INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONDENSED) OF THE INNOGY GROUP For the first half of 2016
Unaudited 2 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONDENSED)
INCOME STATEMENT
€ million Jan – Jun 2016 Jan – Jun 2015 Revenue (including natural gas tax/electricity tax) 22,780 23,458 Natural gas tax/electricity tax 1,127 1,154 Revenue 21,653 22,304 Cost of materials 16,701 17,658 Staff costs 1,432 1,332 Depreciation, amortization and impairment losses 923 641 Other operating result − 681 − 1,020 Income from investments accounted for using the equity method 98 121 Other income from investments 51 112 Financial income 528 412 Finance costs 980 431 Income before tax 1,613 1,867 Taxes on income 356 443 Income 1,257 1,424 Of which: non-controlling interests 177 200 Of which: net income/income attributable to innogy SE shareholders 1,080 1,224 Basic and diluted earnings per share in € 5.33 – 3
STATEMENT OF COMPREHENSIVE INCOME 1
€ million Jan – Jun 2016 Jan – Jun 2015 Income 1,257 1,424 Actuarial gains and losses of defined benefit pension plans and similar obligations − 726 229 Income and expenses recognized in equity, not to be reclassified through profit or loss − 726 229 Currency translation adjustment − 49 260 Fair valuation of financial instruments available for sale 19 − 193 Income and expenses of investments accounted for using the equity method (pro-rata) − 2 0 Income and expenses recognized in equity, to be reclassified through profit or loss in the future − 32 67 Other comprehensive income − 758 296 Total comprehensive income 499 1,720 Of which: attributable to the innogy SE shareholders 320 1,576 Of which: attributable to non-controlling interests 179 144
1 Figures stated after taxes 4 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONDENSED)
BALANCE SHEET
Assets 30 June 2016 31 Dec 2015 1 Jan 2015 € million Non-current assets Intangible assets 11,736 12,178 11,695 Property, plant and equipment 17,552 18,308 17,309 Investments accounted for using the equity method 2,140 2,137 2,379 Other financial assets 581 555 510 Receivables and other assets 1,100 3,085 1,951 Deferred taxes 2,771 1,972 1,805 35,880 38,235 35,649 Current assets Inventories 473 380 491 Trade accounts receivable 4,431 4,551 5,708 Receivables and other assets 3,436 12,362 11,958 Marketable securities 1,905 1,894 1,913 Cash and cash equivalents 567 550 475 Assets held for sale 11 – 310 10,823 19,737 20,855 46,703 57,972 56,504
Equity and liabilities 30 June 2016 31 Dec 2015 1 Jan 2015 € million Equity innogy SE shareholders´ interests 4,280 16,649 16,937 Non-controlling interests 1,724 1,811 1,461 6,004 18,460 18,398 Non-current liabilities Provisions for pensions and similar obligations 4,485 3,461 4,595 Other provisions 1,627 1,616 1,887 Financial liabilities 17,373 15,291 11,786 Other liabilities 2,182 2,428 2,274 Deferred taxes 687 904 772 26,354 23,700 21,314 Current liabilities Other provisions 2,786 2,545 2,613 Financial liabilities 4,142 3,684 4,687 Trade accounts payable 3,385 4,553 4,906 Other liabilities 4,032 5,030 4,586 14,345 15,812 16,792 46,703 57,972 56,504 5
CASH FLOW STATEMENT
€ million Jan – Jun 2016 Jan – Jun 2015 Income 1,257 1,424 Depreciation, amortization, impairment losses/reversals 924 642 Changes in provisions 407 505 Deferred taxes/non-cash income and expenses/income from disposal of non-current assets and marketable securities − 259 − 429 Changes in working capital − 1,922 − 1,509 Cash flows from operating activities 407 633 Capital expenditures on non-current assets/acquisitions − 593 − 680 Proceeds from disposal of assets/divestitures 194 633 Changes in marketable securities and cash investments 5,203 1,507 Cash flows from investing activities¹ 4,804 1,460 Cash flows from financing activities − 5,176 − 2,009 Net cash change in cash and cash equivalents 35 84 Effects of changes in foreign exchange rates and other changes in value on cash and cash equivalents − 18 12 Net change in cash and cash equivalents 17 96 Cash and cash equivalents at the beginning of the reporting period 550 475 Cash and cash equivalents at the end of the reporting period 567 571 Of which: reported as „assets held for sale” – − 54 Cash and cash equivalents at the end of the reporting period as per the consolidated balance sheet 567 517
1 After initial/subsequent transfer to pension plans (Jan–Jun 2016: €125 million; Jan–Jun 2015: €466 million) 6 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONDENSED)
STATEMENT OF CHANGES IN EQUITY
Subscribed Retained Accumulated innogy SE Non-controlling Total capital and earnings and other shareholders' interests additional paid-in distributable comprehensive interest capital of profit income € million innogy SE Balance at 1 Jan 2015 – 17,631 − 694 16,937 1,461 18,398 Dividends paid/profit/loss transfer to owners – − 967 – − 967 − 199 − 1,166 Income – 1,224 – 1,224 200 1,424 Other comprehensive income – 300 52 352 − 56 296 Total comprehensive income – 1,524 52 1,576 144 1,720 Withdrawals/contributions – 117 – 117 80 197 Balance at 30 Jun 2015 – 18,305 − 642 17,663 1,486 19,149
Balance at 1 Jan 2016 0 17,354 − 705 16,649 1,811 18,460 Dividends paid/profit/loss transfer to owners – − 694 – − 694 − 187 − 881 Income – 1,080 – 1,080 177 1,257 Other comprehensive income – − 750 − 10 − 760 2 − 758 Total comprehensive income – 330 − 10 320 179 499 Withdrawals/contributions 3,412 − 15,407 – − 11,995 − 79 − 12,074 Balance at 30 Jun 2016 3,412 1,583 − 715 4,280 1,724 6,004 7
NOTES
General information
On 1 December 2015, RWE AG, Essen, Germany, („RWE AG”, the the consolidated financial statements of the RWE Group as of and parent company of the RWE Group) announced its plan to bundle for the year ended 31 December 2015. The legal entities forming the retail, grid and renewables business of the RWE Group into a the innogy Group were transferred between other RWE Group com- European stock corporation (“Societas Europaea”, SE) and list panies and the innogy Group. The legal reorganization was complet- shares of this stock corporation on a stock exchange. This plan was ed by 30 June 2016. All control agreements as well as profit and approved by RWE AG’s Supervisory Board on 11 December 2015. loss transfer agreements (“Beherrschungs- und Gewinnab- führungsverträge”) between innogy Group companies and RWE AG On 11 December 2015, the RWE AG founded “RWE Downstream as well as other RWE Group companies were terminated by mutual Beteiligungs GmbH” as a 100 % subsidiary, located in Essen. On agreement by 30 June 2016. On 26 February 2016, RWE entered the same day, RWE Downstream Beteiligungs GmbH founded into a control agreement with innogy SE, which is intended to be RWE Downstream AG, Essen, as its 100 % subsidiary. On terminated immediately prior to the planned initial public offering 11 March 2016, RWE International SE was established by a of the shares of innogy SE. cross-border merger of the German-based RWE Downstream AG with Essent SPV N.V., ‘s-Hertogenbosch, Netherlands, a Dutch RWE AG will remain the parent company of the innogy Group. Shares corporation founded especially for the intended foundation of in innogy SE are to be admitted to trading on the regulated market RWE International SE. On 1 September 2016 RWE International SE of the Frankfurt Stock Exchange, Germany, while at the same time was renamed to “innogy SE”. For the purpose of these interim con- being admitted to the Prime Standard segment (segment of the offi- solidated financial statements, the business of innogy SE (formerly cial market with additional follow-up requirements for admission). RWE International SE) hereinafter is referred to as “innogy” or the “innogy Group”. The interim consolidated financial statements were prepared on 20 September 2016 by the Executive Board of innogy SE, Opern- The innogy Group composes of certain legal entities from the con- platz 1, 45128 Essen, Germany. solidation scope of the RWE Group. innogy bundles the businesses of the segments “Supply /Distribution Networks Germany”, “Central The operational business of the innogy Group started on Eastern and South Eastern Europe”, “Supply Netherlands /Belgium”, 1 April 2016. “Supply United Kingdom” as well as “Renewables” as presented in
Accounting policies
Pursuant to E.U. Prospectus Regulation No. 809 /2004 and E.U. presents the first interim consolidated financial statements also in Prospectus Regulation No. 211 /2007, innogy SE was required to accordance with IFRS 1. The innogy Group does not provide any include in the listing prospectus historical financial information reconciliation to previous financial statements as the reporting en covering the fiscal years 1 January 2013 to 31 December 2013, tity did not prepare any previous consolidated financial statements. 1 January 2014 to 31 December 2014 and 1 January 2015 to 31 December 2015. These financial statements were prepared innogy applies the predecessor accounting approach with retrospec- on a combined basis, because the legal reorganization and the tive presentation as accounting policy for business combinations transfer of businesses to the innogy Group had not been com under common control. This means that the assets and liabilities pleted as of 31 December 2015. of the businesses included in the consolidated financial statements correspond to the historically reported amounts in the IFRS consoli- The legal reorganization and the transfer of businesses to the dated financial statements of the RWE Group (predecessor values). innogy Group was completed during the first six months of 2016 Businesses in accordance with IFRS 3 that were transferred from up to 30 June 2016. As of this date, innogy SE controls the busi- RWE Group to innogy during the legal reorganization that was com- nesses bundled in the innogy Group within the meaning of IFRS 10. pleted by 30 June 2016 are included in the consolidated financial The condensed interim financial statements for the period ended statements since 1 January 2015 or the later date since when the 30 June 2016 are therefore prepared on a consolidated basis. The entities were controlled by RWE Group. The comparative information innogy Group is required to prepare its first annual consolidated presented in the interim consolidated financial statements as of financial statements as of 31 December 2016 and for the year then 30 June 2016 is labelled as “consolidated” and correspond to the ending in accordance with IFRS 1. Therefore, the innogy Group presentation in the combined financial statements. 8 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONDENSED)
The interim consolidated financial statements as of 30 June 2016 Provisions for pensions and similar obligations are discounted at have been prepared in accordance with the International Financial an interest rate of 1.5 % in Germany and 2.7 % abroad (31 Decem- Reporting Standards (IFRSs) applicable in the EU. In accordance with ber 2015: 2.4 % and 3.6 %, respectively). IFRS 1.21, innogy presents an opening balance sheet as of 1 Janu- ary 2015. Prior to 1 April 2016, the innogy Group received various services from the RWE Group and was not charged for the services provided. In line with IAS 34, the scope of reporting for the presentation of In addition as, for the period prior to 1 April 2016, innogy SE did not interim consolidated financial statements for the period ended have an operating Executive Board nor a Supervisory Board, the Ex- 30 June 2016 was condensed compared to the scope applied to ecutive Board and Supervisory Board of RWE AG was considered key the combined financial statements for the fiscal years 2013, 2014 management personnel of innogy Group. For the service received and 2015. With the exception of the changes and new rules including key management personnel, the innogy Group recognized described below, these interim consolidated financial statements allocated expenses that were recorded as a shareholder contribution were prepared using the accounting policies applied in the com- as a credit to equity. Commencing 1 April 2016, innogy SE entered bined financial statements. The combined financial statements of into various service level agreements and has been charged for the innogy SE were published on 30 June 2016 and can be downloaded services received. In addition, commencing 1 April 2016, the Execu- under www.innogy.com. tive Board of innogy SE was appointed and either paid by the com- pany or charged based on service level agreements with RWE Group.
Changes in accounting policies
The International Accounting Standards Board (IASB) has approved • Amendments to IAS 16 and IAS 41 “Bearer Plants” (2014) several amendments to existing International Financial Reporting • Amendments to IAS 27 “Equity Method in Separate Financial Standards (IFRSs), which became effective for the innogy Group as Statements” (2014) of fiscal year 2016: • Annual Improvements to IFRSs 2012-2014 Cycle (2014) • Amendments to IAS 19 “Defined Benefit Plans: Employee • Amendments to IFRS 11 ”Accounting for Acquisitions of Interests Contributions” (2013) in Joint Operations” (2014) • Annual Improvements to IFRSs 2010-2012 Cycle (2013) • Amendments to IAS 1 “Disclosure Initiative” (2014) • Amendments to IAS 16 and IAS 38 “Clarification of Acceptable These new policies do not have any material effects on the Methods of Depreciation and Amortization” (2014) innogy Group’s consolidated financial statements.
9
Scope of consolidation
In addition to innogy SE, the consolidated financial statements con- equity method and joint ventures. Businesses in accordance with tain all material German and foreign companies which innogy SE IFRS 3 that were transferred from the RWE Group to innogy controls directly or indirectly. Principal associates are accounted during the legal reorganization until 30 June 2016 were included for using the equity method, and material joint arrangements are in the scope of the consolidated financial statements since 1 Janu- accounted for using the equity method or as joint operations. ary 2015, the opening balance sheet date of the earliest period presented and are therefore not shown in the first-time consolida- The following summaries show the changes in the number of fully tions for the first half of 2016: consolidated companies, investments accounted for using the
Number of investments and joint Germany Abroad Total Number of fully consolidated Germany Abroad Total ventures accounted for using the companies equity method 1 Jan 2016 117 140 257 1 Jan 2016 64 16 80 First-time consolidation 4 1 5 Acquisitions – – – Deconsolidation − 1 – − 1 Disposals – – – Mergers − 11 − 5 − 16 Other changes – − 1 − 1 30 Jun 2016 109 136 245 30 Jun 2016 64 15 79
Furthermore, four companies are presented as joint operations.
Acquisitions, mergers and contributions
During the first six months of 2016, the innogy Group was formed • March 2016: Acquisition of RWE Gasspeicher GmbH, Dortmund, by transferring legal entities between other RWE Group companies Germany, by RWE Innogy GmbH, Essen, Germany, for a purchase and the innogy Group in a legal reorganization process. For these price of €470 million. business combinations under common control, the predecessor ac- counting approach has been applied. This means that the assets • March 2016: Contribution (“Einbringung”) of RWE IT GmbH, and liabilities of the businesses included in the consolidated finan- Essen, Germany to innogy SE. cial statements correspond to the historically reported amounts in the IFRS consolidated financial statements of the RWE Group (prede- • March 2016: Contribution of GBV Einundzwanzigste Gesell cessor values). Therefore, no new goodwill was recognized. Any con- schaft für Beteiligungsverwaltung mbH, which was renamed to sideration given or received is recognized directly in equity in the GfP Gesellschaft für Pensionsverwaltung mbH, Essen, Germany, line “Withdrawals /contributions” and is recorded in the cash flows to innogy SE. from financing activities. • April 2016: Merger of RWE Innogy GmbH, Essen, Germany, and The following transactions took place: innogy SE. As a consideration, 5.1 % of the shares of innogy SE were granted to RWE AG and 94.9 % to RWE Downstream Beteili- • March 2016: Merger (“Verschmelzung”) of Essent SPV N.V., gungs GmbH. 's-Hertogenbosch, Netherlands and RWE Downstream AG, Essen, Germany. As a result of this merger, innogy SE was established. • April 2016: Merger of RWE Effizienz GmbH, Dortmund, Germany, and innogy SE. • March 2016: Contribution in kind (“Sacheinlage”) of the partici pation in innogy International Participations N.V. (formerly • April 2016: Merger of RWE Vertrieb AG, Dortmund, Germany, RWE Gas International N.V.), ‘s-Hertogenbosch, Netherlands, and innogy SE. to RWE Innogy GmbH, Essen, Germany. The participation was transferred to RWE Innogy GmbH against the granting of shares (“Anteilsgewährung”) at the amount of €1,000 and the payment of €3,500 million. 10 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONDENSED)
• April 2016: Contribution of the participation in RWE Deutschland -- KELAG-Kärntner Elektrizitäts-AG, Klagenfurt, Austria AG, Essen, Germany, to innogy SE. As a consideration, innogy SE -- Lechwerke AG, Augsburg, Germany granted to the former shareholders RWE AG and RWE Down- -- VSE AG, Saarbrücken, Germany stream Beteiligungs GmbH 121 and 879 new shares respectively -- Vychodoslovenska energetika Holding a.s., Košice, Slovakia at the nominal amount of €1. The portfolio of these entities was transferred to innogy SE • April 2016: Acquisition of RWE Npower Group plc, Swindon, against the granting of shares at the amount of €1,000 and United Kingdom, by innogy International Participations N.V. the payment of €3,923 million. for a purchase price of £1,438 million. • May 2016: Contribution of 77.58 % of the shares of Süwag Ener- • May 2016: Merger of GBV Zweiundzwanzigste Gesellschaft für gie AG, Frankfurt am Main, Germany, to innogy SE against the Beteiligungsverwaltung mbH, Essen, Germany, and innogy SE. granting of shares at the amount of €1,000. innogy SE has recognized the shares in Süwag Energie AG at the amount of • May 2016: Acquisition of RWE Group Business Services Polska €350 million. Sp. z.o.o., Krakow, Poland, by innogy SE for a purchase price of €6 million. • May 2016: Contribution of 51.0 % of the shares of RL Beteili- gungsverwaltung mit beschränkter Haftung oHG, Gundrem • May 2016: Merger of RWE Energiedienstleistungen GmbH, mingen, Germany, to innogy SE. Dortmund, Germany, and innogy SE. • May 2016: Contribution of RWE Consulting GmbH, Essen, • May 2016: Contribution in kind of the following entities Germany, to innogy SE. to innogy SE: • May 2016: Acquisition of 1 % of the shares of RWE Slovensko -- RWE East s.r.o., Prague, Czech Republic s.r.o., Bratislava, Slovakia, by innogy International Participa- -- RWE Hrvatska d.o.o., Zagreb, Croatia tions N.V. -- RWE Polska S.A., Warsaw, Poland -- RWE Polska Generation Sp.z.o.o., Warsaw, Poland • June 2016: Acquisition of 49 % of the shares of RWE Power Inter- -- RWE Slovensko s.r.o., Bratislava, Slovakia national Middle East, Dubai, United Arab Emirates, by RWE Con- -- RWE New Energy Ltd., Dubai, United Arab Emirates sulting GmbH for a purchase price of €31,220. -- RWE New Ventures LLC, Wilmington, USA -- MITGAS Mitteldeutsche Gasversorgung GmbH, Halle (Saale), • June 2016: Gain of control of RWE Rheinhessen Beteiligungs- Germany gesellschaft mbH, Essen, Germany by contractual agreement. -- SpreeGas Gesellschaft für Gasversorgung und Energie dienstleistung mbH, Cottbus, Germany • June 2016: Acquisition of RWE Benelux Holding B.V., ‘s-Hertogen- -- Pfalzwerke AG, Ludwigshafen, Germany bosch, Netherlands, by innogy International Participations N.V. for -- easyOptimize GmbH, Essen, Germany a purchase price of €1,256 million. -- RWE-EnBW Magyarorszag Energiaszolgaltato Kft., Budapest, Hungary • June 2016: Contribution of RWE Aqua GmbH, Mülheim an der Ruhr, Germany, to innogy SE against the granting of shares at the The portfolio of these entities was transferred to innogy SE amount of €5,000. against the granting of shares (“Anteilsgewährung”) at the amount of €1,000. • June 2016: Acquisition of RWE SWITCH GmbH, Essen, Germany, by innogy SE for a purchase price of €25,000. • May 2016: Contribution of the following entities to innogy SE: • June 2016: Acquisition of RWE Gastronomie GmbH, Essen, -- Budapesti Elektromos Müvek Nyrt., Budapest, Hungary Germany, by innogy SE for a purchase price of €275,000. -- enviaM Beteiligungsgesellschaft mbH, Chemnitz, Germany -- envia Mitteldeutsche Energie AG, Chemnitz, Germany Moreover, 19.99 % of the shares of Dii GmbH, München, Germany, -- Eszak-magyarorszagi Aramszolgáltató Nyrt., Miskolc, Hungary were contributed to innogy SE in May 2016. -- Kärntner Energieholding Beteiligungs GmbH, Klagenfurt, Austria 11
In July 2015, innogy gained control of WestEnergie GmbH, an in- The fair value of the old shares amounted to €87 million. The meas- vestment that had previously been accounted for using the equity urement of non-controlling interests was based on the pro-rated net method, due to the expiry of a renouncement of a voting right. assets of the company at first-time consolidation. The fair value of The company primarily operates electricity and gas distribution net- the receivables included in non-current and current assets amounted works. During the measurement period an update of the amounts to €24 million. recognized at first-time consolidation and as of 31 March 2016 resulted in the following assumed assets and liabilities:
Balance-sheet items IFRS carrying amounts (fair values) € million at first-time consolidation Non-current assets 152 Current assets 24 Non-current liabilities 31 Current liabilities 57 Net assets 88 Non-controlling interests − 1 Cost (not affecting cash) 87
Assets and disposal groups held for sale
Zephyr In June 2016 the Executive Boards of RWE AG and innogy SE associate is assigned to the Renewables Segment. The transaction approved the sale of a 33.3 % share in the associate Zephyr Invest- was closed end of July 2016. ments Limited (Zephyr) and the related shareholder loans. The
Impairments
In the first half of 2016, impairments of €204 million were recog- changes in price expectations. The fair value less costs to sell was nized for the gas storage facilities of the Grid and Infrastructure determined using a company valuation model based on cash flow Segment (recoverable amount: €0.1 billion), primarily due to budgets and an after-tax discount rate of 5.25 %.
Provisions for pensions and similar obligations
In Germany, as a result of contractual agreements between RWE AG ment has been cancelled as planned during the six-month period and innogy Group, RWE AG had released innogy companies in the ended 30 June 2016 and plan assets have been transferred to past for parts of the underlying pension obligations, whereby inno- innogy companies. In addition, the right of recourse of innogy gy companies' right of recourse was limited to the local GAAP obli- Group against RWE AG has been redeemed against a cash payment. gation. In the combined financial statements of innogy Group as of As the allocated amounts correspond to the transferred amounts, 31 December 2015 and 1 January 2015, these contractual agree- there has been no additional effect on the consolidated financial ments resulted in the allocation of plan assets and the recognition statements. of reimbursement rights against RWE AG. This contractual agree-
12 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONDENSED)
Financial liabilities
A fifteen-year bond with a carrying amount of €850 million and a the facility may be drawn for interest periods of one, two, three coupon of 6.25 % p. a. fell due in April 2016. or six months or any other period agreed between innogy SE and RWE AG. In addition on 29 June 2016 Finance B.V. has acceded as On 13 June 2016, innogy SE and RWE AG entered into fifteen additional borrower to the Revolving Facility Agreement between separate Loan Agreements under which RWE AG granted loans RWE AG and certain financial institutions. to innogy SE in the total principal amount of €5,257 million, US$50 million, £350 million and JPY20 billion. Furthermore, inno- In the context of the legal reorganization, innogy Group redeemed gy SE entered into derivative hedging contracts with RWE AG to early non-current loans of €1,942 million for a payment of convert the before mentioned US$ and JPY-denominated loans eco- €2,062 million, which represented the fair value at the date of the nomically into €. Moreover, innogy SE as borrower and RWE AG as transaction. This transaction was settled using the cash pooling lender entered on 13 June 2016 into an Revolving Facility Agree- accounts with RWE Group. The difference of €120 million was ment which provides for a revolving facility in an aggregate amount recorded as interest expense. of €1 billion with a term ending on 31 December 2018. Loans under
Earnings per share
Basic and diluted earnings per share are calculated by dividing of the number of shares of innogy SE from 1,000,000,000 to the portion of net income attributable to innogy shareholders by 500,000,000 common shares that occurred on 27 July 2016. As the average number of shares outstanding; treasury shares are not innogy did not exist as a separate Group before December 2015 and taken into account in this calculation. For the six-month period the capital structure was not finalized in fiscal year 2015, no earn- ended 30 June 2016, the calculation was adjusted for the reduction ings per share are shown for the comparative period.
Jan – Jun 2016 Jan – Jun 2015 Net income/Income attributable to innogy SE shareholders € million 1,080 – Number of shares outstanding (weighted average) Thousands 202,812 – Basic and diluted earnings per share € 5.33 –
Equity
As of 30 June 2016, the subscribed capital of innogy SE com €712 million (first half of 2015: €18 million) and other stand-alone poses of 999,995,000 common shares (31 December 2015: adjustments of €18 million (first half of 2015: €31 million). 120,000 shares, 1 January 2015: 0 shares) with a carrying amount of €1,000 million (31 December 2015: €0.1 million, 1 January 2015: The various transactions with RWE AG in connection with the €– million). The common shares are registered shares with no par legal reorganization include payments for acquired businesses of value. €10,998 million to RWE Group (see “Acquisitions, mergers and contributions”), withdrawals of receivables and other assets During the first half of 2016, withdrawals and contributions con- against entities of RWE Group of €4,370 million and contributions tained primarily cash withdrawals and contributions from RWE AG of €2,617 million. These transactions were settled using the cash as a result of various transactions in connection with the legal pooling accounts with RWE Group and therefore resulted in a reorganization of − €12,751 million (first half of 2015: €13 million), decrease of receivables and other assets and an increase in financial adjustments from overhead cost allocations until 31 March 2016 liabilities. of €24 million (first half of 2015: €52 million), adjustments as a result from the application of the separate tax return approach of During the reporting periods presented, withdrawals and contribu- tions of non-controlling interests related to other transactions.
13
Segment reporting
For the six-month period ended 30 June 2016, the segment report- The operating segments “Retail Germany”, “Retail United Kingdom”, ing is based on the internal reporting to the chief operating decision “Retail Netherlands /Belgium” and “Retail Eastern Europe” are in maker of the innogy Group from the beginning of the operational charge of the supply of electricity, gas, heat and energy services to business of the Group on 1 April 2016. The internal reporting and B2B and B2C customers in Germany, the Netherlands and Belgium, management is based on regional and functional principles. The the United Kingdom as well as Central Eastern and South Eastern Group is divided into seven operating segments. Europe. They have comparable processes and organizations e.g. for sourcing, portfolio management, customer acquisition and customer In the operating segments “Grid and Infrastructure Germany” and care. Business fundamentals show high similarity due to EU legisla- “Grid and Infrastructure Eastern Europe”, the German electricity tion and EU market integration. Value drivers are the same, financial and gas distribution networks as well as the distribution networks performance is influenced by the same factors such as competitive in Central Eastern and South Eastern Europe are reported. The intensity. As the operating segments therefore show similar eco- operating segments show similar economic characteristics. They nomic characteristics, they are combined to the reportable segment are responsible for the planning, operation and maintenance as “Retail”. well as for the development and reconstruction of the distribution networks. Due to EU directives and regulations, the regulatory envi- The segment “Renewables” covers the generation of electricity ronment which is the key value driver for the financial performance from wind (onshore and offshore), water and – to a limited extent – of the segments is comparable. The operating segments are there- biomass with the major activities in Germany, the United Kingdom, fore combined to the reportable segment “Grid and Infrastructure”. the Netherlands, Spain and Poland. This segment also includes non-controlling interests like the Aus- tria-based KELAG as well as other infrastructure, in particular gas “Other, consolidation” covers consolidation effects, innogy SE storages and water supply. and the activities of other business areas which are not presented separately. These activities include the internal group services provided by RWE IT and RWE Consulting.
Segment reporting Grid and Retail Renewables Other, innogy Jan – Jun 2016 Infrastructure consolidation Group € million External revenue (incl. natural gas tax/electricity tax) 5,632 16,668 396 84 22,780 Intra-group revenue 1,605 343 179 − 2,127 – Total revenue 7,237 17,011 575 − 2,043 22,780 EBITDA 1,357 746 376 − 94 2,385 Operating result 916 640 219 − 109 1,666
Segment reporting Grid and Retail Renewables Other, innogy Jan – Jun 2015 Infrastructure consolidation Group € million External revenue (incl. natural gas tax/electricity tax) 5,054 17,982 334 88 23,458 Intra-group revenue 1,262 395 223 −1,880 – Total revenue 6,316 18,377 557 −1,792 23,458 EBITDA 1,373 685 371 −97 2,332 Operating result 956 616 234 −115 1,691 14 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONDENSED)
Revenue between the segments is reported as innogy intra-group ment. The following table presents the reconciliation of the EBITDA revenue. Internal supply of goods and services is settled at arm’s and operating result to income before tax: lengths conditions. The operating result is used for internal manage-
Reconciliation of income items Jan – Jun 2016 Jan – Jun 2015 € million EBITDA 2,385 2,332 − Operating depreciation and amortization − 719 − 641 Operating result 1,666 1,691 + Non-operating result 399 195 + Financial result − 452 − 19 Income before tax 1,613 1,867
Income and expenses that are unusual from an economic perspec- the outside temperatures, the more energy is needed for heating tive, or stem from exceptional events, prejudice the assessment purposes. This leads to seasonal fluctuations in sales volume and of operating activities. They are reclassified to the non-operating earnings. Weather-related effects can also be of significance when result. Typically, the non-operating result can include book gains comparing various fiscal years to one another. In the first six months or losses from the disposal of investments or non-current assets of 2016 mild weather conditions prevailed throughout nearly the not required for operations, impairment of the goodwill of fully whole of Europe. In the key markets of innogy the temperatures consolidated companies, as well as effects of the fair valuation of were above the ten-year seasonal average. certain derivatives. In addition to energy consumption, electricity generation is also The non-operating result increased from €195 million during the six- subject to weather-related influences, with wind levels playing month period ended 30 June 2015 by €204 million to €399 million a major role. In the first half of 2016, the utilisation of our wind during the six-month period ended 30 June 2016. This increase was turbines in Germany, the United Kingdom, the Netherlands and largely due to increased gains resulting from the fair valuation of Poland was generally lower than in 2015, whereas it was higher in derivatives amounting to €213 million. Furthermore, a gain from the Spain and Italy. Electricity production by our run-of-river power settlement of the gas storage contract with RWE Supply & Trading plants is affected by precipitation levels, which in Germany were up amounting to €250 million was mostly offset by impairments for on the first half of last year. Sunshine also has a significant impact the gas storage facilities of the Grid and Infrastructure Segment on the supply of electricity, not least due to the considerable rise amounting to − €204 million. in German photovoltaic capacity in accordance with the Renewable Energy Act. Based on figures published by Germany’s National Mete- Seasonality. Whereas the economic trend primarily impacts on orological Service, the country had an average of 752 hours of sun- demand for energy among industrial enterprises, residential energy shine in the first six months of 2016, compared to 863 a year earlier. consumption is influenced more by weather conditions. The lower 15
Reporting on financial instruments
Financial instruments are divided into non-derivative and derivative. Measurement of the fair value of a group of financial assets and Non-derivative financial assets essentially include other financial financial liabilities is conducted on the basis of the net risk exposure assets, accounts receivable, marketable securities as well as cash per business partner, in accordance with IFRS 13.48. and cash equivalents. Financial instruments in the category “Availa- ble for sale” are recognized at fair value, and other non-derivative As a rule, the carrying amounts of financial assets and liabilities sub- financial assets at amortized cost. On the liabilities side, non-deriva- ject to IFRS 7 are identical with their fair values. For financial liabili- tive financial instruments principally include liabilities recorded at ties, the only deviations are for bonds, bank debt and other financial amortized cost. liabilities. Their carrying amounts totaled €21,515 million (31 De- cember 2015: €18,975 million, 1 January 2015: €16,473 million) The fair value of financial instruments “Available for sale” which are and their fair values totaled €23,382 million (31 December 2015: reported under other financial assets and securities is the published €20,234 million, 1 January 2015: €18,556 million). For financial exchange price, insofar as the financial instruments are traded on an assets, deviations between carrying amounts and market values active market. The fair value of non-quoted debt and equity instru- predominantly stem from financial receivables due from RWE com- ments is determined on the basis of discounted expected payment panies. As of 30 June 2016, the carrying amount of these was flows. Current market interest rates corresponding to the remaining €1,868 million (31 December 2015: €12,636 million, 1 Janu- maturity or maturity are used for discounting. ary 2015: €11,774 million), while the fair value amounted to €1,862 million (31 December 2015: €12,728 million, 1 Janu- Derivative financial instruments are recognized at fair values as of ary 2015: €11,849 million). the balance-sheet date, insofar as they fall under the scope of IAS 39. Exchange-traded products are measured using the published The following overview presents the main classifications of financial closing prices of the relevant exchange. Non-exchange traded prod- instruments measured at fair value in the fair value hierarchy pre- ucts are measured on the basis of publicly available broker quota- scribed by IFRS 13. In accordance with IFRS 13, the individual levels tions or, if such quotations are not available, of generally accepted of the fair value hierarchy are defined as follows: valuation methods. In doing so, the innogy Group draws on prices on active markets as much as possible. If such are not available, • Level 1: Measurement using (unadjusted) prices of identical finan- company-specific planning estimates are used in the measurement cial instruments formed in active markets process. These estimates encompass market factors which other market participants would take into account in the course of price • Level 2: Measurement on the basis of input parameters which determination. Assumptions pertaining to the energy sector and are not the prices from level 1, but which can be observed for economy are made within the scope of a comprehensive process the financial instrument either directly (i.e. as price) or indirectly conducted by an independent team with the involvement of both (i.e. derived from prices) in-house and external experts. • Level 3: Measurement using factors which cannot be observed on the basis of market data.
Fair value hierarchy Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 30 Jun 31 Dec 1 Jan € million 2016 2015 2015 Other financial assets 581 42 24 515 555 43 27 485 510 39 33 438 Derivatives (assets) 1,110 1 1,109 – 1,518 0 1,491 27 939 0 908 31 of which: used for hedging purposes 160 – 160 – 18 – 18 – 17 – 17 – Securities 1,905 1,905 0 – 1,894 1,894 0 – 1,913 1,913 0 – Derivatives (liabilities) 1,308 0 1,308 – 2,090 0 2,060 30 1,620 0 1,620 0 of which: used for hedging purposes 114 – 114 – 1 – 1 – 0 – 0 – 16 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONDENSED)
The development of the fair values of level 3 financial instruments is presented in the following table:
Level 3 financial instruments: Balance at Changes in Changes Balance at Development in 2016 1 Jan 2016 the scope of 30 Jun 2016 consolidation, currency Recognized in With a cash adjustments profit or loss effect € million and other Other financial assets 485 31 3 − 4 515 Derivatives (assets) 27 – – − 27 – Derivatives (liabilities) 30 – – − 30 –
Level 3 financial instruments: Balance at Changes in Changes Balance at Development in 2015 1 Jan 2015 the scope of 30 Jun 2015 consolidation, currency Recognized in With a cash adjustments profit or loss effect € million and other Other financial assets 438 9 4 − 8 443 Derivatives (assets) 31 – 4 − 31 4 Derivatives (liabilities) 0 – 15 0 15
Amounts recognized in profit or loss generated through level 3 financial instruments were recognized in the following line items in the income statement:
Level 3 financial instruments: Total Of which: Total Of which: Amounts recognized in profit or loss Jan – Jun 2016 attributable to Jan – Jun 2015 attributable to financial instruments financial instruments held at the held at the € million balance-sheet date balance-sheet date Revenue – – 4 4 Cost of materials – – − 15 − 15 Other operating income/expenses 4 4 5 5 Income from investments − 1 − 1 − 1 − 1 Financial income/ financial costs 0 – – – 3 3 − 7 − 7
Level 3 derivative financial instruments essentially consist of the remaining contractual period of the derivatives will deviate weather derivatives for the hedging of fluctuations in customer from the historically observed long-term average temperatures can demand due to changing temperature patterns. The valuation of only be made for very short periods. Therefore the fair values are such depends on the development of the temperature in particular. primarily determined on the basis of temperatures actually meas- All other things being equal, rising temperatures cause the fair ured over the contractual period of the derivatives already elapsed. values to increase and vice-versa. Assumptions that the future for 17
Related party disclosures
The innogy Group classifies the parent company RWE AG and its Business and finance transactions were concluded with RWE AG, subsidiaries, associates and joint ventures as well as associates and its subsidiaries, associates and joint ventures as well as with major joint ventures of the innogy Group as its related parties. associates and joint ventures of the innogy Group, resulting in the following items in innogy’s interim consolidated financial state- ments:
Key items from transac- RWE AG Subsidiaries, associates and Associates of Joint ventures of tions with related parties joint ventures of RWE Group innogy Group innogy Group Jan – Jun Jan – Jun Jan – Jun Jan – Jun Jan – Jun Jan – Jun Jan – Jun Jan – Jun € million 2016 2015 2016 2015 2016 2015 2016 2015 Income 208 38 3,204 2,728 48 112 2 9 Expenses 575 877 8,604 10,102 16 24 – –
Key items from transac- RWE AG Subsidiaries, associates and Associates of Joint ventures of tions with related parties joint ventures of RWE Group innogy Group innogy Group 30 Jun 31 Dec 1 Jan 30 Jun 31 Dec 1 Jan 30 Jun 31 Dec 1 Jan 30 Jun 31 Dec 1 Jan € million 2016 2015 2015 2016 2015 2015 2016 2015 2015 2016 2015 2015 Receivables 1,365 5,063 5,178 503 7,147 6,684 32 56 31 95 86 102 Liabilities 9,219 5,405 11,202 827 1,505 6,660 3 4 2 – 11 32
In addition to the amounts presented in the table above, during service level agreements. During the period ended 30 June 2016, the period ended 30 June 2016, the innogy Group recorded supply transactions /services and other transactions led to income contributions and withdrawals from RWE Group companies of in the amount of €2,884 million and €423 million, respectively − €11,995 million (first half of 2015: €117 million) directly in equity. (first half of 2015: €2,638 million and €21 million, respectively) and expenses of €8,520 million and €485 million, respectively (first half The key items with related parties mainly stem from supply and of 2015: €9,974 million and €925 million, respectively). During the service as well as financial transactions with RWE Group companies. period ended 30 June 2016, finance transactions led to income in During the first half of 2016, the innogy Group was largely financed the amount of €105 million (first half of 2015: €106 million) and by the RWE Group and invested excess liquidity with RWE AG or expenses of €174 million (first half of 2015: €80 million). RWE Group companies using the RWE Group’s cash pooling and cash management system. As of 30 June 2016, receivables in- All transactions were completed at arm’s length conditions, i.e. on clude loans and financial receivables to the RWE Group at the principle the conditions of these transactions did not differ from amount of €1,347 million (31 December 2015: €11,613 million, those with other enterprises. As of 30 June 2016, €1,935 million 1 January 2015: €10,859 million). As of 30 June 2016, loans and of the receivables (31 December 2015: €10,903 million, 1 Janu- financial liabilities to the RWE Group amounted to €9,162 million ary 2015: €11,200 million) and €4,343 million of the liabilities (31 December 2015: €5,140 million, 1 January 2015: €15,698 mil- (31 December 2015: €3,918 million, 1 January 2015: €6,603 mil- lion). lion) fall due within one year. As of 30 June 2016, other obligations from executory contracts amounted to €25,605 million (31 Decem- innogy Group companies entered into contracts with RWE Group ber 2015: €23,578 million, 1 January 2015: €29,044 million). companies, in particular RWE Supply & Trading, to purchase or supply commodities, mainly electricity and gas. In addition, services Above and beyond this, the innogy Group did not execute any were provided from RWE Group companies to the innogy Group as material transactions with related companies or persons. well as from the innogy Group to RWE Group companies based on
18 INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONDENSED)
Events after the balance sheet date
In the period between 30 June 2016 and the date when the interim On 27 July 2016, the number of shares of innogy SE was reduced consolidated financial statements were authorized for issue by the from 1,000,000,000 to 500,000,000 common shares. The carrying Executive Board of innogy SE (20 September 2016), the following amount of the subscribed capital remains unchanged at €1,000 mil- material events occurred: lion. Simultaneously, the shares were converted from registered shares to ordinary bearer shares. In connection with the separation of the innogy Group from the for- mer RWE Group, in order to establish a separate pension scheme, At the end of July 2016 the sale of a 33.3 % share in the associate RWE AG, innogy SE and certain of the innogy Group UK companies Zephyr Investments Limited (Zephyr) and the related shareholder arranged for a ring-fencing of the former RWE Group's pension obli- loans was closed. gations and plan assets under the group of certain UK subsidiaries of the former RWE Group into legally separate sub-sections in a ratio At the end of August 2016 innogy signed a contract to acquire of 70 % (innogy Group) to 30 % (RWE Group). The sectionalizing was the German solar and battery specialist BELECTRIC Solar & Bat- decided in July 2016 and is effective as of 31 July 2016. The result- tery Holding GmbH. innogy and BELECTRIC Holding GmbH have ing adjustment in favour of innogy amounted to a single-digit mil- agreed a purchase price in a high double-digit million euro range. lion £ amount. The transaction is subject to approval by the anti-trust authorities and reorganizational measures. Closing of the transaction is intend- In July 2016, RWE AG contributed receivables at the amount of ed to take place in early 2017. €1,009 million, which result from loans granted by RWE AG to innogy SE in June 2016, to innogy SE. This contribution in kind On 7 September 2016, notice was provided to terminate the control as well as a cash contribution of RWE AG to innogy SE at the agreement between innogy SE and RWE with effect as from the end amount of €900 million were included in additional paid-in capital of 30 September 2016. of innogy SE. On 9 September innogy International Participations N.V. paid an On 11 July 2016, the number of shares of innogy SE was in- amount of £36 million as an adjustment to the purchase price creased by 5,000 new registered shares from 999,995,000 of NPower Group plc. The initial purchase price amounted to to 1,000,000,000 common shares. £1,438 million in April 2016 (see “Acquisitions, mergers and contri- butions”). The purchase price was adjusted to reflect the difference between NPower Group plc's pension liability according to IAS 19 (i) already reflected in the initial purchase price and (ii) actually allocat- ed to NPower Group plc after the sale (both calculated as of 31 De- cember 2015). 19