RWE_GB_EN_US_Einzelseiten.qxd 14.03.2003 19:32 Uhr Seite 3 Annual Report 2002 Integration: The Key to Success RWE_GB_EN_US_Einzelseiten.qxd 14.03.2003 19:32 Uhr Seite 4 At a glance RWE Group 2002 2001 +/- in % pro forma1 External net sales € million 46,633 50,366 -7.4 EBITDA € million 7,241 6,790 +6.6 Operating result € million 4,504 3,908 + 15.3 Income before tax € million 2,722 2,194 + 24.1 Income after tax € million 1,355 1,744 - 22.3 Net income € million 1,050 1,350 - 22.2 Operating cash flow € million 5,933 3,560 + 66.7 Return on capital employed (ROCE) % 10.4 10.5 -1.0 Capital costs (WACC) before taxes % 9.5 9.5 — Value added € million 395 388 +1.8 Capital employed € million 44,293 37,757 + 17.3 Capital expenditure € million 16,985 7,560 + 124.7 Earnings per share _excluding goodwill amortization € 3.25 3.20 +1.6 _including goodwill amortization € 1.87 2.40 - 22.1 Operating cash flow per share € 10.55 6.33 + 66.7 Dividend per share € 1.102 1.00 + 10.0 12/31/02 12/31/01 +/- in % Workforce FTE3 131,765 123,423 + 6.8 1 See commentary in the review of operations on page 36. 2 Dividend proposal (including bonus) for RWE AG’s 2002 financial year, subject to approval by the May 15, 2003 Annual General Meeting. 3 Full time equivalent, according to the percentage of full-time employment. Brief portrait 5 RWE_GB_EN_US_Einzelseiten.qxd 14.03.2003 19:32 Uhr Seite 5 Key Events 02_2002 07_2002 Gas production expanded Slovak electricity market tapped RWE Dea acquires UK-based gas producer Highland By acquiring a 49% stake in the East Slovak power Energy, thus increasing its gas reserves by utility VSE, RWE establishes a presence in this 13 million cubic meters to 76.5 million cubic meters Eastern European growth market. VSE provides of oil equivalent. Highland Energy owns production some 600,000 end customers with electricity and acreage in the North Sea, RWE Dea’s core region. has about 22% of the market. In addition to the shareholding, RWE also assumes entrepreneurial 03_2002 control. Acquisition of one of the largest British energy companies 10_2002 With its recommended offer for Innogy Holdings, RWE becomes a leading provider on Polish RWE sets foot on the UK utility market for the electricity market second time. Innogy is the country’s second-lar- RWE signs an agreement with the Polish govern- gest electricity and third-largest gas provider. ment to acquire an 85% interest in Warsaw-based By obtaining a premiere position on a second key electric utility STOEN. The company supplies market, RWE strengthens its position as one of electricity to nearly 800,000 customers in the Europe’s leading multi-utilities. Polish capital. 04_2002 12_2002 Market leadership on German water market RWE implements German Corporate Governance extended Code By raising its stake in RWW Rheinisch-Westfälische The Supervisory and Executive Boards issue a Wasserwerksgesellschaft mbH, from 14% to about statement of compliance on the implementation 80%, RWE widens its lead on the EU’s largest of the recommendations from the “Governmental water market. RWW serves some one million water Commission for the German Corporate Governance customers in the Ruhr Region and in Münsterland. Code.” Once the required amendments have been As a result, RWE now supplies water to 13 million made to its articles of association at the 2003 people in Germany. Annual General Meeting, RWE will comply with all of the code’s recommendations. 05_2002 Green light for entry into Czech gas market The Czech Republic’s antitrust authorities approve the acquisition of Transgas and interests in eight of the country’s regional gas utilities. RWE thus advances to the premiere league of European gas companies. RWE_GB_EN_US_Einzelseiten.qxd 14.03.2003 19:32 Uhr Seite 6 The RWE Group—A brief portrait With 132,000 employees and annual net sales exceeding €46 billion, RWE ranks among Europe’s largest industrial corporations. In implementing our multi-utility strategy, we concentrate on our four core businesses in the fields of electricity, gas, water and environmental services. We are one of the leading players in these industries in Germany, Great Britain, central Eastern Europe and the USA. Moreover, our activities give us a portfolio that enables stability just as much as it does growth. More than 20 million customers have opted for electricity and gas from RWE. Over 16 million households utilize our waste-disposal services. And we supply 70 million people world- wide with drinking water and wastewater services. RWE AG Core Businesses Environ- mental Non-Core Electricity Gas Water Services Businesses RWE Power RWE Gas Thames Water RWE Umwelt Heidelberger Power Generation Midstream/Down- Water and Waste Druckmaschinen stream Sewerage Management RWE Rheinbraun HOCHTIEF Lignite-Fired Power RWE Dea Construction and Generation and Mining Upstream Civil Engineering RWE Trading Trading RWE Net Net RWE Plus Sales and Marketing RWE Solutions Industrial Services Innogy Holdings UK Energy Others Harpen RWE Systems Corporate Services RWE_GB_EN_01-16_Neu.qxd 14.03.2003 17:53 Uhr Seite 1 Highlights _Operating result posts another double-digit increase _Electricity again No. 1 success factor _Internationalization process largely completed _2003—Year of consolidation Operating result posts another double-digit Internationalization process largely completed increase We put our strong position on the European utility Fiscal 2002 was a successful year. We improved our market on an even broader base with the acquisi- Group’s operating result by 15%. Even without tion of the British energy utility Innogy and nearly taking our large-scale acquisitions into conside- the entire Czech gas business. In addition, in com- ration, our core businesses boosted their operating pleting the acquisition of American Water at the result by 18%. By contrast, earnings generated by beginning of 2003, we became the No. 1 player in our non-core businesses were substantially down the regulated US water business. on the previous year. 2003—Year of consolidation Electricity again No. 1 success factor With a phase of strong external growth behind us, Our electricity business continued its dynamic the rapid integration of our new companies is now development. It contributed more than half of the the topmost item on our agenda. At the same Group’s operating result. Electricity’s 53% increase time, we will constantly improve the Group’s in its operating result was primarily driven by the earning power through further cost-cutting and sustained upward trend displayed by our German efficiency enhancements. We will also gradually electricity operations. reduce our net debt. RWE_GB_EN_01-16_Neu.qxd 14.03.2003 17:53 Uhr Seite 2 Contents Foreword 04_Letter to Shareholders 08_Supervisory Board Report 12_Corporate Governance 18_Special Feature: Integration 24_RWE Shares 28_RWE Bonds 04–29 13.3 Executive Board Report 8.7 32_Review of Operations 58_Workforce 3.0 61_Corporate Citizenship 0.3 63_Environmental Protection 0.8 30–65 Business Areas 68_Electricity 80_Gas 88_Water 94_Environmental Services 98_Non-Core Businesses 66–101 ¤ million 528 Consolidated Financial Additional Information ¤ million 24,325 Statements 156_Material Investments 104_Income Statement 159_RWE Value Management ¤ million 4,146 105_Balance Sheet 160_Boards 106_Cash Flow Statement 166_Glossary 107_Changes in Equity 168_Index ¤ million 2,760 109_Notes _Five-Year Overview 155_Auditors’ Report _Financial Calendar 102–170 _Design Legend 2 RWE_GB_EN_01-16_Neu.qxd 14.03.2003 17:53 Uhr Seite 3 Contents Foreword 04–29 Executive Board Report 30–65 Business Areas 66–101 Consolidated Financial Statements, Additional Information 102–170 Integration: The Key to Success The RWE Group today provides for the needs of customers far beyond our roots in Germany. In the UK and central Eastern Europe, we supply communi- ties with electricity, gas and water. We provide water to North Americans as well. The RWE Group’s core businesses—electricity, gas, water and environ- mental services—are there to serve more than 100 million customers worldwide. For us, the quality of being international means working together in a way that transcends borders to reach common goals in innovative ways. We hold deep respect for the differences of other cultures, and strive always to learn from them. That’s why we believe that integrating people and business is the key to our success. As a company, we draw our strength from a broad array of people and their many talents. Some of these people are to be seen in the photos throughout our annual report. With these portraits we are introducing you to individuals who are determined to achieve success together at RWE. Front cover, left: Minyi Du, Business Development Director, Thames Water China, Shanghai Front cover, right: Jan Heinz Knoop, Storage Manager, Kalle Natural Gas Storage Facility, RWE Gas 3 RWE_GB_EN_01-16_Neu.qxd 14.03.2003 17:54 Uhr Seite 4 Letter to Shareholders Dr. Dietmar Kuhnt Born in 1937 in Breslau, studied law. Joined the RWE Group in 1968. From 1992 to 1994 President and Chief Executive Officer of RWE Energie AG and Executive Vice-President of RWE AG. From January 1995 to February 2003 President and Chief Executive Officer of RWE AG. Responsible for: Corporate Communications, Group Auditing, Group Executive Resources Development, Energy and Environmental Policy. »Our core business enables both stability and growth. We posted another double-digit rise in our operating result despite unfavorable economic conditions.« 4 RWE_GB_EN_01-16_Neu.qxd 14.03.2003 17:54 Uhr Seite 5 Letter to Shareholders Harry Roels Born in 1948 in the Netherlands, obtained a degree in physical chemistry in 1971. Worked for the Royal Dutch/ Shell Group for 30 years. In July 1999 appointed Mana- ging Director of Royal Dutch Petroleum Company and Executive Vice-President of the Royal Dutch/Shell Group.