Interim / Quarterly Report • Aug 14, 2017
Interim / Quarterly Report
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| RWE Group – key figures | Jan – Jun | Jan – Jun | +/− | Jan – Dec | |
|---|---|---|---|---|---|
| 2017 | 2016 | % | 2016 | ||
| Power generation | billion kWh | 106.1 | 107.1 | −0.9 | 216.1 |
| External electricity sales volume | billion kWh | 133.7 | 133.5 | 0.1 | 264.6 |
| External gas sales volume | billion kWh | 141.8 | 145.7 | −2.7 | 265.1 |
| External revenue | € million | 23,321 | 23,898 | −2.4 | 45,833 |
| Adjusted EBITDA | € million | 3,213 | 3,011 | 6.7 | 5,403 |
| Adjusted EBIT | € million | 2,204 | 1,884 | 17.0 | 3,082 |
| Income before taxes | € million | 3,671 | 719 | 410.6 | −5,807 |
| Net income | € million | 2,669 | 457 | 484.0 | −5,710 |
| Adjusted net income | € million | 809 | 598 | 35.3 | 777 |
| Earnings per share | € | 4.34 | 0.74 | – | −9.29 |
| Adjusted net income per share | € | 1.32 | 0.97 | – | 1.26 |
| Cash flows from operating activities | € million | 1,714 | −1,004 | 270.7 | 2,352 |
| Capital expenditure | € million | 858 | 826 | 3.9 | 2,382 |
| Property, plant and equipment and intangible assets | € million | 679 | 733 | −7.4 | 2,027 |
| Financial assets | € million | 179 | 93 | 92.5 | 355 |
| Free cash flow1 | € million | 1,102 | −1,240 | 188.9 | 809 |
| 30 Jun 2017 | 31 Dec 2016 | ||||
| Net debt | € million | 21,476 | 22,709 | −5.4 | |
| Workforce2 | 59,200 | 58,652 | 0.9 |
1 New definition; see commentary on page 13.
2 Converted to full-time positions.
| Letter from the CEO | 1 |
|---|---|
| RWE on the capital market | 2 |
| Review of operations | 3 |
| Economic environment | 3 |
| Major events | 7 |
| Notes on reporting | 12 |
| Business performance | 14 |
| Outlook | 26 |
| Development of risks and opportunities | 28 |
| Responsibility statement | 30 |
| Interim Consolidated Financial Statements | |
|---|---|
| (condensed) | 31 |
| Income statement | 31 |
| Statement of comprehensive income | 32 |
| Balance sheet | 33 |
| Cash flow statement | 34 |
| Statement of changes in equity | 35 |
| Notes | 36 |
| Review report | 43 |
| Financial calendar 2017/2018 |
The first year since the restructuring of RWE has gone well for us so far. I say this not only with regard to our operating business, but also due to the positive developments that have occurred in relation to nuclear power. In the first half of the year, all of the requirements were fulfilled for reorganising the responsibility for nuclear waste disposal between the Federal government and the power plant operators. Finally, on 3 July, the companies involved transferred €24.1 billion to the new nuclear energy fund and were in turn released from financial responsibility for the intermediate and final storage of radioactive waste. RWE's share amounted to €6.8 billion. While it is true that this was a massive burden for us, we nevertheless welcome the reform. Under the old rules, politically-induced cost increases could have led to incalculable burdens for the companies. This risk has now been eliminated.
In June there was good news on the nuclear fuel tax: the Constitutional Court ruled the tax to be retroactively void. We had been waiting for the decision for years and were therefore very relieved. The tax, which was levied from 2011 until 2016, cost RWE a total of €1.7 billion, exacerbating the difficult situation for our power generation business. We were refunded this money in June, and our shareholders should also benefit from this. We will propose to the Annual General Meeting on 26 April 2018 a one-off special dividend of €1.00 per share, in addition to the targeted dividend of €0.50 per share. I believe that this is fair and appropriate, especially since we asked a lot of our holders of common shares, as the payment of a dividend was suspended on the last two occasions.
Finally, let me say just a few words about our business performance in 2017. Despite declining margins in conventional power generation, adjusted EBITDA rose by 7 % to €3.2 million in the first half of the year. The main reason for this was that the Supply&Trading Division rebounded from last year's unusually weak performance. The refund of the nuclear fuel tax has no impact on adjusted EBITDA, as it is reported as an extraordinary item in the non-operating result. For 2017 as a whole, we continue to project adjusted EBITDA of €5.4 billion to €5.7 billion and adjusted net income of €1.0 billion to €1.3 billion. According to current planning, we should finish towards the upper end of these ranges, so there is a good chance that 2017 will turn out to be a good year for us.
Sincerely yours,
Dr. Rolf Martin Schmitz CEO of RWE AG Essen, August 2017
Good mood on the stock market thanks to robust economic activity – strong performance by RWE shares The upswing on the German stock market continued in 2017. During the first half of the year, the DAX index gained 7 %, advancing to 12,325 points and closing at an all-time high of 12,889 points on 19 June. One major factor behind this was the favourable economic development in Europe and the USA. Additionally, the extremely expansive monetary policies of the leading central banks also supported the buoyant sentiment on the stock markets. Nevertheless, many believe it is possible that the ECB will begin to tighten its policies in the near future. Due to this speculation, share prices fell slightly again at the end of June.
The price of RWE shares rose much faster than the DAX: RWE common shares posted an increase of 48 % to €17.45 during the first half of the year, making them the second-best performers in the DAX. Our preferred shares closed June at €12.90. Taking into account the preferred dividend of €0.13, RWE's preferred shares generated a return of 50 %. The good performance of the RWE shares was partly the result of the reorganisation of the RWE Group and the successful IPO of innogy last year. Since then, investors' confidence in the solid financial position of RWE AG and the viable outlook for its core businesses has improved strongly. One important factor behind this improvement was the capital market day held at the end of March, at which the management explained RWE's strategic positioning. The event was held in London and streamed on the internet. At the start of June, when it became known that the German Constitutional Court had ruled the nuclear fuel tax to be unlawful and void, RWE's shares climbed higher again (see page 7).
According to initial estimates, global economic output rose by around 2.5 % in the first half of 2017, compared to the same period of the previous year. Growth in the Eurozone was estimated at 1.8 %, while German GDP probably increased at roughly the same rate. Consumer spending in particular was a stimulating factor. Relative to the Eurozone, economic growth in the Netherlands was marginally above average, whereas it was slightly below average in Belgium. The UK, which is our most important market outside of the currency union, recorded growth roughly on par with the Eurozone, despite negative impacts from the country's upcoming exit from the EU. Amongst other things, the UK is benefiting from expansion in the service sector. Economic performance in our main Central Eastern European markets was even stronger. However, upon finalisation of this report we only had information on the first quarter: Poland, the Czech Republic and Hungary recorded growth rates of around 4 %, with Slovakia posting a rate of roughly 3 %.
Whereas the economic trend primarily affects energy consumption by industrial enterprises, residential energy consumption is influenced to a great extent by weather conditions: the lower the outside temperatures, the more energy is needed for heating purposes. Accordingly, the sales and earnings of utilities such as RWE fluctuate due to seasonal factors and also from one fiscal year to the next. Meteorological data for the first half of 2017 shows that – despite a cold January – temperatures in our Continental European markets were mostly slightly above the 10-year average, whereas in the United Kingdom, they were substantially higher. Compared to the same period of the previous year, temperatures in much of Continental Europe were lower. However, they remained stable in Germany and were higher than in 2016 in the UK.
In addition to energy consumption, the generation of electricity is also influenced by weather conditions, in particular wind levels. On the whole, wind conditions during the first half of 2017 at our German, Dutch and Spanish wind farms were weaker than they were in the same prior-year period. Conversely, wind levels were higher in the United Kingdom and Poland. Weather conditions also have an effect on the utilisation of innogy's run-of-river power plants: the key factors are precipitation and melt water volumes, which fell significantly short of the 2016 levels in Germany, where most of these plants are located.
Economic growth stimulated energy consumption in our core markets, whereas the trend towards energy savings had a slight counteracting effect. Based on preliminary calculations by the German Association of Energy and Water Industries (BDEW), German demand for electricity was up 1.6 % on the previous year. An increase of about 2 % was estimated for the Netherlands. Electricity consumption probably also rose slightly in Poland, Slovakia and Hungary, whereas a decline of around 2 % was estimated for the United Kingdom. Somewhat stronger changes were registered for gas demand. According to the preliminary BDEW data, in Germany it rose by 3 %, in part because market conditions for gas power stations improved and these stations were therefore utilised more. Demand also increased by 3 % in the Netherlands and rose by as much as 9 % in the Czech Republic. By contrast, gas consumption in the United Kingdom fell by around 3 %, due in part to the mild weather there.
Following a long period of declines, prices in Western European gas trading have recovered somewhat. For the period January to June 2017, spot prices at the Dutch Title Transfer Facility (TTF) averaged €17 per megawatt hour (MWh), up by €4 compared to the previous year. In TTF forward trading, contracts for delivery in the upcoming calendar year (2018 forward) were also settled at €17 per MWh. By way of comparison, a price of €15 was paid for the 2017 forward in the preceding half year. As prices in the residential business typically track wholesale price developments with a time lag, they were still strongly influenced by the slump seen in recent years. According to the latest data, gas was 4 % cheaper for German households. Compared to 2016, households in the United Kingdom and the Czech Republic paid 2 % and 1 % less for gas, respectively, whilst prices remained broadly stable in the Netherlands. Varying developments were seen for industrial customers: prices in the United Kingdom rose by 6 % and by 5 % in the Netherlands, whereas they declined modestly in Germany and significantly in the Czech Republic.
Compared to the record lows seen early last year, hard coal prices have increased substantially again in international trading. During the period under review, coal deliveries including freight and insurance to the ARA ports (Amsterdam/Rotterdam/Antwerp) were quoted at an average of US\$80 (€74) per metric ton in spot trading, an increase of US\$33 compared to 2016. The 2018 forward (API 2 Index) traded at US\$66 per metric ton (€61), up US\$22 on the comparable prior-year figure. One key factor in this regard was the strong economic activity in China and the subsequent increase in demand for coal. The regulations implemented by the government in Beijing last year to reduce domestic coal production have since been eased. Freight rates, i.e. overseas shipping costs, are an important price component in international hard coal trading. Here again, a strong upward trend has been seen. For the period January to June 2017, the standard route from South Africa to Rotterdam cost an average of US\$6 per metric ton, which was almost twice as much as one year earlier. Rates rose in response to higher fuel prices, and because demand for shipping picked up due to economic developments. Furthermore, overcapacities were reduced as unprofitable vessels were scrapped.
There is still no end in sight to the low prices for trading in CO2 emission allowances in Europe. The EU Allowance (EUA), which confers the right to emit one metric ton of carbon dioxide, cost an average of €5 during the first half of the year. This figure refers to forward contracts due in December 2017. By comparison, in the first six months of the previous year, the EUA for contracts in December 2016 cost an average of €6. There continues to be a surplus of emissions allowances on the market for the third trading period, which runs until 2020. In the last three years, the EU was able to reduce the surplus of certificates by cutting the amount issued on the market (known as 'backloading'), but no backloading is planned for 2017 or 2018. Although further measures will be taken to reduce the EUA surplus, such as introducing a market stability reserve, these will only start to have an effect after 2018. Until then, the large volumes at the auctions will keep prices low.
Another factor is that the utilisation of relatively low-emission gas-fired power stations increased as a result of market developments, which reduces demand for EUAs. Brexit also has a significant effect: at present it cannot be foreseen whether and, if so, when the United Kingdom will be leaving the European emissions trading system. In the event of an early exit, it is possible that companies domiciled there may place a large amount of superfluous emission allowances onto the market, creating additional downward pressure on prices.
After a downward trend lasting several years, wholesale electricity prices in our main generation markets rose again in the first half of the year. Higher hard coal prices were one of the main reasons for this, as hard coalfired power plants are price-setters for many hours during the year, especially in Germany. When fuel prices for these stations increase, it is reflected in electricity prices. During the first half of 2017, the average spot price for base-load power was €36 per MWh, up €11 on the level recorded last year. Forward prices have also risen. The 2018 forward for base-load power was quoted at €30 per MWh on average during the period under review. By comparison, in the first six months of last year the 2017 forward was trading at €24.
In the United Kingdom, our second-largest generation market, wholesale prices are typically much higher than in Germany. During the reporting period, the mean spot price for base-load power was £44 per MWh (€51), reflecting an increase of £9 versus the 2016 level. The 2018 base-load forward traded at £42 (€49) per MWh, which was £6 higher than the comparable figure for the previous year.
In the Netherlands, where we have our third-largest generation position, base-load power was traded at an average of €39 per MWh on the spot market. This represents an increase of €11 compared to 2016. Forward contracts for 2018 traded for €34 per MWh, up €6 on the price paid for the 2017 forward in the same period last year.
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. During the reporting period, our revenue from power generation is therefore determined by the forward contracts concluded for 2017 in the previous years. These contracts reflected the falling wholesale electricity prices seen on the markets until 2016. Accordingly, the average price for delivery contracts in 2017 was significantly lower than the price in contracts for 2016. As a result of this, the margins of our lignite and nuclear power stations, which typically have stable fuel costs, declined. Effects from the expiration of the nuclear fuel tax in Germany were not taken into account in this regard. Margins for our hard coal-fired power stations also fell. We generally sell the generation of our gas-fired plants with shorter forward dates, and consequently these plants were able to benefit from the recent rebound in wholesale prices. All in all, the margins and utilisation for these stations were higher than in the previous year.
In the retail business, tariffs are affected to a significant degree by grid costs, apportionments and taxes, especially in relation to the residential segment. In Germany and the United Kingdom, where the share of these price components is constantly increasing, electricity prices for residential customers rose by an average of 1 % and 3 % compared to 2016. Households in Poland paid roughly 1 % more than in the same period of last year. In the Netherlands, prices remained broadly unchanged, whereas they fell by 3 % in both Slovakia and Hungary. The following developments were seen in the industrial segment: electricity prices for this customer group increased by 9 % in Germany, 4 % in the United Kingdom and 2 % in the Netherlands, whereas they fell by 6 % in Slovakia, 8 % in Poland and 12 % in Hungary.
In mid-April, the Constitutional Court ruled that the German nuclear fuel tax was unlawful and therefore void. The ruling was announced on 7 June. The law on the nuclear fuel tax was passed by the German Parliament at the end of October 2010 without the involvement of the Upper House and expired at the end of 2016. It required the operators of nuclear power plants to pay a tax on the fuel used in their facilities. Due to doubts about conformity with EU law and the German constitution, RWE had been challenging the law since 2011. The Fiscal Court of Hamburg shared these concerns and referred the matter to the Constitutional Court. According to the Constitutional Court, the federal legislator was not authorised to introduce the nuclear fuel tax, because the tax was not a consumption tax in the sense of Article 106 of Germany's Basic Law. During the period when the tax was levied from 2011 to 2016, RWE made payments of around €1.7 billion. This amount was refunded to us in June. Furthermore, we are entitled to interest, which will probably be paid by the end of 2017. We recognise the refund of the tax in the non-operating result and the interest in the other financial result. Adjusted EBITDA and adjusted net income are not affected.
Due to the refund of the nuclear fuel tax, the Executive Board of RWE AG plans to make a one-off, special dividend payment of €1 per share in early May 2018. This will be in addition to the targeted dividend of €0.50 per share. Following discussions with the Supervisory Board this was announced on 23 June. This proposal will be presented at the Annual General Meeting on 26 April 2018. With a total of 614.7 million RWE shares, including 39 million preferred shares, the planned dividend will amount to €615 million. We plan on using the bulk of the tax refund to strengthen our financial position.
Six months after being passed by the German Parliament, the law on the restructuring of responsibilities for nuclear waste disposal entered into force on 16 June 2017. Shortly before this, the EU Commission had given its approval. According to the law, the Federal government will assume responsibility for handling and financing the intermediate and final storage of radioactive waste, while responsibility for the decommissioning and dismantling of the facilities and packing of the radioactive waste shall remain with the companies. The responsibilities transferred to the Federal government will be financed from a fund, which is paid into by the plant operators. On 3 July 2017, the companies transferred the full amount of €24.1 billion to the fund's accounts at the Deutsche Bundesbank. RWE's share amounted to €6.8 billion. This ends the liability of nuclear power plant operators for the costs of intermediate and final storage. In order to provide a legal basis for this, on 26 June the companies involved concluded a public law contract with the Federal Republic of Germany. This contract provides the companies with a higher level of legal certainty related to the release from liability and also establishes details on the conditions of transferring radioactive waste to the Federal authorities. Based on this contract, numerous legal disputes between the utilities and the state over nuclear energy related issues were terminated, and the companies involved withdrew their claims.
At the end of February 2017, we successfully completed the legal transfer of our debt from senior bonds to innogy. This transaction had been initiated immediately after the IPO of our subsidiary. As a result, innogy has taken the place of RWE AG as the guarantor for the senior bonds and as the debtor for the privately placed bonds. With a total volume equivalent to €11 billion, this transfer of debt involving 18 bonds issued in various currencies was the largest of its kind performed by a company in Europe. It was preceded by a vote of the bondholders, as provided for in such cases by the German Act on Debt Securities. Two senior bonds to which the Act could not be applied were transferred by a bond swap in December 2016. In one case, involving a bond with a volume of €500 million maturing in 2037, a small residual amount remained with RWE AG. With completion of the change in the debtor, the corresponding intra-group loans were cancelled or reduced. Additional information on this subject can be found on page 52 et seq. of the 2016 Annual Report.
As part of their regular rating reviews, the three leading agencies confirmed their credit ratings for RWE. At the end of June, Moody's and Standard&Poor's announced that they were maintaining RWE's long-term credit ratings at Baa3 and BBB-. In early April, the agency Fitch had also confirmed the rating of RWE, which was one notch higher at BBB. As a result, all three of the agencies continue to rate our creditworthiness in the investment-grade category. However, there were changes to RWE's rating outlook: Moody's and Fitch raised it from 'negative' to 'stable', which corresponds to the outlook of Standard&Poor's.
In early April and at the end of July, we redeemed hybrid bonds of CHF 250 million and CHF 150 million, without issuing new hybrid capital. In both cases, RWE called the bonds on the first possible date. The bond with a volume of CHF 250 million was issued in November 2011, had a coupon of 5.25 % and a theoretical tenor lasting until 2072. The bond with a volume of CHF 150 million was issued in July 2012, had a coupon of 5 % and would have also matured in 2072 at the latest. RWE currently has five hybrid bonds outstanding, two of which are denominated in euros, two in US dollars and one in sterling. At the end of July, the nominal volume of these bonds was equivalent to €3.4 billion.
By updating its Debt Issuance Programme (DIP) in May, RWE AG created additional leeway for securing longterm debt financing on the capital market. The DIP is a framework prospectus for the flexible issuance of senior bonds with a total volume of €10 billion. It is the successor programme to our previous DIP with a volume of €30 billion, which pertained to the RWE Group as a whole and was suspended in 2016. Since April 2017, our subsidiary innogy has had its own DIP, which allows it to issue a total volume of €20 billion in senior bonds.
At the latest auction for the UK capacity market held from 31 January to 3 February 2017, all of the participating RWE plants with secured capacity totalling 7.9 GW qualified for capacity payments for the period from 1 October 2017 to 30 September 2018. Providers with a total generation capacity of 59.3 GW took part in the auction; stations with capacity of 54.4 GW were successful. However, at £6.95 per kilowatt the amount
of the payment is much lower than the level achieved at previous auctions. Since 2014, annual capacity auctions have taken place in the United Kingdom, at which bids are invited for a certain amount of generation capacity. Participants submit a bid in the form of a minimum payment which they require to guarantee the availability of their plant for a certain period. Through the auction process, the amount of the capacity payment is determined at which the capacity offered corresponds to the amount of capacity required. The payment amount is awarded to all bidders which submitted bids below or equal to the auction clearing price. Participation at the auctions is voluntary and open to all technologies. Plants which are already subsidised in a different manner are not eligible to participate. Before 2017 three capacity auctions had been held: the first one in December 2014 related to the period October 2018 to September 2019, while the following auctions covered the subsequent two 12-month periods. In order to avoid supply shortfalls which may have occurred in the event of the early decommissioning of hard coal-fired plants as a result of market conditions, in 2016, the UK government decided to bring the start of the capacity market forward by one year. Consequently, a fourth auction was held in early 2017.
In January and June, the Executive Board of RWE Generation decided to retrofit our two Dutch hard coalfired power plants Amer 9 and Eemshaven for cofiring with biomass. The background for these decisions is that the Dutch state approved subsidies of up to €2.6 billion for the two plants. Along with the retrofitting, the subsidies will also finance the additional expenses for procuring fuel. We will receive these funds over a period of eight years. The subsidies are allocated so that Amer 9 can achieve a biomass ratio of 80 % (instead of the previous 35 %) and Eemshaven a ratio of around 15 %. The Amer 9 power station has been in operation since 1993, with a net capacity of 643 MW. The twin unit at Eemshaven has a capacity of 1,554 MW and has been generating power since 2014. After comprehensive retrofitting, we plan to produce environmentally friendly electricity using a total of 2.5 million metric tons of biomass annually, allowing us to lower our CO2 emissions by roughly 4 million metric tons. We will source the necessary biomass in Europe and North America, ensuring that the requirements of the Dutch sustainability protocol for biomass are satisfied. The protocol was developed by the Dutch government together with energy companies and non-governmental organisations; it has been proven in tests and will be enacted in legislation in 2017.
Effective as of 1 June, RWE Generation sold Unit 5 of the Hamborn cogeneration plant to thyssenkrupp Steel Europe (tkSE). This gas-fired power plant with a generation capacity of 241 MW (gross) is located on the premises of tkSE's steel works in Duisburg and is operated by tkSE. Up until the sale, tkSE was leasing the unit.
In early January 2017, innogy acquired Belectric Solar&Battery GmbH. The (still preliminary) purchase price amounts to €74 million. As a result of the acquisition, our subsidiary has advanced to become a global player in utility-scale photovoltaic plants and battery storage systems. Belectric is domiciled in Kolitzheim, Bavaria, and has a workforce of approximately 550. Since its inception in 2001, the company has built more than 280 ground-mounted and roof-mounted solar collectors with a total net installed capacity of over 1.5 GW. Furthermore, the company operates and maintains solar plants with a total capacity of more than 1.0 GW and develops turnkey, large-scale battery storage solutions.
In the Netherlands, the innogy wind farm Zuidwester with a capacity of 90 MW was opened in mid-June as part of the Noordoostpolder wind power project. Zuidwester is located at the Ijsselmeer. Its twelve onshore turbines are currently some of the most powerful in the world, capable of generating 7.5 MW each. They are replacing 50 smaller turbines installed in the 1980s and 1990s. As a result of this, the capacity of Zuidwester has increased six-fold. innogy has invested approximately €150 million in this wind farm, which has been generating electricity at full capacity since early 2017. Noordoostpolder, a large-scale project in which numerous companies are participating, features 86 turbines with capacity of around 430 MW, located nearshore in the Ijsselmeer and onshore along the dyke. Altogether the facilities have the capacity to supply around 400,000 households with electricity.
RWE AG's Annual General Meeting, held on 27 April 2017, approved the dividend proposal of the Executive Board and the Supervisory Board for fiscal 2016 by a large majority. Accordingly, the payment of a dividend for holders of common shares was suspended, while holders of preferred shares received the preferred share of profit of €0.13 per share as stipulated by the Articles of Incorporation. The distribution amounted to €5 million for the total number of 39,000,000 preferred shares. The dividend proposal took into account the significant financial burdens resulting from the transfer to the nuclear energy fund.
innogy SE's Annual General Meeting, held on 24 April 2017, approved payment of a dividend of €1.60 per share for fiscal 2016. Taking as a basis the adjusted net income of our subsidiary in fiscal 2016, the payout ratio amounts to 79 %.
In February 2017, the European Parliament and the EU Environment Council presented their ideas about the future design of the European emissions trading system (ETS). The goal is to align the ETS with the European targets for reducing greenhouse gas emissions by 2030. The reform process started with a draft directive issued on this subject in mid-2015 by the EU Commission. The Council and the Parliament supported the Commission's proposal for an annual reduction of 2.2 % in the total amount of CO2 allowances issued during the fourth emissions trading period running from 2021 to 2030. The reduction factor is currently 1.74 %. In other respects, the Council and the Parliament go beyond the Commission's draft directive: for example, they wish to reduce the existing surplus of allowances on the market more quickly than envisaged. In their proposal, this would be possible by transferring twice as many surplus allowances (compared to the current legal status) to the market stability reserve. The reserve was created by the EU in 2015 and will be used from 2019 to allow for more flexible management of the supply of emissions allowances. Furthermore, the Council and Parliament support cancelling allowances from the reserve. This was also not included in the draft directive. In relation to the allotment of free emissions certificates to energy-intensive enterprises, they want to take a more generous approach than proposed by the Commission, in order to limit cost disadvantages for industrial companies versus competitors from non-EU countries. While there is agreement on fundamentals, the Parliament and the Council still have differing positions on some details. A joint position will now be formulated in negotiations, which will also include the Commission. Experts anticipate that an agreement will be reached sometime this year.
At the end of April, the EU Member States agreed on new regulations limiting emissions of airborne pollutants by power plants. For the most part, these European requirements, which will have to be fulfilled by existing stations from 2021, are reasonable and implementable. With regard to nitrogen oxides and mercury, however, they exceed what is currently technically possible. The European regulations will formally enter into effect this summer after publication in the Official Journal of the European Union. After this they will be transposed into national law, for example by an amendment of the 13th Federal Emissions Control Ordinance. The EU guidelines give Member States leeway, within which they can set their own threshold limits. We hope that, along with technical and economic feasibility, German policymakers will also take into consideration the need for a secure supply of electricity. After amendment of the Ordinance, we will be able to gauge the consequences for our portfolio. It is possible that we will be required to undertake significant retrofitting or close some plants early.
In mid-July, loans of €645 million and £350 million, which the European Investment Bank (EIB) had granted us, were transferred from RWE AG to innogy as part of a debtor switch. In return, two corresponding group loans were cancelled. With this move, the reallocation of RWE's capital market debt to innogy, which was agreed as part of the IPO of our subsidiary, is now completed. As discussed on page 8, innogy had already taken over the debt from RWE AG's senior bonds.
RWE Power sold its 50 % stake in Wohnungsbaugesellschaft für das Rheinische Braunkohlenrevier GmbH (WBG) and its 15 % stake in GSG Wohnungsbau Braunkohle GmbH to the real estate company Vivawest, headquartered in Gelsenkirchen. The price is in the medium double-digit million range. Together, WBG and GSG own around 1,800 rental apartments and 1,200 garages and parking spaces in 320 buildings in the Köln-Aachen-Grevenbroich region. They also manage 150 residential units for third parties. The companies were originally set up to provide housing for workers in the mining industry. Nowadays, however, there is hardly any need for this. The sale was agreed in February, but was subject to the revocation of the law on miners' settlements, which occurred in July.
At the end of July, we reached an agreement with the UK property investor Tritax Big Box REIT plc that it would purchase most of the site of our former power station Littlebrook. The transaction is expected to be completed during the course of 2017. A smaller part of the site was sold in early August to National Grid. The sales will result in total euro proceeds in the upper double-digit million range. The Littlebrook site is favourably situated on the banks of the River Thames in Dartford, east of London. Until the end of March 2015, we operated an oil-fired power station at the site, with a net capacity of 1,245 MW. Due to stricter emissions limits for large combustion plants, the station had to be shut down.
Our financial reporting for 2017 is based on a new divisional structure, as the segment 'Conventional Power Generation' has been divided into 'Lignite&Nuclear' and 'European Power'. To ensure the comparability of the 2017 figures to those of the previous year, we have restated the latter in the new structure. Furthermore, from now on we refer to the former segment 'Trading/Gas Midstream' as 'Supply&Trading'. However, this is only a change of name and has no impact on the activities of the segment.
As a result of the above adjustments, the Group is structured into the following four segments (divisions):
Some cross-segment activities are reported in 'Other, consolidation'. Currently, this item mainly consists of the holding company RWE AG. Above and beyond this, it also includes our 25.1 % interest in the German electricity transmission system operator Amprion.
In July 2016, the guidelines of the European Securities and Markets Authority (ESMA) on the application of alternative performance measures came into force. One goal of these guidelines is to ensure that the basic principles of transparency and comparability are followed when indicators which are not defined in binding terms in accounting standards are used. Amongst other things, they call for the use of unambiguous terms. Against this backdrop, we have changed the term for EBITDA to 'adjusted EBITDA' and the term for operating result to 'adjusted EBIT'. By doing so, we highlight that important components have been removed from these indicators, which are reported in the non-operating result. There is no change in content associated with the use of the new terms.
In this interim report, we use a new definition of free cash flow, which presents our capital expenditure in a more comprehensive manner. Previously, free cash flow was equivalent to the cash flows from continuing operations, less capital expenditure on property, plant and equipment and intangible assets. From hereon in, we will also deduct the capital expenditure on financial assets and add in revenues from divestments and asset disposals. In the interests of ensuring comparability, we have adjusted the previous year's figures.
This interim report contains forward-looking statements regarding the future development of the RWE Group and its companies as well as economic and political developments. 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 performance can deviate from the performance expected at present. Therefore, we cannot assume responsibility for the correctness of these statements.
| Power generation January – June |
Lignite | Hard coal | Gas | Nuclear | Renewables | Pumped storage, oil, other |
Total | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Billion kWh | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 |
| Lignite&Nuclear | 38.0 | 36.3 | – | – | – | – | 15.0 | 14.8 | – | – | 0.3 | 0.3 | 53.3 | 51.4 |
| European Power1 | – | – | 18.1 | 22.8 | 27.3 | 25.0 | – | – | 0.5 | 0.5 | 1.2 | 1.2 | 47.1 | 49.5 |
| of which: | ||||||||||||||
| Germany | – | – | 7.8 | 10.9 | 3.7 | 3.0 | – | – | 0.3 | 0.3 | 1.2 | 1.2 | 13.0 | 15.4 |
| United Kingdom | – | – | 2.6 | 4.0 | 17.3 | 17.4 | – | – | 0.2 | 0.2 | – | – | 20.1 | 21.6 |
| Netherlands/ Belgium |
– | – | 7.7 | 7.9 | 4.2 | 3.1 | – | – | – | – | – | – | 11.9 | 11.0 |
| innogy2 | – | – | 0.1 | 0.1 | 0.5 | 0.4 | – | – | 5.1 | 5.7 | – | – | 5.7 | 6.2 |
| RWE Group | 38.0 | 36.3 | 18.2 | 22.9 | 27.8 | 25.4 | 15.0 | 14.8 | 5.6 | 6.2 | 1.5 | 1.5 | 106.1 | 107.1 |
1 Including electricity from power plants not owned by RWE that we can deploy at our discretion on the basis of long-term agreements. In the first half of 2017, this amounted to 3.6 billion kWh in the European Power Division (first half of 2016: 5.3 billion kWh), of which 2.3 billion kWh was generated by hard coal-fired power plants (first half of 2016: 3.9 billion kWh).
2 Prior to the sale of our stake in Zephyr Investments Limited in the middle of last year, electricity purchases from Zephyr's wind farms are included: these amounted to 0.3 billion kWh in the first half of 2016.
In the first half of 2017, the RWE Group generated 106.1 billion kWh of electricity, which was marginally less than in the same period of 2016. The contribution of hard coal to our electricity generation fell sharply, in part due to the deterioration in market conditions. Another reason was the closure of the Voerde A/B power station as of 1 April 2017. Steag owned 75 % and we owned 25 % of the two units. As the sole marketer, we had reported the electricity generated at this station in our figures. Generation from renewables also declined. One of the main factors here was the lower utilisation of run-of-river and hydroelectric power stations due to weather conditions. The sale of our 33.3 % stake in Zephyr Investments Limited in mid-2016 also had an impact (see page 40 of the 2016 Annual Report). Prior to completion of the transaction our reporting had included a portion of the generation and capacity of Zephyr's UK wind farm portfolio. By contrast, our gas-fired power stations produced more electricity than in 2016, as market conditions improved for them. There was also an increase in the generation volume from lignite, which was curtailed in 2016 by scheduled maintenance and plant outages due to damages.
In addition to our own generation, we procure electricity from external suppliers. During the reporting period, this totalled 36.9 billion kWh (previous year: 35.0 billion kWh). In-house generation and power purchases combined for 143.0 billion kWh (first half of 2016: 142.1 billion kWh).
| External electricity sales volume January – June |
Residential and commercial customers |
Industrial and corporate customers |
Distributors | Total | ||||
|---|---|---|---|---|---|---|---|---|
| Billion kWh | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 |
| Lignite&Nuclear | 0.1 | 0.1 | – | – | 6.0 | 6.1 | 6.1 | 6.2 |
| European Power | – | – | 1.1 | 1.2 | 2.7 | 2.4 | 3.8 | 3.6 |
| Supply&Trading | – | – | 18.4 | 16.7 | – | – | 19.41 | 17.21 |
| innogy | 26.0 | 27.1 | 36.3 | 37.1 | 41.9 | 42.1 | 104.2 | 106.3 |
| RWE Group2 | 26.1 | 27.3 | 55.9 | 55.1 | 50.7 | 50.6 | 133.7 | 133.5 |
1 Including volume effects of the sale of self-generated electricity on the wholesale market. If these sales volumes exceed the purchases made for supply purposes, the positive balance is recognised in the sales volume. In the first half of 2017, there was a positive balance of 1.0 billion kWh compared to 0.5 billion kWh in the prior-year period.
2 Including small volumes subsumed under 'Other, consolidation'.
Deliveries of electricity to external customers amounted to 133.7 billion kWh, roughly on par with 2016. In the Supply&Trading segment, an increase in industrial and corporate customers resulted in higher sales. This was counterbalanced by declines at innogy, which stemmed from the retail business in the UK and the Netherlands. Intense competition in these markets caused some households and companies supplied by innogy to switch providers. Increases in customer numbers in other retail markets, in particular Germany, were unable to offset this.
| External gas sales volume January – June |
Residential and commercial customers |
Industrial and corporate customers |
Distributors | Total | ||||
|---|---|---|---|---|---|---|---|---|
| Billion kWh | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 |
| Supply&Trading | – | – | 13.8 | 13.0 | 0.3 | 0.1 | 14.1 | 13.1 |
| innogy | 59.0 | 60.1 | 36.9 | 43.6 | 31.8 | 28.9 | 127.7 | 132.6 |
| RWE Group | 59.0 | 60.1 | 50.7 | 56.6 | 32.1 | 29.0 | 141.8 | 145.7 |
Compared to the previous year, our gas sales volume declined by 3 % to 141.8 billion kWh. This was primarily driven by customer losses at innogy, which mainly involved industrial and corporate customers in the UK, the Netherlands and in some Eastern European markets. innogy's market position also deteriorated somewhat with British and Dutch households. However, increases in volumes were registered with German distributors, as new customers were added and supply activities with existing customers expanded.
| External revenue € million |
Jan – Jun 2017 |
Jan – Jun 2016 |
+/− % |
Jan – Dec 2016 |
|---|---|---|---|---|
| Lignite&Nuclear | 586 | 555 | 5.6 | 1,193 |
| European Power | 343 | 386 | −11.1 | 774 |
| Supply&Trading | 2,048 | 1,724 | 18.8 | 3,646 |
| innogy | 20,334 | 21,197 | −4.1 | 40,149 |
| Other, consolidation | 10 | 36 | −72.2 | 71 |
| RWE Group | 23,321 | 23,898 | −2.4 | 45,833 |
| Natural gas tax/electricity tax | 1,148 | 1,220 | −5.9 | 2,243 |
| RWE Group (excluding natural gas tax/electricity tax) | 22,173 | 22,678 | −2.2 | 43,590 |
The RWE Group generated €23,321 million in external revenue, including taxes on natural gas and electricity. Compared to the same period of the previous year, our revenue declined by 2 %. Revenue from sales of electricity fell by 4 % to €15,903 million. An important driver was the declining sales to residential and commercial customers. Its impact on revenues could not be offset by increased deliveries in other segments of the retail business. By contrast, revenue from gas sales amounted to €5,901 million, up slightly on the previous year. Revenues were also influenced by exchange rate developments: sterling – our most important foreign currency – depreciated versus the euro, weakening from €1.27 to €1.16 on average, which reduced revenue from the United Kingdom after conversion into euros.
| Internal revenue € million |
Jan – Jun 2017 |
Jan – Jun 2016 |
+/− % |
Jan – Dec 2016 |
|---|---|---|---|---|
| Lignite&Nuclear | 1,509 | 1,726 | −12.6 | 3,489 |
| European Power | 2,297 | 2,338 | −1.8 | 4,732 |
| Supply&Trading | 7,579 | 8,189 | −7.4 | 15,734 |
| innogy | 1,130 | 967 | 16.9 | 1,811 |
| Adjusted EBITDA € million |
Jan – Jun 2017 |
Jan – Jun 2016 |
+/− % |
Jan – Dec 2016 |
|---|---|---|---|---|
| Lignite&Nuclear | 401 | 471 | −14.9 | 1,079 |
| European Power | 222 | 316 | −29.7 | 377 |
| Supply&Trading | 131 | −153 | 185.6 | −139 |
| innogy | 2,439 | 2,385 | 2.3 | 4,203 |
| Other, consolidation | 20 | −8 | 350.0 | −117 |
| RWE Group | 3,213 | 3,011 | 6.7 | 5,403 |
In the period under review, we recorded adjusted earnings before interest, taxes, depreciation and amortisation (adjusted EBITDA) of €3,213 million. This was 7 % more than in 2016. A strong improvement in energy trading was the main reason for this. Additionally, innogy reported lower expenses for the operation and maintenance of its distribution networks. However, margins in conventional electricity generation declined.
The following developments were seen in the segments:
| Adjusted EBIT € million |
Jan – Jun 2017 |
Jan – Jun 2016 |
+/− % |
Jan – Dec 2016 |
|---|---|---|---|---|
| Lignite&Nuclear | 262 | 275 | −4.7 | 664 |
| European Power | 69 | 115 | −40.0 | −37 |
| Supply&Trading | 129 | −156 | 182.7 | −145 |
| innogy | 1,725 | 1,666 | 3.5 | 2,735 |
| Other, consolidation | 19 | −16 | 218.8 | −135 |
| RWE Group | 2,204 | 1,884 | 17.0 | 3,082 |
Adjusted EBIT came in at €2,204 million for the first half of the year, up 17 % on the comparable figure for 2016. This percentage increase is significantly more pronounced than for adjusted EBITDA, because adjusted EBIT also takes into account operational depreciation, which declined significantly due to the high impairments recognised last year. In the consolidated financial statements for 2016, we recorded writedowns of €4.3 billion, with €3.7 billion of this applying to our German power plant portfolio (see 2016 Annual Report, page 48).
| Non-operating result € million |
Jan – Jun 2017 |
Jan – Jun 2016 |
+/− € million |
Jan – Dec 2016 |
|---|---|---|---|---|
| Capital gains/losses | 72 | 4 | 68 | 94 |
| Impact of derivatives on earnings | 144 | −6 | 150 | −799 |
| Restructuring, other | 1,401 | −206 | 1,607 | −5,956 |
| Non-operating result | 1,617 | −208 | 1,825 | −6,661 |
The non-operating result, in which we recognise certain one-off effects not related to operations or the period under review, improved by €1,825 million to €1,617 million. The individual items developed as follows:
| Financial result € million |
Jan – Jun 2017 |
Jan – Jun 2016 |
+/− € million |
Jan – Dec 2016 |
|---|---|---|---|---|
| Interest income | 125 | 145 | −20 | 271 |
| Interest expenses | −421 | −515 | 94 | −914 |
| Net interest | −296 | −370 | 74 | −643 |
| Interest accretion to non-current provisions | −44 | −386 | 342 | −1,288 |
| Other financial result | 190 | −201 | 391 | −297 |
| Financial result | −150 | −957 | 807 | −2,228 |
Our financial result improved by €807 million to −€150 million. Its components changed as follows:
Income before taxes increased from €2,952 million to €3,671 million. Our effective tax rate was 19 %, which was lower than the (theoretical) normal rate of 32 %. One key aspect in this regard was that we were able to offset a large amount of tax losses from previous years for which no deferred tax assets had been recognised against our current earnings. Previously, we had assumed that it would not be possible to use these tax-loss carryforwards, owing to a lack of taxable profits in the foreseeable future. Due to the earnings impact of the nuclear fuel tax refund, this is not the case in 2017.
After taxes, we reported income of €2,960 million (previous year: €663 million). Non-controlling interests increased by €87 million to €267 million. The reason for this is that since the innogy IPO in October of last year, 23.2 % of the company's shares are held by third parties. The aforementioned impairment at Mátra had an opposite effect.
| Reconciliation to net income | Jan – Jun | Jan – Jun | +/− | Jan – Dec | |
|---|---|---|---|---|---|
| 2017 | 2016 | % | 2016 | ||
| Adjusted EBITDA | € million | 3,213 | 3,011 | 6.7 | 5,403 |
| Operating depreciation, amortisation and impairment losses | € million | −1,009 | −1,127 | 10.5 | −2,321 |
| Adjusted EBIT | € million | 2,204 | 1,884 | 17.0 | 3,082 |
| Non-operating result | € million | 1,617 | −208 | – | −6,661 |
| Financial result | € million | −150 | −957 | 84.3 | −2,228 |
| Income before taxes | € million | 3,671 | 719 | 410.6 | −5,807 |
| Taxes on income | € million | −711 | −56 | – | 323 |
| Income | € million | 2,960 | 663 | 346.5 | −5,484 |
| of which: | |||||
| Non-controlling interests | € million | 267 | 180 | 48.3 | 167 |
| RWE AG hybrid capital investors' interest | € million | 24 | 26 | −7.7 | 59 |
| Net income/income attributable to RWE AG shareholders | € million | 2,669 | 457 | 484.0 | −5,710 |
| Adjusted net income | € million | 809 | 598 | 35.3 | 777 |
| Earnings per share | € | 4.34 | 0.74 | – | −9.29 |
| Adjusted net income per share | € | 1.32 | 0.97 | – | 1.26 |
| Number of shares outstanding (average) | millions | 614.7 | 614.7 | – | 614.7 |
| Effective tax rate | % | 19 | 8 | – | 6 |
The portion of our earnings attributable to hybrid capital investors amounted to €24 million (previous year: €26 million); this pertains to our hybrid bond with a volume of £750 million. According to IFRS, due to its theoretically unlimited tenor, it is classified as equity, whereas RWE's other hybrid bonds are classified as debt.
The developments above resulted in net income of €2,669 million, marking a strong improvement compared to 2016 (€457 million). Based on the 614.7 million in RWE shares outstanding, this corresponds to earnings per share of €4.34 (previous year: €0.74).
| Reconciliation to adjusted net income January – June € million |
Original figures 2017 |
Adjustment | Adjusted figures 2017 |
Adjusted figures 2016 |
|---|---|---|---|---|
| Adjusted EBIT | 2,204 | – | 2,204 | 1,884 |
| Non-operating result | 1,617 | −1,617 | – | – |
| Financial result | −150 | −370 | −520 | −957 |
| Income before taxes | 3,671 | −1,987 | 1,684 | 927 |
| Taxes on income | −711 | 250 | −461 | −123 |
| Income | 2,960 | −1,737 | 1,223 | 804 |
| of which: | ||||
| Non-controlling interests | 267 | 123 | 390 | 180 |
| RWE AG hybrid capital investors' interest | 24 | – | 24 | 26 |
| Net income/income attributable to RWE AG shareholders | 2,669 | −1,860 | 809 | 598 |
Adjusted net income amounted to €809 million. It differs from net income in that the entire non-operating result and material extraordinary effects in the financial result, in taxes on income and in income attributable to non-controlling interests are removed. The effects of the one-off items on taxes on income and on noncontrolling interests are also eliminated. As previously discussed, adjusted net income does not contain any effects from the refund of the nuclear fuel tax. It rose by 35 % compared to 2016, thanks in part to the improvement in the business performance and financial result, whereas the higher taxes on income had a negative impact.
| Capital expenditure on property, plant and equipment and on intangible assets € million |
Jan – Jun 2017 |
Jan – Jun 2016 |
+/− € million |
Jan – Dec 2016 |
|---|---|---|---|---|
| Lignite&Nuclear | 98 | 110 | −12 | 267 |
| European Power | 38 | 27 | 11 | 66 |
| Supply&Trading | 1 | 1 | – | 4 |
| innogy | 541 | 580 | −39 | 1,679 |
| Other, consolidation | 1 | 15 | −14 | 11 |
| RWE Group | 679 | 733 | −54 | 2,027 |
| Capital expenditure on financial assets € million |
Jan – Jun 2017 |
Jan – Jun 2016 |
+/− € million |
Jan – Dec 2016 |
|---|---|---|---|---|
| Lignite&Nuclear | 1 | 1 | – | 1 |
| European Power | 1 | 1 | – | 4 |
| Supply&Trading | 5 | 15 | −10 | 56 |
| innogy | 172 | 76 | 96 | 290 |
| Other, consolidation | – | – | – | 4 |
| RWE Group | 179 | 93 | 86 | 355 |
During the first half of 2017, the RWE Group recorded capital expenditure of €858 million, up 4 % on 2016. Expenditure on property, plant and equipment and intangible assets amounted to €679 million. This represents a modest decline compared to the first six months of 2016, which was mainly due to developments in innogy's grid business. By contrast, capital expenditure on financial assets roughly doubled to €179 million. In the reporting period, this was due to innogy acquiring the solar and battery specialist Belectric Solar&Battery, as discussed on page 9.
| Cash flow statement € million |
Jan – Jun 2017 |
Jan – Jun 2016 |
+/− € million |
Jan – Dec 2016 |
|---|---|---|---|---|
| Funds from operations | 3,537 | 1,623 | 1,914 | 3,013 |
| Change in working capital | −1,823 | −2,627 | 804 | −661 |
| Cash flows from operating activities | 1,714 | −1,004 | 2,718 | 2,352 |
| Cash flows from investing activities | 4,300 | −833 | 5,133 | −4,570 |
| Cash flows from financing activities | 343 | 2,016 | −1,673 | 4,282 |
| Effects of changes in foreign exchange rates and other changes in | ||||
| value on cash and cash equivalents | 8 | −21 | 29 | −24 |
| Total net changes in cash and cash equivalents | 6,365 | 158 | 6,207 | 2,040 |
| Cash flows from operating activities | 1,714 | −1,004 | 2,718 | 2,352 |
| Minus capital expenditure1 | −805 | −762 | – | −2,308 |
| Plus proceeds from divestitures/disposals of assets1 | 193 | 526 | – | 765 |
| Free cash flow | 1,102 | −1,240 | 2,342 | 809 |
1 Only includes items with an effect on cash.
Cash flows from operating activities rose by €2,718 million to €1,714 million, primarily due to the nuclear fuel tax refund in the amount of €1.7 billion. While the change in working capital had a negative effect overall, in part related to the seasonality of the retail business, this effect was not as strong as in 2016. One factor in this regard was that we had to provide less collateral for trading transactions than in the previous year.
Investment activities resulted in income of €4,300 million (previous year: −€833 million). The main reason for this was that we liquidated marketable securities and cash investments to finance the transfer to the nuclear energy fund on 3 July 2017. This was contrasted by outflows of funds for our capital expenditure on fixed and financial assets. Additionally, we further increased the funding of our pension commitments: €147 million was transferred to trustees and company pension institutions for this purpose.
Financing activities resulted in a cash flow of €343 million (previous year: €2,016 million). Most of this was accounted for by our subsidiary innogy, which issued a large amount of commercial paper. Dividends paid to co-owners of fully consolidated RWE companies and hybrid capital investors had a counteracting effect, amounting to €580 million. Of this, €206 million related to innogy's dividend payment to its minority shareholders.
On balance, these cash flows from operating, investing and financing activities caused our cash and cash equivalents to rise by €6,365 million.
The free cash flow of the RWE Group amounted to €1,102 million, compared to −€1,240 million in the comparable prior-year period. As noted on page 13, we have altered the definition of this financial indicator: we now determine free cash flow by deducting all capital expenditures from the cash flow from operating activities and adding proceeds from divestments and asset disposals. The prior-year figure has been adjusted accordingly.
| Net debt € million |
30 Jun 2017 | 31 Dec 2016 | +/− € million |
|---|---|---|---|
| Cash and cash equivalents | 10,904 | 4,576 | 6,328 |
| Marketable securities | 5,278 | 10,065 | −4,787 |
| Other financial assets | 1,251 | 1,621 | −370 |
| Financial assets | 17,433 | 16,262 | 1,171 |
| Bonds, other notes payable, bank debt, commercial paper | 16,651 | 15,921 | 730 |
| Hedge transactions related to bonds | −97 | −263 | 166 |
| Other financial liabilities | 2,082 | 2,263 | −181 |
| Financial liabilities | 18,636 | 17,921 | 715 |
| Net financial debt | 1,203 | 1,659 | −456 |
| Provisions for pensions and similar obligations | 5,900 | 6,761 | −861 |
| Surplus of plan assets over benefit obligations | −54 | −29 | −25 |
| Provisions for nuclear waste management | 5,547 | 12,699 | −7,152 |
| Liabilities to the nuclear energy fund1 | 7,035 | – | 7,035 |
| Mining provisions | 2,370 | 2,363 | 7 |
| Provisions for dismantling wind farms | 382 | 334 | 48 |
| Adjustment for hybrid capital (portion of relevance to the rating) | −907 | −1,078 | 171 |
| Plus 50 % of the hybrid capital stated as equity | 455 | 471 | −16 |
| Minus 50 % of the hybrid capital stated as debt | −1,362 | −1,549 | 187 |
| Net debt | 21,476 | 22,709 | −1,233 |
1 Including liabilities attributable to the minority shareholder of the Emsland power station. By contrast, the liability attributable to the minority shareholder of the Gundremmingen nuclear power station was netted against a corresponding receivable (see page 39 in the Notes).
As of 30 June 2017, our net debt amounted to €21.5 billion and was therefore €1.2 billion lower than the figure recorded as of 31 December 2016. In addition to the positive free cash flow, another factor behind this was that pension provisions declined by €0.9 billion. There are two reasons for this: on the one hand, the plan assets with which we fund the majority of our pension obligations increased. On the other hand, we raised the discount rates for determining the present value of pension obligations in Germany, in accordance with the latest market developments. On average, the new discount rate is now 2.0 %, compared to 1.8 % in the 2016 financial statements. Along with the above factors, divestments also helped to reduce net debt, while the distribution of dividends had an opposite effect.
| Group balance sheet structure | 30 Jun 2017 | 31 Dec 2016 | ||
|---|---|---|---|---|
| € million | % | € million | % | |
| Assets | ||||
| Non-current assets | 45,033 | 59.7 | 45,911 | 60.1 |
| of which: | ||||
| Intangible assets | 12,727 | 16.9 | 12,749 | 16.7 |
| Property, plant and equipment | 24,112 | 32.0 | 24,455 | 32.0 |
| Current assets | 30,407 | 40.3 | 30,491 | 39.9 |
| of which: | ||||
| Receivables and other assets1 | 12,527 | 16.6 | 14,122 | 18.5 |
| Assets held for sale | 105 | 0.1 | – | – |
| Total | 75,440 | 100.0 | 76,402 | 100.0 |
| Equity and liabilities | ||||
| Equity | 10,829 | 14.4 | 7,990 | 10.5 |
| Non-current liabilities | 37,704 | 50.0 | 39,646 | 51.9 |
| of which: | ||||
| Provisions | 19,783 | 26.2 | 20,686 | 27.1 |
| Financial liabilities | 15,299 | 20.3 | 16,041 | 21.0 |
| Current liabilities | 26,907 | 35.6 | 28,766 | 37.6 |
| of which: | ||||
| Provisions | 4,737 | 6.3 | 12,175 | 15.9 |
| Other liabilities2 | 18,626 | 24.7 | 14,449 | 18.9 |
| Liabilities held for sale | 110 | 0.1 | – | – |
| Total | 75,440 | 100.0 | 76,402 | 100.0 |
1 Including financial accounts receivable, trade accounts receivable and income tax refund claims.
2 Including trade accounts payable and income tax liabilities.
The balance sheet total of the RWE Group amounted to €75.4 billion, compared to €76.4 billion at the end of the previous year. One factor behind this was that the value of derivatives fell by €3.0 billion on the assets side and €2.7 billion on the liabilities side of the balance sheet. The Federal government's refund of the nuclear fuel tax had an opposing effect by increasing the balance sheet total. Regarding the balance sheet structure, measures we took in preparation for the transfer to the nuclear energy fund on 3 July had a significant impact. As noted previously, we sold a large amount of securities in order to obtain the necessary liquidity. During the reporting period, our liquid funds increased by a total of €6.3 billion. On the liabilities side of the balance sheet, we no longer reported the transfer amount for the fund as a provision, but rather as a liability. This was the main reason that our current provisions fell by €7.4 billion, while other current liabilities increased by €4.2 billion. The equity of the RWE Group rose by €2.8 billion to €10.8 billion. Its share in the balance sheet total (equity ratio) rose to 14.4 %, an increase of 3.9 percentage points compared to the figure for the previous year, mainly due to the refund of the nuclear fuel tax.
| Workforce1 | 30 Jun 2017 | 31 Dec 2016 | +/– |
|---|---|---|---|
| % | |||
| Lignite&Nuclear | 13,247 | 12,980 | 2.1 |
| European Power | 2,666 | 2,672 | −0.2 |
| Supply&Trading | 1,148 | 1,086 | 5.7 |
| innogy | 41,944 | 40,636 | 3.2 |
| Other2 | 195 | 1,278 | −84.7 |
| RWE Group | 59,200 | 58,652 | 0.9 |
| of which: | |||
| In Germany | 35,306 | 34,835 | 1.4 |
| Outside of Germany | 23,894 | 23,817 | 0.3 |
1 Converted to full-time positions.
2 As of 30 June 2017, this almost exclusively comprises employees of the holding company RWE AG. The figures for the previous year included 922 employees and 243 employees, respectively, of the Group's internal service providers RWE Group Business Services and RWE Service, which have since been wound up.
As of 30 June 2017, the RWE Group had 59,200 people on its payroll. Part-time positions were considered in these figures on a pro-rata basis. During the first half of the year, in total 548 employees were added to the company, of which 471 were employed in Germany and 77 worked at facilities abroad. The main reason for this was innogy's acquisition of the German solar power and battery specialist Belectric Solar&Battery in early 2017. Excluding consolidation effects of this kind, the headcount remained almost unchanged. However, there were transfers between the segments. This was because we merged RWE Group Business Services and RWE Service (reported in the item 'Other') into an RWE subsidiary and transferred most of their staff to our operating Group companies.
| Earnings forecast for 2017 | 2016 actual € million |
Previous forecast (May 20171 ) |
Adjusted forecast (August 2017) |
|---|---|---|---|
| Adjusted EBITDA | 5,403 | €5.4 billion to €5.7 billion | – |
| of which: | |||
| Lignite & Nuclear | 1,079 | Significantly below previous year | – |
| European Power | 377 | Significantly below previous year | Significantly above previous year |
| Supply&Trading | −139 | Significantly above previous year | – |
| innogy | 4,203 | Moderately above previous year | – |
| Adjusted net income | 777 | €1.0 billion to €1.3 billion | – |
1 See Interim statement on the first quarter of 2017, page 13.
Our earnings outlook for this fiscal year, which was published in the 2016 Annual Report and then confirmed in our interim statement on the first quarter of 2017, remains in place for the Group as a whole: we continue to expect adjusted EBITDA of €5.4 billion to €5.7 billion and adjusted net income of €1.0 billion to €1.3 billion. These two figures are expected to be in the upper end of the respective ranges. As discussed previously, the refund of the nuclear fuel tax has no impact on these. At the segment level, however, adjustments to the outlook were necessary, because the previous segment 'Conventional Power Generation' was divided into 'Lignite&Nuclear' and 'European Power'. Furthermore, the prospects for earnings in the segment European Power have improved. This is contrasted by additional burdens in generation from lignite.
Our forecast for the segments is now as follows:
• innogy: From the current perspective, our subsidiary will close with a result moderately higher than in the previous year. The main reason for this is the improvement in earnings from the grid business, which should profit from declining operating and maintenance expenses. For the renewables business, adjusted EBITDA is expected to be on par with last year's results. The same holds true for the retail division, even though the outlook for the UK retail business is less certain, as there is a risk of further regulatory intervention to the detriment of the utilities (see next page).
Due to the refund of the nuclear fuel tax, we now expect that net debt at the end of 2017 will be lower than the figure for last year (€22.7 billion). Previously, we had anticipated that net debt would remain stable. Our outlook is based on the assumption that we will not have to significantly lower the discount rates for determining provisions this year. With regard to capital expenditure, we still project a volume in the order of €2.5 billion to €3.0 billion, including spending on financial assets. The outlook for our workforce also remains unchanged: we anticipate a mild increase compared to the end of 2016, primarily due to the acquisition of Belectric Solar&Battery.
Within the framework of last year's restructuring of the RWE Group, we also reorganised our risk management activities. With its public listing in October 2016, innogy SE took over responsibility for managing and monitoring its own risks and the risks of its subsidiaries, while RWE AG remained responsible for the risks of the other Group companies. Detailed information on the structure and processes of our risk management, the responsible organisational units, the major risks and opportunities as well as our measures to control and monitor risks is presented on page 77 et seqq. of our 2016 Annual Report. Due to further developments this year, however, this information must be updated in certain regards:
We manage and monitor risks from short-term volatility in commodity prices and financial market risks using indicators such as Value at Risk (VaR). The VaR specifies the possible loss from a risk position not exceeded with a given probability over a certain time horizon. 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.
In the trading business of RWE Supply&Trading, the VaR is limited to €40 million for commodity positions. From January to June 2017, it averaged €12 million, compared to €24 million for the same period last year. The highest daily level was €15 million (previous year: €34 million). In mid-2017, we combined responsibility for the management of our gas portfolio and our liquefied natural gas (LNG) business in a new organisational unit. The maximum allowed VaR of this unit amounts to €12 million.
One of the most significant financial risk factors is the development of interest rates. For example, rising interest rates can lead to falling prices for securities held by RWE. This primarily relates to fixed-interest bonds. The VaR for securities price risk averaged €7 million in the first half of 2017 for the capital investments of RWE AG and €4 million for the capital investments of innogy. The prior-year figure for the RWE Group as a whole was €13 million. Moreover, increases in interest rates cause our financing costs to rise. We measure this risk using the cash flow at risk. We apply a confidence level of 95 % and a holding period of one year. The cash flow at risk averaged €1 million at RWE AG and €8 million at innogy (previous year for the RWE Group: €7 million).
RWE AG and innogy also have equities in their holdings of securities. The annual average VaR for the risk associated with changes in the price of these instruments was €1 million at RWE AG and €4 million at innogy (previous year for the RWE Group: €7 million). The figure for RWE does not take into account the equity price risk for our majority stake in innogy.
The RWE Group is also exposed to risks from fluctuations in exchange rates. This stems from the international nature of our operations. Furthermore, energy commodities such as coal and oil are traded in US dollars. During the reporting period, the VaR for RWE AG's foreign currency position was less than €1 million, but was around this figure for innogy. The prior-year figure for the Group as a whole fell below €1 million.
To the best of our knowledge, and in accordance with the applicable reporting principles for half-year financial reporting, the interim consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the interim 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 for the remaining months of the financial year.
Essen, 10 August 2017
The Executive Board
Schmitz Krebber
| Apr – Jun | Apr – Jun | Jan – Jun | Jan – Jun | |
|---|---|---|---|---|
| € million | 2017 | 2016 | 2017 | 2016 |
| Revenue (including natural gas tax/electricity tax) | 10,027 | 10,241 | 23,321 | 23,898 |
| Natural gas tax/electricity tax | −386 | −391 | −1,148 | −1,220 |
| Revenue | 9,641 | 9,850 | 22,173 | 22,678 |
| Cost of materials | −7,205 | −8,135 | −15,999 | −17,019 |
| Staff costs | −1,172 | −1,107 | −2,328 | −2,369 |
| Depreciation, amortisation and impairment losses | −808 | −561 | −1,335 | −1,330 |
| Other operating result | 1,359 | −208 | 1,110 | −482 |
| Income from investments accounted for using the equity method |
81 | 76 | 147 | 157 |
| Other income from investments | 25 | 19 | 53 | 41 |
| Financial income | 1,053 | 757 | 1,386 | 1,061 |
| Finance costs | −977 | −1,123 | −1,536 | −2,018 |
| Income before tax | 1,997 | −432 | 3,671 | 719 |
| Taxes on income | −321 | 105 | −711 | −56 |
| Income | 1,676 | −327 | 2,960 | 663 |
| of which: non-controlling interests | −57 | 60 | 267 | 180 |
| of which: RWE AG hybrid capital investors' interest | 10 | 16 | 24 | 26 |
| of which: net income/income attributable to | ||||
| RWE AG shareholders | 1,723 | −403 | 2,669 | 457 |
| Basic and diluted earnings per common and | ||||
| preferred share in € | 2.80 | −0.66 | 4.34 | 0.74 |
| Apr – Jun | Apr – Jun | Jan – Jun | Jan – Jun | |
|---|---|---|---|---|
| € million1 | 2017 | 2016 | 2017 | 2016 |
| Income | 1,676 | −327 | 2,960 | 663 |
| Actuarial gains and losses of defined benefit pension plans and similar obligations |
273 | −291 | 805 | −865 |
| Income and expenses of investments accounted for using the equity method (pro rata) |
−17 | 7 | −17 | 5 |
| Income and expenses recognised in equity, not to be reclassified through profit or loss |
256 | −284 | 788 | −860 |
| Currency translation adjustment | 71 | −98 | 91 | −84 |
| Fair valuation of financial instruments available for sale |
3 | 70 | 22 | 80 |
| Fair valuation of financial instruments used for hedging purposes |
53 | −23 | −447 | −293 |
| Income and expenses of investments accounted for using the equity method (pro rata) |
3 | −2 | 3 | −2 |
| Income and expenses recognised in equity, to be reclassified through profit or loss in the future |
130 | −53 | −331 | −299 |
| Other comprehensive income | 386 | −337 | 457 | −1,159 |
| Total comprehensive income | 2,062 | −−664 | 3,417 | −496 |
| of which: attributable to RWE AG shareholders | 2,037 | −730 | 2,994 | −568 |
| of which: attributable to RWE AG hybrid capital investors |
10 | 16 | 24 | 26 |
| of which: attributable to non-controlling interests | 15 | 50 | 399 | 46 |
1 Figures stated after taxes.
| Assets | 30 Jun 2017 | 31 Dec 2016 |
|---|---|---|
| € million | ||
| Non-current assets | ||
| Intangible assets | 12,727 | 12,749 |
| Property, plant and equipment | 24,112 | 24,455 |
| Investment property | 55 | 63 |
| Investments accounted for using the equity method | 2,895 | 2,908 |
| Other financial assets | 1,099 | 1,055 |
| Receivables and other assets | 1,489 | 1,797 |
| Deferred taxes | 2,656 | 2,884 |
| 45,033 | 45,911 | |
| Current assets | ||
| Inventories | 1,804 | 1,968 |
| Trade accounts receivable | 5,241 | 4,999 |
| Receivables and other assets | 7,286 | 9,123 |
| Marketable securities | 5,067 | 9,825 |
| Cash and cash equivalents | 10,904 | 4,576 |
| Assets held for sale | 105 | |
| 30,407 | 30,491 | |
| 75,440 | 76,402 |
| Equity and liabilities | 30 Jun 2017 | 31 Dec 2016 |
|---|---|---|
| € million | ||
| Equity | ||
| RWE AG shareholders' interest | 5,757 | 2,754 |
| RWE AG hybrid capital investors' interest | 910 | 942 |
| Non-controlling interests | 4,162 | 4,294 |
| 10,829 | 7,990 | |
| Non-current liabilities | ||
| Provisions | 19,783 | 20,686 |
| Financial liabilities | 15,299 | 16,041 |
| Other liabilities | 2,015 | 2,196 |
| Deferred taxes | 607 | 723 |
| 37,704 | 39,646 | |
| Current liabilities | ||
| Provisions | 4,737 | 12,175 |
| Financial liabilities | 3,434 | 2,142 |
| Trade accounts payable | 4,240 | 5,431 |
| Other liabilities | 14,386 | 9,018 |
| Liabilities held for sale | 110 | |
| 26,907 | 28,766 | |
| 75,440 | 76,402 |
| Jan – Jun | Jan – Jun | |
|---|---|---|
| € million | 2017 | 2016 |
| Income | 2,960 | 663 |
| Depreciation, amortisation and impairment losses/reversals | 943 | 1,345 |
| Changes in provisions | −298 | −273 |
| Deferred taxes/non-cash income and expenses/income from disposal of non-current assets and | ||
| marketable securities | −68 | −112 |
| Change in working capital | −1,823 | −2,627 |
| Cash flows from operating activities | 1,714 | −1,004 |
| Capital expenditure on non-current assets/acquisitions | −805 | −762 |
| Proceeds from disposal of assets/divestitures | 193 | 526 |
| Changes in marketable securities and cash investments | 4,912 | −597 |
| Cash flows from investing activities¹ | 4,300 | −833 |
| Cash flows from financing activities | 343 | 2,016 |
| Net cash change in cash and cash equivalents | 6,357 | 179 |
| Effect of changes in foreign exchange rates and other changes in value on cash and cash equivalents |
8 | −21 |
| Net change in cash and cash equivalents | 6,365 | 158 |
| Cash and cash equivalents at beginning of the reporting period | 4,576 | 2,536 |
| of which: reported as 'Assets held for sale' | −14 | |
| Cash and cash equivalents at beginning of the reporting period as per the consolidated balance | ||
| sheet | 4,576 | 2,522 |
| Cash and cash equivalents at end of the reporting period | 10,941 | 2,694 |
| of which: reported as 'Assets held for sale' | −37 | |
| Cash and cash equivalents at end of the reporting period as per the consolidated balance sheet | 10,904 | 2,694 |
1 After the initial/subsequent transfer to plan assets in the amount of €147 million (prior-year period: €198 million).
| € million | Subscribed capital and additional paid-in capital of RWE AG |
Retained earnings and distributable profit |
Accumu lated other comprehensive income |
RWE AG shareholders' interest |
RWE AG hybrid capi tal investors' interest |
Non controlling interests |
Total |
|---|---|---|---|---|---|---|---|
| Balance at 1 Jan 2016 | 3,959 | 3,612 | −1,724 | 5,847 | 950 | 2,097 | 8,894 |
| Repayment of capital | −79 | −79 | |||||
| Dividends paid | −5 | −5 | −67 | −205 | −277 | ||
| Income | 457 | 457 | 26 | 180 | 663 | ||
| Other comprehensive income |
−748 | −277 | −1,025 | −134 | −1,159 | ||
| Total comprehensive income |
−291 | −277 | −568 | 26 | 46 | −496 | |
| Other changes | 3 | 3 | 2 | 5 | |||
| Balance at 30 Jun 2016 | 3,959 | 3,319 | −2,001 | 5,277 | 911 | 1,859 | 8,047 |
| Balance at 1 Jan 2017 | 3,959 | −652 | −553 | 2,754 | 942 | 4,294 | 7,990 |
| Repayment of capital | −41 | −41 | |||||
| Dividends paid | −5 | −5 | −60 | −457 | −522 | ||
| Income | 2,669 | 2,669 | 24 | 267 | 2,960 | ||
| Other comprehensive income |
676 | −351 | 325 | 132 | 457 | ||
| Total comprehensive | |||||||
| income | 3,345 | −351 | 2,994 | 24 | 399 | 3,417 | |
| Other changes | 14 | 14 | 4 | −33 | −15 | ||
| Balance at 30 Jun 2017 | 3,959 | 2,702 | −904 | 5,757 | 910 | 4,162 | 10,829 |
RWE AG, headquartered in Essen, Germany, is the parent company of the RWE Group ('RWE' or 'Group').
The interim consolidated financial statements as of 30 June 2017, including the additional information in the other parts of this half-year financial report, have been prepared in accordance with the International Financial Reporting Standards (IFRSs) applicable in the EU. The statements were approved for publication on 10 August 2017.
In line with IAS 34, the scope of reporting for the presentation of the interim consolidated financial statements for the period ended 30 June 2017 was condensed compared with the scope applied to the consolidated financial statements as of 31 De-
The International Accounting Standards Board (IASB) has approved several amendments to existing International Financial Reporting Standards (IFRSs), which – pending adoption into EU law – become effective for the RWE Group as of fiscal 2017:
The IASB has adopted further standards and amendments to standards, which are not yet mandatory in the European Union (EU) in fiscal 2017. The anticipated effects of these were described in the 2016 Consolidated Annual Report. Based on the current state of implementation, the anticipated effects are updated as follows:
Regarding the classification and measurement of financial instruments, RWE expects effects above all on the recognition of changes in the value of financial assets that are measured at fair value and stated as 'Financial assets available for sale' in accordance with IAS 39. In the future, changes in the fair value of a large portion of these instruments will be recognised in the income statement instead of – as previously – in other comprehensive income. Non-derivative financial instruments stated as 'loans and receivables' according to IAS 39 will primarily be measured at amortised cost pursuant to IFRS 9 as well.
cember 2016. With the exception of the changes and new rules described below, this half-year financial report was prepared using the accounting policies applied in the consolidated financial statements for the period ended 31 December 2016. For further information, please see the Group's 2016 Consolidated Annual Report, which provides the basis for this half-year financial report.
The discount rate applied to provisions for nuclear waste management is 0.6 % (31 December 2016: 0.4 %), and 4.4 % (31 December 2016: 4.4 %) for mining-related provisions. Provisions for pensions and similar obligations are discounted at an interest rate of 2.0 % in Germany and 2.4 % abroad (31 December 2016: 1.8 % and 2.5 %, respectively).
These new policies do not have any material effects on the RWE Group's consolidated financial statements.
RWE is currently finalising its review of the results of the contract analysis with regard to the accounting treatment pursuant to IFRS 15. In relation to the expected effects mentioned in the 2016 Consolidated Annual Report, we no longer anticipate any significant impact on the following items:
Updates and additional findings regarding the expected effects since the 2016 Annual Report was published are presented below:
If the customer can cancel the contract on a monthly basis, the contract term according to IFRS 15 is considered to be one month only. For such contracts, no impact on revenue recognition is expected.
With respect to regulatory charges especially in the field of renewable energy, a few cases have been identified in which – unlike under IAS 18 – RWE qualifies as the agent under IFRS 15. In Germany, both revenue and the cost of materials of the grid division in the innogy segment are expected to decline by some €2.5 billion, because some performance bonuses received by the transmission system operator under the direct marketing model of the German Renewable Energy Act no longer qualify as revenue. This will not have an impact on income.
RWE will apply the modified retrospective method for first-time application starting 1 January 2018.
In addition to RWE AG, the consolidated financial statements contain all material German and foreign companies which RWE AG controls directly or indirectly. Principal associates are accounted for using the equity method, and principal joint arrangements are accounted for using the equity method or as joint operations.
| Number of fully consolidated companies |
Germany | Abroad | Total |
|---|---|---|---|
| Balance at 1 Jan 2017 | 135 | 180 | 315 |
| First-time consolidation | 9 | 11 | 20 |
| Deconsolidation | −2 | −2 | |
| Mergers | −5 | −1 | −6 |
| Balance at 30 Jun 2017 | 137 | 190 | 327 |
Furthermore, six companies are presented as joint operations (31 December 2016: six companies).
In early January 2017, innogy SE acquired 100 % of the shares in Belectric Solar&Battery GmbH (previously: Belectric Solar&Battery Holding GmbH) and thus obtained control. The company is active in the field of Operations&Maintenance (O&M) for solar farms, along with turn-key construction of solar farms and battery storage solutions (EPC services).
The initial accounting of the business combination has not been completed definitively due to the transaction's complex structure. The assumed assets and liabilities are presented in the following table:
| Balance-sheet items | IFRS carrying amounts (fair values) |
|---|---|
| € million | at first-time consolidation |
| Non-current assets | 56 |
| Current assets | 87 |
| Non-current liabilities | 7 |
| Current liabilities | 63 |
| Net assets | 73 |
| Cost | 74 |
| Goodwill | 1 |
The fair value of the receivables included in non-current and current assets amounted to €24 million.
Since its first-time consolidation, the company has contributed €81 million to the Group's revenue and −€3 million to the Group's income.
The tentative purchase price amounts to €74 million and includes a conditional payment obligation of €7 million. Negotiations on the final purchase price were commenced during the second quarter of 2017, but the purchase price has still not yet been finalised. This process is expected to be completed during the third quarter of 2017. The goodwill is largely associated with expected future use and synergy effects.
The following summaries show the changes in the number of fully consolidated companies, investments accounted for using the equity method and joint ventures:
| Number of investments and joint ventures accounted for using the equity method |
Germany | Abroad | Total |
|---|---|---|---|
| Balance at 1 Jan 2017 | 70 | 17 | 87 |
| Acquisitions | |||
| Disposals | |||
| Other changes | 2 | 2 | |
| Balance at 30 Jun 2017 | 72 | 17 | 89 |
As of 31 May 2017, RWE Generation sold the gas-fired cogeneration plant Hamborn 5 to thyssenkrupp Steel Europe (tkSE). The plant, which had been leased and operated by tkSE, is thus now also legally owned by the company. Within the RWE Group, this asset belonged to the segment European Power.
In the second quarter of 2017, the management decided to sell several companies from the segment 'Lignite&Nuclear'. The sale will likely be completed in the course of 2017.
As of 30 June 2017, the assets and liabilities of these investments were reported in the balance sheet as 'held for sale'.
Revenue generated by energy trading operations is stated as net figures, i.e. only reflecting realised gross margins.
On 7 June 2017, the German Constitutional Court notified RWE in writing that the nuclear fuel tax levied until 31 December 2016 was not compatible with the constitutional rules and was retroactively void. After deduction of the €100 million portion economically attributable to E.ON, repayment of the nuclear fuel tax paid in previous periods, which had already occurred by the
At the time of classification as 'held for sale', impairments of €301 million were recognised in depreciation, amortisation and impairment losses.
balance-sheet date, increased both cash and other operating income by €1.7 billion each. The claim to interest on the nuclear fuel tax which was paid resulted in financial income of €254 million. An other receivable of €254 million was recognised for this, as reimbursement did not occur prior to the balance-sheet date.
The consolidated financial statements for the period ended 31 December 2016 presented the share-based payment system for executives of RWE AG and subordinate affiliates. As part of the Long-Term Incentive Plan for executives entitled 'Strategic Performance Plan' (SPP), RWE AG and innogy SE each issued another tranche during the first quarter of 2017.
On 1 January 2017, the previous segment 'Conventional Power Generation' was split into the two new segments 'Lignite&Nuclear' and 'European Power'. This resulted in the previous cash-generating unit for the power plant portfolio being split up. An impairment test was conducted for this reason, leading to the reversal of an impairment loss of €401 million for the new cash-generating unit 'Lignite&Nuclear' (recoverable amount:
€1.4 billion). As a counteracting effect, impairments were recognised (recoverable amount: €0 billion) and provisions for contingent losses were formed in the amount of €321 million for the new cash-generating unit 'European Power'. The recoverable amounts were determined on the basis of fair value less costs to sell, using the same valuation models and parameters as for 31 December 2016.
As a result of the Disposal Fund Act (EntsorgFondsG), which entered into force in June 2017, the amount to be transferred to the nuclear energy fund on 3 July 2017 was known as of the balance-sheet date. Accordingly, the provision for nuclear waste management of €7.0 billion was used, and an other liability of €7.8 billion was recognised vis-à-vis the nuclear disposal fund. The obligation includes the obligations of the nuclear power
plant operators and thus contains the minority shares of E.ON in the Emsland, and the Gundremmingen A, B and C plants, as well as Kahl experimental nuclear power plant. E.ON provided liquid funds of €0.2 billion, and an other receivable of €0.8 billion was recognised vis-à-vis E.ON in relation to the transfer amount of €1.0 billion which is attributable to E.ON in an economic sense.
RWE AG's Annual General Meeting, held on 27 April 2017, decided to pay a dividend of €0.13 per individual, dividend-bearing preferred share for fiscal 2016 (previous year: €0.13). The dividend
payment totalled €5 million (previous year: €5 million). As in the previous year, no dividend was paid for common shares.
On 5 April 2017, innogy issued its first senior bond. With a volume of €750 million and a tenor of eight years, the bond was issued by innogy Finance B.V., with a guarantee by innogy SE. The bond has an annual coupon of 1.00 % and an issue price of 99.466 %, with a yield of 1.07 % p.a.
A hybrid bond with a volume of CHF 250 million was called on 13 February 2017 and redeemed on 4 April 2017, without this instrument being refinanced with a new hybrid bond.
| Jan – Jun | Jan – Jun | ||
|---|---|---|---|
| 2017 | 2016 | ||
| Net income/income attributable to RWE AG shareholders | € million | 2,669 | 457 |
| Number of shares outstanding (weighted average) | thousands | 614,745 | 614,745 |
| Basic and diluted earnings per common and preferred share | € | 4.34 | 0.74 |
The RWE Group classifies associated companies and joint ventures as related parties. In the first half of 2017, transactions concluded with material related parties generated €1,864 million in income (first half of 2016: €2,096 million) and €1,665 in expenses (first half of 2016: €1,604 million). As of 30 June 2017, accounts receivable amounted to €591 million (31 December 2016: €511 million) and accounts payable totalled €186 million (31 December 2016: €150 million). All business transactions are concluded at
arm's length conditions and on principle do not differ from those concluded with other companies. Other obligations from executory contracts amounted to €1,160 million (31 December 2016: €1,203 million).
Above and beyond this, the RWE Group did not execute any material transactions with related companies or persons.
Financial instruments are divided into non-derivative and derivative. Non-derivative financial assets essentially include other financial assets, accounts receivable, marketable securities and cash and cash equivalents. Financial instruments in the 'Available for sale' category are recognised at fair value, and other nonderivative financial assets at amortised cost. On the liabilities side, non-derivative financial instruments principally include liabilities recorded at amortised cost.
The fair value of financial instruments 'Available for sale' which are reported under other financial assets and securities is the published exchange price, insofar as the financial instruments are traded on an active market. The fair value of non-quoted debt and equity instruments is determined on the basis of discounted expected payment flows, taking into consideration macroeconomic developments and corporate planning data. Current market interest rates corresponding to the term and remaining maturity are used for discounting.
Derivative financial instruments are recognised at fair value as of the balance-sheet date, insofar as they fall under the scope of IAS 39. Exchange-traded products are measured using the published closing prices of the relevant exchange. Non-exchange traded products are measured on the basis of publicly available broker quotations or, if such quotations are not available, of generally accepted valuation methods. In doing so, we draw on prices on active markets as much as possible. If such 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 determination. Assumptions pertaining to the energy sector and the economy are the result of a comprehensive process involving both in-house and external experts.
The 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 in accordance with IFRS 13.48.
As a rule, the carrying amounts of financial assets and liabilities subject to IFRS 7 are identical with their fair values. There are deviations only in relation to bonds, commercial paper, bank debt and other financial liabilities. Their carrying amounts totalled €18,733 million (31 December 2016: €18,183 million) and their fair values totalled €21,276 million (31 December 2016: €20,541 million).
The following overview presents the main classifications of financial instruments measured at fair value in the fair value hierarchy prescribed by IFRS 13. In accordance with IFRS 13, the individual levels of the fair value hierarchy are defined as follows:
| Fair value hierarchy € million |
Total 30 Jun 2017 |
Level 1 | Level 2 | Level 3 | Total 31 Dec 2016 |
Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|---|---|---|
| Other financial assets | 1,099 | 72 | 181 | 846 | 1,055 | 64 | 202 | 789 |
| Derivatives (assets) | 3,456 | 3,433 | 23 | 6,494 | 2 | 6,455 | 37 | |
| of which: used for hedging purposes |
1,214 | 1,214 | 2,175 | 2,175 | ||||
| Securities | 5,067 | 3,401 | 1,666 | 9,825 | 6,776 | 3,049 | ||
| Derivatives (liabilities) | 3,040 | 1 | 3,027 | 12 | 5,703 | 8 | 5,685 | 10 |
| of which: used for hedging purposes |
855 | 855 | 1,240 | 1,240 |
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 the | Changes | Balance at | |
|---|---|---|---|---|---|
| Development in 2017 | 1 Jan 2017 | scope of consolidation, currency adjustments |
Recognised in profit or loss |
With a cash effect |
30 Jun 2017 |
| € million | and other | ||||
| Other financial assets | 789 | 10 | 9 | 38 | 846 |
| Derivatives (assets) | 37 | −1 | −6 | −7 | 23 |
| Derivatives (liabilities) | 10 | 2 | 12 |
| Level 3 financial instruments: | Balance at | Changes in the | Changes | Balance at | |
|---|---|---|---|---|---|
| Development in 2016 | 1 Jan 2016 | scope of consolidation, currency adjustments |
Recognised in profit or loss |
With a cash effect |
30 Jun 2016 |
| € million | and other | ||||
| Other financial assets | 608 | 31 | 3 | −4 | 638 |
| Derivatives (assets) | 57 | 1 | −4 | −39 | 15 |
| Derivatives (liabilities) | 21 | 27 | −48 |
Amounts recognised in profit or loss generated through Level 3 financial instruments relate to the following line items in the income statement:
| Level 3 financial instruments: | Total | Of which: | Total | Of which: |
|---|---|---|---|---|
| Amounts recognised in profit or loss | Jan – Jun | attributable to | Jan – Jun | attributable to |
| 2017 | financial instruments held at the |
2016 | financial instruments held at the |
|
| € million | balance-sheet date | balance-sheet date | ||
| Revenue | 1 | 1 | ||
| Cost of materials | −6 | −6 | −32 | −32 |
| Other operating income/expenses | 14 | 12 | 4 | 4 |
| Income from investments | −5 | −5 | −1 | −1 |
| 3 | 1 | −28 | −28 |
Level 3 derivative financial instruments essentially consist of energy purchase agreements, which relate to trading periods for which there are no active markets yet. The valuation of such depends on the development of gas prices in particular. All other things being equal, rising gas prices cause the fair values to increase and vice-versa. A change in pricing by +/−10 % would cause the market value to rise by €3 million or decline by €3 million.
The following major events occurred in the period from 1 July 2017 until preparation of the interim financial statement on 10 August 2017:
At the end of July 2017, an agreement was concluded with Tritax Big Box REIT plc on the sale of most of the former Littlebrook power station site. The transaction is expected to be completed this year. A smaller part of the property was sold to the transmission system operator National Grid. This transaction was already completed in early August. These sales resulted in total euro proceeds in the upper double-digit million range. The former power station site is part of the RWE Group segment 'European Power'.
A hybrid bond with a volume of CHF 150 million which was issued in July 2012 was called on 9 June 2017, and redeemed on 26 July 2017, without this instrument being refinanced with a new hybrid bond. This bond had been fully recognised as debt under IFRS.
Based on a contract of sale dated 9 February 2017, RWE Power AG sold its 50-per cent interest in Wohnungsbaugesellschaft für das Rheinische Braunkohlenrevier Gesellschaft mit beschränkter Haftung and its 15-per cent interest in GSG Wohnungsbau Braunkohle GmbH to Vivawest GmbH. The sale resulted in total euro proceeds in the medium double-digit range. As of the balancesheet date, it still depended on the revocation of the Act on Miners' Housing of 10 March 1930. On 24 July 2017, revocation of the Act was promulgated in the Federal Gazette.
A payment of € 7.8 billion was made to the nuclear energy fund on 3 July 2017 (including €1.0 billion which is attributable to E.ON in an economic sense). With this payment, the liability vis-à-vis the nuclear energy fund which was recognised on 30 June 2017 was settled completely. The liability recognised vis-à-vis E.ON as of the balance-sheet date has also been settled completely in the meantime.
We have reviewed the condensed consolidated interim financial statements – comprising the condensed income statement, condensed statement of comprehensive income, condensed statement of financial position, condensed statement of cash flows, condensed statement of changes in equity and selected explanatory notes – and the interim group management report of RWE Aktiengesellschaft, Essen, for the period from January 1, 2017 to June 30, 2017 which are part of the half-year financial report pursuant to § (Article) 37w WpHG ("Wertpapierhandelsgesetz": German Securities Trading Act). The preparation of the condensed consolidated interim financial statements in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and of the interim group management report in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the parent Company's Board of Managing Directors. Our responsibility is to issue a review report on the condensed consolidated interim financial statements and on the interim group management report based on our review.
We conducted our review of the condensed consolidated interim financial statements and the interim group management report in accordance with German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW) and additionally observed the International Standard on Review Engagements "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" (ISRE 2410). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assurance, that the condensed consolidated interim financial
statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of company personnel and analytical procedures and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot express an audit opinion.
Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU nor that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports.
Essen, August 11, 2017
PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft
Michael Reuther Ralph Welter Wirtschaftsprüfer Wirtschaftsprüfer (German Public Auditor) (German Public Auditor)
| 14 November 2017 | Interim statement on the first three quarters of 2017 |
|---|---|
| 13 March 2018 | Annual report for fiscal 2017 |
| 26 April 2018 | Annual General Meeting |
| 2 May 2018 | Dividend payment |
| 15 May 2018 | Interim statement on the first quarter of 2018 |
| 14 August 2018 | Interim report on the first half of 2018 |
| 14 November 2018 | Interim statement on the first three quarters of 2018 |
This document was published on 14 August 2017. It is a translation of the German interim report on the first half of 2017. In case of divergence from the German version, the German version shall prevail.
RWE Aktiengesellschaft Huyssenallee 2 45128 Essen Germany
www.rwe.com
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