RWE AG
Annual Report 2018

Plain-text annual report

Powering into the future. Annual Report 2018 The new RWE: engine of the energy transition We all need electricity – children and adults, small businesses and industrial heavyweights. Where there is electricity, there is light, warmth and communication; there is production, medical care and mobility. Electricity is life. For more than 120 years, RWE has been a reliable electricity provider to people and companies alike. We see to it that electricity is available wherever it is needed, day and night, when the sun is shining, in wind, sleet or snow, and across all seasons. For people in our core markets, electricity is a matter of course – not because it is, but because that is what we have turned it into. Today, climate change presents us with a new challenge. It is no longer just about ensuring that electricity is generated, but also about how it is produced. If possible, it should be zero-carbon, like solar, wind and hydro. We will also tackle this challenge with resolve and spur the sector’s transformation into a sustainable energy system that preserves the climate. We are laying the foundation for this by acquiring the renewable energy business of E.ON and of our financial subsidiary innogy. In the future, we will spend billions of euros building new wind and solar farms – in Europe, the USA and many other places around the world. But expanding renewable energy is not the end of the road. The wind and the sun are not available around the clock. This is why high-capacity energy storage is needed, and we intend to play our part in developing and building it. Moreover, in the foreseeable future, there will be a need for conventional power stations that generate electricity whenever wind turbines and solar panels can’t. Otherwise, we will go back to square one, when security of supply was not a matter of course. At RWE we’re powering into the future of electricity supply: a supply of energy that preserves the climate and is absolutely reliable. Our mission is to ensure that these objectives do not become mutually exclusive. This mission is: Powering. Reliable. Future. CONTENTS To our investors Interview with the CEO The Executive Board of RWE AG Supervisory Board report RWE on the capital market 1 1.1 1.2 1.3 1.4 1.5 Major events 1.6 1.7 1.8 1.9 1.10 Combined review of operations Strategy and structure Innovation Economic environment Political environment Notes on reporting 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 1.11 Disclosure relating to German takeover law 1.12 Remuneration report 1.13 Development of risks and opportunities 1.14 Outlook 3 6 8 13 17 18 24 27 32 35 40 42 51 56 58 59 61 73 83 2 Responsibility statement 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 85 87 88 89 90 91 92 93 160 196 201 207 208 210 211 AT A GLANCE RWE Group – key figures1 Power generation External revenue (excluding natural gas tax/electricity tax) Adjusted EBITDA Adjusted EBIT Income from continuing operations before taxes Net income Cash flows from operating activities of continuing operations Capital expenditure Property, plant and equipment and intangible assets Financial assets Free cash flow billion kWh € million € million € million € million € million € million € million € million € million € million 176.0 13,388 1,538 619 49 335 4,611 1,260 1,079 181 3,439 2018 2017 200.2 13,822 2,149 1,170 2,056 1,900 – 3,771 902 706 196 – 4,439 614,745 3.09 1.50 1.50 +/– % – 12.1 – 3.1 – 28.4 – 47.1 – 97.6 – 82.4 222.3 39.7 52.8 – 7.7 177.5 – – 82.5 – – – – 7.1 Number of shares outstanding (annual average) thousands 614,745 Earnings per share Dividend per common share Dividend per preferred share € € € 0.54 0.702 0.702 Net debt of continuing operations € million Workforce3 31 Dec 2018 31 Dec 2017 4,389 17,748 – 19,106 1 Change in reporting; see explanation on page 40. 2 Dividend proposal for RWE AG’s 2018 fiscal year, subject to the passing of a resolution by the 3 May 2019 Annual General Meeting. 3 Converted to full-time positions. To our investors > Interview with the CEO 3 “2019 HAS THE POTENTIAL TO BE A VERY GOOD YEAR FOR RWE.” The asset swap with E.ON will turn RWE into a new company, transforming at least half of it ... The ‘new RWE’ won’t be an entirely different company. With our power plants, we will continue to provide security of supply and with renewables, we will become the engine of the energy transition. And both are important. Conventional and renewable generation have always been two sides of the same coin for us. But the focus will probably increasingly shift towards renewable energy, an area in which you have ambitious growth targets. In terms of earnings, renewables will have the upper hand right from the start. In the first year after the completion of the asset swap, they will account for more than half of the Group’s adjusted EBITDA. The transaction will turn us into the No. 3 in renewable energy in Europe. In offshore wind, we will even be No. 2 globally. We want to expand this position through initial net investments of 1.5 billion euros per year. This should enable us to place 2 to 3 gigawatts of new generation capacity on the system every year. The focus remains on wind and we have also set our sights on solar and storage projects. Our focus will lie on markets in Europe, North America and the Asia-Pacific region. Will RWE become a global player in renewable energy? The global aspect of our approach is that we will only enter certain international markets with certain technologies. In Asia, for example, we’re looking to only invest in offshore wind projects, and in Australia only in onshore wind and solar power. Basically, we will serve regional markets around the globe. As a part of the transaction you will receive a project pipeline of over 17 gigawatts, mostly wind projects. How much of this do you intend to implement? Of course, we can’t make this decision until we have operational control. However, we probably won’t implement a fair share of the projects in the pipeline. Only those that meet our return requirements will be considered. Under no circumstances will we make investment decisions ‘no matter what the cost’. This should really go without saying, but it probably isn’t a bad idea to come out and reiterate it. Rolf Martin Schmitz on the planned asset swap with E.ON, the future of RWE as a renewable energy company and the consequences of Germany’s exit from coal Mr. Schmitz, many market observers were surprised at your announcement in March 2018 that you would sell innogy to E.ON and receive the renewable energy activities of the two companies in return. Had you been planning this move for a while? No. The idea didn’t crop up until the end of 2017. This was followed in January 2018 by the first talks between my opposite number at E.ON, Johannes Teyssen, and myself. And then it all went very fast. That’s the way it goes sometimes: someone comes up with an idea that is so compelling that you just want to implement it both rapidly and well. On 12 March, the first stock trading day after the announcement of the transaction, the share prices of all three companies involved rose significantly. RWE’s common stock gained 9 %. How do investors feel about the envisaged transaction? The capital market is a reliable barometer of the quality of a deal. And based on the reactions of the stock market, there is no doubt that most investors welcome the transaction. I also get this feedback directly, when I speak with institutional investors. We often receive praise for the fact that we are exchanging a purely financial investment, where we don’t have any influence in operating terms, for a high earning business that we can run ourselves. Furthermore, our investors welcome the fact that RWE once again has a growth story. And that we will soon have a broader setup in electricity generation and reduce our dependency on conventional energy sources. 4 RWE Annual Report 2018 You have set yourself the goal of completing the asset swap with E.ON this year. Is everything on schedule? Executing a transaction of this magnitude involves a lot of work and demands patience. But we are making very good progress. In January 2019, we filed the asset swap with the European Commission and received clearance from Brussels on 26 February. On the same day, the German Cartel Office also gave its go-ahead. However, this only relates to our part of the transaction. E.ON also filed its part with the Commission in January. In this case, the approval process will take some more time. A hard Brexit may cause delays, but I’m confident that we will stay on track. There is some resistance to the deal. Your competitors claim that the merger of innogy and E.ON will jeopardise competition. How would you respond to this? Not at all, really, because that falls in E.ON’s remit. What I can say is that the German grid business is regulated by the state. And there are far more than a thousand suppliers in the domestic retail electricity market. The hurdles to switching supplier are low. Nowadays, you can do that online with just a few clicks. So that market works and there is no reason to believe that this will change. Experience shows that ‘soft’ factors are also instrumental to the success of company transactions. Will the managers, who have different cultural backgrounds, agree on a common language? Will the employees at all sites be able to identify with the company’s goals? These and other questions are no doubt on peoples’ minds at RWE. Yes, absolutely. This is why the integration of the new activities under the RWE umbrella is one of our most important tasks. We will be limited in our actions in this respect until the transaction closes. But we’ve already accomplished a lot within the allowed framework. We have determined our strategy for the renewables business and put together the team that will lead it. And we will soon reach decisions on the second management level. One thing is clear: RWE is not just expanding through the addition of a new subsidiary – the company will be fundamentally transformed. We will become much more diverse and much more international. Be it engineers in Neurath, project developers in Chicago or traders in Singapore, they will all represent the new RWE. What is important is that we take this as an opportunity and learn from our differences. RWE should become popular as a leading green electricity producer. Are you already feeling an effect on your image? This hasn’t yet trickled down into the public’s consciousness, but that doesn’t surprise me. Only once the transaction has been completed will we be able to operate as a renewable energy company. And even then, it will take at least a couple of years for what the new RWE stands for to be engrained in peoples’ minds. Why will it take so long? Because RWE’s history is deeply rooted in electricity generation from coal, gas and nuclear energy. This somewhat one-sided picture will not change overnight. In addition, I don’t really want our image to be changed completely. RWE has the reputation of being a responsible, reliable partner. This is something we’re proud of and would like to keep on living up to when we cover the entire range of power generation technologies. What would allow us to make considerable progress regarding our image is a clear political framework for the future of coal-fired electricity generation which is acceptable to all stakeholders. Germany should soon have such a framework. The Growth, Structural Change and Employment Commission has submitted a concept for a coal phase-out by 2038. It envisages further power stations being taken offline in the next few years. Does that come as an unpleasant surprise to you? I was pleasantly surprised that the Commission nearly unanimously agreed on a concept for the future. With just one exception, all of the members endorsed the recommendations, including representatives of industry, trade unions, environmental associations and civic initiatives. This is an outstanding accomplishment by the Commission and its chairs. They established a solid basis, on which talks can now be held between the federal government and companies. To our investors > Interview with the CEO 5 So the framework is in place. What are the next steps? Now everything hinges on whether the government follows the Commission’s recommendations entirely. I would caution against taking apart a package that has been agonised over for months. The objective of the talks between the government and the companies must be to reach an agreement on the details, because the final report includes a lot of points that need clarification. It’s good news that companies will be granted compensation for premature shutdowns and that the impact on mining operations will be taken into consideration. This is in line with our legal understanding. The Commission recommends further power plant closures through to 2022. This will affect about 3 gigawatts of lignite-fired capacity. Will North Rhine-Westphalia have to shoulder most of the burden? Yes, that’s highly likely, as structural change here seems to be easier than in the lignite mining regions in the east of the country. But one mustn’t forget that in the Rhenish lignite mining region, we are already decommissioning 1.5 gigawatts prematurely under the security stand-by regime. Further closures will be much more difficult to implement and will probably have severe ramifications for the opencast mining system leading to job cuts. I expect significant redundancies through to 2023, which far exceed planning to date and normal churn. We will be able to make reliable estimates of the number of affected employees once we know exactly what we have to deal with. How can you ensure that the interests of the affected employees are safeguarded? Of course, any measures taken must be socially acceptable as the employees shouldn’t be made to pay the price for political decisions. In its report, the Commission clearly spoke out against forced layoffs and leaving people in the lurch. Similar to the exit from hard coal mining, an adjustment allowance is envisaged. But we need some more details, as there are still a lot of questions that require answers. Let’s talk about last year’s business performance. At slightly more than 1.5 billion euros, adjusted EBITDA was at the lower end of the forecast range. What are your views? All told, we can be satisfied with our operating performance. The things we had control of went well. Our employees did another formidable job in 2018. But some things can’t be foreseen or influenced, such as the court-ordered suspension of the UK capacity market. This cost us about 50 million euros in 2018. It’s impossible to predict these things in advance. This is why we forecast ranges instead of specific figures. Another unwelcome surprise was the temporary halt to the clearance of Hambach Forest in Germany ordered by the Münster Higher Administrative Court last autumn. How big of a burden do you currently think this will be for you? We maintain the assessment we made shortly after the court ruling for the time being. We anticipate that lignite production from the Hambach opencast mine will be reduced by an average of 10 to 15 million metric tons in 2019 and the two following years. This translates into 9 to 13 terawatt hours less electricity and 100 to 200 million euros less EBITDA – per year. In 2019, the earnings curtailment will probably still hover around the lower end of the range, because we have optimised operating procedures. Speaking of 2019: what are your expectations for the current fiscal year? In tems of operations, we could fare as we did in 2018, despite the burdens resulting from the court order regarding Hambach Forest. We anticipate that adjusted EBITDA will come in between 1.4 and 1.7 billion euros. Here, we assume that the UK capacity market will remain inactive in 2019. In addition, we expect the recovery of wholesale electricity prices to have positive effects. But more than anything, 2019 is the year in which we want to complete the asset swap with E.ON and fire the starting shot for the new RWE. If longer-term, reliable prospects can be created for coal-fired electricity generation on top of that, 2019 will be a very good year for RWE. A last word on the new RWE, where coal-fired generation and nuclear power will share a home with renewable energy. One part of the business is a political hot potato and will be scaled back, while the other basks in the limelight and is only set to grow. Could this contrast possibly turn into a stress test? I think that quite the opposite is true. As I said earlier, conventional generation and renewable energy are two sides of the same coin. And if we manage, for example, to be extremely efficient in dismantling our nuclear power stations, this will make a contribution to our economic success just as a profitable wind farm would. A manager in the nuclear energy business recently told me that working for a company with growth prospects motivates him. At the new RWE, everyone can benefit from everyone else. And everyone is important no matter where they are. If that’s communicated clearly, we will have the best possible chance to have a successful shared future. This interview was conducted by Burkhard Pahnke and Jérôme Hördemann. 6 RWE Annual Report 2018 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 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 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 • Business Services • Controlling & Risk Management • Finance & Credit Risk • Investor Relations • Portfolio Management /Mergers & Acquisitions • Accounting • Tax Group-level responsibilities • Corporate Transformation • Internal Audit & Compliance • Group Communications & Public Affairs • Group Strategy • Human Resources • Legal • Corporate Business Development 8 RWE Annual Report 2018 SUPERVISORY BOARD REPORT “In renewable energy, RWE will receive a business characterised by stable income, attractive growth options and widespread public acceptance. As a result, the company will take a major step forward.” Following the founding and the IPO of innogy in 2016, another landmark decision was taken last year, which will fundamentally change the RWE Group. An extensive asset swap was agreed with our German competitor E.ON, which is scheduled to be completed in 2019. This will make RWE Europe’s No. 3 in renewable energy, with E.ON strengthening itself through the addition of innogy’s grid and retail businesses. My fellow Supervisory Board members and I welcome the transaction. In renewable energy, RWE will receive a business characterised by stable income, attractive growth options and widespread public acceptance. As a result, the company will take a major step forward. This assessment is apparently shared by the capital market: buoyed by the new operating prospects, the RWE common share earned a total return of 20 % last year, impressively bucking the market’s negative trend. RWE’s share performance would probably have been even better, if the temporary halt to the clearance of Hambach Forest ordered by the Münster Higher Administrative Court had not abruptly reminded us of the risks to which RWE remains exposed in conventional power generation. The ruling handed down in October 2018 will curtail the operation of the Hambach opencast lignite mine considerably and weigh on earnings. Following the occasionally heated debate on the clearance of the forest and the future of electricity production from coal in Germany, one can only hope that these topics are once again addressed with less bias and more far-sightedness in the future. The recommendations of the Growth, Structural Change and Employment Commission submitted in January 2019 could make an important contribution to this end. The Commission, which was established by the government, is in favour of Germany taking further coal-fired power stations offline by the end of 2022 and phasing out electricity generation from coal entirely by no later than 2038 (also see page 33 of this annual report). We thoroughly discussed the Commission’s recommendations at an extraordinary Supervisory Board meeting on 5 February 2019. It is likely that there will be serious consequences for RWE’s lignite business. The recommendations harbour both risks and opportunities. They can give policymakers a basis for providing planning certainty to companies, employees and the regions. In doing so, it must be ensured that those affected are not put at a disadvantage. To our investors > Supervisory Board report 9 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 in several extraordinary meetings and between meetings. We passed the resolutions required of us by law or the Articles of Incorporation. Occasionally, we did so by circular. As Chairman of the Supervisory Board, I was constantly in touch with the Executive Board. This allowed us to discuss events of material importance to the Group’s situation and development without delay. Last year, the Supervisory Board convened for five ordinary and three extraordinary meetings. The shareholder and the employee representatives on the Supervisory Board consulted separately 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 2018 by Supervisory Board member 1 Supervisory Board Executive Committee Audit Committee Personnel Affairs Committee Dr. Werner Brandt, Chairman Frank Bsirske, Deputy Chairman Michael Bochinsky (since 1 August) Reiner Böhle Sandra Bossemeyer Martin Bröker (since 1 September) Ute Gerbaulet Reinhold Gispert (until 31 July) Andreas Henrich (until 31 August) Prof. Dr. Hans-Peter Keitel Dr. h. c. Monika Kircher Monika Krebber Harald Louis Dagmar Mühlenfeld Peter Ottmann Günther Schartz Dr. Erhard Schipporeit Dr. Wolfgang Schüssel Ullrich Sierau Ralf Sikorski Marion Weckes Leonhard Zubrowski 8/8 6/8 3/3 8/8 7/8 3/3 7/8 5/5 5/5 7/8 8/8 6/83 8/8 8/8 8/8 7/8 6/83 8/8 8/8 7/8 8/8 8/8 1/1 1/1 1/1 1/1 1/1 1/1 1/1 1/1 3/3 3/3 3/3 3/3 3/3 3/3 3/42 2/2 2/2 4/4 4/4 3/4 4/4 4/4 Strategy Committee 1/1 1/1 1/1 1/1 1/1 1/1 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 Dr. Werner Brandt attended meetings of the Audit Committee as a guest. 3 Due to potential conflicts of interest, Monika Krebber and Dr. Erhard Schipporeit, who also sit on the Supervisory Board of innogy SE, did not attend the extraordinary Supervisory Board meetings on 11 and 12 March 2018, at which the envisaged asset swap with E.ON was discussed. 10 RWE Annual Report 2018 Main points of debate of the Supervisory Board meetings. We were informed by the Executive Board very thoroughly of current events of importance to RWE in the ordinary sessions. A focal point of regular reporting was the political debate concerning Germany’s coal phase-out and the work of the Growth, Structural Change and Employment Commission. We also discussed the German Environmental Ministry’s initial ideas on how to translate the new EU clean air standards for power stations into national law. The Executive Board also kept us abreast of the developments in energy policy in neighbouring countries, e. g. the coal phase-out planned in the Netherlands. In addition to these and other issues, Brexit was also addressed. We only discussed special topics in our extraordinary meetings. Now I would like to address the main points of our sessions in more detail: • At its ordinary meeting on 7 March 2018, the Supervisory Board discussed and approved the financial statements for fiscal 2017 and the agenda of the Annual General Meeting of 26 April 2018. Furthermore, we consulted about the talks that I conducted with major institutional investors on corporate governance matters (Executive Board remuneration, composition of the Supervisory Board, etc.) and on RWE’s climate protection strategy. This dialogue was received very positively by investors and is scheduled to be continued once a year. • The main topic at two extraordinary meetings, which took place on 11 and 12 March 2018 was the asset swap planned between RWE and E.ON through which the two companies will have a fundamentally new setup. We gave the go-ahead to the transaction on 12 March after intensive debates. The asset swap was contractually agreed on the same day. • At the ordinary meeting on 26 April 2018, we discussed how politicians will translate the new EU clean air standards for power plants into national law. By then, the German Environmental Ministry had already presented its first concepts regarding the matter. In addition, we made the final preparations for the Annual General Meeting, which was held on the same day. • Our ordinary meeting on 6 July 2018 was dedicated to IT security. The state and industry are exposed to the ever greater risk of cyber attacks. Both the frequency and severity of such attacks have increased. In our meeting we discussed the protective measures that had already been taken and the next steps necessary in order to continue guaranteeing the security of RWE’s IT infrastructure in the future. • At the ordinary meeting on 21 September 2018, we focused on the capital market’s view of RWE. The Executive Board informed us of the positive feedback from investors on the envisaged asset swap with E.ON. We addressed in great detail whether RWE should maintain the preferred shares in the long run. On international capital markets, it is customary for every share to have a vote. Together with the Executive Board, we discussed various possible actions and features, including the conversion of preferred shares to common shares. • On 14 October 2018, the Supervisory Board convened for an extraordinary session at which it concerned itself with the preliminary halt to the clearance of Hambach Forest ordered by the Münster Higher Administrative Court. The Executive Board informed us about the far-reaching consequences that the Court’s ruling could have for the opencast mining operations and the company’s earnings and consulted with us regarding the next steps. • We reviewed and adopted the planning for fiscal 2019 at an ordinary meeting on 12 December 2018. As usual, we also discussed the recommendations of the German Corporate Governance Code (GCGC) which were unchanged from 24 April 2017, and approved an updated statement of compliance together with the Executive Board. Another focal topic was digitisation and its increasing importance to the corporate world. We agreed that expertise in this area should be considered expressly in the Supervisory Board’s competence and skills matrix and expanded it accordingly. During the meeting, we also discussed the ruling of the General Court of the Court of Justice of the European Union on the UK capacity market, which led to a suspension of capacity payments. We conducted an in-depth debate on the United Kingdom’s impending exit from the EU and its possible effects on RWE. Furthermore, we received a report from the Executive Board on the increasingly critical views that banks and insurance companies have of coal. However, to date this has hardly affected the business relations between RWE and financial institutions. To our investors > Supervisory Board report 11 Supervisory Board committees. Last year, the Supervisory Board had five standing committees, the members of which are listed on page 199. These committees are charged with preparing topics and resolutions for plenary sessions. Occasionally, they exercise decision-making powers conferred on them by the Supervisory Board. The Supervisory Board was informed of the work of the committees by their chairmen at every ordinary meeting. In the year under review, a total of nine 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 2019 as well as the outlook for 2020 and 2021 in depth and prepared their adoption by the Supervisory Board. • The Audit Committee was in session four times. It concerned itself in particular with the financial statements of RWE AG and the Group, together with the combined review of operations, as well as with the report for the first half of the year and the quarterly statements. The Committee discussed the financial statements in detail with the Executive Board before they were published and received reports on the outcome of the audits and audit-like reviews from the independent auditors. It paid special attention to the quality of the financial statement audits. The Committee also engaged in dialogue with the independent auditors via its chairman in between sessions. Furthermore, the body submitted a recommendation to the Supervisory Board regarding the election of the independent auditors for fiscal 2018, prepared the grant of the audit award to the independent auditors including the fee agreement, and set the priorities of the audit. Non-financial reporting was also on the agenda: analyses and comparisons to other companies prove that RWE has a high level of transparency in this area. As usual, the Committee was 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 the design of the compliance management system, the planning and findings of the internal audit, the RWE Group’s exposure to risk pursuant to the German Corporate Control and Transparency Act, data security as well as legal and tax issues. In-house experts were consulted when necessary. • The Personnel Affairs Committee held three meetings during the year being reviewed. Amongst other things, the corporate body discussed the adjustments to the target figures for the variable remuneration of the Executive Board and executives necessary due to the envisaged asset swap with E.ON. Detailed information on the changes can be found on page 64 et seqq. Moreover, the Committee prepared the Supervisory Board resolution on the renewed appointment of Markus Krebber as member of the Executive Board of RWE AG. • The Nomination Committee did not convene in 2018. • The members of the Strategy Committee held one session. This meeting focused on the asset swap agreed with E.ON. The Executive Board explained the key points of its future strategy for the renewable energy business. In addition, it informed the Committee of the measures taken to prepare the integration of the business activities that will be transferred to RWE as part of the transaction. • The Mediation Committee pursuant to Section 27, Paragraph 3 of the German Co-Determination Act did not have to meet in 2018. 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. Last year, Monika Krebber and Erhard Schipporeit, who sit on the Supervisory Board of both RWE AG and innogy SE, filed notifications of conflicts of interest in respect of the decisions regarding the envisaged asset swap with E.ON. Therefore, they did not receive any of the preparatory documents in relation to the relevant agenda items and did not participate in the relevant consultations or passing of resolutions. 12 RWE Annual Report 2018 Financial statements for fiscal 2018. PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft scrutinised and issued an unqualified auditor’s opinion on the 2018 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 International Financial Reporting Standards (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 had been elected independent auditor by the Annual General Meeting on 26 April 2018 and commissioned by the Supervisory Board to audit the financial statements of RWE AG and the Group. The annual report and the audit reports for 2018 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 8 March 2019. 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 7 March 2019, 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 balance-sheet meeting, 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 2018 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 €0.70 per share. Changes in personnel on the Supervisory Board. There were two staffing changes on the Supervisory Board in the year under review. Reinhold Gispert and Andreas Henrich, both of whom were employee representatives, resigned from the corporate body with effect from the end of the day on 31 July and 31 August, respectively. The Essen District Court appointed Michael Bochinsky to replace Reinhold Gispert on the Supervisory Board with effect from 1 August 2018. As of 1 September, Andreas Henrich was succeeded by Martin Bröker, who had been elected Mr. Henrich’s successor by the Employees Delegate Assembly on 2 March 2016. On behalf of the Supervisory Board, I thank Messrs. Gispert and Henrich for their valuable work in our corporate body and dedication to RWE. Thanks to the employees of RWE. In keeping with tradition, I would like to dedicate the last few lines of my report to those who made the most important contribution to RWE’s success and continued development: the employees. As in the past, in 2018, they proved once again that a great deal can be accomplished with expertise and commitment. My colleagues and I really appreciate this and would like to express our sincere gratitude to them for this. Last year, the groundwork was laid for a new RWE, which will stand for both stability and growth. Our company’s journey will lead to a promising future, but might also be difficult at times. I am convinced that with the support of its staff, RWE will navigate this course successfully and master the huge challenges along the way. On behalf of the Supervisory Board Werner Brandt Chairman Essen, 8 March 2019 To our investors > RWE on the capital market 13 RWE ON THE CAPITAL MARKET Sentiment on the German stock market in 2018 was clouded by increasing economic risks. The DAX closed the year with a negative performance after six years of positive returns. RWE stock performed much better: our common shares ended the year with a gain of 20 %. A main reason was the asset swap we agreed upon with E.ON. Investors and analysts welcome the transaction, because it will give us renewable energy activities, an attractive business with outstanding growth prospects. The continued recovery of German wholesale electricity prices also had a positive impact on RWE’s share price. Performance of the RWE common share compared with the DAX and STOXX Europe 600 Utilities % (average weekly figures) 50 40 30 20 10 0 – 10 – 20 31 Dec 2017 31 M ar 2018 30 Jun 2018 30 Sep 2018 31 Dec 2018 RWE common share DAX STOXX Europe 600 Utilities Source: Bloomberg. DAX markedly down due to economic cooldown. Sentiment on the German stock market deteriorated substantially in 2018: the DAX was down 18 % to 10,559 points. This was its first negative performance since 2011 and made it one of the weakest of the European share indices. Due to its strong dependence on foreign trade, the DAX was particularly hard hit by the trade conflict between the USA and other industrial nations. The emerging economic slowdown also weighed on it. In addition, some branches of industry faced difficulties, in particular the automotive sector, which is heavily represented in the DAX and had to contend with impending diesel bans. Brexit and the Italian government’s unclear economic agenda also contributed to investor uncertainty. The extremely expansive monetary policy of the European Central Bank had a stabilising effect on the development of share prices. RWE common share posts total return of 20 %. RWE stock clearly outperformed the DAX. Our common share closed 2018 at €18.97. Including the dividend of €1.50 paid at the beginning of May, it achieved a total return of 20 % for the year. This ranked it second in the DAX. RWE’s common stock also displayed much better development than the sector index STOXX Europe 600 Utilities (+ 2 %). The main reason for its strong performance was the asset swap agreed with E.ON, through which we will become one of Europe’s leading renewable energy companies. We have provided detailed information on this transaction on page 35 et seq. On 12 March, the first stock market trading day following the announcement of the envisaged transaction, our common share gained 9 %. Rising wholesale electricity prices also had a positive effect on the development of the share price. Our preferred share, which by far exceeded the performance of our common share with a total return of 43 %, benefited from an exceptional effect: in December, the Executive Board of RWE AG announced that it will propose to the Annual General Meeting on 3 May 2019 a 1:1 conversion of preferred shares to common shares without any payments. This announcement drove up the quotation of our preferred stock nearly to the level of that of our common stock. In October, however, RWE shares suffered a severe setback as a result of the court-ordered halt to the clearance of Hambach Forest, which will lead to production and income shortages in electricity generation from lignite (see page 36). 14 RWE Annual Report 2018 RWE share indicators Earnings per share1 Cash flows from operating activities of continuing operations 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 % % € € € € € € 2018 0.54 7.50 0.702 0.702 4302 3.7 3.7 18.97 22.48 15.10 18.84 19.20 13.46 2017 3.09 – 6.13 1.50 1.50 922 8.8 10.5 17.00 23.14 11.80 14.33 17.46 8.87 2016 – 9.29 3.83 – 0.13 5 – 1.5 11.82 15.95 10.17 8.72 11.61 7.95 2015 – 0.28 5.43 – 0.13 5 – 1.5 11.71 25.68 9.20 8.94 19.62 7.33 2014 2.77 9.04 1.00 1.00 615 3.9 5.3 25.65 32.83 24.95 18.89 25.61 18.89 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 11.7 10.3 7.1 7.1 15.5 1 In relation to the annual average number of shares outstanding. The comparability of some of the figures for various fiscal years is limited due to changes in reporting (see page 40). 2 Dividend proposal for RWE AG’s 2018 fiscal year, subject to the passing of a resolution by the 3 May 2019 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 2018. The Supervisory Board and the Executive Board of RWE AG will propose to the Annual General Meeting on 3 May 2019 a dividend of €0.70 per common and preferred share. This would cause the ordinary dividend to increase by €0.20 compared to the previous year. We paid a total dividend of €1.50 for fiscal 2017, but it included a special payment of €1.00, through which we enabled our shareholders to benefit from the nuclear fuel tax refund. voting right notifications, the two companies held 6 % and 5 % of the subscribed capital, respectively. Third place is occupied by the City of Essen, with 3 %. The free float of our common shares considered by Deutsche Börse in terms of index weighting was 94 % when this report went to print. Only the shares held by 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. Broad international shareholder base. At the end of 2018, 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 owned by individuals (including employees). Institutional investors from Germany owned 25 % of RWE (previous year: 29 %). In other countries on the European continent, this investor group held 15 % of RWE’s subscribed capital (previous year: 14 %). In North America, the United Kingdom and Ireland, it accounted for a combined 43 % (previous year: 40 %). RWE AG’s single-largest shareholder is KEB Holding, which is backed by the City of Dortmund, followed by the US asset management company BlackRock. Based on their latest About 1 % of our stock is owned by our current and former staff members. For years, we have enabled the personnel of our German subsidiaries to take shares in the company on preferential terms through employee share ownership plans, with such schemes being available to the staff of our UK subsidiaries since 2018. Last year, over 3,300 people, representing 21 % of all qualifying staff members, made use of this offer. They bought a total of about 226,000 common shares. We spent some €565,000 on the preferential terms and the administration of the programme. The employees of innogy SE and its subsidiaries are not included in the figures, 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 6 % KEB Holding AG 13 % Private shareholders 5 % BlackRock, Inc. 3 % City of Essen 72 % Other institutional shareholders 86 % Institutional shareholders: 25 % Germany 24 % USA/Canada 19 % UK/Ireland 15 % Continental Europe excluding Germany 3 % Rest of the world 1 As of the end of 2018; 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 2018 1.1 STRATEGY AND STRUCTURE Our establishment and IPO of innogy in 2016 were but the first steps on the way to a new RWE. Now we are taking another major step by exchanging our financial investment in innogy for a leading operating position in renewable energy. The basis for this is a transaction agreed with E.ON in March 2018, through which the two companies will realign themselves. Once the asset swap has been completed, we will expedite the expansion of renewable energy – with annual net capital expenditure of about €1.5 billion. We will take on a new role as an all-rounder in electricity generation, ensuring security of supply with our flexible power stations, while playing an active part in the transformation of the energy system which will increase climate protection. Planned asset swap with E.ON: laying the foundation for a new RWE. RWE is in the midst of a transformation through which the company is giving itself a new operational and organisational setup. The basis for this is an agreement reached with E.ON in March 2018 pursuant to which the two companies will conduct an extensive exchange of business activities and shareholdings. It is envisaged that E.ON will acquire our financial investment of 76.8 % in innogy while we will receive nearly the entire renewables business of E.ON and innogy. Furthermore, we will receive a 16.67 % shareholding in E.ON, the non-controlling interests of the E.ON subsidiary PreussenElektra in our Gundremmingen (25 %) and Emsland (12.5 %) nuclear power stations, innogy’s gas storage business, and innogy’s 37.9 % stake in the Austrian energy utility Kelag. We will also make a one-off cash payment of €1.5 billion to E.ON as part of the transaction. The business activities and equity interests will be transferred with retrospective economic effect to 1 January 2018. We are confident of being able to complete the asset swap by the end of 2019. RWE will become Europe’s No. 3 in renewable energy. The transaction with E.ON will give us approximately 9 GW of zero-carbon electricity generation capacity from renewable sources, mostly from onshore and offshore wind farms. This will make us Europe’s No. 3 in renewables and the world No. 2 in offshore wind. In addition to generation assets, we will receive a large portfolio of growth projects in various stages of development. Here again, the focus is on wind energy, followed by photovoltaics. Renewable energy will account for more than half of the RWE Group’s adjusted EBITDA as early as the first year after the completion of the asset swap with E.ON, making this business our strongest income generator. Refinement of RWE’s strategy. Concurrently to the implementation of the asset swap with E.ON, we have begun to develop the key points of our future renewable energy strategy. We presented the first results of our deliberations to the Supervisory Board of RWE AG and our employees at the end of 2018. We intend to rapidly expand the leading position in renewable energy that we will obtain through the transaction. To this end, we plan to invest about a net €1.5 billion every year. These funds should be sufficient to increase capacity by between 2 GW and 3 GW per annum. Our technological focus rests on wind energy, photovoltaics and storage solutions. Geographically, we will concentrate on markets in Europe, the Americas and the Asia-Pacific region. We will maintain the integrated business model pursued by innogy and E.ON to date, meaning that our new projects will cover the entire value chain from development to construction and operation wherever possible. To ensure efficient management, we will divide the renewable energy business into the following business fields: (1) Onshore Wind and Photovoltaics in Europe and Asia-Pacific, (2) Onshore Wind and Photovoltaics in the Americas and (3) Global Offshore Wind. These activities will be spearheaded by a six-member management team, including three chief operating officers, each in charge of one of the aforementioned business fields. In parallel to our growth ambitions in renewable energy, we want to maintain our leading position in conventional electricity production. With our power plant fleet – one of the largest in Europe – we are making an indispensable contribution to ensuring a reliable supply of electricity that satisfies demand in our core markets, i. e. Germany, the United Kingdom and the Benelux region. Wind turbines and PV installations cannot accomplish this due to their strongly fluctuating load. Electricity storage techniques are not yet able to meet the technical and economic requirements necessary to be used for ensuring the supply of electricity on a large scale. This is why conventional generation capacity that is capable of adjusting to the fluctuations of wind and solar feed-ins will be needed for a long time to come. Combined review of operations > Strategy and structure 19 Lignite and nuclear power stations will lose importance within our generation portfolio even though their earnings prospects have improved. This is mainly due to the energy policy framework in Germany. Nuclear energy is subject to a legally binding phase-out roadmap, which stipulates a latest possible shutdown date for every single plant. Two RWE stations are still online: Gundremmingen C and Emsland. We can operate these units until the end of 2021 and the end of 2022, respectively, after which they must be closed. Electricity generation from lignite is also subject to a time limit. This results from the global and national climate protection goals. Germany wants to reduce greenhouse gas emissions in the energy sector by slightly more than 60 % by 2030 compared to the level in 1990. We have made a major contribution to this in the past and will continue to do so in the future. For example, we are participating in the lignite security standby scheme, which involves eight power plant units – including five of RWE’s – being gradually taken off the market from 2016 to 2019 and being used as the last resort to ensure security of supply for four years each, before they are decommissioned. On 30 September 2017, our Frimmersdorf Units P and Q were taken off the grid, followed twelve months later by Units E and F at Niederaussem. Neurath’s Unit C is scheduled to follow suit at the end of September 2019. This will cause our carbon dioxide emissions in the Rhenish lignite mining region to drop by about 15 % compared to 2015. We expect to have to take further lignite units offline early in the coming years. This is a consequence of the proposals submitted by the Growth, Structural Change and Employment Commission, on which we provide detailed information on page 33. The body recommends a complete exit from coal by 2038. It envisages the capacity of lignite-fired power stations on the market being reduced to a total of 15 GW by the end of 2022. This would represent a decline of nearly 5 GW compared to the end of 2017. The objective is to have only 9 GW remaining on the market in 2030. The federal government is expected to follow these recommendations. The timing and choice of the stations that will be shut down remains to be clarified. Talks will be held with the companies to this end. We believe we should receive appropriate compensation – as recommended by the Commission – for our plants that are affected by the measures. Energy trading will also remain one of RWE’s core areas of activity, not least due to its strong connection to the generation business. Our trading company RWE Supply & Trading is in charge of marketing the electricity of our power stations while procuring the fuel and emission allowances needed to produce it. In this role, combined with the commercial optimisation of our generation asset dispatch, it makes a major contribution to the Group’s operational success. Our deliberations concerning the strategy of the new RWE have not yet been finalised. For example, we still have to determine the dividend policy we intend to pursue and the leverage we will aim for. We will be able to reach decisions on the details of our strategy once the asset swap with E.ON has been completed and we have operational control of the new activities. After that, we want to provide comprehensive information on our new strategy. RWE in fiscal 2018: Group structure featuring four segments. In the transitional period leading up to the completion of the transaction, the RWE Group is divided into four segments (divisions), which are described in detail below. In addition to the three RWE operating divisions Lignite & Nuclear, European Power and Supply & Trading, they consist of the innogy activities that will remain with us. (1) Lignite & Nuclear. This is where we report our German electricity generation from lignite and nuclear power as well as our lignite mining in the Rhineland. These activities are managed by our subsidiary RWE Power. This segment also encompasses our equity holdings in the Dutch nuclear power plant operator EPZ (30 %) and the German company URANIT (50 %), which holds a 33 % stake in the uranium enrichment specialist Urenco. Our 51 % interest in Hungary-based Mátra, which generates electricity from lignite, was also included in this segment until it was sold in March 2018. Lignite and nuclear power plants are primarily used to generate base-load power due to their relatively low and stable fuel costs. Their profitability is primarily determined by the price level on the wholesale market. Electricity prices were on a downward trend until 2016, after which they recovered. A massive cost cutting exercise enabled us to curb the resulting earnings shortfalls. Our ongoing efficiency-enhancement programme in conventional power generation is designed to cut annual expenditure by a total of €300 million compared to 2016. Of this sum, €200 million and €100 million are allocable to the Lignite & Nuclear and European Power segments, respectively. We aim to conclude the programme by the end of 2019. We have already achieved the planned savings for the most part. 20 RWE Annual Report 2018 (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. 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 has resulted in a significant decline in the use of some of these assets compared to the beginning of the decade. In some cases, their margins are far below the levels prevailing at that time. We therefore shut down several hard coal-fired power stations or saw to it that they were closed. Examples are Voerde A and B on the Lower Rhine, which were taken offline in April 2017. We held a stake of 25 % in these units and marketed their electricity generation. We have temporarily taken some gas-fired power plants off the grid that could no longer cover their fixed operating costs, for example the Dutch Moerdijk 1 unit as of 1 February 2018. They can come back online as soon as market conditions allow. Besides temporary and permanent power plant closures, we have taken additional measures to cut costs and will continue to do so in the future. As set out earlier, we aim to reduce expenses in the European Power segment by €100 million via our ongoing efficiency- enhancement programme, most of which we have accomplished. Despite the persistent pressure from consolidation, we believe the European Power segment has long-term growth prospects. We expect that secured generation capacity will become tight, causing our stations to become more profitable. In the long run, this should benefit gas-fired power plants in particular. In light of the slight improvement in market prospects, we have put some mothballed stations back online or decided to return them to service, as was the case with the Dutch Claus C gas-fired power plant, which is scheduled to resume power production at full capacity in 2020, following about six years of inactivity. In terms of installed capacity, gas is already our most important fuel, and its share in our generation portfolio will probably grow even more. Political decisions play a major role. The governments in our most important generation markets, i. e. Germany, the United Kingdom and the Netherlands, are pursuing ambitious climate protection goals and are relying on a rapid phase-out of electricity production from coal to achieve them. Therefore, 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. The proportion of our electricity generation accounted for by hard coal should continue to decline in 2019, in part because we will decommission the coal unit of Gersteinwerk in Werne (Westphalia) in the spring. In addition, we are currently converting our two Dutch hard coal-fired power stations Amer 9 and Eemshaven for biomass co-firing. We have been granted up to €2.6 billion in state subsidies due to the required expenditure and the much higher price of biomass compared to hard coal. We will receive these funds over a period of eight years, enabling biomass shares of 80 % at Amer 9 and 15 % at Eemshaven. The conversion work is making good progress and we are confident that we will be able to establish the technical prerequisites for achieving these quotas before the end of this year. (3) Supply & 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. Our subsidiary mainly trades electricity, natural gas, coal, oil, CO2 certificates and biomass. RWE Supply & Trading increasingly conducts these activities outside of Europe: it already runs trading floors in New York, Singapore and Shanghai. Another of the company’s activities consists of marketing the electricity from RWE power stations and procuring the fuel and emission allowances required to produce it. One objective is to limit price risks. On top of that, RWE Supply & Trading is in charge of the commercial optimisation of our power plant dispatch. The resulting earnings are reported in the generation segments. The company 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 sophisticated risk management concepts. Combined review of operations > Strategy and structure 21 Another focal point of RWE Supply & Trading’s activities is the gas business. The company supplies gas to companies outside of the RWE Group. To this end, it enters into long-term supply agreements with producers, organises gas transportation by booking pipelines and optimises the timing of deliveries using leased gas storage facilities. The company also concludes transactions involving liquefied natural gas (LNG). The objective is to take advantage of differences in price between regional gas markets which are not connected via pipelines. 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, because the greater the size and diversification of the procurement and supply portfolios, the greater the chances are to commercially optimise them. RWE Supply & Trading also leverages its expertise to make short to medium-term investments in energy assets or energy companies, for which value-enhancing measures can be taken in order to realise high returns upon resale (referred to as principal investments). At the end of 2018, RWE Supply & Trading had a portfolio of ten investments, a large portion of which was in the USA. (4) innogy – continuing operations. This is the segment in which we report all of the innogy assets that should remain within the RWE Group over the long term: renewables, gas storage and the 37.9 % stake in the Austria-based power utility Kelag. Once E.ON has acquired our majority interest in innogy, it will return the aforementioned activities to us. innogy ranks among Europe’s leading renewable energy companies. In terms of generation capacity, our subsidiary’s strongest presence is currently in Germany and the United Kingdom, followed by Spain, the Netherlands and Poland. In terms of energy sources, its focus is on onshore and offshore wind, followed by hydroelectric power and photovoltaics. innogy further expanded its generation capacity last year. One milestone was the inauguration of the Galloper large-scale UK North Sea wind farm, in which innogy holds a 25 % stake. Furthermore, the company has initiated the continued expansion of its wind power capacity by beginning the onshore work on Triton Knoll, another large-scale wind farm in the UK North Sea. Our subsidiary holds a 59 % stake in it. In addition, innogy acquired a project portfolio with over 2 GW in the USA and secured subsidies under the German Renewable Energy Act for the Kaskasi offshore wind project in Germany. We report on the projects mentioned here in detail on page 37 et seq. With Belectric Solar & Battery, a subsidiary acquired in early 2017, innogy is also one of the largest international suppliers of ground-mounted solar panel arrays and battery storage facilities with a presence in Europe, the Middle East, North Africa, India, Australia, South America and the USA. Photovoltaics is one of the fastest growing technologies in the energy sector and has become profitable without subsidies in many markets since its introduction. In addition to the development and construction of ground-mounted solar farms, Belectric also handles operation and maintenance. Since its inception in 2001, the company has already set up solar panel arrays with a total capacity of about 2 GW. It is currently building such a facility in Australia, which on completion will probably be the country’s largest to date (see page 38). Moreover, by manufacturing battery storage units, Belectric is making a major contribution to distributed power supply and will play a pivotal role in stabilising electricity grids in the future. Besides the renewable energy and electricity storage business, we will continue innogy’s gas storage activities. Our subsidiary currently owns eleven gas storage facilities, of which five, with a combined capacity of 1.6 billion cubic metres, are located in Germany, and six, with a total capacity of 2.5 billion cubic metres, are situated in the Czech Republic. innogy leases the capacities to companies such as RWE Supply & Trading, which use them for timing arbitrage transactions. Storage units are filled in the warm months, when little gas is needed to heat buildings, and gradually emptied in the cold season, when demand is high. The income achieved through such arbitrage transactions and, in turn, storage capacity auctions depends on the seasonal differences in gas prices. The differences in price between summer and winter gas are much smaller today than they have been in the past. However, we believe that periods of scarcity and price spikes will become more frequent again in the future, in part due to rising demand for gas used to generate electricity. Therefore, we feel there is a good chance of achieving attractive returns in the gas storage business once again. It is also envisaged that innogy’s minority interest in Kelag will remain in the RWE Group. Headquartered in Klagenfurt (Carinthia), Kelag is a leading Austrian energy utility. Its activities cover all stages of the value chain, from electricity generation, energy trading and distribution system operation to the sale of electricity, gas and innovative energy solutions. Kelag primarily produces its electricity from renewable sources such as hydro, wind and photovoltaics. The minority interest in the company is therefore a good complement to our future renewable energy activities. fair valuation of derivatives, impairments and other material special items are shown in the non-operating result. Subtracting operating depreciation and amortisation from adjusted EBITDA yields adjusted EBIT. Net income corrected to exclude all major special items (‘adjusted net income’), is another key operating indicator. However, we will determine this figure solely using the method deviating from IFRS consolidation principles until the transaction with E.ON has been completed. Adjusted EBIT and adjusted net income are key performance indicators regarding the variable compensation of the Executive Board and executives (see page 63 et seqq.). We primarily use the internal rate of return for evaluating the attractiveness of 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. 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. 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. 22 RWE Annual Report 2018 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 following fiscal year and planned figures for the years thereafter. 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 if published forecasts need to be modified. The main key performance indicators we use in managing our business are adjusted EBITDA, adjusted EBIT, adjusted net income, and net debt. As set out in more detail on page 40, the business activities of our subsidiary innogy are considered in these figures either in full or in part, although we classify this company as a pure financial investment. For management purposes, we therefore also use key figures calculated in deviation from IFRS consolidation principles: our majority interest in innogy is recognised in the ‘other financial assets’ line item on the balance sheet and we only consider the dividend received on the income statement. More detailed information on this can be found on page 58. 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: capital gains or losses, temporary effects from the Combined review of operations > Strategy and structure 23 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. We are making use of the findings from this exchange to revise our CR strategy. This involves identifying our major sustainability challenges and determining how we can overcome them. We still believe that contributing to achieving national and international climate protection goals through continuous emission reductions is a key task. Our carbon dioxide emissions have dropped steadily in the last six years, in part because we took coal-fired power plants offline. We believe that this trend will continue. Furthermore, we aim to be a driving force in the creation of a sustainable energy system by spurring the expansion of renewable energy. Further information on our measures in relation to CR can be found in our separate non-financial statement in accordance with Section 315b, Paragraph 3 of the German Commercial Code, which will be published as part of our CR Report in April 2019 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 2018 1.2 INNOVATION Those who are innovative need not be afraid of change. This also holds true for companies in a changing market environment – companies like RWE. We have a whole host of development projects looking for new technical solutions. Our goal is to make opencast mines more profitable, power plants less emissions-intensive as well as develop and refine future-oriented uses of lignite and carbon dioxide. In addition, we support start-ups and receive important stimulus for our business by working with them. In our daily operations, we benefit from the ingenuity and entrepreneurial spirit of our employees. Once again, they had thousands of good ideas in 2018, which will allow us to achieve millions of euros in savings. With about 520 inventions, we are in the leading pack of European utilities. RWE is innovative in many ways. Our motivation is to remain competitive in an environment undergoing substantial change as well as to be a driving force behind this transformation. With a tally of around 1,760 patents and patent applications, based on roughly 520 inventions, the RWE Group is in the vanguard of Europe’s most innovative utilities. These figures also consider all of the activities of our subsidiary innogy SE. Last year, we worked on about 360 research and development (R & D) projects. In many of these projects, we co-operate with companies or research institutes and usually only have to bear a portion of the costs. The RWE Group’s operating R & D spending including innogy amounted to €116 million in 2018 (previous year: €182 million). A total of about 600 of the Group’s 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. RWE AG is responsible for the R & D activities of the areas of the Group under its management. Its measures are therefore 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 converting lignite and carbon dioxide for use as starting materials for the chemical industry. Furthermore, we work with start-ups, the ideas of which have the potential to help us make further progress. Since 2016, R & D activities in the fields of renewable energy, grids and retail have been the responsibility of innogy SE. In this chapter, we present a small selection of RWE AG’s important R & D projects, followed by an overview of our co-operation with new companies as well as a brief insight into the innovative work done by innogy. We end with an example of how valuable our employees’ ideas are to us. The transformation of mining: increasingly automated and digital. Opencast lignite mining is a complex, multi-stage process, involving the use of numerous heavy-duty machines: huge bucketwheel excavators dig out the coal and the topsoil (known as the overburden) from the terraced opencast mines and deposit it on conveyor belts, on which it is often transported for several kilometres. The coal is then temporarily stored in a bunker before being transported by rail or conveyor belts to the surrounding power stations and refining plants. At the same time, the overburden is transported to the other side of the opencast mine where mining has already been completed. Here, stackers use it to fill the depression resulting from coal extraction. Automation and digitisation enable the processes described above to be rendered much simpler and more efficient. We began automating heavy machinery components as early as the 1990s, and we have made substantial headway in this area since then. We are also making good progress in terms of digitisation. For instance, we are currently working on a digital, three-dimensional representation of opencast mine operations. As is the case for automobile navigation devices, a satellite is used to determine the current position of our heavy machinery, while sensors monitor the material flow on the conveyor belts. This transparency offers multiple benefits: control centre personnel receive precise information as to the location of the on-site machinery and the progress of the work performed using it, thereby creating a reliable basis for resource planning. Excavator operators can monitor the exact job data via a display, enabling them to control their machine as efficiently as possible. Furthermore, workers around the stacker operators are able to preplan their daily activities, based on the information on the overburden that is already on its way over via the conveyor belt. Above and beyond this, the 3D visualisation of the working environment makes it easier for them to adhere to the specified heights for backfilling and modelling the surfaces for recultivation. By taking the measures described above, we are lifting our opencast mines to a new technological level, establishing major prerequisites for being able to operate them profitably in the future as well. Combined review of operations > Innovation 25 New opportunities for CO2 use: carbon dioxide is turned into methanol. For some time now, we have been working on various processes to enable us to separate carbon dioxide from power plant flue gases (CO2 washing). At the Coal Innovation Centre in Niederaussem, we have developed one of the world’s leading technologies in this field together with BASF and Linde. This technology has been tested in a pilot plant and has proven its efficiency over more than 70,000 operating hours since 2009 with carbon capture rates of 90 %. Now we are taking the next step: we use the carbon dioxide from the pilot plant to produce fuel and feedstock for the chemical industry, which can be used to replace fossil fuels such as crude oil and natural gas. We are doing this within the scope of four projects that are subsidised by the EU. One of them is MefCO2 (Methanol from CO2). Its purpose is to show how carbon dioxide, water and electricity can be used to make methanol, which is traditionally produced with natural gas or coal, on a large technical scale. A wide variety of chemical products are based on methanol, one of the most commonly produced chemicals in the world, which is also suitable as a long-term storage medium for renewable energy. Therefore, the benefits of conversion extend far beyond simply reducing industrial CO2 emissions. Nine partners from seven European countries are involved in MefCO2, amongst them industrial companies, universities and research institutes. The project was launched in 2014, and we joined it in 2017 during the project partners’ search for a site for a demonstration plant that could be used to convert carbon dioxide into methanol. Today, the plant is located at Niederaussem. It went into operation in early 2019 and has a production capacity of about 1 metric ton of methanol per day, making it one of the largest CO2 utilisation plants in Europe. The path to carbon-neutral economic cycles: an opportunity for the coal mining regions. Many experts believe that human intervention in the climate can only be limited effectively if the global social and economic system successfully makes the shift to largely closed carbon cycles. Ideally, only as much carbon enters the atmosphere as is bound by other processes at the same time. However, this is not without its own challenges. The crux of the matter is that we will ultimately continue to rely on electricity in the future and we will also want to live in warm homes. In addition, industry remains reliant on carbon-based raw materials. The transition to the circular carbon economy is a herculean task, which cannot be accomplished without investment. RWE has been co-operating with the Fraunhofer Institute for Environmental, Safety and Energy Technology (Fraunhofer UMSICHT) in Oberhausen and Bochum Ruhr University since September 2018 to develop the technical and systemic framework necessary for a circular carbon economy. Our goal is to establish a centre of competence for carbon conversion which brings together the know-how, equipment and components as well as research work. We are focusing on regions in which the phase-out of carbon-intensive technologies will result in the demise of established industrial structures. The centre, which will be called ITZ CC (Innovation and Technology Centre for Carbon Conversion), will initiate structural change in the Rhenish lignite mining region and the Ruhr area by way of technologies and know-how relating to the use of carbon. The objective is to build a bridge from conventional to innovative carbon usage and make a contribution to new industries replacing old ones. A key method in transitioning to the circular carbon economy is the gasification of carbonaceous material. We intend to dedicate ourselves intensively to this process at the Niederaussem Innovation Centre. We are doing this as part of an initiative of the Fraunhofer Institute named Carbon Chains (IK2). The project is based on the fact that coal and other carbonaceous materials can be used to produce raw materials for the chemical industry and for fuels through gasification. What is special about this method is that, during the combustion process, rather than carbon dioxide and water vapour, carbon monoxide and hydrogen are produced. The latter are building blocks of a synthesis gas that is already being used in the production of fuels, plastics and fine chemicals. From 2020 onwards, pilot plants are due to be built in Niederaussem to develop suitable gasification, processing and synthesis technologies. We use lignite, which is increasingly losing importance as a fuel for generating electricity, as a base raw material. Its use in the production of basic materials will open up exciting long-term prospects to the Rhenish coal mining region. In addition, waste products, residual materials and biomass can also be converted through gasification. In this way, previously unused carbon sources could be integrated in order to supply industry with raw materials. Lower mercury emissions thanks to rotary hearth furnace coke. We want to operate our power plants in as an environmentally-friendly manner as possible and legislation gives us strict guidelines in this regard, e. g. in relation to mercury emissions. In 2021, they will be subjected to new EU limits making the framework conditions for the operation of our lignite-fired power plants stricter than ever. We are already able to successfully separate and extract most of the mercury contained within flue gases so, as a result, our plants are already well below the current upper limits. Independently of this, we have been investing in intensive research for some years now, in order to identify ways which allow us to further reduce mercury emissions cost effectively. We have been giving much consideration to a process which makes 26 RWE Annual Report 2018 use of furnace coke from lignite. We are already using this substance to extract mercury at our refining plants and then use it to manufacture lignite briquettes or lignite dust for the cement and lime industries. Tests in a pilot plant at the Coal Innovation Centre at the Niederaussem power station show that lignite-based furnace coke can also help reduce emissions from power plants. We mixed finely ground furnace coke with water and sprayed the resulting mixture into one of the power station’s smoke stacks (wet spraying). This results in the mercury attaching itself to the fine furnace coke particles; both materials are extracted by the electrostatic precipitator and disposed of. The tests indicate a significant reduction in mercury emissions. The findings gained have since influenced the construction of a large-scale demonstration plant, also located in Niederaussem, which took up operation at the beginning of 2019. This is where wet spraying will be compared to the alternative method of dry spraying in a long-term test. We intend to implement the more suitable of the two technologies in other lignite-fired power stations. Innovation at innogy: contributing to the success of the energy transition. Our subsidiary innogy is pursuing a broad range of innovation projects designed to contribute to making the energy transition a success. They are described in more detail at www.innogy.com/innovation. An example of a project that turned out especially well is the development of the Smart Wind Farm Output Controller (SWOC), a remote control for onshore wind farms. SWOC is a cube, no larger than a hat box, with integrated software. It enables any wind turbine variant to be controlled from several locations. Thanks to SWOC, the operators of the grids which receive the electricity can ramp down production, thereby protecting powerlines from overload. Direct marketers of wind energy can also ramp down output, for example if there is an oversupply of power on the market resulting in negative electricity prices. The control box makes wind turbine operation more flexible and efficient. innogy has already started using these devices for its German and Dutch wind farms and intends to upgrade solar farms with the intelligent switch cubes. Detailed information on these projects and other RWE R & D ventures can be found at www.rwe.com/innovation. Promoting new companies and their ideas. In addition to working on our own research projects, we also support fledgling, innovative companies. RWE has been involved in the third High-Tech Gründerfonds (HTGF III) since 2017. HTGF is Germany’s largest start-up financer. It acquires stakes in firms that make commercial use of technological progress and has invested in over 500 companies since 2005, being part of numerous success stories. HTGF is a public-private partnership: its group of investors includes the Federal Ministry of Economics and Energy, the KfW Group, Fraunhofer Gesellschaft and numerous companies. RWE has been investing in venture capital funds since 2006. This allows us to more easily identify start-ups with ideas that could be interesting for our business. To deepen our ties to the founder scene and pave the way for potential co-operations, we held our first Start-up Day in 2018. A large number of the attendees were attracted through our involvement in HTGF. The valuable talks and contacts resulting from the event have encouraged us to hold at least one further Start-up Day in 2019. We leverage the experience and know-how of our employees. Another source of useful ideas can be found within our daily operations. Many of our employees pass on their observations from their day-to-day activities, thereby enabling the company to progress. Last year, employees of the Group submitted approximately 2,000 suggestions for ways in which to improve the business to their idea managers. We estimate the economic benefit of their suggestions for the first year of implementation to be €2.6 million. The suggestions can make operating procedures both more efficient and environmentally friendly, while being less dangerous than before. For example, workers in the Rhenish lignite mining region observed that the process of refuelling vehicles and machines was much too cumbersome: the tank lorry drivers would climb atop the tank, hose in hand, in order to refuel the vehicles and machines through their top-mounted filler necks using a conventional pump nozzle. Besides being hazardous, this resulted in small residual amounts of fuel escaping and seeping into the ground. The employees therefore suggested retrofitting the vehicles and machines for pressure fuelling. There are several advantages to this solution: the filler necks can be mounted where they are more convenient to reach, the fixed connection between the hose and the tank prevents fuel from overflowing, and fuelling times are reduced considerably. These benefits were so compelling that the ball soon got rolling. At the beginning of 2019, where technically possible and sensible, all track vehicles in the Rhenish opencast mine and even some emergency back-up generators for heavy-duty equipment were converted to pressure refuelling. Combined review of operations > Economic environment 27 1.3 ECONOMIC ENVIRONMENT The global economic upswing continued in 2018, but lost some steam over the course of the year. The economic trend stimulated demand for commodities and contributed to the increase in the price of gas and coal compared to the previous year. Furthermore, a reform of the European Emissions Trading System caused a rapid increase in CO2 certificate prices. These developments were responsible for the recovery of wholesale electricity prices in 2018, which began at the beginning of 2016. However, this has not had a significant affect on RWE’s earnings so far, because we had sold forward most of our electricity generation for 2018 in earlier years when prices were still far below the current level. German electricity consumption flat. Economic growth stimulated demand for electricity, whereas the trend towards energy savings had an opposing effect. According to proforma calculations by the German Association of Energy and Water Industries (BDEW), German electricity usage was roughly on a par year on year. Data available for the UK indicates that the country did not experience a significant change compared to 2017, either. Conversely, power consumption is estimated to have risen by 2 % in the Netherlands, with the country’s above-average growth probably playing a role. Eurozone posts 2 % economic growth. The global economy continued its upward trend in 2018, but lost some momentum during the year. One reason was the trade conflict between the USA and other nations, in particular China. Based on initial estimates, global economic output was a respectable 3 % higher in 2018 than in the previous year. The Eurozone may well have recorded approximately 2 % growth. Germany, the currency area’s largest economy, appears to have recorded a gain of just 1.5 %, whereas the Netherlands occupied one of the top spots among the euro countries, posting an expansion of about 2.5 %. In the United Kingdom, our most important market outside the currency union, gross domestic product rose by nearly 1.5 %. Brexit and the associated risks slowed the UK economy. One-year forward prices of gas on the TTF wholesale market €/MWh (average weekly figures) 2017 forward 2018 forward 2019 forward 26 24 22 20 18 16 14 12 2016 2017 2018 Source: Bloomberg. 28 RWE Annual Report 2018 One-year forward prices of coal deliveries to Amsterdam/Rotterdam/Antwerp US$/metric ton (average weekly figures) 2017 forward 2018 forward 2019 forward 100 90 80 70 60 50 40 30 2016 2017 2018 Source: RWE Supply & Trading. Hard coal trading developed as follows: including freight and insurance, hard coal imports via the ARA ports (Amsterdam/Rotterdam/Antwerp) were settled at an average of US$92 (€78) per metric ton in spot trading in 2018, an increase of US$8 compared to 2017. The 2019 forward (API 2 Index) traded at US$87 (€74) per metric ton, US$13 higher than the comparable figure for the previous year. This was in part due to the dynamic economy in the Asia-Pacific region and its stimulating effect on demand for coal. Hard coal and gas quotations up year on year. In addition to demand for electricity, the development of fuel costs also determines power plant deployment. In the financial year that just came to a close, the freely tradeable energy sources of most importance to us, i. e. gas and hard coal, were much more expensive than a year before: gas spot prices at the Dutch Title Transfer Facility (TTF) averaged €23 per MWh, up €6 compared to 2017. In TTF forward trading, contracts for delivery in the following calendar year (2019 forward) were settled for €21 per MWh. By comparison, in 2017 the price paid for the 2018 forward was €17. Gas prices were influenced in part by oil quotations, which were higher than in 2017 overall. Furthermore, the positive economic cycle came to bear. Forward prices of CO2 emission allowances (EU Allowances) €/metric ton of CO2 (average weekly figures) December 2017 forward December 2018 forward December 2019 forward 30 25 20 15 10 5 0 2016 2017 2018 Source: RWE Supply & Trading. Combined review of operations > Economic environment 29 Reform of European Emissions Trading System causes rapid increase in CO2 certificate prices. An important cost factor of fossil fuel-fired power stations is the procurement of CO2 emission allowances. The price of an EU Allowance (EUA), which confers the right to emit one metric ton of carbon dioxide, tripled to €25 over the course of the year. The average for 2018 was €16, which was €10 more than in 2017. These figures relate to contracts for delivery in December of the following year. There continue to be many more emission allowances on the market than companies need to cover their carbon dioxide emissions. However, in the meantime the EU has adopted a package of measures enabling it to significantly reduce the surplus of certificates from 2019 onwards (see page 32). This has apparently given many market participants a reason to expect a reduction in available emission allowances, which has made them more expensive and resulted in early purchases. Consequently, EUAs have risen in price even before the package of reforms was implemented. One-year forward prices of base-load electricity on the wholesale market €/MWh (average weekly figures) 2017 forward 2018 forward 2019 forward 80 70 60 50 40 30 20 2016 2017 2018 Germany Netherlands United Kingdom Source: RWE Supply & Trading. Wholesale electricity prices continue upward trend. The rise in fuel and emission allowance prices was reflected in the development of wholesale electricity prices, which continued to trend upwards. Last year, base-load power traded for an average of €44 per MWh on the German spot market, up €10 on the figure recorded in 2017. Significant price increases were also observed on RWE’s two other major generation markets: quotations on the UK spot market advanced by £12 to £57 (€65) per MWh and by €14 to €53 per MWh in the Netherlands. Forward markets displayed the following development: last year, the average quotation of the 2019 base-load forward in Germany was €44 per MWh, €12 more than what was paid for the 2018 forward in 2017. The price of base-load power in year-ahead forward contracts rose by £10 to £54 (€61) per MWh in the United Kingdom and by €13 to €49 per MWh in the Netherlands. 30 RWE Annual Report 2018 Clean dark spreads¹ forward trading €/MWh (average weekly figures) 2017 forward 2018 forward 2019 forward 15 10 5 0 2016 2017 2018 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 40 %; including CO2 tax in the UK. Clean spark spreads¹ forward trading €/MWh (average weekly figures) 15 10 5 0 – 5 – 10 2017 forward 2018 forward 2019 forward 2016 2017 2018 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 50 %; including CO2 tax in the UK. Rise in German generation margins. Power plant margins 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 2016, based on the respective year-forward transactions. In Germany and the Netherlands, clean dark spreads and clean spark spreads grew somewhat after a moderate first six months. For the full year, they therefore slightly exceeded the 2017 level. By contrast, in the UK, clean spark spreads and clean dark spreads were slightly and significantly lower than their respective averages in the previous year. Combined review of operations > Economic environment 31 Wind speeds below average in Central Europe and the United Kingdom. The utilisation and profitability of renewable generation assets greatly depend on weather conditions. Wind speeds are particularly important to innogy. At the company’s generation sites in Central Europe and the United Kingdom they were much lower than the average of the last 30 years. By contrast, they matched the long-term average in Italy and Spain. Wind speeds recorded at all innogy sites were lower than in 2017. The utilisation of run-of-river power stations strongly depends on precipitation and melt water volumes. In Germany, our main hydroelectric power region, these volumes were below the long-term average and the level observed in 2017. Fuel costs for lignite-fired and nuclear power stations are generally more stable as we source uranium via long-term contracts at firm conditions and produce lignite from our own opencast mines. The rise in wholesale power prices caused realisable nuclear energy margins to increase substantially. By contrast, the margins of lignite-fired power stations only improved slightly as the price of both electricity and CO2 emission allowances rose. Decline in income from RWE power stations. 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 was determined by the conditions at which we concluded forward contracts for 2018 years in advance. We conducted such sales relatively early on for our lignite and nuclear power plants, which mostly cover the need for base-load electricity, realising lower prices than in the contracts for 2017. Given that generation costs were virtually stable, the margins of these stations dropped accordingly. We typically conduct forward sales of electricity produced by hard coal and gas-fired power plants with a smaller lead time. As a result, we benefited more from the recovery of prices in wholesale electricity trading. However, we had to pay much more for fuel. Therefore, overall the margins realised in forward contracts also deteriorated for these stations. 32 RWE Annual Report 2018 1.4 POLITICAL ENVIRONMENT Climate protection remains at the top of the energy policy agenda. The European Union has fundamentally reformed the European Emissions Trading System and set itself an ambitious goal regarding the expansion of renewable energy through to 2030. In addition, Germany and the Netherlands are setting the course for an early coal phase-out. The government in The Hague presented a first bill in this respect in May 2018. Berlin is set to follow suit soon, orientating itself towards the proposals of a state commission, which at the beginning of 2019 recommended a German exit from coal by 2038. It further envisages the number of coal-fired power plants on the market being reduced significantly by 2022. It is foreseeable that the proposals will have serious ramifications for RWE’s lignite business. Reform of European Emissions Trading System decided. In February and March 2018, the European Parliament and the Council of Ministers decided to fundamentally reform the European Emissions Trading System (ETS). This was preceded by trilateral talks held by representatives of the two bodies and the European Commission. The objective of the reform, which entered into force in April 2018, 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 a total of 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 to 2030. Until then, the reduction rate will be 1.74 %. Another objective of the amendment to the ETS is to reduce the existing glut of allowances on the market. This will be done by transferring a much larger volume of allowances into the ‘market stability reserve’ (MSR) compared to what was prescribed by former legislation. The MSR, which has been used since the beginning of the year, is a tool capable of providing more flexibility in bringing the supply of certificates in line with demand. The new regulation envisages reducing the number of certificates placed on the market via auctions accounting for 24 % of the surplus annually from 2019 to 2023 and transferring them to the MSR. It also envisages cancelling MSR emission allowances exceeding the auctioned volume in the preceding year from 2023 onwards. In addition, it will allow member states to cancel certificates in exchange for emission reductions resulting from national measures leading to power plant closures. EU Winter Package: new energy efficiency and renewables expansion goals. At the end of 2018, the European Parliament and the Council of Ministers adopted new versions of the directives concerning renewable energy and energy efficiency as well as a regulation for monitoring progress in climate and energy policy. The legal acts entered into force on 24 December after they were published in the Official Journal of the European Union. They are part of a legislative package entitled ‘Clean Energy for all Europeans’ (also referred to as the ‘Winter Package’), which has largely been adopted. In the package, the EU has set itself an ambitious goal in relation to the expansion of renewable energy, which is envisaged to cover at least 32 % of energy demand by 2030. The EU currently aims to achieve a share of 20 % by 2020. The target in respect of energy efficiency is also ambitious: the EU intends to reduce its primary energy consumption by 32.5 % by 2030, relative to the development under normal circumstances. Furthermore, the member states are obliged to present national energy and climate plans for the period running until 2030 and to develop long-term climate-protection strategies by the end of 2019. Germany has already fulfilled these requirements. EU limits participation of coal-fired power plants in capacity mechanisms. The EU also achieved a breakthrough by amending the Electricity Market Directive and the Electricity Market Regulation, which are also part of the Winter Package. The European Parliament and the Council of Ministers agreed on a joint position in December. Both of these bodies intend to introduce provisions to the EMR which national governments must comply with if they are introducing capacity mechanisms or have already done so. Participation of power plants emitting more than 550 g CO2/kWh in such mechanisms will be very limited in the future. The prerequisite for this is that they do not emit more than 350 kg CO2 per kilowatt of installed capacity per year. A modern lignite-fired power plant achieves this threshold after a maximum of 375 hours under full load, whereas a modern hard coal-fired power station hits this mark after no more than 470 hours. In concrete terms, this means that coal-fired power plants cannot participate in a general capacity market under full load, but can be part of back-up schemes envisaging a small number of operating hours. An example of such rules is the existing lignite security stand-by regime, which is conceivable under the new EU regulations in the future. The ceiling of 550 grams will apply to new power plants as of 1 January 2020. Existing assets will be subject to transitional arrangements until the middle of 2025. Capacity agreements already in place and contracts Combined review of operations > Political environment 33 concluded during the current year will be entirely unaffected by the threshold values. This is the concession made by the EU in particular to Poland: the country has already introduced a general capacity market including coal-fired power stations. The amendments to the Electricity Market Directive and the Electricity Market Regulation require formal approval from the European Parliament and the Council of Ministers to enter into force. This is expected to happen in the first half of 2019. Commission for structural change proposes roadmap for German coal phase-out. An accelerated coal phase-out is materialising in Germany, our most important generation market. In January 2019, following lengthy consultations, the Growth, Structural Change and Employment Commission established by the German government presented a concept for the country achieving its climate protection goals in the energy sector avoiding structural upheaval, social hardship or jeopardising security of supply. The body, which consists of representatives from industry, trade unions, the scientific community, associations, civic initiatives and environmental organisations, recommends that Germany phase out coal by no later than 2038. However, it envisages reviewing the feasibility of this goal in 2032 and possibly bringing the exit date forward to 2035. In addition, the Commission has set milestones for the coal phase-out: it envisages the total capacity of lignite and hard coal-fired power stations on the market being reduced to 15 GW each by the end of 2022 through shutdowns or conversions. Compared to the end of 2017, this corresponds to a decrease of at least 12.5 GW, of which nearly 5 GW and 7.7 GW will be accounted for by lignite and hard coal, respectively. These figures include shutdowns that have already occurred or have been announced as well as lignite-fired units which had not yet been placed on security stand-by at the end of 2017. The objective is to have lignite and hard coal-fired power stations with a total capacity of only 9 GW and 8 GW (excluding back-up capacity) on the market in 2030. Moreover, the Commission recommends removing emission allowances matching the additional CO2 savings from the national auction budget, as otherwise the certificates no longer needed for the decommissioned power plants would be available to other participants in the European Emissions Trading System, enabling additional emissions from their assets. The Commission further proposes that the German government conduct reviews in 2023, 2026 and 2029 involving an analysis of the effects of measures taken by then on security of supply, electricity prices, climate protection and structural development in the affected regions and that countermeasures be initiated if necessary. It is also recommended that policymakers implement the phase-out roadmap in agreement with the operators and grant them appropriate compensation. The Commission also deems it desirable that Hambach Forest be preserved. With respect to relocations in the opencast mining regions, the states are being asked to enter into dialogue with the affected residents in order to avoid social and financial hardship. Layoffs and undue social and economic disadvantages for the workers should be prevented, in part by paying them an adjustment allowance. By and large, the Commission’s proposals met with the approval of politicians and stakeholder groups. It was viewed positively that widespread consensus has now been reached, which can serve as a basis for policymakers in order to establish planning certainty for companies, employees and regions. Observers therefore anticipate that the German government will implement the main points of the Commission’s concept. This would have serious ramifications for our Rhenish lignite business. RWE has already taken four power plant units offline prematurely under the security stand-by scheme, with a further block to follow at the end of September 2019. Additional shutdowns are therefore all the more difficult and result in burdens going far beyond the lost electricity revenue. For instance, we would have to implement substantial job cuts and introduce redundancy programmes for the affected workers at short notice. If opencast mines are closed early, new recultivation concepts would have to be developed and the mining provisions would have to be increased as they would be used earlier. Additional costs would be incurred if Hambach Forest were preserved, provided that this is at all technically feasible. In addition, substantial investments are needed in order to adapt opencast mines and power plants to a new operating concept. We can only reliably estimate the burdens we will face when the government presents specific plans and initiates talks with us. We welcome the fact that the Commission has recognised the need to pay power plant operators adequate compensation and has also considered the knock-on costs for the opencast mines. 34 RWE Annual Report 2018 Netherlands plans exit from coal-fired generation. There is also a high probability of an early coal phase-out in the Netherlands. The government adopted a bill to this end in May. It envisages power plants dating back to the 1990s being prohibited from running on hard coal from 2025 onwards. The ban will enter into force five years later for newer stations. This would mean that, in the Netherlands, power would no longer be produced from coal starting in 2030. This objective has also been set out in the coalition agreement signed by the four governing parties under Prime Minister Mark Rutte in October 2017. Following a public consultation in the summer of 2018, the government revised the draft law and submitted an as yet unpublished new version to the Dutch State Council, a constitutional body that advises the government. The parliament is scheduled to decide on the draft in the spring of 2019. Five hard coal-fired power stations are still in operation in the Netherlands, with two belonging to us: Amer 9 and Eemshaven. The former has a net installed capacity of 631 MW and was commissioned in 1993. According to the draft law of May, this power plant would have to stop generation from coal at the end of 2024. The Eemshaven power station is a 1,554 MW twin unit, which we have been operating since 2014. It would be subject to the later exit date, which is the end of 2029. Amer 9 and Eemshaven would have to be shut down or operated only using alternative fuels. Both stations are being retrofitted for co-firing biomass. We are receiving subsidies for this, with which we are financing the investment outlay and the additional cost of sourcing the fuel. A full conversion to biomass would result in substantial additional burdens. In our dialogue with policymakers, we are discussing the options for compensation for the financial disadvantages that we would suffer as a result of the planned coal phase-out and will take legal recourse to this end if necessary. Dutch government intends to introduce CO2 emissions price floor. In addition, the government in The Hague wants to flank the European Emissions Trading System with a national carbon tax in the electricity sector. The objective is to prevent the total cost per metric ton of carbon dioxide emitted from falling below a predefined floor even if certificate prices are low. The introduction of the levy is part of a national climate accord, which is likely to be adopted this year. In the convention, the government intends to agree measures with environmental associations, trade unions and energy companies through which the country can achieve its ambitious emission-reduction goals. Initial plans envisaged the tax guaranteeing a minimum price of €18 per metric ton of carbon dioxide when it is introduced in 2020 and gradually lifting the floor to €43 by 2030. However, the government was criticised for this. A state- commissioned study reached the conclusion that the reform would only make a small contribution to reducing emissions and could jeopardise security of supply. For the same reasons, the energy sector opposed the levy, referring to the significant rise in prices in European emissions trading in the meantime. Despite this, policymakers did not want to abandon the undertaking entirely. Following talks with the energy companies and environmental associations, a much lower floor was established, along with a more gradual increase than the one planned originally. It starts at €12.30 in 2020 and rises incrementally to €31.90 in 2030. The path is based on estimates regarding the future development of prices in European emissions trading. It is assumed that certificate quotations will rise substantially and exceed the pre-determined CO2 floor along the entire path. Combined review of operations > Major events 35 1.5 MAJOR EVENTS Fiscal 2018 was an eventful year for us. Through the asset swap agreed with E.ON, we have set the course towards a new RWE, which will rank among Europe’s leading producers of electricity from renewable sources. In addition, our subsidiary innogy passed further milestones in the expansion of its wind and solar power capacity. The past year was less pleasing for our lignite business: the Münster Higher Administrative Court ordered a temporary halt to the clearance of Hambach Forest, which will curtail our opencast mining activities and reduce our electricity generation. In this chapter, we present the major events that occurred in 2018 and the beginning of 2019. We focus on events that have not been commented on in detail elsewhere in this report. Events in the fiscal year Extensive asset swap agreed: E.ON will acquire innogy – RWE will become Europe’s No. 3 in renewables. RWE and E.ON have jointly set the course for a fundamental redistribution of their business activities. RWE will become Europe’s No. 3 in renewable energy while E.ON will enlarge its grid and retail operations. The two companies envisage that this will be achieved through a substantial asset swap, which was contractually agreed on 12 March 2018. According to the deal, E.ON will acquire RWE’s 76.8 % stake in innogy SE. In return, RWE will receive the following assets: (1) a 16.67 % stake in E.ON which will be created by way of a capital increase from authorised capital in exchange for a contribution in kind; (2) nearly all of E.ON’s and innogy’s renewable energy activities; (3) the minority interests held by the E.ON subsidiary PreussenElektra in the RWE-operated nuclear power stations Gundremmingen and Emsland of 25 % and 12.5 %, respectively; (4) innogy’s gas storage business and (5) the 37.9 % stake in the Austrian energy utility Kelag held by innogy. The deal also involves RWE paying €1.5 billion to E.ON. It is envisaged that the transfers take retrospective economic effect from 1 January 2018. The transaction was based on a valuation of our 76.8 % stake in innogy of €40 per share when the contract was concluded. This corresponds to a premium of 28 % on the closing quotation of the innogy share on 22 February (€31.29), the last figure that was largely unaffected by takeover speculation. The €40 per share includes the dividends of innogy SE for fiscal 2017 and 2018, to which RWE will continue to be entitled. Through the transaction, RWE will become an all-rounder in electricity production, making a major contribution to security of supply with its flexible power stations while spurring the transition of the energy sector towards climate-friendly electricity production. We will not only broaden our operating base, but also establish a more robust financial position. The renewables business is characterised by a large portion of stable regulated income. After the transaction closes, it should contribute more than half of the RWE Group’s adjusted EBITDA. Our leverage factor, which represents the ratio of net debt to adjusted EBITDA, will then probably be below 3.0. More detailed information on the effects of the transaction on our business model can be found on page 18 et seq. We are confident of being able to complete the asset swap by the end of 2019. It will be carried out in several steps, some of which have already been taken: • On 27 April 2018, E.ON made a voluntary public offer to innogy’s minority shareholders for the acquisition of their shares. At €40 per share minus the innogy dividends for the 2017 and 2018 fiscal years, the offer price was in line with the conditions underlying the transaction between E.ON and us. When the acceptance deadline expired on 25 July 2018, 9.4 % of the shares in innogy were tendered to E.ON. • On 18 July, RWE and innogy as well as E.ON and innogy reached agreements to co-operate in implementing the transaction. innogy’s management has committed to supporting the implementation of the asset swap – also vis-à-vis the capital market. It is envisaged that the integration will be a transparent process in which all employees are treated as equally as possible, irrespective of the company they currently work for. Another objective is that the integration plays to the strengths of each company. The agreement paves the way to the early joint planning of the integration measures and an expedited completion of the transaction. 36 RWE Annual Report 2018 • On 22 January 2019, we registered the acquisition of the business activities and shareholdings to which we are entitled with the European Commission and received clearance from Brussels on 26 February. This was preceded by an advance review lasting several months through which the Commission gained an accurate picture of the effects of the transaction on competition. E.ON registered the acquisition of innogy with the Commission on 31 January 2019. Furthermore, national antitrust approvals must be obtained. One relates to the acquisition of the financial investment in E.ON. Requests for this clearance were filed with the German Cartel Office on 28 January 2019 and with the UK Competition and Markets Authority (CMA) on 25 February 2019. We received the go-ahead from the German Cartel Office on 26 February 2019, the day on which we also received approval from the Commission. It is envisaged that the transaction be completed in two steps as soon as all of the necessary approvals have been obtained from the relevant competition and regulatory authorities. First, E.ON will receive our 76.8 % shareholding in innogy and the agreed €1.5 billion in cash and we will acquire the 16.67 % stake in E.ON as well as the minority interests in the Gundremmingen and Emsland nuclear power stations. Second, E.ON will transfer to us its own and innogy’s renewable energy activities, innogy’s gas storage business, and the shareholding in Kelag. German Court orders temporary halt to clearance of Hambach Forest – RWE anticipates decline in earnings due to curtailment of opencast mining operations. On 5 October, the Münster Higher Administrative Court ruled in summary proceedings that RWE Power may not clear Hambach Forest, which is near Cologne, for the time being. This will lead to a massive curtailment of lignite production from the Hambach opencast mine. We anticipate annual volume shortfalls of 10 million to 15 million metric tons over the medium term (2019 to 2021). This will probably reduce adjusted EBITDA by €100 million to €200 million per year. The clearance of Hambach Forest is part of the mine’s main operating plan for 2018 to 2020, which was approved in March 2018 by the relevant district government under an immediate implementation order. Thereupon, the BUND environmental activist group filed a motion to set aside the immediate implementation, which was denied by the Cologne Administrative Court. An appeal lodged by BUND against the Cologne ruling was allowed by the Münster Higher Administrative Court in October, which ordered the temporary halt to the clearance of Hambach Forest, during which the other opencast mining operations could be continued. The reasons given by the Court for its decision were that the matter could not be clarified in expedited proceedings due to the complexity of the legal situation. Whether and when Hambach Forest can be cleared must now be decided in the principal proceedings, which are pending before the Cologne Administrative Court. The main question is whether the remainder of the forest, which covers about 200 hectares, is subject to the protective provisions applicable to flora and fauna habitats (FFH areas) under European law. According to an expert opinion published by the Kiel Institute for Landscape Ecology at the beginning of 2018, this is not the case. The same conclusion was reached by the Cologne Administrative Court in an earlier lawsuit filed by BUND concerning the general operating plan for 2020 to 2030. The case was dismissed on 24 November 2017. On 5 October 2018, the Münster Higher Administrative Court granted the motion for an appeal by BUND against this decision. As a result, both the Cologne Administrative Court and the Münster Higher Administrative Court are addressing the FFH issue in principal proceedings. It remains to be seen when a final ruling will be handed down, but it is possible that this will not happen before the end of 2020. However, it cannot be ruled out that the matter is placed on the agenda of the federal government beforehand. The preservation of Hambach Forest is deemed desirable in the final report of the Growth, Structural Change and Employment Commission published on 26 January 2019. We provide detailed information on the recommendations of the Commission to the federal government on page 33. Electricity generated from Hambach lignite corresponds to about 15 % of demand in the state of North Rhine- Westphalia. It is not only the power plants at the Neurath and Niederaussem sites that are connected to the opencast mine, but also refining factories, which supply a large number of small and medium-sized enterprises with lignite products for their electricity and heat generation. There are currently about 4,600 RWE employees working in the Hambach mining area as well as in the downstream power stations and businesses. In addition, personnel in the supply chain are affected. EU Court shelves UK capacity market. In mid-November, the General Court of the Court of Justice of the European Union declared that the approval of the UK capacity market granted by the European Commission was invalid. The judges found that the Commission should have conducted an extensive investigation before giving the go-ahead for the state aid. The UK capacity market has been suspended since the ruling. This means that no capacity payments may Combined review of operations > Major events 37 Dutch Claus C gas-fired power station to go back online. Claus C, our mothballed Dutch gas-fired power plant in Maasbracht, will return to operation. This was decided by the Executive Board of RWE Generation in October. The station has a net installed capacity of 1,304 MW and, at 58 %, meets the highest efficiency standards. It was commissioned in 2012 but taken offline two years later due to its lack of profitability. The reasons for it coming back online are improved market conditions and rising demand for flexible generation capacity. Commercial opportunities could also arise as Belgium intends to phase out nuclear energy and would therefore need additional generation capacity. Claus C could be connected directly to the Belgian grid thanks to its proximity to the border. However, the power station will probably not be fully operational again until the autumn of 2020, because extensive maintenance work has to be carried out first. Unlike Claus C, the neighbouring gas-fired power plant Claus A will not go back online. The station, which has a net installed capacity of 610 MW, was taken off the grid in March 2012 and shut down for good in 2018. It would not have been worthwhile to reactivate it given its technical condition. In addition, we temporarily took the Moerdijk 1 gas-fired power station offline as of 1 February 2018, a decision that was made for economic reasons in 2016. Moerdijk 1 is located south of Rotterdam in the Dutch province of North Brabant and has a net installed capacity of 348 MW. UK’s Galloper offshore wind farm completed. Our subsidiary innogy expanded its electricity generation capacity from renewables with the completion of Galloper, a large-scale wind farm in the UK North Sea. It consists of 56 turbines with a total capacity of 353 MW. innogy owns 25 % of the wind farm, operates it and was mainly responsible for its development and construction. Galloper has been fully online since March 2018 and has the capability to supply about 380,000 UK households. The total investment in Galloper amounted to £1.5 billion. be made under existing agreements and no new capacity auctions may be held until the Commission has reapproved the subsidies. This caused the capacity payments we received in the year under review to be about €50 million lower than expected. The UK Department for Business, Energy and Industrial Strategy (BEIS) declared that it will do everything within its power to regain approval for the capacity market as soon as possible. This may happen during the current year. The European Commission has since initiated an in-depth investigation through which it intends to clarify whether the UK capacity market qualifies for state aid under EU regulations. If the Commission grants the UK’s original request for approval again, capacity payments could be resumed. Although we are confident that the UK capacity market can be continued in its current form, we have not budgeted any payments for the year under review. We had been granted a total of approximately €180 million in capacity payments for 2019 in earlier auctions. Niederaussem E and F units placed on security standby. On 30 September, we took two 300 MW units (E and F) of the Niederaussem lignite-fired power plant offline as planned. These units have been placed on lignite security stand-by and can be brought back onto the grid within ten days to bridge electricity shortages. These security stand-by regulations were enshrined in law in 2016 for environmental reasons. Under the regime, a total of eight lignite units with a combined 2.7 GW must be taken off the market from 2016 to 2019 and placed on standby as the last resort to ensure security of supply for four years each until they are shut down for good. Five of the eight stations, which have a total capacity of 1.5 GW, belong to RWE. In 2017 – also at the end of September – we placed units P and Q of the Frimmersdorf power plant on security standby. Unit C of the Neurath power station will follow suit in 2019. RWE sells majority stake in Hungarian generator Mátra. RWE and the energy utility EnBW jointly sold their stakes of 51 % and 21.7 % in Hungarian power producer Mátrai Erőmű ZRt. (Mátra for short). The transaction was completed in March 2018. The buyer is a consortium consisting of Czech Republic-based EP Holding and Hungarian investor Lőrinc Mészáros. Mátra specialises in producing lignite and generating electricity from this fuel. At the end of 2017, the company had slightly more than 2,000 people on its payroll and a net generation capacity of about 840 MW. Mátra is no longer of strategic importance to us, because we want to focus our conventional electricity generation business on our core markets Germany, the United Kingdom and the Benelux region. 38 RWE Annual Report 2018 RWE subsidiary innogy partners up for Triton Knoll offshore wind project. In line with its strategy of carrying out large-scale wind projects with partners, innogy sold stakes of 25 % and 16 % in the Triton Knoll offshore project to the Japanese energy groups J-Power and Kansai Electric Power. innogy retains the majority of Triton Knoll (59 %). The transaction was contractually agreed in August and closed in September. Triton Knoll is a wind farm with a capacity of approximately 860 MW which is due to be built in the North Sea off the English coast. innogy and its new partners will invest a total of around £2 billion to this end. A large portion of this sum (£1.75 billion) will be provided by an international consortium of banks. innogy developed Triton Knoll and will also be responsible for the construction, operation and maintenance of the wind farm. Once project financing had been secured, work began in September on the onshore grid connection. If the project progresses as planned, the 90 wind turbines could be commissioned successively from 2021 onwards. The state has guaranteed a payment of £74.75 per MWh for the electricity fed into the grid. The subsidy period is 15 years. Acquisition of a major wind project pipeline in the USA. innogy also aims to grow its renewable energy business outside of Europe. Our subsidiary took a major step in accomplishing this in 2018. In July, it purchased a portfolio of wind power projects in the USA. The envisaged turbines have a total capacity of over 2 GW. The seller is the UK investment company Terra Firma Capital Partners. The acquired portfolio encompasses more than 20 projects across eight states that have progressed to various degrees. innogy has already taken the final investment decision on one of the projects: in November 2018, our subsidiary gave the go-ahead for the construction of the Scioto Ridge wind farm in the US state of Ohio, which is scheduled to take its full capacity of 242 MW online by the end of 2020. It will be able to supply about 60,000 Ohio homes with green electricity. Subsidies for wind farm in German North Sea secured. In the spring of 2018, innogy set the stage for a further attractive offshore wind project. The company secured state subsidies for the Kaskasi wind farm under the German Renewable Energy Act at an auction. The decision on the construction of Kaskasi is scheduled to be taken in 2020. It is expected to have a generation capacity of 325 MW and could begin operating in 2022. Its location in the vicinity of Heligoland has good wind conditions and moderate water depths. Another advantage is its proximity to innogy’s existing wind farm Nordsee Ost. innogy to build Australia’s largest solar farm. In September, innogy decided to invest in the Limondale ground-mounted solar array in the state of New South Wales in Australia. The solar farm should have a total net installed capacity of 349 MW when it is commissioned in the middle of 2020. This would currently make it the largest solar farm in Australia. Belectric, the company acquired by innogy in early 2017, is responsible for construction and will also handle Limondale’s operation and maintenance. Solar developer Birdseye grants innogy exclusive rights to projects in the USA. In June 2018, innogy agreed to join forces with US-based Birdseye Renewable Energy to develop solar projects. The partnership encompasses 13 projects with a total capacity of about 440 MW, which have been initiated by Birdseye and are in various stages of development. As a result of the agreement, innogy has secured the right of first refusal to acquire projects from the pipeline as soon as they have reached construction maturity. Moreover, innogy and Birdseye want to explore further opportunities to work together. Combined review of operations > Major events 39 Events after the close of the fiscal year Commission publishes recommendations concerning German coal phase-out. In January 2019, the Growth, Structural Change and Employment Commission set up by the German government submitted its final report. Consisting of representatives of industry, trade unions, associations, the scientific community, civic initiatives and environmental organisations, the report advocates an exit from German electricity generation from coal by 2038. It envisages the capacity of the lignite and hard coal-fired power stations on the market being reduced to a total of 15 GW each through shutdowns or conversions by as early as the end of 2022. The Commission further envisages that by 2030, lignite and hard coal power plants on the market will have a combined capacity of 9 GW and 8 GW, respectively. The federal government now intends to present a package of laws on the basis of the recommendations and conduct talks with the affected companies. We provide detailed information on the Commission’s recommendations and the consequences they may have for RWE on page 33. STEAG acquires majority stake in Bergkamen hard coal- fired power plant from RWE. As of 1 January 2019, we sold our 51 % shareholding in the Bergkamen hard coal-fired power station to the Essen-based energy utility STEAG. The buyer previously owned 49 % of the plant and exercised a contractual purchase option. The parties agreed to keep the price confidential. The power station has been in operation since 1981 and has a generation capacity of 720 MW. RWE was in charge of commercial management, while STEAG was responsible for technical plant management. The disposal of the stake put an end to a contract that obliged us to purchase electricity produced by the station. RWE sells Belgian CHP station. A further divestment was completed when we sold the Inesco CHP station in Belgium to the UK chemicals group INEOS at the end of February 2019. The plant is eleven years old and located in a chemical park operated by INEOS near Antwerp. It is gas-fired, has a net electric capacity of 133 MW and supplies the companies situated in the chemical park with steam and demineralised water in addition to electricity. One of the reasons for our decision to sell the station was its tight integration in the business activities of INEOS. German government takes over interim storage for radioactive waste from RWE. As of 1 January 2019, we transferred the interim storage facilities for highly radioactive waste on the sites of our Emsland, Biblis and Gundremmingen nuclear power plants to BGZ, the state-owned company responsible for interim storage. The legal basis for this is the law on the reassignment of responsibility for nuclear waste disposal which was passed at the end of 2016, pursuant to which the government assumed responsibility for processing and financing interim and final nuclear waste storage. German power plant operators gave the government €24.1 billion for this. In the middle of 2017, these funds were paid into a public-law fund for financing nuclear waste disposal. Responsibility for shutting down and safely dismantling the stations remains with the companies. They are also responsible for packaging the radioactive waste properly before it is handed over to BGZ. A total of eleven decentralised interim storage facilities were transferred from the nuclear power plant operators to BGZ as of 1 January 2019. The interim storage facilities for low and medium-radioactive waste are to follow at the beginning of 2020, including two at RWE’s Biblis site. RWE cancels £750 million hybrid bond. At the beginning of February 2019, we announced that we will cancel our £750 million hybrid bond as of 20 March 2019 without replacing it with fresh hybrid capital. The bond had been issued seven years earlier. It has a 7 % coupon and a theoretically perpetual tenor. We are exercising our right to cancel it at the earliest possible date. In doing so, we are taking account of RWE’s solid financial position and the significantly improved earnings prospects resulting from the planned asset swap with E.ON. RWE acquires Czech grid investment from innogy for resale to E.ON. At the end of February 2019, RWE purchased the majority stake in the Czech gas network operator innogy Grid Holding (IGH) held by innogy SE. We had committed to this as part of the exchange of business activities and equity interests agreed with E.ON. We had also undertaken to sell on the stake in IGH to E.ON. We are financing the temporary acquisition using cash and a bank credit line secured for this purpose. innogy held a 50.04 % interest in IGH, with the remainder being owned by the Australian financial service provider and infrastructure investor Macquarie. 40 RWE Annual Report 2018 1.6 NOTES ON REPORTING The asset swap agreed with E.ON requires a methodological change in reporting before it is implemented. International Financial Reporting Standards (IFRS) require us to state the innogy activities that will no longer be part of the RWE Group following the transaction separately when presenting our business performance. We have set out the consequences this has in detail in this chapter. Furthermore, we explain how the new IFRS 9 and IFRS 15 accounting standards affect our consolidated financial statements. New presentation of innogy’s activities. As set out on page 19 et seqq., our financial reporting is based on a Group structure with four segments. Whereas the first three segments (Lignite & Nuclear, European Power and Supply & Trading) are unchanged from 2017, the fourth segment has been adjusted due to the asset swap agreed with E.ON. In the past, we presented innogy in this segment in its entirety. Now, we consider only those parts of the company that are due to remain within the RWE Group in the long run. Accordingly, the new segment is called ‘innogy – continuing operations’. The other parts of innogy, which will be transferred to E.ON, are presented outside of this segment as ‘discontinued operations’. This primarily applies to the distribution grid and retail businesses. The recognition of ‘discontinued operations’ has substantial effects on the income statement, the balance sheet and the cash flow statement: • We recognise the innogy business assigned to E.ON in the income statement only in condensed form under ‘income from discontinued operations’. It is no longer considered in the Group’s revenue, adjusted EBITDA, adjusted EBIT, non-operating result, financial result, or taxes on income. Prior-year figures are adjusted accordingly. • On the consolidated balance sheet, discontinued operations have been combined under ‘assets held for sale’ and ‘liabilities held for sale’. In accordance with IFRS, we are maintaining the presentation of the previous year’s balance sheet figures. • In the cash flow statement in the consolidated financial statements, we present the cash flows from discontinued operations for the reporting and prior-year periods separately. We take a different approach in the condensed cash flow statement in the review of operations. Here, we only state cash flows from continuing operations. The change in reporting caused some of the statements made in our forecasts for 2018, which we published on page 83 et seqq. of the 2017 Annual Report, to become irrelevant. Amongst other things, this relates to our statements regarding adjusted EBITDA and capital expenditure. We brought these forecasts in line with our new reporting method in the report on the first half of 2018. The forecast concerning adjusted net income also became irrelevant: this key performance indicator will not be determined for the time being, as it is only of limited informational value during the transitional period until the completion of the asset swap with E.ON. In the 2017 Annual Report, we also made forecasts in relation to key performance indicators in which innogy was considered as a pure financial investment instead of as a fully consolidated company. These figures are not in compliance with IFRS. We explain how we calculate them on page 58. There is no need for methodological adjustments here until the asset swap with E.ON has been completed. Therefore, we maintained our forecasts relating to adjusted EBITDA and adjusted net income, the latter of which continues to be determined based on the above distinction. Change in revenue recognition due to adoption of IFRS 15. In the 2018 fiscal year, we began applying the new accounting standard IFRS 15 ‘Revenue from Contracts with Customers’. One of the consequences is that changes in the fair value of commodity derivatives, which occur before the contracts are realised, are now recognised in other operating income instead of in revenue or the cost of materials. Therefore, our 2018 revenue is lower, particularly in the gas business. Prior-year figures have not been adjusted. Combined review of operations > Notes on reporting 41 Financial instruments have stronger effect on earnings due to adoption of IFRS 9. We also started to apply the new accounting standard IFRS 9 ‘Financial Instruments’ in 2018. This results in changes to the classification and measurement of financial instruments and to the recognition of impairments based on expected credit losses. Again, prior-year figures have not been adjusted. Changes in the fair value of some of our securities, which previously had no effect on profit or loss, were recognised on the income statement for the first time in 2018. Furthermore, the recognition of expected credit losses reduced the value of our assets. In consequence, net debt was slightly higher. Forward-looking statements. This annual report contains forward-looking statements regarding the future development of the RWE Group and its companies as well as of the economic and political environment. 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 289f as well as Section 315d of the German Commercial Code is an exception. 42 RWE Annual Report 2018 1.7 BUSINESS PERFORMANCE The RWE Group achieved its operating earnings goal for 2018: at €1.5 billion, adjusted EBITDA was within the forecast range. We had to contend with some unexpected burdens. For example, the temporary suspension of the UK capacity market caused us to lose contractually committed capacity payments. Furthermore, utilisation of innogy’s wind farms was low due to the weather. The strongest effect was felt from the market-induced decline in our generation margins, which we had already considered in our forecast. Efficiency-enhancing measures cushioned the earnings shortfalls somewhat. The continued expansion of innogy’s wind energy capacity also had a positive impact. Business performance in 2018: what we forecast and what we accomplished Outlook vs. actual € million Adjusted EBITDA Lignite & Nuclear European Power Supply & Trading innogy - continuing operations 2017 actual Outlook for fiscal 20181 2018 actual Forecast fulfilled? 2,149 671 463 271 785 1,500–1,800 350–450 300–400 100–300 700–800 1,538 356 334 183 699 Yes Yes Yes Yes Actual < Outlook 1 See page 83 et seq. of the 2017 Annual Report and page 26 of the interim report on the first half of 2018. Electricity production 12 % down on previous year. In the financial year that just came to a close, the RWE Group produced 176.0 billion kWh of electricity. In 2018, 38 % of our electricity generation was from lignite, 27 % from gas, 16 % from hard coal, 12 % from nuclear, and 6 % from renewables. Our electricity production was 12 % lower than in the previous year. We recorded declines across all generation technologies. Nuclear power production (– 8.5 TWh) was primarily affected by the fact that we had to take Gundremmingen B (1,284 MW) offline at the end of 2017 as part of the German nuclear phase-out. Volumes declined in electricity generation from lignite (– 7.0 TWh) due to the sale of our majority interest in Mátra in Hungary. The decommissioning of four 300 MW units in the Rhenish lignite mining region and their placement in legally mandated security standby (two on 30 September 2017 and two on 30 September 2018) also came to bear. Unfavourable market conditions resulted in a decline in production volume from our gas-fired power stations (– 5.7 TWh). Furthermore, we mothballed Moerdijk 1 in the Netherlands for economic reasons. The drop in generation from hard coal (– 1.9 TWh) was caused in part by the closure of the Voerde A/B dual unit (1,390 MW) as of 1 April 2017. In addition, our Aberthaw hard coal-fired power plant in the UK was only in use occasionally due to market conditions. Unusually low wind speeds in the United Kingdom and Central Europe caused renewable energy volumes to drop (– 0.5 TWh). This was contrasted by the positive effects of commissioning new wind turbines. In addition to our in-house generation, we procure electricity from external suppliers. In the year being reviewed, these purchases totalled 49.0 billion kWh (previous year: 36.6 billion kWh). In-house generation and power purchases combined for 225.0 billion kWh (previous year: 236.8 billion kWh). Combined review of operations > Business performance 43 Power generation Gas Lignite Hard coal Nuclear Renewables Total Pumped storage, other 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Billion kWh Lignite & Nuclear European Power of which: Germany1 United Kingdom – – 67.2 74.2 – – 21.8 30.3 47.2 52.9 5.5 7.4 33.2 32.4 – – – – – – – – – – 27.4 29.3 13.0 13.3 0.5 2.6 13.9 13.4 – – – – – – – – – – – – – 1.1 0.7 0.4 – 8.8 9.9 – 1.1 0.7 0.4 – 9.3 10.4 0.2 2.3 0.7 2.4 89.2 105.2 78.0 85.7 2.3 2.4 – – – – – – 21.5 34.1 19.4 23.8 35.4 22.7 8.8 9.3 2.5 3.1 176.0 200.2 Netherlands/Belgium 5.5 9.3 innogy - continuing operations – – RWE Group 47.2 52.9 67.2 74.2 27.4 29.3 21.8 30.3 1 Including electricity from generation assets not owned by RWE that we can deploy at our discretion on the basis of long-term use agreements. In 2018, it amounted to 5.0 billion kWh (previous year: 6.3 billion kWh), of which 2.3 billion kWh (previous year: 3.5 billion kWh) were from hard coal-fired power stations. One of Europe’s biggest power producers, with 41.7 GW in generation capacity. At the end of 2018, we had a total installed power generation capacity of 41.7 GW, giving us a leading market position in Europe. This figure includes power plants that we took offline temporarily for economic reasons and the four lignite units we put into security standby. Our generation capacity declined by 1.6 GW over the course of the past year. This was because we sold our majority interest in the Hungarian lignite-based power producer Mátra and shut down the Dutch Claus A gas-fired power plant (see page 37). A positive effect was felt from innogy’s commissioning of new wind turbines, primarily in the United Kingdom. In terms of generation capacity, gas is our major source of energy. At the end of 2018, it accounted for 34 %. Lignite was in second place with 25 %, followed by hard coal, with 17 %. Renewables and nuclear energy had a share of 10 % and 7 %, respectively. The geographic focus of our generation business is Germany, where 61 % of our installed capacity is located. The United Kingdom and the Netherlands follow, accounting for shares of 23 % and 12 %, respectively. Power generation capacity As of 31 Dec 2018, in MW Lignite & Nuclear European Power of which: Germany1 United Kingdom Netherlands /Belgium Turkey innogy - continuing operations Gas 400 13,686 3,767 6,676 2,456 787 235 Lignite Hard coal Nuclear Renewables Pumped storage, other Total Total 31 Dec 2017 10,255 – – – – – – – 7,210 3,6752 1,560 1,975 – 10 2,770 – – – – – – 7 331 55 55 221 – 3,955 4,293 27 2,679 2,375 304 – – 137 2,8443 13,459 23,906 9,872 8,595 4,652 787 4,337 41,7033 14,297 24,727 10,125 8,541 5,274 787 4,245 43,269 RWE Group 14,321 10,255 7,220 2,770 1 Including generation capacity not owned by RWE that we can deploy at our discretion on the basis of long-term use agreements. As of the end of 2018, it amounted to a net 2,986 MW, including hard coal-fired power stations with a total capacity of 783 MW. 2 The Bergkamen hard coal-fired power plant (720 MW) is still included in this figure: we sold our 51% stake in the station as of 1 January 2019 (see page 39). 3 Including small capacities at RWE Supply & Trading. 44 RWE Annual Report 2018 Significant decline in CO2 emissions. Last year, our power stations emitted 118.0 million metric tons of carbon dioxide. Compared to 2017, our CO2 emissions declined by 13.8 million metric tons, or 10 %. This resulted from the decline in our electricity generation from coal and gas. By contrast, specific emissions, i. e. carbon dioxide emissions per megawatt hour of electricity generated, rose from 0.66 to 0.67 metric tons. This was mainly because last year we produced much less zero-carbon electricity from our nuclear power stations owing to the decommissioning of Gundremmingen B. We purchase most of the emission allowances we need on the market. This is because, since the beginning of the third emissions trading period, which started on 1 January 2013, the countries of Western Europe have only allocated free CO2 certificates to energy utilities in exceptional cases. Of our emissions in EU countries (116.9 million metric tons) in the year being reviewed, we were only able to cover 1.3 million metric tons with such state allocations. Emissions balance Million metric tons of CO2 Lignite & Nuclear European Power1 of which: Germany2 United Kingdom Netherlands /Belgium innogy - continuing operations RWE Group CO2 emissions 2018 79.4 38.6 13.0 12.4 12.1 – 2017 88.5 43.3 14.1 14.0 13.8 – 118.0 131.8 Free allocation of CO2 certificates 2017 2018 Shortage of CO2 certificates 2018 78.7 36.9 12.4 12.4 12.1 – 2017 87.8 41.3 13.5 14.0 13.8 – 0.7 0.6 0.6 – – – 1.3 115.6 129.1 0.7 0.6 0.6 – – – 1.3 1 Includes the CO2 emissions of our gas-fired power station in the Turkish town of Denizli, which amounted to 1.1 million metric tons in 2018 (previous year: 1.4 million metric tons). As Turkey does not participate in European emissions trading, we do not need emission allowances for these volumes. 2 Including figures relating to generation capacity not owned by RWE that we can deploy at our discretion on the basis of long-term use agreements. In 2018, these stations emitted a total of 2.0 million metric tons of CO2 (previous year: 3.1 million metric tons). 86.3 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 mining region, which is west of Cologne, we produced 86.3 million metric tons of lignite last year (previous year: 91.3 million metric tons), of which 74.2 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. Electricity sales 5 % lower – gas sales 5 % higher. The RWE Group’s continuing operations sold 216.1 billion kWh of electricity and 67.0 billion kWh of gas to external customers. Most of these volumes are allocable to the Supply & Trading segment. Electricity sales experienced a drop of 5 %, in part due to the decline in the amount of in-house production sold by RWE Supply & Trading on the wholesale market. Further volume shortfalls were recorded as a result of the sale of the Hungarian lignite-based power producer Mátra, which sold its generation independently. A positive effect was felt from RWE Supply & Trading winning new industrial and corporate customers. This affected both electricity and gas sales and was the main reason why the latter were 5 % higher year on year. Combined review of operations > Business performance External revenue € million Lignite & Nuclear European Power Supply & Trading innogy - continuing operations Other, consolidation RWE Group (excluding natural gas tax /electricity tax) Natural gas tax /electricity tax RWE Group External revenue by product1 € million Electricity revenue of which: Lignite & Nuclear European Power Supply & Trading innogy - continuing operations Gas revenue of which: Supply & Trading innogy - continuing operations Other revenue RWE Group (excluding natural gas tax/electricity tax) 45 +/– % – 10.1 0.2 – 3.1 3.4 – 52.8 – 3.1 7.6 – 3.0 + /− % – 3.3 – 32.8 – 8.8 – 2.1 5.8 – 12.8 – 13.6 – 2.1 8.5 – 3.1 2018 2017 1,132 925 10,190 1,124 17 13,388 141 13,529 1,259 923 10,517 1,087 36 13,822 131 13,953 2018 2017 10,090 10,430 303 542 8,447 799 1,565 1,502 47 1,733 13,388 451 594 8,628 755 1,795 1,738 48 1,597 13,822 1 Immaterial electricity revenue in the ‘other, consolidation’ item and immaterial gas revenue in the European Power segment is not stated separately. External revenue down 3 % on previous year. In the year being reviewed, we posted external revenue of €13,388 million (excluding natural gas and electricity tax). This represents a decline of 3 % compared to 2017. At €10,090 million, our electricity revenue was also 3 % lower than in the preceding year. The decline in sales volume came to bear. The Group’s gas revenue dropped by 13 % to €1,565 million. It therefore trended against delivery volumes, in part due to a decrease in revenue from the realisation of hedging transactions. Furthermore, our initial adoption of IFRS 15 played a role, because it caused certain items to no longer be recognised in revenue (see commentary on page 40). 46 RWE Annual Report 2018 Adjusted EBITDA € million Lignite & Nuclear European Power1 Supply & Trading innogy - continuing operations Other, consolidation RWE Group 2018 2017 356 334 183 699 – 34 671 463 271 785 – 41 1,538 2,149 +/– % – 46.9 – 27.9 – 32.5 – 11.0 17.1 – 28.4 1 In the period under review, €102 million was attributable to the UK (previous year: €205 million). Adjusted EBITDA of €1.5 billion in line with expectations. Our adjusted earnings before interest, taxes, depreciation and amortisation (adjusted EBITDA) amounted to €1,538 million. This confirmed our August 2018 forecast envisaging a range of €1.5 billion to €1.8 billion (see page 26 of the interim report on the first half of 2018). As set out on page 40, during the year we had to adjust our forecast for 2018 that we published in the 2017 Annual Report, because the asset swap agreed with E.ON required us to change our reporting. Adjusted EBITDA was 28 % lower than in 2017. Shrinking margins and volumes in conventional electricity generation were the main reasons. Furthermore, Supply & Trading and innogy – continuing operations delivered lower earnings. The following developments were observed in the segments: • Lignite & Nuclear: This division’s adjusted EBITDA totalled €356 million, which is within the forecast range of €350 million to €450 million. It represents a decline of 47 % compared to the previous year. A major reason for this is that we realised lower wholesale prices for the generation from our lignite-fired and nuclear power stations than in 2017. We had already sold forward nearly all of the production of these plants in earlier years. The closure of unit B of the Gundremmingen nuclear power station at the end of 2017 also had a negative effect on earnings. Savings achieved through our efficiency-enhancement programme cushioned the aforementioned burdens slightly. • European Power: We recorded €334 million in adjusted EBITDA in this segment. This confirmed our forecast, which envisaged a range of €300 million to €400 million. Compared to 2017, we recorded a decline of 28 %. One reason was that EBITDA in the previous year included capital gains on property sales. In addition, the margins of our gas and hard coal-fired power stations shrank. The suspension of the UK capacity market caused the payments which we received for the availability of our stations to be significantly lower than planned. However, at €47 million, they were higher than in 2017 (€16 million). Efficiency-enhancing measures had a positive effect on earnings. • Supply & Trading: Here, adjusted EBITDA totalled €183 million, which is within the forecast range of €100 million to €300 million. Earnings therefore decreased by 32 % relative to 2017, caused in part by a weaker trading performance. In addition, we recognised a value adjustment for an equity stake acquired by RWE Supply & Trading within the scope of its principal investments (see page 21). Fortunately, we were able to pick up where we left off in terms of earnings in the gas business. • innogy – continuing operations: Adjusted EBITDA posted by the innogy business remaining with RWE amounted to €699 million, which was just below the forecast range of €700 million to €800 million. One of the reasons for this was the unexpectedly low electricity production due to unfavourable wind conditions. Compared to 2017, adjusted EBITDA decreased by 11 %. In addition to the weather conditions, the positive impact of income resulting from the revaluation of innogy’s stake in the Triton Knoll offshore wind project in the prior year did not recur. Furthermore, start-up costs were incurred in the year under review, which will result in revenue later on. A positive effect was felt from innogy’s commissioning of new wind turbines and realisation of higher prices for electricity and green energy certificates. Combined review of operations > Business performance Adjusted EBIT € million Lignite & Nuclear European Power1 Supply & Trading innogy - continuing operations Other, consolidation RWE Group 1 In the year under review, – €48 million was attributable to the UK (previous year: €40 million). 47 +/– % – 80.7 – 76.1 – 33.2 – 12.3 55.3 – 47.1 2018 2017 77 37 177 349 – 21 619 399 155 265 398 – 47 1,170 Reconciliation to net income characterised by the non-recurrence of exceptional income from 2017. The reconciliation from adjusted EBITDA to net income in 2017 was characterised by the substantial exceptional income in Germany from the nuclear fuel tax refund, whereas there were no such positive effects in 2018. This led to a significant deterioration in the non-operating result and the financial result. As expected, adjusted EBIT recorded by the RWE Group declined considerably, falling by 47 % to €619 million. This figure differs from adjusted EBITDA in that it does not include operating depreciation and amortisation, which amounted to €919 million (prior year: €979 million). Non-operating result € million Disposal result Impact of derivatives on earnings Other Non-operating result 2018 – 25 – 146 10 – 161 2017 107 – 480 1,322 949 +/– € million – 132 334 – 1,312 – 1,110 The non-operating result, in which we recognise certain effects which are not related to operations or to the period being reviewed, totalled – €161 million (prior year: €949 million). Its components developed as follows: • Disposals of investments and assets resulted in a net book loss of €25 million compared to the book gain of €107 million posted in the previous year. The loss was incurred in connection with the sale of our 51 % stake in the Hungarian company Mátra in March 2018. This caused charges resulting from the conversion of Mátra’s financial statements to euros, which were recognised in equity until the transaction, to have an effect on earnings. Capital gains on property sales were unable to offset this effect. • The ‘impact of derivatives on earnings’ totalled – €146 million, as opposed to – €480 million in the previous year. We use derivatives to hedge price risks. Pursuant to IFRS, these types of financial instruments are recognised at fair value at the corresponding balance-sheet date, whereas transactions which are hedged with them are only recognised as a profit or loss when they are realised. This results in temporary effects on earnings, which are neutralised over time. • The earnings stated under ‘other’ amounted to €10 million, which was much less than the high figure recorded in the preceding year (€1,322 million), which benefited from the nuclear fuel tax refund. In the year under review, a positive effect came from the write-up performed by innogy on its Polish wind farms due to a rise in the price of electricity and green energy certificates and the resulting improvement in the earnings prospects of the stations. This was contrasted by smaller burdens resulting in part from the accrual of provisions for partial retirement measures and costs associated with the execution of the asset swap with E.ON. Moreover, we recognised an impairment for the Staythorpe gas-fired power station in the UK because a slight downward correction had to be made to the expected earnings from this plant. 48 RWE Annual Report 2018 Financial result € million Interest income Interest expenses Net interest Interest accretion to non-current provisions Other financial result Financial result 2018 166 – 180 – 14 – 264 – 131 – 409 2017 197 – 298 – 101 – 226 264 – 63 +/– € million – 31 118 87 – 38 – 395 – 346 Our financial result deteriorated by €346 million to – €409 million. Its components changed as follows: • Net interest improved by €87 million to – €14 million, above all due to lower interest expenses. One of the reasons for this was our cancellation and buyback of hybrid bonds in the prior year (see page 54 of the 2017 Annual Report). • The interest accretion to non-current provisions curtailed earnings by €264 million, having a bigger effect than in 2017 (– €226 million). One contributing factor was the reduction in the discount rate we use to calculate nuclear provisions. The resulting increase in the net present value of the obligations was recognised in part as an expense in the interest accretion. • The ‘other financial result’ amounted to – €131 million, which was much lower than the preceding year’s figure (€264 million). The latter figure was unusually high, because it contained the interest we were granted for the nuclear fuel tax payments we had made until 2016 and were refunded thereafter. Furthermore, in the year under review, there was a decline in the quotations of marketable securities which were recognised through profit or loss due to the initial adoption of IFRS 9, as explained on page 41. In the previous year, such changes in fair value had been recognised without an effect on earnings. Smaller losses from the sale of securities provided some relief. Reconciliation to net income Adjusted EBITDA Operating depreciation, amortisation and impairment losses Adjusted EBIT Non-operating result Financial result Income from continuing operations before taxes Taxes on income Income from continuing operations Income from discontinued operations Income of which: Non-controlling interests RWE AG hybrid capital investors’ interest Net income/income attributable to RWE AG shareholders Earnings per share Number of shares outstanding (annual average) 2018 2017 1,538 – 919 619 – 161 – 409 49 – 103 – 54 1,127 1,073 679 59 335 0.54 614.7 2,149 – 979 1,170 949 – 63 2,056 – 333 1,723 592 2,315 373 42 1,900 3.09 614.7 +/− % – 28.4 6.1 – 47.1 – 117.0 – 549.2 – 97.6 69.1 – 103.1 90.4 – 53.7 82.0 40.5 – 82.4 – 82.5 – € million € million € million € million € million € million € million € million € million € million € million € million € million € millions Combined review of operations > Business performance 49 At €49 million, income from continuing operations before tax was far below the comparable figure for 2017 (€2,056 million). Income taxes amounted to €103 million. The effective tax rate was therefore above the theoretical normal level. The reason for this was that RWE AG’s tax group did not capitalise any deferred tax assets unless they were matched by deferred tax liabilities. This was because we are unlikely to be able to use the deferred tax claims in the foreseeable future. They can only be used in coming fiscal years if tax gains are achieved against which the claims can be netted. There is currently no sufficient certainty that this will occur in RWE AG’s tax group. After taxes, we posted income from continuing operations of – €54 million (prior year: €1,723 million). Income from discontinued operations amounted to €1,127 million, a significant gain compared to 2017 (€592 million). This is primarily a result of IFRS accounting rules: they stipulate that we no longer consider depreciation or amortisation for discontinued operations from their separate statement as of 30 June 2018 onwards. By contrast, the preceding year’s income included depreciation and amortisation for a full twelve months and was further curtailed by an impairment recognised for the UK retail business. Income from non-controlling interests rose by €306 million to €679 million. In the previous year, impairments recognised for the Hungarian power producer Mátra led to a decline in the earnings of RWE and the co-owners, which did not recur. In addition, we state much higher income for innogy in RWE’s consolidated financial statements. Accordingly, there was also a rise in the income allocable to the minority shareholders of our subsidiary, which hold a total stake of 23.2 %. The portion of earnings attributable to hybrid capital investors amounted to €59 million (prior year: €42 million). This sum corresponds to the finance costs related to our £750 million hybrid bond. This bond, which was called in the beginning of 2019, did not have a predefined fixed tenor. Associated proceeds were therefore classified as equity according to IFRS. RWE’s remaining hybrid capital is classified as debt and we record interest accrued on it in the financial result. As a consequence of the above developments, net income decreased considerably compared to 2017, falling to €335 million (prior year: €1,900 million). Based on the 614.7 million in RWE shares outstanding, earnings per share amounted to €0.54 (prior year: €3.09). Capital expenditure on property, plant and equipment and on intangible assets € million 2018 2017 +/– € million Lignite & Nuclear European Power Supply & Trading innogy – continuing operations Other , consolidation RWE Group Capital expenditure on financial assets € million Lignite & Nuclear European Power Supply & Trading innogy – continuing operations Other, consolidation RWE Group 230 245 13 592 – 1 1,079 269 147 7 285 – 2 706 – 39 98 6 307 1 373 2018 2017 +/– € million – 4 37 141 – 1 181 1 1 30 153 11 196 – 1 3 7 – 12 – 12 – 15 50 RWE Annual Report 2018 Significant rise in capital expenditure on renewables. In the financial year that just came to a close, RWE recorded capital expenditure of €1,260 million, up €358 million, or 40 % compared to 2017. Spending on property, plant and equipment and on intangible assets increased by 53 % to €1,079 million. The considerable rise was primarily attributable to innogy’s continuing operations, in particular the large-scale Triton Knoll and Limondale projects, on which we report on page 38. In the European Power segment, the conversion of the Dutch hard coal-fired power stations Amer 9 and Eemshaven to biomass co-firing drove up capital spending. Furthermore, there was a rise in expenditure on maintenance. We spent €181 million on financial assets, 8 % less than in 2017. A large portion of the funds was used by innogy to acquire a portfolio of onshore wind projects in the USA (see page 38). Workforce 1 Lignite & Nuclear European Power Supply & Trading innogy – continuing operations Other2 RWE Group 1 Converted to full-time positions. 2 This item exclusively comprises employees of the holding company RWE AG. 31 Dec 2018 31 Dec 2017 11,292 13,132 2,738 1,267 2,192 259 2,656 1,156 1,952 210 17,748 19,106 +/– % – 14.0 3.1 9.6 12.3 23.3 – 7.1 Lower headcount due to sale of Mátra. As of 31 December 2018, the RWE Group’s continuing operations had 17,748 people on the payroll, of which 15,101 were employed in Germany and 2,647 worked at locations abroad. Part-time positions were considered in these figures on a pro-rata basis. The workforce in Germany expanded by 582 staff members compared to the end of 2017. By contrast, elsewhere in the Group, 1,940 employees left the company, predominantly due to the sale of our majority stake in the Hungarian power producer Mátra (see page 37). In purely operating terms, i. e. disregarding such consolidation effects, our headcount rose by 702. Personnel figures do not include apprentices or trainees. At the end of 2018, 666 young adults were learning a profession at RWE, compared to 615 in the previous year. This information relates exclusively to the RWE Group’s continuing operations. Combined review of operations > Financial position and net worth 51 1.8 FINANCIAL POSITION AND NET WORTH RWE’s financial position and net worth is fundamentally solid despite the difficult framework conditions in our business. This is demonstrated by the credit ratings issued by Moody’s and Fitch: both rating agencies confirmed their investment grade rating of RWE last year. The good operating and financial prospects arising from the planned acquisition of the renewable energy activities of E.ON and innogy were among the influential factors. In fiscal 2018, we generated very high operating cash flows of €4.6 billion. However, this was largely due to temporary effects. The Group’s net debt declined to €19.3 billion and amounted to a mere €4.4 billion excluding the innogy activities that are up for sale. Responsibility for procuring funds. Responsibility for financing within the RWE Group lies with the parent company RWE AG and its operationally independent subsidiary innogy. The two companies procure funds for the business that they control. They act independently of each other in doing so. Companies which are controlled by RWE AG or innogy SE only raise debt capital in specific cases, for example if it is advantageous economically to make use of local credit 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, it strengthens our position when negotiating with banks, business partners, suppliers and customers. Tools for raising debt capital. RWE AG and innogy SE have a wide range of tools which they can use in addition to cash flows from operating activities to meet their financing needs. • Debt Issuance Programmes (DIPs) give the companies latitude in procuring debt capital on the capital market for the long term. A DIP is a framework prospectus for the flexible issuance of bonds. RWE AG’s current programme enables us to make issuances with a total nominal value of €10 billion. The innogy DIP has a maximum financing volume of €20 billion. • 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 intermittently used a maximum of €0.8 billion of this headroom in the year under review. innogy also launched a Commercial Paper Programme. It has a funding framework of €3 billion. Up to €1.1 billion thereof was used in the financial year that just ended. • To secure liquidity, RWE AG and innogy SE can resort to lines of credit granted them by international bank syndicates. RWE AG has such a credit line with a volume of €3 billion which expires in March 2021. It has not been used so far. The same holds true for innogy’s syndicated credit line, with which our subsidiary can cover up to €2 billion in financing needs. Its original tenor expires in October 2022 and can be prolonged twice for a year at a time subject to the banks’ approval. innogy has already received the approval of nearly the whole of the bank consortium for a first extension through to October 2023. Moreover, the credit line can be topped up by €1 billion. This option is also subject to the approval of the consortium of banks. Bond volume increases to €15.2 billion. At the end of 2018, the Group (including innogy) had bonds with a total nominal volume of an equivalent of €15.2 billion outstanding, compared to €14.0 billion a year before. The total of 26 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 66 % in euros and 34 % in sterling on the balance-sheet date. At the end of the year, the senior bonds outstanding had an average remaining maturity of 8.5 years. As of 31 December 2018, the volume of bonds commercially and legally attributable to RWE AG amounted to €1.9 billion. It was essentially unchanged compared to the previous year. RWE AG’s long-term debt financing is primarily based on four hybrid bonds with outstanding volumes of £750 million (7 % coupon; earliest possible redemption in March 2019), €539 million (2.75 %; October 2020), €282 million (3.5 %; April 2025) and US$ 317 million (6.625 %; March 2026). We will redeem the first of the above bonds, with a volume of £750 million, on 20 March 2019, without replacing it with new hybrid capital (see page 39). We do not plan to issue senior bonds for the time being. 52 RWE Annual Report 2018 RWE Group bonds: maturities/first possible call dates (as of 31 Dec 2018) € billion 2.0 1.5 1.0 0.5 0.0 Year 2019 ’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 (maturities) Hybrid bonds RWE AG (first possible call dates) By the end of 2018, innogy had a total of €13.3 billion in outstanding bonds, €1.2 billion more than a year before. These include a total of 21 senior bonds in euros (13), sterling (6), US dollars (1) and yen (1). innogy conducted three new placements in the financial year that just came to a close. The company started by issuing a €1 billion bond with a tenor of 11.5 years and a coupon of 1.5 % in January. This was followed by two further placements in May: one with a volume of €500 million, a tenor of eight years and a coupon of 1.625 %, and another, also with a volume of €500 million, with a tenor of 4.5 years and a coupon of 0.75 %. The latter bond was topped up to €750 million soon thereafter. The issuances were contrasted in July 2018 by the redemption of a 15-year bond with a nominal volume of €980 million and a coupon of 5.125 %. RWE AG’s borrowing costs reflect decline in refinancing via commercial paper. In 2018, the cost of debt for RWE AG was 3.4 %, as opposed to 2.5 % in the preceding year. These figures were calculated for the liabilities allocable to the Group parent from bonds, commercial paper and bank loans at the end of the year. Only hybrid bonds classified as debt pursuant to International Financial Reporting Standards (IFRS) were considered. The rise in the cost of capital was primarily due to our reduction to zero of short-term financing via low-interest commercial paper due to high operating cash flows by the end of 2018. innogy’s cost of debt dropped from 4.1 % to 3.6 %. One reason was that the bonds issued during the year being reviewed have relatively small coupons due to the development of market interest rates, whereas the redeemed bond had a much higher yield. Shortly after the end of the year under review, innogy took advantage of the favourable interest rates to issue another bond. At the end of January 2019, the company placed paper with a nominal volume of €750 million, a tenor of 4.5 years and a coupon of 0.75 %. One of the purposes of the issuance is to refinance liabilities as they mature. Credit rating of RWE AG (as of 31 Dec 2018) Non-current financial liabilities Senior debt Subordinated debt (hybrid bonds) Current financial liabilities Outlook Moody’s Baa3 Ba2 P-3 Stable Fitch BBB BB+ F2 Stable Combined review of operations > Financial position and net worth 53 Rating agencies confirm RWE’s investment grade rating. The level of our borrowing costs partially depends on the rating agencies’ assessment of our creditworthiness. Moody’s and Fitch are currently providing such credit ratings for RWE. Another leading agency, 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. Before discontinuing its rating of RWE, Standard & Poor’s had issued us a rating of BBB– for long-term financing, which is investment grade. This is the same category as the credit assessments of our current rating agencies. The RWE ratings by Moody’s and Fitch are Baa3 and BBB, respectively. Once our envisaged asset swap with E.ON was announced, the two agencies reviewed our creditworthiness in 2018, confirming their assessments – both with a stable outlook. Fitch even raised its rating of our short-term financial debt by one notch to F2. By contrast, innogy continues to receive credit ratings from all three of the aforementioned agencies, which are each one notch higher than for RWE, with a stable outlook. The creditworthiness of our subsidiary is rated BBB at Standard & Poor’s, Baa2 at Moody’s and BBB+ at Fitch (with a rating of A– for its senior bonds). 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 2018 Annual Report. Cash flow statement1 € million Funds from operations Change in working capital Cash flows from operating activities of continuing operations Cash flows from investing activities of continuing operations Cash flows from financing activities of continuing operations 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 of continuing operations Minus capital expenditure2 Plus proceeds from divestitures/asset disposals2 Free cash flow 1 All items relate solely to continuing operations. 2 This item solely relates to transactions with an effect on cash. 2018 2017 138 4,473 4,611 – 2,999 – 1,559 13 66 4,611 – 1,246 74 3,439 – 3,971 200 – 3,771 3,750 – 997 – 19 – 1,037 – 3,771 – 902 234 – 4,439 +/– € million 4,109 4,273 8,382 – 6,749 – 562 32 1,103 8,382 – 344 – 160 7,878 Extraordinarily high operating cash flows due to received collateral. In the past fiscal year, our continuing operations generated €4,611 million in cash flows from operating activities. This was much more than the negative figure recorded in the prior year (– €3,771 million), which was significantly curtailed by the endowment of the German nuclear energy fund. However, our operating cash flows also improved disregarding this effect. The fact that we obtained high variation margins in connection with forward contracts for electricity, commodities and CO2 certificates in 2018 played a major role. Variation margins are payments with which transaction partners offset profit and loss positions resulting from the daily revaluation of active contracts. However, their influence on cash flows is temporary and ends once the transactions are realised. 54 RWE Annual Report 2018 Investing activities of our continuing operations resulted in cash outflows of €2,999 million. In addition to the capital expenditure presented on page 50, purchases of securities also made a contribution, whereas proceeds on sales of property, plant and equipment and financial assets had a counteracting effect. In the previous year, we recorded substantial cash inflows of €3,750 million, which largely resulted from the sale of securities. We used the funds to make our contribution to the nuclear energy fund. Financing activities of our continuing operations resulted in cash outflows of €1,559 million (previous year: €997 million). €1.0 billion thereof was used to make dividend payments to RWE shareholders, co-owners of fully consolidated RWE companies and hybrid investors. In the period under review, we redeemed €2.8 billion and issued €1.6 billion in financial debt. In addition, there were proceeds from the sale of minority stakes in the Triton Knoll offshore wind project (see page 37 et seq.). On balance, the aforementioned cash flows from operating, investing and financing activities increased our cash and cash equivalents by €66 million. The significant variation margins mentioned above were also reflected in free cash flow, which amounted to €3,439 million. By contrast, the figure recorded in the preceding year (– €4,439 million) was characterised by the contribution to the nuclear energy fund. Net debt1 € 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 of continuing operations Net debt of discontinued operations Net debt 31 Dec 2018 31 Dec 2017 3,523 3,863 2,809 10,195 1,657 12 1,107 2,776 7,419 3,287 – 213 5,944 2,516 362 – 88 470 – 558 4,389 14,950 19,339 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 – – +/– € million – 410 – 1,268 946 – 732 – 13,442 – 15 – 995 – 14,452 13,720 – 2,133 – 110 – 61 194 3 – 11 – – 11 – – 20,227 – 888 1 As of the balance-sheet date, discontinued operations were recognised in the collective item ‘net debt of discontinued operations’, whereas at the end of 2017, they were still included in the individual items of the table. Net debt slightly down on 2017. As of 31 December 2018, our net debt amounted to €19.3 billion, of which €4.4 billion was allocable to continuing operations and the remainder was allocable to discontinued operations. We only disclose the figures for the Group as a whole for the previous year. Our net debt dropped by €0.9 billion compared to 2017. Therefore, our forecast of March 2018, which envisaged a moderate increase, was not confirmed. The main reason was the unexpectedly high cash inflows from variation margins. Operating cash flows of continuing operations (€4.6 billion) and of discontinued operations (€2.0 billion) reduced net debt, whereas investing activities (€1.2 billion and €1.7 billion) and dividend payments (€1.0 billion and €0.5 billion) had a counteracting effect. In addition, pension provisions rose by €0.8 billion and €0.7 billion, respectively. One reason is that the plan assets which cover the majority of the pension obligations declined due to negative market developments. Combined review of operations > Financial position and net worth 55 Slightly higher off-balance-sheet obligations from electricity and fuel. 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 €27.9 billion for fuel (previous year: €25.8 billion) and €7.8 billion for electricity (previous year: €6.8 billion). These figures are based on assumptions regarding the prospective development of commodity prices. For further information on our off-balance-sheet obligations, please see page 151 in the Notes. Group balance sheet structure Assets Non-current assets of which: Intangible assets Property, plant and equipment Current assets of which: Receivables and other assets2 Assets held for sale Total Equity and liabilities Equity Non-current liabilities of which: Provisions Financial liabilities Current liabilities of which: Provisions Financial liabilities Other liabilities3 Liabilities held for sale Total 31 Dec 2018 31 Dec 2017 € million % € million 18,595 23.2 45,694 2,193 12,409 61,513 12,254 40,496 80,108 14,257 20,007 15,863 1,998 45,844 2,615 766 9,667 32,796 80,108 2.7 15.5 76.8 15.3 50.6 100.0 17.8 25.0 19.8 2.5 57.2 3.3 1.0 12.1 40.9 100.0 12,383 24,9471 23,365 12,487 128 69,059 11,991 36,774 19,249 14,414 20,294 5,137 2,787 12,259 111 69,059 % 66.2 17.9 36.1 33.8 18.1 0.2 100.0 17.4 53.3 27.9 20.9 29.3 7.4 4.0 17.8 0.2 100.0 1 Figure adjusted due to the assignment of investment property to property, plant and equipment. 2 Including financial accounts receivable, trade accounts receivable and income tax refund claims. 3 Including trade accounts payable and income tax liabilities. Equity ratio records slight increase to 17.8 %. As of the cut-off date for the financial statements, we had a balance- sheet total of €80.1 billion, compared to €69.1 billion as of 31 December 2017. We have subsumed the innogy assets that are to be transferred to E.ON over the long term separately under the items ‘assets held for sale’ (€40.5 billion) and ‘liabilities held for sale’ (€32.8 billion). In line with IFRS, prior-year figures were not adjusted. This was a major reason why certain balance-sheet items decreased substantially: on the assets side, intangible assets were €10.2 billion and property, plant and equipment was €12.5 billion down year on year; on the equity and liabilities side, financial liabilities declined by €14.4 billion, with provisions falling by €5.9 billion. The change in the reporting did not have an impact on the development of the balance-sheet total. Its increase of €11.0 billion relative to 2017 was primarily driven by the rise in the value of commodity derivatives. The RWE Group’s equity climbed by €2.3 billion to €14.3 billion, with its share of the balance sheet total (equity ratio) also rising, advancing by 0.4 percentage points to 17.8 %. 56 RWE Annual Report 2018 1.9 NOTES TO THE FINANCIAL STATEMENTS OF RWE AG (HOLDING COMPANY) The financial statements of RWE AG primarily reflect the business performance of its subsidiaries. On the whole, the electricity margins achieved by our generation companies RWE Power and RWE Generation deteriorated last year. Furthermore, the financial statements for fiscal 2017 benefited from the positive one-off effect of the nuclear fuel tax refund. At €0.5 billion, RWE AG’s net profit was therefore significantly lower year on year. However, it gives us enough leeway to pay an attractive dividend: the Executive Board and the Supervisory Board of RWE AG will propose to the Annual General Meeting taking place in May that a dividend of €0.70 per share be paid for fiscal 2018. 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 Transfer to other retained earnings Distributable profit 31 Dec 2018 31 Dec 2017 25,166 3,669 479 4,864 34,178 5,654 2,700 23,169 2,655 34,178 2018 1,091 − 391 − 227 − 1 472 − 42 430 24,901 4,811 505 3,951 34,168 6,104 2,368 22,623 3,073 34,168 2017 2,268 − 339 − 345 − 172 1,412 − 490 922 Combined review of operations > Notes to the financial statements of RWE AG (holding company) 57 Net interest deteriorated by €52 million to – €391 million. The main reason for this was the aforementioned value adjustments of the assets covering the pension obligations. The net amount from other income and expenses improved by €118 million to – €227 million because expenses from the reversal of deferrals in the previous year did not recur. Burdens in the year under review resulted in part from project costs in connection with the impending asset swap with E.ON on which we report in detail on page 35 et seq. With a tax expense of €1 million (previous year: €172 million), RWE AG achieved a net profit of €472 million in fiscal 2018 (previous year: €1,412 million). The distributable profit of €430 million corresponds to the planned dividend payment to our shareholders. The Supervisory Board and the Executive Board of RWE AG will propose to the Annual General Meeting on 3 May 2019 that a dividend of €0.70 be paid per share for fiscal 2018. Outlook for 2019. RWE AG’s earnings prospects largely depend on the business performance of its subsidiaries. Our current assessments make us confident of being able to achieve a net profit in 2019 that is slightly higher than in 2018. Corporate governance declaration in accordance with Section 289f and Section 315d of the German Commercial Code. On 15 February 2019, the Executive Board of RWE AG issued a corporate governance statement in accordance with Section 289f and Section 315d of the German Commercial Code. It is published on the internet at www.rwe.com/corporate-governance-declaration. Assets. RWE AG had €34.2 billion in total assets as of 31 December 2018, just as much as in the previous year. Major changes occurred on the assets side of the balance sheet, e. g. a decline in accounts receivable from affiliated companies. One reason for this was that RWE Power transferred to us its 2017 profit, which was unusually high due to the nuclear fuel tax refund received from the government. There was an increase in marketable securities and cash and cash equivalents, in part because our subsidiary RWE Supply & Trading received substantial amounts of collateral relating to forward transactions involving electricity, commodities and CO2 certificates (see page 53). On the equity and liabilities side of the balance sheet, there was a rise in provisions for pensions. A downward adjustment to the discount rates used to calculate the net present values of obligations and value adjustments of the assets covering the pension obligations came to bear here. There was a rise in liabilities to affiliated companies arising from our obligation to assume their losses. By contrast, other liabilities dropped, in part because we eliminated short-term refinancing via commercial paper by the balance-sheet date. Equity also decreased, as did the equity ratio, in view of the unchanged amount of total assets. As of 31 December 2018, the equity ratio was 16.5 % as opposed to 17.9 % in the previous year. The special dividend of €1 per share paid by RWE AG for fiscal 2017 played a role in the decline. Financial position. RWE AG is set up solidly in financial terms and has a number of flexible financing tools at its disposal. This is reflected in our long-term credit ratings, which are investment grade. A detailed presentation of RWE’s financial position and financing activity in the year under review has been made on page 51 et seqq. Earnings position. RWE AG’s earnings position deteriorated compared to 2017. This was primarily due to factors reflected in income from financial assets, which declined by €1,177 million to €1,091 million. As set out earlier, RWE Power benefited from the nuclear fuel tax refund in fiscal 2017. This one-off effect did not recur. Moreover, margins in conventional electricity generation and energy trading declined. 58 RWE Annual Report 2018 1.10 PRESENTATION OF THE RWE GROUP WITH INNOGY AS A PURE FINANCIAL INVESTMENT Since its IPO in October 2016, our subsidiary innogy has been able to conduct its business activities independently. Consequently, we consider it as a purely financial investment. Therefore, our company planning also considers Group figures which better reflect this status than those determined by applying IFRS consolidation principles. We calculate these figures by recognising innogy in the financial assets on the balance sheet and based on the dividend it pays to us on the income statement. Adjusted EBITDA calculated in this manner amounted to €1.5 billion in 2018, which was in line with our expectations. Net debt amounted to €2.3 billion, which was lower than we had assumed initially. Full consolidation reflects economic status of RWE investment in innogy only 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. This approach must also be applied to our 76.8 % stake in innogy, whereas we recognise the business activities of this company, which will be transferred to E.ON as a result of the asset swap, separately as ‘discontinued operations’. 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. This is documented by a comprehensive agreement which stipulates that our subsidiary can act independently in business matters and that RWE AG may only exercise its influence by way of the legally mandated bodies, i. e. the Supervisory Board and the Annual General Meeting. Adjusted figures. For planning purposes, we therefore adopt a presentation that does not conform with IFRS consolidation principles and better represents the actual relationship between RWE AG and innogy. This involves assigning the investment in 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 of €38.40 established by the conditions governing the impending sale to E.ON. The Group’s earnings figures consider innogy only based on the dividend for RWE, which amounted to €683 million in 2018. In addition, the change in accounting also has an indirect effect on our figures, because business transactions between the rest of the Group and innogy are treated as transactions with third parties. Adjusted EBITDA in line with expectations. The following is an overview of some key financial indicators calculated applying the aforementioned method. Adjusted EBITDA amounted to €1,521 million (prior year: €2,066 million) and adjusted net income totalled €591 million (prior year: €973 million). Therefore, the actual figures were within the forecast ranges of €1.4 billion to €1.7 billion and €0.5 billion to €0.8 billion, respectively (see page 85 of the 2017 Annual Report). Net debt amounted to €2,280 million (prior year: €4,510 million), which was less than planned. At the start of the year, we had anticipated a slight increase. The significant drop was a result of unexpectedly high cash inflows from variation margins (see page 53). Key figures for the RWE Group including innogy as a financial investment that is not fully consolidated1 € million Adjusted EBITDA Adjusted EBIT Income before taxes Net income Adjusted net income Net financial assets Net debt 2018 2017 1,521 953 305 265 591 9,266 2,280 2,066 1,474 2,320 2,160 973 6,070 4,510 +/– % – 26.4 – 35.3 – 86.9 – 87.7 – 39.3 52.7 – 49.4 1 Figures not calculated according to IFRS requirements. 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. 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 59 1.11 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 relating to adjustments to the capital structure by the Executive Board or 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 2018, no holding in RWE AG exceeded 10 % of the voting rights. Limitation of share transfers. Within the scope of the employee share plan of RWE AG, 196,560 RWE common shares were issued to employees in the financial year that just ended. These securities must be held until 31 December 2019. Last year, employee stock purchase plans were also launched for the first time in the United Kingdom. Employees of RWE Generation UK plc, RWE Technology UK Limited and RWE Supply & Trading GmbH UK Branch qualified for them. A total of 29,452 RWE common shares were purchased under these plans. These shares are subject to a five-year holding period starting from their respective issue dates. 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 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 in favour of amendments to the Articles of Incorporation that only concern the wording without changing the content. RWE AG authorisation to implement share buybacks. Pursuant to a resolution passed by the Annual General Meeting on 26 April 2018, 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 25 April 2023. 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, they 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 and 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. 60 RWE Annual Report 2018 Executive Board authorisation to issue new shares. Pursuant to the resolution passed by the Annual General Meeting on 26 April 2018, 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 25 April 2023, through the issuance of up to 122,949,099 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 them 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 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: 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, 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. A similar rule applies to the credit line we were granted in connection with the temporary acquisition of the 50.04 % stake in innogy Grid Holding (see page 39). Effects of a change of control on Executive Board and executive remuneration. 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 them. In such a case, they are free to resign from their position within six months of the change of control with cause by giving three months’ notice. In addition, they can request the termination of their employment contract and receive a one-off payment. The amount of the one-off payment shall correspond to the compensation that would have been due until the end of the contractually agreed term of service, but no more than three times the total contractual annual remuneration. Share-based payment is not included in this. This is in line with the current recommendations of the German Corporate Governance Code. The Strategic Performance Plan presented on page 64 et seq. stipulates 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 paid out, shall be paid out early. The payout amount shall correspond to the number of performance shares multiplied by the sum of the average closing price of the RWE common share on the last 30 trading days prior to the announcement of the change of control and the amount of dividend paid out per share until then, calculated starting from the time when the number of performance shares was finally granted. All performance shares granted on a preliminary basis at the time of the change of control shall expire without replacement or compensation. Combined review of operations > Remuneration report 61 1.12 REMUNERATION REPORT Performance-oriented and transparent supervisory and management board remuneration are fundamental to good corporate governance. This is ascribed great importance in particular by institutional investors. In this chapter, we have provided information on the structure and level of the remuneration 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 remuneration systems. Structure of Supervisory Board remuneration In addition to the remuneration paid, out-of-pocket expenses are refunded to the members of the Supervisory Board. Some 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 commitment 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 relinquish their compensation met this self-imposed obligation for their compensation for 2017. For the new members who joined the Board in 2018, this self-imposed obligation applies for the first time to the remuneration for fiscal 2018, which was paid out at the start of fiscal 2019. Fundamentals. 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 remuneration of €300,000 per fiscal year. His Deputy receives €200,000 per fiscal year. The other members of the Supervisory Board receive fixed remuneration of €100,000 and additional compensation for committee mandates according to the following rules. Members of the Audit Committee receive additional remuneration of €40,000. This payment is increased to €80,000 for the Chair of this committee. With the exception of the Nomination Committee, the members of which do not receive additional remuneration, the members and the Chairs of all the other Supervisory Board committees receive an additional €20,000 and €40,000 in remuneration, respectively. Remuneration for a committee mandate is only paid if the committee is active at least once in the fiscal year. Supervisory Board members who concurrently hold several offices in this body only receive compensation for the highest- paid position. Remuneration is prorated if a Supervisory Board member only performs a function for part of a fiscal year. Level of Supervisory Board remuneration Remuneration for fiscal 2018. In total, the remuneration of the Supervisory Board (excluding out-of-pocket expenses) amounted to €3,480,000 in fiscal 2018 (previous year: €3,637,000). Of this sum, €460,000 (previous year: €459,000) was remuneration paid for mandates on committees of the Supervisory Board and €720,000 (previous year: €877,000) was remuneration paid for mandates at subsidiaries. 62 RWE Annual Report 2018 The remuneration of all individuals who have served on the Supervisory Board in 2017 and/or 2018 is shown in the following table. Supervisory Board remuneration1 Fixed remuneration Remuneration for committee offices Remuneration for mandates at subsidiaries2 Total remuneration3 € ‘000 2018 2017 2018 2017 Dr. Werner Brandt, Chairman Frank Bsirske, Deputy Chairman Michael Bochinsky (since 1 August 2018) Reiner Böhle Sandra Bossemeyer Martin Bröker (since 1 September 2018) Ute Gerbaulet (since 27 April 2017) Reinhold Gispert (27 April 2017 to 31 July 2018) Arno Hahn (until 27 April 2017) Andreas Henrich (until 31 August 2018) Prof. Dr. Hans-Peter Keitel Dr. h.c. Monika Kircher Martina Koederitz (20 April 2016 to 27 April 2017) Monika Krebber Harald Louis Dagmar Mühlenfeld Peter Ottmann Günther Schartz Dr. Erhard Schipporeit Dr. Wolfgang Schüssel Ullrich Sierau Ralf Sikorski Marion Weckes Leonhard Zubrowski Total3 300 200 42 100 100 33 100 58 – 67 100 100 – 100 100 100 100 100 100 100 100 100 100 100 300 200 – 100 100 – 68 68 32 100 100 100 32 100 100 100 100 100 100 100 100 100 100 100 – – 17 20 20 – – 23 – – 20 – – 20 20 20 20 20 80 40 40 40 40 20 – – – 20 20 – – 26 13 – 20 – – 20 20 20 20 20 80 40 40 40 40 20 2018 – 200 – – – – – – – – – – – 120 20 – – – 300 – – 50 – 30 2017 2018 2017 300 200 – 120 – – – 14 18 – – – 38 67 40 – – – – – – 50 – 30 300 400 59 120 120 33 100 81 – 67 120 100 – 240 140 120 120 120 480 140 140 190 140 150 600 400 – 240 120 – 68 108 63 100 120 100 71 187 160 120 120 120 180 140 140 190 140 150 2,300 2,301 460 459 720 877 3,480 3,637 1 Supervisory Board members who joined or retired from the corporate body during the year receive prorated remuneration. 2 Remuneration 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 > Remuneration report 63 Structure of Executive Board remuneration Executive Board remuneration. 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 remuneration system described in the following has been applied since 1 October 2016. It is made up 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 remuneration. In the financial year that just ended, Rolf Martin Schmitz and Markus Krebber 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. His tenure on the Executive Board expires on 30 June 2021. Markus Krebber was appointed to this corporate body for an initial period of three years with effect from 1 October 2016 and has been in charge of finance since 15 October 2016. In December 2018, his appointment was extended by five years through to 30 September 2024. Non-performance-based Executive Board remuneration Fixed compensation and pension instalments. The members of the Executive Board of RWE AG receive a fixed annual salary, which is paid in twelve monthly instalments. As a second fixed remuneration component, they are entitled to a pension instalment for every year of service, which is determined on an individual basis, unless – as is the case with Rolf Martin Schmitz – they belonged to the Executive Board before the pension instalment was introduced and have therefore received a pension commitment (see page 67). 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 a one-time payment or 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. Fringe benefits. Non-performance-based compensation components also include fringe benefits, primarily consisting of company cars and accident insurance premiums. Performance-based Executive Board remuneration 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 (EBIT minus the non-operating result) and is determined as set out in the next paragraph. The Supervisory Board sets a target as well as a floor and a ceiling 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 exactly at the pre-defined floor, target achievement is 50 %; if it is at the 64 RWE Annual Report 2018 ceiling, target achievement is 150 %. Target achievement is adjusted linearly if adjusted EBIT is between the two limits. If it is below the floor, no company bonus is paid. If the ceiling is exceeded, the maximum target achievement remains 150 %. The rules of the remuneration system for the Executive Board stipulate that the Supervisory Board may make adjustments to adjusted EBIT. Such adjustments can relate to gains on disposals, changes in provisions, as well as impairments and their consequences. The German Corporate Governance Code (GCGC) recommends prohibiting retrospective changes to performance targets and reference parameters (Item 4.2.3, Paragraph 2, Sentence 8). In our Declaration of Compliance, which was published on 21 September 2018, we stated that we deviated from the Code in this point. However, we do not believe that we acted contrary to the basic intention of the recommendation, as the update to the target figures was methodological in nature and occasioned by German stock corporation law. The performance of each Executive Board member 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 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 fiscal year, the Supervisory Board evaluates the individual performance of the Executive Board members relative to the three criteria above 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. Adjusted EBIT, the target figure used to determine the company bonus, was revised per a Supervisory Board resolution of September 2018. In the past, innogy SE, in which we hold a 76.8 % stake, was considered as a fully consolidated subsidiary in determining EBIT, in accordance with International Financial Reporting Standards (IFRS). As set out on page 40, the envisaged asset swap with E.ON required methodological accounting adjustments to be made, as a result of which adjusted EBIT according to the old definition no longer exists. When measuring performance, we now use an adjusted EBIT that reflects RWE’s current situation better and is determined on a continuous basis. In so doing, deviating from IFRS consolidation principles, innogy is considered as a purely financial investment. More detailed information on this approach can be found on page 58. The change in the composition of adjusted EBIT made it necessary to revise the target parameter for performance measurement retrospectively. This was decided by the Supervisory Board of RWE AG in September 2018. 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 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. The link between compensation and the development of the share price over the long term motivates the Executive Board to consider the interests of the company’s owners when taking decisions. 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, in which they are informed of their personal gross allocation amount. The preliminary number of performance shares is calculated by dividing the grant amount by the average closing quotation of the RWE share over 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 RWE for the year. The actual figure is compared to a pre-defined target figure. The procedure is similar to the approach taken when determining the company bonus. The Supervisory Board pre-defines a target, a floor and a ceiling for adjusted net income, orienting 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 adjusted net income is exactly at the floor, 50 % of the conditionally granted performance shares is fully allocated; if it is at the ceiling, the final grant amounts to 150 %. If adjusted net income is below the floor, all of the conditionally granted performance shares from the tranche lapse. If the ceiling is exceeded, the maximum grant remains 150 %. Combined review of operations > Remuneration report 65 We published information on this deviation from the German Corporate Governance Code in the aforementioned statement of compliance on 21 September 2018. Remuneration 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. Shares of total remuneration 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 remuneration, i. e. the bonus. As a long-term compensation component, the SPP accounts for about 40 % of total remuneration. Limitation of Executive Board remuneration. 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. Due to the above maximum values, there is also a cap on total compensation (see diagram overleaf). The fully vested performance shares are fully paid out in cash to the Executive Board member 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 final number of performance shares multiplied by the sum of the average closing quotation of the RWE common share over the last 30 days of trading on Xetra before the end of the vesting period and the cumulative dividend paid during the holding period. However, a cap applies in this case as well: even in the event of an extremely good share performance, the payment is limited to a maximum of 200 % of the initial gross grant amount. The members of the Executive Board are obliged 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. The performance shares remain unaffected after an Executive Board member leaves the body at the end of their contract and are paid out as planned at the end of the 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 provision which gives the Supervisory Board the power to punish infractions by Executive Board members, for example serious violations of the company’s Code of Conduct, by reducing or completely voiding ongoing SPP tranches. 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 ceilings and floors were also determined. The SPP conditions stipulate that the Supervisory Board may retrospectively adjust the target and threshold values only to a very limited extent in precisely defined cases. Such adjustments are permissible if they take account of the effects of capital measures, acquisitions, divestments and regulatory changes, which were not yet known or unforeseeable when the figures were determined. As set out in the commentary on the bonus, in 2018, we changed the method used to determine the figures due to the envisaged asset swap with E.ON. This also affected adjusted net income, which we had derived from the IFRS net income in the past and now determine in the manner described on page 58, i. e. by considering innogy as a pure financial investment. Accordingly, the target figures for adjusted net income for the 2018 and 2019 SPP tranches were also adjusted retrospectively. 66 RWE Annual Report 2018 Range of Executive Board remuneration Budget: 100 % Strategic Performance Plan (100 %) Bonus (100 %) 40 % 30 % Floor: 30 % Ceiling: 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 remuneration 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 > Remuneration report 67 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 2018, 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 59, permanent disability, early termination or non-extension of his employment contract by the company. In the event of death, his surviving dependants are entitled to 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 of 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 contract, Executive Board members receive a one-off payment equalling the compensation due until the end of the term of their contract: however, this amount will not be higher than three times their total contractual annual remuneration. The share-based payments under the SPP are not included in this payment. In the event of a change of control, all of the fully granted 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 of Executive Board mandate 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 remuneration Total amount of the remuneration components for 2018. The following section presents the remuneration granted to the Executive Board members of RWE AG for their work in fiscal 2018. It was calculated in compliance with the rules set out in the German Commercial Code. Total Executive Board compensation for the past fiscal year amounted to €6,880,000. The previous year’s figure was €7,274,000 and included the emoluments of Uwe Tigges, who resigned from the Executive Board at the end of April 2017. In 2018, non-performance-based components, i. e. the fixed salary of the Executive Board members, fringe benefits and the pension instalment, amounted to €2,246,000 (previous year: €2,342,000). Pursuant to the German Commercial Code, the annual service cost of the pension commitment to Rolf Martin Schmitz is not recognised as remuneration, as opposed to the pension instalment of €300,000 paid to Markus Krebber (previous year: €255,000). In 2018, performance-based components amounted to a total of €4,634,000 (previous year: €4,932,000). Of this, €2,284,000 (previous year: €2,365,000) was attributable to the bonus for fiscal 2018 paid directly and €2,350,000 (previous year: €2,567,000) to the allocation of performance shares under the SPP. As set out on page 64, last year we started calculating adjusted EBIT, the yardstick for determining the level of the bonus, using a new method that considers innogy as a purely financial investment. Therefore, the target for 2018 was adjusted retrospectively, to €831 million (target achievement of 100 %) with a floor of €131 million (target achievement of 50 %) and a ceiling of €1,531 million (target achievement of 150 %). The new figures were also determined on the basis of the medium-term planning prepared in 2017. We actually achieved adjusted EBIT of €953 million. The adjusted EBIT figure was adjusted by –€49 million to €904 million. The adjustment relates to changes in the amortisation periods of certain assets and 68 RWE Annual Report 2018 valuation effects regarding provisions. The adjustment leads to a target achievement of 105 % for the company bonus. Calculation of the 2018 company bonus Adjusted EBIT € million Target achievement % Target Floor Ceiling Actual Adjustments1 Adjusted actual 1 See commentary above. 831 131 1,531 953 – 49 904 100 50 150 – – 105 As set out above, the company bonus resulting from this target achievement is multiplied by a personal performance factor. Based on the assessment of the personal goals, the collective performance of the Executive Board as a whole as well as the targets relating to corporate responsibility and employee motivation, the Supervisory Board set the performance factor for Rolf Martin Schmitz and Markus Krebber at 1.2. This results in a bonus of 126 % of the contractually agreed budget. The Supervisory Board acknowledged that the Executive Board made better progress than expected in implementing the strategic and financial goals established in advance. In particular, the substantial progress made in transforming RWE into a leading renewable energy company was recognised. On the whole, feedback from the capital market on the initiated transformation of the company has been positive. The annual employee opinion survey proves that personnel motivation improved even further from a level that was already high, despite the challenging environment. The following table summarises the short-term remuneration paid in accordance with the German Commercial Code for fiscal 2018. Short-term Executive Board remuneration € ‘000 Non-performance-based remuneration Fixed remuneration Fringe benefits (company car, accident insurance) Other payments (pension instalments) Total Performance-based remuneration Direct bonus payment Remuneration for mandates1 Bonus Total Dr. Rolf Martin Schmitz Dr. Markus Krebber Uwe Tigges until 30 April 2017 Total 2018 2017 2018 2017 2018 2017 2018 2017 1,160 960 750 750 20 – 1,180 15 – 975 16 20 300 1,066 255 1,025 1,271 1,168 115 1,386 2,566 138 1,306 2,281 718 180 898 643 203 846 1,964 1,871 – – – – – – – – 250 1,910 1,960 7 85 342 213 – 213 555 36 42 300 2,246 340 2,342 1,989 2,024 295 2,284 4,530 341 2,365 4,707 1 In 2018, the remuneration for exercising intragroup supervisory board offices was fully set off against the bonus. Combined review of operations > Remuneration report 69 Share-based payment according to the Strategic Performance Plan. In fiscal 2018, Rolf Martin Schmitz and Markus Krebber were granted performance shares under the SPP of RWE AG (see the following overview). 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 adjusted net income in fiscal 2018. The target figure (€49 million) was derived from the 2016 medium-term plan and corresponds to an allocation of 100 %. The floor is – €351 million, and the ceiling is €449 million. Similar to adjusted EBIT, a downward adjustment to €233 million was made to the figure actually achieved (€591 million). Accordingly, the allocation was 123 %. The adjustments were made pursuant to the SPP conditions in order to eliminate unplanned exceptional effects. For example, we recognised substantial impairments for power plants in the 2016 consolidated financial statements, which had not been included in the medium-term plan at the time and have resulted in a significant decrease in depreciation. We eliminated this effect on depreciation. Calculation of the 2018 tranche of the Strategic Performance Plan Adjusted net income € million Target achievement % Target Floor Ceiling Actual Adjustments1 Adjusted actual 1 See commentary above. Long-term incentive payment Strategic Performance Plan 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 49 – 351 449 591 – 358 233 100 50 150 – – 123 Dr. Rolf Martin Schmitz Dr. Markus Krebber Year € ‘000 € 2018 RWE AG 2017 RWE AG 2016 RWE AG 2018 RWE AG 2017 RWE AG 2016 RWE AG 1 Jan 2018 1 Jan 2017 1 Jan 2016 1 Jan 2018 1 Jan 2017 1 Jan 2016 1,250 18.80 1,250 11.62 769 13.78 1,100 18.80 988 11.62 247 13.78 66,489 107,573 55,787 58,511 84,983 17,915 31 Dec 2018 31 Dec 2017 31 Dec 2017 31 Dec 2018 31 Dec 2017 31 Dec 2017 % 123 115 115 123 115 115 81,781 123,709 64,155 71,969 97,730 20,602 End of the vesting period 31 Dec 2021 31 Dec 2020 31 Dec 2019 31 Dec 2021 31 Dec 2020 31 Dec 2019 70 RWE Annual Report 2018 Long-term incentive payment Strategic Performance Plan 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 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 (until 30 April 2017) Total Obligations under the former pension scheme. The service cost of pension obligations to Rolf Martin Schmitz amounted to €536,000 in 2018 (previous year: €538,000). This is not a remuneration 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 IFRS amounted to €13,370,000 (previous year: €12,391,000). The present value of the pension obligation determined according to the German Commercial Code totalled €10,534,000 (previous year: €9,287,000). The pension obligation for 2018 increased by €1,248,000 (previous year: decrease of €607,000). Uwe Tigges until 30 April 2017 Year 2018 2017 2016 innogy SE innogy SE innogy SE 1 Jan 2018 1 Jan 2017 1 Jan 2016 € ‘000 € % – – – – – – – 329 32.07 10,264 706 37.13 19,021 31 Dec 2017 31 Dec 2017 88 9,032 88 16,738 31 Dec 2020 31 Dec 2019 2018 2017 1,413 934 – 2,347 592 393 124 1,109 Based on the emoluments qualifying for a pension as of 31 December 2018, the projected annual pension of Rolf Martin Schmitz on retiring from the company as of the expiry of his appointment amounted to €556,000 (unchanged from the previous year). This includes vested pension benefits due from former employers transferred to RWE AG. Combined review of operations > Remuneration report 71 Recommendations of the German Corporate Governance Code According to the version of the 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 remuneration. 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 management 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 irrelevant that the payment will not be made until the following year. 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 Executive Board bonuses are stated in the reporting year in the benefits received table. In the following, we present the compensation of the Executive Board of RWE AG based on the sample tables recommended by the GCGC. Benefits granted € ‘000 Fixed remuneration Pension instalment Fringe benefits Total fixed remuneration One-year variable remuneration Bonus Multi-year variable remuneration SPP 2017 tranche (term: 2017–2020) SPP 2018 tranche (term: 2018–2021) Total variable remuneration Total Service cost Total remuneration Dr. Rolf Martin Schmitz Chief Executive Officer since 15 October 2016 2017 2018 960 – 15 975 1,100 1,100 1,250 1,250 – 2,350 3,325 538 3,863 1,160 – 20 1,180 1,100 1,100 1,250 – 1,250 2,350 3,530 536 4,066 2018 (Min) 1,160 – 20 1,180 0 0 0 – 0 0 1,180 536 1,716 Dr. Markus Krebber Chief Financial Officer since 15 October 2016 2017 2018 750 255 20 750 300 16 2018 (Min) 750 300 16 1,025 1,066 1,066 713 713 988 988 – 1,701 2,726 – 713 713 1,100 – 1,100 1,813 2,879 – 0 0 0 – 0 0 1,066 – 2018 (Max) 750 300 16 1,066 1,283 1,283 2,200 – 2,200 3,483 4,549 – 2,726 2,879 1,066 4,549 2018 (Max) 1,160 – 20 1,180 1,980 1,980 2,500 – 2,500 4,480 5,660 536 6,196 72 RWE Annual Report 2018 Benefits received € ‘000 Fixed remuneration Pension instalment Fringe benefits Total fixed remuneration One-year variable remuneration Bonus1 Multi-year variable remuneration Total variable remuneration Total Service cost Total remuneration Dr. Rolf Martin Schmitz Chief Executive Officer since 15 October 2016 Dr. Markus Krebber Chief Financial Officer since 15 October 2016 2018 1,160 – 20 1,180 1,386 1,386 0 1,386 2,566 536 3,102 2017 960 – 15 975 1,306 1,306 0 1,306 2,281 538 2,819 2018 750 300 16 1,066 898 898 0 898 1,964 – 1,964 2017 750 255 20 1,025 846 846 0 846 1,871 – 1,871 1 The bonus includes remuneration for exercising intragroup supervisory board offices; also see the table ‘Short-term Executive Board remuneration’ on page 68. Combined review of operations > Development of risks and opportunities 73 1.13 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. For instance, we may have to shut down further lignite power plants prematurely in Germany. However, we expect to receive adequate compensation in such an event. Through the envisaged transaction with E.ON, we intend to improve and stabilise our operating earnings power. However, the RWE Group already rests on a solid foundation in both financial and organisational terms. An important part of this foundation is our risk management, which has proven itself over many years, enabling us to identify, assess and control risks and opportunities systematically. Responsibility for risk management at RWE. Responsibility for risk management within the RWE Group lies with two companies: RWE AG, which manages the risks of the companies subordinate to it that do not belong to the innogy Group, and innogy SE, which has been accountable for the management of its own risks and those of its subsidiaries since its IPO in October 2016. This distribution of tasks will remain until the sale of our stake in innogy to E.ON, which we intend to complete in 2019. However, we have adopted a new approach to recording RWE AG’s risk exposure due to innogy. Until the beginning of 2018, we faced a significant risk of our 76.8 % stake in the company losing value as a result of decreasing share prices. Such declines in the share price no longer represent a notable risk because the acquisition of our share in innogy by E.ON was agreed upon at a fixed price. This would only change if the transaction failed, a scenario that has the potential to cause substantial damage, but is unlikely. The following is a detailed presentation of RWE AG’s risk management. Corresponding information regarding our subsidiary innogy can be found in its 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: Controlling & Risk Management (Chair), Finance & Credit Risk, Accounting, Legal and Corporate Business Development. 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, which also reports to the CFO, is tasked with limiting the risk of material misstatements in financial reporting. It has an accounting-related internal control system for this purpose. Our activities for securing the quality of financial reporting are supported by a committee consisting of officers from Accounting and other departments of relevance to accounting. More detailed information can be found 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. • Risks from changes in commodity prices are monitored by RWE Supply & Trading in so far as they relate to the conventional electricity generation, energy trading and gas businesses. • 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. 74 RWE Annual Report 2018 • 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. 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 corporate 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 damage1 Category V Category IV Category III Category II Category I Earnings risks2 Potential impact on net income quantified as a percentage of adjusted EBITDA3 and/or equity4 ≥ 50 % of equity ≥ 100 % of adjusted EBITDA and < 50 % of equity ≥ 40 % and < 100 % of adjusted EBITDA ≥ 20 % and < 40 % of adjusted EBITDA < 20 % of adjusted EBITDA Indebtedness/liquidity/equity risks2 Potential impact on net debt and equity ≥ €8 billion ≥ €4 billion and < €8 billion ≥ €2 billion and < €4 billion ≥ €1billion and < €2 billion < €1 billion 1 Aggregated figure for 2019 to 2021. 2 innogy is not included in the figures as a fully consolidated company, but as a purely financial investment (see page 58). 3 Average for 2019 to 2021 derived from the medium-term plan. 4 Equity as of 30 September 2018 (€18,918 million). Combined review of operations > Development of risks and opportunities 75 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. share the same cause are aggregated to a single risk if possible. We analyse the material 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. 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. 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 We calculate the effects of risks on net income as percentages of adjusted EBITDA and equity. We apply the non-IFRS method in which innogy is recognised as a purely financial investment in calculating these key figures, as set out on page 58. We classify the potential influence on net debt and equity based on fixed threshold values. Risk classes 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 2018 31 Dec 2017 Medium High Medium Medium Medium Medium High Medium High Medium Medium High Medium Low 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. Single risks, to which innogy is exposed and on which we receive reports twice a year, are not recorded here. We currently classify two risks as ‘high’. These are the ‘regulatory and political risks’, the overall assessment of which did not change compared to the previous year, and the ‘other risks’, which were in the ‘low’ category in the prior year and became much more significant in the year under review. The latter is due to the fact that we have recorded the potential failure of the envisaged asset swap with E.ON under ‘other risks’ since 2018. We believe that this is unlikely, but we realise that the damage potential is high. Therefore, we classify this risk as ‘high’. In exchange, the market value risk associated with our financial stake in innogy became of secondary importance. In the previous year, it was classified as ‘high’, with the same therefore applying to the ‘financial risks’ in general. Since then, the highest risks of this class have been ‘medium’. 76 RWE Annual Report 2018 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 attractive and, in some cases, even unprofitable. In such events, we may have to recognise impairments or form provisions. Since 2016, wholesale electricity prices have increased significantly in our most important generation markets, Germany, the United Kingdom and the Netherlands. This was primarily due to the recovery in prices of commodities, especially hard coal and gas. CO2 emission allowances have also become much more expensive. It cannot be ruled out that this trend ends and electricity becomes much cheaper again. However, there is also a chance that wholesale electricity prices continue to rise and that generation margins improve. 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. The increased use of batteries could result in households with photovoltaic units increasingly being self-sufficient in terms of energy, causing a drop in demand for electricity generated using conventional techniques. Conversely, the electrification of the heating and transportation sector would create additional demand. On the supply side, the continued expansion of renewable energy will put wholesale electricity prices under pressure. However, secured generation capacity should continue to drop. Therefore, we expect increasingly frequent periods of shortages with high electricity prices – especially in Germany. 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. 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. In compliance with risk thresholds, 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 with third parties are concluded only if the associated 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 the price risks of commodity positions in the trading business of RWE Supply & Trading may not rise above €40 million. In the past financial year, it averaged €12 million (previous year: €10 million), and the daily maximum was €19 million (previous year: €15 million). In addition, limits derived from the aforementioned VaR thresholds have been set for every 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. Combined review of operations > Development of risks and opportunities 77 In the middle of 2017, we pooled the management of our gas portfolio and the 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 in 2018 was €4 million (previous year: €3 million), and the daily maximum was €7 million (previous year: €4 million). 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 2019, only minor market price risks remain for this year. Opportunities for additional profits arise, because we are able to adapt our power plant deployment to short-term market developments flexibly. To a certain extent, financial instruments used to hedge commodity positions are considered through the statement of 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 on page 142 et seqq in the Notes to the consolidated financial statements. In the UK generation business, our earnings depend not only on the development of the price of electricity, fuel and emission allowances, but also on the level of the payments we receive for participating in the national capacity market. The capacity payments are determined in annual auctions. Major differences can occur depending on supply and demand. In the auctions held so far, the range has been between €6.95/kW (2017/2018) and €22.50/kW (2020/2021; before adjusting for inflation). However, as set out on page 36 et seq., the UK capacity market has been suspended for the time being and must be approved again by the European Commission. 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 dependent on a stable, reliable framework. Stricter emissions thresholds for the electricity sector can result in massive declines in earnings, if the transition periods are too short and power plants have to be taken offline early. In the lignite industry, this could also have negative effects on the upstream opencast mines. This kind of risk emanates, inter alia, from the German Climate Action Plan 2050. According to the Plan, by 2030 the energy sector must lower its emissions by more than 60 % compared to the level of 1990. In January 2019, the Growth, Structural Change and Employment Commission charged by the federal government submitted recommendations on how to accomplish this in detail (see page 33). The body speaks out in favour of phasing out electricity generation from coal-fired power plants in Germany by 2038. It also envisages further stations being shut down or converted for alternative fuel firing by the end of 2022. We expect the federal government to follow the Commission’s recommendations and demand that we close further lignite units. We cannot make any forecasts regarding the extent or timing of the burdens that we will be facing until the federal government has submitted specific plans after speaking with us. It is still unclear when this will happen. However, we firmly believe that we will receive adequate compensation for the revenue shortfalls and the additional costs. In addition, we see that the framework conditions for the lignite business could become more reliable. In the Netherlands, the new government aims to phase out electricity generation from coal by 2030 and submitted a draft law for this purpose in May 2018 (see page 33 et seq.). It envisages that we shut down or completely convert our Amer 9 and Eemshaven power stations for biomass firing by the end of 2024 and the end of 2029, respectively. This is still pending a decision by parliament. Earnings could be curtailed significantly if the government implemented its plans. In such an event, we would endeavour to ensure that we received appropriate compensation and take legal recourse if necessary. 78 RWE Annual Report 2018 In addition to the exit from coal, the Dutch government seeks to introduce a CO2 tax (see page 34). The levy is to supplement the European Emissions Trading System and ensure a minimum price of carbon dioxide emissions from power stations. This could lead to substantial disadvantages for Dutch power plant operators. Furthermore, there is a danger that security of supply might be jeopardised. In dialogue with policymakers, the energy companies have pointed out that these risks exist and that prices in European emission allowance trading are already high. Despite this, the politicians have not abandoned this plan. However, they now intend to establish lower carbon price floors. Even in Germany, where the matter is not currently on the political agenda, we are in favour of renouncing imposing additional burdens on utilities through national CO2 levies. We are also exposed to risks in the field of nuclear energy, albeit to a much lesser extent than in the past. Since we made contributions to the German nuclear energy fund in the middle of 2017, the state has assumed complete responsibility for interim and final storage. However, we are still exposed to cost risks associated with disposal tasks which remain within our remit. For example, it cannot be ruled out that the dismantling of nuclear power stations will be more expensive than estimated and we will therefore have to establish higher provisions. However, we also have the opportunity to leverage synergies and cut costs. Furthermore, we face the risk that our power plants which are still in operation become less profitable or indeed unprofitable if safety standards become stricter. However, since the safety standards of nuclear power stations in Germany are already very high, we feel that this is unlikely. being. Theoretically, it is possible that the payments will be resumed with a substantial delay or not at all. There is also a chance that the European Commission will conclude its investigation this year and approve the capacity market retroactively. In the best case scenario, the capacity payments would be resumed immediately and the suspended payments would be refunded retrospectively. Even in the present political environment, we are exposed to risks associated, for instance, with approvals when building and operating production facilities. This particularly affects our opencast mines and power stations. The danger here is that approvals are granted late or not at all and that granted approvals are withdrawn temporarily or for good. One example is the preliminary halt to the clearance of Hambach Forest ordered by the Münster Higher Administrative Court. As set out on page 36, this will curtail our earnings from electricity generation from lignite for several years. We are doing everything we can to see to it that the pending lawsuits are concluded as quickly as possible and the delays in the operation of our opencast mine are minimised. However, it has since become likely that the German government will become active and aim for a political solution. In doing so, it would lean on the final report by the Growth, Structural Change and Employment Commission, which deems the preservation of Hambach Forest desirable. We continue to classify our regulatory and political risks as ‘high’. We ascribe the greatest importance to the potential burdens resulting from an accelerated coal phase-out, the introduction of CO2 taxes and an extended or permanent halt to the clearance of Hambach Forest. In November 2018 the General Court of the Court of Justice of the European Union repealed the approval granted for the UK capacity market by the European Commission, because it had not been preceded by a comprehensive investigation. Until this requirement has been complied with, there is a ban on capacity payments – even under existing agreements. This curtailed our EBITDA by €50 million in 2018, and we have not included any capacity payments in our plans for 2019 for the time • 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 development of market interest rates, foreign exchange rates, share prices and collateral pledged for forward transactions can have a significant effect on our financial position. As set out earlier, our greatest financial risk until the beginning of 2018 was the potential decline in the market value of our stake in innogy. This risk has become much less important because we agreed the sale of the shareholding to E.ON at a fixed price. However, the remaining shares in our financial portfolio are still exposed to the risk of decreases in value. The average VaR for the share price risk of these stocks (without innogy) in 2018 was €5 million (previous year: €2 million). • 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 classify our operating risks as ‘medium’. 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 €3 million on average at RWE AG (previous year: €5 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 in 2018 and the previous year was €3 million. 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, all other things being equal, provisions rise when market interest rates fall and vice versa. 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 2018, the average VaR for RWE AG’s foreign currency position was less than €1 million. The same applies to the prior year. 80 RWE Annual Report 2018 Collateral pledged for forward transactions can have a significant effect on our liquidity. Its level is determined by the extent to which the contractually agreed prices deviate from current market quotations. These differences can be substantial, especially on volatile markets. In recent times, the prices of commodities of importance to us have fluctuated considerably, in particular those of CO2 emission allowances. This development exposes us to risks. However, this also increases the probability of receiving substantial collateral from contracting parties, resulting in a temporary increase in our equity. 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 in part dependent on the credit ratings we receive from international rating agencies. As set out on page 53, 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, which can result in additional costs if we have to raise debt capital. This would probably also make it more expensive to pledge collateral for forward transactions. We classify our financial risks as ‘medium’ as opposed to ‘high’ in the previous year. The improved classification results from the aforementioned decline in the share price risk of our stake in innogy. • 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. It also encompasses the possibility of planned acquisitions or divestments not being implemented, for example owing to regulatory requirements. Our single- largest risk in this category is the potential failure of the planned asset swap with E.ON. We endeavour to ensure that the transaction is executed as planned by maintaining intense dialogue with the parties involved and preparing and supporting the approval processes carefully. Negative developments after the successful completion of the asset swap cannot be ruled out, either. For instance, the integration of the assets that we receive from E.ON and are returned to us from the innogy portfolio may prove more difficult than anticipated. Furthermore, the operational development of these activities may lag behind expectations. As far as legally possible, we are already seeing to it that the new assets are integrated into RWE successfully and have taken the first staffing and organisational measures necessary to continue managing these activities successfully in the future. Despite legal and economic imponderables, we deem it improbable that the asset swap with E.ON will fail. Should this occur nevertheless, it would have extremely negative ramifications. In consequence, we classify this risk as high, and therefore the entire ‘other risks’ class as well (previous year: ‘low’). Combined review of operations > Development of risks and opportunities 81 • Risks related to innogy – continuing operations. As set out earlier, our subsidiary innogy manages its risks independently. The parent company RWE AG is informed of the subsidiary’s risk exposure once every six months. If the asset swap with E.ON is executed as planned, the risks and opportunities relating to the innogy assets that will be transferred to E.ON will no longer affect RWE as they will be transferred with retrospective economic effect to 1 January 2018. The developments at innogy relating to the renewable energy business, gas storage and the minority interest in Austria-based Kelag are still of importance to us. Earnings in the renewable energy business strongly depend on state subsidy schemes. Here, there is a risk that the realisable compensation declines and new projects cease to be attractive. This can lead to investment undertakings 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 determined by wholesale electricity prices. This applies for example to wind farms when subsidies have expired. If such risks materialise, impairments may have to be recognised for these plants or they may be sold below their carrying amount. However, these plants can earn unexpectedly high returns if wholesale electricity prices increase. The margins realisable in the gas storage business partially depend on seasonal differences in the price of gas. Significant differences enable substantial income to be achieved. Conversely, shrinking price gaps can lead to earnings shortfalls and impairments. innogy monitors these and its other risks continuously and takes countermeasures where necessary. The company provides more detailed information on its risk management system and the material risks and opportunities in its current annual report. RWE’s risk and opportunity situation: general assessment by management. As demonstrated by the contents of this chapter, RWE’s risk exposure is largely influenced by economic and regulatory framework conditions and the implementation of the asset swap with E.ON. Regulatory risks arise inter alia from the recommendations of the Growth, Structural Change and Employment Commission. We anticipate that the German government will follow the proposals and that we will therefore have to shut down further lignite units prematurely. However, we firmly believe that we will receive adequate compensation for the economic damage. In addition, it is possible that the framework conditions for the lignite business become more reliable. We are also exposed to regulatory risks outside Germany. Of notable mention in this context is the uncertainty surrounding the continuation of the UK capacity market. The plans of the Dutch government to phase out coal in the coming decade and introduce a carbon floor price also expose us to risks. We are raising awareness of the consequences of such intervention and are lobbying for a reliable regulatory framework. We have not identified any material risks for RWE arising from the impending exit of the United Kingdom from the EU, even in the event of a hard Brexit. Market conditions in electricity generation have a significant influence on our earnings. German wholesale prices are currently far above the record low at the beginning of 2016, in part because prices of fuel such as hard coal and gas have increased. Should these trends reverse and electricity prices drop sharply once again, significant earnings shortfalls are possible, which may lead to a downgrade of our credit rating and additional collateralisation of hedging trading transactions. However, prices may continue to trend upwards and generation margins may improve. Such a development may also be driven by the German nuclear phase-out, because additional power plant closures cause reliably available generation capacity to become tighter. 82 RWE Annual Report 2018 The envisaged asset swap with E.ON will enable us to broaden our operational setup and thus better cushion the risks of conventional electricity generation. The transaction will also make us stronger financially. Therefore, its failure would have a negative impact. We are confident of being able to complete the asset swap this year. With ambitious efficiency-enhancement 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 the Debt Issuance Programme, the Commercial Paper Programme and the syndicated credit line. 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. 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 and misrepresentations 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 our groupwide guidelines. Building on this, minimum requirements for the accounting-related IT systems are designed to ensure the reliability of data collection and processing. RWE AG is responsible for the design and monitoring of the ICS. These tasks are performed by the Accounting Department, adhering to a groupwide set of rules. On top of this, we created the ICS Committee. Its objective is to ensure that the ICS is applied throughout the Group following uniform principles and meeting high ambitions in terms of correctness and transparency. The Committee consists of representatives from the Accounting, Controlling & Risk Management and Internal Auditing & Compliance departments, along with officers from the areas of human resources, procurement, trading, finance, taxes and IT, all of whom play an important role in accounting. 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 pertain to accounting-related processes, e. g. the receipt and processing of invoices in our service centre in Cracow, the preparation of financial statements or consolidation, they are conducted by employees from the Accounting Department. The representatives of the finance, human resources, procurement, trading and IT functions document 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 2018 once again demonstrated that the ICS is effective. 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 take a half-year and full-year balance-sheet oath, confirming that the prescribed accounting standards have been adhered to and that the financial statements 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. Combined review of operations > Outlook 83 1.14 OUTLOOK Our generation margins will probably improve somewhat in fiscal 2019. Furthermore, electricity generation from wind is expected to increase substantially, resulting in a significant rise in earnings from the renewable energy business of our subsidiary innogy. However, we also anticipate curtailments, for example due to the temporary halt to the clearance of Hambach Forest and the suspension of payments from the UK capacity market. Based on current planning, our adjusted EBITDA will total between €1.4 billion and €1.7 billion this year. This forecast relates to RWE’s continuing operations. We are confident of being able to complete the asset swap with E.ON this year. However, this forecast does not consider the impact on earnings stemming from the completion of the transaction. Experts predict weaker growth. Based on initial forecasts, the global economy will expand by approximately 2.5 % in 2019, which would be less than last year. Economic prospects also clouded in the Eurozone, with estimated growth of some 1.5 %. Experts anticipate a similar gain in Germany, whereas growth in the Netherlands may well once again exceed the average of the Eurozone countries. The development of gross domestic product in the United Kingdom largely depends on an orderly Brexit, in which case the country could post an increase of 1.5 %. Power consumption likely to be stable in Germany and the UK. Our forecast for this year’s electricity usage is based on the economy’s assumed development. If it grows as expected, demand for electricity should be roughly flat in Germany and the United Kingdom. Positive economic stimulus will probably be contrasted once again by the dampening effects of energy savings. In view of the slightly stronger economic expansion in the Netherlands, we expect the country’s electricity consumption to post a marginal rise. Adjusted EBITDA forecast € million RWE Group of which: Lignite & Nuclear European Power Supply & Trading innogy - continuing operations Electricity production for 2019 nearly completely sold forward. The development of commodity prices will depend on a number of factors that are nearly impossible to predict. At any rate, this would only have a minor impact on our earnings this year, as we have sold forward nearly all of our electricity generation for 2019 and secured the prices of the required fuel and CO2 emission allowances. These transactions have been concluded up to three years in advance. Therefore, the realised electricity prices do not reflect current market prices, which are much higher than in 2016. The price realised for 2019 for the electricity generated by our German lignite-fired and nuclear power stations, which we sold forward with especially long lead times, was slightly higher year on year. 2018 actual Outlook for 2019 1,538 356 334 183 699 1,400–1,700 300–400 250–350 100–300 800–900 Adjusted EBITDA in 2019: range of €1.4 billion to €1.7 billion expected. The upward trend of realised electricity prices will have a positive effect on earnings in 2019. Additional income is anticipated in the renewable energy business due to the commissioning of new generation capacity. Earnings contributed by existing stations would rise, assuming normalised wind conditions. Burdens will be imposed by the court rulings on Hambach Forest and the UK capacity market (see page 36 et seq.). Based on our current planning for 2019, the RWE Group’s adjusted EBITDA will range from €1.4 billion to €1.7 billion (2018: €1.5 billion). In light of the expected depreciation and amortisation of about €1 billion, adjusted EBIT is anticipated to be in the order of €0.4 billion to €0.7 billion. As mentioned elsewhere in this report, adjusted EBITDA and adjusted EBIT exclude material non-operating and aperiodic effects. The latter are assigned to the non-operating result, the components of which are presented in the reporting on actuals on page 47. 84 RWE Annual Report 2018 The aforementioned forecast ranges only relate to continuing operations. They do not consider the potential impact on earnings of a completion of the transaction with E.ON, which is scheduled for this year. However, we would recognise book gains from this transaction in the non-operating result. Likewise, the outlook does not take account of a potential coal phase-out ordered by the government as it is currently impossible to make a reliable assessment of its effects. In addition, we assume that payments on the UK capacity market will not resume this year. We anticipate that earnings will develop as follows at the segment level: • Lignite & Nuclear: Here, adjusted EBITDA should range between €300 million and €400 million. As mentioned earlier, we have already placed most of this year’s electricity production on the market. In sum, the margins we achieved were slightly higher than those for 2018. By contrast, the temporary halt to the clearance of Hambach Forest will reduce earnings. We estimate that the curtailment will amount to between €100 million and €200 million per year for 2019 to 2021. Thanks to optimised processes, we are confident that the earnings shortfalls will be at the lower end of this range in 2019. • European Power: Adjusted EBITDA recorded by this segment is expected to total between €250 million and €350 million. This assumes that we will not receive any capacity payments in the United Kingdom this year. About €180 million had been secured for 2019 in earlier auctions, which we have disregarded in our planning due to the suspension of the capacity market. • Supply & Trading: We anticipate that we will be able to achieve average adjusted EBITDA in the order of €200 million per year in this segment in the long run. It is highly probable that it will range from €100 million to €300 million, which is what we expect for 2019 as well. • innogy – continuing operations: In this segment, adjusted EBITDA is likely to close the year between €800 million and €900 million. Compared to last year (€699 million) this would represent a significant increase, which would primarily be attributable to the renewable energy business. Assuming that wind conditions in 2019 are in line with the long-term average, the usage of the UK and Central European wind farms will be much higher than in 2018. Commissioning new generation capacity will also have a positive impact on earnings. Furthermore, renewable generation assets, which are not subsidised through fixed feed-in payments, should benefit from the rise in wholesale electricity quotations. Capital expenditure in 2019 markedly up year on year. According to current planning, capital expenditure this year is likely to be much higher than in 2018 (€1.3 billion). We expect a considerable increase to be posted by innogy’s continuing operations (last year: €0.7 billion): the construction of the Triton Knoll offshore wind farm in the UK and the Limondale solar farm in Australia will increase expenditure. In conventional power generation, we anticipate spending capital in the order of €0.5 billion on property, plant and equipment, primarily on the maintenance and modernisation of power plants and opencast mines. A small portion of these funds is earmarked for growth projects, e. g. the conversion of our Dutch hard coal-fired power stations to biomass co-firing. Significant rise in net debt expected. The net debt of the RWE Group’s continuing operations, which totalled €4.4 billion at the end of 2018, is likely to rise substantially in the fiscal year underway. As set out on page 53, last year was characterised by high cash inflows from variation margins relating to forward transactions involving CO2 certificates and other commodities. Once the contracts are realised, some of which mature in 2019, the effects will be reversed. The rise in investing activity will also be reflected in net debt. Outlook for the RWE Group with innogy as a purely financial investment. For management purposes, we also use Group figures in which innogy is considered as a purely financial investment. On the income statement, our subsidiary is only reflected based on the dividend to which RWE is entitled. Further details on how these figures are calculated can be found on page 58. Applying this method, our adjusted EBITDA is expected to total between €1.2 billion and €1.5 billion in fiscal 2019 (last year: €1.5 billion). Net income adjusted for aperiodic and non-operating effects is anticipated to range from €0.3 billion to €0.6 billion (last year: €0.6 billion). Responsibility statement 85 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, 27 February 2019 The Executive Board Schmitz Krebber 03 Consolidated financial statements 88 RWE Annual Report 2018 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 from continuing operations before tax Taxes on income Income from continuing operations Income from discontinued operations Income of which: non-controlling interests of which: RWE AG hybrid capital investors’ interest Note (1) (1) (1) (2) (3) (4) (5), (10) (6) (7), (12) (7) (8) (8) (9) of which: net income/income attributable to RWE AG shareholders Basic and diluted earnings per common and preferred share in € (25) of which: from continuing operations in € of which: from discontinued operations in € 1 Prior-year figures adjusted. 2018 13,529 141 13,388 931 10,237 1,895 948 950 211 −42 472 881 49 103 −54 1,127 1,073 679 59 335 0.54 −0.32 0.86 2017¹ 13,953 131 13,822 3,256 10,029 1,848 1,330 1,909 137 20 1,545 1,608 2,056 333 1,723 592 2,315 373 42 1,900 3.09 2.77 0.32 Consolidated financial statements > Statement of comprehensive income 89 3.2 STATEMENT OF COMPREHENSIVE INCOME Figures stated after taxes – € million Income Note 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) (12) Fair valuation of equity instruments 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 debt instruments Fair valuation of financial instruments used for hedging purposes (20) (26) (26) Income and expenses of investments accounted for using the equity method (pro rata) (12), (20) 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 2018 1,073 −1,183 13 −105 −1,275 −8 −18 3,170 −1 3,143 1,868 2,941 2,350 59 532 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 2018 3.3 BALANCE SHEET Assets € million Non-current assets Intangible assets Property, plant and equipment 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 2018 31 Dec 2017 (10) (11) (12) (13) (14) (15) (16) (17) (14) (15) (18) (19) Note (20) (22) (23) (24) (16) (22) (23) (24) 2,193 12,409 1,467 400 110 946 246 824 12,383 24,947¹ 2,846 1,109 359 1,187 236 2,627 18,595 45,694 1,631 2,782 1,963 7,408 101 3,609 3,523 40,496 61,513 80,108 1,924 1,745 5,405 4,892 445 4,893 3,933 128 23,365 69,059 31 Dec 2018 31 Dec 2017 8,736 940 4,581 14,257 15,863 1,998 508 1,638 20,007 2,615 766 2,429 38 7,200 32,796 45,844 80,108 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 1 Figure adjusted because investment property (carrying amount as of 31 December 2017: €43 million) has been subsumed under property, plant and equipment. Note (29) Consolidated financial statements > 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 of continuing operations Cash flows from operating activities of discontinued operations Cash flows from operating activities Intangible assets/property, plant and equipment 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 of continuing operations (before initial/subsequent transfer to plan assets) Initial /subsequent transfer to plan assets Cash flows from investing activities of continuing operations (after initial/subsequent transfer to plan assets) Cash flows from investing activities of discontinued operations 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 of continuing operations Cash flows from financing activities of discontinued operations 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 1 Prior-year figures adjusted. 91 2017¹ 1,723 968 − 6,878 81 − 90 225 200 − 3,771 2,017 − 1,754 − 685 168 − 217 66 4,442 3,774 − 24 3,750 − 1,059 2,691 − 5 − 159 130 − 963 − 997 − 539 − 1,536 − 599 − 19 − 618 4,576 4,576 3,958 25 3,933 2018 − 54 958 − 418 − 97 − 6 − 245 4,473 4,611 2,037 6,648 − 1,050 35 − 196 39 − 1,704 − 2,876 − 123 − 2,999 − 1,405 − 4,404 721 − 1,025 1,580 − 2,835 − 1,559 569 − 990 1,254 13 1,267 3,958 25 3,933 5,225 1,702 3,523 92 RWE Annual Report 2018 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 (20) RWE AG share- holders’ interest RWE AG hybrid capital investors’ interest Total Non-con- trolling interests Accumulated other Comprehensive Income Currency trans- lation adjust- ments Fair value measure- ment of financial instruments Used for hedging purposes Available for sale1/debt instruments measured at fair value through other com- prehensive income Balance at 1 Jan 2017 1,574 2,385 – 652 165 59 – 777 2,754 942 4,294 Capital paid out Dividends paid2 Income Other comprehensive income Total comprehensive income Other changes – 5 1,900 1,110 3,010 14 139 139 Balance at 31 Dec 2017 1,574 2,385 2,367 304 Initial adoption of IFRS 9 Initial adoption of IFRS 15 47 – 21 – 5 1,900 813 2,096 813 3,996 14 36 6,759 – 15 – 21 34 34 93 – 62 – 60 42 42 16 940 7,990 – 45 – 545 2,315 – 45 – 480 373 186 2,282 559 – 36 4,597 – 6 4,292 11,991 – 4 – 5 – 19 – 26 Balance at 1 Jan 2018 1,574 2,385 2,393 304 31 36 6,723 940 4,283 11,946 Capital paid out Dividends paid2 Income Other comprehensive income Total comprehensive income Other changes Balance at 31 Dec 2018 1,574 2,385 – 922 335 – 1,126 – 791 459 1,139 – 19 – 19 285 – 922 335 – 60 59 – 29 – 506 679 – 29 – 1,488 1,073 – 14 3,174 2,015 – 147 1,868 – 14 3,174 126 17 3,336 2,350 585 8,736 59 1 940 532 301 2,941 887 4,581 14,257 1 Changes in the ‘Financial assets available for sale’ category stated for the last time in fiscal 2017 in accordance with IAS 39. Starting in fiscal 2018, changes in the ‘Debt instruments measured at fair value through other comprehensive income’ category are stated instead due to the application of IFRS 9. 2 Following reclassification of non-controlling interests to other liabilities as per IAS 32 and to liabilities held for sale. Consolidated financial statements > Notes 93 3.6 NOTES Basis of presentation RWE AG, headquartered at Altenessener Straße 35 in 45141 Essen, These consolidated financial statements were prepared for the fiscal Germany, is the parent company of the RWE Group (‘RWE’ or ‘Group’). year from 1 January to 31 December 2018. RWE is a supplier of electricity and natural gas in Europe. The consolidated financial statements for the period ended completeness and accuracy of the consolidated financial statements 31 December 2018 were approved for publication on 27 February and the Group review of operations, which is combined with the The Executive Board of RWE AG is responsible for the preparation, 2019 by the Executive Board of RWE AG. The statements were review of operations of RWE AG. prepared in accordance with the International Financial Reporting Standards (IFRSs) applicable in the EU, as well as in accordance We employ internal control systems, uniform groupwide directives, with the supplementary accounting regulations applicable pursuant and programmes for basic and advanced staff training to ensure to Sec. 315e, Para. 1 of the German Commercial Code (HGB). The previ- that the consolidated financial statements and combined review of ous year’s 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 viability A statement of changes in equity has been disclosed in addition to of the control systems are continuously monitored throughout the the income statement, the statement of comprehensive income, 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 combined 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 expense The consolidated financial statements, the combined review of oper- method. ations, and the independent auditors’ report are discussed in detail by the Audit Committee and at the Supervisory Board’s meeting The consolidated financial statements have been prepared in euros. on 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 2018 Scope of consolidation In addition to RWE AG, the consolidated financial statements contain The number of companies accounted for using the equity method all material German and foreign companies which RWE AG controls decreased primarily due to the asset swap agreed upon with E.ON directly or indirectly. In determining whether there is control, in and the associated assignment to ‘discontinuing operations’. addition to voting rights, other rights in the company contracts or articles of incorporation and potential voting rights are also taken Furthermore, six companies are presented as joint operations (previous into consideration. year: six). Of these, Greater Gabbard Offshore Winds Limited, UK, is a material joint operation of the RWE Group. Greater Gabbard holds Material associates are accounted for using the equity method, and a 500 MW offshore wind farm, which innogy operates together with principal joint arrangements are accounted for using the equity Scottish and Southern Energy (SSE) Renewables Holdings. Innogy method or as joint operations. Renewables UK owns 50 % of the shares and receives 50 % of the power generated (including green power certificates). The wind farm Associates are companies on which RWE AG exercises a significant is a key element in the offshore portfolio of the segment innogy – influence on the basis of voting rights between 20 % and 50 % or continuing operations. on the basis of contractual agreements. In classifying joint arrange- ments which are structured as independent vehicles, as joint opera- First-time consolidation and deconsolidation generally take place tions, or as joint ventures, other facts and circumstances – in particular delivery relationships between the joint arrangement and the parties when control is transferred. participating in such – are taken into consideration, in addition to In total, sales of shares which led to a change of control resulted the legal form and contractual agreements. in sales proceeds from disposals amounting to –€46 million, which Investments in subsidiaries, joint ventures, joint operations or asso- Of this, €14 million pertained to the remeasurement of remaining were reported in other operating income (previous year: €19 million). ciates which are of secondary importance from a Group perspective shares. are accounted for in accordance with IFRS 9. The list of Group shareholdings pursuant to Sec. 313, Para. 2 of the other business units which resulted in a change of control, purchase German Commercial Code (HGB) is presented on page 160 et seqq. prices amounted to €27 million (previous year: €159 million) and sales prices amounted to €13 million (previous year: €5 million). The following summaries show the changes in the number of fully As in the previous year, all sales prices were paid in cash. In the year consolidated companies, investments accounted for using the under review, all purchase prices were paid in cash. In the previous Within the framework of purchases and sales of subsidiaries and equity method, and joint ventures: Number of fully consolidated companies 1 Jan 2018 First-time consolidation Deconsolidation Mergers 31 Dec 2018 Number of companies accounted for using the equity method 1 Jan 2018 Acquisitions Other changes 31 Dec 2018 Germany Abroad Total in the previous year, cash and cash equivalents (excluding ‘Assets year, purchase prices in the amount of €134 million were paid in cash and €25 million in liabilities were assumed. In relation to this, 142 6 – 3 – 4 141 199 63 – 10 – 37 215 341 69 – 13 – 41 356 held for sale’) were acquired in the amount of €25 million and were disposed of in the amount of €5 million. Disposals Mátra RWE Power sold Hungary-based Mátrai Erőmű ZRt. (Mátra) to a consortium in the middle of December 2017. The transaction was Germany Abroad Total completed in March 2018. Mátra had been assigned to the 72 – 63 9 18 2 – 8 12 90 2 – 71 21 ‘Lignite & Nuclear’ segment. As of 31 December 2017, the assets and liabilities of this company were stated as ‘held for sale’ on the balance sheet. The deconsolidation loss amounts to €46 million and was recognised in other operating expenses. Consolidated financial statements > Notes 95 Triton Knoll On 13 September 2018, innogy sold a 41 % stake in the UK offshore Key figures of discontinued operations € million 31 Dec 2018 wind project Triton Knoll, in which innogy was the sole shareholder until that date. The sale increased RWE AG shareholders’ equity by €472 million. Since the sale of the stake, innogy has held a 59 % interest and thus retained control of the project. Triton Knoll is assigned to the innogy – continuing operations segment. Non-current assets Intangible assets Property, plant and equipment Other non-current assets Discontinued operations Current assets Asset swap with E.ON On 12 March 2018, RWE AG and E.ON SE reached a contractual agreement to transfer the 76.8 % majority stake in innogy held by RWE to E.ON as part of an extensive exchange of operations and shareholdings. The innogy assets that are to be transferred to E.ON over the long term have been stated as ‘discontinued operations’ since 30 June 2018. This mainly relates to the grid and retail busi- ness, which has been assigned to the ‘innogy’ segment thus far. By contrast, due to contractual arrangements RWE will retain control over the main activities of the innogy operations remaining with Non-current liabilities Provisions Financial liabilities Other non-current liabilities Current liabilities RWE over the long term (the renewables business, the gas storage business and the interest in Austria-based power utility Kelag). Key figures of discontinued operations € million Furthermore, as RWE is entitled to the results of the development Revenue1 of the value of these operations, they will remain fully consolidated at RWE and stated as continuing innogy operations in segment reporting. The transaction values the 76.8 % stake in innogy held by RWE including the dividends of innogy SE for fiscal 2017 and 2018 totalling €3.24 per share, to which RWE remains entitled, at €40.00 per share. The transaction volume thus amounts to about €17.1 billion. The Supervisory Board of RWE AG has approved the sale. The trans- Other income2 Expenses3 Income of discontinued operations before tax Taxes on income Income of discontinued operations 1 Including income with continuing operations in the amount of €2,570 million action is subject to authority approvals and is envisaged to close by (previous year: €2,283 million). the end of 2019. 2 Including income with continuing operations in the amount of €266 million (previous year: €409 million). 3 Including expenses with continuing operations in the amount of €13,835 million The elimination bookings within the scope of the consolidation (previous year: €11,282 million). of expenses and income for the intragroup deliveries and services existing so far, which will be continuing either with innogy or with third parties after the deconsolidation of the innogy assets that are The first-time application of IFRS 15 involved identifying issues, in to be transferred, were fully assigned to the discontinued operations. which companies belonging to the innogy – discontinued operations segment qualify as agents pursuant to IFRS 15 instead of as principals Major key figures of the activities of the discontinued innogy opera- pursuant to IAS 18. This is primarily because under IFRS 15, the tions are presented in the following tables: credit risk no longer constitutes an indicator for principal presentation. Pursuant to IFRS 15, payments received from the transmission system operator under the direct marketing and feed-in model of the German Renewable Energy Act are thus no longer recognised as revenue. In fiscal 2018, this caused revenue and the cost of ma- terials within income from discontinued operations to decline by €5.1 billion. This did not have an impact on earnings. 10,716 14,000 5,363 30,079 10,417 4,557 14,147 3,065 21,769 11,027 2018 2017 34,077 1,503 33,877 1,703 576 1,127 39,060 1,088 39,148 1,000 409 591 96 RWE Annual Report 2018 Accumulated other comprehensive income from discontinued opera- Expenses and income as well as receivables and payables between tions amounted to – €773 million (previous year: – €730 million). consolidated companies are eliminated; intra-group profits and losses are eliminated. Of the share of total comprehensive income attributable to RWE AG shareholders, €2,267 million (previous year: €4,159 million) were For investments accounted for using the equity method, goodwill is allocable to continuing operations and €83 million (previous year: not reported separately, but rather included in the value recognised – €163 million) were allocable to discontinued operations. for the investment. In other respects, the consolidation principles The impairment test performed for the discontinued operations as equity value become necessary, we report such under income from a whole in accordance with IFRS 5 as of 31 December 2018 did not investments accounted for using the equity method. The financial reveal a need for impairment. statements of investments accounted for using the equity method described above apply analogously. If impairment losses on the Consolidation principles are prepared using uniform accounting policies. For joint operations, the assets and liabilities and the expenses and income of the companies which are attributable to RWE are The financial statements of German and foreign companies included reported. In the event that RWE’s shareholding differs from the in the scope of the Group’s financial statements are prepared using share of the output from the activity to which RWE is entitled (share uniform accounting policies. On principle, subsidiaries whose fiscal years do not end on the Group’s balance-sheet date (31 December) of output), the assets, liabilities, expenses and revenue are recognised in accordance with the share of output. prepare interim financial statements as of this date. Three subsidiaries have a different balance-sheet date of 31 March (previous year: three). Different fiscal years compared to the calendar year stem from tax-related reasons or country-specific regulations. Foreign currency translation In their individual financial statements, the companies measure Business combinations are reported according to the acquisition non-monetary foreign currency items at the balance-sheet date method. This means that capital consolidation takes place by offset- using the exchange rate in effect on the date they were initially ting the purchase price, including the amount of the non-controlling recognised. Monetary items are converted using the exchange rate interests, against the acquired subsidiary’s revalued net assets at valid on the balance-sheet date. Exchange rate gains and losses the time of acquisition. In doing so, the non-controlling interests from the measurement of monetary balance-sheet items in foreign can either be measured at the prorated value of the subsidiary’s currency occurring up to the balance-sheet date are recognised on identifiable net assets or at fair value. The subsidiary’s identifiable the income statement. assets, liabilities and contingent liabilities are measured at full fair value, regardless of the amount of the non-controlling interests. Functional foreign currency translation is applied when converting Intangible assets are reported separately from goodwill if they are the financial statements of companies outside of the Eurozone. As separable from the company or if they stem from a contractual or the principal foreign enterprises included in the consolidated financial other right. In accordance with IFRS 3, no new restructuring provi- statements conduct their business activities independently in their sions are recognised within the scope of the purchase price alloca- national currencies, their balance-sheet items are translated into euros tion. If the pur-chase price exceeds the revalued prorated net assets in the consolidated financial statements using the average exchange of the acquired subsidiary, the difference is capitalised as goodwill. rate prevailing on the balance-sheet date. This also applies for good- If the purchase price is lower, the difference is included in income. will, which is viewed as an asset of the economically autonomous In the event of deconsolidation, the related goodwill is derecog- other comprehensive income without an effect on income. Expense nised with an effect on income. Changes in the ownership share and income items are translated using annual aver- age exchange which do not alter the ability to control the subsidiary are recognised rates. When translating the adjusted equity of foreign companies without an effect on income. By contrast, if there is a change in accounted for using the equity method, we follow the same procedure. foreign entity. We report differences to previous-year translations in control, the remaining shares are revalued with an effect on income. Consolidated financial statements > Notes 97 The following exchange rates (among others) were used as a basis for foreign currency translations: Exchange rates in € 1 US dollar 1 pound sterling 100 Czech korunas 1 Polish zloty Accounting policies Average Year-end 2018 0.85 1.13 3.89 0.23 2017 0.88 1.14 3.80 0.24 31 Dec 2018 31 Dec 2017 0.87 1.12 3.89 0.23 0.83 1.13 3.92 0.24 Intangible assets are accounted for at amortised cost. With the exception of goodwill, all intangible assets have finite useful lives An impairment loss is recognised for an intangible asset if the recov- erable amount of the asset is less than its carrying amount. A special and are amortised using the straight-line method. Useful lives and meth-ods of amortisation are reviewed on an annual basis. regulation applies for cases when the asset is part of a cash-generating unit. Such units are defined as the smallest identifiable group of assets which generates cash inflows; these inflows must be largely Software for commercial and technical applications is amortised independent of cash inflows from other assets or groups of assets. over three to five years. ‘Operating rights’ refer to the entirety of If the intangible asset is a part of a cash-generating unit, the impair- the permits and approvals required for the operation of a power ment loss is calculated based on the recoverable amount of this plant. Such rights are generally amortised over the economic life of unit. If goodwill was allocated to a cash-generating unit and the the power plant, using the straight-line method. Easement agree- carrying amount of the unit exceeds the recoverable amount, the ments in the electricity and gas business, and other easement rights, allocated goodwill is initially written down by the difference. Impair- usually have useful lives of 20 years. Concessions in the water busi- ment losses which must be recognised in addition to this are taken ness generally have terms of up to 25 years. Capitalised customer into account by reducing the carrying amount of the other assets relations are amortised over a maximum period of up to ten years. of the cash-generating unit on a prorated basis. If the reason for an Goodwill is not amortised; instead it is subjected to an impairment write-back to intangible assets is performed. The increased carrying test once every year, or more frequently if there are indications of impairment. amount resulting from the write-back may not, however, exceed the amortised cost. Impairment losses on goodwill are not reversed. impairment loss recognised in prior periods has ceased to exist, a Development costs are capitalised if a newly developed product or process can be clearly defined, is technically feasible and it is the Property, plant and equipment is stated at depreciated cost. Borrowing costs are capitalised as part of the asset’s cost, if they company’s intention to either use the product or process itself or are incurred directly in connection with the acquisition or production market it. Furthermore, asset recognition requires that there be a of a ‘qualified asset’. What characterises a qualified asset is that a sufficient level of certainty that the development costs lead to future considerable period of time is required to prepare it for use or sale. cash inflows. Capitalised development costs are amortised over the If necessary, the cost of property, plant and equipment may contain period during which the products are expected to be sold. Research the estimated expenses for the decommissioning of plants or site expenditures are recognised as expenses in the period in which they restoration. Maintenance and repair costs are recognised as expenses. are incurred. 98 RWE Annual Report 2018 With the exception of land and leasehold rights, as a rule, property, plant and equipment is depreciated using the straight-line method, The initial measurement of other financial assets occurs at the settlement date. Shares in non-consolidated subsidiaries and in unless in exceptional cases another depreciation method is better associates or joint ventures are recognised at fair value through profit suited to the usage pattern. The depreciation methods are reviewed or loss as long as such can be determined reliably. Other invest- annually. We calculate the depreciation of RWE’s typical property, ments are also recognised at fair value. The option to state changes plant and equipment according to the following useful lives, which in fair value in other comprehensive income is exercised for some of apply throughout the Group and are also reviewed annually: these equity instruments. Non-current securities are accounted for Useful life in years Buildings Technical plants Thermal power plants Wind turbines Power grids Water mains Gas and water storage facilities Gas distribution facilities Mining facilities Mining developments Other renewable generation facilities at fair value and changes in value are recognised through profit or loss or other comprehensive income depending on their classifica- 9 – 54 tion. Gains and losses on sales of equity instruments, for which the 10 – 40 Up to 23 20 – 45 20 – 80 10 – 60 10 – 40 3 – 25 44 – 52 4 – 50 option to state changes in fair value in other comprehensive income is exercised, remain in equity and are not reclassified to the income statement. An impairment in the amount of the expected credit losses is recognised through profit or loss for debt instruments that are recognised at fair value through other comprehensive income. 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 minus a risk provision in the amount of the expected losses. Prepayments received from customers for consumption which is yet to be metered and billed are netted out against trade accounts receivable of the utilities. Property, plant and equipment held under a finance lease is capital- Loans reported under financial receivables are stated at amortised ised at the fair value of the leased asset or the present value of the cost minus a risk provision in the amount of the expected losses. minimum lease payments, depending on which is lower. They are Loans with interest rates common in the market are shown on the depreciated using the straight-line method over the expected useful balance sheet at nominal value; as a rule, however, non-interest or life or the lease term, whichever is shorter. low-interest loans are disclosed at their present value discounted For operating leasing transactions, in which RWE is the lessee, the leasing payments are recognised as an expense over the term of the lease. If RWE is the lessor, the leasing payments are recognised as income over the term of the lease. Impairment losses and write-backs on property, plant and equipment are recognised according to the principles described for intangible assets. 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 free of charge are both stated at cost and are not amortised. Deferred taxes result from temporary differences in the carrying amount in the separate IFRS financial statements and tax bases, and from consolidation procedures. Deferred tax assets also include tax Investments accounted for using the equity method are initially accounted for at cost and thereafter based on the carrying amount reduction claims resulting from the expected utilisation of existing loss carryforwards in subsequent years. Deferred taxes are capital- of their prorated net assets. The carrying amounts are increased or ised if it is sufficiently certain that the related economic advantages reduced annually by prorated profits or losses, dividends and all can be used. Their amount is assessed with regard to the tax rates other changes in equity. Goodwill is not reported separately, but applicable or expected to be applicable in the specific country at rather included in the recognised value of the investment. Goodwill the time of realisation. The tax regulations valid or adopted as of is not amortised. An impairment loss is recognised for investments the balance-sheet date are key considerations in this regard. Deferred accounted for using the equity method, if the recoverable amount is tax assets and deferred tax liabilities are netted out for each company less than the carrying amount. and/or tax group. Consolidated financial statements > Notes 99 Inventories are assets which are held for sale in the ordinary course of business (finished goods and goods for resale), which are in the Cash and cash equivalents consist of cash on hand, demand deposits and current fixed-interest securities with a maturity of process of production (work in progress – goods and services) or three months or less from the date of acquisition. which are consumed in the production process or in the rendering of services (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 within the next twelve months. Such assets may be certain non-current assets, Insofar as inventories are not acquired primarily for the purpose of asset groups (‘disposal groups’) or operations (‘discontinued opera- realising a profit on a short-term resale transaction, they are carried tions’). Liabilities intended to be sold in a transaction together with 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 assets are a part of a disposal group or discontinued operations, and are reported separately under Liabilities held for sale. allocable costs, they also include adequate portions of required Non-current assets held for sale are no longer depreciated or amor- materials and production overheads. They also include production- tised. They are recognised at fair value less costs to sell, as long as related depreciation. Borrowing costs, however, are not capitalised this amount is lower than the carrying amount. as part of the cost. The determination of cost is generally based on average values. The usage of excavated earth for lignite mining is Gains or losses on the valuation of specific assets held for sale and of calculated using the ‘first in – first out’ method (FIFO). disposal groups are stated under income from continuing operations until final completion of the sale. Gains or losses on the valuation of If the net realisable value of inventories written down in earlier discontinued operations and on certain assets of a discontinued periods has increased, the reversal of the write-down is recognised operation, which are not subject to the valuation rules pursuant to as a reduction of the cost of materials. IFRS 5, are stated under income from discontinued operations. Nuclear fuel assemblies are stated at depreciated cost. Depreciation is determined by operation and capacity, based on consumption and the reactor’s useful life. The stock option plans are accounted for as cash-settled share- based payment. At the balance-sheet date, a provision is recog- nised in the amount of the prorated fair value of the payment obligation. Changes in the fair value are recognised with an effect Inventories which are acquired primarily for the purpose of realising on income. The fair value of options is determined using generally a profit on a short-term resale transaction are recognised at fair accepted valuation methodologies. value less costs to sell. Changes in value are recognised with an effect on income. Provisions are recognised for all legal or constructive obligations to third parties which exist on the balance-sheet date and stem from Securities classified as current marketable securities essentially consist of marketable securities held in special funds as well as past events which will probably lead to an outflow of resources, and the amount of which can be reliably estimated. Provisions are carried fixed-interest securities which have a maturity of more than three at their prospective settlement amount and are not offset against months and less than one year from the date of acquisition. Securities reimbursement claims. If a provision involves a large number of held in special funds are measured at fair value through profit or items, the obligation is estimated by weighting all possible outcomes loss or at fair value through other comprehensive income. The trans- by their probability of occurrence (expected value method). action costs directly associated with the acquisition of these securi- ties are included in the initial measurement, which occurs on their All non-current provisions are recognised at their prospective settle- settlement date. Unrealised gains and losses are recognised ment amount, which is discounted as of the balance-sheet date. In through profit or loss or other comprehensive income, with due the determination of the settlement amount, any cost increases likely consideration of any deferred taxes depending on the underlying to occur up until the time of settlement are taken into account. valuation category. An impairment in the amount of the expected credit losses is recognised through profit or loss for debt instru- If necessary, the cost of property, plant and equipment may contain ments that are stated at fair value through other comprehensive in- the estimated expenses for the decommissioning of plants or site come. Changes included in other comprehensive income are recog- restoration. Decommissioning, restoration and similar provisions are nised through profit or loss on disposal of such instruments. recognised for these expenses. If changes in the discount rate or 100 RWE Annual Report 2018 changes in the estimated timing or amount of the payments result Obligations existing as of the balance-sheet date and identifiable in changes in the provisions, the carrying amount of the respective when the balance sheet is being prepared are recognised as provi- asset is increased or decreased by the corresponding amount. If the sions for mining damage to cover land recultivation and remediation decrease in the provision exceeds the carrying amount, the excess is of mining damage that has already occurred or been caused. The recognised immediately through profit or loss. provisions must be recognised due to obligations under public law, As a rule, releases of provisions are credited to the expense account in operating schedules and water law permits. Provisions are gener- on which the provision was originally recognised. ally fully related to the degree of mining in question. Such provisions Provisions for pensions and similar obligations are recognised for pensation payments. Cost estimates are based on external expert defined benefit plans. These are obligations of the company to pay opinions to a significant extent. are measured at full expected cost or according to estimated com- such as the German Federal Mining Act, and formulated, above all, 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- ments are generally oriented to the employees’ length of service and compensation. 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 Provisions for defined benefit plans are based on the actuarial present value of the respective obligation. This is measured using covered with the available allowances, the provision for this portion is measured using the market price of the emission allowances or the projected unit credit method. This method not only takes into certificates for renewable energies on the reporting date. 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 (for 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 Germany, in particular the ‘Richttafeln 2018 G’ by Klaus Heubeck, carried at amortised cost in the periods thereafter (except for deriv- in the previous year the ‘Richttafeln 2005 G’ by Klaus Heubeck, ative financial instruments). Liabilities from finance lease agree- and the Standard SAPS Table S2PA of the current year for the United ments are either measured at the fair value of the leased asset or Kingdom, taking into consideration future changes in mortality rates). the present value of minimum lease payments, depending on which The provision derives from the balance of the actuarial present value amount is lower. For subsequent measurements, the minimum lease of the obligations and the fair value of the plan assets. The service payments are divided into the financing costs and repayment portion cost is disclosed in staff costs. Net interest is included in the financial of the outstanding debt. Financing costs are distributed over the result. term of lease in such a manner that a steady interest rate is created for the outstanding debt. Gains and losses on the revaluation of net debt or net assets are fully recognised in the fiscal year in which they occur. They are reported In the previous year, other liabilities included advances and contri- outside of profit or loss, as a component of other comprehensive butions in aid of construction and building connection that are income in the statement of comprehensive income, and are immedi- carried as liabilities by the utilities and are generally amortised and ately assigned to retained earnings. They remain outside profit or included in income over the useful life of the corresponding asset. loss in subsequent periods as well. In the case of defined contribution plans, the enterprise’s obligation were also included in other liabilities. Specifically, this pertained to is limited to the amount it contributes to the plan. Contributions to purchase price obligations from rights to tender non-controlling the plan are reported under staff costs. interests (put options). Furthermore, in the previous year, certain non-controlling interests Waste management provisions in the nuclear energy sector are Moreover, other liabilities also include contract liabilities. A con- based on obligations under public law, in particular the German tract liability is the obligation of the Group to transfer goods or ser- Atomic Energy Act, and on restrictions from operating licenses. vices to a customer, for which we have already received considera- These provisions are measured using estimates, which are based tion or for which the consideration is already due. on and defined in contracts as well as on information from internal and external specialists (e.g. experts). Consolidated financial statements > Notes 101 Derivative financial instruments are recognised as assets or liabili- ties and measured at fair value, regardless of their purpose. Changes Only the effective portion of a hedge is recognised in accordance with the preceding rules. The ineffective portion is recognised in this value are recognised with an effect on income, unless the immediately on the income statement with an effect on income. instruments are used for hedge accounting purposes. In such cases, recognition of changes in the fair value depends on the type of Contracts on the receipt or delivery of non-financial items in accord- hedging transaction. ance with the company’s expected purchase, sale or usage require- ments (own-use contracts) are not accounted for as derivative financial Fair value hedges are used to hedge assets or liabilities carried on instruments, but rather as executory contracts. If the contracts contain the balance sheet against the risk of a change in their fair value. embedded derivatives, the derivatives are accounted separately The following applies: changes in the fair value of the hedging from the host contract, insofar as the economic characteristics and instrument and the fair value of the respective underlying transactions risks of the embedded derivatives are not closely related to the are recognised in the same line item on the income statement. economic characteristics and risks of the host contract. Written Hedges of unrecognised firm commitments are also recognised as options to buy or sell a non-financial item which can be settled in fair value hedges. Changes in the fair value of the firm commitments cash are not own-use contracts. with regard to the hedged risk result in the recognition of an asset or liability 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 Cash flow hedges are used to hedge the risk of variability in future cash flows related to an asset or liability carried on the balance economic benefits or the amount of which cannot be measured reli- ably. Contingent liabilities are only recognised on the balance sheet sheet or related to a highly probable forecast transaction. If a cash if they were assumed within the framework of a business combination. flow hedge exists, unrealised gains and losses from the hedging The amounts disclosed in the Notes correspond to the exposure at instrument are initially stated as other comprehensive income. Such the balance-sheet date. 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 recognition Management judgements in the application of accounting policies. Management judgements are required in the application of account- of a financial asset or financial liability in subsequent periods, the ing policies. In particular, this pertains to the following aspects: amounts that were recognised in equity until this point in time are recognised on the income statement in the period during which the • With regard to certain contracts, a decision must be made as to asset or liability affects the income statement. If the transactions whether they are to be treated as derivatives or as so-called result in the recognition of non-financial assets or liabilities, for own-use contracts, and be accounted for as executory contracts. example the acquisition of property, plant and equipment, the amounts • Financial assets are classified by contractual cash flows and applied recognised in equity without an effect on income are included in business model. Whereas the contractual cash flows are deter- the initial cost of the asset or liability. mined by the characteristics of the financial instruments, the business model is based on the Group’s internal requirements The purpose of hedges of a net investment in foreign operations relating to the portfolios of financial instruments. (net investment hedges) is to hedge the currency risk from invest- • With regard to assets held for sale, it must be determined if they ments with foreign functional currencies. Unrealised gains and can be sold in their current condition and if the sale of such is losses from such hedges are recognised in other comprehensive highly probable in the next twelve months. If both conditions apply, income until disposal of the foreign operation. the assets and any related liabilities must be reported and measured Hedging relationships must be documented in detail and meet the following effectiveness requirements: as ‘Assets held for sale’ or ‘Liabilities held for sale’, respectively. Management estimates and judgements. Preparation of consoli- dated financial statements pursuant to IFRS requires assumptions • there is an economic relationship between the hedged item and and estimates to be made, which have an impact on the recognised the hedging instrument, value of the assets and liabilities carried on the balance sheet, on • the value change of hedging relationship is not dominated by income and expenses and on the disclosure of contingent liabilities. the credit risk, and • the hedge ratio is the same as that resulting from the quantities used within the scope of risk management. 102 RWE Annual Report 2018 Amongst other things, these assumptions and estimates relate to of the Growth, Structural Change and Employment Commission may the accounting and measurement of provisions. With regard to have an impact. If opencast mines are closed prematurely, new non-current provisions, the discount factor to be applied is an recultivation concepts will have to be developed and the mining important estimate, in addition to the amount and timing of future provisions will have to be increased due to their earlier usage. cash flows. The discount factor for pension obligations is deter- mined on the basis of yields on high-quality, fixed-rate corporate bonds on the financial markets as of the balance-sheet date. Capital management. The focus of RWE’s financing policy is on ensuring uninterrupted access to the capital market. The goal is to be in a position to refinance maturing debts and finance the operat- The rules governing valuation allowances for financial assets under ing activities at all times. Maintaining a solid rating and a positive IFRS 9 stipulate that the expected credit losses must be determined. operating cash flow serve this purpose. The valuation allowance is based on information from within and outside the Group. The management of RWE’s capital structure is oriented towards net debt. It is calculated by adding material non-current provisions to The impairment test for goodwill and non-current assets is based and deducting the net assets of funded pension obligations from on certain assumptions pertaining to the future, which are regularly net financial debt. RWE’s liabilities of relevance to net debt primarily adjusted. Property, plant and equipment is tested for indications of consist of hybrid bonds and provisions for pensions, nuclear waste impairment on each cut-off date. management and mining. Power plants are grouped together as a cash-generating unit if their During the reporting period, RWE’s capital structure changed sig- production capacity and fuel needs are centrally managed as part of nificantly. This was in part due to the separate statement of the net a portfolio, and it is not possible to ascribe individual contracts and debt of the discontinued innogy operations. In addition, the net cash flows to the specific power plants. debt of the continuing operations was very positively affected by Upon first-time consolidation of an acquired company, the identifiable assets, liabilities and contingent liabilities are recognised at fair variation margins obtained from forward transactions with electricity, commodities and CO2 certificates. Variation margins are payments with which transaction partners mutually offset profit and loss posi- value. Determination of the fair value is based on valuation methods tions resulting from the daily revaluation of active contracts. However, which require a projection of anticipated future cash flows. their influence on cash flows is temporary and ends once the trans- Deferred tax assets are recognised if realisation of future tax benefits increase in financial assets and contributed to the statement of net is probable. Actual future development of income for tax purposes financial assets of continuing operations in the amount of €7.4 billion and hence the realisability of deferred tax assets, however, may as of 31 December 2018. The previous year’s figures contained the deviate from the estimation made when the deferred taxes are net financial debt of the discontinued innogy operations; the associ- actions are realised. Both of these effects resulted in a significant capitalised. ated net financial debt amounted to €6.3 billion. Furthermore, net debt provisions declined by €2.1 billion to €11.9 billion (previous Further information on the assumptions and estimates upon which year: €14.0 billion). On average, provisions have a very long duration; these consolidated financial statements are based can be found in their level is primarily determined by external factors such as the the explanations of the individual items. general level of interest rates. A precise calculation of net debt and net financial debt is presented on page 54 of the review of operations. All assumptions and estimates are based on the circumstances and forecasts prevailing on the balance-sheet date. Furthermore, as of RWE’s credit rating is influenced by a number of qualitative and the balance-sheet date, realistic assessments of overall economic quantitative factors. These include aspects such as the amount of conditions in the sectors and regions in which RWE conducts opera- cash flows and debt as well as market conditions, competition, tions are taken into consideration with regard to the prospective and the political framework. Our hybrid bonds also have a positive development of business. Actual amounts may deviate from the effect on our rating. The leading rating agencies, Moody’s and Fitch, estimated amounts if the overall conditions develop differently than classify part of hybrid capital as equity. expected. In such cases, the assumptions, and, if necessary, the carrying amounts of the affected assets and liabilities are adjusted. RWE’s creditworthiness is currently rated ‘Baa3’ by Moody’s and As of the date of preparation of the consolidated financial state- range. The short-term credit ratings for RWE are ‘P-3’ and ‘F2’, ‘BBB’ by Fitch. Our rating thus remains in the investment-grade ments, it is not presumed that there will be any material changes respectively. compared to the assumptions and estimates. However, the govern- ment’s potential implementation of major aspects of the concept Consolidated financial statements > Notes 103 Changes in accounting regulations regulations and the recognition of the associated effects of the changeover occur through the adjustment of the carrying amounts of the financial assets and liabilities as well as retained earnings as The International Accounting Standards Board (IASB) and the IFRS of 1 January 2018. Interpretations Committee (IFRS IC) have implemented new IFRSs and approved amendments of existing IFRSs and a new interpreta- IFRS 9 includes new rules for classifying financial instruments. They tion, which became effective for the RWE Group as of fiscal 2018: envisage four measurement categories: IFRS 9 Financial Instruments (2014) replaces the previous regula- tions of IAS 39 on financial instruments. The standard contains • Debt instruments measured at amortised cost, • Debt instruments measured at fair value through other compre- amended regulations on measurement categories for financial assets hensive income, the changes in value of which are to be reclassi- and includes some smaller changes in relation to the measurement fied through profit or loss in the future, of financial liabilities. It also contains regulations on impairments, • Financial instruments measured at fair value through profit or which are based on expected losses for the first time. The new loss, hedge accounting regulations are to improve the presentation of • Equity instruments measured at fair value through other compre- risk management activities in consolidated financial statements. hensive income, the changes in value of which are not to be reclas- In line with the transitional rules of IFRS 9, prior-year figures are not sified through profit or loss in the future. adjusted. The application of the new classification and valuation 104 RWE Annual Report 2018 The following tables summarise the effects of the new classification and impairment regulations for financial assets on the individual balance-sheet line items and the respective measurement categories at the changeover date: Reclassification by balance sheet item in accordance with IFRS 9 € million Other non-current financial assets Measurement category in accordance with IAS 39 Measurement category in accordance with IFRS 9 Financial assets available for sale Debt instruments measured at fair value through other comprehensive income Financial receivables Trade accounts receivable Other receivables and other assets Marketable securities Loans and receivables Loans and receivables Loans and receivables Financial assets recog- nised at fair value through profit or loss Financial assets available for sale Equity instruments measured at fair value through other comprehensive income Financial instruments measured at fair value through profit or loss Debt instruments measured at amortised cost Financial instruments measured at fair value through profit or loss Debt instruments measured at amortised cost Debt instruments measured at amortised cost Financial instruments measured at fair value through profit or loss Debt instruments measured at amortised cost Debt instruments measured at fair value through other comprehensive income Equity instruments measured at fair value through other comprehensive income Financial instruments measured at fair value through profit or loss Carrying amount in accordance with IAS 39 Additional impairment in accordance with IFRS 9 Carrying amount in accordance with IFRS 9 73 77 959 73 77 959 2,069 18 2,051 35 5,405 244 2,807 11 1,306 796 2,780 8 1 35 5,397 243 2,807 11 18 1,3061 796 2,780 3,933 20,4681 Cash and cash equivalents Loans and receivables Debt instruments measured at amortised cost 3,933 20,495 45 1 Additional impairments pursuant to IFRS 9 of debt instruments measured at fair value through other comprehensive income do not lead to a reduction in the carrying amounts as the impairments have already been considered in equity through the previous fair value measurement. Some of the securities that were assigned to the category ‘Financial Some of the other financial assets and securities have been reclassified assets available for sale’ under IAS 39 are now assigned to the cate- from the ‘financial assets available for sale’ to the ‘debt instruments gory ‘Financial instruments measured at fair value through profit or recognised at fair value through other comprehensive income’ category loss’ due to the adoption of IFRS 9 because the cash flows from because the cash flows from these financial instruments solely these financial instruments do not solely consist of interest and prin- represent the interest and principal on the outstanding capital and cipal on the outstanding capital. the corresponding business model envisages the appropriation of cash flows as well as the sale of financial instruments. Furthermore, these positions include equity instruments which are not intended to be traded anywhere within the Group. The discretion to recognise changes in fair value through other comprehensive income is exercised Consolidated financial statements > Notes 105 depending on the equity instrument in question. On this basis, they Certain securities were reclassified from the mesurement category are assigned to the ‘equity instruments recognised at fair value ‘Financial assets available for sale’ to the category ‘Debt instru- through other comprehensive income’ or the ‘financial instruments ments measured at amortised cost’ due to the adoption of IFRS 9. recognised at fair value through profit or loss’ category. Had these financial instruments not been reclassified, there In certain cases, financial receivables assigned to the ‘loans and these financial instruments in 2018. The carrying amount as of receivables’ category under IAS 39 are assigned to the ‘financial 31 December 2018 corresponds to the fair value of the financial would not have been any gains or losses from the fair valuation of instruments recognised at fair value through profit or loss’ category instruments of €3 million. due to the first-time application of IFRS 9, because the cash flows from these financial instruments do not solely represent interest and In addition to the aforementioned effects, deferred tax assets in the principal on the outstanding capital. amount of €7 million were recognised. Reclassification in accordance with IFRS 9 – sum by measurement category Measurement category in accordance with IAS 39 € million Loans and receivables Measurement category in accordance with IFRS 9 Carrying amount in accordance with IAS 39 Additional impairment in accordance with IFRS 9 Carrying amount in accordance with IFRS 9 Debt instruments measured at amortised cost 11,651 27 11,624 Financial assets available for sale Debt instruments measured at amortised cost Financial instruments measured at fair value through profit or loss Debt instruments measured at fair value through other comprehensive income Equity instruments measured at fair value through other comprehensive income Financial instruments measured at fair value through profit or loss Financial instruments measured at fair value through profit or loss Financial assets recognised at fair value through profit or loss The reconciliation from the closing balance of the impairments according to IAS 39 to the opening balance of the impairments according to IFRS 9 is presented in the following table: Reconciliation of the risk provision in accordance with IFRS 9 € million Other financial assets Financial receivables Trade accounts receivable Other receivables and other assets Marketable securities 35 11 1,379 873 3,739 2,807 20,495 35 11 18 1,379 873 3,739 2,807 20,468 45 Risk provi- sion in accordance with IAS 39 Additional risk provi- sion in accordance with IFRS 9 Risk provision in accordance with IFRS 9 179 241 397 2 819 18 8 1 18 45 179 259 405 3 18 864 106 RWE Annual Report 2018 In addition to the new regulations regarding the statement of financial revenue is realised for a performance obligation at a point in time or assets, IFRS 9 encompasses minor amendments to the statement of over time. Revenue is recognised when the customer obtains control financial liabilities. These amendments do not have an impact on of the agreed goods and services and can benefit from such. the RWE Group. Furthermore, IFRS 9 introduces new regulations for hedge account- method for the first-time application as of 1 January 2018. Prior-year ing, which aim to improve the presentation of risk management figures were not restated. The effects of the first-time application of activities in consolidated financial statements. For this purpose, IFRS 15 are recognised in equity, causing retained earnings to drop IFRS 9 extends the scope of underlying transactions qualifying for by €21 million. RWE applied the modified retrospective method as the transition hedge accounting and introduces a new approach for assessing effectiveness, among other things. The first-time application of IFRS 15 has the following effects on equity at the beginning of fiscal 2018 and on the income statement RWE is continuing its existing hedge accounting relationships in for fiscal 2018: accordance with IFRS 9. Hedge accounting for foreign-currency risks will lead to changes in the treatment of foreign-currency basis • As of 1 January 2018, RWE recognised contractual liabilities for spreads. If this component is designated as a part of the hedging basic fees received from customers in advance in the amount of relationship, this will tend to lead to a higher ineffectiveness of €12 million. In addition, expenses incurred for free giveaways and existing hedging relationships. If the forward component of a forward transaction or foreign-currency basis spread is excluded from hedge goods in the amount of €26 million, previously recognised in accordance with IAS 18, were reversed. Furthermore, €8 million accounting, changes in value attributable to this component are in costs associated with obtaining a contract were capitalised. recognised through profit or loss in the RWE Group. This change Moreover, €2 million in deferred tax assets and €7 million in deferred does not have any material effects on the RWE Group. New hedging tax liabilities were recognised. relationships were not designated at the date of initial application. • The first-time application of IFRS 15 caused RWE to change the presentation of unrealised changes in the fair value of commodity The fair value option for own-use contracts and the possibility to derivatives. Since 1 January 2018, they have no longer been pre- exclude the fair value component of options for hedging relationships sented as revenue or costs of material, but in other operating are not made use of in the RWE Group. Overall, the new regulations income. The change does not affect our income and leads to a regarding hedge accounting do not have any material effects on the stabilisation of revenue given that the other parameters did not consolidated financial statements of RWE. change. €55 million was recognised in other operating expenses IFRS 15 Revenue from Contracts with Customers (2014) including Amendments to IFRS 15, Effective Date of IFRS 15 (2015) and Clarifications to IFRS 15 Revenue from Contracts with Customers (2016) replaced the contents of IAS 18 Revenue and IAS 11 Construction Contracts and the associated interpretations as of 1 January 2018. The new standard does not distinguish between different types of orders and performance. It defines uniform criteria as to when and €352 million was recognised in other operating income for unrealised changes in the fair value of commodity derivatives for fiscal 2018. In fiscal 2018, the application of IFRS 15 had the following effects on the balance sheet and the income statement: Effects of applying IFRS 15 € million Balance-sheet items Contract liabilities Income statement items Revenue Cost of materials Other operating income Other operating expenses Figure in accordance with IFRS 15 Figure in accordance with IAS 18 / 11 Application effect 76 13,388 10,237 931 950 13,740 10,292 579 895 76 – 352 – 55 352 55 Consolidated financial statements > Notes 107 The following amendments to standards and new interpretations • Measurement of the right-of-use asset at the date of first-time mandatory for the RWE Group from fiscal 2018 onwards do not have adoption without considering initial direct costs, a material effect on the consolidated financial statements of RWE: • Leases with a term expiring within the first twelve months from the date of first-time adoption are treated as short-term leases. • Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (2016) RWE is making use of exemptions allowing for leases relating to • Annual Improvements to IFRS Standards 2014–2016 Cycle (2016) short-term or low-value assets not to be recognised on the balance • Amendments to IAS 40 Transfers of Investment Property (2016) sheet as a right-of-use asset. • Amendments to IFRS 2 Classification and Measurement of Share- based Payment Transactions (2016) With respect to continuing operations, RWE expects the implemen- • IFRIC 22 Foreign Currency Transactions and Advance Considera- tation of IFRS 16 to result in an increase in depreciation and amorti- tion (2016) New accounting policies sation of between €25 million and €50 million and a curtailment of the financial result of between €10 million and €20 million. By contrast, other operating expenses will receive relief in the amount of the two aforementioned ranges, as a result of which no material impact on net income is anticipated. Furthermore, RWE expects net financial debt for continuing operations to increase by between The IASB issued further standards, which were not yet mandatory in the European Union (EU) in fiscal 2018. The major new regulations €400 million and €500 million. Taking account of discontinued oper- ations, we anticipate that the initial adoption of IFRS 16 will increase and the anticipated effects based on the current state of implemen- the balance-sheet total by about €2.3 billion. tation are presented below: In the cash flow statement, the change in lease accounting provides IFRS 16 Leases (2016) will replace IAS 17 Leases and the related interpretations IFRIC 4, SIC-15 and SIC-27. According to the new relief to cash flows from operating activities, whereas a heavier burden is placed on cash flows from financing activities because a standard on leases, aside from short-term leases (less than 12 months) significant portion of the lease instalments paid will be presented and leases of low-value assets, all leases are to be reported on the as principal of the lease liabilities. The interest accretion continues balance sheet. Consequently, the lessee must recognise a right-of-use to be recognised in cash flows from operating activities. asset and a corresponding lease liability in the amount of the present value of the lease payments for all leased assets. For lessors, the The following standards, amendments to standards, and interpreta- new Standard does not result in any significant changes to the current tions are not expected to have any material effects on RWE’s consol- accounting treatment pursuant to IAS 17 and still requires the classi- idated financial statements: fication of leases as finance or operating leases. The new standard becomes effective for fiscal years starting on Compensation (2017), or after 1 January 2019. RWE will apply the modified retrospective • Amendments to IAS 28 Long-term Interests in Associates and method in transitioning to the new regulations concerning lease Joint Ventures (2017), accounting. The comparable information for fiscal 2018 will not be • Annual Improvements to IFRS Standards 2015–2017 Cycle (2017). adjusted in the consolidated financial statements for 2019. The collective standard contains amendments and clarifications • Amendments to IFRS 9: Prepayment Features with Negative The following options and exemptions are being made use of at the • IFRS 17 Insurance Contracts (2017), date of initial application: • Amendments to IAS 19 Plan Amendment, Curtailment or Settle- to IFRS 3 and IFRS 11 as well as to IAS 12 and IAS 23, • Renouncement of an assessment as to whether contracts existing • Amendments to References to the Conceptual Framework in before the date of first adoption contain a lease in accordance IFRS Standards (2018), with IFRS 16, • Amendments to IFRS 3 Business Combinations (2018), • Recognition of the right-of-use asset and measurement in the • Amendments to IAS 1 and IAS 8 Definition of Material (2018), amount of the lease liability, adjusted for lease payments that • IFRIC 23 Uncertainty over Income Tax Treatments (2017). ment (2018), had already been recognised as an asset or a liability, • Adjustment of the right-of-use asset by the amount recognised as a provision for onerous leases on the balance sheet for the period ending on 31 December 2018, 108 RWE Annual Report 2018 Notes to the Income Statement (1) Revenue Revenue is recorded when the customer has obtained control over A breakdown of revenue by division, geographical region and product is contained in the segment reporting on page 151 et seqq. goods or services. The item ‘Natural gas tax/electricity tax’ comprises the taxes paid To improve the presentation of business development, we report directly by Group companies. revenue generated by energy trading operations as net figures, reflecting realised gross margins. Energy trading revenue is generated Certain performance obligations of the RWE Group were not yet or in the Supply & Trading segment. By contrast, we report consumer not yet fully met by the end of the fiscal year. The €4,650 million in revenue on a gross basis. In fiscal 2018, gross revenue (including energy revenue due from these performance obligations is expected to be trading) totalled €76,345 million (previous year: €60,788 million). received over the following three years. The receipt of this revenue In the year under review, RWE generated €13,752 million in gross are met. It does not include future revenue from contracts with an revenue from discontinued innogy operations (previous year: original contractual term of twelve months or less. will depend on when these performance obligations to the customer €10,937 million). (2) Other operating income Other operating income € million Income from own work capitalised 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 Exchange rate gains Miscellaneous 2018 2017 45 57 63 4 103 408 26 20 205 931 51 111 258 2 531 159 25 85 11 2,023 3,256 In the year under review, write-backs of €38 million were made for was based on a decision by the German Constitutional Court dated onshore wind farms in Poland in the innogy – continuing operations 7 June 2017. The nuclear fuel tax levied until 31 December 2016 segment (recoverable amount: €0.2 billion). This was primarily due could not be reconciled with constitutional rules, becoming null to the rise in the prices of electricity and of green electricity certifi- and void retroactively. The refund included the €100 million share cates. Of the write-backs, €36 million was allocable to property, economically attributable to E.ON. plant and equipment and €2 milion was allocable to operating rights recognised as intangible assets. The fair value less costs to Income from the disposal of non-current financial assets and loans sell was calculated using a company valuation model based on cash is disclosed under income from investments if it relates to invest- flow planning and a discount rate of 5.5 % after taxes. The central ments; otherwise it is recorded as part of the financial result as is planning assumptions relate to the development of wholesale and the income from the disposal of current marketable securities. retail electricity prices and regulatory framework conditions amongst other things. The calculated fair value is assigned to Level 3 of the fair To improve the presentation of the development of business, we value hierarchy due to the use of internal planning assumptions. state unrealised changes in the fair value of commodity derivatives in net amounts under other operating expenses or income. Gross In the previous year, the refund of the €1,797 million in nuclear fuel income totaled €493 million in fiscal 2018. taxes paid in earlier periods contained in the ‘Miscellaneous’ item Consolidated financial statements > Notes 109 (3) Cost of materials Cost of materials € million Cost of raw materials and of goods for resale Cost of purchased services 2018 2017 8,716 1,521 8,118 1,911 10,237 10,029 Impairments € million Intangible assets Property, plant and equipment 2018 2017 9 373 382 47 47 The cost of raw materials also includes expenses for the use and In the year being reviewed, a €29 million impairment was recog- disposal of spent nuclear fuel assemblies. This item also includes expenses for CO2 emission allowances. nised for the UK power station Staythorpe in the European Power segment. Its earnings are expected to be slightly lower than antici- pated thus far (recoverable amount: €0.3 billion). A total of €62,817 million in energy trading revenue (previous year: €46,835 million) was netted out against the cost of materials. In the previous year, the division of the former Conventional Power (4) Staff costs Staff costs € million Wages and salaries Cost of social security, pensions and other benefits Number of employees 2018 2017 Employees covered by collective agreements and other employees Employees not covered by collective agreements 45,333 13,108 58,441 46,757 12,576 59,333 2018 2017 Generation segment into the two new Lignite & Nuclear and European Power segments had resulted in the division of the former cash- generating unit for the German power plant portfolio due to the resulting new management. The impairment test occasioned by this in the previous year resulted in a write-up of €401 million for 1,487 1,433 the Lignite & Nuclear cash-generating unit, which was recognised in 408 1,895 415 1,848 other operating income in the previous year (recoverable amount: €1.4 billion). In contrast, in the previous year, an impairment of €321 million was recognised for the new cash-generating unit for the German power plant portfolio in the European Power segment and provisions for impending losses were formed (recoverable amount: €0.0 billion). These effects stemmed from the non-recurrence of the compensatory effects of the division of the cash-generating unit. In the previous year, in the Lignite & Nuclear segment, an impair- ment loss of €301 million was recognised for property, plant and equipment stated as being held for sale of the Hungarian company The stated number of employees includes the 32,232 wage earners Mátrai Erőmű ZRt. (Mátra) which has since been sold (recoverable and other personnel assigned to the innogy – discontinued opera- amount: €0.0 billion). tions segment (previous year: 31,897) and 8,614 salaried staff (previous year: 8,294). The number of employees is arrived at by In the previous year, an impairment loss of €16 million was recog- conversion to full-time positions, meaning that part-time and fixed- nised for gas storage facilities in the innogy – continuing operations term employment relationships are included in accordance with the segment (€12 million of which for property, plant and equipment ratio of the part-time work or the duration of the employment to and €4 million of which for intangible assets) (recoverable amount: the annual employment time. On average, 2,031 trainees were em- €0.0 billion), essentially due to changed price expectations. ployed (previous year: 1,998), of which 1,452 (previous year: 1,448) were assigned to the innogy – discontinued operations segment. Furthermore, in the previous year, an impairment loss of €20 million Trainees are not included in the personnel headcount. was recognised for property, plant and equipment for the construc- tion of offshore wind farms in the innogy – continuing operations segment due to permanent decreases in value (recoverable amount: (5) Depreciation, amortisation and impairment losses €0.1 billion). Depreciation, amortisation and impairment losses € million Intangible assets Property, plant and equipment 2018 2017 Other impairments on intangible assets and property, plant and equipment were recognised primarily on the basis of cost increases and changes in price expectations. 26 922 948 36 1,294 1,330 110 RWE Annual Report 2018 Recoverable amounts are determined on the basis of fair values less costs to sell using valuation models based on planned cash flows. wholesale prices of electricity, crude oil, natural gas, coal and CO2 emission allowances, retail prices of electricity and gas, market In the fiscal year, the valuation model for the UK power station shares and regulatory framework conditions. Based on the use of Staythorpe used a discount rate of 4.75 %. In the previous year, the internal planning assumptions, the determined fair values are valuation models used discount rates ranging from 4.25 % to assigned to Level 3 of the fair value hierarchy. 5.50 %. Our key planning assumptions relate to the development of (6) Other operating expenses Other operating expenses € million Expenses associated with changes in product inventories Maintenance and renewal obligations Additions to provisions/reversals 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 Expenses from derivative financial instruments Lease payments for plant and grids as well as rents Fees and membership dues Exchange rate losses Other taxes (primarily on property) Miscellaneous 2018 5 465 − 196 33 166 8 56 59 56 45 48 61 3 27 114 950 2017 10 500 402 26 148 7 73 58 52 166 49 72 175 171 1,909 In the previous year, the ‘Miscellaneous’ item contained the To improve the presentation of the development of business, we €100 million share of the refund of the nuclear fuel tax paid in earlier recognise unrealised changes in the fair value of commodity deriva- periods economically allocable to E.ON. tives in net amounts in other operating expenses or income. In fiscal 2018, the gross expenses totalled €196 million. Consolidated financial statements > Notes 111 (7) Income from investments Income from investments includes all income and expenses which have arisen in relation to operating investments. It is comprised of income from investments accounted for using the equity method 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 (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 2018 2017 211 – 45 – 6 9 – 42 169 2018 166 306 472 180 45 183 36 437 881 − 409 137 – 30 – 31 – 2 – 16 50 2 20 157 2017 197 1,348 1,545 298 57 146 23 1,084 1,608 – 63 112 RWE Annual Report 2018 The financial result breaks down into net interest, interest accretion Other financial income includes €6 million in gains realised from the to provisions, other financial income and other finance costs. disposal of marketable securities (previous year: €50 million). It also includes €257 million in interest income on portions of the nuclear Interest accretion to provisions contains the annual amounts of fuel tax paid by RWE and refunded in 2017. €243 million thereof is accrued interest. It is reduced by the imputed interest income on allocable to RWE shareholders. Of the other finance costs, €13 million plan assets for the coverage of pension obligations. (previous year: €71 million) stem from realised losses on the disposal Net interest essentially includes interest income from interest- bearing securities and loans, income and expenses relating to (9) Taxes on income marketable securities, and interest expenses. of marketable securities. In the year under review, €9 million in borrowing costs were capital- ised as costs in connection with the acquisition, construction or pro- Taxes on income € million Current taxes on income duction of qualifying assets (previous year: €1 million). The under- Deferred taxes lying capitalisation rate ranged from 4.4 % to 4.8 % (previous year: 2018 2017 122 − 19 103 203 130 333 from 3.8 % to 4.4 %). Net interest € million Interest and similar income Interest and similar expenses 2018 2017 166 180 − 14 197 298 – 101 Of the deferred taxes, – €2 million is related to temporary differences (previous year: €72 million). In the year under review, changes in valuation allowances for deferred tax assets amounted to – €73 million (previous year: €110 million). Current taxes on income contain €30 million in net tax income (previous year: income of €111 million) relating to prior periods. Net interest stems from financial assets and liabilities, which were allocated to the measurement categories pursuant to IFRS 9 in the Due to the utilisation of tax loss carryforwards unrecognised in year under review and pursuant to IAS 39 in the previous year: prior years, current taxes on income were reduced by €28 million Interest result by category € million Loans and receivables Financial assets available for sale Debt instruments measured at amortised cost Financial instruments measured at fair value through profit or loss Debt instruments measured at fair value through other comprehensive income Equity instruments measured at fair value through other comprehensive income Financial liabilities measured at (amortised) cost 2018 2017 (previous year: €189 million). Income taxes recognised in other comprehensive income € million 169 28 Fair valuation of financial instruments avail- able for sale Fair valuation of debt instruments 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. 108 30 14 14 − 180 − 14 – 298 – 101 2018 2017 7 − 1,442 410 − 1,025 – 3 8 – 171 – 166 Taxes in the amount of – €61 million (previous year: €16 million) were offset directly against equity. Consolidated financial statements > Notes 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 Effective tax expense Effective tax rate in % The theoretical tax expense is calculated using the tax rate for the RWE Group of 32.6 % (previous year: 32.5 %). 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. 113 2017 2,056 668 − 15 − 31 − 2 − 16 45 − 3 − 105 − 2 30 − 236 333 16.2 2018 49 16 − 28 − 31 − 7 − 21 42 − 24 − 14 12 − 3 172 − 11 103 210.2 NOTES 114 RWE Annual Report 2018 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 2018 837 3,054 2,810 11,671 Additions /disposals due to changes in the scope of consolidation of which: stated as ‘Held for sale’ Additions Transfers Currency translation adjustments Disposals Balance at 31 Dec 2018 Accumulated amortisation /impairment losses − 821 − 821 42 2 1 25 36 − 890 − 999 37 29 − 15 1 2,214 − 2,812 − 2,812 − 9,929 − 9,929 3 1 Balance at 1 Jan 2018 489 2,493 2,564 31 − 3 − 3 6 − 25 18,403 − 14,455 − 14,564 85 6 − 35 26 9 3,978 6,020 − 4,306 − 4,306 105 − 6 26 2 1,785 2,193 18,448 167 203 9 – 126 298 9 6 29 – 4 − 24 1,718 474 − 475 − 475 1 1,718 − 460 − 460 29 25 33 3 − 2,579 − 2,579 13 3 1 − 792 − 792 63 − 10 1 2 1,751 463 1,047 2,816 2,915 11,664 143 92 39 – 3 33 4 8 3 – 83 37 17 – 10 3 74 – 29 – 30 228 837 630 3 104 – 5 – 18 225 489 348 3,054 2,810 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 Additions /disposals due to changes in the scope of consolidation of which: stated as ‘Held for sale’ Amortisation /impairment losses in the reporting period Currency translation adjustments Disposals Write-ups Balance at 31 Dec 2018 Carrying amounts Balance at 31 Dec 2018 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 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 Consolidated financial statements > Notes 115 In the reporting period, the RWE Group’s total expenditures on ence as well as on expected market trends in the future. If available, research and development amounted to €116 million (previous year: market transactions in the same sector or third-party valuations are €182 million). taken as a basis for determining fair value. Based on the use of internal planning assumptions, the determined fair values are assigned to Goodwill breaks down as follows: Level 3 of the fair value hierarchy. 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 2018 31 Dec 2017 Mid-term business plans are based on country-specific assumptions 2,736 1,159 2,704 923 1,525 429 715 1,006 11,197 712 1,006 1,718 regarding the development of key economic indicators such as gross domestic product, consumer prices, interest rate levels and nominal wages. These estimates are, amongst others, derived from macro- economic and financial studies. Our key planning assumptions for the business segments active in 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. During the period under review, they were 5.25 % for the Supply & Trading and 4.25 % for the Renewables cash-generating units (previous year: range of 3.25 % to 5.50 %) The goodwill reported in the Grid & Infrastructure and Retail cash- generating units in the previous year is stated under assets held for sale of innogy – discontinued operations. after tax. In the third quarter of every fiscal year, an impairment test is per- We do not base the extrapolation of future cash flows going beyond formed to determine if there is any need to write down goodwill. In the detailed planning period on growth rates. The growth rate for the course of this, goodwill is allocated to the cash-generating units. each division is generally derived from experience and expectations In the previous year, goodwill increased by €53 million as a result of rates of the respective markets in which the Group companies of the future and does not exceed the long-term average growth first-time consolidations. are active. The annual cash flows assumed for the years after the detailed planning period include as a deduction capital expenditure The recoverable amount of the cash-generating unit is determined, in the amount necessary to maintain the scope of business. which is defined as the higher of fair value less costs to sell or value in use. Fair value is the best estimate of the price that an independ- As of the balance-sheet date, the recoverable amounts of the ent third party would pay to purchase the cash-generating unit as of cash-generating units – determined as the fair value less costs to the balance-sheet date. Value in use reflects the present value of sell – were higher than their carrying amounts. The surpluses react the future cash flows which are expected to be generated with the especially sensitively to changes in the discount rate, the growth cash-generating unit. rate and cash flows in terminal value. Fair value less costs to sell is assessed from an external perspective The Supply & Trading cash-generating unit exhibited the smallest and value in use from a company-internal perspective. Values are surplus of recoverable amount over the carrying amounts. The determined using a business valuation model, based on planned recoverable amount was €1.2 billion higher than the carrying future cash flows. These cash flows, in turn, are based on the business amount. Impairment would have been necessary if the calculations plan, as approved by the Executive Board and valid at the time of had used an after-tax discount rate increased by more than 3.1 per- the impairment test. They pertain to a detailed planning period of centage points to above 8.4 %, a growth rate decreased by more three years. In certain justifiable cases, a longer detailed planning than 3.6 percentage points to below – 3.6 %, or cash flows reduced period is taken as a basis, insofar as it is necessary due to economic by more than €74 million in terminal value. or regulatory conditions. The cash flow plans are based on experi- 116 RWE Annual Report 2018 (11) Property, plant and equipment Property, plant and equipment € million Cost Balance at 1 Jan 2018 Additions /disposals due to changes in the scope of consolidation of which: stated as ‘Held for sale’ Additions Transfers Currency translation adjustments Disposals Balance at 31 Dec 2018 Accumulated depreciation /impairment losses 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 Total 7,325 74,280 2,123 2,317 86,045 − 2,740 − 2,738 − 30,747 − 30,708 − 1,238 − 1,238 65 45 − 42 109 665 283 − 294 478 4,544 43,709 74 − 2 − 7 35 915 − 845 − 859 1,014 − 332 − 10 69 2,075 − 35,570 − 35,543 1,818 − 6 − 353 691 51,243 Balance at 1 Jan 2018 4,555 54,187 1,505 851 61,098 Additions /disposals due to changes in the scope of consolidation of which: stated as ‘Held for sale’ Amortisation /impairment losses in the reporting period Transfers Currency translation adjustments Disposals Additions Balance at 31 Dec 2018 Carrying amounts Balance at 31 Dec 2018 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 − 1,455 − 1,453 − 20,646 − 20,580 66 1 − 20 69 5 1,209 − 1 − 149 352 34 3,073 34,214 1,471 9,495 − 803 − 803 93 − 4 35 756 159 − 1 − 1 7 65 1 791 − 22,905 − 22,837 1,375 − 173 521 40 38,834 1,284 12,409 7,544 74,257 2,152 1,708 85,661 – 149 92 34 41 237 7,325 – 950 1,477 237 – 121 620 74,280 – 6 138 1 8 170 2,123 162 825 – 273 – 10 95 2,317 – 943 2,532 – 1 – 82 1,122 86,045 Balance at 1 Jan 2017 4,581 54,126 1,521 915 61,143 Additions /disposals due to changes in the scope of consolidation Amortisation /impairment losses in the reporting period Currency translation adjustments Disposals Additions Balance at 31 Dec 2017 Carrying amounts Balance at 31 Dec 2017 – 149 225 20 116 6 – 890 1,829 – 53 421 404 – 11 142 4 151 – 8 27 83 – 1,058 2,223 – 29 771 410 4,555 54,187 1,505 851 61,098 2,770 20,093 618 1,466 24,947 Consolidated financial statements > Notes 117 Property, plant and equipment in the amount of €504 million (previous €248 million) was attributable to assets leased under finance leases. year: €82 million) were subject to restrictions from land charges, chattel These assets essentially consist of technical plant and equipment. mortgages or other restrictions. Of the total carrying amount of Disposals of property, plant and equipment resulted from sale or property, plant and equipment, €241 million (previous year: decommissioning. (12) 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 pre- sented 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 Amprion GmbH, Dortmund KELAG-Kärntner Elektrizitäts-AG / Kärntner Energieholding Beteiligungs GmbH, (KEH) Klagenfurt /Austria 31 Dec 2018 31 Dec 2017 31 Dec 2018 31 Dec 2017 4,192 2,906 1,401 3,555 538 3,607 2,609 1,092 3,238 474 538 474 1,630 1,626 373 857 276 365 198 563 370 874 277 354 198 552 13,495 12,418 1,172 1,0653 372 – 17 355 25 25 % 142 – 25 117 28 25 % 79 – 1 78 15 90 – 4 86 20 49 % 49 % 1 Figures based on a shareholding of 100 % in KEH. 2 Figures based on proportional share of equity in KEH and Kelag. 3 Figure adjusted due to the switch from gross to net presentation for energy trading activities. 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 electricity, the German Energy Act (EnwG). Amprion’s main shareholder is a district heating and natural gas. RWE has a share of 49 % in Kärntner consortium of financial investors led by Commerz Real, a subsidiary Energieholding Beteiligungs GmbH (KEH), which is Kelag’s largest of Commerzbank. shareholder and is assigned to innogy - continuing operations. 118 RWE Annual Report 2018 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 2018 31 Dec 2017 31 Dec 2018 31 Dec 2017 27 8 35 142 7 – 78 – 71 1,317 56 56 224 59 – 22 37 503 The RWE Group holds shares with a book value of €3 million (previ- subject to temporary restrictions or conditions in relation to their ous year: €97 million) in associates and joint ventures, which are distributions of profits, due to provisions of loan agreements. (13) Other non-current financial assets Other non-current financial assets € million Non-consolidated subsidiaries Other investments Non-current securities 31 Dec 2018 31 Dec 2017 72 74 254 400 254 617 238 1,109 Non-current securities primarily consist of fixed-interest marketable block model for pre-retirement part-time work, pursuant to Sec. 8a securities and shares of listed companies. Long-term securities of the Pre-Retirement Part-Time Work Act (AltTZG) and from the amounting to €31 million and €4 million (previous year: €87 million management of long-term working hours accounts pursuant to and €12 million) were deposited in a trust account for RWE AG and Sec. 7e of the German Code of Social Law (SGB IV), respectively. its subsidiaries, in order to cover credit balances stemming from the This coverage applies to the employees of RWE AG as well as to the employees of Group companies. (14) 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 2018 31 Dec 2017 Non-current Current Non-current 82 28 110 1 2,458 89 234 2,782 237 122 359 Current 5 1,051 117 572 1,745 Companies of the RWE Group deposited collateral for the trading For the miscellaneous other financial receivables, in the previous activities stated above for exchange-based and over-the-counter year, there was limited control in the amount of €260 million related transactions. These are to guarantee that the obligations from the to the financing of the pension commitments of three companies transactions are discharged even if the development of prices is not assigned to innogy – discontinued operations. 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 (15) 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 The financial instruments reported under miscellaneous other assets are measured at amortised cost. Derivative financial instruments are stated at fair value. The carrying values of exchange-traded derivatives with netting agreements are offset. 31 Dec 2018 31 Dec 2017 Non-current Current Non-current 704 213 29 946 924 22 6,567 137 329 375 7,408 6,684 724 1,014 103 70 1,187 1,127 60 Current 3,249 217 121 1,305 4,892 3,483 1,409 120 RWE Annual Report 2018 (16) Deferred taxes Deferred tax assets and liabilities principally stem from the fact that ences reduce in the foreseeable future. €5,335 million and €6,254 mil- measurements in the IFRS statements differ from those in the tax lion of the gross deferred tax assets and liabilities, respectively, will bases. As of 31 December 2018, no deferred tax liabilities were be realised within twelve months (previous year: €4,135 million and recognised for the difference between net assets and the carrying €3,572 million). value of the subsidiaries and associates for tax purposes (known as ‘outside basis differences’) in the amount of €618 million (previous The following is a breakdown of deferred tax assets and liabilities by year: €441 million), as it is neither probable that there will be any item: distributions in the foreseeable future, nor will the temporary differ- 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 2018 31 Dec 2017 Assets 815 2,101 139 289 3,234 6,578 77 16 6,671 − 5,847 824 Liabilities 938 3,009 58 41 194 3,245 7,485 7,485 − 5,847 1,638 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 As of 31 December 2018, RWE reported deferred tax claims which €1,183 million in corporate income tax loss carryforwards for exceeded the deferred tax liabilities by €56 million (previous year: which no deferred tax claims have been recognised will apply to €417 million), in relation to companies which suffered a loss in the the following nine years. The other loss carryforwards do not have current or previous period. The basis for the formation of deferred any time limits, but they are mostly not expected to be used. tax assets is the judgement of the management that it is likely that the companies in question will generate taxable earnings, against As of 31 December 2018, temporary differences for which no which unutilised tax losses and deductible temporary differences deferred tax assets were recognised amounted to €11,180 million can be applied. (previous year: €12,185 million). The capitalised tax reduction claims from loss carryforwards result In the year under review, a deferred tax expense of €5 million arising from the expected utilisation of previously unused tax loss carryfor- from the currency translation of foreign financial statements was wards in subsequent years. offset against equity (previous year: €14 million). It is sufficiently certain that these tax carryforwards will be realised. At the end of the reporting period, corporate income tax loss carry- forwards and trade tax loss carryforwards for which no deferred tax claims have been recognised amounted to €1,463 million and €490 million, respectively (previous year: €2,513 million and €344 million). Consolidated financial statements > Notes 121 (17) 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 2018 31 Dec 2017 723 37 872 – 1 998 200 719 7 1,631 1,924 The carrying amount of inventories acquired for resale purposes was (19) Cash and cash equivalents €33 million (previous year: €58 million). Of this, €29 million related to gas inventories (previous year: €44 million) and €4 million related to coal inventories (previous year: €10 million). In the previous year, €4 million related to biomass inventories. Cash and cash equivalents € million Cash and demand deposits 31 Dec 2018 31 Dec 2017 3,521 3,924 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). The valuations are based on prices which can be observed directly or indirectly (Level 2 of the fair value hierarchy). Differences between the fair value and the carrying value Marketable securities and other cash investments (maturity less than three months from the date of acquisition) 2 3,523 9 3,933 of inventories acquired for resale purposes are recognised on the RWE keeps demand deposits exclusively for short-term cash positions. income statement at the end of the month. For cash investments, banks are selected on the basis of various credit- (18) Marketable securities Of the current marketable securities, €3,226 million were fixed- worthiness criteria. Such criteria include their rating from one of the three renowned rating agencies – Moody’s, Standard & Poor’s and Fitch – as well as their equity capital and the prices for credit default interest marketable securities (previous year: €4,065 million) with a swaps. As in the previous year, interest rates on cash and cash maturity of more than three months from the date of acquisition, and equivalents were at market levels in 2018. €383 million were stocks and profit-participation certificates (previ- ous year: €828 million). Marketable securities are stated at fair value. 122 RWE Annual Report 2018 (20) Equity A breakdown of fully paid-up equity is shown on page 92. The sub- scribed capital of RWE AG is structured as follows: Subscribed capital Common shares Preferred shares 31 Dec 2018 Number of shares 31 Dec 2017 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 2018 Carrying amount € million 31 Dec 2017 Carrying amount € million 1,474 100 1,574 1,474 100 1,574 Common and preferred shares are no-par-value bearer share certifi- No treasury shares were held as of 31 December 2018. cates. Preferred shares have no voting rights. Under certain condi- tions, preferred shares are entitled to payment of a preference dividend of €0.13 per share, upon allocation of the company’s profits. In fiscal 2018, RWE AG purchased a total of 196,604 RWE common shares for a purchase price of €3,626,221.16 on the capital market. This is equivalent to €503,306.24 of the capital stock (0.03 % of Pursuant to a resolution passed by the Annual General Meeting on subscribed capital). Employees of RWE AG and its subsidiaries 26 April 2018, the Executive Board was authorised to increase the received a total of 196,560 common shares for capital formation company’s capital stock with the Supervisory Board’s approval by under the employee share plan and 44 common shares for service up to €314,749,693.44 until 25 April 2023 through the issue of up anniversaries. This generated total proceeds of €3,617,602.33. The to 122,949,099 bearer common shares in return for contributions in differences to the purchase price were offset against freely available cash and/or in kind (approved capital). In certain cases, with the retained earnings. approval of the Supervisory Board, the subscription rights of share- holders can be excluded. Pursuant to IAS 32, the following hybrid bond issued by Group com- panies must be classified as equity: Pursuant to a resolution passed by the Annual General Meeting on 26 April 2018, the Company was authorised until 25 April 2023 to acquire any kind of shares of the Company up to a volume of 10 % of the capital stock when the resolution on this authorisation was passed, or if the following is lower, when this authorisation is exer- cised. Based on the authorisation, the Executive Board is also au- thorised to cancel treasury shares without a further resolution by Hybrid bonds Issuer RWE AG 1 Until the first call date. Nominal value £750 m First call date 2019 Coupon in % p.a.1 7.0 the Annual General Meeting. Moreover, the Executive Board is au- Proceeds from the bond issue were reduced by the capital procure- thorised to transfer or sell such shares to third parties under certain ment costs and added to equity, taking account of taxes. Interest conditions and excluding shareholders’ subscription rights. Further- payments to bondholders will be booked directly against equity, more, treasury shares may be issued to holders of option or convert- after deduction of taxes. Such payments can be deferred by the ible bonds. The Executive Board is also authorised to use the treas- company; under certain circumstances, however, they must be made ury shares to discharge obligations from future employee share up again, for example if the Executive Board and Supervisory Board schemes; in this regard, shareholders’ subscription rights shall be propose to the Annual General meeting that a dividend be paid. excluded. Consolidated financial statements > Notes 123 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 €491 million (previous year: – €4 million) and the share of equity attributable to other shareholders changed by a total of €258 million (previous year: – €15 million). Accumulated other comprehensive income reflects changes in the fair values of debt instruments measured at fair value through other comprehensive income, cash flow hedges and hedges of the net investment in foreign operations, as well as changes stemming from foreign currency translation adjustments from foreign financial statements. able profit for fiscal 2018 be appropriated as follows: Distribution of a dividend of €0.70 per dividend-bearing common and preferred share. Dividend Profit carryforward Distributable profit €430,321,849.30 €59,392.54 €430,381,241.84 Based on a resolution of RWE AG’s Annual General Meeting on 26 April 2018, the dividend for fiscal 2017 amounted to €0.50 As of 31 December 2018, the share of accumulated other compre- per dividend-bearing common and preferred share. In addition, a hensive income attributable to investments accounted for using the equity method amounted to – €7 million (previous year: €11 million). special dividend of €1.00 from the nuclear fuel tax refund was paid per dividend-bearing common and preferred share. The dividend payment to shareholders of RWE AG amounted to €922 million. During the reporting year, €48 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 €13 million). 124 RWE Annual Report 2018 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 Fair valuation of equity instruments 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 debt instruments 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 2018 2017 − 134 − 2 − 13 − 149 11 − 4 − 5 2 – 147 165 − 14 151 35 5 − 2 − 3 35 186 In the previous year, material non-controlling interests were attribut- able to the innogy Group, which is essentially accounted for as a discontinued operation in the year under review: 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 subsidiaries of innogy SE. innogy – continuing operations innogy Group 31 Dec 2018 31 Dec 2018 31 Dec 2017 8,133 4,313 1,524 8,092 1,505 88 360 538 951 237 67 37,229 12,645 24,980 14,980 35,063 − 576 − 862 2,565 4,442 501 663 23.2 % 36,502 10,312 22,913 12,649 41,119 722 1,871 2,654 4,135 469 492 23.2 % Consolidated financial statements > Notes 125 (21) Share-based payment For executives of RWE AG and innogy SE as well as of subordinate and takes into account the development of RWE AG‘s and innogy SE’s share price. Executives receive conditionally granted virtual affiliates, Long Term Incentive Plans (LTIPs) are in place as share- shares (performance shares). The final number of virtual shares in a based payment systems known as Strategic Performance Plans tranche is determined based on the achievement of the adjusted (SPPs) and the predecessor model Beat 2010, which is being phased net income target. Each of the issued LTIP SPP tranches has a term out. The expenses associated with these are borne by the Group of four years before payment is possible. The prerequisite for partici- companies which employ the persons holding notional stocks. pating in the plan was the renouncement of the options of the predecessor model Beat 2010 which had not yet lapsed. The large The LTIP SPP was introduced in 2016. It uses an internal performance majority of the participants made such renouncement declarations. target (adjusted net income) derived from the mid-term planning The plan has expired with the exception of some immaterial remaining components. 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 2018 tranche 1 Jan 2018 883,974 4 years Performance target Adjusted net income 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 % 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 performance 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 + divi- dends 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 conditions, 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 consid- eration. Form of settlement Cash settlement Cash settlement Cash settlement Payment date 2020 2021 2022 126 RWE Annual Report 2018 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 2018 tranche 1 Jan 2018 1,108,599 4 years Performance target Adjusted net income 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 % 150 % 200 % The payment amount is calculated on the basis of the determined number of finally granted performance shares multi- plied 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 performance 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 consid- ered 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 rights, 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 conditions, 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 consider- ation. Form of settlement Cash settlement Cash settlement Cash settelement Payment date 2020 2021 2022 Consolidated financial statements > Notes 127 The fair value of the performance shares conditionally granted under SPP included the following sums on the grant date: Performance Shares from the RWE AG SPP € 2016 tranche 2017 tranche 2018 tranche Fair value per share 13.78 11.62 18.80 Performance Shares from the innogy SE SPP € 2016 tranche 2017 tranche 2018 tranche Fair value per share 37.13 32.07 36.78 The fair values of the tranches of the RWE AG SPP are based on The fair values of the tranches of the innogy SE SPP are affected by RWE AG’s and innogy SE’s current share price plus the dividends the asset swap with E.ON announced in March 2018 because the per share which have already been paid to the shareholders during the rules set out earlier will be reflected in the valuation in the event the term of the corresponding tranche. The limited payment per SPP of a change of control. The expected payout amount will be calculated was implemented via a sold call option. The option value calculated using the Black Scholes Model was deducted. The maximum payments on the basis of the average innogy share price on the 30 stock market trading days leading up to 11 March 2018 plus dividends per conditionally granted SPP (= option strike) established in the paid. In line with the payout conditions in the event of a change of plan conditions, the discount rates relative to the remaining term control, the payout will be effected after the completion of the as well as the volatilities and expected dividends of RWE AG and transaction. innogy SE were considered in determining the option price. The performance shares displayed the following development in the fiscal year that just came to a close: Performance Shares from the RWE AG SPP 2016 tranche 2017 tranche 2018 tranche Outstanding at the start of the fiscal year 446,035 1,338,027 Granted Change (granted/expired) Paid out 82,172 290,364 883,974 Outstanding at the end of the fiscal year 528,207 1,628,391 883,974 Payable at the end of the fiscal year Performance Shares from the innogy SE SPP 2016 tranche 2017 tranche 2018 tranche Outstanding at the start of the fiscal year 460,572 1,178,133 Granted Change (granted/expired) – 432,696 – 1,122,921 1,108,599 – 1,052,053 Of which: assigned to innogy – discontinued operations Paid out – 367,338 – 975,733 – 1,042,949 Outstanding at the end of the fiscal year 27,876 55,212 56,546 Payable at the end of the fiscal year During the period under review, expenses for the share-based based payment programmes amounted to €32 million (previous payment system totalled €20 million (previous year: €19 million). year: €25 million). As of the balance-sheet date, provisions for cash-settled share- 128 RWE Annual Report 2018 (22) 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 2018 31 Dec 2017 Non-current Current Total Non-current Current 3,287 5,659 2,460 11,406 378 109 1,497 905 358 528 90 261 331 4,457 15,863 285 56 341 446 23 43 92 4 52 7 1 885 721 2,274 2,615 3,287 5,944 2,516 5,420 5,725 2,263 11,747 13,408 824 132 1,540 997 362 580 97 262 885 1,052 6,731 723 234 1,620 1,208 359 587 108 398 604 5,841 18,478 19,249 280 60 340 844 83 349 321 1 78 38 11 1,600 1,472 4,797 5,137 Total 5,420 6,005 2,323 13,748 1,567 317 1,969 1,529 360 665 146 409 1,600 2,076 10,638 24,386 Provisions for pensions and similar obligations. The company pension plan consists of defined contribution and defined benefit ABP will charge a termination fee. Amongst other things, its level depends on the number of participants in the plan, the amount of plans. The defined benefit commitments mainly relate to pension salary and the age structure of the participants. As of 31 Decem- benefits based on final salary. ber 2018, we had around 600 active participants in the plan (previ- ous year: approximately 2,000). The information relating to the pri- In the reporting period, €23 million (previous year: €45 million) was or year includes information from businesses subsumed under the paid into defined contribution plans. This includes payments made discontinued innogy operations. by RWE for a benefit plan in the Netherlands which covers the com- mitments of various employers. This fund does not provide the RWE transferred assets to RWE Pensionstreuhand e.V. within the participating companies with information allowing for the pro-rata framework of a contractual trust arrangement (CTA) in order to allocation of defined benefit obligations, plan assets and service finance the pension commitments of German Group companies. cost. In the consolidated financial statements, the contributions are There is no obligation to provide further funds. From the assets held thus recognised analogously to a defined contribution plan, although in trust, funds were transferred to RWE Pensionsfonds AG to cover this is a defined benefit plan. The pension plan for employees in the pension commitments to most of the employees who have already Netherlands is administered by Stichting Pensioenfonds ABP (see retired. RWE Pensionsfonds AG falls under the scope of the Act on www.abp.nl). Contributions to the pension plan are calculated as a the Supervision of Insurance Undertakings and oversight by the percentage rate of employees’ salaries and are paid by the employees Federal Financial Supervisory Agency (BaFin). Insofar as a regulatory and employers. The rate of the contributions is determined by ABP. deficit occurs in the pension fund, supplementary payment shall be There are no minimum funding obligations. Approximately €8 mil- requested from the employer. Independently of the aforementioned lion in employer contributions are expected to be paid to the ABP rules, the liability of the employer shall remain in place. The boards pension fund in fiscal 2019 (previous year: €20 million). The contri- of RWE Pensionstreuhand e.V. and RWE Pensionsfonds AG are respon- butions are used for all of the beneficiaries. If ABP’s funds are in- sible for ensuring that the funds under management are used in sufficient, it can either curtail pension benefits and future post-em- compliance with the contract and thus fulfil the requirements for ployment benefits, or increase the contributions of the employer and recognition as plan assets. employees. In the event that RWE terminates the ABP pension plan, Consolidated financial statements > Notes 129 In the United Kingdom, it is legally mandated that defined benefit deficit of £574.6 million. RWE, innogy and the trustees subsequently plans are provided with adequate and suitable assets to cover pen- prepared a plan for annual payments to rectify this deficit. These sion obligations. The corporate pension system is managed by the payments were calculated for the period from 2017 to 2025. The sector-wide Electricity Supply Pension Scheme (ESPS), in which RWE amounts determined were as follows: £106 million for 2017, and innogy each have their own dedicated independent sections. £76 million annually for 2018 to 2021, and £39.6 million annually The sections are managed by trustees which are elected by members for 2022 to 2025. In October 2016, an early payment in a nominal of the pension plans or appointed by the sponsoring employers. amount of £45.4 million was made. Thereafter, the contribution The trustees are responsible for managing the pension plans. This plans of the RWE and innogy sections were extended until 2022 includes investments, pension payments and financing plans. The and 2029, respectively, while maintaining the annual contributions. pension plans comprise the benefit obligations and plan assets The next valuation has to occur by 31 March 2019. From this point for the subsidiaries of the innogy Group and the RWE Group. It is in time, the company and the trustees have 15 months to approve required by law to assess the required financing of the pension plans the funding valuation. once every three years. This involves measuring pension obligations on the basis of conservative assumptions, which deviate from the The payments to settle the deficit are charged to the participating requirements imposed by IFRS. The underlying actuarial assump- companies on the basis of a contractual agreement. Above and beyond tions primarily include the projected life expectancies of the members this, payments are regularly made to finance the newly arising benefit of the pension plans as well as assumptions relating to inflation, obligations of active employees which increase the pension claims. imputed interest rates and the market returns on the plan assets. Provisions for defined benefit plans are determined using actuarial The last funding valuations of the RWE and innogy ESPS sections methods. We apply the following assumptions: were carried out on 31 March 2016. In sum, they showed a financing Calculation assumptions in % Discount rate Wage and salary growth rate Pension increase rate 31 Dec 2018 31 Dec 2017 Germany Foreign 1 Germany Foreign 1 1.70 2.35 2.70 3.30 2.00 2.35 2.30 3.20 1.00, 1.60 and 1.75 2.20 and 3.10 1.00, 1.60 and 1.75 2.10 and 3.00 1 Pertains to benefit commitments to employees of the RWE Group in the UK. Provisions for pensions and similar obligations of innogy – discontinued operations included in liabilities held for sale as of 31 December 2018 are based on the following calculation assumptions: Calculation assumptions in % Discount rate Wage and salary growth rate Pension increase rate 31 Dec 2018 Germany Foreign1 1.80 2.35 1.00, 1.60 and 1.75 2.80 3.30 2.20 and 3.10 1 Pertains to benefit commitments to employees of the RWE Group in the UK. 130 RWE Annual Report 2018 Composition of plan assets (fair value) 31 Dec 2018 31 Dec 2017 € 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 Of which: Level 1 pursuant to IFRS 13 Domestic 1 Of which: Level 1 pursuant to IFRS 13 Foreign 2 Of which: Level 1 pursuant to IFRS 13 Foreign 2 1,375 469 208 4 3,720 1,641 229 406 68 613 784 308 324 2 7 3,559 6,874 17 1,326 1,412 241 1,699 662 254 4,793 2,109 364 544 102 922 193 8 Domestic1 1,396 3,245 4 613 689 72 6,019 2,082 5,894 2,182 13,429 2,709 6,570 2,371 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. Our investment policy in Germany is based on a detailed analysis of over the long term. Furthermore, in order to achieve consistently the plan assets and the pension commitments and the relation of high returns, there is also investment in products which offer rela- these two items to each other, in order to determine the best possible tively regular positive returns over time. This involves products investment strategy (Asset Liability Management Study). Using an with returns which fluctuate like those of bond investments, but optimisation process, portfolios are identified which can earn the which achieve an additional return over the medium term, such as best targeted results at a defined level of risk. One of these efficient so-called absolute return 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, our capital investment takes account of the structure of the pension obligations as well as liquidity and risk matters. The focus of RWE’s strategic investment policy is on domestic and The goal of the investment strategy in this context is to maintain the foreign government bonds. In order to increase the average yield, level of pension plan funding and ensure the full financing of the corporate bonds with a higher yield are also included in the port- pension plans over time. To reduce financing costs and earn surplus folio. The ratio of equities in the portfolio is lower than that of bonds. returns, we also include higher-risk investments in our portfolio. The Investment occurs in various regions. The investment position in capital investment focusses on government and corporate bonds. equities is intended to earn a risk premium over bond investments 131 Total Consolidated financial statements > Notes Pension provisions for pension commitments changed as follows: Changes in pension provisions € million Balance at 1 Jan 2018 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 of which: stated as ‘Held for sale’ Past service cost General administration expenses Change in capitalised surplus of plan assets Balance at 31 Dec 2018 of which: domestic of which: foreign Present value of pension commitments Fair value of plan assets Capitalised surplus of plan assets 25,316 19,999 103 5,420 210 413 44 380 − 71 − 45 8 − 907 − 10,376 − 10,461 15 14,987 9,208 5,779 340 − 788 − 46 8 259 − 852 − 7,001 − 7,005 − 6 11,913 6,019 5,894 210 73 788 44 380 − 71 − 259 − 55 − 3,481 − 3,562 15 6 217 3,287 3,189 98 − 1 − 106 − 106 217 213 213 1 Of which: €138 million from initial and subsequent transfers to plan assets and €121 million in cash flows from operating activities. 2 Contained in cash flows from operating activities. 132 RWE Annual Report 2018 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 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 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. 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 Changes in the present value of defined benefit obligations € million 31 Dec 2018 31 Dec 2017 Change in the discount rate by + 50 /− 50 basis points – Domestic – Foreign Change in the wage and salary growth rate by − 50 /+ 50 basis points – Domestic – Foreign Change in the pension increase rate by − 50 /+ 50 basis points – Domestic – Foreign Increase of one year in life expectancy – Domestic – Foreign − 644 − 373 − 49 − 29 − 442 − 267 − 1,370 − 485 − 151 − 61 − 937 − 350 728 420 51 32 484 298 425 202 Total 6,761 325 120 − 744 − 145 − 528 − 89 − 13 − 476 − 89 275 − 57 6 74 5,420 5,287 133 1,554 554 158 71 1,027 394 772 245 Consolidated financial statements > Notes 133 The sensitivity analyses are based on the change of one assumption eration of gender-specific factors and severance payments. Further- each, with all other assumptions remaining unchanged. Actual more, employee rights to compensation for disadvantages were developments will probably be different than this. The methods of remeasured in some cases in German pre-retirement regulations. calculating the aforementioned sensitivities and for calculating the In the previous year, the past service cost was primarily based on pension provisions are in agreement. The dependence of pension effects in relation to restructuring measures and the remeasurement provisions on market interest rates is limited by an opposite effect. of a pension policy – both in Germany. The background of this is that the commitments stemming from company pension plans are primarily covered by funds, and mostly Domestic company pensions are subject to an obligation to review plan assets exhibit negative correlation with the market yields of for adjustment every three years pursuant to the Act on the Improve- fixed-interest securities. Consequently, declines in market interest ment of Company Pensions (Sec 16 of the German Company Pension rates are typically reflected in an increase in plan assets, whereas Act (BetrAVG)). Additionally, some commitments grant annual ad- rising market interest rates are typically reflected in a reduction in justments of pensions, which may exceed the adjustments in com- plan assets. pliance with the legally mandated adjustment obligation. The present value of pension obligations, less the fair value of the Some domestic pension plans guarantee a certain pension level, plan assets, equals the net amount of funded and unfunded pension taking into account the statutory pension (total retirement earnings obligations. schemes). As a result, future reductions in the statutory pension can As of the balance-sheet date, the recognised amount of pension provisions totalled €2,826 million for funded pension plans (previ- The weighted average duration of the pension obligations was ous year: €3,694 million) and €461 million for unfunded pension 15 years in Germany (previous year: 16 years) and 14 years outside plans (previous year: €1,726 million). of Germany (previous year: 16 years). result in higher pension payments by RWE. In fiscal 2018, the past service cost predominantly consisted of In fiscal 2019, RWE expects to make €220 million in payments for pension commitments in the United Kingdom due to a ruling on the defined benefit plans of continuing operations (previous-year target: equalisation of minimum pension entitlements through the consid- €400 million), as direct benefits and contributions to plan assets. Provisions for nuclear energy and mining Balance at 1 Jan 2018 Additions Unused amounts released Interest accretion Amounts used Balance at 31 Dec 2018 Changes in the scope of consoli- dation, currency adjustments, transfers € million Provisions for nuclear waste management Provisions for mining damage 6,005 2,323 8,328 48 127 175 − 56 − 56 135 96 231 − 244 − 51 − 295 77 77 5,944 2,516 8,460 Provisions for nuclear waste management are recognised in the full amount for the nuclear power plants Biblis A and B, Mülheim- we will use most of these provisions by 2045. The discount rate calculated on the basis of the current level of market interest rates Kärlich, Emsland and Lingen, and at a rate of 75 % for the nuclear for no-risk cash investments was 0.4 % as of the balance-sheet date power plant Gundremmingen A, B and C, in accordance with RWE’s (previous year: 0.6 %). The escalation rate based on expectations share in the nuclear obligations. Provisions for waste disposal for with regard to general increases in wages and prices and productivity the Dutch nuclear power plant Borssele are included at a rate of growth was 1.5 % (previous year: 1.5 %). As a result, the real discount 30 %, in line with RWE’s stake. rate used for nuclear waste management purposes, which is the difference between the discount rate and the escalation rate, Provisions for nuclear waste disposal are almost exclusively reported amounted to – 1.1 % (previous year: – 0.9 %). An increase (decrease) as non-current provisions, and their settlement amount is discounted in this rate by 0.1 percentage point would reduce (increase) the to the balance-sheet date. Based on the current state of planning, present value of the provision by roughly €50 million. 134 RWE Annual Report 2018 Excluding the interest accretion, additions to provisions for nuclear Provisions for the dismantling of nuclear power plant facilities include waste management amount to €48 million. Besides quantity-related all work done to dismantle plants, parts of plants, systems and com- increases in the provisions, additions to provisions are due to the ponents as well as on buildings that must be dismantled to comply fact that the current estimates resulted in a net increase in the antici- with the Nuclear Energy Act. They also consider the conventional pated nuclear waste management costs. The interest accretion in dismantling of nuclear power plant facilities to fulfil legal or other the additions to provisions for nuclear waste management amounted obligations. to €135 million. Of the changes in provisions, €74 million was capitalised under the corresponding costs of nuclear power plants Provisions for residual material processing and waste management and fuel elements still in operation. Prepayments for services in the include the costs of processing radioactive residual material for amount of €8 million were deducted from these provisions. In the non-hazardous recycling and the costs of treating radioactive waste reporting period, we also used provisions of €171 million for the produced during the plant’s service life and dismantling operations. decommissioning of nuclear power plants. Decommissioning and This includes the various processes for conditioning, proper packag- dismantling costs had originally been capitalised in a corresponding ing of the low-level and intermediate-level radioactive waste in suitable amount and reported under the cost of the power plants. containers and the transportation of such waste to BGZ Gesellschaft für Zwischenlagerung mbH (BGZ), which has been commissioned by The provisions of the law on the reassignment of responsibility for the Federal government for intermediate storage. This item also nuclear waste disposal stipulates that accountability for the shut- contains the cost of transporting the waste produced by recycling down and dismantling of the assets as well as for packaging radio active waste remains with the companies. The shutdown and and the cost of the proper packaging of spent nuclear fuel elements, i.e. the cost of loading and procuring freight and interim storage dismantling process encompasses all activities following the final containers. termination of production by the nuclear power plant until the plant site is removed from the regulatory scope of the Nuclear Energy Act. Commissioned by the plant operator, the internationally renowned Actual dismantling begins after the fuel assemblies, operating company NIS Ingenieurgesellschaft mbH (NIS), Alzenau, assesses the equipment and radioactive operational waste are removed from the prospective residual operation and dismantling costs for the nuclear facility and the approval process is completed. Dismantling opera- power plants on an annual basis. The costs are determined specifi- tions essentially consist of the dismantling of the facilities, removal cally for each facility and take into consideration the current state of the radioactive contamination from the structures, radiation pro- of the art, regulatory requirements and previous practical experi- tection, and regulatory monitoring of the dismantling measures and ence from ongoing and completed dismantling projects. Additionally, residual operations. current developments are also incorporated into the cost calcula- tions. They also include the cost of conditioning and packaging radi- We thus subdivide our provisions for nuclear waste management oactive waste generated during dismantling operations and the into the residual operation of nuclear power plants, the dismantling transportation of such waste to BGZ, which has been commissioned of nuclear power station facilities as well as the cost of residual by the Federal government for intermediate storage. Further cost material processing and radioactive waste treatment facilities. estimates for the disposal of radioactive waste are based on con- Provisions for nuclear waste management € million 31 Dec 2018 31 Dec 2017 companies. Furthermore, they are based on plans by internal and tracts with foreign reprocessing companies and other disposal external experts, in particular GNS Gesellschaft für Nuklear-Service Residual operation Dismantling Processing of residual material and waste management 2,515 1,810 1,619 5,944 2,577 1,766 1,662 6,005 Provisions for the residual operation of nuclear power station facilities cover all steps that must be taken largely independent of dismantling and disposal but are necessary to ensure that the assets are safe and in compliance with permits or are required by the authorities. In addition to works monitoring and facility protection, these mainly include service, recurrent audits, maintenance, radia- tion and fire protection as well as infrastructural adjustments. mbH, (GNS) Essen. In terms of their contractual definition, provisions for nuclear waste management break down as follows: Provisions for nuclear waste management € million 31 Dec 2018 31 Dec 2017 Provisions for nuclear obligations, not yet contractually defined Provisions for nuclear obligations, contractually defined 4,462 4,453 1,482 5,944 1,552 6,005 Consolidated financial statements > Notes 135 The provision for obligations which are not yet contractually defined Due to the long-term nature of the obligations, both the escalation covers the costs of the remaining operational phase of the operat- rate and the discount rate are determined as the average values for ing plants, the costs of dismantling as well as the residual material a longer period in the past. Since the development of inflation has processing and waste treatment costs incurred in connection with an impact both on the fulfilment amounts and the level of interest waste produced as a result of shut-downs. rates, this approach results in a consistent real discount rate specific to the provisions, as the difference between the discount rate and Provisions for contractually defined nuclear obligations relate to the escalation rate. Due to developments in long-term interest rates all obligations the value of which is specified in contracts under civil on the capital markets, the discount rate was lowered from 4.2 % to law. The obligations include the anticipated residual costs of repro- 4.1 % in the 2018 reporting year. The escalation rate, which takes cessing and returning the resulting radioactive waste. These costs into consideration anticipated future increases in costs and prices, stem from existing contracts with foreign reprocessing companies as well as a risk premium, declined to the same degree, from 2.9 % and with GNS. Moreover, these provisions also include the costs for to 2.8 %. The real discount rate applied for mining purposes, which transport and intermediate storage containers for and the loading is the difference between the discount rate and the escalation rate, of spent fuel assemblies within the framework of final direct storage. thus remained unchanged at 1.3 %. An increase (decline) in the real Furthermore, this item also includes the amounts for the professional discount rate by 0.1 percentage point would reduce (increase) the packaging of radioactive operational waste as well as the in-house present value of the provision by around €70 million. personnel costs incurred for the residual operation of plants which are permanently decommissioned. In the reporting year, €127 million was added to provisions for min- ing damage amounted due to the quantity-induced increases in the Provisions for mining damage also consist almost entirely of non-current provisions and fully covered the volume of obligations obligatory volume, of which €109 million was capitalised under ‘Property, plant and equipment’. Releases of provisions in the as of the balance-sheet date. They are reported at their settlement amount of €56 million resulted in part from the fact that current amount discounted to the balance-sheet date. In addition to contin- estimates led to a reduction in the anticipated costs of restoration. uous recultivation of opencast mine sites a large part of the claims The interest accretion increased provisions for mining damage by for site restoration of lignite opencast mining areas is expected for €96 million. the period from 2030 to 2100. The cost estimates are to a great extent based on external expert opinions. Other provisions Balance at 1 Jan 2018 Additions Unused amounts released Interest accretion Of which: ‘Held for sale’ Amounts used Balance at 31 Dec 2018 Changes in the scope of consoli- dation, currency adjustments, 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 1,567 317 1,969 1,529 360 665 146 409 640 47 125 171 4 11 8 7 1,600 2,076 10,638 1,339 490 2,842 − 21 − 45 − 10 − 309 − 1 − 6 − 1 − 9 − 113 − 515 3 3 8 1 12 − 5 13 35 − 689 − 172 − 379 − 225 − 1 − 88 − 47 − 154 − 745 − 127 − 369 − 224 − 87 − 47 − 26 − 676 − 18 − 165 − 177 − 1 − 14 − 4 − 1,069 − 1,034 − 3,858 − 1,066 − 1,096 − 976 − 380 − 3,787 − 2,411 824 132 1,540 997 362 580 97 262 885 1,052 6,731 136 RWE Annual Report 2018 Provisions for taxes primarily consist of income taxes. turing obligations to provisions for staff-related obligations as soon Provisions for staff-related obligations mainly consist of provisions for pre-retirement part-time work arrangements, severance, out- standing vacation and service jubilees and performance-based pay components. Based on current estimates, we expect most of these to be used from 2019 to 2025. as the underlying restructuring measure has been specified. This is the case if individual contracts governing socially acceptable payroll downsizing are signed by affected employees. Provisions for purchase and sales obligations primarily relate to contingent losses from pending transactions. Provisions for restructuring obligations pertain mainly to measures for socially acceptable payroll downsizing. We currently expect most of these to be used from 2019 to 2025. In so doing, sums ear-marked for personnel measures are reclassified from provisions for restruc- From the current perspective, we expect that the majority of the provisions for the dismantling of wind farms will be used from 2020 to 2038, and the other dismantling and retrofitting obliga- tions will be used from 2019 to 2060. (23) 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 2018 31 Dec 2017 Non-current Current Non-current Current 1,103 473 422 1,998 12,059 1,333 1,022 14,414 81 533 152 766 990 456 261 389 691 2,787 €523 million of the non-current financial liabilities were interest- The following overview shows the key data on the major bonds of bearing liabilities (previous year: €12,633 million). the RWE Group as of 31 December 2018: Bonds payable Issuer RWE AG/innogy SE RWE AG RWE AG RWE AG Bonds payable Outstanding amount € 480 million1 € 539 million2 € 282 million2 US$ 317 million2 Carrying amount € million Coupon in % Maturity 12 537 281 273 1,103 3.5 2.75 3.5 6.625 October 2037 April 2075 April 2075 July 2075 1 Of which €12 million is attributable to RWE AG and €468 million is attributable to innogy SE. 2 Hybrid bonds classified as debt as per IFRS. Other financial liabilities contain finance lease liabilities. Lease agree- ments principally relate to capital goods in the electricity business. Consolidated financial statements > Notes 137 Liabilities arising from finance lease agreements have the following maturities: 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 2018 31 Dec 2017 Nominal value Discount Present value Nominal value Discount Present value 10 39 192 241 10 39 192 241 11 41 197 249 11 40 197 248 1 1 31 Dec 2018 31 Dec 2017 Non-current Current Non-current Current 2 362 144 508 379 129 105 14 6,698 383 7,200 6,877 323 6 975 1,168 244 2,393 1,033 1,360 725 66 3,282 168 2,841 7,082 5,337 1,745 €72 million (previous year: €85 million) of the financial liabilities are secured by mortgages. (24) Other liabilities Other liabilities € million Tax liabilities Social security 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. Miscellaneous other liabilities contain €76 million in contract liabilities. The opening balance as of 1 January 2018 of €1,314 million was re- duced essentially because €1,274 million was stated under ‘Liabilities held for sale’. Moreover, €56 million (previous year: €8 million) in miscellaneous other liabilities were allocable to state investment subsidies primarily granted in connection with the construction of wind farms and the modernisation of a power station. In the previous year, of the miscellaneous other liabilities, €1,451 million related to financial debt in the form of current purchase price obligations from rights granted to tender non- controlling interests (put options). 138 RWE Annual Report 2018 Other information (25) Earnings per share Basic and diluted earnings per share are calculated by dividing the portion of net income attributable to RWE shareholders by the aver- On the liabilities side, non-derivative financial instruments principally include liabilities measured at amortised cost. age number of shares outstanding; treasury shares are not taken The fair value of financial instruments is determined based on the into account in this calculation. The earnings per share are the same published exchange price, insofar as the financial instruments are for both common and preferred shares. traded on an active market. The fair value of non-quoted debt and Earnings per share Net income for RWE AG shareholders of which: from continuing operations of which: from discontinued operations Number of shares outstanding (weighted average) Basic and diluted earnings per common and preferred share of which: from continuing operations of which: from discontinued operations Dividend per common share Dividend per preferred share 1 Proposal for fiscal 2018. 2018 2017 expected payment flows, taking into consideration macro-economic equity instruments is generally determined on the basis of discounted developments and corporate business plan data. Current market € million 335 1,900 interest rates corresponding to the remaining maturity are used for − 196 1,702 discounting. Derivative financial instruments are recognised at their fair values as 531 198 of the balance-sheet date, insofar as they fall under the scope of in ‘000 614,745 614,745 IFRS 9. Exchange-traded products are measured using the published closing prices of the relevant exchange. Non-exchange traded prod- ucts are measured on the basis of publicly available broker quotations € € € 0.54 3.09 or, if such quotations are not available, on generally accepted valua- – 0.32 0.86 0.701 0.701 2.77 0.32 1.50 1.50 tion methods. In doing so, we draw on prices on active markets as much as possible. If such prices are not available, company-specific planning estimates are used in the measurement process. These estimates encompass all of the market factors which other market participants would take into account in the course of price determi- nation. Assumptions pertaining to the energy sector and economy are made within the scope of a comprehensive process with the involvement of both in-house and external experts. (26) 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. financial assets, accounts receivable, marketable securities and cash The following overview presents the classifications of financial and cash equivalents. Financial instruments are recognised at amor- instruments measured at fair value in the fair value hierarchy pre- tised cost or fair value, depending on their classification. Financial scribed by IFRS 13. The individual levels of the fair value hierarchy instruments are recognised in the following categories: are defined as follows: • Debt instruments measured at amortised cost: the contractual • Level 1: Measurement using (unadjusted) prices of identical financial cash flows solely consist of interest and principal on the outstand- instruments formed on active markets, ing capital and there is an intention to hold the financial instrument • Level 2: Measurement on the basis of input parameters which until maturity. are not the prices from Level 1, but which can be observed for the • Debt instruments measured at fair value through other compre- financial instrument either directly (i.e. as price) or indirectly hensive income: the contractual cash flows solely consist of inter- (i.e. derived from prices), est and principal on the outstanding capital: there is an intention • Level 3: Measurement using factors which cannot be observed on to hold and sell the financial instrument. the basis of market data. • Equity instruments measured at fair value through other compre- hensive income: the option to recognise changes in fair value directly in equity is exercised. • Financial assets measured at fair value through profit or loss: the contractual cash flows of a debt instrument do not solely consist of interest and principal on the outstanding capital or the option to recognise changes in the fair value of equity instruments in other comprehensive income is not exercised. Consolidated financial statements > Notes 139 Fair value hierarchy € million Other financial assets Derivatives (assets) of which: used for hedging purposes Securities Assets held for sale Derivatives (liabilities) of which: used for hedging purposes Liabilities held for sale Total 2018 400 7,271 1,644 3,606 4,031 7,060 1,134 1,343 Level 1 Level 2 Level 3 93 1,618 1,755 159 7,115 1,644 1,988 1,472 7,025 1,134 1,343 148 156 804 35 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 Due to the increase in the number of price quotations on active markets, marketable securities with a fair value of €14 million were reclassified from Level 2 to Level 1. Conversely, due to a drop in the number of price quotations, financial assets with a fair value of €12 million were reclassified from Level 1 to Level 2. The development of the fair values of Level 3 financial instruments is presented in the following table: Level 3 financial instruments: Development in 2018 Balance at 1 Jan 2018 € million Other financial assets Financial receivables Derivatives (assets) Assets held for sale Derivatives (liabilities) 821 35 33 4 Level 3 financial instruments: Development in 2017 Balance at 1 Jan 2017 € million Other financial assets Derivatives (assets) Derivatives (liabilities) 789 37 10 Changes in the scope of consolidation, currency adjustments and other − 741 − 35 736 Changes in the scope of consolidation, currency adjustments and other − 48 1 Changes Balance at 31 Dec 2018 Recognised in profit or loss Recognised in OCI With a cash effect − 42 140 30 36 12 − 1 98 − 17 39 − 5 148 156 804 35 Changes Balance at 31 Dec 2017 Recognised in profit or loss Recognised in OCI With a cash effect − 6 15 4 86 − 20 − 10 821 33 4 140 RWE Annual Report 2018 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 Income from discontinued operations Total 2018 25 − 24 96 − 45 40 92 Of which: attributable to financial instru- ments held at the balance-sheet date 25 − 24 96 − 45 48 100 Total 2017 16 − 4 − 22 15 5 Of which: attributable to financial instruments held at the balance-sheet date 16 − 4 − 22 21 11 Level 3 derivative financial instruments essentially consist of energy Acquisition costs are used as an approximate figure for shares in purchase and commodity agreements, which relate to trading peri- non-consolidated subsidiaries and associates/joint ventures not ods for which there are no active markets yet. The valuation of such accounted for using the equity method included in other financial depends on the development of electricity and gas prices in particular. assets as well as for other investments, the fair value of which All other things being equal, rising market prices cause the fair cannot be determined reliably. values to increase, whereas declining gas prices cause them to drop. A change in pricing by +/−10 % would cause the market value to rise In the previous year, pursuant to IAS 39 the following impairments by €41 million or decline by €41 million. 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 Total 840 235 13 − 4 265 819 In the previous year, according to IAS 39 there were unimpaired, past due receivables falling under the scope of IFRS 7 in the following amounts: Receivables, past due € million Financial receivables Trade accounts receivable Other receivables and other assets Gross amount as of 31 Dec 2017 Receiva- bles, impaired, past due, 2,345 5,808 4,509 12,662 18 474 3 495 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 Consolidated financial statements > Notes 141 The disclosures on the impairments in accordance with IFRS 9 for Financial assets and liabilities can be broken down into the measure- the current fiscal year are commented upon in the section on credit ment categories with the following carrying amounts according to risks (see page 147 et seqq.). IFRS 9 in the year under review (previous year: IAS 39): Carrying amounts by category € million Financial assets measured at fair value through profit or loss of which: held for trading of which: obligatorily measured at fair value – continuing operations of which: obligatorily measured at fair value – held for sale Financial assets available for sale Loans and receivables Debt instruments measured at amortised cost of which: held for sale Debt instruments measured at fair value through other comprehensive income of which: held for sale Equity instruments measured at fair value through other comprehensive income of which: held for sale Financial liabilities measured at fair value through profit or loss of which: held for trading of which: obligatorily measured at fair value – continuing operations of which: obligatorily measured at fair value – held for sale Financial liabilities measured at (amortised) cost of which: held for sale 31 Dec 2018 31 Dec 2017 11,128 8,483 2,645 14,757 6,244 1,715 975 817 408 7,258 5,926 1,332 20,621 15,545 2,807 2,807 6,002 11,692 3,614 3,614 19,754 The carrying amounts of financial assets and liabilities within the Level 1 and €1,762 million (previous year: €4,393 million) to Level 2 scope of IFRS 7 basically correspond to their fair values. The only of the fair value hierarchy. deviations are for financial liabilities. The carrying amount of these is €2,764 million (previous year: €17,201 million), while the fair The following net results from financial instruments as per IFRS 7 were value amounts to €2,842 million (previous year: €19,167 million). recognised on the income statement, depending on the category Of this, €1,080 million (previous year: €14,744 million) is related to (according to IFRS 9 in 2018; according to IAS 39 in 2017): Net gain/loss by category € million Financial assets and liabilities measured at fair value through profit or loss of which: held for trading of which: obligatorily measured at fair value Financial assets available for sale Loans and receivables Debt instruments measured at amortised cost Debt instruments measured at fair value through other comprehensive income Equity instruments measured at fair value through other comprehensive income Financial liabilities measured at (amortised) cost 2018 362 362 186 25 14 − 236 2017 − 178 − 178 8 1,926 − 5 142 RWE Annual Report 2018 The net result as per IFRS 7 essentially includes interest, dividends and results from the measurement of financial instruments at fair value. Fair value of equity instruments measured at fair value through other comprehensive income € million In the previous year, changes of €74 million after taxes in the value Securities in special funds of financial assets available for sale were recognised in accumulated Nordsee One GmbH other comprehensive income without an effect on income. Above and beyond this, €30 million in changes in the value of financial 31 Dec 2018 378 31 instruments available for sale which had originally been recognised In the 2018 fiscal year, €13 million in income from dividends from without an effect on income was realised as income in the previous these financial instruments was recognised, of which €4 million is year. attributable to equity instruments sold during the same year. More- over, in the year under review, equity instruments measured through The option to recognise changes in fair value in other comprehen- other comprehensive income were sold in line with the existing sive income is exercised for a portion of the investments in equity investment strategy. Their fair value at the derecognition date instruments. These are strategic investments and other long-term amounted to €312 million. The resulting loss amounted to €2 million. investments as well as securities in special funds. The following is an overview of the financial assets and financial liabilities which are netted out in accordance with IAS 32 or are subject to enforceable master netting agreements or similar agreements. The netted financial assets and liabilities essentially consist of collat- eral for stock market transactions due on a daily basis. Netting of financial assets and financial liabilities as of 31 Dec 2018 Gross amounts recognised Netting Net amounts recognised Related amounts not set off Net amount € million Derivatives (assets) Derivatives (liabilities) Financial instruments Cash collateral received/ pledged 14,915 10,532 – 14,232 – 10,101 683 431 – 186 – 400 – 245 283 Netting of financial assets and financial liabilities as of 31 Dec 2017 Gross amounts recognised Netting Net amounts recognised Related amounts not set off Net amount € million Derivate (aktiv) Derivate (passiv) Financial instruments Cash collateral received/ pledged 8,204 8,291 – 7,419 – 7,264 785 1,027 – 118 – 305 – 318 480 591 The related amounts not set off include cash collateral received and pledged for over-the-counter transactions as well as collateral Market risks stem from changes in exchange rates and share prices as well as interest rates and commodity prices, which can have an pledged in advance for stock market transactions. influence on business results. As a utility enterprise with international operations, the RWE Group RWE AG manages its fully consolidated subsidiary innogy as a financial is exposed to market, credit and liquidity risks in its ordinary busi- investment and exercises its control over innogy SE via the legal ness activity. We limit these risks via systematic, groupwide risk bodies of the Supervisory Board and its majority influence at the management. The range of action, responsibilities and controls are Annual General Meeting. One of the results of this is that RWE and defined in binding internal directives. innogy each have their own independent management of interest rate, currency, liquidity and credit risks. In accordance with this, the risk figures from these areas are reported for the respective parts of the Group. Consolidated financial statements > Notes 143 Due to the RWE Group’s international profile, currency management In respect of interest rate risks, RWE and innogy distinguish between is a key issue. Sterling and US dollar are two important currencies two risk categories: on the one hand, increases in interest rates can for the RWE Group. In certain cases, fuels are traded in these two result in declines in the prices of securities from the holdings of RWE currencies. In addition, RWE does business in the UK currency area. and innogy. This pertains primarily to fixed-rate instruments. A VaR The companies of the RWE Group are required to hedge their foreign is determined to quantify securities price risk. As of the balance- sheet currency risks via RWE AG or innogy SE, depending on which part of date, it amounted to €2.3 million for RWE (previous year: the Group they belong to. Only these two companies themselves €2.7 million) and €3.4 million for innogy (previous year: €3.2 million). may maintain open foreign currency positions, subject to predefined On the other hand, financing costs also increase along with the level limits, or approve such limits for their Group companies. of interest rates. The sensitivity of interest expenses to increases in market interest rates is measured with the CFaR. As of 31 December Interest rate risks stem primarily from financial debt and the Group’s 2018 this amounted to €5.9 million for RWE (previous year: €3.7 mil- interest-bearing investments. We hedge against negative changes lion) and €11.0 million for innogy (previous year: €10.8 million). in value caused by unexpected interest-rate movements using RWE calculates the CFaR based on the assumption of the refinancing non-derivative and derivative financial instruments. The financial of maturing debt, whereas innogy determines it based on the liabilities and interest-bearing bonds transferred to innogy SE are planned financing requirement. managed exclusively by innogy SE. As of 31 December 2018, the VaR for foreign currency positions was Opportunities and risks from changes in the values of non-current securities are centrally controlled by a professional fund management less than €1.1 million for RWE (previous year: less than €1 million) and also less than €1 million for innogy (previous year: less than system operated by RWE AG. This also includes fund management €1 million). This corresponds to the figure used internally, which for the assets of the innogy subgroup. also includes the underlying transactions for cash flow hedges. Unlike The Group’s other financial transactions are recorded using central- ised risk management software, with RWE AG and innogy SE each As of 31 December 2018, the VaR for risks related to the RWE share monitoring their own transactions. portfolio amounted to €6.9 million for RWE (previous year: €2.7 mil- in the previous year, the VaR also reflects the risk of timing differences. lion) and €4.7 million for innogy (previous year: €3.0 million). For commodity operations, risk management directives have been established by RWE AG’s Controlling & Risk Management Depart- The key internal control parameters for commodity positions at RWE ment. These regulations stipulate that derivatives may be used to Supply & Trading are the VaR for the trading business and the VaR hedge price risks, optimise power plant schedules and increase for the pooled gas and liquefied natural gas (LNG) business. Here, margins. Furthermore, commodity derivatives may be traded, subject the maximum VaR is €40 million and €12 million, respectively. As of to limits. Compliance with limits is monitored daily. innogy does not 31 December 2018, the VaR was €12.4 million in the trading business hold derivatives for trading purposes. (previous year: €7.9 million) and €5.1 million for the pooled gas and LNG business (previous year: €2.2 million). Risks stemming from fluctuations in commodity prices and financial market risks (foreign currency risks, interest rate risks, securities Additionally, stress tests are carried out on a monthly basis in risks) are monitored and managed by RWE using indicators such as relation to the trading and pooled LNG and gas business of the Value at Risk (VaR), amongst other things. In addition, for the RWE Supply & Trading to model the impact of commodity price management of interest rate risk, a Cash Flow at Risk (CFaR) is deter- changes on the earnings conditions and take risk-mitigating measures mined. innogy exclusively manages financial risks using these key if necessary. In these stress tests, market price curves are modified, figures amongst others. and the commodity position is revalued on this basis. Historical scenarios of extreme prices and realistic, fictitious price scenarios Using the VaR method, RWE and innogy determine and monitor the are modelled. In the event that the stress tests exceed internal maximum expected loss arising from changes in market prices with thresholds, these scenarios are then analysed in detail in relation a specific level of probability during specific periods. Historical price to their impact and probability, and – if necessary – risk-mitigating volatility is taken as a basis in the calculations. With the exception measures are considered. of the CFaR data, all VaR figures are based on a confidence interval of 95 % and a holding period of one day. For the CFaR, a confidence Commodity risks of the Group’s power generation companies interval of 95 % and a holding period of one year is taken as a basis. belonging to the Lignite & Nuclear and European Power segments are transferred on the basis of available market liquidity – in accord- ance with Group guidelines – at market prices to the Supply & Trading segment, where they are hedged. In accordance with the approach for long-term investments for example, it is not possible to manage 144 RWE Annual Report 2018 commodity risks from long-term positions or positions which cannot As of 31 December 2018, RWE held the following instruments to be hedged due to their size and the prevailing market liquidity using hedge the fair value of commodity price risks: the VaR concept. As a result, these positions are not included in the VaR figures. Above and beyond open production positions which Fair value hedges have not yet been transferred, the Group companies belonging to the Lignite & Nuclear and European Power segments are not allowed to maintain significant risk positions, according to a Group guide- line. Commodity price risks at innogy can exist in relation to the renewable generation positions, in the gas storage business and in the retail business separate from fixed price products. As of 31 December 2018, the aggregated commodity price risk for 2019 at innogy, which was calculated based on the as yet unhedged CO2 derivatives Nominal volume (€ million) Secured average price (€/metric ton) Maturity 7 - 12 months 1 - 6 months >12 months 39 5.57 commodity risk positions at innogy, was €90 million (previous year: Cash flow hedges are primarily used to hedge against interest risks €20 million). from non-current liabilities as well as currency and price risks from sales and purchase transactions. Hedging instruments consist of for- One of our most important instruments to limit market risk is the wards, swaps and options with foreign currency and interest rates, conclusion of hedging transactions. The instruments most common- and forwards, futures and swaps with commodities. Changes in the ly used are forwards and options with foreign currency, interest rate swaps, interest rate currency swaps, and forwards, options, futures fair value of the hedging instruments – insofar as they affect the effective portion – are recorded under other comprehensive income and swaps with commodities. until the underlying transaction is realised. The ineffective portion of changes in value is recognised in profit or loss. When hedging Maturities of derivatives related to interest rates, currencies, equities, commodities, underlying and hedging transactions are based on the indices and commodities for the purpose of hedging are based on same price index. This generally does not result in ineffectiveness. the maturities of the underlying transactions and are thus primarily When hedging foreign currency risks, ineffectiveness can result from short term and medium term in nature. Hedges of the foreign currency the difference in timing between the origination of the hedged item risks of foreign investments have maturities of up to 20 years. and the hedging instrument. Ineffectiveness can likewise stem from hedges containing material foreign currency basis spreads. Upon All derivative financial instruments are recognised as assets or liabili- realisation of the underlying transaction, the hedge’s contribution ties and are measured at fair value. When interpreting their positive to income from accumulated other comprehensive income is recog- and negative fair values, it should be taken into account that, with nised on the income statement or is offset against the initial value the exception of trading in commodities, these financial instruments recognition of an asset or a liability. In the prior year, the recognised are generally matched with underlying transactions that carry offset- fair value of the hedging instruments used as cash flow hedges ting risks. amounted to €478 million. Hedge accounting pursuant to IFRS 9 is used primarily for mitigating currency risks from net investments in foreign functional currencies, commodity market price risks, interest risks from non-current liabilities As of 31 December 2018, RWE held the following instruments to hedge future cash flows relating to foreign currency risks: and currency and price risks from sales and purchase transactions. Cash flow hedges Fair value hedges are used to limit the market price risk exposure related to CO2 emission allowances. In the case of fair value hedges, both the derivative as well as the underlying hedged transaction Currency forwards – purchases Maturity 7 - 12 months 1 - 6 months >12 months (in relation to the hedged risk) are recorded at fair value with an effect Nominal volume (€ million) 1,534 135 on income. As of the cut-off date for the financial statements of the preceding year, the fair value of hedging instruments used as fair value hedges totalled €10 million. In the prior year, the adjustment to the carrying amount of the underlying transactions in view of the hedged risk resulted in €17 million in gains, whereas changes in the value of the hedging instruments resulted in €17 million in losses, both of which were recognised in the financial result. Avg. EUR/USD exchange rate Avg. EUR/GBP exchange rate Avg. EUR/CAD exchange rate 1.20 0.90 1.57 Currency forwards – sales Nominal volume (€ million) – 1,743 Avg. EUR/USD exchange rate Avg. EUR/GBP exchange rate Avg. EUR/CAD exchange rate 1.23 0.90 1.53 0.91 1.58 – 339 1.28 0.91 738 1.19 0.92 1.55 – 217 1.17 0.91 Consolidated financial statements > Notes 145 As of 31 December 2018, RWE held the following instruments to in the appropriate currencies, interest rate currency swaps, and other hedge future cash flows relating to interest risks: currency derivatives as hedging instruments. If there are changes in Maturity 7 – 12 months 1 – 6 months Cash flow hedges Interest swaps Nominal volume (£ million) Secured average interest rate (%) >12 months 1,642 1.56 the exchange rates of currencies in which the bonds used for hedg- ing are denominated or changes in the fair value of interest rate currency swaps, this is recorded under foreign currency translation adjustments in other comprehensive income. As of 31 December 2018, RWE held the following instruments to hedge net investments in foreign operations: Net investment hedges Maturity 7 - 12 months 1 - 6 months >12 months The commercial optimisation of the power plant portfolio is based on a dynamic hedging strategy. Hedged items and hedging instru- ments are constantly adjusted based on changes in market prices, market liquidity and the sales business with consumers. Commodity prices are hedged if this leads to a positive margin. Proprietary com- modities trading is strictly separated from this when managing risks. In the previous year, changes of €950 million after taxes in the fair values of hedging instruments used as cash flow hedges were recognised in accumulated other comprehensive income. Ineffective- nesses of cash flow hedges amounted to €0 million in the prior year. Furthermore, in the previous year, changes of €148 million after tax in the value of cash flow hedges, which had originally not been Bonds and currency forwards – purchases Nominal volume (€ million) Avg. EUR/GBP exchange rate 56 0.89 Bonds and currency forwards – sales Nominal volume (€ million) – 1,576 Avg. EUR/AUD exchange rate Avg. EUR/GBP exchange rate Avg. EUR/USD exchange rate 1.58 0.89 1.23 – 4,370 0.85 recognised through profit or loss, were recognised as income. More- As regards bonds used as hedging instruments for net investment over, in the previous year, changes in the values of cash flow hedges hedges, the average price was calculated using the foreign exchange recognised in other comprehensive income increased the cost of rate valid on the designation date of the hedging relationship. non-financial assets by €208 million. Hedges of net investment in a foreign operation are used to hedge 31 December 2018 had the following effects on the company’s net The hedging instruments designated in hedging relationships as of the foreign currency risks of net investment in foreign entities whose asset, financial and earnings position: functional currency is not the euro. We use bonds with various terms Hedging instruments – effects on the net asset, financial and earnings position Nominal amount Carrying amount Fair value changes in the current period Recognised ineffectiveness € million Fair value hedges Commodity price risks Cash flow hedges Interest risks Foreign currency risks Commodity price risks Net investment hedges Foreign currency risks Assets Liabilities 39 1,642 108 4,5161 39 1,056 146 42 63 861 – 126 – 26 – 18 4,611 – 11 – 5,890 7 4,070 37 – 3 1 The net nominal amount stated is made up of purchases in the amount of €7,904 million and sales in the amount of €3,388 million. 146 RWE Annual Report 2018 The carrying amounts of the hedging instruments are recognised in The hedged items designated in hedging relationships as of the ‘Other receivables and other assets’ and ‘Other liabilities’ 31 December 2018 had the following effects on the company’s balance- sheet items. net asset, financial and earnings position: Fair value hedges € million Commodity price risks Carrying amount Of which cumulative fair value adjustments Assets 185 Liabilities Assets 146 Liabilities Changes in fair value in the reporting year 126 Cash flow hedges and net investment hedges € million Cash flow hedges Interest risks Foreign currency risks Commodity price risks Net investment hedges Foreign currency risks Changes in fair value during the current period Reserve for current hedges Reserve for terminated hedges 26 6 4,611 – 19 – 158 13 5,004 1,380 The carrying amounts of the hedged items for fair value hedges are stated in the ‘Other receivables and other assets’ balance-sheet Hedge reserve € million item. Amounts realised from OCI and any ineffectiveness are recog- Balance at 1 Jan 2018 nised in the items on the income statement in which the underlying Cash flow hedges transactions are also recognised with an effect on income. The Effective portion of changes in market value amounts realised from OCI are recognised in revenue and the cost of materials, whereas any ineffectiveness is recognised in other operating income and expenses. Amounts recognised and any ineffectiveness of hedging interest risks are recognised in financial income and financial expenses on the income statement. Interest risks Foreign currency risks Commodity price risks Gain or loss reclassified from OCI to the income statement – realisation of underlying transactions The reconciliation of the changes in the hedge reserve in relation Commodity price risks to the various risk categories of hedge accounting for fiscal 2018 Gain or loss recognised as a basis adjustment follows below: Interest risks Foreign currency risks Commodity price risks 171 43 5,085 – 26 12 5,099 – 473 – 473 187 31 – 15 171 Tax effect of the change in the hedge reserve – 1,502 Net investment hedges Effective portion of changes in market value Foreign currency risks Ofsetting against currency adjustments Balance at 31 Dec 2018 57 57 – 57 3,340 Consolidated financial statements > Notes 147 Credit risks. In the fields of finance and commodities, RWE and innogy primarily have credit relationships with banks that have good • Stage 1 – Expected 12-month credit losses: At initial recognition, financial assets are generally assigned to this stage – with the creditworthiness and other trading partners, most of which have exception of those that have been purchased or originated credit good creditworthiness. Furthermore, innogy has credit relationships impaired, which are thus considered separately. The level of im- primarily with banks and other business partners with good credit- pairment results from the cash flows expected for the entire term worthiness within the scope of large-scale projects such as the con- of the financial instrument, multiplied by the probability of a struction of wind farms. RWE and innogy review counterparty de- default within 12 months from the reporting date. The effective fault risks before contracts are concluded. Both companies mitigate interest rate used for measurement is determined on the basis of such risks by establishing limits which are adjusted during the busi- the carrying amount before impairment (gross). ness relationships if the creditworthiness of the business partners • Stage 2 – Lifetime expected credit losses (gross): If the credit changes. Counterparty risks are monitored constantly so that coun- risk has risen significantly between initial recognition and the re- termeasures can be initiated early on. Furthermore, RWE and innogy porting date, the financial instrument is assigned to this stage. are exposed to credit risks due to the possibility of customers failing Unlike Stage 1, default events expected beyond the 12-month to meet their payment obligations. We identify these risks by con- period from the reporting date are also considered in calculating ducting regular analyses of the creditworthiness of our customers the impairment. The effective interest rate used for measurement and initate countermeasures if necessary. is still determined on the basis of the carrying amount before im- pairment (gross). Amongst other things, RWE and innogy demand guarantees, cash collateral and other forms of security in order to mitigate credit • Stage 3 – Lifetime expected credit losses (net): If in addition to the criteria for Stage 2 there is an objective indication of an im- risks. Furthermore, we take out credit insurance policies to protect pairment, the financial asset is assigned to Stage 3. The impair- against defaults. Bank guarantees received as collateral are from ment is calculated analogously to Stage 2. In this case, however, financial institutions which normally have been issued a rating of at the effective interest rate used for measurement is applied to least ‘A-/A3’ by rating agencies. Collateral for credit insurance is the carrying amount after impairment (net). pledged by insurers with an investment-grade rating. The maximum balance-sheet default risk is derived from the carry- ments in the following categories: ing amounts of the financial assets stated on the balance sheet. The default risks for derivatives correspond to their positive fair • debt instruments measured at amortised cost, values. Risks can also stem from financial guarantees and loan • debt instruments measured at fair value through other compre- In the RWE Group, risk provisions are formed for financial instru- commitments which we have to fulfill vis-à-vis external creditors in hensive income. the event of a default of a certain debtor. As of 31 December 2018, these obligations amounted to €223 million (previous year: For debt instruments for which there has been no significant rise in €161 million). As of 31 December 2018, default risks were balanced credit risk since initial recognition, a risk provision is recognised in against credit collateral, financial guarantees, bank guarantees and the amount of the expected 12-month credit losses (Stage 1). In other collaterals amounting to €1.3 billion (previous year: €1.4 billion). addition, a financial instrument is assigned to Stage 1 of the impair- Of this, €0.2 billion relates to trade receivables (previous year: ment model if the absolute credit risk is low on the balance-sheet €0.5 billion), €0.3 billion to derivatives used for hedging purposes date. The credit risk is classified as low if the debtor’s internal or (previous year: €0.4 billion), €0.8 billion to other derivatives (previ- external rating is investment-grade. For trade accounts receivable, ous year: €0.5 billion), and €0 billion to ‘Assets held for sale’. the risk provision corresponds to the lifetime expected credit losses There were no material defaults in fiscal 2018 or the previous year. (Stage 2). In the RWE Group, the risk provision for financial assets is deter- To determine whether a financial instrument is assigned to Stage 2 mined on the basis of expected credit losses. These are determined of the impairment model, it must be determined whether the credit on the basis of the probability of default, loss given default and the risk has increased significantly since initial recognition. To make this exposure at default. We determine the probability of default and assessment, we consider quantitative and qualitative information loss given default using historical data and forward-looking infor- supported by our experience and assumptions regarding future mation. The exposure at default date for financial assets is the developments. In so doing, special importance is accorded to the gross carrying amount on the balance-sheet date. The expected sector in which the RWE Group’s debtors are active. Our experience credit loss for financial assets determined on this basis corresponds is based on studies and data from financial analysts and govern- to the difference between the contractually agreed payments and ment authorities, amongst others. Special attention is paid to the the payments expected by RWE, discounted by the original effective following developments: interest rate. The contractually agreed payments for lease receiva- bles are determined in accordance with IAS 17. The assignment to one of the levels described below influences the level of the expect- ed losses and the effective interest income recognised. 148 RWE Annual Report 2018 • significant deterioration of the internal or external rating of the • An insolvency or another restructuring procedure is impending. financial instrument, • The market for the financial asset is no longer active. • unfavourable changes in risk indicators, e.g. credit spreads or • A sale is only possible at a high discount, which reflects the debtor-related credit default swaps, debtor’s reduced creditworthiness. • negative development of the debtor’s regulatory, technological or economic environment, A payment default and an associated assignmet of the financial • danger of an unfavourable development of business resulting in asset to Stage 3 is also assumed if the contractually agreed payments a significant reduction in operating income. are more than 90 days overdue and there is no information disprov- Independent thereof, a significant rise in credit risk and thus an we generally assume that this assumption does not apply to trade ing the assumption of a payment default. Based on our experience, assignment of the financial instrument to Stage 2 are assumed if the accounts receivable. contractually agreed payments are more than 30 days overdue and there is no information that contradicts this assumption. A financial asset is depreciated if there are indications that the counterparty is in serious financial difficulty and the situation is We draw conclusions about the potential default of a counterparty unlikely to improve. We may also take legal recourse and other from information from internal credit risk management. If internal or measures in order to enforce the contractually agreed payments external information indicates that the counterparty cannot fulfil its in the event of an impairment. obligations, the associated receivables are classified as unrecoverable and assigned to Stage 3 of the impairment model. Examples of such information are: • The debtor of the receivable has apparent financial difficulties. • The debtor has already commited a breach of contract by missing or delaying payments. • Concessions already had to be made to the debtor. The following impairments were recognised for financial assets stated under the following balance-sheet items within the scope of IFRS 7: Impairment of financial assets € million Financial receivables Balance at 1 Jan 2018 Remeasurement due to new measurement parameters Newly acquired/issued financial assets Redeemed or derecognised financial assets Change in the scope of consolidation Transfers Balance at 31 Dec 2018 Stage 1 – 12-month expected credit losses Stage 2 – lifetime expected credit losses Stage 3 – lifetime expected credit losses Purchased or originated credit impaired 53 1 1 – 1 – 10 – 21 23 16 1 17 71 – 71 Total 140 2 1 – 1 – 81 – 21 40 Consolidated financial statements > Notes 149 For trade accounts receivable, the expected credit loss is deter- mined by applying the simplified approach taking account of the entire lifetime of the financial instruments. In the RWE Group, there are no cases where a risk provision for trade accounts receivable was not recognised due to the collateral on the books. The following table shows the development of the risk provisions for trade accounts receivable: Risk provision for trade accounts receivable € million Balance at 1 Jan 2018 (pursuant to IFRS 9) Addition Withdrawal Currency translation Changes in the scope of consolidation Transfers Balance at 31 Dec 2018 405 85 – 81 – 2 – 390 10 27 The following table presents the gross carrying amounts of the financial instruments under the scope of the impairment model: Gross carrying amounts of financial assets as of 31 Dec 2018 € million Class 1 – 5: low risk Class 6 – 9: medium risk Class 10: high risk Class 11: doubtful Class 12: loss Equivalent to S&P scale Stage 1 – 12-month expected credit losses Stage 2 – lifetime expected credit losses Stage 3 – lifetime expected credit losses Trade accounts receivable AAA to BBB– BB+ to BB– B+ to B– CCC to C D 7,228 68 5 7,301 11 13 24 1 1 1,611 297 65 6 20 Total 8,839 376 83 6 21 1,999 9,325 150 RWE Annual Report 2018 Liquidity risks. As a rule, RWE Group companies refinance with RWE AG or innogy SE, depending on which part of the Group they reduced to €3 billion in October 2017. It expires in March 2021. As of the balance-sheet date, US$0 billion (previous year: US$0.5 billion) belong to. In this regard, there is a risk that liquidity reserves will of RWE AG’s US$5 billion commercial paper programme (previous prove to be insufficient to meet financial obligations in a timely year: US$5 billion) was used. As of 31 December 2018, innogy SE manner. In 2019, bonds with a volume of approximately €0.8 billion had a commercial paper programme with a volume of €3 billion, but (previous year: €1.0 billion) and liabilities owed to banks of this programme has not yet been used. Above and beyond this, RWE €0.1 billion (previous year: €0.3 billion) are due. In addition, AG and innogy SE can finance themselves using €10 billion and short-term debt must be repaid. €20 billion debt issuance programmes, respectively; as of the balance- sheet date, outstanding bonds from this programme amounted to As of 31 December 2018, holdings of cash and cash equivalents and €0 billion (previous year: €0 billion) at RWE AG and €13.3 billion current marketable securities amounted to €7,132 million (previous (previous year: €12.1 billion) at innogy SE. Accordingly, the medium- year: €8,826 million). term liquidity risk can be classified as low for both RWE AG and Since the beginning of October 2017, innogy SE has had its own innogy. €2 billion syndicated credit line, which expires in October 2022. Financial liabilities falling under the scope of IFRS 7 are expected It may be prolonged twice by a year at a time. Furthermore, the to result in the following (undiscounted) payments in the coming credit line can be topped up by €1 billion. RWE AG’s credit line was 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 Miscellaneous other financial liabilities Redemption payments Interest payments Carrying amounts 31 Dec 2018 1,103 554 241 333 7,060 533 2,553 2019 87 10 155 6,681 533 2,549 2020 to 2024 From 2024 539 90 39 13 100 8 564 413 192 170 282 4 2019 102 13 7 26 2020 to 2023 From 2024 129 51 27 58 81 31 428 143 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 Carrying amounts 31 Dec 2017 13,049 1,594 248 1,464 4,257 389 1,451 5,601 2018 990 262 11 712 3,429 389 1,451 5,525 2019 to 2022 4,495 810 41 92 385 From 2023 7,677 522 197 684 447 2018 666 35 12 41 2019 to 2022 1,912 84 28 105 From 2023 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. Consolidated financial statements > Notes 151 Above and beyond this, as of 31 December 2018, there were financial We bear legal and contractual liability from our membership in guarantees for external creditors in the amount of €145 million (pre- various associations which exist in connection with power plant vious year: €90 million), which are to be allocated to the first year projects, profit- and loss-pooling agreements and for the provision of repayment. Additionally, Group companies have provided loan of liability cover for nuclear risks, amongst others. commitments to third-party companies amounting to €78 million (previous year: €71 million), which are callable in 2019. On the basis of a mutual benefit agreement, RWE AG and other Detailed information on the risks of the RWE Group and on the took to provide approximately €2,244 million in funding to liable objectives and procedures of the risk management is presented on nuclear power plant operators to ensure that they are able to meet page 73 et seqq. in the review of operations. their payment obligations in the event of nuclear damages. From parent companies of German nuclear power plant operators under- (27) Contingent liabilities and financial commitments As of 31 December 2018, the amount of capital commitments totalled €2,396 million (previous year: €489 million). This mainly 1 January 2019, onwards, RWE AG has a 23.259 % contractual share in the liability (21.347 % until 31 December 2018) plus 5 % for damage settlement costs. consisted of investment in property, plant and equipment. In the RWE AG and its subsidiaries are involved in official, regulatory and previous year, there were unrecognised obligations to provide loans antitrust proceedings, litigation and arbitration proceedings related or other financial means to joint ventures, which amounted to to their operations and are affected by the results of such. In some €10 million. cases, out-of-court claims are also filed. However, RWE does not expect any material negative repercussions from these proceedings Commitments from operating leases refer largely to rental arrange- on the RWE Group’s economic or financial position. ments for power generation and supply plants as well as rent and lease contracts for storage and administration buildings. Minimum lease payments have the following maturity structure: (28) Segment reporting RWE is divided into four 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 2018 31 Dec 2017 We report on German electricity generation from lignite and nuclear 59 159 354 572 265 685 1,261 2,211 fuel in the Lignite & Nuclear segment. This includes the Rhenish opencast lignite mining operations. The European Power segment encompasses the German, British, Dutch/Belgian and Turkish power generation business via gas and hard coal-fired power stations, the Scottish biomass-fired power plant Markinch, and the project management and engineering spe- We have made long-term contractual purchase commitments for cialist RWE Technology International. The segment is supplemented supplies of fuels, including natural gas in particular. Payment obliga- by hydroelectric power stations in Germany and Luxembourg. tions stemming from the major long-term purchase contracts amounted to €27.9 billion as of 31 December 2018 (previous year: The Supply & Trading segment contains energy and commodities €25.8 billion), of which €0.8 billion is due within one year (previous trading, the marketing and hedging of the RWE Group’s electricity year: €0.9 billion). position and the gas midstream business. This segment is the respon- sibility of RWE Supply & Trading, which also supplies certain major Gas purchases by the RWE Group are partially based on long-term industrial and commercial customers with electricity and natural gas. take-or-pay contracts. The conditions in these contracts, which have terms up to 2036 in some cases, are renegotiated by the contractual The innogy – continuing operations segment encompasses the parts partners at certain intervals, which may result in changes in the of innogy which will remain within the RWE Group over the long reported payment obligations. Calculation of the payment obligations term against the backdrop of the asset swap agreed with E.ON. resulting from the purchase contracts is based on parameters from These are the renewables business, innogy’s gas storage facilities the internal planning. located in Germany and the Czech Republic, and the stake in the Austrian energy utility Kelag. Along with electricity generation, Furthermore, RWE has long-term financial commitments for purchases activities in the field of renewables include the development and of electricity. As of 31 December 2018, the minimum payment implementation of projects to expand capacities. Wind and hydro- obligations stemming from the major purchase contracts totalled electric power are the two dominant production technologies. The €7.8 billion (previous year: €6.8 billion), of which €0.8 billion is due main production sites are located in Germany, the United Kingdom, within one year (previous year: €0.4 billion). Above and beyond this, the Netherlands, Poland, Spain and Italy. there are also long-term purchase and service contracts for uranium, conversion, enrichment and fabrication. 152 RWE Annual Report 2018 The grid and retail activities included in the innogy segment in the ‘Other, consolidation’ covers consolidation effects, RWE AG and the previous year as well as the holding company and the internal ser- activities of other business areas which are not presented separately. vice providers are now stated as ‘Discontinued operations’ and are These activities primarily include our non-controlling interest in the no longer included in segment reporting. German transmission system operator Amprion. Segment reporting Divisions 2018 € 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 Lignite & Nuclear European Power Supply & Trading innogy – continuing operations Other, consolidation RWE Group 1,144 2,340 3,484 77 58 58 279 14 356 60 230 926 3,768 4,694² 37 7 6 297 29 334 125 245 10,317 3,434 13,751 177 − 44 6 183 3 13 1,124 386 1,510 349 61 53 350 4 699 740 592 18 13,529 − 9,928¹ − 9,910 − 21 94 94 − 13 − 34 539 − 1 13,529 619 176 211 919 47 1,538 1,467 1,079 1 Of which: consolidation of intra-group revenue of – €9,929 million and intra-group revenue of other companies of €1 million. 2 Of which: total revenue from power generation in the United Kingdom of €2,213 million. Regions 2018 € million External revenue 1, 2 Intangible assets and property, plant and equipment Germany 4,531 5,882 EU UK 4,358 5,286 Other EU 3,130 3,004 Rest of Europe 984 Other RWE Group 385 430 13,388 14,602 1 Excluding natural gas tax/electricity tax. 2 Broken down by the region in which the service was provided. Consolidated financial statements > Notes 153 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 and property, plant and equipment Lignite & Nuclear European Power Supply & Trading innogy – continuing operations Other, consolidation RWE Group 1,271 2,898 4,169 399 63 63 272 311 671 64 269 926 3,967 4,893² 155 10 − 2 308 26 463 105 147 10,632 3,419 14,051 265 − 16 6 271 3 7 1,087 377 1,464 398 29 32 387 39 785 2,214 285 37 13,953 − 10,661¹ − 10,624 − 47 35 44 6 6 − 41 460 − 2 13,953 1,170 121 137 979 382 2,149 2,846 706 1 Of which: consolidation of intra-group revenue of – €10,679 million and intra-group revenue of other companies of €18 million. 2 Of which: total revenue from power generation in the United Kingdom of €2,166 million. Regions 2017 € million External revenue 1, 2, 3 Germany 4,995 EU UK 4,593 Other EU 2,915 Rest of Europe 849 Intangible assets and property, plant and equipment 18,660 6,930 11,418 Other RWE Group 470 322 13,822 37,330 1 Excluding natural gas tax/electricity tax. 2 Broken down by the region in which the service was provided. 3 Prior-year figures adjusted. 154 RWE Annual Report 2018 External revenue by product in 2018 € million External revenue1 of which: electricity of which: gas of which: other revenue 1 Excluding natural gas tax/electricity tax. External revenue by product in 2017 € million External revenue1 of which: electricity of which: gas of which: other revenue 1 Excluding natural gas tax/electricity tax. Lignite & Nuclear European Power Supply & Trading innogy – continuing operations Other, consolidation RWE Group 1,132 303 829 925 542 17 366 10,190 1,124 8,447 1,502 241 799 47 278 17 − 1 − 1 19 13,388 10,090 1,565 1,733 Lignite & Nuclear European Power Supply & Trading innogy – continuing operations Other, consolidation RWE Group 1,259 451 808 923 594 11 318 10,517 1,087 8,628 1,738 151 755 48 284 36 2 − 2 36 13,822 10,430 1,795 1,597 Notes on segment data. We report revenue between the segments as RWE intra-group revenue. Internal supply of goods and services is ternal management. The following table presents the reconciliation of adjusted EBITDA to adjusted EBIT and income from continuing settled at arm’s length conditions. Adjusted EBITDA is used for in- operations before tax: Reconciliation of income items € million Adjusted EBITDA – Operating depreciation, amortisation and impairment losses Adjusted EBIT + Non-operating result + Financial result income from continuing operations before tax 2018 2017 1,538 − 919 619 − 161 − 409 49 2,149 − 979 1,170 949 − 63 2,056 Income and expenses that are unusual from an economic perspec- the disposal of investments or non-current assets not required for tive, 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 Disposal result Impact of derivatives on earnings Other Non-operating result Further commentary on the non-operating result can be found on page 47. 2018 2017 − 25 − 146 10 − 161 107 − 480 1,322 949 Consolidated financial statements > Notes 155 (29) Notes to the cash flow statement The cash flow statement classifies cash flows according to operat- Flows of funds from the acquisition and sale of consolidated compa- nies are included in cash flows from investing activities. Effects of ing, investing and financing activities. Cash and cash equivalents in foreign exchange rate changes and other changes in value are stated the cash flow statement correspond to the amount stated on the separately. balance sheet. Cash and cash equivalents consist of cash on hand, demand deposits and fixed-interest marketable securities with a Cash flows from financing activities include €922 million (previous maturity of 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: non-controlling shareholders, and €60 million (previous year: €43 million (previous year: €88 million) which was distributed to €60 million) which was distributed to hybrid capital investors. • cash flows from interest income of €166 million (previous year: Furthermore, cash flows from financing activities include purchases €166 million) and cash flows used for interest expenses of of €2 million (previous year: €19 million) and sales in the amount of €176 million (previous year: €341 million), €687 million (previous year: €0 million) of shares in subsidiaries and • €321 million (previous year: €409 million) in taxes on income paid other business units which did not lead to a change of control. (less refunds), • income from investments, corrected for items without an effect on Changes in liabilities from financing activities are presented in the cash flows, in particular from accounting using the equity method, following table: which amounted to €107 million (previous year: €137 million). Statement of changes in financial liabilities € million Current financial liabilities Non-current financial liabilities Other items 1 Jan 2018 Increase/ repayment Changes in the scope of consolidation Of which stated as ‘held for sale’ Currency effects Changes in fair values Other changes 31 Dec 2018 2,787 − 196 − 2,845 − 2,779 14,414 435 − 13,840 − 13,840 − 1,494 32 4 − 58 1,046 766 1 984 1,998 Statement of changes in financial liabilities € million 1 Jan 2017 Increase/ repayment Changes in the scope of con- solidation Currency effects Changes in fair values Other changes 31 Dec 2017 Current financial liabilities 2,142 − 209 Non-current financial liabilities Other items 16,041 − 322 − 338 − 39 − 13 175 − 144 862 2,787 − 377 − 915 14,414 The amount stated in the ‘Other items’ line item contains cash- Restrictions on the disposal of cash and cash equivalents amounted effective changes resulting from derivative financial instruments and to €0 million (previous year: €38 million). margin payments, which are recognised in cash flows from financing activities in the cash flow statement. 156 RWE Annual Report 2018 (30) Information on concessions In the fields of electricity, gas and water supply, there are a number ciated infrastructure, such as water utility plants, as well as to im- plement capital expenditure. Concessions in the water business of easement agreements and concession contracts between generally have terms of up to 25 years. RWE Group companies and the governmental authorities in the areas we supply. (31) Related party disclosures Within the framework of their ordinary business activities, RWE AG Easement agreements are used in the electricity and gas business and its subsidiaries have business relationships with numerous to regulate the use of public rights of way for laying and operating companies. These include associated companies and joint ventures, lines for public energy supply. These agreements are generally limited which are classified as related parties. In particular, this category to a term of 20 years. After expiry, there is a legal obligation to includes material investments of the RWE Group, which are account- transfer ownership of the local distribution facilities to the new ed for using the equity method. operator, for appropriate compensation. Water concession agreements contain rules for the right and obliga- joint ventures, resulting in the following items in RWE’s consolidated tion to provide water and wastewater services, to operate the asso- financial statements: Business transactions were concluded with major associates and Key items from transactions with associates and joint ventures € million Income Expenses Receivables Liabilities Associated companies Joint ventures 2018 1,855 3,193 140 191 2017 3,553 2,992 247 168 2018 79 48 64 8 2017 90 74 145 8 The key items from transactions with associates and joint ventures share-based payments within the framework of LTIP SPP amounted mainly stem from supply and service transactions. In addition to to €7,479,000 (previous year: 3,183,000) and the pension service supply and service transactions, there are also financial links with cost amounted to €536,000 (previous year: €538,000). Provisions joint ventures. During the reporting period, income of €4 million totalling €36,052,000 (previous year: €32,624,000) were formed for (previous year: €7 million) was recorded from interest-bearing loans obligations vis-à-vis key management personnel. to joint ventures. As of the balance-sheet date, financial receivables accounted for €56 million of the receivables from joint ventures The remuneration model and remuneration of the Executive and (previous year: €142 million). All transactions were completed at Supervisory Boards of RWE AG calculated pursuant to the German arm’s length conditions, i.e. on principle the conditions of these Commercial Code is presented in the remuneration report, which is transactions did not differ from those with other enterprises. included in the review of operations. €165 million of the receivables (previous year: €285 million) and €166 million of the liabilities (previous year: €139 million) fall due In total, the remuneration of the Executive Board amounted to within one year. Other obligations from executory contracts €6,880,000 (previous year: €7,274,000). This contains share-based amounted to €578 million (previous year: €1,426 million). payments amounting to €2,350,000 (125,000 RWE performance shares) granted within the framework of the LTIP SPP. In the previous Above and beyond this, the RWE Group did not execute any material year, share-based payments amounting to €2,567,000 (192,556 transactions with related companies or persons. RWE and 10,264 innogy performance shares) were granted. With regard to fiscal 2018, in addition to the members of the Exec- Including remuneration from subsidiaries for the exercise of mandates, utive Board and Supervisory Board of RWE AG, the Executive Board the Supervisory Board received total remuneration of €3,480,000 members and Supervisory Board members of innogy SE are deemed (previous year: €3,637,000) in fiscal 2018. The employee represent- to be key management personnel for the RWE Group. The following atives on the Supervisory Board have labour contracts with the information pertains to total compensation pursuant to IAS 24. respective Group companies. Remuneration occurs in accordance Key management personnel (Executive and Supervisory Board members) received €19,721,000 in short-term compensation com- During the period under review, no loans or advances were granted ponents for fiscal 2018 (previous year: €22,121,000). Additionally, to members of the Executive or Supervisory Boards. with the relevant contractual conditions. Consolidated financial statements > Notes 157 Former members of the Executive Board and their surviving depend- statements of RWE AG and its subsidiaries, along with the review of ants received €10,802,000 (previous year: €10,699,000), of which the interim statements. Other assurance services include fees for €940,000 came from subsidiaries (previous year: €918,000). As of review of the internal controlling system, as well as expenses related the balance-sheet date, €146,721,000 (previous year: to statutory or court-ordered requirements. In particular, the fees €146,430,000) were accrued for defined benefit obligations to for tax services include compensation for consultation in the prepa- former members of the Executive Board and their surviving depend- ration of tax returns and other national and international tax-related ants. Of this, €8,516,000 was set aside at subsidiaries (previous matters as well as review of resolutions of the tax authorities. Other year: €8,601,000). services primarily include compensation for IT project consulting. Information on the members of the Executive and Supervisory RWE recognised the following fees as expenses for the services Boards is presented on page 196 et seqq. of the Notes. rendered by the auditors of the consolidated financial statements, (32) Auditors‘ fees The fees for audit services primarily contain the fees for the audit of the consolidated financial statements and for the audit of the financial PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (PwC) and companies belonging to PwC’s international network: PwC network fees € million Audit services Other assurance services Tax services Other services 2018 2017 Total 17.7 5.1 0.7 3.8 27.3 Of which: Germany 11.0 4.7 0.6 1.8 18.1 Total 17.5 3.4 0.3 3.2 24.4 Of which: Germany 10.9 3.2 0.3 0.8 15.2 (33) Application of the exemption rule pursuant to Sec. 264, Para. 3 and Sec. 264b of the German Commercial Code In fiscal 2018, the following German subsidiaries made partial use of (34) Events after the balance-sheet date In the period from 1 January 2019 until the completion of the con- solidated financial statements on 27 February 2019, the following the exemption clause pursuant to Sec. 264, Para. 3 and Sec. 264b of significant events occurred: the German Commercial Code (HGB): • BGE Beteiligungs-Gesellschaft für Energieunternehmen mbH, Essen, Recommendation of the Structural Change Commission In January 2019, the Growth, Structural Change and Employment Commission established by the German government submitted its • GBV Vierunddreißigste Gesellschaft für Beteiligungsverwaltung final report. The body, which consists of representatives from industry, mbH, Essen, trade unions, science, civic initiatives and environmental organisa- • Kernkraftwerk Lingen Gesellschaft mit beschränkter Haftung, tions, recommends that Germany phase out coal by 2038. It envis- Lingen (Ems), ages the total capacity of lignite and hard coal-fired power stations • KMG Kernbrennstoff-Management Gesellschaft mit beschränkter on the market being reduced to 15 GW each by the end of 2022 Haftung, Essen, through shutdowns or conversions. The objective is to have lignite • Rheinbraun Brennstoff GmbH, Cologne, and hard coal-fired power stations with a total capacity of only 9 GW • Rheinische Baustoffwerke GmbH, Bergheim, and 8 GW on the market by 2030. The government intends to submit • RV Rheinbraun Handel und Dienstleistungen GmbH, Cologne, a package of climate protection laws based on the recommendations • RWE Technology International GmbH, Essen, and initiate talks with the affected companies. We report on the • RWE Trading Services GmbH, Essen. Commission’s recommendations and their potential consequences for RWE in detail on page 33. 158 RWE Annual Report 2018 Sale of a CHP station The sale of the Belgian CHP station Inesco to the UK chemicals group INEOS marked the completion of a further divestment at the end of February 2019. The plant is eleven years old and is located in a chemical park near Antwerp operated by INEOS. Cancellation of a hybrid bond On 6 February 2019, we announced the cancellation of a £750 mil- lion hybrid bond as of 20 March 2019 without replacing it with new hybrid capital. The hybrid bond was classified as as equity pursuant to IAS 32 as of the balance-sheet date. Acquisition of a grid shareholding At the end of February, RWE purchased innogy SE’s majority interest in Czech distribution system operator innogy Grid Holding (IGH). We had made this commitment as part of the asset swap agreed upon with E.ON. We had also undertaken to sell the shareholding in IGH on to E.ON. innogy held a 50.04 % stake in IGH. The remaining shares are held by Australian financial service provider and infra- structure investor Macquarie. The acquisition of IGH is an intra- group transaction, which will result in a reduction in non- controlling interests in the RWE consolidated financial statements. Consolidated financial statements > Notes 159 (35) Declaration according to Sec. 161 of the German Stock Corporation Act The declarations on the German Corporate Governance Code pre- scribed 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 SE2. Essen, 27 February 2019 The Executive Board Schmitz Krebber 1 www.rwe.com/statement-of-compliance-2018 2 www.innogy.com/statement-of-compliance-2018 160 RWE Annual Report 2018 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 2018 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 Alte Haase Bergwerks-Verwaltungs-Gesellschaft mbH, Dortmund 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 Gesellschaft mit beschränkter Haftung, Augsburg Bayerische-Schwäbische Wasserkraftwerke Beteiligungsgesellschaft mbH, Gundremmingen Belectric Australia Pty. Limited, Southbank/Australia Belectric France S.à.r.l., Vendres/France Belectric Italia s.r.l., Latina/Italy Belectric Solar & Battery - Group - (pre-consolidated) Belectric Chile Energia Fotovoltaica LTDA, Santiago de Chile/Chile Belectric Espana Fotovoltaica S.L., Madrid/Spain BELECTRIC GmbH, Kolitzheim Belectric Inversiones Latinoamericana S.L., Madrid/Spain Belectric Israel Ltd., Be’er Scheva/Israel Belectric Photovoltaic India Private Limited, Mumbai/India BELECTRIC PV Dach GmbH, Sömmerda Belectric Solar & Battery GmbH, Kolitzheim Belectric Solar Ltd., Slough/United Kingdom hoch.rein Beteiligungen GmbH, Kolitzheim Inversiones Belectric Chile LTDA, Santiago de Chile/Chile Jurchen Technology India Private Limited, Mumbai/India Solar Holding Poland GmbH, Kolitzheim BGE Beteiligungs-Gesellschaft für Energieunternehmen mbH, Essen 100 Bilbster Wind Farm Limited, Swindon/United Kingdom Bristol Channel Zone Limited, Bristol/United Kingdom Broadband TelCom Power, Inc., Santa Ana/USA 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, Bristol/United Kingdom Cloghaneleskirt Energy Supply Limited, Kilkenny City/Ireland Dromadda Beg Wind Farm Limited, Kilkenny City/Ireland ELE Verteilnetz GmbH, Gelsenkirchen Electra Insurance Limited, Hamilton/Bermuda Elektrizitätswerk Landsberg GmbH, Landsberg am Lech ELMU DSO Holding Korlátolt Felelosségu Társaság, Budapest/Hungary Total 100 100 100 51 90 76 100 100 62 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 55 100 100 100 100 100 100 100 100 100 100 € '000 172,445 – 66,665 21,926 8,903 38,900 1,754 27,208 24,728 57,581 – 503 356 2,574 40,347 4,317,938 3,313 – 2,070 19,783 644,109 536 – 3,816 10,705 – 17,066 0 1.421 883 28,541 1,562 692,199 € '000 – 9,306 – 1,462 837 3,387 2,898 – 1,604 763 1 3,128 – 36 – 182 – 160 – 25,8202 1 335 – 100 3 1 31,711 – 101 – 373 805 – 780 0 – 181 1 – 288 115 32,842 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 ELMU Halozati Eloszto Kft., Budapest/Hungary ELMU-ÉMÁSZ Energiakereskedo Kft., Budapest/Hungary ELMU-ÉMÁSZ Energiaszolgáltató Zrt., Budapest/Hungary ELMU-ÉMÁSZ Energiatároló Kft., Budapest/Hungary ELMU-ÉMÁSZ Solutions Kft., Budapest/Hungary ELMU-ÉMÁSZ Telco Kft., Budapest/Hungary ELMU-ÉMÁSZ Ügyfélszolgálati Kft., Budapest/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 Groep B.V. - Group - (pre-consolidated) Energiewacht Facilities B.V., Zwolle/Netherlands Energiewacht Groep B.V., Meppel/Netherlands GasWacht Friesland Facilities B.V., Leeuwarden/Netherlands 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 eprimo GmbH, Neu-Isenburg Shareholding in % Equity Net income/loss Direct Total 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 72 100 100 100 100 59 100 100 100 100 100 100 € '000 738,577 3,407 6,593 69 – 359 105 1,113 274,107 56,917 – 52,480 25 31,329 € '000 26,885 2,009 708 60 – 370 7 1,107 10,491 36,492 500 1 1982 15,272 2,9342 28,546 2,2902 128,852 33,002 141,252 38,055 23,867 14,832 1 1,098 – 6,048 – 114 1,750,245 202,522 2,167 22,116 67,266 56,366 175,691 4,600 37 3,118 1 1 31,675 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. 162 RWE Annual Report 2018 I. Affiliated companies which are included in the consolidated financial statements 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 Retail Energie B.V., 's-Hertogenbosch/Netherlands Essent Rights B.V., 's-Hertogenbosch/Netherlands Essent Sales Portfolio Management B.V., 's-Hertogenbosch/Netherlands 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 Vierunddreißigste Gesellschaft für Beteiligungsverwaltung mbH, Essen 100 Geas Energiewacht B.V., Enschede/Netherlands Gemeinschaftskraftwerk Bergkamen A beschränkt haftende OHG, Bergkamen Generación Fotovoltaica De Alarcos, S.L.U., Barcelona/Spain Georgia Biomass Holding LLC, Savannah/USA Georgia Biomass LLC, Savannah/USA GfV Gesellschaft für Vermögensverwaltung mbH, Dortmund 100 Green Gecco GmbH & Co. KG, Essen GridServices, s.r.o., Brno/Czech Republic GWG Grevenbroich GmbH, Grevenbroich Hardin Wind LLC, Chicago/USA Harryburn Wind Farm Limited, Swindon/United Kingdom Hof Promotion B.V., Eindhoven/Netherlands Improvers B.V. - Group - (pre-consolidated) Certified B.V., Amsterdam/Netherlands Improvers B.V., 's-Hertogenbosch/Netherlands Improvers Community B.V., Amsterdam/Netherlands Konnektor B.V., Amsterdam/Netherlands innogy Aqua GmbH, Mülheim an der Ruhr innogy Benelux Holding B.V., 's-Hertogenbosch/Netherlands innogy Bergheim Windparkbetriebsgesellschaft mbH, Hanover Shareholding in % Equity Net income/loss Direct Total € '000 99,503 – 28 98,220 – 4 446 – 275,174 723,500 6,981,400 842,220 328,482 286,599 828 11,347 53,527 7,468 7,368 7,652 10,184 9,690 908,842 13,855,458 17,700 5,929 3 59,014 40,061 128,465 89,423 38,266 24,683 – 1,820 – 66 1,002 € '000 4,323 – 17 – 4,600 – 4 – 20 – 8,392 8,300 – 755,900 149,900 3 55,654 10,794 495 1 17,181 1,961 1,161 2,221 2,463 2,385 177,895 – 19,392 1,600 556 0 1,018 16,548 24,784 1,098 32,536 2,545 3 – 410 – 337 5922 233,106 1 1,576,700 – 1,413,500 25 1 100 100 100 100 100 100 100 100 100 100 100 54 51 100 54 100 51 100 51 100 100 100 100 51 100 100 100 100 51 100 60 100 100 100 100 100 100 100 100 100 100 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. Consolidated financial statements > List of shareholdings (part of the notes) 163 I. Affiliated companies which are included in the consolidated financial statements innogy Beteiligungsholding GmbH, Essen innogy Brise Windparkbetriebsgesellschaft mbH, Hanover 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 e-mobility US LLC, Delaware/USA 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, Hörup innogy Hungária Tanácsadó Kft., Budapest/Hungary innogy indeland Windpark Eschweiler GmbH & Co. KG, Eschweiler innogy Innovation Berlin GmbH, Berlin INNOGY INNOVATION CENTER LTD, Tel Aviv/Israel innogy Innovation GmbH, Essen innogy Innovation UK Ltd., London/United Kingdom innogy International Participations N.V., 's-Hertogenbosch/Netherlands innogy IT Magyarország Kft. „v.a.”, Budapest/Hungary innogy Italia s.p.a., Milan/Italy innogy Kaskasi GmbH, Hamburg innogy Lengerich Windparkbetriebsgesellschaft mbH, Gersten innogy Limondale Sun Farm Holding Pty. Ltd., Southbank/Australia 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 IT Support Sp. z o.o., Warsaw/Poland innogy Polska S.A., Warsaw/Poland Innogy Renewables Australia Pty Ltd., Southbank/Australia innogy Renewables Benelux B.V., 's-Hertogenbosch/Netherlands innogy Renewables Beteiligungs GmbH, Dortmund Innogy Renewables Ireland Limited, Kilkenny City/Ireland Shareholding in % Equity Net income/loss Direct Total 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 € '000 3,895,026 226 – 1,390 5,156 – 797 2,153,310 1,719 171,035 21,434 25 13,809 350,087 528,702 275 € '000 1 1 602 1,252 – 21,123 254,531 – 536 105,208 – 2,114 1 1,726 1 5,884 1 1,135,490 193,020 – 12,204 – 12,204 – 36,635 26 1,689 55,222 3,868 6,694 180,038 – 1,067 – 1,066 – 3,226 1 – 694 2,000 1 – 831 1 10 9,316,100 – 64,000 1,141 17,259 63 5,061 99 25 25 25 578 497,854 61,665 – 2,983 411,754 – 22,813 7,350 0 1 1 3 1 1 1 1 3,381 – 456 3 99,841 3 – 4,877 1 – 956 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 2018 I. Affiliated companies which are included in the consolidated financial statements 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, Dover/USA innogy Rheinhessen Beteiligungs GmbH, Essen innogy SE, Essen innogy Seabreeze II GmbH & Co. KG, Essen 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, Sommerland 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 Ventures GmbH, 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 Installatietechniek Totaal B.V., Leeuwarden/Netherlands 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 IRUS Solar Development LLC, Dover/USA IRUS Solar Holdings LLC, Dover/USA IRUS Wind Development LLC, Dover/USA IRUS Wind Holdings LLC, Dover/USA IsoFitters BVBA, Herentals/Belgium Isoprofs België BVBA, Hasselt/Belgium Isoprofs B.V., Meijel/Netherlands iSWITCH GmbH, Essen Shareholding in % Equity Net income/loss Direct Total 100 100 100 100 100 77 100 100 100 100 100 100 100 99 95 100 60 100 100 100 100 100 100 100 100 51 100 100 100 100 100 74 100 100 100 100 100 100 100 100 € '000 195,301 2,023,560 1,791,052 72,477 57,865 8,926,111 11,140 8,240 5,271 891 1,177 26 1,058 € '000 – 7,235 100,676 174,766 – 6,601 1 907,605 – 2,245 7,841 571 – 1,004 147 1 – 54 132,941 1,8432 0 656,499 106 25 25 75,704 77,373 80,613 – 34,615 2,468 1,720,555 1,114 19,054 617 – 96 68 25 8,346 45,674 1 1 1 1 1 4,843 1,631 2,044 1 340 2,6922 3 3 3 3 331 – 157 – 110 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) 165 I. Affiliated companies which are included in the consolidated financial statements It's a beautiful world B.V., Amersfoort/Netherlands Jurchen Technology GmbH, Kitzingen 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 Nuclear GmbH und der PreussenElektra GmbH, Lingen/Ems Lechwerke AG, Augsburg Leitungspartner GmbH, Düren LEW Anlagenverwaltung Gesellschaft mit beschränkter Haftung, Gundremmingen LEW Beteiligungsgesellschaft mbH, Gundremmingen LEW Netzservice GmbH, Augsburg LEW Service & Consulting GmbH, Augsburg LEW TelNet GmbH, Neusäß LEW Verteilnetz GmbH, Augsburg Licht Groen B.V., Amsterdam/Netherlands Limondale Sun Farm Pty. Ltd., Southbank/Australia Little Cheyne Court Wind Farm Limited, Swindon/United Kingdom 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 Montcogim - Plinara d.o.o., Sveta Nedelja/Croatia Nederland Isoleert B.V., Amersfoort/Netherlands Nederland Schildert B.V., Amersfoort/Netherlands Nederland Schildert Rijnmond B.V., Amersfoort/Netherlands Nederland Verkoopt B.V., Amersfoort/Netherlands NEW AG, Mönchengladbach NEW Netz GmbH, Geilenkirchen NEW Niederrhein Energie und Wasser GmbH, Mönchengladbach NEW NiederrheinWasser GmbH, Viersen NEW Tönisvorst GmbH, Tönisvorst Shareholding in % Equity Net income/loss Direct Total 100 100 75 100 99 100 100 75 75 88 90 100 100 100 100 100 100 100 100 100 59 100 100 100 100 100 100 75 100 100 408 51 100 100 100 100 100 404 100 100 100 98 100 € '000 4,987 2,665 90,464 20,034 432,269 696,225 9,485 112 8,857 144,433 501,772 100 295,990 461,243 87 1,250 8,548 139,816 192 48,751 753,875 573,856 € '000 2,625 – 1,702 8,343 1 1 1 663 111 489 6,204 78,205 1 13,873 10,154 1 1 7,289 1 101 3 4,668 5,415 3,967 1,738,989 – 17,193 277,938 15,185 121,755 129,988 25 4,171 5,113 77,984 14,712 1,921 – 293 – 2 189 175,895 95,699 15,587 46,613 13,961 1,333 – 440 – 2,856 38,032 1 1 0 9,050 424 1,782 – 174 – 4 176 59,552 17,896 41,904 11,501 2,022 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 2018 I. Affiliated companies which are included in the consolidated financial statements 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 Limited, 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 Padcon GmbH, Kitzingen Piecki Sp. z o.o., Warsaw/Poland Plus Shipping Services Limited, Swindon/United Kingdom Powerhouse B.V., Almere/Netherlands Primus Projekt GmbH & Co. KG, Hanover PS Energy UK Limited, Swindon/United Kingdom Recargo Inc., El Segundo/USA Regionetz GmbH, Aachen 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 Eemshaven Holding II B.V., Geertruidenberg/Netherlands RWE Energija d.o.o., Zagreb/Croatia RWE Generation Belgium N.V., Antwerp/Belgium RWE Generation NL B.V., Arnhem/Netherlands RWE Generation NL Corner Participations B.V., Geertruidenberg/Netherlands Shareholding in % Equity Net income/loss Direct Total 100 90 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 100 100 100 100 100 € '000 13,330 9,943 4,647 6,879 58,278 – 157 – 216,413 2,087 275,006 – 1,256,531 – 784,395 0 312 2,420 9,081 1,980 18,548 26,639 56,718 0 – 3,961 100 494 269,214 100 100 77 100 67 100 50 100 100 100 100 70 100 100 100 100 100 100 100 82,619 9,236 31,817 20,774 139,972 59,174 158,966 115,086 356,579 91 36,694 222,050 5,653,514 12,153 163,508 – 57,873 719 73,949 167,713 45,241 € '000 4,139 1,855 701 5,673 – 43,143 15 – 2,303 – 283 – 34,991 – 117,388 – 26,653 0 1 0 1 1 – 730 – 426 7,900 – 1,013 – 3,023 3 0 1 1 1,757 1 25,788 942 15,566 14,683 27,991 – 256 1 – 6,911 472,184 1,204 511 – 4,451 – 1,068 2,943 – 61,783 9,982 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 I. Affiliated companies which are included in the consolidated financial statements RWE Generation NL Participations B.V., Arnhem/Netherlands RWE Generation NL Personeel B.V., Arnhem/Netherlands RWE Generation SE, Essen RWE Generation UK Holdings Limited, 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., Arnhem/Netherlands RWE Plin d.o.o., Zagreb/Croatia RWE Power Aktiengesellschaft, Cologne and 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, Düsseldorf Sofia Offshore Wind Farm Holdings Limited, Swindon/United Kingdom Sofia Offshore Wind Farm Limited, Swindon/United Kingdom 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 The Hollies Wind Farm Limited, Swindon/United Kingdom Transpower Limited, Dublin/Ireland Triton Knoll HoldCo Limited, Swindon/United Kingdom Triton Knoll Offshore Wind Farm Limited, Swindon/United Kingdom Shareholding in % Equity Net income/loss Direct Total 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 80 8 100 100 90 504 100 78 100 100 100 100 100 59 100 € '000 – 12,700 11,825 264,673 3,049,658 1,817,722 8,185 94 52,282 100,000 – 40 266 2,037,209 14,381 1,128,683 100,983 446,778 642 15,817 32,241 12,463 722 1,819 16,318 5,735 6,544 € '000 – 16,300 – 327 1 14,673 182,854 – 3,222 – 3,263 155,115 1 – 40 – 798 1 17,579 63,846 314 1 53 5,994 3,085 1 105 393 6,268 1 2,396 77,574 5,094 – 9,640 0 0 12,052 27,378 1,400 649,555 6,441 680 8,053 508 3,528 – 18,089 462 0 0 2,891 5,414 283 67,850 1 1 1 17 – 1,048 3 – 2,504 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 2018 I. Affiliated companies which are included in the consolidated financial statements 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 Východoslovenská energetika a.s., Kosice/Slovakia Východoslovenská energetika Holding a.s., Kosice/Slovakia Wendelsteinbahn Gesellschaft mit beschränkter Haftung, Brannenburg Wendelsteinbahn Verteilnetz GmbH, Brannenburg Westerwald-Netz GmbH, Betzdorf-Alsdorf Westnetz GmbH, Dortmund Wind Farm Deliceto s.r.l., Bolzano/Italy Windpark Eekerpolder B.V., 's-Hertogenbosch/Netherlands Windpark Kattenberg B.V., 's-Hertogenbosch/Netherlands Windpark Nordsee Ost GmbH, Heligoland 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 2. CR-Immobilien-Vermietungsgesellschaft mbH & Co. KG Cottbus, Düsseldorf Shareholding in % Equity Net income/loss Direct Total 75 100 50 100 100 100 95 60 51 100 100 98 100 100 494 100 100 100 100 100 100 100 100 100 100 100 8 8 € '000 6,015 25 43,002 – 310 44,800 98 370 1,377 211,743 14,817 3,109 25,989 600,975 59,243 576,445 2,882 38 9,875 281,306 24,203 0 367 256 9,930 1,366 12,254 – 538 -966 € '000 1,088 1 3,427 – 68 5,800 0 0 1,143 17,879 2,731 1 1,325 30,626 1,870 15,824 164 1 1 1 746 0 161 1 – 855 228 300 0 473 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 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 Alvarado Solar S.L., Barcelona/Spain Baron Winds LLC, Chicago/USA Belectric Inc., San Mateo/USA Belectric International GmbH, Kolitzheim 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 9 (SARL), Vendres/France BELECTRIC Solar Power, S.L., Barcelona/Spain 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 Biomasseheizkraftwerk Schameder GmbH, Essen Blueberry Hills LLC, Chicago/USA Bowler Flats Energy Hub LLC, Chicago/USA Buckeye Wind LLC, Chicago/USA Burgar Hill Wind Farm Limited, Swindon/United Kingdom Cassadaga Wind LLC, Chicago/USA Catalina-Cypress Holding Limited, Swindon/United Kingdom Causeymire Two Wind Farm Limited, Swindon/United Kingdom CERBEROS s.r.o., Prague/Czech Republic Champaign Wind LLC, Chicago/USA Ciriè Centrale PV s.a.s. (s.r.l.), Rome/Italy Clavellinas Solar, S.L., Barcelona/Spain Climagy Photovoltaikprojekt 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 Verwaltungs-GmbH, Kolitzheim Climagy Sonnenstrom GmbH & Co. KG, Kolitzheim Climagy Sonnenstrom Verwaltungs-GmbH, Kolitzheim 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 100 51 100 51 100 66 99 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 € '000 381 317 5,113 3 121 89 14 – 490 – 144 – 6 – 9 – 5 1,281 768 2,314 33 192 33 631 49 0 92 0 – 5 – 6 29 – 27 27 – 18 27 29 – 29 29 € '000 59 33 0 – 30 9 603 44 – 5 6 – 44 – 1 – 1 – 6 3 0 270 210 1 26 1 – 57 4 3 9 9 9 0 9 0 0 3 9 0 – 9 0 – 2 0 – 2 0 0 – 2 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. 170 RWE Annual Report 2018 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 Stromertrag GmbH & Co. KG, Kolitzheim Climagy Stromertrag Verwaltungs-GmbH, Kolitzheim Clocaenog Wind Farm Limited, Swindon/United Kingdom CNGvitall s.r.o., Ostrava/Czech Republic COMCO MCS S.A., Luxembourg/Luxembourg Conjoule GmbH, Essen Curns Energy Limited, Kilkenny City/Ireland Decadia GmbH, Essen DigiKoo GmbH, Essen E & Z Industrie-Lösungen GmbH, Essen easyOptimize GmbH, Essen Edgware Energy Limited, Swindon/United Kingdom 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 Enchant Solar 1 Inc., Vancouver/Canada Enchant Solar 2 Inc., Vancouver/Canada Enchant Solar 3 Inc., Vancouver/Canada Enchant Solar 4 Inc., Vancouver/Canada Energenti plus d.o.o., Cerknica/Slovenia Energiegesellschaft Leimen GmbH & Co. KG, Leimen Energiegesellschaft Leimen Verwaltungsgesellschaft mbH, Leimen EnergieRevolte GmbH, Düren Energieversorgung Timmendorfer Strand GmbH & Co. KG, Timmendorfer Strand Energiewerken B.V., Almere/Netherlands Energy Ventures GmbH, Saarbrücken enervolution GmbH, Bochum Ense Netz Verwaltung GmbH, Ense 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 EverPower Maine LLC, Chicago/USA EverPower Ohio LLC, Chicago/USA EverPower Solar LLC, Chicago/USA EverPower Wind Development, LLC, Chicago/USA EWIS BV, Ede/Netherlands 50 – 16 27 0 438 – 234 – 369 19,759 – 2,771 0 175 1 1 3 1 1 1 – 17 198 29 3,198 501 48 25 37 30 24 1,579 128 100 100 100 100 100 64 70 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 75 75 100 51 100 100 100 100 100 100 100 52 100 100 100 100 100 100 – 2 0 0 3 300 9 – 232 3 – 469 1,619 – 4,795 0 – 1,101 0 0 – 9 0 0 0 3 3 3 3 – 372 13 1 3 156 3 – 5 1 0 2 4 – 1 – 22 1,645 9 9 9 9 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. Consolidated financial statements > List of shareholdings (part of the notes) 171 II. Affiliated companies which are not included in the consolidated financial Shareholding in % Equity Net income/loss Direct Total € '000 € '000 statements due to secondary importance for the assets, liabilities, financial position and profit or loss of the Group Fernwärmeversorgung Saarlouis- Steinrausch Investitionsgesellschaft mbH, Saarlouis "Finelectra" Finanzgesellschaft für Elektrizitäts-Beteiligungen AG, Hausen/Switzerland Free Electrons LLC, Palo Alto/USA Fresh Energy GmbH, Berlin FUCATUS Vermietungsgesellschaft mbH & Co. Objekt Recklinghausen Kommanditgsellschaft, Düsseldorf Fundacja innogy w Polsce, Warsaw/Poland Gasnetzgesellschaft Warburg GmbH & Co. KG, Warburg Gasnetzgesellschaft Windeck mbH & Co. KG, Siegburg Gazules I Fotovoltaica, S.L., Barcelona/Spain Gazules II Solar, S.L., Barcelona/Spain GBV Achtunddreißigste Gesellschaft für Beteiligungsverwaltung mbH, Essen GBV Dreiunddreißigste Gesellschaft für Beteiligungsverwaltung mbH, Essen GBV Einunddreißigste Gesellschaft für Beteiligungsverwaltung mbH, Essen GBV Fünfunddreißigste Gesellschaft für Beteiligungsverwaltung mbH, Essen GBV Sechsunddreißigste Gesellschaft für Beteiligungsverwaltung mbH, Essen GBV Siebenunddreißigste Gesellschaft für Beteiligungsverwaltung mbH, Essen GBV Siebte Gesellschaft für Beteiligungsverwaltung mbH, Essen 100 100 GBV Zweiunddreißigste Gesellschaft für Beteiligungsverwaltung mbH, Essen 100 Gemeindewerke Windeck GmbH & Co. KG, Siegburg GKB Gesellschaft für Kraftwerksbeteiligungen mbH, Cottbus Goole Fields II Wind Farm Limited, Swindon/United Kingdom Green Gecco Verwaltungs GmbH, Essen GWG Kommunal GmbH, Grevenbroich Heizungs- und Sanitärbau WIJA GmbH, Bad Neuenahr-Ahrweiler HELIOS MB s.r.o., Prague/Czech Republic Highfield Storage Limited, Dublin/Ireland Highland III LLC, Chicago/USA Horse Thief Wind Project LLC, Chicago/USA Infraestructuras de Aldehuelas, S.A., Barcelona/Spain Infrastrukturgesellschaft Netz Lübz mit beschränkter Haftung, Hanover innogy Charge Tech GmbH, Dortmund innogy Commodity Markets GmbH, Essen innogy Consulting & Ventures Americas, LLC, Boston/USA innogy Consulting GmbH, Essen innogy Direkt GmbH, Essen innogy Dreizehnte Vermögensverwaltungs GmbH, Essen innogy Elfte Vermögensverwaltungs GmbH, Essen innogy e-Mobility Limited, London/United Kingdom innogy eMobility Solutions GmbH, Dortmund 7,567 7,962 0 39 25 100 3 3 25 30 100 25 100 252 0 38 1,100 300 – 4 428 16 22 25 5,761 25 100 100 100 62 94 100 49 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 1 130 9 9 0 37 0 0 – 30 – 30 3 1 1 3 3 3 1 1 0 – 16 0 1 – 560 – 178 3 – 4 9 9 – 97 – 16 – 1 1 10 4,267 1 3 3 10 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. 172 RWE Annual Report 2018 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 Innogy Energy Marketing LLC, Wilmington/USA Innogy Energy Services LLC, Wilmington/USA innogy Hillston Sun Farm Holding Pty. Ltd., Southbank/Australia innogy indeland Windpark Eschweiler Verwaltungs GmbH, Eschweiler innogy Middle East & North Africa Ltd., Dubai/UAE innogy Neunte Vermögensverwaltungs GmbH, Essen 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 Development Sp. z o.o., Warsaw/Poland innogy Polska Operations Sp. z o.o., Warsaw/Poland innogy Polska Solutions Sp. z o.o., Warsaw/Poland innogy Renewables Canada Inc., Vancouver/Canada innogy Seabreeze II Verwaltungs GmbH, Essen innogy Solar Netherlands B.V., 's-Hertogenbosch/Netherlands innogy Solar Polska Sp. z o.o., Warsaw/Poland innogy Stiftung für Energie und Gesellschaft gGmbH, Essen innogy TelNet Holding, s.r.o., Prague/Czech Republic Innogy US Renewable Projects LLC, Dover/USA innogy Ventures Vermögensverwaltung 6 GmbH, Essen innogy Vierzehnte Vermögensverwaltungs GmbH, Essen innogy Windpark Bedburg Verwaltungs GmbH, Bedburg innogy Windpark Garzweiler GmbH & Co. KG, Essen Innogy Windpark Jüchen A44n Verwaltungs GmbH, Essen innogy Zehnte Vermögensverwaltungs GmbH, Essen Jerez Fotovoltaica S.L., Barcelona/Spain Jurchen Technology USA Inc., Newark/USA Kieswerk Kaarst GmbH & Co. KG, Bergheim Kieswerk Kaarst Verwaltungs GmbH, Bergheim Kiln Pit Hill Wind Farm Limited, Swindon/United Kingdom Kimberly Run LLC, Chicago/USA Korproject Energy Sp. z o.o., Warsaw/Poland KWS Kommunal-Wasserversorgung Saar GmbH, Saarbrücken Lampasas Wind LLC, Chicago/USA 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 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 51 100 100 100 100 51 51 100 100 100 100 100 100 100 100 100 41 – 7,654 0 0 0 0 134 2,469 59 0 28 51,602 9,995 0 43 284 34 3 3 1,544 30 0 282 3 3 1 25 9 9 3 6 – 5,550 3 0 0 0 0 3 3 – 10 – 2,036 6 0 – 10 – 3,366 25 0 9 3 2 – 16 8 3 – 30 – 5 436 0 0 9 10 87 9 – 30 – 30 8 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) 173 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 Lemonbeat GmbH, Dortmund Livisi GmbH, Essen Lochelbank Wind Farm Limited, Swindon/United Kingdom Lößnitz Netz GmbH & Co. KG, Lößnitz Lößnitz Netz Verwaltungs GmbH, Lößnitz Magnalink, a.s., Hradec Králové/Czech Republic Mahanoy Mountain, LLC, Chicago/USA Mason Dixon Wind LLC, Chicago/USA Mitteldeutsche Netzgesellschaft Gas HD mbH, Halle (Saale) Mitteldeutsche Netzgesellschaft mbH, Chemnitz MONTCOGIM-KARLOVAC d.o.o., Karlovac/Croatia MONTCOGIM-SISAK d.o.o., Sisak/Croatia MotionWerk GmbH, Essen Mud Springs Wind Project LLC, Chicago/USA Netzwerke Saarwellingen GmbH, Saarwellingen NEW b_gas Eicken GmbH, Schwalmtal NEW Re GmbH, Mönchengladbach NEW Smart City 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) Oer-Erkenschwick Netz Verwaltung GmbH, Oer-Erkenschwick Oranje Wind Power B.V., 's-Hertogenbosch/Netherlands Oranje Wind Power C.V., 's-Hertogenbosch/Netherlands Oschatz Netz GmbH & Co. KG, Oschatz Oschatz Netz Verwaltungs GmbH, Oschatz Parc Ynni Cymunedol Alwen Cyfyngedig, Swindon/United Kingdom 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 Smigiel I Sp. z o.o., Warsaw/Poland Pe Ell North LLC, Chicago/USA Peg Project #1 Pty Ltd, Southbank/Australia Peg Project #2 Pty Ltd, Southbank/Australia Photovoltaikkraftwerk Götz Verwaltungs-GmbH, Kolitzheim Photovoltaikkraftwerk Groß Dölln Infrastruktur GmbH & Co. KG, Templin Photovoltaikkraftwerk Groß Dölln Infrastruktur Verwaltungs-GmbH, Templin Photovoltaikkraftwerk Reinsdorf GmbH & Co. KG, Kolitzheim 100 100 100 100 100 85 100 100 100 100 100 100 60 100 100 100 95 100 100 100 100 100 100 100 100 100 100 75 100 100 100 100 100 100 100 100 100 100 100 100 100 100 € '000 9,952 € '000 – 3,169 0 7 27 25 21 2 26 50 – 871 9,863 825 28 3,935 20 0 0 174 25 0 0 518 26 – 2,408 602 – 266 202 605 29 – 16 28 – 30 3 0 – 3 0 3 9 9 1 0 – 2 1 9 9 1 8 – 172 136 3 – 149 – 6 0 0 32 0 0 0 174 0 3 – 3,444 1 – 1,348 – 60 – 51 3 3 3 0 – 1 0 – 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. 174 RWE Annual Report 2018 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 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 Plum Energie S.A.S., Saint-Denis La Plaine/France Powerhouse Energy Solutions S.L., Madrid/Spain Proyecto Rio Putaendo S.p.A., Santiago de Chile/Chile Proyecto Tabalongo Solar S.p.A., Santiago de Chile/Chile Proyectos Solares Iberia I, S.L., Barcelona/Spain Proyectos Solares Iberia II, S.L., Barcelona/Spain Proyectos Solares Iberia III, S.L., Barcelona/Spain Proyectos Solares Iberia IV, S.L., Barcelona/Spain Proyectos Solares Iberia V, S.L., Barcelona/Spain Pryor Caves Wind Project LLC, Chicago/USA PT Rheincoal Supply & Trading Indonesia, PT, Jakarta/Indonesia Qualitas-AMS GmbH, Siegen Quintana Fotovoltaica SLU, Madrid/Spain RD Hanau GmbH, Hanau Rheinland Westfalen Energiepartner GmbH, Essen RHENAGBAU Gesellschaft mit beschränkter Haftung, Cologne Rowantree Wind Farm Ltd., Swindon/United Kingdom RWE & Turcas Dogalgaz Ithalat ve Ihracat A.S., Istanbul/Turkey RWE Australia Pty. Ltd., Brisbane/Australia RWE Belgium BVBA, Brussels/Belgium RWE Enerji Toptan Satis A.S., Istanbul/Turkey RWE Ingen!us Limited, Swindon/United Kingdom RWE NSW PTY LTD, Sydney/Australia RWE Nuclear Beteiligungs-GmbH, Essen 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 RWE Power Climate Protection Southeast Asia Co., Ltd., Bangkok/Thailand RWE Power International Ukraine LLC, Kiev/Ukraine RWE Supply & Trading Asia-Pacific Holdings PTE. Ltd., Singapore/Singapore RWE Supply & Trading China Holdings PTE. Ltd., Singapore/Singapore RWE Supply and Trading (Shanghai) Co. Ltd, Shanghai/China Direct Total € '000 € '000 30 – 29 – 27 27 – 17 27 30 26,030 25,966 45 269 – 1,127 – 2 0 5,369 4,058 0 774 63 4,482 10,923 32,625 25 3,839 25 2,066 23 2,806 0 100 100 100 100 100 100 100 100 100 51 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 0 – 2 – 2 0 – 2 0 0 – 15 – 37 3 18 3 3 3 3 3 3 3 9 16 – 1,015 0 0 1 1 0 53 99 3 – 165 – 1,147 – 19 1 82 1 13 1 44 0 3 3 3 100 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. Consolidated financial statements > List of shareholdings (part of the notes) 175 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 RWE SUPPLY TRADING TURKEY ENERJI ANONIM SIRKETI, Istanbul/Turkey RWE Trading Services Limited, Swindon/United Kingdom RWE-EnBW Magyarország Energiaszolgáltató Korlátolt Felelösségü Társaság, Budapest/Hungary RWEST PI Bras Limited, London/United Kingdom RWEST PI FRE Holding LLC, New York City/USA RWEST PI LNG 1 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. (s.r.l.), Rome/Italy Scarcroft Investments Limited, Swindon/United Kingdom Scharbeutzer Energie- und Netzgesellschaft mbH & Co. KG, Scharbeutz SchlauTherm GmbH, Saarbrücken SEG Solarenergie Guben Management GmbH, Halle (Saale) 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 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 GmbH & Co. KG, 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 STAWAG Abwasser GmbH, Aachen STAWAG Infrastruktur Monschau GmbH & Co.KG, Monschau STAWAG Infrastruktur Monschau Verwaltungs GmbH, Monschau STAWAG Infrastruktur Simmerath GmbH & Co.KG, Simmerath STAWAG Infrastruktur Simmerath Verwaltungs GmbH, Simmerath Storage Facility 1 Ltd., Slough/United Kingdom Total 100 100 70 100 100 100 100 100 100 100 51 75 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 € '000 995 1,252 399 0 635 12,310 12,284 – 151 10 4,399 312 24 – 81 – 29 29 – 29 28 – 29 29 25 – 2 25 – 2 25 – 2 25 – 2 25 – 2 25 – 2 25 40 25 3,162 29 3,485 29 0 € '000 – 14 35 20 3 – 9,908 498 – 46 – 17 0 10 227 71 – 1 – 81 – 2 0 – 2 0 – 2 0 10 0 0 0 – 3 0 – 3 0 – 3 0 – 3 0 – 3 0 – 6 0 0 0 0 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. 176 RWE Annual Report 2018 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 Stromnetzgesellschaft Windeck mbH & Co. KG, Siegburg Sun Data GmbH, Kolitzheim Sunpow 1 Sp. z o.o., Warsaw/Poland Sunrise Energy Generation Pvt. Ltd., Mumbai/India Sunrise Wind Holdings, LLC, Chicago/USA Süwag Vertrieb Management GmbH, Frankfurt am Main SVFR 12 (SAS), Vendres/France Terrapin Hills LLC, Chicago/USA Trireme Energy Development III, LLC, Wilmington/USA 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 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 Gemeinnützige Gesellschaft zur Förderung von Bildung, Erziehung, Kunst und Kultur mbH, Saarbrücken Wärmeversorgung Schwaben GmbH, Augsburg Wärmeversorgung Würselen GmbH, Würselen Warsun Project Sp. z o.o., Warsaw/Poland WEK Windenergie Kolkwitz GmbH & Co.KG, Kolkwitz WGK Windenergie Großkorbetha GmbH & Co.KG, Lützen Windkraft Hochheim GmbH & Co. KG, Hochheim Windpark Büschdorf GmbH, Perl Windpark Eschweiler Beteiligungs GmbH, Stolberg Windpark Oostpolderdijk B.V., 's-Hertogenbosch/Netherlands 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) ZonnigBeheer B.V., Lelystad/Netherlands 2. CR Immobilien-Vermietungsgesellschaft mbH & Co. Objekt Naumburg KG, Düsseldorf 4Motions GmbH, Leipzig Direct Total € '000 € '000 100 100 100 100 100 100 100 100 100 51 95 80 51 51 100 100 100 100 100 100 100 100 100 100 90 90 100 59 100 100 100 100 100 100 8 100 100 74 70 28 – 112 0 70 10 3 9 1 – 2 9 9 1,697 – 2,523 573 28 28 2,800 64 229 26 184 2,568 – 456 1,511 6,180 8,093 3,194 2,325 10,118 0 37 4,123 24 0 9 31 1 1 161 1 171 – 29 – 59 – 3 – 543 62 10 446 217 363 – 100 – 576 0 6 48 10 – 1 3 0 10 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 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 25 25 50 49 30 € '000 29,903 4,211 3,656 1,160,950 12,548 € '000 1,757 1,155 1,167 84,316 11 64,729 9,142 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 28 33 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. V. Associated companies of joint operations B.V. NEA, Arnhem/Netherlands Shareholding in % Equity Net income/loss Direct Total 28 € '000 71,498 € '000 706 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. VI. Joint ventures accounted for using the equity method Shareholding in % Equity Net income/loss AS 3 Beteiligungs GmbH, Essen C-Power N.V., Ostend/Belgium Galloper Wind Farm Holding Company Limited, Swindon/United Kingdom Gwynt y Môr Offshore Wind Farm Limited, Swindon/United Kingdom Innogy Venture Capital GmbH, Dortmund Société Electrique de l'Our S.A., Luxembourg/Luxembourg TCP Petcoke Corporation, Dover/USA URANIT GmbH, Jülich Direct Total 515 27 25 50 755 40 50 50 € '000 39,914 227,455 – 132,797 – 1,029 595 5,697 22,139 71,317 € '000 5,335 18,081 – 8,149 – 936 123 5,1372 10,7462 98,284 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 2018 VII. Joint ventures not accounted for using the equity method due to applica- Shareholding in % Equity Net income/loss tion of IFRS 5 Direct Total AVU Aktiengesellschaft für Versorgungs-Unternehmen, Gevelsberg BEW Netze GmbH, Wipperfürth Budapesti Disz- es Közvilagitasi Korlatolt Felelössegü Tarsasag, Budapest/ Hungary Energie Nordeifel GmbH & Co. KG, Kall FSO GmbH & Co. KG, Oberhausen Konsortium Energieversorgung Opel beschränkt haftende oHG, Karlstein PRENU Projektgesellschaft für Rationelle Energienutzung in Neuss mit beschränkter Haftung, Neuss Rain Biomasse Wärmegesellschaft mbH, Rain SHW/RWE Umwelt Aqua Vodogradnja d.o.o., Zagreb/Croatia Stadtwerke Dülmen Dienstleistungs- und Beteiligungs-GmbH & Co. KG, Dülmen Stadtwerke Lingen GmbH, Lingen (Ems) Stromnetz Friedberg GmbH & Co. KG, Friedberg Stromnetz Gersthofen GmbH & Co. KG, Gersthofen Stromnetz Günzburg GmbH & Co. KG, Günzburg SVS-Versorgungsbetriebe GmbH, Stadtlohn Zagrebacke otpadne vode d.o.o., Zagreb/Croatia 50 615 50 33 50 675 50 705 50 50 40 49 49 49 30 48 € '000 95,950 11,410 30,694 13,691 33,007 29,032 165 6,165 568 27,020 13,971 35 431 2,999 25,340 221,901 € '000 10,936 438 1,567 4,579 11,445 5,257 – 13 525 156 4,260 11 0 0 113 1,123 24,383 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. VIII. 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 Bray Offshore Wind Limited, Kilkenny City/Ireland 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 Kish Offshore Wind Limited, Kilkenny City/Ireland Mingas-Power GmbH, Essen PEARL PETROLEUM COMPANY LIMITED, Road Town/British Virgin Islands Schluchseewerk Aktiengesellschaft, Laufenburg Baden Vliegasunie B.V., De Bilt/Netherlands Direct 25 Total 25 40 49 50 28 40 32 785 50 40 107 50 605 € '000 1,717,100 4,583 4,664 – 71 47,872 120,788 11,730 16,362 – 91 6,742 € '000 173,700 315 3,962 – 1 24,1822 6,647 586 – 1,070 – 1 6,073 2,027,129 198,287 62,148 12,608 2,809 2,660 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 IX. Associated companies not accounted for using the equity method due to Shareholding in % Equity Net income/loss application of IFRS 5 Direct Total € '000 € '000 Dortmunder Energie- und Wasserversorgung Gesellschaft mit beschränkter Haftung, Dortmund EnergieServicePlus GmbH, Düsseldorf Energieversorgung Guben GmbH, Guben Energieversorgung Hürth GmbH, Hürth Energieversorgung Oberhausen Aktiengesellschaft, Oberhausen ENNI Energie & Umwelt Niederrhein GmbH, Moers e-regio GmbH & Co. KG, Euskirchen EWR Aktiengesellschaft, Worms EWR Dienstleistungen GmbH & Co. KG, Worms EWR GmbH, Remscheid Freiberger Stromversorgung GmbH (FSG), Freiberg Gas- und Wasserwerke Bous - Schwalbach GmbH, Bous Kärntner Energieholding Beteiligungs GmbH, Klagenfurt/Austria KELAG-Kärntner Elektrizitäts-AG, Klagenfurt/Austria Kemkens B.V., Oss/Netherlands KEW Kommunale Energie- und Wasserversorgung Aktiengesellschaft, Neunkirchen MAINGAU Energie GmbH, Obertshausen medl GmbH, Mülheim an der Ruhr Nebelhornbahn-Aktiengesellschaft, Oberstdorf PFALZWERKE AKTIENGESELLSCHAFT, Ludwigshafen am Rhein Projecta 14 GmbH, Saarbrücken Propan Rheingas GmbH & Co Kommanditgesellschaft, Brühl Recklinghausen Netzgesellschaft mbH & Co. KG, Recklinghausen RheinEnergie AG, Cologne Rhein-Main-Donau GmbH, Munich 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 Stadtwerke Essen Aktiengesellschaft, Essen Stadtwerke Geldern GmbH, Geldern Stadtwerke GmbH Bad Kreuznach, Bad Kreuznach Stadtwerke Kamp-Lintfort GmbH, Kamp-Lintfort Stadtwerke Kirn GmbH, Kirn/Nahe Stadtwerke Meerane GmbH, Meerane Stadtwerke Meerbusch GmbH, Meerbusch 40 49 45 25 106 20 43 16 25 20 30 49 49 136 49 29 47 39 20 27 50 30 50 20 22 25 33 50 35 45 40 20 25 29 49 25 49 49 24 40 188,831 6,296 17,338 4,960 34,345 35,915 89,342 74,307 147,781 83,816 11,429 14,161 871,074 855,527 37,941 73,736 40,371 21,829 5,971 261,971 38,127 9,813 16,044 896,918 110,112 25,335 34,554 20,215 17,536 32,759 20,239 193,636 12,115 132,112 13,408 39,925 14,607 2,137 14,048 24,310 11 2,066 1,246 11 13,323 11 15,624 12,896 0 0 2,192 2,424 79,2572 81,400 8,411 10,522 12,539 11 812 30,285 1,902 2,076 1,125 145,309 0 4,613 5,783 2,147 2,577 5,815 1,802 48,754 11 0 2,923 11 3,417 232 2,202 5,106 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 2018 IX. Associated companies not accounted for using the equity method due to Shareholding in % Equity Net income/loss application of IFRS 5 Stadtwerke Merseburg GmbH, Merseburg Stadtwerke Merzig Gesellschaft mit beschränkter Haftung, 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 Gesellschaft mit beschränkter Haftung, Weißenfels Stadtwerke Willich Gesellschaft mit beschränkter Haftung, Willich Stadtwerke Zeitz GmbH, Zeitz SWTE Netz GmbH & Co. KG, Ibbenbüren Tankey B.V., 's-Hertogenbosch/Netherlands WVW Wasser- und Energieversorgung Kreis St. Wendel Gesellschaft mit beschränkter Haftung, St. Wendel Xelan SAS, Saint-Denis La Plaine/France Zagrebacke otpadne vode-upravljanje i pogon d.o.o., Zagreb/Croatia Zwickauer Energieversorgung GmbH, Zwickau Direct Total 40 50 25 50 25 24 49 30 24 25 24 33 42 28 34 31 27 € '000 25,092 15,906 88,344 6,627 58,756 14,056 38,022 82,005 25,254 13,981 21,420 36,640 23,778 1,015 3,376 44,360 € '000 3,000 253 19,852 2,607 4,835 1,551 4,074 11 4,029 24,221 3,041 4,642 3 1,818 – 770 3,371 12,106 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 X. Companies which are not accounted for using the equity method due to sec- ondary importance for the assets, liabilities, financial position and profit or loss of the Group Abwasser-Gesellschaft Knapsack, Gesellschaft mit beschränkter Haftung, Hürth Ascent Energy LLC, Wilmington/USA CARBON Climate Protection GmbH, Langenlois/Austria CARBON Egypt Ltd., Cairo/Egypt DBO Projectos e Participacoes S.A., Leblon/Brazil Deutsche Gesellschaft für Wiederaufarbeitung von Kernbrennstoffen AG & Co. oHG, Gorleben Elsta B.V., Middelburg/Netherlands EMDO S.A.S., Paris/France Fassi Coal Pty. Ltd., Newcastle-Rutherford/Australia First River Energy LLC, Denver/USA Focal Energy Photovoltaic Holdings Limited, Nicosia/Cyprus Gemeinschaftswerk Hattingen Gesellschaft mit beschränkter Haftung, Essen GfS Gesellschaft für Simulatorschulung mbH, Essen Kraftwerk Buer GbR, Gelsenkirchen KSG Kraftwerks-Simulator-Gesellschaft mbH, Essen KÜCKHOVENER Deponiebetrieb GmbH & Co. Kommanditgesellschaft, Bergheim KÜCKHOVENER Deponiebetrieb Verwaltungs-GmbH, Bergheim LDO Coal Pty. Ltd., Ruthersford/Australia Moravske Hidroelektrane d.o.o., Belgrade/Serbia Netzanbindung Tewel OHG, Cuxhaven PV Projects GmbH & Co. KG (i.L.), Kolitzheim PV Projects Komplementär GmbH (i.L.), Kolitzheim TetraSpar Demonstrator ApS, Copenhagen/Denmark The Bristol Bulk Company Limited, London/United Kingdom Toledo PV A.E.I.E., Madrid/Spain Umspannwerk Putlitz GmbH & Co. KG, Oldenburg WALDEN GREEN ENERGY LLC, New York City/USA Windesco Inc, Boston/USA Windpark Paffendorf GmbH & Co. KG, Essen WINDTEST Grevenbroich GmbH, Grevenbroich Shareholding in % Equity Net income/loss Direct Total 33 50 50 49 30 31 25 30 47 40 50 52 33 50 33 50 50 47 51 25 50 50 33 25 33 25 74 22 49 38 € '000 443 48,307 3,130 – 1,773 9 1,384 40,154 – 4,984 – 9,816 – 1,384 1,476 2,045 59 5,113 589 33 39 – 99 3,540 668 377 24 1 1,619 0 11,978 86 4,474 2,276 € '000 213 – 2,962 2,283 – 341 0 873 32,683 – 4,999 – 3,021 – 7,211 – 4 – 506 3 0 26 – 8 0 78 – 16 – 30 285 0 3 0 693 – 179 – 826 – 1,172 – 27 118 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 2018 XI. Associates and joint ventures of secondary importance for the assets, liabili- ties, financial position and profit or loss of the Group falling under the scope of IFRS 5 Alt Han Company Limited, London/United Kingdom AWOTEC Gebäude Servicegesellschaft mit beschränkter Haftung, Saarbrücken Bäderbetriebsgesellschaft St. Ingbert mbH, St. Ingbert Balve Netz GmbH & Co. KG, Balve Basking Automation GmbH, Berlin Bayerische Ray Energietechnik GmbH, Garching Biogas Wassenberg GmbH & Co. KG, Wassenberg Biogas Wassenberg Verwaltungs GmbH, Wassenberg Breitband-Infrastrukturgesellschaft Cochem-Zell mbH, Cochem bremacon GmbH, Bremen Brüggen.E-Netz GmbH & Co. KG, Brüggen Brüggen.E-Netz Verwaltungs-GmbH, Brüggen Centralny System Wymiany Informacji Sp. z o.o., Poznan/Poland DES Dezentrale Energien Schmalkalden GmbH, Schmalkalden 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 Energie BOL GmbH, Ottersweier Energie Mechernich GmbH & Co. KG, Mechernich Energie Mechernich Verwaltungs-GmbH, Mechernich Energie Nordeifel Beteiligungs-GmbH, Kall Energie Schmallenberg GmbH, Schmallenberg energienatur Gesellschaft für Erneuerbare Energien mbH, Siegburg Energienetze Holzwickede GmbH, Holzwickede 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 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 Shareholding in % Equity Net income/loss Direct Total € '000 € '000 21 48 49 25 46 49 32 32 21 48 25 25 20 33 20 24 49 49 49 50 30 50 49 49 33 44 44 25 49 40 20 49 49 49 40 30 50 25 25 34 34 0 114 90 3,284 1,255 1,323 38 0 – 18 3,780 31 282 288 3,643 5,744 1,134 84 44 843 39 3,618 33 25 30 115 25 36 72 71 47 16 26 23 25 – 1,796 2,909 33 5,701 61 0 14 4 590 9 5 76 1 141 103 530 2 10 2 24 – 2,170 772 1,105 59 9 318 3 225 2 0 1 3 0 4 16 20 20 – 9 1 – 1 – 2 0 556 2 3,470 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) 183 XI. Associates and joint ventures of secondary importance for the assets, liabili- ties, financial position and profit or loss of the Group falling under the scope of IFRS 5 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 Energotel, a.s., Bratislava/Slovakia energy4u GmbH & Co. KG, Siegburg enermarket GmbH, Frankfurt am Main 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 Fernwärmeversorgung Zwönitz GmbH (FVZ), Zwönitz 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, Saulheim Gemeindewerke Bad Sassendorf Gasnetz GmbH & Co. KG, Bad Sassendorf Gemeindewerke Bad Sassendorf Netze GmbH & Co. KG, Bad Sassendorf Gemeindewerke Bad Sassendorf Netze Verwaltung GmbH, Bad Sassendorf Gemeindewerke Bissendorf Netze GmbH & Co. KG, Bissendorf Gemeindewerke Bissendorf Netze Verwaltungs-GmbH, Bissendorf Gemeindewerke Everswinkel GmbH, Everswinkel Gemeindewerke Namborn, Gesellschaft mit beschränkter Haftung, Namborn GfB, Gesellschaft für Baudenkmalpflege mbH, Idar-Oberstein Gichtgaskraftwerk Dillingen GmbH & Co. KG, Dillingen GISA GmbH, Halle (Saale) GkD Gesellschaft für kommunale Dienstleistungen mbH, Cologne Shareholding in % Equity Net income/loss Direct Total 49 25 25 49 49 20 49 60 25 50 50 50 25 25 50 33 45 45 49 50 50 50 49 49 25 25 49 49 49 49 25 25 25 49 49 45 49 20 25 24 50 € '000 4,386 1,698 29 3,007 2,745 6,805 25 1,090 252 3,109 526 78 993 – 763 2,404 31 105 3,320 – 1,264 64 4,405 2,012 1,538 3,211 1,930 26 2,143 33 25 1,837 31 2,756 27 6,871 811 20 32,685 9,958 56 € '000 275 206 2 1,231 127 1,293 – 154 3 227 2 1,496 10 57 – 58 – 79 – 108 873 1 5 17,434 – 917 0 588 454 439 351 819 1 724 2 0 301 2 482 1 210 – 3 7 3,696 2,566 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. 184 RWE Annual Report 2018 XI. Associates and joint ventures of secondary importance for the assets, liabili- ties, financial position and profit or loss of the Group falling under the scope of IFRS 5 Shareholding in % Equity Net income/loss Direct Total € '000 € '000 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 Hennef (Sieg) Netz GmbH & Co. KG, Hennef hmstr GmbH, Saarbrücken Hochsauerland Netze GmbH & Co. KG, Meschede Hochsauerland Netze Verwaltung GmbH, Meschede innogy International Middle East, Dubai/UAE innogy.C3 GmbH, Essen 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 Gesellschaft mit beschränkter Haftung, Marpingen Kommunale Netzgesellschaft Steinheim a. d. Murr GmbH & Co. KG, Steinheim a. d. Murr Kommunalwerk Rudersberg GmbH & Co. KG, Rudersberg Kommunalwerk Rudersberg Verwaltungs-GmbH, Rudersberg Kraftwerk Wehrden Gesellschaft mit beschränkter Haftung, Völklingen KSP Kommunaler Service Püttlingen GmbH, Püttlingen KVK Kompetenzzentrum Verteilnetze und Konzessionen GmbH, Cologne Mainzer Wärme PLUS GmbH, Mainz MeteringSüd GmbH & Co. KG, Augsburg MNG Stromnetze GmbH & Co. KG, Lüdinghausen MNG Stromnetze Verwaltungs GmbH, Lüdinghausen 35 49 21 21 49 45 35 49 25 25 40 49 25 25 25 49 25 50 49 49 49 49 50 46 50 22 65 65 42 49 49 50 50 33 40 75 45 34 25 25 28 690 3 4 49,843 2,110 40 707 3,788 4,126 605 2,293 3,402 1,000 61 106 6,236 28 – 2,069 15 794 15,412 2,328 30 1,348 51 2,887 2,438 3,350 – 1,597 20 2,747 4,966 3,082 26 102 187 230 7,632 447 19,599 27 1 30 327 606 – 5 469 589 362 – 14 14 2,045 1 0 0 0 854 149 1 41 0 42 602 – 5,952 – 664 – 2 9 75 346 8 1 9 67 176 1,620 44 2,000 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) 185 XI. Associates and joint ventures of secondary importance for the assets, liabili- ties, financial position and profit or loss of the Group falling under the scope of IFRS 5 Murrhardt Netz AG & Co. KG, Murrhardt Naturstrom Betriebsgesellschaft Oberhonnefeld mbH, Koblenz 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 Horn-Bad Meinberg GmbH & Co. KG, Horn-Bad Meinberg 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 pear.ai Inc., San Francisco/USA Peißenberger Wärmegesellschaft mbH, Peißenberg Placense Ltd., Tel Aviv/Israel prego services GmbH, Saarbrücken Propan Rheingas GmbH, Brühl Recklinghausen Netz-Verwaltungsgesellschaft mbH, Recklinghausen Renergie Stadt Wittlich GmbH, Wittlich Rhegio Natur Dienstleistungen GmbH, Rhede Rhein-Ahr-Energie Netz GmbH & Co. KG, Grafschaft RIWA GmbH Gesellschaft für Geoinformationen, Kempten RURENERGIE GmbH, Düren RWE Dhabi Union Energy LLC, Abu Dhabi/UAE Sandersdorf-Brehna Netz GmbH & Co. KG, Sandersdorf-Brehna SEG Solarenergie Guben GmbH & Co. KG, Guben Selm Netz GmbH & Co. KG, Selm SHS Ventures GmbH & Co. KGaA, Völklingen SolarProjekt Mainaschaff GmbH, Mainaschaff Shareholding in % Equity Net income/loss Direct Total 49 25 49 49 50 49 49 49 49 50 50 49 50 50 50 49 49 50 49 49 25 51 51 50 40 50 20 50 28 49 30 25 25 33 30 49 49 25 25 50 50 € '000 2,790 159 29 1,833 2,296 37 7,670 1,998 1,415 29 34 819 1,524 28 6,098 31 2,027 2,465 31 2,000 6,158 36 65 5,739 – 1,894 53 28 21 1,350 12,667 4,826 3,264 4,198 1,219 32 € '000 240 0 4 151 175 4 501 10 165 98 1 4 60 101 1 581 2 159 337 2 269 498 2 0 9 – 166 10 730 2 1 – 1 10 3 458 – 130 3 250 105 521 34 – 12 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. 186 RWE Annual Report 2018 XI. Associates and joint ventures of secondary importance for the assets, liabili- ties, financial position and profit or loss of the Group falling under the scope of IFRS 5 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 Stadtwerk Verl Netz GmbH & Co. KG, Verl 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, 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 Gesellschaft mit beschränkter Haftung, Steinfurt Stadtwerke Unna GmbH, Unna Stadtwerke Vlotho GmbH, Vlotho Stadtwerke Wadern GmbH, Wadern Stadtwerke Waltrop Netz GmbH & Co. KG, Waltrop Stadtwerke Weilburg GmbH, Weilburg 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 Neckargemünd GmbH, Neckargemünd Stromnetz Pulheim GmbH & Co. KG, Pulheim Stromnetz Verbandsgemeinde Katzenelnbogen GmbH & Co. KG, Katzenelnbogen Shareholding in % Equity Net income/loss Direct Total € '000 € '000 33 50 48 37 25 25 49 36 24 49 50 25 25 25 25 25 25 25 25 20 33 49 28 49 33 24 25 49 25 20 25 21 25 25 25 49 49 49 50 25 49 153 128 51 4,740 3,439 3,991 5,906 11,336 13,412 4,951 29 3,304 3,605 28 2,867 29 11 4 0 795 1,230 491 1,384 3,113 2,061 – 479 0 608 563 2 0 2 20,778 1,003 9,251 7,192 1,586 14,225 8,439 11,465 15,838 4,897 1,800 2,778 8,010 7,435 19,127 1,546 31 4,358 29 3,590 28 10 10 2,863 804 406 774 386 2,750 4,244 131 – 2,578 234 464 2,687 1,355 103 1 840 0 270 1 10 10 2,278 177 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. Consolidated financial statements > List of shareholdings (part of the notes) 187 XI. Associates and joint ventures of secondary importance for the assets, liabili- ties, financial position and profit or loss of the Group falling under the scope of IFRS 5 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 TNA Talsperren- und Grundwasser-Aufbereitungs- und Vertriebsgesellschaft mbH, Nonnweiler 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 Gesellschaft mit beschränkter Haftung, Merchweiler TWN Trinkwasserverbund Niederrhein GmbH, Grevenbroich TWRS Technische Werke der Gemeinde Rehlingen-Siersburg GmbH, Rehlingen Siersburg Untere Iller Aktiengesellschaft, Landshut Untermain EnergieProjekt AG & Co. KG., Kelsterbach Untermain Erneuerbare Energien GmbH, 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 Shareholding in % Equity Net income/loss Direct Total € '000 € '000 49 49 49 49 25 49 25 25 49 25 49 49 49 51 51 49 50 50 26 33 47 20 23 26 49 50 49 33 35 40 49 25 50 50 35 49 35 30 2,407 30 3,420 6,256 3,565 1,000 4,587 6,910 3,156 3,330 26 2,601 3,553 32 28 3,239 37 1,330 29 11,125 103 1,132 627 2,133 5,098 2,139 138 4,718 1,176 1,996 16 51 906 31 26 1 179 1 384 378 373 253 452 690 195 315 1 289 557 2 1 177 1 530 2 3,101 3 65 – 51 166 – 1,631 77 – 5 193 41 77 – 19 9 7 312 2 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. 188 RWE Annual Report 2018 XI. Associates and joint ventures of secondary importance for the assets, liabili- ties, financial position and profit or loss of the Group falling under the scope of IFRS 5 Verwaltungsgesellschaft GKW Dillingen mbH, Dillingen Visualix GmbH, Berlin VOLTARIS GmbH, Maxdorf Wadersloh Netz GmbH & Co. KG, Wadersloh Wadersloh Netz Verwaltungs GmbH, Wadersloh Wärmeversorgung Limburg GmbH, Limburg an der Lahn Wärmeversorgung Mücheln GmbH, Mücheln Wärmeversorgung Wachau GmbH, Markkleeberg OT Wachau Wasser-Netzgesellschaft Kolpingstadt Kerpen GmbH & Co. KG, Kerpen Wasserverbund Niederrhein Gesellschaft mit beschränkter Haftung, Moers Wasserversorgung Main-Taunus GmbH, Frankfurt am Main Wasserzweckverband der Gemeinde Nalbach, Nalbach WeAre GmbH, Essen Werne Netz GmbH & Co. KG, Werne WEV Warendorfer Energieversorgung GmbH, Warendorf Windenergie Briesensee GmbH, Neu Zauche Windenergie Frehne GmbH & Co. KG, Marienfließ Windenergie Merzig GmbH, Merzig Windenergie Schermbeck-Rüste GmbH & Co. KG, Schermbeck Windenergiepark Heidenrod GmbH, Heidenrod 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 WLN Wasserlabor Niederrhein GmbH, Mönchengladbach WVG-Warsteiner Verbundgesellschaft mbH, Warstein WVL Wasserversorgung Losheim GmbH, Losheim am See WWS Wasserwerk Saarwellingen GmbH, Saarwellingen WWW Wasserwerk Wadern GmbH, Wadern xtechholding GmbH, Berlin Shareholding in % Equity Net income/loss Direct Total 25 50 50 25 25 50 49 49 25 38 49 49 50 49 25 31 41 20 20 45 25 50 50 35 42 45 25 50 49 49 26 € '000 187 2,946 3,626 27 461 929 93 11,789 144 1,776 1,023 1,616 5,596 3,907 2,763 € '000 7 9 575 401 2 6 109 4 10 851 8 19 9 10 1,884 368 100 491 0 12,766 1,480 4,167 1,901 3,530 4,685 7,987 521 8,676 5,236 3,887 3,892 703 – 71 82 186 252 21 1,547 382 345 299 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) 189 XII. Other investments Abel & Co., Tilburg/Netherlands Adom Intelligent Transport Ltd., Tel Aviv-Jaffa/Israel aiPod Inc, Pasadena/USA AKSELOS S.A., Lausanne/Switzerland APEP Dachfonds GmbH & Co. KG, Munich AutoGrid Systems Inc., Wilmington/USA BeeRides Gepjarmü-kölcsönzö 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 Bootstraplabs VC Follow-On Fund 2016, San Francisco/USA Bootstraplabs VC Seed Fund 2016 L.P., San Francisco/USA Buildots Ltd., Tel Aviv/Israel Bürgerenergie Untermain eG, Kelsterbach CALIPSA LIMITED, London/United Kingdom Chrysalix Energy II U.S. Limited Partnership, Vancouver/Canada Chrysalix Energy III U.S. Limited Partnership, Vancouver/Canada Cryptowerk Corp., San Mateo/USA 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, Kall Energie Rur-Erft Verwaltungs-GmbH, Kall Energieagentur Region Trier GmbH, Trier Energiegenossenschaft Chemnitz - Zwickau eG, Chemnitz Energiehandel Saar GmbH & Co. KG, EHS, 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 FirstPoint Mobile Guard Ltd., Tel Aviv/Israel Focal Energy Solar Three Ltd., Nicosia/Cyprus Fractal Blockchain GmbH, Berlin GasLINE Telekommunikationsnetz-Geschäftsführungsgesellschaft deutscher Gasver- sorgungsunternehmen mbH, Straelen Shareholding in % Equity Net income/loss Direct Total € '000 € '000 36 1 16 8 16 36 5 18 19 1 7 2 6 11 6 5 4 7 6 11 7 10 3 0 12 23 9 18 17 0 0 14 7 1 2 10 2 4 6 8 5 10 10 9 9 9 254,921 84,767 32,014 10,397 9,678 9 9 5,700 – 1,229 – 4,897 9 – 314,857 108,180 9 9 9 14 9 – 7 – 1,230 9 0 1,542 76 9 1,699 82,386 10 0 1,147 0 – 39 16 – 5 0 4,290 – 523 59 9 – 4 9 2 108 8,988 114,962 0 18,441 1,802 4,704 467,844 595 1,227 30 0 1,140 391 25 28,327 134 370 5,430 67 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. 190 RWE Annual Report 2018 XII. Other investments GasLINE Telekommunikationsnetzgesellschaft deutscher Gasversorgungsunternehmen mbH & Co. KG, Straelen Gemeinschafts-Lehrwerkstatt Arnsberg GmbH, Arnsberg Gemserv Limited, London/United Kingdom Gesellschaft für Wirtschaftsförderung Duisburg mbH, Duisburg GETAWAY GmbH, Berlin Glenrothes Paper Limited, Glenrothes/United Kingdom Globus Steel & Power Pvt. Limited, New Delhi/India gridX GmbH, Aachen 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 Holo-Light GmbH, Westendorf/Austria Hubject GmbH, Berlin INDI Energie B.V., 's-Hertogenbosch/Netherlands INS Insider Navigation Systems GmbH, Vienna/Austria Intertrust Technologies Corporation, Sunnyvale/USA iTy Labs Corp., Dover/USA IWW Rheinisch-Westfälisches Institut für Wasserforschung gemeinnützige GmbH, Mülheim an der Ruhr IZES gGmbH, Saarbrücken KEV Energie, Gesellschaft mit beschränkter Haftung, Kall Kreis-Energie-Versorgung Schleiden, Gesellschaft mit beschränkter Haftung, Kall LEW Bürgerenergie e.G., Augsburg LIBRYO LTD, London/United Kingdom ME SolShare International PTE. LTD., Singapore/Singapore 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, Oststeinbek Nordsee Three GmbH, Oststeinbek Nordsee Two GmbH, Oststeinbek Shareholding in % Equity Net income/loss Direct Total € '000 € '000 10 8 14 1 9 0 18 14 1 13 1 31 7 13 30 12 13 9 6 8 2 2 0 8 11 3 9 3 12 29 5 15 15 15 10 29 5 10 10 10 99,888 1,429 8,136 721 852 – 1,344 8,414 100,631 0 9,040 8 58,888 – 36 1,791 25 9 0 – 916 9 9 – 7,701 0 0 9 – 1,957 30 9 73,927 – 17,007 9 4 – 74 2,320 2,221 34 9 9 9 – 1,628 0 0 10 129 33,713 – 42 – 42 82 295 9 71 0 0 904 406 457 16,098 1,770 7,964 0 10,179 2,759 71,977 80 80 66 442 50 518 126 Ökostrom Saar Geschäftsführungsgesellschaft mbH & Co. Biogas Losheim KG, Merzig OPPENHEIM PRIVATE EQUITY Institutionelle Anleger GmbH & Co. KG, Cologne 29 Oriient New Media Ltd., Tel Aviv/Israel Parque Eólico Cassiopea, S.L., Oviedo/Spain Parque Eólico Escorpio, S.A., Oviedo/Spain Parque Eólico Leo, S.L., Oviedo/Spain 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) 191 XII. Other investments Shareholding in % Equity Net income/loss PEAG Holding GmbH, Dortmund People Power Company, Redwood City/USA PIO Security GmbH, Berlin pro regionale energie eG, Diez Promocion y Gestion Cáncer, S.L., Oviedo/Spain PSI Software AG, Berlin QMerit Inc., Irvine/USA REV LNG LLC, Ulysses/USA ROSOLA Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Alzenau KG, Düsseldorf 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 Segasec Labs Ltd., Tel Aviv/Israel SET Fund II C.V., Amsterdam/Netherlands SkenarioLabs Oy, Espoo/Finland 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 Solidified Technologies LLC, Garland/USA 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 Ostmünsterland GmbH & Co. KG, Telgte Stadtwerke Porta Westfalica Gesellschaft mit beschränkter Haftung, Porta Westfalica Stadtwerke Sulzbach/Saar 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 Sustainable Energy Technology Fund C.V., Amsterdam/Netherlands SWT Stadtwerke Trier Versorgungs-GmbH, Trier SWTE Verwaltungsgesellschaft mbH, Ibbenbüren Direct 12 Total 12 12 8 1 10 18 11 5 100 15 100 7 12 17 17 19 13 10 7 15 15 2 12 10 12 2 18 12 10 12 15 15 1 18 18 7 50 19 1 € '000 17,933 877 1,861 62 85,020 8,324 3,036 17 2 1,978 142 31,868 0 382 1,190 315 15 1,844 98 16,072 31,495 27,483 16,438 11,431 0 1,006 16,387 7,301 € '000 2,007 – 2,194 9 57 91 5,007 9 854 423 9 – 3 9 1 389 7 9 – 467 9 0 70 154 13 9 0 – 91 14 2,878 0 4,380 259 1,487 – 451 687 1,818 3,400 – 47,097 16,742 55,225 25 – 52,279 – 810 3,920 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. 192 RWE Annual Report 2018 XII. Other investments Shareholding in % Equity Net income/loss Direct Total Technologiezentrum Jülich GmbH, Jülich TechSee Augmented Vision Ltd., Herzliya/Israel Telecom Plus plc, London/United Kingdom Transport- und Frischbeton-Gesellschaft mit beschränkter Haftung & Co. Kom- manditgesellschaft 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 Westly Capital Partners Fund III, L.P., Dover/USA WiN Emscher-Lippe Gesellschaft zur Strukturverbesserung mbH, Herten Windenergie Schermbeck-Rüste Verwaltungsgesellschaft m.b.H., Schermbeck Windpark Jüchen GmbH & Co. KG, Roth Windpark Mengerskirchen GmbH, Mengerskirchen Windpark Saar GmbH & Co. Repower KG, Freisen Windpark Saar 2016 GmbH & Co. KG, Freisen 5 9 1 17 6 2 3 43 18 2 8 2 14 15 15 10 12 € '000 1,593 221,660 390 64,750 85,442 1,822 57 89,401 1,203 254 28 2,110 3,013 7,474 4,204 € '000 162 9 35,8642 118 9 – 1,112 1,504 139 9 0 – 262 – 212 1 216 297 718 – 368 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) 193 Changes in shareholding with change of control Shareholding in % 31 Dec 2018 Shareholding in % 31 Dec 2017 Change Additions to affiliated companies included in the consolidated financial statements Broadband TelCom Power, Inc., Santa Ana/USA Business Improvers B.V., Amsterdam/Netherlands Certified B.V., Amsterdam/Netherlands Charity Improvers B.V., Amsterdam/Netherlands Deal Improvers B.V., Amsterdam/Netherlands Dealmakers B.V., Amsterdam/Netherlands Dealmakers Community B.V., Amsterdam/Netherlands Dealmakers Contract B.V., Amsterdam/Netherlands DealmakersNetwork B.V., Amsterdam/Netherlands ELMU-ÉMÁSZ Solutions Kft., Budapest/Hungary Energy Dealmakers B.V., Amsterdam/Netherlands Energy Improvers B.V., Amsterdam/Netherlands Essent Rights B.V., 's-Hertogenbosch/Netherlands Facility Dealmakers B.V., Amsterdam/Netherlands Finance Dealmakers B.V., Amsterdam/Netherlands FlexQuarters B.V., Amsterdam/Netherlands Generación Fotovoltaica De Alarcos, S.L.U., Barcelona/Spain Hardin Wind LLC, Chicago/USA Improvers B.V., Amsterdam/Netherlands Improvers B.V., 's-Hertogenbosch/Netherlands Improvers Community B.V., Amsterdam/Netherlands Improvers Concepts B.V., Amsterdam/Netherlands Improvers Contracts B.V., Amsterdam/Netherlands Improvers Network B.V., Amsterdam/Netherlands innogy Limondale Sun Farm Holding Pty. Ltd., Southbank/Australia innogy Polska IT Support Sp. z o.o., Warsaw/Poland Innogy Renewables Australia Pty Ltd., Southbank/Australia innogy Rheinhessen Beteiligungs GmbH, Essen Installatietechniek Totaal B.V., Leeuwarden/Netherlands IRUS Solar Development LLC, Dover/USA IRUS Solar Holdings LLC, Dover/USA IRUS Wind Development LLC, Dover/USA IsoFitters BVBA, Herentals/Belgium Isoprofs België BVBA, Hasselt/Belgium Konnektor B.V., Amsterdam/Netherlands Licht Groen B.V., Amsterdam/Netherlands Limondale Sun Farm Pty. Ltd., Southbank/Australia Lottery Improvers B.V., Amsterdam/Netherlands Media Improvers B.V., Amsterdam/Netherlands Montcogim - Plinara d.o.o., Sveta Nedelja/Croatia Nederland Isoleert B.V., Amersfoort/Netherlands Nederland Schildert B.V., Amersfoort/Netherlands Nederland Schildert Rijnmond B.V., Amersfoort/Netherlands Nederland Verkoopt B.V., Amersfoort/Netherlands Recargo Inc., El Segundo, CA/USA Regionetz GmbH, Aachen 1 Control by virtue of company contract. 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 491 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 49 194 RWE Annual Report 2018 Changes in shareholding with change of control Shareholding in % 31 Dec 2018 Shareholding in % 31 Dec 2017 Change Additions to affiliated companies included in the consolidated financial statements RomeoDelta B.V., Amsterdam/Netherlands Telecom Dealmakers B.V., Amsterdam/Netherlands Telecom Improvers B.V., Amsterdam/Netherlands Triton Knoll HoldCo Limited, Swindon/United Kingdom Wind Farm Deliceto s.r.l., Bolzano/Italy Additions to associates accounted for using the equity method Bray Offshore Wind Limited, Kilkenny City/Ireland Kish Offshore Wind Limited, Kilkenny City/Ireland Additions to associates not accounted for using the equity method due to application of IFRS 5 Tankey B.V., 's-Hertogenbosch/Netherlands Reclassification of companies not accounted for using the equity method due to sec- ondary importance for the assets, liabilities, financial position and profit or loss of the Group to affiliated companies included in the consolidated financial statements 100 100 100 59 100 50 50 43 Sofia Offshore Wind Farm Limited, Swindon/United Kingdom 100 25 Reclassification of companies not included in the consolidated financial statements due to secondary importance for the assets, liabilities, financial position and profit or loss of the Group to joint ventures not accounted for using the equity method due to appli- cation of IFRS 5 Stromnetz Friedberg GmbH & Co. KG, Friedberg 49 Disposal of affiliated companies included in the consolidated financial statements ÉMÁSZ DSO Holding Korlátolt Felelosségu Társaság, Miskolc/Hungary Great Yarmouth Power Limited, Swindon/United Kingdom Immobilien-Vermietungsgesellschaft Schumacher GmbH & Co. Objekt Kundenzentren KG, Düsseldorf innogy Energetyka Trzemeszno Sp. z o.o., Wroclaw/Poland innogy Polska Contracting Sp. z o.o., Wroclaw/Poland Mátrai Erömü Zártkörüen Müködö Részvénytársaság, Visonta/Hungary Regenesys Holdings Limited, Swindon/United Kingdom Regenesys Technologies, Swindon/United Kingdom RegioTemp GmbH, Eschweiler RWE Cogen UK Trading Limited, Swindon/United Kingdom RWE East, s.r.o., Prague/Czech Republic RWE Energie S.R.L., Bucharest/Romania 1 Structured entity pursuant to IFRS 10 and 12. 100 100 100 1 100 100 51 100 100 100 100 100 100 100 100 100 59 100 50 50 43 75 – 51 – 100 – 100 – 100 – 100 – 51 – 100 – 100 – 100 – 100 – 100 – 100 Consolidated financial statements > List of shareholdings (part of the notes) 195 Changes in shareholding without change of control Shareholding in % 31 Dec 2018 Shareholding in % 31 Dec 2017 Change Affiliated companies which are included in the consolidated financial statements Nordsee Windpark Beteiligungs GmbH, Essen Associates not accounted for using the equity method due to application of IFRS 5 EWR Aktiengesellschaft, Worms EWR Dienstleistungen GmbH & Co. KG, Worms Nebelhornbahn– Aktiengesellschaft, Oberstdorf Stadtwerke Velbert GmbH, Velbert Joint ventures not accounted for using the equity method due to application of IFRS 5 Rain Biomasse Wärmegesellschaft mbH, Rain Joint operations Gas– Netzgesellschaft Kolpingstadt Kerpen GmbH & Co. KG, Kerpen Gas– Netzgesellschaft Kreisstadt Bergheim GmbH & Co. KG, Bergheim 90 1 25 20 30 70 25 25 100 2 50 27 50 75 49 49 – 10 – 1 – 25 – 7 – 20 – 5 – 24 – 24 196 RWE Annual Report 2018 3.8 BOARDS (PART OF THE NOTES) As of: 28 February 2019 Supervisory Board (End of term: 2021 Annual General Meeting) Dr. Werner Brandt Bad Homburg Chairman Martin Bröker2 Bochum Head of HR & Business Functions IT at RWE Generation SE Chairman of the Supervisory Board of ProSiebenSat.1 Media SE Year of birth: 1966 Year of birth: 1954 Member since: 18 April 2013 Other appointments: • ProSiebenSat.1 Media SE (Chairman)1 • Siemens AG1 Frank Bsirske2 Berlin Deputy Chairman Chairman of ver.di Vereinte Dienstleistungsgewerkschaft Year of birth: 1952 Member since: 9 January 2001 Other appointments: • DB Privat- und Firmenkundenbank AG • Deutsche Bank AG1 • innogy SE1,3 Michael Bochinsky2 Grevenbroich Member since: 1 September 2018 Ute Gerbaulet Düsseldorf General Partner of Bankhaus Lampe KG Year of birth: 1968 Member since: 27 April 2017 Other appointments: • Gerry Weber International AG1 - NRW.Bank AöR Reinhold Gispert2,4 Worms Former Chairman of the Group Works Council of RWE AG Year of birth: 1960 Member from 27 April 2017 to 31 July 2018 Andreas Henrich2,4 Mülheim an der Ruhr Former Head of Human Resources at RWE AG Deputy Chairman of the General Works Council of RWE Power AG Year of birth: 1956 Year of birth: 1967 Member since: 1 August 2018 Reiner Böhle2 Witten Consultant for Special Tasks and Project Work Year of birth: 1960 Member since: 1 January 2013 Sandra Bossemeyer2 Duisburg Chairwoman of the Works Council of RWE AG Representative of the disabled Year of birth: 1965 Member since: 20 April 2016 Member from 20 April 2016 to 31 August 2018 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: • National-Bank AG • Voith GmbH & Co. KGaA (Chairman) • - Member of other mandatory supervisory boards as defined in Section 125 of the German Stock Corporation Act. Member of comparable domestic and foreign supervisory boards of commercial enterprises as defined in Section 125 of the German Stock Corporation Act. 1 Listed company. 2 Employee representative. 3 Office within the Group. 4 Information valid as of the date of retirement. Consolidated financial statements > Boards (part of the notes) 197 Mag. Dr. h. c. Monika Kircher Krumpendorf, Austria Consultant Year of birth: 1957 Peter Ottmann Nettetal Managing Director of Verband der kommunalen RWE-Aktionäre GmbH Member since: 15 October 2016 Attorney, Former Chief Administrative Officer of Viersen County Other appointments: - Andritz AG1 - Austrian Airlines AG - Kärntner Energieholding Beteiligungs GmbH (Chairwoman)3 - KELAG-Kärntner Elektrizitäts AG3 - Siemens AG Österreich Year of birth: 1951 Member since: 20 April 2016 Other appointments: • RW Holding AG (in liquidation) Günther Schartz Wincheringen Monika Krebber2 Mülheim an der Ruhr Chief Administrative Officer of the District of Trier-Saarburg Year of birth: 1962 Deputy Chairwoman of the General Works Council of innogy SE Member since: 20 April 2016 Deputy Chairwoman of the Group Works Council of RWE AG Year of birth: 1962 Member since: 20 April 2016 Other appointments: • RW Holding AG (in liquidation) Other appointments: • innogy SE1,3 Harald Louis2 Jülich - A.R.T. Abfallberatungs- und Verwertungsgesellschaft mbH (Chairman) - Kreiskrankenhaus St. Franziskus Saarburg GmbH (Chairman) - LBBW-RheinLand-Pfalz-Bank Verwaltungsrat (Deputy Member) - Sparkassenverband Rheinland-Pfalz - Sparkasse Trier Chairman of the General Works Council of RWE Power AG - Trierer Hafengesellschaft mbH Year of birth: 1967 Member since: 20 April 2016 Other appointments: • RWE Power AG3 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 (in liquidation) - Zweckverband Abfallwirtschaft Region Trier Dr. Erhard Schipporeit Hanover Independent Corporate Consultant Year of birth: 1949 Member since: 20 April 2016 Other appointments: • BDO AG • Fuchs Petrolub SE1 • Hannover Rück SE1 • HDI V. a. G. innogy SE1,3 (Chairman) • • SAP SE1 • Talanx AG1 • - Member of other mandatory supervisory boards as defined in Section 125 of the German Stock Corporation Act. Member of comparable domestic and foreign supervisory boards of commercial enterprises as defined in Section 125 of the German Stock Corporation Act. 1 Listed company. 2 Employee representative. 3 Office within the Group. 198 RWE Annual Report 2018 Dr. Wolfgang Schüssel Vienna, Austria Marion Weckes2 Dormagen Former Federal Chancellor of the Republic of Austria Head of Unit, Institut für Mitbestimmung und Unternehmens- Year of birth: 1945 Member since: 1 March 2010 Other appointments: führung, Hans-Böckler-Stiftung Year of birth: 1975 Member since: 20 April 2016 - Adenauer Stiftung (Chairman of the Board of Trustees) - Mobile Telesystems PJSC1 Leonhard Zubrowski2 Lippetal Chairman of the Group Works Council of RWE AG Year of birth: 1961 Member since: 1 July 2014 Other appointments: • RWE Generation SE3 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) • Dortmunder Stadtwerke Holding GmbH (Chairman) • KEB Holding AG (Chairman) - KSBG Kommunale Verwaltungsgesellschaft GmbH - Schüchtermann-Schiller’sche Kliniken Bad Rothenfelde GmbH & Co. KG - Sparkasse Dortmund (Chairman) Ralf Sikorski2 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 Verwaltungsgesellschaft GmbH, Essen • Lanxess AG1 • Lanxess Deutschland GmbH • RAG AG • RWE Generation SE3 • RWE Power AG3 • - Member of other mandatory supervisory boards as defined in Section 125 of the German Stock Corporation Act. Member of comparable domestic and foreign supervisory boards of commercial enterprises as defined in Section 125 of the German Stock Corporation Act. 1 Listed company. 2 Employee representative. 3 Office within the Group. Consolidated financial statements > Boards (part of the notes) 199 Supervisory Board Committees Executive Committee of the Supervisory Board Dr. Werner Brandt (Chairman) Audit Committee Dr. Erhard Schipporeit (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) Frank Bsirske Reiner Böhle Harald Louis Peter Ottmann Dr. Wolfgang Schüssel Michael Bochinsky 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 Prof. Dr. Hans-Peter Keitel Günther Schartz Ralf Sikorski Leonhard Zubrowski 200 RWE Annual Report 2018 The Executive Board Dr. Rolf Martin Schmitz (Chief Executive Officer) Chairman of the Executive Board of RWE AG since 15 October 2016 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 GmbH3 • RWE Generation SE3 (Chairman) • RWE Power AG3 (Chairman) • RWE Supply & Trading GmbH3 • TÜV Rheinland AG1 - Jaeger-Gruppe (Chairman) - Kärntner Energieholding Beteiligungs GmbH3 - KELAG-Kärntner Elektrizitäts-AG1,3 Dr. Markus Krebber (Chief Financial Officer) Member of the Executive Board of RWE AG since 1 October 2016, appointed until 30 September 2024 Other appointments: innogy SE1,3 • • RWE Generation SE3 • RWE Pensionsfonds AG3 • RWE Power AG3 • RWE Supply & Trading GmbH3 (Chairman) • - Member of other mandatory supervisory boards as defined in Section 125 of the German Stock Corporation Act. Member of comparable domestic and foreign supervisory boards of commercial enterprises as defined in Section 125 of the German Stock Corporation Act. 1 Listed company. 3 Office within the Group. Consolidated financial statements > Independent auditor’s report 201 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 Germany] (IDW). We performed the audit of the consolidated financial statements in supplementary compliance with the Aktiengesellschaft, Essen, and its subsidiaries (the Group), which International Standards on Auditing (ISAs). Our responsibilities comprise the statement of financial position as at 31 December 2018, under those requirements, principles and standards are further and the statement of profit or loss, statement of comprehensive described in the ‘Auditor’s Responsibilities for the Audit of the income, statement of cash flows and statement of changes in equity Consolidated Financial Statements and of the Group Management for the financial year from 1 January to 31 December 2018, and Report’ section of our auditor’s report. We are independent of the notes to the consolidated financial statements, including a summary group entities in accordance with the requirements of European law of significant accounting policies. In addition, we have audited the and German commercial and professional law, and we have fulfilled group management report of RWE Aktiengesellschaft, which is our other German professional responsibilities in accordance with combined with the Company’s management report, for the financial these requirements. In addition, in accordance with Article 10 year from 1 January to 31 December 2018. We have not audited the content of those parts of the group management report listed in the (2) point (f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU ‘Other Information’ section of our auditor’s report in accordance Audit Regulation. We believe that the audit evidence we have with the German legal requirements. obtained is sufficient and appropriate to provide a basis for our audit opinions on the consolidated financial statements and on the In our opinion, on the basis of the knowledge obtained in the audit, group management 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 to § [Article] 315e Abs. [paragraph] 1 HGB [Handelsgesetzbuch: judgment, were of most significance in our audit of the consolidated German Commercial Code] and, in compliance with these financial statements for the financial year from 1 January to requirements, give a true and fair view of the assets, liabilities, 31 December 2018. These matters were addressed in the context of and financial position of the Group as at 31 December 2018, and our audit of the consolidated financial statements as a whole, and of its financial performance for the financial year from 1 January in forming our audit opinion thereon; we do not provide a separate to 31 December 2018, and 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 follows: respects, this group management report is consistent with the consolidated financial statements, complies with German legal Accounting of discontinued operations requirements and appropriately presents the opportunities and Recoverability of goodwill risks of future development. Our audit opinion on the group Recognition and measurement of pension provisions management report does not cover the content of those parts of the group management report listed in the ‘Other Information’ Our presentation of these key audit matters has been structured in section of our auditor’s report. each case as follows: Pursuant to § 322 Abs. 3 Satz [sentence] 1 HGB, we declare that Matter and issue our audit has not led to any reservations relating to the legal Audit approach and findings compliance of the consolidated financial statements and of the Reference to further information group management report. Hereinafter we present the key audit matters: Basis for the Audit Opinions We conducted our audit of the consolidated financial statements and of the group management report in accordance with § 317 HGB Accounting of discontinued operations On March 12, 2018, RWE Aktiengesellschaft and E.ON SE (E.ON) and the EU Audit Regulation (No. 537/2014, referred to subsequently agreed on a comprehensive exchange of their business as ‘EU Audit Regulation’) and in compliance with German Generally operations. It stipulates the following, amongst other things: Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in RWE AG will transfer its entire stake in innogy SE (76.8 %) to E.ON. In return, innogy’s renewable energy business will be 202 RWE Annual Report 2018 returned to the Group as well as the renewable energy business The disclosures required under IFRS 5 are contained in the of E.ON. The transaction is subject to regulatory approvals and, notes to the consolidated financial statements in the section in the opinion of the executive directors, will be completed ‘discontinued operations’. In addition, information from the during the course of 2019. Group concerning the transaction in general can be found in the section ‘Strategy and structure’ of the Group Management Report. Since June 30, 2018, RWE Aktiengesellschaft has accounted for the operations of innogy to be transferred on a long-term Recoverability of goodwill basis to E.ON – essentially the grid and retail business – as In the consolidated financial statements of RWE discontinued operations in accordance with IFRS 5. The change Aktiengesellschaft, goodwill amounting to €1.7 billion (2 % of in the accounting of discontinued operations resulted in consolidated total assets) (prior year: €11.2 billion or 16 % of extensive adjustments being made to the Group’s consolidation consolidated total assets) is reported under the balance sheet system. These adjustments also take into account the option item ‘Intangible assets’. Since the 2018 financial year, this item exercised to allocate the elimination entries to the discontinued has only included the goodwill of the cash-generating units operations. The presentation of the business to be transferred Renewable Energy and Energy Trading. The remaining goodwill is shown in the income statement and in the cash flow shown under intangible assets up to the previous year is statement under ‘discontinued operations’ and in the balance reported under the balance sheet item ‘Assets held for sale’ and sheet as ‘assets held for sale’ and as ‘liabilities held for sale’. measured in accordance with the provisions for ‘discontinued The measurement of these balance sheet items is based on the specific provisions of IFRS 5, which generally require measurement operations’. at the lower of the carrying amount and fair value less costs of Goodwill is tested for impairment annually or when there are disposal. The Company’s impairment test carried out at the date indications of impairment, to determine any possible need for of transition did not identify any need for write-downs. write-downs. The carrying amounts of the relevant cash- generating units, including goodwill, are compared with the Given the material importance of the discontinued operations, corresponding recoverable amounts in the context of the this matter of the adjustment in presentation and measurement impairment tests. The recoverable amount is generally according to the provisions of IFRS 5 was of particular calculated on the basis of fair value less costs of disposal. The significance in the context of our audit. impairment tests are performed at the level of the cash- generating units or groups of cash-generating units to which As part of our audit, we first evaluated whether and which the respective goodwill is allocated. The measurements to business operations fall under the scope of IFRS 5 ‘Non-current calculate the fair value less costs of disposal carried out for the Assets Held for Sale and Discontinued Operations’. For this purposes of the impairment tests are based on the present purpose, we evaluated the provisions contained in the contractual values of the future cash flows derived from the planning agreements with E.ON and obtained information on the status projections for the next three years (medium-term plan) of the antitrust authorities’ proceedings. On this basis, we prepared by the executive directors and acknowledged by the assessed whether the criteria are met for accounting innogy’s supervisory board. In doing so, expectations relating to future grid and retail business as discontinued operations and whether market developments and country-specific assumptions about innogy’s renewable energy operations are appropriately the performance of macroeconomic indicators are also taken reported unchanged as continuing operations. into account. Present values are calculated using discounted cash flow models. The discount rate applied is the weighted We also evaluated the appropriateness of the IT concept average cost of capital for the relevant cash-generating unit. underlying the change in accounting and reviewed the The impairment test did not result in the recognition of a write- implementation of the changes in the consolidation system. down. The outcome of these valuations is dependent to a large In addition, we examined the impairment test for the extent on the estimates made by the executive directors of the discontinued operations conducted at the date of transition. future cash inflows of the cash-generating units, and on the Furthermore, we assessed the completeness and accuracy of as on further assumptions. The valuation is therefore subject to the disclosures in the notes required under IFRS 5 and the considerable uncertainty. Against this background and due to prescribed adjustments of the prior year figures in the income the underlying complexity of the valuation, this matter was of statement and in the cash flow statement. particular significance in the context of our audit. respective discount rates and rates of growth employed as well In our view, the estimates applied and assumptions made by the executive directors regarding the accounting presentation of innogy’s operations to be transferred to E.ON are sufficiently documented and justified and result in a fair presentation in the consolidated financial statements overall. Consolidated financial statements > Independent auditor’s report 203 As part of our audit, we evaluated the methodology used for In our view, these matters were of particular significance in the the purpose of performing the impairment tests and assessed context of our audit because the recognition and measurement the calculation of the weighted average cost of capital, among of this significant item in terms of its amount are based to a other things. In addition, we assessed whether the future cash material extent on estimates and assumptions made by the inflows underlying the measurements together with the Company’s executive directors. weighted cost of capital used represent an appropriate basis for the impairment tests overall. We evaluated the appropriateness For the purposes of our audit, we firstly assessed whether the of the future cash inflows used in the calculations, among other criteria for recognition as defined benefit or defined things by comparing this data with the Group’s medium-term contribution pension commitments were met and evaluated the plan and by reconciling it against general and sector-specific actuarial expert reports obtained and the professional market expectations. In this context, we also assessed whether qualifications of the external actuarial experts. We also the costs of Group functions were properly included in the examined the specific features of the actuarial calculations and respective cash-generating unit. In the knowledge that even evaluated the numerical data, the actuarial parameters and the relatively small changes in the discount rate applied can in some valuation methods on which the valuations were based for cases have a material impact on the value of the entity compliance with standards and appropriateness, in addition to calculated using this method, we also evaluated the parameters other procedures. In addition, we analysed the changes in the used to determine the discount rate applied and assessed the obligation and the cost components in accordance with measurement model. Furthermore, we evaluated the sensitivity analyses performed by the Company in order to evaluate any actuarial expert reports in the light of changes occurring in the valuation parameters and the numerical data, and assessed impairment risk (carrying amount higher than recoverable their plausibility. For the audit of the fair value of the plan amount) in the event of a reasonably possible change in a assets, we obtained bank and fund confirmations and evaluated material assumption underlying the measurement. Overall, the the methods on which the respective valuation was based and measurement parameters and assumptions used by the the valuation parameters applied. executive directors are in line with our expectations and are also within the ranges considered by us to be reasonable. Based on our audit procedures, we were able to satisfy ourselves The Company’s disclosures relating to goodwill are contained in the notes to the consolidated financial statements in section that the estimates applied and assumptions made by the executive directors are justified and sufficiently documented. ‘Notes to the Balance Sheet’ in note ‘(10) Intangible assets’. The Company’s disclosures relating to the pension provisions are contained in the notes to the consolidated financial Recognition and measurement of pension provisions statements in section ‘Notes to the Balance Sheet’ in note In the consolidated financial statements of RWE Aktiengesellschaft ‘(22) Provisions’. provisions for pensions and similar obligations are reported under the balance sheet item ‘Provisions’. The pension provisions comprise obligations from defined benefit pension plans Other information The executive directors are responsible for the other information. amounting to €15.0 billion, plan assets of €11.9 billion and a The other information comprises the following non-audited parts of reported surplus of plan assets over benefit obligations of the group management report: €0.2 billion. The obligations from defined benefit pension plans were measured using the projected unit credit method. • the statement on corporate governance pursuant to § 289f HGB This requires assumptions to be made in particular about and § 315d HGB included in section 1.8 of the group long-term rates of growth in salaries and pensions, average life management report expectancy, and staff turnover. The new reference tables of Heubeck-Richttafeln GmbH (Heubeck RT 2018 G reference • the separate non-financial group report pursuant to § 315b tables) were used for the first time in Germany for the average Abs. 3 HGB life expectancy as of 31 December 2018. The effect from the first-time adoption of the mortality tables amounts to The other information comprises further the remaining parts of the - €105 million. The discount rate must be determined by annual report – excluding cross-references to external information – reference to market yields on high-quality corporate bonds with with the exception of the audited consolidated financial statements, matching currencies and consistent maturities. This usually the audited group management report and our auditor’s report. requires the data to be extrapolated, since there is an insufficient number of long-term corporate bonds. The plan Our audit opinions on the consolidated financial statements and on assets are measured at fair value, which in turn involves making the group management report do not cover the other information, estimates that are subject to uncertainties. and consequently we do not express an audit opinion or any other form of assurance conclusion thereon. 204 RWE Annual Report 2018 In connection with our audit, our responsibility is to read the other information and, in so doing, to consider whether the other information 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 the consolidated financial statements as a whole are free from • is materially inconsistent with the consolidated financial material misstatement, whether due to fraud or error, and whether statements, with the group management report or our knowledge the group management report as a whole provides an appropriate obtained in the audit, or view of the Group’s position and, in all material respects, is consistent with the consolidated financial statements and the • otherwise appears to be materially misstated. knowledge obtained in the audit, complies with the German legal If, based on the work we have performed, we conclude that there is of future development, as well as to issue an auditor’s report that a material misstatement of this other information, we are required includes our audit opinions on the consolidated financial statements to report that fact. We have nothing to report in this regard. and on the group management report. requirements and appropriately presents the opportunities and risks Reasonable assurance is a high level of assurance, but is not a Responsibilities of the Executive Directors and the Supervisory guarantee that an audit conducted in accordance with § 317 HGB Board for the Consolidated Financial Statements and the Group and the EU Audit Regulation and in compliance with German Management Report The executive directors are responsible for the preparation of the Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) and consolidated financial statements that comply, in all material respects, supplementary compliance with the ISAs will always detect a with IFRSs as adopted by the EU and the additional requirements material misstatement. Misstatements can arise from fraud or error of German commercial law pursuant to § 315e Abs. 1 HGB and that and are considered material if, individually or in the aggregate, they the consolidated financial statements, in compliance with these could reasonably be expected to influence the economic decisions requirements, give a true and fair view of the assets, liabilities, of users taken on the basis of these consolidated financial financial position, and financial performance of the Group. In statements and this group management report. addition the executive directors are responsible for such internal control as they have determined necessary to enable the We exercise professional judgement and maintain professional preparation of consolidated financial statements that are free from skepticism throughout the audit. We also material misstatement, whether due to fraud or error. • Identify and assess the risks of material misstatement of the In preparing the consolidated financial statements, the executive consolidated financial statements and of the group management directors are responsible for assessing the Group’s ability to report, whether due to fraud or error, design and perform audit continue as a going concern. They also have the responsibility for procedures responsive to those risks, and obtain audit evidence disclosing, as applicable, matters related to going concern. In that is sufficient and appropriate to provide a basis for our audit addition, they are responsible for financial reporting based on the opinions. The risk of not detecting a material misstatement going concern basis of accounting unless there is an intention to resulting from fraud is higher than for one resulting from error, as liquidate the Group or to cease operations, or there is no realistic fraud may involve collusion, forgery, intentional omissions, alternative but to do so. misrepresentations, or the override of internal control. Furthermore, the executive directors are responsible for the • Obtain an understanding of internal control relevant to the audit preparation of the group management report that, as a whole, of the consolidated financial statements and of arrangements and provides an appropriate view of the Group’s position and is, in measures (systems) relevant to the audit of the group all material respects, consistent with the consolidated financial management report in order to design audit procedures that are statements, complies with German legal requirements, and appropriate in the circumstances, but not for the purpose of appropriately presents the opportunities and risks of future expressing an audit opinion on the effectiveness of these development. In addition, the executive directors are responsible systems. for such arrangements and measures (systems) as they have considered necessary to enable the preparation of a group • Evaluate the appropriateness of accounting policies used by the management report that is in accordance with the applicable executive directors and the reasonableness of estimates made by German legal requirements, and to be able to provide sufficient the executive directors and related disclosures. appropriate evidence for the assertions in the group management report. • Conclude on the appropriateness of the executive directors’ use of the going concern basis of accounting and, based on the audit The supervisory board is responsible for overseeing the Group’s evidence obtained, whether a material uncertainty exists related financial reporting process for the preparation of the consolidated financial statements and of the group management report. to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude Consolidated financial statements > Independent auditor’s report 205 that a material uncertainty exists, we are required to draw We communicate with those charged with governance regarding, attention in the auditor’s report to the related disclosures in the among other matters, the planned scope and timing of the audit consolidated financial statements and in the group management and significant audit findings, including any significant deficiencies report or, if such disclosures are inadequate, to modify our in internal control that we identify during our audit. respective audit opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. We also provide those charged with governance with a statement However, future events or conditions may cause the Group to that we have complied with the relevant independence cease to be able to continue as a going concern. requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our • Evaluate the overall presentation, structure and content of the independence, and where applicable, the related safeguards. consolidated financial statements, including the disclosures, and whether the consolidated financial statements present the From the matters communicated with those charged with underlying transactions and events in a manner that the governance, we determine those matters that were of most consolidated financial statements give a true and fair view of the significance in the audit of the consolidated financial statements assets, liabilities, financial position and financial performance of of the current period and are therefore the key audit matters. We the Group in compliance with IFRSs as adopted by the EU and the describe these matters in our auditor’s report unless law or additional requirements of German commercial law pursuant to regulation precludes public disclosure about the matter. § 315e Abs. 1 HGB. • Obtain sufficient appropriate audit evidence regarding the financial 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 responsible 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 presented 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 prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information. 206 RWE Annual Report 2018 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 26 April 2018. We were engaged by the supervisory board on 27 April 2018. We have been the group auditor of RWE Aktiengesellschaft, 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, 28 February 2019 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft Michael Reuther Wirtschaftsprüfer Ralph Welter Wirtschaftsprüfer (German Public Auditor) (German Public Auditor) Consolidated financial statements > Information on the auditor 207 3.10 INFORMATION ON THE AUDITOR The consolidated financial statements of RWE AG and its subsidiaries for the 2018 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 audited by the auditing company PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft. The auditor at PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft responsible for RWE is Mr Ralph Welter. Mr Welter has performed this function in five previous audits of RWE. 208 RWE Annual Report 2018 FIVE-YEAR OVERVIEW Key figures of the RWE Group1 External revenue (excluding natural gas tax/electricity tax) € million 2018 13,388 2017 13,822 Income Adjusted EBITDA Adjusted EBIT Income before tax Net income /RWE AG shareholders’ share in income Earnings per share Cash flow /capital expenditure /depreciation and amortisation Cash flows from operating activities Free cash flow Free cash flow per share Asset /capital structure Non-current assets Current assets Balance sheet equity Non-current liabilities Current liabilities Balance sheet total Equity ratio Net debt Net debt of continuing operations Workforce Workforce at year-end2 Research & development Operating R & D costs Emissions balance CO2 emissions Free allocation of CO2 certificates Shortage of CO2 certificates3 Specific CO2 emissions € million € million € million € million € € million € million € € million € million € million € million € million € million % € million € million 1,538 619 49 335 0.54 4,611 3,439 5.59 18,595 61,513 14,257 20,007 45,844 80,108 17.8 19,339 4,389 2,149 1,170 2,056 1,900 3.09 – 3,771 – 4,439 – 7.22 45,694 23,365 11,991 36,774 20,294 69,059 17.4 20,227 – 2016 43,590 5,403 3,082 – 5,807 – 5,710 – 9.29 2,352 809 1.32 45,911 30,491 7,990 39,646 28,766 76,402 10.5 22,709 – 2015 45,848 2014 46,149 7,017 3,837 – 637 – 170 – 0.28 3,339 441 0.72 51,453 27,881 8,894 45,315 25,125 79,334 11.2 25,463 – 7,131 4,017 2,246 1,704 2.77 5,556 2,311 3.76 54,224 32,092 11,772 46,324 28,220 86,316 13.6 30,972 – 17,748 59,547 58,652 59,762 59,784 € million 116 182 165 101 110 million metric tons million metric tons million metric tons metric tons / MWh 118.0 131.8 148.3 150.8 155.2 1.3 1.3 4.5 5.6 5.8 115.6 129.1 142.6 143.9 148.3 0.670 0.658 0.686 0.708 0.745 1 The comparability of some of the figures for various fiscal years is limited due to changes in reporting (also see page 40). 2 Converted to full-time positions. 3 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. 210 RWE Annual Report 2018 IMPRINT RWE Aktiengesellschaft Altenessener Strasse 35 45141 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 14 March 2019. This is a translation 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, Düsseldorf, 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 information Financial Calendar 2019/2020 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 12 March 2020 Annual report for fiscal 2019 28 April 2020 4 May 2020 14 May 2020 Annual General Meeting Dividend payment Interim statement on the first quarter of 2020 13 August 2020 Interim report on the first half of 2020 12 November 2020 Interim statement on the first three quarters of 2020 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 Altenessener Strasse 35 45141 Essen Germany www.rwe.com 

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