ANNUAL REPORT 2012 2012 KEY FIGURES AT A GLANCE • Operating result: €6.4 billion • Recurrent net income: €2.5 billion • Dividend proposal: €2 per share • Leverage factor unchanged at 3.5 • Outlook for 2013: operating result in the order of €5.9 billion RWE Group 2012 2011 + /− % Electricity production billion kWh 227.1 205.7 10.4 External electricity sales volume billion kWh 277.8 294.6 − 5.7 External gas sales volume billion kWh 306.8 322.2 − 4.8 External revenue € million 53,227 51,686 3.0 EBITDA € million 9,314 8,460 10.1 Operating result € million 6,416 5,814 10.4 Income before tax € million 2,230 3,024 − 26.3 Net income/RWE AG shareholders' share in net income € million 1,306 1,806 − 27.7 Recurrent net income € million 2,457 2,479 − 0.9 Return on capital employed (ROCE) % 12.0 10.9 - Weighted average cost of capital (WACC) before tax % 9.0 8.5 - Value added € million 1,589 1,286 23.6 Capital employed € million 53,637 53,279 0.7 Cash flows from operating activities € million 4,395 5,510 − 20.2 Capital expenditure € million 5,544 7,072 − 21.6 Property, plant and equipment and intangible assets € million 5,081 6,353 − 20.0 Financial assets € million 463 719 − 35.6 Free cash flow € million − 686 − 843 18.6 Number of shares outstanding (average) thousands 614,480 538,971 14.0 Earnings per share € 2.13 3.35 − 36.4 Recurrent net income per share € 4.00 4.60 − 13.0 Dividend per share € 2.001 2.00 - 31 Dec 2012 31 Dec 2011 Net debt of the RWE Group € million 33,015 29,948 10.2 Workforce2 70,208 72,068 − 2.6 1 Dividend proposal for RWE AG‘s 2012 fiscal year, subject to approval by the 18 April 2013 Annual General Meeting. 2 Converted to full-time positions. There‘s MORE to the design of our cover page than meets the eye. WHAT WE DO RWE is one of Europe’s five leading electricity and gas companies. Through our expertise in oil, gas and lignite production; electricity generation from gas, coal, nuclear and renewables; energy trading as well as electricity and gas distribution and sales; we are active at all stages of the energy value chain. Around 70,000 employees supply over 16 million electricity customers and nearly eight million gas customers with energy, both reliably and at fair prices. In fiscal 2012, we recorded approximately €53 billion in revenue. Europe is our market: in terms of sales, we are No. 3 in electricity and No. 5 in gas. In Germany, the Netherlands and the United Kingdom, we are among the largest suppliers of both fuels. In the Czech Republic, we are No. 1 in the gas business. We also have leading positions in other markets in Central Eastern Europe. The European energy sector is undergoing fundamental changes. Political intervention is making our business challenging. In addition, the subsidised expansion of renewables in Germany is causing the margins and utilisation of conventional power stations to decline. All of this is having a significant effect on our earnings. To succeed in this environment, we launched the ‘RWE 2015’ programme. It includes comprehensive measures to reduce costs and increase earnings. We are also adjusting our organisational structure to cope with the challenges. By decreasing investment and reducing debt, we want to improve our financial flexibility. Despite difficult framework conditions, we want to play our part in the continued development of the European energy system, proving that we are trustworthy and high performing. Our strategy is to invest in renewable energy and a modern network infrastructure. In addition, we take advantage of opportunities in the market which arise due to new customer demands by offering a wide range of innovative energy products and services. ELECTRICITY AND GAS: RWE OFFERS EVERYTHING FROM A SINGLE SOURCE Power generation Gas and oil Energy trading/ Electricity and Electricity and Customers production Conventional Renewable gas midstream gas networks gas supply generation energy MORE Accomplishing more with more resources: that is easy. Accomplishing more with less resources: that is clever – and the basic principle of successful business management. RWE wants to accomplish more with less in many respects. How does this work? Read on – we are happy to let you know. EFFICIENCY Bergheim, 1912: not far from Cologne, the region’s first lignite-fired power plant goes online. Efficiency: about 17 percent. In other words, of the energy content in the lignite, one-sixth is converted to electricity. A century later: a few kilometres away at Neurath, RWE commissions a new lignite-fired power station. Efficiency: 43 percent. So, to produce a unit of electricity, it uses 60 % less coal than needed at Bergheim. And it emits 60 % less carbon dioxide. For years, RWE has been investing billions in a modern power plant portfolio. New, highly efficient stations are replacing older ones. The principle never changes: more electricity with less fuel, more climate protection with less emissions. www.rwe.com/more-efficiency FoCUS RWE is active in many countries. This helps us to mitigate risks. But as advantageous as it is to be broadly positioned, we never forget where our home is. Our markets are in Europe. Where we know our way around. Where we have leading market positions. And where we want to participate in the continued development of the energy system. We are doing this by investing in modern electricity generation plants and networks. But now we have less funds. For the future this means: less investment in growth and more focus on the challenges in our core regions. Because we must prove ourselves here if we want to be successful elsewhere. www.rwe.com/more-focus CUSTOMER SATISFACTION In the past, energy utilities had one main task: supply electricity and gas. This is not enough any more. Resources are becoming increasingly scarce. Our customers want to save and expect us to help them. And we are doing so with a broad range of innovative products and solutions, from the insulation of buildings via heat generation and home automation through to electric cars. Our motto: those who conserve energy intelligently do not need to sacrifice quality of life. We also act as a partner to businesses in relation to energy management. This is how less energy consumption leads to more satisfaction. Would you like to know how this works? Then visit us on the internet! www.rwe.com/more-customer-satisfaction FLEXIBILITY A basic principle of sound business practice: in the long run, you can only spend as much as you earn. This applies to both households and companies. Five years ago, we launched the biggest investment programme in RWE’s history. We have spent about 28 billion euros, much more than we could finance from our operating activities. We want to reduce the resulting debt. Because less debt means more financial flexibility, higher credit ratings and better refinancing conditions. By 2015 at the latest, our investments and dividends will again be fully in line with our cash flow from operating activities. And from then on, we will stick to the aforementioned principle. www.rwe.com/more-flexibility H ow WE HAVE ORGANISED OURSELVES RWE Group since 1 January 2013 Conventional Supply/ Supply Supply Central Eastern Renewables Upstream Trading /Gas Power Distribution Netherlands/ United Kingdom and South Gas & Oil Midstream Generation Networks Belgium Eastern Europe Germany RWE Generation RWE Essent RWE npower RWE East RWE Innogy RWE Dea RWE Supply Deutschland & Trading NET4GAS Internal Service Providers unbundled RWE Consulting RWE Group Business Services RWE IT RWE Service CoNTENTS To our investors Interview with the CEO 14 The Executive Board of RWE AG 18 CONTENTS 2012 in brief 22 RWE on the capital market 24 1 Review of operations 31 3 Responsibility statement 127 1.1 Strategy 32 1.2 Economic environment 38 1.3 Political environment 44 4 Consolidated financial statements 129 1.4 Major events 48 4.1 Income statement 130 1.5 Commentary on the reporting structure 51 4.2 Statement of recognised income 131 1.6 Business performance 53 and expenses 1.7 Financial position and net worth 74 4.3 Balance sheet 132 1.8 Notes to the financial statements of 80 4.4 Cash flow statement 133 RWE AG (holding company) 4.5 Statement of changes in equity 134 1.9 Disclosure relating to German takeover law 82 4.6 Notes 135 1.10 Innovation 84 4.7 List of shareholdings 195 1.11 Development of risks and opportunities 88 (part of the notes) including the report on the internal 4.8 Boards (part of the notes) 220 control and risk management system 4.9 Independent auditors’ report 224 1.12 Outlook 97 2 Our responsibility 103 Further information 2.1 Supervisory Board report 104 Organisation chart of the RWE Group 226 2.2 Corporate governance 108 Index 227 2.3 Compensation report 111 Glossary 228 (part of the review of operations) Five-year overview 232 2.4 Workforce 118 Imprint 234 2.5 Sustainability 120 Financial calendar 235 14 RWE Annual Report 2012 “WE’RE A COMPANY THAT HAS TO WORK HARD FOR ITS FUTURE.” Peter Terium, CEO of RWE AG, on fiscal 2012, the challenges caused by the transformation of the German energy market and RWE’s medium-term earnings prospects. Mr. Terium, 2012 was your first financial year at the helm. What drove the operating improvement in the last Looking back, how do you feel the company fared? fiscal year? We certainly put in a positive performance.