnetz Hofheim GmbH & Co. KG, Hofheim am Taunus Stromnetz Hofheim Verwaltungs GmbH, Hofheim am Taunus Stromnetz Verbandsgemeinde Katzenelnbogen GmbH & Co. KG, Katzenelnbogen Stromnetz Verbandsgemeinde Katzenelnbogen Verwaltungsgesellschaft mbH, Katzenelnbogen Stromnetz VG Diez GmbH & Co. KG, Altendiez STROMNETZ VG DIEZ Verwaltungsgesellschaft mbH, Altendiez Strom-Netzgesellschaft Bedburg GmbH & Co. KG, Bedburg Stromnetzgesellschaft Bramsche mbH & Co. KG, Bramsche Strom-Netzgesellschaft Elsdorf GmbH & Co. KG, Elsdorf Stromnetzgesellschaft Gescher GmbH & Co. KG, Gescher Strom-Netzgesellschaft Kolpingstadt Kerpen GmbH & Co. KG, Kerpen Strom-Netzgesellschaft Kreisstadt Bergheim GmbH & Co. KG, Bergheim Stromnetzgesellschaft Mettmann mbH & Co. KG, Mettmann Stromnetzgesellschaft Neuenhaus mbH & Co. KG, Neuenhaus Stromnetzgesellschaft Neuenhaus Verwaltungs-GmbH, Neuenhaus Stromnetzgesellschaft Neunkirchen-Seelscheid mbH & Co. KG, Neunkirchen-Seelscheid Stromnetzgesellschaft Schwalmtal mbH & Co. KG, Schwalmtal Stromverwaltung Schwalmtal GmbH, Schwalmtal Südwestfalen Netz-Verwaltungsgesellschaft mbH, Netphen SWL-energis Netzgesellschaft mbH & Co. KG, Lebach SWL-energis-Geschäftsführungs-GmbH, Lebach SWT trilan GmbH, Trier SWTE Netz Verwaltungsgesellschaft mbH, Ibbenbüren Technische Werke Naumburg GmbH, Naumburg (Saale) TEPLO Votice s.r.o., Votice/Czech Republic The Bristol Bulk Company Limited, London/United Kingdom TNA Talsperren- und Grundwasser-Aufbereitungs- und Vertriebsgesellschaft mbH, Saarbrücken Toledo PV A.E.I.E., Madrid/Spain TRANSELEKTRO, s.r.o., Kosice/Slovakia TWE Technische Werke der Gemeinde Ensdorf GmbH, Ensdorf TWL Technische Werke der Gemeinde Losheim GmbH, Losheim TWM Technische Werke der Gemeinde Merchweiler GmbH, Merchweiler TWN Trinkwasserverbund Niederrhein GmbH, Grevenbroich TWRS Technische Werke der Gemeinde Rehlingen-Siersburg GmbH, Rehlingen Umspannwerk Putlitz GmbH & Co. KG, Frankfurt am Main Shareholding in % Equity Net income/loss Direct Total 25 21 25 25 25 49 49 49 49 49 49 49 49 25 49 25 49 49 25 49 49 49 51 51 49 50 50 26 33 47 20 25 23 33 26 49 50 49 33 35 25 € '000 7,035 17,772 1,483 30 4,100 29 3,455 27 2,279 27 2,401 29 3,612 3,305 4,717 3,358 25 2,626 3,566 30 26 3,239 37 1,299 26 10,625 103 1 1,067 1,926 627 2,119 7,218 2,084 143 4,686 0 € '000 2,291 22 100 1 581 1 255 1 178 1 173 1 3 3 419 305 607 3 3 343 1 314 571 2 1 177 1 499 2 650 0 0 98 587 – 51 168 1,585 83 – 5 161 – 197 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. Consolidated financial statements > List of shareholdings (part of the notes) 179 VII. Companies which are not accounted for using the equity method due to secondary importance for the assets, liabilities, financial position and profit or loss of the Group Untere Iller Aktiengesellschaft, Landshut Untermain EnergieProjekt AG & Co. KG, Kelsterbach Untermain Erneuerbare Energien Verwaltungs-GmbH, Raunheim Untermain ErneuerbareEnergien GmbH & Co. KG, Raunheim Veiligebuurt B.V., Enschede/Netherlands VEM Neue Energie Muldental GmbH & Co. KG, Markkleeberg Verteilnetze Energie Weißenhorn GmbH & Co. KG, Weißenhorn Verwaltungsgesellschaft Dorsten Netz mbH, Dorsten Verwaltungsgesellschaft Energie Weißenhorn GmbH, Weißenhorn Verwaltungsgesellschaft GKW Dillingen mbH, Saarbrücken Voltaris GmbH, Maxdorf Wadersloh Netz GmbH & Co. KG, Wadersloh Wadersloh Netz Verwaltungs GmbH, Wadersloh WALDEN GREEN ENERGY LLC, New York City/USA Wärmeversorgung Limburg GmbH, Limburg an der Lahn Wärmeversorgung Mücheln GmbH, Mücheln Wärmeversorgung Wachau GmbH, Markkleeberg OT Wachau Wärmeversorgung Würselen GmbH, Würselen Wasserverbund Niederrhein Gesellschaft mit beschränkter Haftung, Krefeld Wasserversorgung Main-Taunus GmbH, Frankfurt am Main Wasserzweckverband der Gemeinde Nalbach, Nalbach WeAre GmbH, Essen WEV Warendorfer Energieversorgung GmbH, Warendorf Windenergie Briesensee GmbH, Neu Zauche Windenergie Frehne GmbH & Co. KG, Marienfließ Windenergie Merzig GmbH, Merzig Windenergiepark Heidenrod GmbH, Heidenrod Windesco Inc, Electron/USA Windkraft Jerichow - Mangelsdorf I GmbH & Co. KG, Burg Windpark Losheim-Britten GmbH, Losheim Windpark Nohfelden-Eisen GmbH, Nohfelden Windpark Oberthal GmbH, Oberthal Windpark Perl GmbH, Perl WINDTEST Grevenbroich GmbH, Grevenbroich WLN Wasserlabor Niederrhein GmbH, Mönchengladbach WVG-Warsteiner Verbundgesellschaft mbH, Warstein WVL Wasserversorgung Losheim GmbH, Losheim WWS Wasserwerk Saarwellingen GmbH, Saarwellingen WWW Wasserwerk Wadern GmbH, Wadern Shareholding in % Equity Net income/loss Direct Total 40 49 25 25 45 50 35 49 35 25 50 25 25 61 50 49 49 49 38 49 49 50 25 31 41 20 45 22 25 50 50 35 42 38 45 25 50 49 49 € '000 1,134 1,992 33 8 58 906 29 26 181 2,431 € '000 41 100 2 – 14 9 – 8 310 2 1 7 1,648 3 3 6,342 – 1,167 455 894 89 1,524 11,188 136 1,758 12,243 1,248 5,796 3,837 12,798 1,234 4,167 1,972 3,448 4,659 7,985 1,175 523 3,600 5,193 3,628 3,704 – 1 74 – 2 75 633 2 23 9 1,963 – 89 32 522 927 – 460 579 – 19 – 20 136 256 276 23 0 449 228 298 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. 180 RWE Annual Report 2017 VIII. Other investments Abel & Co., Tilburg/Netherlands Adom Intelligent Transport Ltd., Tel Aviv-Jaffa/Israel aiPod Inc, Pasadena/USA APEP Dachfonds GmbH & Co. KG, Munich BeeRides Kft., Székesfehérvár/Hungary BEW Bergische Energie- und Wasser-GmbH, Wipperfürth BFG-Bernburger Freizeit GmbH, Bernburg (Saale) BIDGELY Inc., Sunnyvale/USA BigchainDB GmbH, Berlin Blackhawk Mining LLC, Lexington/USA Bürgerenergie Untermain eG, Kelsterbach CELP II Chrysalix Energy II US Limited Partnership, Vancouver/Canada CELP III Chrysalix Energy III US Limited Partnership, Vancouver/Canada DCUSA Ltd, London/United Kingdom Deutsches Forschungszentrum für Künstliche Intelligenz GmbH, Kaiserslautern Die BürgerEnergie eG, Dortmund Doozer Real Estate Systems GmbH, Berlin Dry Bulk Partners 2013 LP, Grand Cayman/Cayman Islands eins energie in sachsen GmbH & Co. KG, Chemnitz eluminocity GmbH, Munich Energías Renovables de Ávila, S.A., Madrid/Spain Energie Rur-Erft GmbH & Co. KG, Essen Energie Rur-Erft Verwaltungs-GmbH, Essen Energieagentur Region Trier GmbH, Trier Energiegenossenschaft Chemnitz-Zwickau eG, Chemnitz Energiehandel Saar GmbH & Co. KG, Neunkirchen Energiehandel Saar Verwaltungs-GmbH, Neunkirchen Energieversorgung Limburg GmbH, Limburg an der Lahn Entwicklungsgesellschaft Neu-Oberhausen mbH-ENO, Oberhausen ESV-ED GmbH & Co. KG, Buchloe Focal Energy Solar Three Ltd., Nicosia/Cyprus GasLINE Telekommunikationsnetz-Geschäftsführungsgesellschaft deutscher Gasversorgungsunternehmen mbH, Straelen GasLINE Telekommunikationsnetzgesellschaft deutscher Gasversorgungsunter- nehmen mbH & Co. KG, Straelen Gemeinschafts-Lehrwerkstatt Arnsberg GmbH, Arnsberg Gemserv Limited, London/United Kingdom Gesellschaft für Wirtschaftsförderung Duisburg mbH, Duisburg Globus Steel & Power Pvt. Limited, New Delhi/India Gründerfonds Ruhr GmbH & Co. KG, Essen Heliatek GmbH, Dresden High-Tech Gründerfonds II GmbH & Co. KG, Bonn HOCHTEMPERATUR-KERNKRAFTWERK Gesellschaft mit beschränkter Haftung (HKG). Gemeinsames Europäisches Unternehmen, Hamm Shareholding in % Equity Net income/loss Direct Total € '000 € '000 36 1 19 6 36 18 19 1 7 2 6 4 6 11 10 4 0 12 23 9 18 17 0 0 14 7 1 2 10 2 4 8 10 10 8 14 1 18 2 13 1 31 3 9 9 70,192 9 6,467 – 1,379 – 5,079 9 362,527 30,814 9,996 9,240 – 194,225 – 160,597 93 10,290 121,044 0 16,899 1,797 4,884 464,069 595 1,120 29 25 614 396 25 28,038 657 370 5,430 65 33 – 966 – 7,168 0 1,426 111 9 – 4,949 79,267 3 0 1,095 1 8 24 – 5 0 4,958 – 945 65 – 4 2 77,213 36,213 1,465 8,203 721 – 435 8,414 77,263 0 52 1,812 25 – 378 9 – 7,701 0 0 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. Consolidated financial statements > List of shareholdings (part of the notes) 181 VIII. Other investments Hubject GmbH, Berlin INDI Energie B.V., 's-Hertogenbosch/Netherlands Intertrust Technologies Corporation, Sunnyvale/USA iTy Labs Corp., Dover/USA IZES gGmbH, Saarbrücken KEV Energie GmbH, Kall Kreis-Energie-Versorgung Schleiden GmbH, Kall LEW Bürgerenergie e.G., Augsburg LIBRYO LTD, London/United Kingdom Moj.io Inc., Vancouver/Canada Move24 Group GmbH, Berlin MRA Service Company Limited, London/United Kingdom Neckar-Aktiengesellschaft, Stuttgart Neue Energie Ostelbien eG, Arzberg Neustromland GmbH & Co. KG, Saarbrücken Nordsee One GmbH, Hamburg Nordsee Three GmbH, Hamburg Nordsee Two GmbH, Hamburg Ökostrom Saar Geschäftsführungsgesellschaft mbH & Co. Biogas Losheim KG, Merzig OPPENHEIM PRIVATE EQUITY Institutionelle Anleger GmbH & Co. KG, Cologne Parque Eólico Cassiopea, S.L., Oviedo/Spain Parque Eólico Escorpio, S.A., Oviedo/Spain Parque Eólico Leo, S.L., Oviedo/Spain Parque Eólico Sagitario, S.L., Oviedo/Spain PEAG Holding GmbH, Dortmund People Power Company, Redwood City/USA pro regionale energie eG, Diez Promocion y Gestion Cáncer, S.L., Oviedo/Spain PSI AG für Produkte und Systeme der Informationstechnologie, Berlin REV LNG LLC, Ulysses/USA ROSOLA Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Alzenau KG, Düsseldorf Royal Armouries (International) plc, Leeds/United Kingdom Rydies GmbH, Hanover SALUS Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Leipzig KG, Düsseldorf ScanTrust SA, Lausanne/Switzerland Sdruzení k vytvorení a vyuzívání digitální technické mapy mesta Pardubic, Pardubice/Czech Republic SE SAUBER ENERGIE GmbH & Co. KG, Cologne SE SAUBER ENERGIE Verwaltungs-GmbH, Cologne SET Fund II C.V., Amsterdam/Netherlands SET Sustainable Energy Technology Fund C.V., Amsterdam/Netherlands Shareholding in % Equity Net income/loss Direct Total € '000 13 30 12 19 8 2 2 0 8 2 10 11 12 29 5 15 15 15 10 29 10 10 10 10 12 12 2 10 18 5 100 2 15 100 7 12 17 17 13 50 29 12 551 – 23 € '000 – 1,900 – 123 70,580 – 17,640 480 457 16,098 1,744 7,964 0 10,179 4 2,757 38,263 122 122 0 442 – 21 481 126 – 29 17,926 837 1,392 – 29 83,251 3,072 2,610 7,937 20 1 1,590 134 22,212 17,177 9 – 144 0 1,906 20 9 9 – 1,628 0 0 1 128 – 8,172 – 22 – 23 190 742 – 74 – 18 0 – 153 3,117 – 2,275 39 0 3,130 237 426 1,916 9 15 9 0 264 7 342 – 611 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. 182 RWE Annual Report 2017 VIII. Other investments Shareholding in % Equity Net income/loss Direct Total Smart Energy Code Company Limited, London/United Kingdom Solarpark Freisen "Auf der Schwann" GmbH, Freisen Solarpark St. Wendel GmbH, St. Wendel SolarRegion RengsdorferLAND eG, Rengsdorf Sole-Thermalbad Rilchingen GmbH & Co. KG, Kleinblittersdorf SPAA Ltd, London/United Kingdom St. Clements Services Limited, London/United Kingdom Stadtmarketing-Gesellschaft Gelsenkirchen mbH, Gelsenkirchen Stadtwerke Delitzsch GmbH, Delitzsch Stadtwerke Detmold GmbH, Detmold Stadtwerke ETO GmbH & Co. KG, Telgte Stadtwerke Porta Westfalica GmbH, Porta Westfalica Stadtwerke Sulzbach GmbH, Sulzbach Stadtwerke Tecklenburger Land Energie GmbH, Ibbenbüren Stadtwerke Tecklenburger Land GmbH & Co. KG, Ibbenbüren Stadtwerke Völklingen Netz GmbH, Völklingen Stadtwerke Völklingen Vertrieb GmbH, Völklingen Stem Inc., Milbrae/USA Store-X storage capacity exchange GmbH, Leipzig SWT Stadtwerke Trier Versorgungs-GmbH, Trier SWTE Verwaltungsgesellschaft mbH, Ibbenbüren Technologiezentrum Jülich GmbH, Jülich TechSee Augmented Vision Ltd., Herzliya/Israel Telecom Plus plc, London/United Kingdom TGZ Halle TECHNOLOGIE- UND GRÜNDERZENTRUM HALLE GmbH, Halle (Saale) Transport- und Frischbeton-Gesellschaft mit beschränkter Haftung & Co. Kommanditgesellschaft Aachen, Aachen T-REX Group Inc., New York City/USA Trianel Erneuerbare Energien GmbH & Co. KG, Aachen Trianel GmbH, Aachen Trinkaus Secondary GmbH & Co. KGaA, Düsseldorf 43 Umspannwerk Lübz GbR, Lübz Union Group, a.s., Ostrava/Czech Republic WASSERWERKE PADERBORN GmbH, Paderborn Westly Capital Partners Fund III, L.P., Dover/USA WiN Emscher-Lippe Gesellschaft zur Strukturverbesserung mbH, Herten Windenergie Schermbeck-Rüste GmbH & Co. KG, Schermbeck Windenergie Schermbeck-Rüste Verwaltungsgesellschaft mbH, Schermbeck Windpark Jüchen GmbH & Co. KG, Essen Windpark Mengerskirchen GmbH, Mengerskirchen Windpark Saar GmbH & Co. Repower KG, Freisen Windpark Saar 2016 GmbH & Co. KG, Freisen xtechholding GmbH, Berlin 7 15 15 2 1 10 12 2 18 12 3 12 15 15 1 18 18 11 12 19 1 5 10 1 15 17 7 2 3 43 18 2 10 6 2 14 14 15 15 10 15 10 € '000 0 367 1,126 314 15 1,859 84 15,595 31,495 33,567 16,208 11,431 0 799 16,387 7,301 7,210 262 54,663 26 1,432 223,483 14,544 390 64,750 83,938 1,685 49 90,068 24,105 1,149 154 474 27 2,253 3,013 9,165 4,091 € '000 0 56 94 8 3 0 – 92 34 2,884 0 6,085 569 1,786 – 982 668 1,998 3,289 – 33,981 – 382 0 2 163 9 36,2832 46 146 9 – 1,112 – 4,133 487 17 0 0 – 272 – 280 0 3 143 297 410 – 189 9 1 Profit and loss-pooling agreement. 2 Figures from the Group's consolidated financial statements. 3 Newly founded, financial statements not yet available. 4 Control by virtue of company contract. 5 No control by virtue of company contract. 6 Significant influence via indirect investments. 7 Significant influence by virtue of company contract. 8 Structured entity pursuant to IFRS 10 and 12. 9 Immaterial. 10 Financial statements not available. 11 Profit and loss-pooling agreement with non- Group companies. Consolidated financial statements > List of shareholdings (part of the notes) 183 Changes in shareholding with change of control Shareholding in % 31 Dec 2017 Shareholding in % 31 Dec 2016 Change Additions to affiliated companies which are included in the consolidated financial statements Belectric France S.à.r.l., Vendres/France Belectric GmbH, Kolitzheim Belectric Israel Ltd., Be'er-Sheva/Israel Belectric Italia S.R.L., Latina/Italy Belectric Photovoltaic India Private Limited, Mumbai/India Belectric PV Dach GmbH, Kolitzheim Belectric Solar & Battery GmbH, Kolitzheim Belectric Solar Ltd., Iver/United Kingdom Dromadda Beg Wind Farm Limited, Tralee/Ireland Essent EnergieBewust Holding B.V., 's-Hertogenbosch/Netherlands hoch.rein Beteiligungen GmbH, Kolitzheim Hof Promotion B.V., Eindhoven/Netherlands innogy Beteiligungsholding GmbH, Essen innogy Company Building GmbH, Berlin innogy Evendorf Windparkbetriebsgesellschaft mbH, Hanover Isoprofs B.V., Meijel/Netherlands It's a beautiful world B.V., Amersfoort/Netherlands Jurchen Technology GmbH, Helmstadt Jurchen Technology India Private Limited, Mumbai/India ka-tek GmbH, Kolitzheim Koprivnica Opskrba d.o.o., Koprivnica/Croatia Koprivnica Plin d.o.o., Koprivnica/Croatia Padcon GmbH, Kitzingen RWE Personeel B.V., Geertruidenberg/Netherlands Solar Holding Poland GmbH, Kolitzheim Volta Solar VOF, Heerlen/Netherlands Additions to associates accounted for using the equity method Belectric Gulf Limited, Abu Dhabi/UAE Xelan SAS, Saint-Denis La Plaine/France Transfers of affiliated companies which are included in the consolidated financial statements to associates accounted for using the equity method Stadtwerke Kamp-Lintfort GmbH, Kamp-Lintfort Transfers of affiliated companies which are not included in the consolidated financial statements to joint ventures accounted for using the equity method Stromnetz Gersthofen GmbH & Co. KG, Gersthofen Transfers of joint ventures accounted for using the equity method to affiliated companies which are included in the consolidated financial statements Triton Knoll Offshore Wind Farm Limited, Swindon/United Kingdom Disposals of affiliated companies which are included in the consolidated financial statements Stadtwärme Kamp-Lintfort GmbH, Kamp-Lintfort 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 75 75 100 100 100 60 49 34 49 49 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 75 75 100 100 100 60 49 34 – 2 – 51 50 – 100 51 100 50 100 184 RWE Annual Report 2017 Changes in shareholding without change of control Shareholding in % 31 Dec 2017 Shareholding in % 31 Dec 2016 Change Affiliated companies which are included in the consolidated financial statements Artelis S.A., Luxembourg/Luxembourg NEW Smart City GmbH, Mönchengladbach VSE Aktiengesellschaft, Saarbrücken Associates accounted for using the equity method medl GmbH, Mülheim an der Ruhr 90 100 51 39 53 97 50 49 37 3 1 – 10 Consolidated financial statements > Boards (part of the notes) 185 3.8 BOARDS (PART OF THE NOTES) As of: 27 February 2018 Supervisory Board Dr. Werner Brandt Bad Homburg Reinhold Gispert1 Worms Chairman of the Group Works Council of RWE AG Year of birth: 1960 Chairman of the Supervisory Board of ProSiebenSat.1 Media SE Member since: 27 April 2017 Year of birth: 1954 Member since: 18 April 2013 Other appointments: • ProSiebenSat.1 Media SE (Chairman) • Siemens AG Frank Bsirske1 Berlin Deputy Chairman Chairman of ver.di Vereinte Dienstleistungsgewerkschaft Year of birth: 1952 Member since: 9 January 2001 Other appointments: • Deutsche Bank AG • Deutsche Postbank AG • innogy SE - KfW Bankengruppe Reiner Böhle1 Witten Independent Works Council Representative Year of birth: 1960 Member since: 1 January 2013 Sandra Bossemeyer1 Duisburg Arno Hahn1,2 Waldalsgesheim Chairman of the Group Works Council of RWE AG Chairman of the General Works Council of innogy SE Year of birth: 1962 Member from 1 July 2012 until 27 April 2017 Other appointments: • innogy SE (until 31 May 2017) Andreas Henrich1 Mülheim an der Ruhr Head of Human Resources at RWE AG Year of birth: 1956 Member since: 20 April 2016 Prof. Dr.-Ing. Dr.-Ing. E. h. Hans-Peter Keitel Essen Former Chairman of the Executive Board of HOCHTIEF AG Year of birth: 1947 Member since: 18 April 2013 Other appointments: • Airbus Defence and Space GmbH • National-Bank AG • thyssenkrupp AG • Voith GmbH & Co. KGaA (Chairman) Chairwoman of the Works Council of RWE AG - Airbus Group SE Representative of the disabled Year of birth: 1965 Member since: 20 April 2016 Ute Gerbaulet Düsseldorf General Partner of Bankhaus Lampe KG Year of birth: 1968 Member since: 27 April 2017 Other appointments: • Gerry Weber AG - NRW.Bank Mag. Dr. h. c. Monika Kircher Pörtschach, Austria Consultant Year of birth: 1957 Member since: 15 October 2016 Other appointments: - Andritz AG - Austrian Airlines AG - Kärntner Energieholding Beteiligungs GmbH (Chairwoman) - KELAG-Kärntner Elektrizitäts AG - Siemens AG Österreich • Member of other mandatory supervisory boards. - Member of comparable domestic and foreign supervisory boards of commercial enterprises. 1 Employee representative. 2 Information valid as of the date of retirement. 186 RWE Annual Report 2017 Martina Koederitz 2 Stuttgart Peter Ottmann Nettetal Chairwoman of the Management of IBM Central Holding GmbH Managing Director of Verband der kommunalen Chairwoman of the Management of IBM Deutschland GmbH RWE-Aktionäre GmbH Chairwoman of the Management of IBM Deutschland Management & Attorney, Former Chief Administrative Officer Business Support GmbH Managing Director of IBM Munich Center GmbH Year of birth: 1964 Member from 20 April 2016 until 27 April 2017 Other appointments: • • IBM Deutschland Research & Development GmbH innogy SE Monika Krebber1 Mülheim an der Ruhr Year of birth: 1951 Member since: 20 April 2016 Other appointments: • RW Holding AG Günther Schartz Wincheringen Chief Administrative Officer of the District of Trier-Saarburg Year of birth: 1962 Member since: 20 April 2016 Deputy Chairwoman of the General Works Council of innogy SE Deputy Chairwoman of the Group Works Council of RWE AG Year of birth: 1962 Other appointments: • RW Holding AG (Deputy Chairman) Member since: 20 April 2016 - A.R.T. Abfallberatungs- und Verwertungsgesellschaft mbH Other appointments: • innogy SE Harald Louis1 Jülich (Chairman) - Kreiskrankenhaus St. Franziskus Saarburg GmbH (Chairman) - LBBW-Rheinland-Pfalz-Bank Verwaltungsrat (Deputy Member) - Sparkasse Trier (Deputy Chairman) - Sparkassenverband Rheinland-Pfalz - Trierer Hafengesellschaft mbH Chairman of the General Works Council of RWE Power AG - Zweckverband Abfallwirtschaft Region Trier Year of birth: 1967 Member since: 20 April 2016 Other appointments: • RWE Power AG Dagmar Mühlenfeld Mülheim an der Ruhr Former Mayor of Mülheim an der Ruhr Year of birth: 1951 Member since: 4 January 2005 Other appointments: • RW Holding AG Dr. Erhard Schipporeit Hanover Independent Corporate Consultant Year of birth: 1949 Member since: 20 April 2016 Other appointments: • BDO AG • Deutsche Börse AG (until 16 May 2018) • Fuchs Petrolub SE • Hannover Rück SE (group-level appointment at Talanx AG) • HDI V. a. G. • innogy SE (Chairman) • SAP SE • Talanx AG • Member of other mandatory supervisory boards. - Member of comparable domestic and foreign supervisory boards of commercial enterprises. 1 Employee representative. 2 Information valid as of the date of retirement. Consolidated financial statements > Boards (part of the notes) 187 Dr. Wolfgang Schüssel Vienna, Austria Marion Weckes1 Dormagen Former Federal Chancellor of the Republic of Austria Head of Unit, Dept. Mitbestimmungsförderung der Year of birth: 1945 Member since: 1 March 2010 Other appointments: - Adenauer Stiftung (Chairman of the Board of Trustees) Hans-Böckler-Stiftung Year of birth: 1975 Member since: 20 April 2016 Leonhard Zubrowski1 Lippetal Chairman of the Group Works Council of RWE Generation SE Year of birth: 1961 Member since: 1 July 2014 Other appointments: • RWE Generation SE Ullrich Sierau Dortmund Mayor of the City of Dortmund Year of birth: 1956 Member since: 20 April 2011 Other appointments: • Dortmunder Energie- und Wasserversorgung GmbH (Chairman) • Dortmunder Stadtwerke AG (Chairman) • KEB Holding AG (Chairman) - KSBG Kommunale Verwaltungsgesellschaft GmbH - Schüchtermann-Schiller’sche Kliniken Bad Rothenfelde GmbH & Co. KG - Sparkasse Dortmund (Chairman) Ralf Sikorski1 Hanover Member of the Main Executive Board of IG Bergbau, Chemie, Energie Year of birth: 1961 Member since: 1 July 2014 Other appointments: • CHEMIE Pensionsfonds AG (Chairman) • KSBG Kommunale Beteiligungsgesellschaft GmbH & Co. KG • Lanxess AG • Lanxess Deutschland GmbH • RAG AG • RAG Deutsche Steinkohle AG • RWE Generation SE • RWE Power AG • Member of other mandatory supervisory boards. - Member of comparable domestic and foreign supervisory boards of commercial enterprises. 1 Employee representative. 188 RWE Annual Report 2017 Supervisory Board Committees Executive Committee of the Supervisory Board Dr. Werner Brandt (Chairman) Frank Bsirske Sandra Bossemeyer Prof. Dr. Hans-Peter Keitel Monika Krebber Dagmar Mühlenfeld Dr. Wolfgang Schüssel Leonhard Zubrowski Mediation Committee in accordance with Sec. 27, Para. 3 of the German Co-Determination Act (MitbestG) Dr. Werner Brandt (Chairman) Frank Bsirske Dr. Wolfgang Schüssel Ralf Sikorski Personnel Affairs Committee Dr. Werner Brandt (Chairman) Reiner Böhle Frank Bsirske Harald Louis Peter Ottmann Dr. Wolfgang Schüssel Audit Committee Dr. Erhard Schipporeit (Chairman) Reinhold Gispert Dr. Wolfgang Schüssel Ullrich Sierau Ralf Sikorski Marion Weckes Nomination Committee Dr. Werner Brandt (Chairman) Prof. Dr. Hans-Peter Keitel Peter Ottmann Strategy Committee Dr. Werner Brandt (Chairman) Frank Bsirske Reinhold Gispert Prof. Dr. Hans-Peter Keitel Günther Schartz Ralf Sikorski NewCo IPO Committee Dr. Werner Brandt (Chairman) Frank Bsirske Sandra Bossemeyer Prof. Dr. Hans-Peter Keitel Monika Krebber Dagmar Mühlenfeld Dr. Erhardt Schipporeit Dr. Wolfgang Schüssel Leonhard Zubrowski Consolidated financial statements > Boards (part of the notes) 189 The Executive Board Exiting members of the Executive Board Dr. Rolf Martin Schmitz (Chief Executive Officer) Chairman of the Executive Board of RWE AG since 15 October 2016 Uwe Tigges (Former Labour Director and Chief HR Officer)1 Member of the Executive Board of RWE AG until 30 April 2017 Member of the Executive Board of RWE AG since 1 May 2009, appointed until 30 June 2021 Labour Director of RWE AG since 1 May 2017 Other appointments: • Amprion GmbH • RWE Pensionsfonds AG (Chairman) - VfL Bochum 1848 Fußballgemeinschaft e. V. Other appointments: • Amprion GmbH • RWE Generation SE (Chairman) • RWE Power AG (Chairman) • RWE Supply & Trading GmbH • TÜV Rheinland AG - Jaeger-Gruppe (Chairman) - Kärntner Energieholding Beteiligungs GmbH - KELAG-Kärntner Elektrizitäts-AG Dr. Markus Krebber (Chief Financial Officer) Member of the Executive Board of RWE AG since 1 October 2016, appointed until 30 September 2019 Other appointments: • innogy SE • RWE Generation SE • RWE Pensionsfonds AG • RWE Power AG • RWE Supply & Trading GmbH (Chairman) • Member of other mandatory supervisory boards. - Member of comparable domestic and foreign supervisory boards of commercial enterprises. 1 Information valid as of the date of retirement. 190 RWE Annual Report 2017 3.9 INDEPENDENT AUDITOR’S REPORT To RWE Aktiengesellschaft, Essen Report on the audit of the consolidated financial statements and of the group management report Audit opinions We have audited the consolidated financial statements of RWE Auditors in Germany] (IDW). We performed the audit of the consoli- dated financial statements in supplementary compliance with the Aktiengesellschaft, Essen, and its subsidiaries (the Group), which com- International Standards on Auditing (ISAs). Our responsibilities under prise the statement of financial position as at 31 December 2017, those requirements, principles and standards are further described and the statement of profit or loss, statement of comprehensive in- in the “Auditor’s Responsibilities for the Audit of the Consolidated come, statement of cash flows and statement of changes in equity Financial Statements and of the Group Management Report” section for the financial year from 1 January to 31 December 2017, and of our auditor’s report. We are independent of the group entities notes to the consolidated financial statements, including a summary in accordance with the requirements of European law and German of significant accounting policies. In addition, we have audited the commercial and professional law, and we have fulfilled our other group management report of RWE Aktiengesellschaft, which is com- German professional responsibilities in accordance with these bined with the Company’s management report, for the financial year requirements. In addition, in accordance with Article 10 (2) point (f) from 1 January to 31 December 2017. We have not audited the con- tent of those parts of the group management report listed in the of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit “Other Information” section of our auditor’s report in accordance Regulation. We believe that the audit evidence we have obtained is with the German legal requirements. sufficient and appropriate to provide a basis for our audit opinions on the consolidated financial statements and on the group manage- In our opinion, on the basis of the knowledge obtained in the audit, ment report. • the accompanying consolidated financial statements comply, in Key Audit Matters in the Audit of the Consolidated Financial all material respects, with the IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant Statements Key audit matters are those matters that, in our professional judg- to § [Article] 315e Abs. [paragraph] 1 HGB [Handelsgesetzbuch: ment, were of most significance in our audit of the consolidated German Commercial Code] and, in compliance with these require- financial statements for the financial year from 1 January to ments, give a true and fair view of the assets, liabilities, and 31 December 2017. These matters were addressed in the context financial position of the Group as at 31 December 2017, and of of our audit of the consolidated financial statements as a whole, its financial performance for the financial year from 1 January and in forming our audit opinion thereon; we do not provide a to 31 December 2017, and separate audit opinion on these matters. • the accompanying group management report as a whole provides In our view, the matters of most significance in our audit were as an appropriate view of the Group’s position. In all material respects, follows: this group management report is consistent with the consolidated financial statements, complies with German legal requirements Changes in segment reporting and appropriately presents the opportunities and risks of future Recoverability of goodwill development. Our audit opinion on the group management report Recognition and measurement of pension provisions does not cover the content of those parts of the group manage- Recognition and measurement of tax items ment report listed in the “Other Information” section of our auditor’s report. Our presentation of these key audit matters has been structured in Pursuant to § 322 Abs. 3 Satz [sentence] 1 HGB, we declare that our audit has not led to any reservations relating to the legal compli- Matter and issue ance of the consolidated financial statements and of the group man- Audit approach and findings agement report. Reference to further information each case as follows: Basis for the Audit Opinions We conducted our audit of the consolidated financial statements Hereinafter we present the key audit matters: and of the group management report in accordance with § 317 HGB and the EU Audit Regulation (No. 537/2014, referred to subse- quently as “EU Audit Regulation”) and in compliance with German Changes in segment reporting The executive directors of RWE Aktiengesellschaft made changes to its internal management and reporting structures in finan- Generally Accepted Standards for Financial Statement Audits prom- ulgated by the Institut der Wirtschaftsprüfer [Institute of Public cial year 2017. The former “Conventional Power Generation” segment was divided into the “Lignite & Nuclear” and “European Consolidated financial statements > Independent auditor’s report 191 Power” segments with effect as of 1 January. The “Lignite & average cost of capital for the relevant cash-generating unit. Nuclear” segment covers electricity generation in Germany The impairment test resulted in the recognition of a write-down using lignite and nuclear power, while the “European Power” for the Retail United Kingdom cash-generating unit amounting segment mainly comprises the electricity generation business in to EUR 479 million. The outcome of these valuations is depend- Germany, the UK, the Netherlands and Belgium using gas and ent to a large extent on the estimates made by the executive hard coal power plants. This required a redefinition of the directors of the future cash inflows of the cash-generating units, segments shown in the Group’s segment reporting. Changes and on the respective discount rates and rates of growth employed were also made to intra-Group trading relationships as a result as well as on further assumptions. The valuation is therefore of the new segmentation. The management approach required subject to considerable uncertainty. Against this background by IFRS 8 for the identification of segments involves the exercise and due to the underlying complexity of the valuation, this of judgment to a high degree. The changes to segment report- matter was of particular significance in the context of our audit. ing were therefore of particular significance in the context of our audit. As part of our audit, we evaluated the methodology used for the purpose of performing the impairment tests and assessed In the course of our audit, among other things we assessed the calculation of the weighted average cost of capital, among whether segment reporting in accordance with the requirements other things. In addition, we assessed whether the future cash of the management approach is consistent with the Company’s inflows underlying the measurements together with the weight- internal reporting and management structures. For this purpose, we evaluated in particular the internal reporting to the Execu- ed cost of capital used represent an appropriate basis for the impairment tests overall. We evaluated the appropriateness of tive Board and satisfied ourselves by inspecting the minutes of the future cash inflows used in the calculations, among other Executive Board meetings that the new segment structure corre- things by comparing this data with the Group’s medium-term sponds to the Company’s regular internal reporting. In addition, plan and by reconciling it against general and sector-specific we assessed the adjustments to the consolidation accounting market expectations. In this context, we also assessed whether entries required for the presentation of the new segments. In the costs of Group functions were properly included in the re- our view, the redefinition of the reportable segments has been spective cash-generating unit. In the knowledge that even rela- clearly documented and properly implemented overall. tively small changes in the discount rate applied can in some The RWE Group’s segment reporting is contained in the notes to the consolidated financial statements in section “Other informa- tion” in note “(29) Segment reporting”. Recoverability of goodwill cases have a material impact on the value of the entity calculat- ed using this method, we also evaluated the parameters used to determine the discount rate applied and assessed the measure- ment model. Furthermore, we evaluated the sensitivity analyses performed by the Company in order to evaluate any impairment risk (carrying amount higher than recoverable amount) in the In the consolidated financial statements of RWE Aktienge- event of a reasonably possible change in a material assumption sellschaft, goodwill amounting to EUR 11.2 billion (16 % of con- underlying the measurement. Overall, the measurement para- solidated total assets) is reported under the balance sheet item meter and assumptions used by the executive directors are in line “Intangible assets”. Goodwill is tested for impairment annually with our expectations and are also within the ranges considered or when there are indications of impairment, to determine any by us to be reasonable. possible need for write-downs. The carrying amounts of the relevant cash-generating units, in- The Company’s disclosures relating to goodwill are contained in the notes to the consolidated financial statements in section cluding goodwill, are compared with the corresponding recover- “Notes to the Balance Sheet” in note “(10) Intangible assets”. able amounts in the context of the impairment tests. The recov- erable amount is generally calculated on the basis of fair value less costs of disposal. The impairment tests are performed at the level of the cash-generating units or groups of cash-generat- ing units to which the respective goodwill is allocated. The measurements to calculate the fair value less costs of disposal carried out for the purposes of the impairment tests are based on the present values of the future cash flows derived from the planning projections for the next three years (medium-term plan) prepared by the executive directors and acknowledged by the supervisory board. In doing so, expectations relating to fu- ture market developments and country-specific assumptions about the performance of macroeconomic indicators are also taken into account. Present values are calculated using discount- ed cash flow models. The discount rate applied is the weighted 192 RWE Annual Report 2017 Recognition and measurement of pension provisions porary differences in the statement of financial position that will In the consolidated financial statements of RWE Aktienge- not be realized until future financial years. Furthermore, the sellschaft provisions for pensions and similar obligations are re- “Deferred taxes” balance sheet line item includes under ported under the balance sheet item “Provisions”. The pension “Non-current assets” recognized claims for tax reductions provisions comprise obligations from defined benefit pension amounting to EUR 340 million, resulting from loss carryforwards plans amounting to EUR 25.3 billion, plan assets of EUR 20.0 bil- that based on the Company’s executive director’s estimates can lion and a reported surplus of plan assets over benefit obliga- be utilized in the future. The measurements underlying the tax tions of EUR 0.1 billion. The obligations from defined benefit items recognized are based, to the extent that insufficient de- pension plans were measured using the projected unit credit ferred tax liabilities are available, on the expected future taxable method. This requires assumptions to be made in particular earnings, which are primarily derived on the basis of the medi- about long-term rates of growth in salaries and pensions, aver- um-term business plans prepared by the executive directors. age life expectancy, and staff turnover. The discount rate must The result of these measurements depends to a large extent on be determined by reference to market yields on high-quality cor- the executive directors’ estimation of future financial perfor- porate bonds with matching currencies and consistent maturi- mance, and is therefore subject to material uncertainties. ties. This usually requires the data to be extrapolated, since Against this background, the recognition and measurement of there is an insufficient number of long-term corporate bonds. tax items overall was of particular significance in the context of The plan assets are measured at fair value, which in turn in- our audit. volves making estimates that are subject to uncertainties. In our view, these matters were of particular significance in the the determination, accounting treatment and measurement of context of our audit because the recognition and measurement deferred taxes and for the impairment testing of the tax items of this significant item in terms of its amount are based to a ma- recognized, among other things. We also assessed whether the terial extent on estimates and assumptions made by the Compa- planning projections underlying the measurements constitute As part of our audit, we evaluated the methodology used for ny’s executive directors. For the purposes of our audit, we firstly assessed whether the criteria for recognition as defined benefit or defined contribu- an appropriate basis for the measurements. In addition, we eva- luated whether the items were properly accounted for either through profit or loss in the income statement or in equity in the statement of comprehensive income, in accordance with the tion pension commitments were met and evaluated the actuarial respective underlying transaction. Based on our audit procedures, expert reports obtained and the professional qualifications of we were able to satisfy ourselves that the methods applied and the external actuarial experts. We also examined the specific measurement assumptions made by the executive directors for features of the actuarial calculations and evaluated the numeri- the purpose of calculating and recognizing tax items, including cal data, the actuarial parameters and the valuation methods on the impairment testing of the deferred tax items, are justified which the valuations were based for compliance with standards and sufficiently documented. and appropriateness, in addition to other procedures. In addi- tion, we analyzed the changes in the obligation and the cost The Company’s disclosures relating to income taxes are con- components in accordance with actuarial expert reports in the tained in the notes to the consolidated financial statements in light of changes occurring in the valuation parameters and the sections “Notes to the Income Statement” in note “(9) Taxes on numerical data, and assessed their plausibility. For the audit of income” and “Notes to the Balance Sheet” in note “(17) De- the fair value of the plan assets, we obtained bank and fund ferred taxes”. confirmations and evaluated the methods on which the respec- tive valuation was based and the valuation parameters applied. Based on our audit procedures, we were able to satisfy our- selves that the estimates applied and assumptions made by the executive directors are justified and sufficiently documented. The Company’s disclosures relating to the pension provisions are contained in the notes to the consolidated financial state- ments in section “Notes to the Balance Sheet” in note “(23) Pro- visions”. Recognition and measurement of tax items In the consolidated financial statements of RWE Aktienge- sellschaft, taxes on income decreased income before tax by 24 %. A material portion of this net figure for tax income and expenses results from the recognition of deferred taxes on tem- Consolidated financial statements > Independent auditor’s report 193 Other information The executive directors are responsible for the other information. of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so. The other information comprises the following non-audited parts of the group management report: Furthermore, the executive directors are responsible for the prepara- tion of the group management report that, as a whole, provides an • the statement on corporate governance pursuant to § 289f HGB appropriate view of the Group’s position and is, in all material re- and § 315d HGB included in section 1.8 of the group manage- spects, consistent with the consolidated financial statements, com- ment report plies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, the • the separate non-financial group report pursuant to § 315b executive directors are responsible for such arrangements and Abs. 3 HGB measures (systems) as they have considered necessary to enable the preparation of a group management report that is in accordance The other information comprises further the remaining parts of the with the applicable German legal requirements, and to be able to annual report – excluding cross-references to external information – provide sufficient appropriate evidence for the assertions in the with the exception of the audited consolidated financial statements, group management report. the audited group management report and our auditor’s report. The supervisory board is responsible for overseeing the Group’s Our audit opinions on the consolidated financial statements and on the group management report do not cover the other information, financial reporting process for the preparation of the consolidated financial statements and of the group management report. and consequently we do not express an audit opinion or any other form of assurance conclusion thereon. In connection with our audit, our responsibility is to read the other Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report Our objectives are to obtain reasonable assurance about whether information and, in so doing, to consider whether the other informa- the consolidated financial statements as a whole are free from mate- tion rial misstatement, whether due to fraud or error, and whether the group management report as a whole provides an appropriate view • is materially inconsistent with the consolidated financial state- of the Group’s position and, in all material respects, is consistent ments, with the group management report or our knowledge ob- with the consolidated financial statements and the knowledge ob- tained in the audit, or tained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future de- • otherwise appears to be materially misstated. velopment, as well as to issue an auditor’s report that includes our audit opinions on the consolidated financial statements and on the If, based on the work we have performed, we conclude that there is group management report. a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with § 317 HGB Responsibilities of the Executive Directors and the Supervisory and the EU Audit Regulation and in compliance with German Generally Board for the Consolidated Financial Statements and the Group Management Report The executive directors are responsible for the preparation of the Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) and supplementary compli- ance with the ISAs will always detect a material misstatement. Mis- consolidated financial statements that comply, in all material re- statements can arise from fraud or error and are considered material spects, with IFRSs as adopted by the EU and the additional require- if, individually or in the aggregate, they could reasonably be expect- ments of German commercial law pursuant to § 315e Abs. 1 HGB ed to influence the economic decisions of users taken on the basis and that the consolidated financial statements, in compliance with of these consolidated financial statements and this group manage- these requirements, give a true and fair view of the assets, liabili- ment report. ties, financial position, and financial performance of the Group. In addition the executive directors are responsible for such internal We exercise professional judgment and maintain professional skepti- control as they have determined necessary to enable the prepara- cism throughout the audit. We also tion of consolidated financial statements that are free from material misstatement, whether due to fraud or error. • Identify and assess the risks of material misstatement of the consolidated financial statements and of the group management In preparing the consolidated financial statements, the executive report, whether due to fraud or error, design and perform audit directors are responsible for assessing the Group’s ability to continue procedures responsive to those risks, and obtain audit evidence as a going concern. They also have the responsibility for disclosing, that is sufficient and appropriate to provide a basis for our audit as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis opinions. The risk of not detecting a material misstatement result- ing from fraud is higher than for one resulting from error, as fraud 194 RWE Annual Report 2017 may involve collusion, forgery, intentional omissions, misrepresen- prospective information and on the assumptions used as a basis. tations, or the override of internal control. There is a substantial unavoidable risk that future events will dif- fer materially from the prospective information. • Obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and We communicate with those charged with governance regarding, measures (systems) relevant to the audit of the group manage- among other matters, the planned scope and timing of the audit ment report in order to design audit procedures that are appropri- and significant audit findings, including any significant deficiencies ate in the circumstances, but not for the purpose of expressing an in internal control that we identify during our audit. audit opinion on the effectiveness of these systems. • Evaluate the appropriateness of accounting policies used by the that we have complied with the relevant independence require- executive directors and the reasonableness of estimates made by ments, and communicate with them all relationships and other mat- the executive directors and related disclosures. ters that may reasonably be thought to bear on our independence, We also provide those charged with governance with a statement and where applicable, the related safeguards. • Conclude on the appropriateness of the executive directors’ use of the going concern basis of accounting and, based on the audit From the matters communicated with those charged with govern- evidence obtained, whether a material uncertainty exists related ance, we determine those matters that were of most significance in to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude the audit of the consolidated financial statements of the current pe- riod and are therefore the key audit matters. We describe these mat- that a material uncertainty exists, we are required to draw attention ters in our auditor’s report unless law or regulation precludes public in the auditor’s report to the related disclosures in the consoli- disclosure about the matter. dated financial statements and in the group management report or, if such disclosures are inadequate, to modify our respective audit opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements present the under- lying transactions and events in a manner that the consolidated financial statements give a true and fair view of the assets, liabili- ties, financial position and financial performance of the Group in compliance with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to § 315e Abs. 1 HGB. • Obtain sufficient appropriate audit evidence regarding the finan- cial information of the entities or business activities within the Group to express audit opinions on the consolidated financial statements and on the group management report. We are respon- sible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinions. • Evaluate the consistency of the group management report with the consolidated financial statements, its conformity with German law, and the view of the Group’s position it provides. • Perform audit procedures on the prospective information present- ed by the executive directors in the group management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by the executive directors as a basis for the prospective information, and evaluate the proper derivation of the prospective information from these assumptions. We do not express a separate audit opinion on the Consolidated financial statements > Independent auditor’s report 195 Other legal and regulatory requirements Further Information pursuant to Article 10 of the EU Audit Regulation We were elected as group auditor by the annual general meeting on 27 April 2017. We were engaged by the supervisory board on 15 May 2017. We have been the group auditor of RWE Aktiengesell- schaft, Essen, without interruption since the financial year 2001. We declare that the audit opinions expressed in this auditor’s report are consistent with the additional report to the audit committee pursuant to Article 11 of the EU Audit Regulation (long-form audit report). German Public Auditor responsible for the engagement The German Public Auditor responsible for the engagement is Ralph Welter. Essen, 27 February 2018 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft Michael Reuther Wirtschaftsprüfer Ralph Welter Wirtschaftsprüfer (German Public Auditor) (German Public Auditor) 196 RWE Annual Report 2017 3.10 INFORMATION ON THE AUDITOR The consolidated financial statements of RWE AG and its subsidia- ries for the 2017 fiscal year – consisting of the Group balance sheet, Group income statement and statement of comprehen sive income, Group statement of changes in equity, Group cash flow statement and Group notes to the financial statements – were au- dited by the auditing company PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft. The auditor at PricewaterhouseCoopers GmbH Wirtschaftsprüfungs- gesellschaft responsible for RWE is Mr Ralph Welter. Mr Welter has performed this function in four previous audits of RWE. Consolidated financial statements > Five-year overview 197 FIVE-YEAR OVERVIEW Five-year overview RWE Group External revenue Income Adjusted EBITDA Adjusted EBIT Income before tax Net income /RWE AG shareholders’ share in income Earnings per share Adjusted net income Adjusted net income per share Cash flow /capital expenditure /depreciation and amortisation Cash flows from operating activities Free cash flow1 Free cash flow per share1 Depreciation, amortisation, impairment losses and asset disposals Degree of asset depreciation Asset /capital structure Non-current assets Current assets Balance sheet equity Non-current liabilities Current liabilities Balance sheet total Equity ratio Net financial debt Net debt Leverage factor Workforce Workforce at year-end3 Research & development Operating R&D costs Emissions balance CO2 emissions Free allocation of CO2 certificates Shortage of CO2 certificates4 Specific CO2 emissions 2017 2016 2015 2014 2013 € million 44,585 45,833 48,090 48,468 52,425 € million € million € million € million € € million € € million € million € € million % € million € million € million € million € million € million % € million € million 5,756 3,646 3,056 1,900 3.09 1,232 2.00 – 1,754 – 3,849 – 6.26 2,886 71.0 45,694 23,365 11,991 36,774 20,294 69,059 17.4 6,301 5,403 3,082 – 5,807 – 5,710 – 9.29 777 1.26 2,352 809 1.32 6,857 71.4 45,911 30,491 7,990 39,646 28,766 76,402 10.5 1,659 7,017 3,837 – 637 – 170 – 0.28 1,125 1.83 3,339 441 0.72 5,838 65.6 51,453 27,881 8,894 45,315 25,125 79,334 11.2 7,353 7,131 4,017 2,246 1,704 2.77 1,282 2.09 5,556 2,311 3.76 3,369 62.6 54,224 32,092 11,772 46,324 28,220 86,316 13.6 8,481 20,227 22,709 25,463 30,972 7,904 5,369 – 2,016 – 2,757 – 4.49 2,314 3.76 4,803 960 1.56 8,121 61.6 56,905 24,476 12,137 47,383 21,861 81,381 14.9 10,320 30,727 3.5 4.2 3.6 3.82 3.52 59,547 58,652 59,762 59,784 64,896 € million 182 165 101 110 151 million metric tons million metric tons million metric tons metric tons / MWh 132.4 148.3 150.8 155.2 163.9 1.6 4.5 5.6 5.8 7.4 129.4 142.6 143.9 148.3 156.5 0.655 0.686 0.708 0.745 0.751 1 New definition; see explanation on page 56. 2 Adjusted figure; see page 64 of the 2014 Annual Report. 3 Converted to full-time positions. 4 As Turkey does not participate in the European Union Emissions Trading System, we do not need emission allowances for our CO2 emissions in that country. 198 RWE Annual Report 2017 IMPRINT RWE Aktiengesellschaft Huyssenallee 2 45128 Essen Germany Phone +49 201 12-00 Fax +49 201 12-15199 E-mail contact@rwe.com Investor Relations: Phone +49 201 5179-3112 Fax +49 201 12-15033 Internet www.rwe.com/ir E-mail invest@rwe.com Corporate Communications: +49 201 12-23986 Phone Fax +49 201 12-22115 For annual reports, interim reports, interim statements and further information on RWE, please visit us on the internet at www.rwe.com. This annual report was published on 13 March 2018. This is a trans- lation of the German annual report. In case of divergence from the German version, the German version shall prevail. Typesetting and production: MPM Corporate Communication Solutions, Mainz, Germany www.mpm.de Photography: André Laaks, Essen, Germany Printing: D+L Printpartner GmbH, Bocholt, Germany Translation: Olu Taylor Translation & Interpretation Services, Geretsried, Germany Proofreading: Nicola Thackeray, Swindon, UK RWE is a member of DIRK – the German Investor Relations Association. Further informationen Financial Calendar 2018/2019 26 April 2018 2 May 2018 15 May 2018 Annual General Meeting Dividend payment Interim statement on the first quarter of 2018 14 August 2018 Interim report on the first half of 2018 14 November 2018 Interim statement on the first three quarters of 2018 14 March 2019 Annual report for fiscal 2018 3 May 2019 8 May 2019 15 May 2019 Annual General Meeting Dividend payment Interim statement on the first quarter of 2019 14 August 2019 Interim report on the first half of 2019 14 November 2019 Interim statement on the first three quarters of 2019 The Annual General Meeting (until the beginning of the Q & A session) and all events concerning the publication of our financial reports are broadcast live on the internet and recorded. We will keep the recordings on our website for at least twelve months. RWE Aktiengesellschaft Huyssenallee 2 45128 Essen Germany www.rwe.com 

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