Our energy for a sustainable life Annual Report 2019 Our energy for a sustainable life Electricity. This is what we have been We have become a world leader in electricity producing for over 120 years. And it hasn’t generation from renewables as the result of changed. But what has changed is that it is an asset swap with E.ON. Right from the start, capable of so much more compared to when we will be investing in the expansion of our company was founded in 1898. Electricity renewable energy – a net 1.5 to 2 billion euros is indispensable for driving innovation and every year. In doing so, we will build onshore progress and it is ubiquitous in our daily lives. and offshore wind farms and explore new Charging mobile phones, taking the train to technologies enabling energy harnessed from work and so much more would be impossible the wind and sun to be stored so that it can be without electricity. It powers robots used on used when the wind isn’t blowing and it‘s dark production lines, enables billions of digital outside. Until storage infrastructure has been processes, and propels entire fleets of electric expanded to entirely meet demand with green vehicles. electricity, we will use our flexible power stations to guarantee security of supply. We A lot has also changed in electricity generation. want our electricity generation to be carbon We now increasingly produce electricity by neutral by no later than 2040. harnessing the energy all around us – from wind, sun and water. By contrast, we use less Who would have dreamt of this 120 years ago? and less CO2-intensive coal. In doing so, we are channelling all our energy into achieving a goal that is more important today than ever before: sustainability. We aim to be carbon neutral by 2040 This is ten years ahead of the schedule for the EU. If you’re wondering how we intend to go about this, we will rapidly expand renewables while making an exit from coal-fired electricity generation. Our accomplishments demonstrate how seriously we take this: since 2012 we have halved our CO2 emissions. We produce clean, secure and affordable electricity The electricity we generate from wind, sun, water and biomass is our energy for a sustainable life. However, it is also important to ensure the availability of this energy. And under no circumstances should it become a luxury. Here, we are doing all we can by spurring the development of high-capacity, economically viable energy storage. A global player in renewable energy Efforts to protect the climate shouldn’t stop at country borders. We also build wind and solar farms outside Europe, especially in North America and in the Asia-Pacific region. The USA is already our largest onshore wind market. €1.5 to 2 billion in net investments per year in renewable energy The new RWE focuses on wind, sun, water and biomass as energy sources. We want to make increasing use of them. We will set aside 1.5 to 2 billion euros to invest in this every year. As these are net figures, the funds of project partners will increase this capital expenditure. RWE Annual Report 2019 At a glance RWE Group – key figures 2019 2018 +/– Power generation billion kWh 153.2 176.0 – 22.8 External revenue (excluding natural gas tax/electricity tax) € million 13,125 13,4061 – 281 Adjusted EBITDA € million 2,489 1,538 951 Adjusted EBIT € million 1,267 619 648 Income from continuing operations before tax € million – 752 49 – 801 Net income € million 8,498 335 8,163 Cash flows from operating activities of continuing operations € million – 977 4,611 – 5,588 Capital expenditure € million 9,838 1,260 8,578 Property, plant and equipment and intangible assets € million 2,090 1,079 1,011 Financial assets € million 7,748 181 7,567 Free cash flow € million – 2,053 3,439 – 5,492 Number of shares outstanding (annual average) thousands 614,745 614,745 – Earnings per share € 13.82 0.54 13.28 Dividend per share € 0.802 0.70 0.10 31 Dec 2019 31 Dec 2018 Net debt of continuing operations € million 9,066 4,389 4,677 Workforce3 19,792 17,748 2,044 1 Figure adjusted due to changes in the recognition of revenues from derivative transactions. 2 Dividend proposal for RWE AG’s 2019 fiscal year, subject to the passing of a resolution by the 28 April 2020 Annual General Meeting. 3 Converted to full-time positions. 10 Contents To our investors Interview with the CEO 12 The Executive Board of RWE AG 16 Supervisory Board report 18 RWE on the capital market 24 1 Combined review of operations 27 2 Responsibility statement 96 1.1 Strategy 28 1.2 Innovation 33 3 Consolidated financial statements 97 1.3 Economic environment 37 3.1 Income statement 98 1.4 Political environment 42 3.2 Statement of comprehensive income 99 1.5 Major events 45 3.3 Balance sheet 100 1.6 Notes on reporting 49 3.4 Cash flow statement 101 1.7 Business performance 51 3.5 Statement of changes in equity 102 1.8 Financial position and net worth 62 3.6 Notes 104 1.9 Notes to the financial statements of 3.7 List of shareholdings RWE AG (holding company) 67 (part of the notes) 176 1.10 Presentation of the RWE Group with 3.8 Boards (part of the notes) 207 innogy as a purely financial investment 69 3.9 Independent auditor‘s report 212 1.11 Disclosure relating to 3.10 Information on the auditor 220 German takeover law 70 1.12 Remuneration report 72 Further information 1.13 Development of risks and opportunities 84 Five-year overview 221 1.14 Outlook 93 Imprint 222 Financial calendar 223 RWE Annual Report 2019 “It will take a while for what the new RWE stands for to become engrained in the public mind.” Rolf Martin Schmitz on the ‘new’ RWE, the plans for attractive returns, reliable framework conditions and wide growth in renewable energy, and Germany’s planned public acceptance. RWE has returned to being a growth lignite phaseout company in which the concept of being international has been expanded from being European to being global. And Mr. Schmitz, RWE has gone through major changes since we have set ourselves a goal that places our actions in a the company was founded 122 years ago. And now it’s much broader context than the world of economics, as we transforming itself yet again. What’s different about the want our electricity generation to be carbon neutral by 2040. ‘new’ RWE? In other words, our business will stop adding to CO2 in the Our company has always risen to new challenges and atmosphere by then. So, as you can see, I can finish describing adapted to the expectations of society. So what we are the new RWE even before the end of the elevator ride. doing today is no different. One of the major challenges of our time is climate change. And the greatest expectation Becoming carbon neutral by 2040 sounds like a very that society has of us is that we move quickly to play our ambitious target. The EU has given itself ten years longer to part in combating it. We have therefore positioned our accomplish this. business to tackle climate change head on. So the ‘new’ It is indeed ambitious. You can’t become carbon neutral RWE is a company that is staying true to itself. overnight. It requires a lot of hard work and suitable framework conditions. Our message is clear: we are ready Assuming that you had to give an elevator pitch to describe to do the heavy lifting and will go the extra mile to meet the new RWE ... the target. ... I could put it in a nutshell fairly quickly. By executing a clever asset swap with E.ON, RWE has become a world- Is that credible? leading producer of electricity from renewables. The I’m sure that some people are distrustful or feel that transaction has given us a business characterised by change simply doesn’t happen quickly enough. But I would 12 To our investors > Interview with the CEO like to remind them of what we have accomplished When it comes to renewables, nearly every country in the already. In the last seven years, RWE has cut its carbon world has viable locations. But the fact is that many of these dioxide emissions in half. I don’t know of any other markets lack suitable framework conditions or are simply company that can say this. Germany’s accelerated coal out of the question because our competitors have cultural phaseout will contribute to ensuring that our emissions in advantages. This applies to most countries in Latin America, 2030 will be just a quarter of what they were in 2012. And for example. ten years after that, we should have achieved our goal of generating all our electricity from renewables or hydrogen Renewable energy is really being hyped up now. Companies produced without carbon dioxide. If we do end up still like RWE are the hot tickets on the stock market. Are you using fossil fuels like natural gas to ensure security of afraid of dashing the hopes of investors? supply, we will take countermeasures to offset these We will do everything we can to make sure that this doesn’t emissions, for example through forestation. happen. Subsidy conditions for wind turbines and solar panels are much worse now than they were ten years ago.