Quarterly Report • Nov 12, 2015
Quarterly Report
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| RWE Group – key figures | Jan – Sep | Jan – Sep | +/− | Jan – Dec | |
|---|---|---|---|---|---|
| 2015 | 2014 | % | 2014 | ||
| Electricity production | billion kWh | 154.9 | 151.2 | 2.4 | 208.3 |
| External electricity sales volume | billion kWh | 191.8 | 191.7 | 0.1 | 258.3 |
| External gas sales volume | billion kWh | 207.2 | 184.6 | 12.2 | 281.3 |
| External revenue | € million | 35,409 | 35,288 | 0.3 | 48,468 |
| EBITDA | € million | 4,403 | 4,700 | −6.3 | 7,131 |
| Operating result | € million | 2,648 | 2,908 | −8.9 | 4,017 |
| Income from continuing operations before tax | € million | 1,354 | 1,470 | −7.9 | 2,246 |
| Net income | € million | 1,935 | 994 | 94.7 | 1,704 |
| Adjusted net income1 | € million | 545 | 763 | −28.6 | 1,282 |
| Earnings per share | € | 3.15 | 1.62 | 94.4 | 2.77 |
| Adjusted net income1 per share |
€ | 0.89 | 1.24 | −28.2 | 2.09 |
| Cash flows from operating activities | |||||
| of continuing operations | € million | 2,177 | 4,759 | −54.3 | 5,556 |
| Capital expenditure | € million | 1,896 | 2,284 | −17.0 | 3,440 |
| Property, plant and equipment and intangible assets | € million | 1,669 | 2,197 | −24.0 | 3,245 |
| Financial assets | € million | 227 | 87 | 160.9 | 195 |
| Free cash flow | € million | 508 | 2,562 | −80.2 | 2,311 |
| 30 Sep 2015 | 31 Dec 2014 | ||||
| Net debt | € million | 25,833 | 30,9722 | −16.6 | |
| Workforce3 | 59,777 | 59,784 | – |
1 Formerly 'recurrent net income'; see commentary on page 19.
2 Figure adjusted; see footnote 1 to the 'net debt' table on page 22.
3 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 | 10 | |
| Business performance | 12 | |
| Outlook | 25 | |
| Development of risks and opportunities | 26 |
| Interim consolidated financial statements | |
|---|---|
| (condensed) | 28 |
| Income statement | 28 |
| Statement of comprehensive income | 29 |
| Balance sheet | 30 |
| Cash flow statement | 31 |
| Statement of changes in equity | 32 |
| Notes | 33 |
| Financial calendar 2016 |
The development of our share price has been anything but pleasing in 2015. RWE common shares lost about half of their value in the first ten months, while the DAX posted a marginal gain. There are various reasons for this, which are not at all limited to the low wholesale electricity prices. The capital market was unpleasantly surprised by the negative developments experienced in our UK supply business. Substantial customer losses and billing problems are not good for RWE's reputation, but we are working hard to deal with these difficulties and find a solution.
RWE's share suffered even more from political uncertainty, primarily in the nuclear energy business. The German government is currently debating how to secure the financing for the decommissioning of nuclear power stations and the disposal of radioactive waste in the long run. A commission created for this purpose will submit proposals to this end. One of the options being considered is to establish a trust financed by the energy utilities. Many investors fear that this may open the door to policymakers imposing additional burdens on the companies. The situation came to a head in the middle of September when it was rumoured that a stress test commissioned by the German Federal Ministry for Economic Affairs and Energy had revealed that the nuclear provisions of the German utilities were too low. The rumour proved to be unfounded: in October, the German Ministry for Economic Affairs and Energy certified that the companies passed the stress test. We also welcome the government's pledge to preserve the economic viability of the energy utilities if the financing of nuclear energy is subjected to new regulations. I hope that a good solution can be found that significantly reduces the risk to which the RWE share is exposed.
When it comes to our lignite mining operations in the Rhine region, this year was not for the faint hearted. However, the situation has calmed in this area, too. Fortunately, the plans to impose a climate tax on power plants, which would have made most of our lignite-fired stations unprofitable overnight, have been abandoned. The emission reduction envisaged for electricity produced from lignite shall now be achieved by taking assets with a total capacity of 2.7 gigawatts off the market prematurely. However, these stations, including five RWE units of the 300-megawatt class, will be put on stand-by for four years before being shut down. For operating in this mode, these assets will receive compensation, the level of which we agreed with the Federal Ministry for Economic Affairs and Energy. The next step is the legislative process. I am confident that this will allow us to plan our business with more certainty.
In closing, I would like to say a few words about the business trend. Despite the unexpected burdens faced by our UK energy supply operations and the significant drop in trading income, we are on track to meet our forecast relative to this year's consolidated earnings. Our cost cutting and the exceptional effect of the initial consolidation of the Slovak utility VSE are among the factors that will help us in this regard. We therefore maintain our forecast of an operating result between €3.6 and €3.9 billion. We also expect our adjusted net income to end up in the forecast range, i.e. between €1.1 and €1.3 billion, even if only just.
Sincerely yours,
Peter Terium CEO of RWE AG Essen, November 2015
The German Stock Index, DAX, lost all of the gains it recorded in the first quarter of 2015 in the two subsequent ones. It closed September at 9,660 points, falling 1% below the level achieved by the end of last year. In the spring, the positive effect of the expansionary monetary policy of the European Central Bank (ECB) was overshadowed by the resurgence of the Greek crisis. In the summer, the slowing growth of the Chinese economy clouded sentiment on the financial markets. For RWE shareholders, this year has been very disappointing so far. Our common and preferred shares ended the month of September trading at €10.15 and €8.00, respectively. The total returns, which reflect the dividend and changes in the share price, were a negative 59 % and 55 %, respectively. The reasons for this are set out on page 1.
The ECB's expansionary monetary policy and the faltering of China's economy also characterised the development of interest rates. In the first three quarters of the year, the average yield of ten-year German government bonds remained within a historically low range of 0.1 % to 1.0 %. At the end of September, it was 0.6 %. The cost of hedging credit risk via credit default swaps (CDSs) dropped initially before rising again. The iTraxx Europe Index, which consists of the prices of the CDSs of 125 major European companies, was quoted at 91 basis points for five-year maturities on 30 September 2015. This is 28 more than at the end of 2014. The five-year CDS for RWE became much more expensive, advancing from 92 to 167 basis points, above all in August and September. This was partially due to the uncertainty surrounding nuclear provisions caused by the stress test (see pages 1 and 8). The CDS quotation for RWE dropped considerably once the situation calmed in October.
Based on initial estimates, the global gross domestic product (GDP) in the first three quarters of 2015 was more than 2 % higher than a year earlier. The increase estimated for the Eurozone is just over 1 %. Once again, the German economy was among the front-runners in the currency area. It is estimated to have grown by approximately 1.5 %. Consumer spending in particular had a stimulating effect. In the Netherlands, GDP probably rose slightly more than in the Eurozone, whereas in Belgium it grew by roughly the same extent. Based on available information, the United Kingdom posted a gain of approximately 2.5 %, due in great part to the expanding service sector. Developments in our major Central Eastern European markets appear to have been even more dynamic. When this report went to print, only first-half data was available for these countries. Based on these figures, GDP increased by 4 % in the Czech Republic, 3.5 % in Poland, 3 % in Hungary, and 3 % in Slovakia.
Whereas the economic trend primarily impacts on demand for energy among industrial enterprises, residential energy consumption is significantly affected by weather conditions. The lower the outside temperatures, the more energy is needed for heating purposes. This leads to seasonal fluctuations in sales volume and earnings. Weather-related effects can also be of significance when comparing various fiscal years to one another. In the winter and spring of 2015, temperatures in Germany, the Benelux region, the United Kingdom and our Central Eastern European markets were generally lower than in the same period last year, which was unusually mild. In the United Kingdom, the summer was also cooler, whereas on the European Continent, it was much hotter than in 2014.
In addition to energy consumption, the generation of electricity is also subject to weather-related influences, with wind levels playing a major role. In the nine-month reporting period, the utilisation of our wind turbines in Germany, the United Kingdom, Spain and Poland was generally higher than in 2014, whereas it was essentially unchanged in the Netherlands and lower in Italy. Electricity produced by our run-of-river power plants is affected by precipitation levels, which in Germany were roughly on a par with the level witnessed in the same period last year. Sunshine also has a significant impact on the supply of electricity, not least due to the considerable rise in German photovoltaic capacity in accordance with the Renewable Energy Act. Based on figures published by Germany's National Meteorological Service, the country had an average of 1,479 hours of sunshine in the first nine months, compared to 1,438 a year earlier.
Economic growth and the generally colder weather stimulated electricity and gas consumption in our key markets, whereas the trend towards energy savings had a dampening effect. According to preliminary calculations by the German Association of Energy and Water Industries (BDEW), demand for electricity in Germany from January to September 2015 was about 1 % up on the same period last year. Based on available data, demand for electricity was also up compared to 2014 in the Netherlands, the United Kingdom, Poland, Slovakia and Hungary. The need for gas, which depends far more on the weather, was stimulated as temperatures in the heating months were lower than in 2014. Based on BDEW surveys, gas consumption grew by 10 % year on year in Germany. In the Netherlands and United Kingdom, network operators calculated increases of 2 % and 4 %, respectively. A gain of 5 % has been estimated for the Czech Republic.
Averaged for the first nine months, spot prices at the Dutch Title Transfer Facility (TTF), the reference market for Continental Europe, amounted to €21 per megawatt hour (MWh), €1 more than the comparable figure for 2014. In TTF forward trading, contracts for delivery in the coming calendar year (2016 forward) were also settled for €21 per MWh. This is €4 less than the price paid for the 2015 forward in the same period last year. The significant decrease in gas forward prices, which was also observed in the United Kingdom, influenced the development in the retail business. Based on available data in Germany, on average, gas became 1 % and 6 % cheaper for households and industrial enterprises, respectively. In the United Kingdom, gas prices for the aforementioned customer groups were down about 4 % and 8 % year on year, while in the Netherlands, they declined by approximately 4 % and 3 %, respectively. Data collected for the Czech Republic indicates that gas became 6 % cheaper for industry, but 2 % more expensive for households.
Hard coal prices have experienced a steep decline in 2015. Coal deliveries including freight and insurance to Amsterdam/Rotterdam/Antwerp (known as the ARA ports) were quoted at an average of US\$59 (€52) per metric ton in spot trading in the first three quarters. This represents a decline of US\$17 compared to 2014. The 2016 forward (API 2 Index) traded at US\$57 per metric ton, US\$24 less than last year's comparable figure. The global coal market tends to be oversupplied, in part because many countries increased their production capacities in the past and demand failed to keep up. The overseas freight costs included in the price of coal also decreased because excess shipping capacity was built up and fuel prices dropped. From January to September 2015, only US\$5 was charged per metric ton for the standard route from South Africa to Rotterdam, US\$4 less than in the same period last year.
Prices in CO2 emissions trading have recently displayed an upward trend. The standard certificate (EU Allowance, or EUA) for 2015, which confers the right to emit a metric ton of carbon dioxide, traded for an average of €7.50 in the first nine months of this year. The comparable figure for 2014 was €5.80. As before, far more emission allowances are available on the market for the third emissions trading period, which ends in 2020, than are actually needed. However, the EU has already reduced the surplus of certificates by temporarily withholding emission allowances (referred to as backloading). It is envisaged that backloading will continue until the end of 2016 and that it will affect certificates covering a total of 900 million metric tons of carbon dioxide. The steps taken in 2015 to introduce a 'market stability reserve' (MSR) also had a price-increasing effect. The MSR is scheduled to be used from 2019 and will act as a pool in which emission allowances are 'deposited' in the event of a substantial surplus. It was further determined that backloaded certificates will be transferred directly to the reserve instead of being placed back on the market in 2019 and 2020, which was the original plan.
The development of wholesale electricity prices in Germany is significantly affected by rising feed-ins of electricity subsidised under the German Renewable Energy Act. This forces conventional generation assets off the market, primarily gas-fired power stations, which have fairly high fuel costs. Their influence on the formation of electricity prices has thus decreased, whereas that of hard coal-fired power plants has risen. The latter have relatively low production costs due to the decline in prices on hard coal markets. These two factors, the crowding-out of gas-fired power stations and the drop in the price of hard coal, are the major reasons why quotations on the German wholesale electricity market have been declining for years. The downward trend has continued in 2015, albeit at a reduced pace. In the first three quarters, the average spot price for base load power was €31 per MWh, €1 down on the level recorded in last year's corresponding period. The 2016 forward was settled for €32 per MWh of base load power. By comparison, the 2015 forward traded for €35 in the same period last year.
In the United Kingdom, our second-largest generation market, gas-fired power stations account for a much larger share of electricity production than in Germany and therefore have a stronger influence on prices. For this reason, and due to the introduction of a tax on carbon dioxide in April 2013, UK wholesale electricity quotations are relatively high. Base load power cost an average of £41 (€57) per MWh on the UK spot market in the first three quarters of the year, the same as in 2014. By contrast, the 2016 base load forward traded at £44 (€61) per MWh, £8 below the comparable figure for last year.
In the Netherlands, where we have our third-largest generation position, gas-fired power plants also play an important role in the formation of electricity prices. At the same time, German exports of electricity generated under the Renewable Energy Act weigh on prices. Base load power on the Dutch spot market was quoted at €41 per MWh, €1 more year on year. However, forward contracts became cheaper. The 2016 forward was settled for an average of €39 per MWh of base load power. This is €5 less than the price paid for the 2015 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. Therefore, the most recent developments on the market hardly had an impact on the income we generated in the reporting period. It depends more on the conditions at which forward contracts for delivery in 2015 were concluded in preceding years. As wholesale electricity prices in Continental Western Europe have been trending downwards for a long time, the average price which we realised for this year's in-house generation was lower than the comparable figure for 2014. Therefore, we achieved smaller margins with our German lignite and nuclear power stations, the fuel costs of which are typically stable. The margins of our gas and hard coal-fired power plants are also under pressure. However, both the unfavourable development of electricity prices and relief provided by declining fuel prices came to bear.
Electricity prices trended downwards in the retail sector, largely driven by declining quotations on the wholesale market. In Germany, households paid slightly less than in the first three quarters of 2014, whereas industrial enterprises saw prices decrease by about 3 %. Tariffs in the two aforementioned customer groups also fell marginally in the United Kingdom. Prices dropped by an estimated 1 % (households) and 7 % (industry) in the Netherlands, 6 % and 4 % in Hungary and 6 % and 3 % in Slovakia. Conversely, electricity became 2 % and 3 % more expensive in these segments in Poland.
The power plants that will participate in the next auction for the UK capacity market were announced in early September. All RWE stations that submitted an application qualified, accounting for a total of 8.0 gigawatts (GW) in secured capacity. Throughout the UK, 59.2 GW will be represented in the bidding process in December 2015. The invitation to tender covers 44.7 GW, i.e. stations with this combined capacity will receive a payment for making secured generation capacity available to the market from October 2019 to September 2020. The capacity payment actually paid out will be determined at the auction. The upcoming bidding procedure is the second of its kind. The first took place in December 2014 and related to the period from October 2018 to September 2019. At the time, all participating RWE stations, with the exception of one small plant, qualified for a capacity payment of £19.40 per kilowatt.
At the end of September, the administration of the State of North Rhine-Westphalia adopted the draft of a resolution on lignite mining in the Garzweiler II opencast mine. In the paper, the government confirms that lignite mining will remain necessary there after 2030 in order to ensure the supply of electricity. Such a declaration is the fundamental prerequisite for continuing to operate the opencast mine over the long term. However, in line with an earlier announcement, the state administration intends to reduce the size of the mining area. This would involve not resettling three localities, including the village of Holzweiler, which has a population of about 1,400. In addition, RWE will have to maintain a greater distance than usual between its mining operations and Holzweiler. The coal reserves of Garzweiler II, which have received zoning clearance and been estimated at 1.2 billion metric tons so far, would thus drop by about one third. Conversely, the mining borders for the Hambach and Inden opencast mines have been confirmed. A consultation process for the draft is currently underway and scheduled to last until December 2015. In the spring of 2016, the state government intends to reach a final decision, which will have to be considered in the plans going forward.
In late September, we signed a memorandum of understanding with the Dubai Supreme Council of Energy, Dubai's governing body for matters of energy policy. The declaration lays the foundation for closer co-operation in management services and technical consulting. RWE already undertakes advisory activities in the Emirate. For example, we support Dubai in developing its Integrated Energy Strategy 2030, we are working on technical aspects of energy supply, and we are proposing ways to reduce energy consumption. These will be the focal points for future consulting work in the region.
On 10 October, the German Ministry for Economic Affairs and Energy (BMWi) published the result of a stress test to which the provisions of Germany's nuclear power plant operators were subjected. The expert opinion from the Düsseldorf-based auditors Warth&Klein Grant Thornton commissioned by the BMWi reaches the conclusion that the energy utilities investigated carry sufficient net assets on their balance sheets to meet their obligations to dismantle generation assets and dispose of radioactive waste. The appraiser certifies that the utilities have taken full account of the disposal tasks that can be foreseen at present and have calculated their provisions correctly. Warth&Klein Grant Thornton presented a number of scenarios that resulted in a wide range of estimated liabilities. The total of €38.3 billion in provisions accrued by the companies (as of the end of 2014) is within this range. In this context, the BMWi declared that it finds the scenarios with the highest amount of liabilities to be improbable. In the Ministry's opinion, the appraisal does not result in the need for any further action.
On 14 October, the German government created a 'Commission for the Review of Nuclear Exit Financing', which has been tasked with evaluating the debated concepts for securing the financing of the dismantling and disposal obligations and to come up with proposals. Conceivable financing models include the full or partial transfer of the obligations to a fund or trust. The government wants to ensure that the utilities can fulfil their nuclear obligations over the long term in economic terms. The Commission is composed of 19 members and excludes nuclear power plant operators. Chairmanship is held by the former Lord Mayor of the City of Hamburg Ole von Beust (Christian Democrats), the former Prime Minister of Brandenburg Matthias Platzeck (Social Democrats) and Germany's former Environmental Minister Jürgen Trittin (Green Party). It is envisaged that the Commission will submit a list of recommendations at the end of February 2016.
At the beginning of November, the German Federal Cabinet agreed a draft law on the limited stand-by operation and subsequent shut-down of lignite-fired power stations that had been resolved in July. Shortly before, the German Federal Ministry for Economic Affairs and Energy had reached an agreement on the details with the energy companies MIBRAG, RWE and Vattenfall. Starting in 2016, power plants with a total of 2.7 GW in generation capacity will be gradually taken off the market and used as the last resort of electricity supply for a period of four years each, after which they will be shut down. Operators of these stations will be compensated for keeping them on stand-by. The BMWi estimates that associated costs will total some €1.6 billion. The German government had obligated the country's lignite industry to reduce its annual carbon emissions by an additional 12.5 million metric tons under the Climate Action Programme 2020. RWE will put five units of the 300-megawatt class on stand-by: blocks P and Q at Frimmersdorf (1 October 2017), units E and F at Niederaussem (1 October 2018) and block C at Neurath (1 October 2019). The BMWi has thoroughly discussed the concept of the stand-by operation with the European Commission. The Ministry is confident that the EU will not classify the measure as unallowed state aid.
At the end of October, we announced that RWE Innogy will implement the Galloper offshore wind power project. One of the preconditions for making the decision to invest was to win three partners: Siemens Financial Services, Macquarie Capital and UK Green Investment Bank will each take a 25 % stake in the project. The remaining 25 % will be retained by RWE Innogy, which will be responsible for the construction and operation of the 336 MW wind farm as consortium manager. The financing of the approximately €2 billion in project costs has also been secured, mostly coming from loans granted by a consortium of twelve commercial banks and the European Investment Bank. The remaining sum will be covered by the project partners. Located off the coast of Suffolk, the wind farm is scheduled to be fully operational in March 2018. Building work has already commenced. The project agreements envisage Siemens supplying and maintaining the total of 56 turbines, each with a capacity of 6 MW. Galloper was developed by RWE and, initially, Scottish and Southern Energy (SSE). Its future became uncertain when SSE withdrew from the project.
At the end of October 2015, we sold a 10 % stake in the new Gwynt y Môr offshore wind farm to UK Green Investment Bank. The price amounted to £224 million (about €312 million). The transaction had been agreed as early as March 2014. Our interest in Gwynt y Môr therefore dropped to 50 %. Further shares are held by Stadtwerke München (30 %) and Siemens (10 %). We intend to use the sale proceeds to finance other renewable projects. Gwynt y Môr is located off the coast of North Wales, has a total net installed capacity of 576 MW and was officially inaugurated in June 2015.
| RWE Group | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Conventional Power Generation |
Supply/ Distribution Networks Germany |
Supply Netherlands/ Belgium |
Supply United Kingdom |
Central Eastern and South Eastern Europe |
Renewables | Trading/ Gas Midstream |
|||
| RWE Generation | RWE Deutschland | Essent | RWE npower | RWE East | RWE Innogy | RWE Supply & Trading |
|||
| Internal Service Providers RWE Consulting RWE Group Business Services RWE IT RWE Service |
On 2 March 2015, we completed the sale of RWE Dea (Upstream Gas&Oil Segment). The transaction took retroactive effect to 1 January 2014. Since then, the RWE Group has been divided into seven segments (divisions), based on geographic and functional criteria as follows:
Central Eastern and South Eastern Europe: This division encompasses a wide range of international activities, which are controlled by Prague-based RWE East. In the Czech Republic, we are the market leader in the storage, distribution and supply of gas. Our local operations also include the sale of electricity. In Hungary, Poland and Slovakia, we have established positions in the electricity business (distribution networks and supply), which in Hungary includes the generation of electricity from lignite. We also sell gas in the aforementioned countries, albeit to date still on a small scale in Hungary and Poland. In Croatia, we have an established wastewater management company in the capital Zagreb. In addition, we have become active in the local energy supply business. The latter also applies to Slovenia, Romania and Turkey.
Renewables: This is where we present the figures of RWE Innogy, which develops, builds and operates plant for generating electricity from renewable energy sources, focusing on wind and hydroelectric power. Its major production sites are located in Germany, the United Kingdom, the Netherlands, Spain and Poland.
We present certain groupwide activities outside the divisions as part of 'other, consolidation'. These are the Group holding company RWE AG as well as our in-house service providers RWE IT, RWE Group Business Services, RWE Service and RWE Consulting. This item also includes our non-controlling interest in the German electricity transmission system operator Amprion.
In accordance with International Financial Reporting Standards (IFRS), we now recognise RWE Dea in the income statement in condensed form under income from discontinued operations. The same applies to last year. For the 2015 financial year so far and for fiscal 2014, RWE Dea is considered in adjusted (formerly "recurrent") net income only by including the prorated interest on the price that LetterOne paid us for the period from 1 January 2014 until the completion of the transaction on 2 March 2015. In contrast, RWE Dea is not considered at all in adjusted net income for the first three quarters of 2014. The upstream business was presented on the consolidated balance sheet for the period ended 31 December 2014 for the last time, where it was recognised in assets held for sale and liabilities held for sale. In the cash flow statement on page 31, we state the cash flows from discontinued operations for 2015 and 2014 separately. In the review of operations, the presentation of cash flows solely relates to our continuing operations. The same applies to capital expenditure and employees.
In the third quarter, we changed the accounting treatment of two investments. This relates to Slovakiabased Východoslovenská energetika Holding a.s. (VSE) and its energy supply subsidiaries and the German distribution network company WestEnergie GmbH. VSE and WestEnergie were fully consolidated at the end of August and the beginning of July, respectively, after having previously been accounted for using the equity method. Headquartered in Košice, VSE is No. 3 and No. 2 in the Slovak electricity and gas sectors, respectively. We own a minority stake of 49 % in the company, but now have sole control due to a contractual arrangement. WestEnergie is the successor to WestEnergie und Verkehr GmbH and is part of the NEW Group, one of the leading utilities in the Lower Rhine region. Pursuant to a shareholders' agreement, we did not have a voting majority although we owned 99 % of the capital. We gained control of the company on 30 June, when this arrangement expired. Further commentary on the change in accounting can be found on page 34.
| Electricity production January – September |
Lignite | Hard coal | Gas | Nuclear | Renewables | Pumped storage, oil, other |
Total | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Billion kWh | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 |
| Conventional Power | ||||||||||||||
| Generation | 53.5 | 52.5 | 33.4 | 32.0 | 29.2 | 27.5 | 22.8 | 22.7 | 0.6 | 0.9 | 2.3 | 1.9 | 141.8 | 137.5 |
| of which: | ||||||||||||||
| Germany1 | 53.5 | 52.5 | 15.8 | 19.4 | 2.2 | 2.1 | 22.0 | 21.9 | 0.5 | 0.5 | 2.3 | 1.9 | 96.3 | 98.3 |
| Netherlands/Belgium | – | – | 11.5 | 8.1 | 4.1 | 3.0 | 0.8 | 0.8 | 0.1 | 0.4 | – | – | 16.5 | 12.3 |
| United Kingdom | – | – | 6.1 | 4.5 | 20.6 | 19.6 | – | – | – | – | – | – | 26.7 | 24.1 |
| Turkey | – | – | – | – | 2.3 | 2.8 | – | – | – | – | – | – | 2.3 | 2.8 |
| Central Eastern and | ||||||||||||||
| South Eastern Europe | 3.9 | 4.0 | – | – | – | – | – | – | – | – | – | – | 3.9 | 4.0 |
| Renewables1 | – | – | – | – | – | – | – | – | 6.8 | 5.6 | – | – | 6.8 | 5.6 |
| RWE Group2 | 57.4 | 56.5 | 34.7 | 34.8 | 29.6 | 28.1 | 22.8 | 22.7 | 8.1 | 7.2 | 2.3 | 1.9 | 154.9 | 151.2 |
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 three quarters of 2015, it amounted to 8.0 billion kWh in the Conventional Power Generation Division (first three quarters of 2014: 11.8 billion kWh), of which 5.4 billion kWh were generated by hard coal-fired power plants (first three quarters of 2014: 9.7 billion kWh), and 0.5 billion kWh in the Renewables Division (first three quarters of 2014: 0.5 billion kWh).
2 Including small generation volumes of other divisions.
In the first three quarters of 2015, the RWE Group produced 154.9 billion kWh of electricity, 2 % more than in the same period in 2014. One of the contributors was our new 1,554 MW hard coal-fired power plant near the Dutch port of Eemshaven. Its two units only underwent test runs in 2014 and started commercial operation on 1 May and 1 July 2015, respectively. We also benefited from the increased use of our UK hard coal-fired power station Aberthaw and several of our gas-fired power plants following damage and outages last year. The availability of our German lignite-fired power plants also improved. Furthermore, the expansion of our wind power capacity and high wind levels came to bear. A counteracting effect was felt from the fact that we no longer use some third-party German hard coal-fired power stations, because the underlying contracts expired and we did not extend them. Furthermore, our gas-fired power plant at Denizli in the west of Turkey was underutilised because substantial amounts of low-cost hydroelectric power were generated due to the unusually high levels of precipitation in the region.
In addition to our in-house generation, we procure electricity from external suppliers. In the period under review, these purchases amounted to 49.1 billion kWh (first three quarters of 2014: 50.4 billion kWh). In-house generation and purchases from third parties added up to 204.0 billion kWh (first three quarters of 2014: 201.6 billion kWh).
The volume of electricity supplied to external customers totalled 191.8 billion kWh, nearly exactly as much as in the same period last year. We achieved gains in sales in the industrial and corporate segment, partly because we won new customers. By contrast, we experienced a decline in deliveries to German distributors. This was in part because some of them increased their purchases from other energy suppliers or began buying all their electricity from them. In addition, sales to transmission system operators (TSOs) were down. We resell electricity that is generated under the German Renewable Energy Act (REA) and fed directly into our
distribution network to the TSOs. The decline was due to the fact that operators of plant covered by the REA increasingly market their electricity directly or use it themselves. Sales to households and small commercial enterprises also dropped, reflecting the trend towards saving energy. In the United Kingdom, this was exacerbated by customer losses, which were overcompensated for by gains elsewhere, particularly Central Eastern Europe and Germany.
| External electricity sales volume January – September |
Residential and commercial customers |
Industrial and corporate customers |
Distributors | Total | ||||
|---|---|---|---|---|---|---|---|---|
| Billion kWh | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 |
| Conventional Power Generation | 0.1 | 0.2 | 1.8 | 1.7 | 9.3 | 8.4 | 11.2 | 10.3 |
| Supply/Distribution Networks Germany | 15.0 | 15.1 | 21.4 | 22.7 | 52.2 | 56.8 | 88.6 | 94.6 |
| Supply Netherlands/Belgium | 7.7 | 8.2 | 6.0 | 7.0 | – | – | 13.7 | 15.2 |
| Supply United Kingdom | 9.4 | 10.1 | 22.8 | 21.9 | 1.5 | 1.5 | 33.7 | 33.5 |
| Central Eastern and South Eastern Europe | 6.6 | 6.4 | 7.4 | 6.9 | 5.2 | 5.1 | 19.2 | 18.4 |
| Renewables | – | – | – | – | 1.3 | 1.4 | 1.3 | 1.4 |
| Trading/Gas Midstream | – | – | 23.0 | 18.2 | – | – | 24.11 | 18.2 |
| RWE Group2 | 38.8 | 40.1 | 82.4 | 78.4 | 69.5 | 73.2 | 191.8 | 191.7 |
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. This occurred in the first three quarters of 2015 (+1.1 billion kWh), whereas it did not in the same period last year.
2 Including small volumes subsumed under 'other, consolidation'.
Our gas sales volume rose by 12 % to 207.2 billion kWh. The fact that the winter and spring were colder than in 2014 in all key RWE markets came to bear here. More gas was used for heating purposes by our residential and commercial customers in particular. In business with distributors, companies belonging to RWE Deutschland won new customers and intensified their supply relationships with existing ones. Another driver of our growth in gas sales volume was the successful acquisition of industrial and corporate customers. In the residential and small commercial enterprise segment, the positive effect of the weather was weakened by thrifty consumer behaviour. Furthermore, our share of the UK residential market declined. Customer acquisitions in Germany and the Benelux region were unable to compensate for this.
| External gas sales volume January – September |
Residential and commercial customers |
Industrial and corporate customers |
Distributors | Total | ||||
|---|---|---|---|---|---|---|---|---|
| Billion kWh | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 |
| Supply/Distribution Networks Germany | 16.3 | 14.4 | 13.0 | 13.7 | 37.5 | 29.3 | 66.8 | 57.4 |
| Supply Netherlands/Belgium | 23.0 | 20.3 | 20.3 | 20.0 | – | – | 43.3 | 40.3 |
| Supply United Kingdom | 21.6 | 20.8 | 2.5 | 1.6 | 4.6 | 3.9 | 28.7 | 26.3 |
| Central Eastern and South Eastern Europe | 9.8 | 9.3 | 22.1 | 18.4 | 0.4 | 1.2 | 32.3 | 28.9 |
| Trading/Gas Midstream | – | – | 18.8 | 15.7 | 17.3 | 16.0 | 36.1 | 31.7 |
| RWE Group | 70.7 | 64.8 | 76.7 | 69.4 | 59.8 | 50.4 | 207.2 | 184.6 |
| External revenue € million |
Jan – Sep 2015 |
Jan – Sep 2014 |
+/− % |
Jan – Dec 2014 |
|---|---|---|---|---|
| Conventional Power Generation | 1,408 | 1,388 | 1.4 | 1,888 |
| Supply/Distribution Networks Germany | 18,215 | 18,657 | −2.4 | 25,310 |
| Supply Netherlands/Belgium | 2,957 | 3,280 | −9.8 | 4,443 |
| Supply United Kingdom | 6,879 | 6,434 | 6.9 | 8,992 |
| Central Eastern and South Eastern Europe | 3,063 | 2,890 | 6.0 | 4,059 |
| Renewables | 258 | 212 | 21.7 | 277 |
| Trading/Gas Midstream | 2,571 | 2,364 | 8.8 | 3,409 |
| Other, consolidation | 58 | 63 | −7.9 | 90 |
| RWE Group | 35,409 | 35,288 | 0.3 | 48,468 |
| Natural gas tax/electricity tax | 1,603 | 1,643 | −2.4 | 2,319 |
| RWE Group (excluding natural gas tax/electricity tax) | 33,806 | 33,645 | 0.5 | 46,149 |
| External revenue by product | Jan – Sep | Jan – Sep | +/− | Jan – Dec |
|---|---|---|---|---|
| € million | 2015 | 2014 | % | 2014 |
| Electricity revenue | 24,860 | 25,191 | −1.3 | 33,663 |
| of which: | ||||
| Supply/Distribution Networks Germany | 14,566 | 15,311 | −4.9 | 20,204 |
| Supply Netherlands/Belgium | 1,099 | 1,423 | −22.8 | 1,710 |
| Supply United Kingdom | 5,147 | 4,620 | 11.4 | 6,364 |
| Central Eastern and South Eastern Europe | 1,684 | 1,618 | 4.1 | 2,199 |
| Trading/Gas Midstream | 1,567 | 1,452 | 7.9 | 2,157 |
| Gas revenue | 8,464 | 7,907 | 7.0 | 11,905 |
| of which: | ||||
| Supply/Distribution Networks Germany | 2,918 | 2,607 | 11.9 | 4,122 |
| Supply Netherlands/Belgium | 1,803 | 1,805 | −0.1 | 2,664 |
| Supply United Kingdom | 1,548 | 1,453 | 6.5 | 2,144 |
| Central Eastern and South Eastern Europe | 1,321 | 1,194 | 10.6 | 1,746 |
| Trading/Gas Midstream | 874 | 847 | 3.2 | 1,228 |
| Other, consolidation | 2,085 | 2,190 | −4.8 | 2,900 |
| RWE Group | 35,409 | 35,288 | 0.3 | 48,468 |
Our external revenue (including natural gas and electricity tax) posted a marginal increase, rising to €35,409 million. Gas revenue was up 7 % to €8,464 million, even though some of our supply companies lowered their tariffs. The main reason was the positive volume trend. Our electricity revenue amounted to €24,860 million, slightly less than in the same period last year. Price reductions came to bear here as well. First-time consolidations and deconsolidations of Group companies did not have a notable influence on revenue, in contrast to the appreciation of the British pound, which cost an average of €1.38 in the period under review (first three quarters of 2014: €1.23). The US dollar also gained on the euro, whereas there were only marginal changes in the other currencies of importance to us. Net of the foreign exchange impact, our revenue decreased by 2 %.
| Internal revenue € million |
Jan – Sep 2015 |
Jan – Sep 2014 |
+/− % |
Jan – Dec 2014 |
|---|---|---|---|---|
| Conventional Power Generation | 6,489 | 5,525 | 17.4 | 7,603 |
| Supply/Distribution Networks Germany | 933 | 851 | 9.6 | 1,208 |
| Supply Netherlands/Belgium | 21 | 20 | 5.0 | 44 |
| Supply United Kingdom | 74 | 209 | −64.6 | 328 |
| Central Eastern and South Eastern Europe | 68 | 127 | −46.5 | 180 |
| Renewables | 570 | 403 | 41.4 | 614 |
| Trading/Gas Midstream | 13,748 | 16,902 | −18.7 | 24,441 |
| EBITDA | Jan – Sep | Jan – Sep | +/− | Jan – Dec |
|---|---|---|---|---|
| € million | 2015 | 2014 | % | 2014 |
| Conventional Power Generation | 1,099 | 1,461 | −24.8 | 2,522 |
| of which: | ||||
| Continental Western Europe | 1,008 | 1,464 | −31.1 | 2,412 |
| United Kingdom | 87 | −16 | – | 90 |
| Supply/Distribution Networks Germany | 1,795 | 1,932 | −7.1 | 2,650 |
| Supply Netherlands/Belgium | 194 | 137 | 41.6 | 203 |
| Supply United Kingdom | −20 | 143 | – | 294 |
| Central Eastern and South Eastern Europe | 879 | 694 | 26.7 | 913 |
| Renewables | 505 | 291 | 73.5 | 547 |
| Trading/Gas Midstream | 138 | 231 | −40.3 | 286 |
| Other, consolidation | −187 | −189 | 1.1 | −284 |
| RWE Group | 4,403 | 4,700 | −6.3 | 7,131 |
| Operating result € million |
Jan – Sep 2015 |
Jan – Sep 2014 |
+/− % |
Jan – Dec 2014 |
|---|---|---|---|---|
| Conventional Power Generation | 376 | 782 | −51.9 | 979 |
| of which: | ||||
| Continental Western Europe | 473 | 974 | −51.4 | 1,362 |
| United Kingdom | −87 | −190 | 54.2 | −384 |
| Supply/Distribution Networks Germany | 1,284 | 1,408 | −8.8 | 1,871 |
| Supply Netherlands/Belgium | 165 | 96 | 71.9 | 146 |
| Supply United Kingdom | −66 | 90 | – | 227 |
| Central Eastern and South Eastern Europe | 710 | 528 | 34.5 | 690 |
| Renewables | 280 | 29 | 865.5 | 186 |
| Trading/Gas Midstream | 126 | 222 | −43.2 | 274 |
| Other, consolidation | −227 | −247 | 8.1 | −356 |
| RWE Group | 2,648 | 2,908 | −8.9 | 4,017 |
In the first nine months of 2015, the RWE Group achieved EBITDA of €4,403 million and an operating result of €2,648 million. These figures were 6 % and 9 % down respectively on those recorded in the same period last year. The main reason for this was the price-induced shrinkage of margins in conventional electricity generation. In the energy supply business, which contributed €594 million to the operating result throughout Europe (first three quarters of 2014: €605 million), we benefited from the absence of the negative effect which the weather had in last year's corresponding period. However, we suffered from substantial burdens imposed by operational and technical problems encountered by RWE npower. Our full consolidation at the end of August of the Slovak energy utility VSE, which we previously accounted for using the equity method (see page 11), had a positive impact on the Group's earnings. Prior to the change in accounting treatment, a revaluation of the investment revealed a hidden reserve of €185 million. Disregarding this effect and the influence of currency exchange rates, EBITDA and the operating result declined by 11 % and 15 %, respectively.
The following is a breakdown of the development of the operating result by division:
Supply United Kingdom: The operating result achieved by RWE npower deteriorated by €156 million to −€66 million. One reason for this is process and system-related problems in customer billing. Further earnings shortfalls stemmed from the loss of residential and commercial customers. We were often only able to retain such customers with expired contracts by offering them new ones with more favourable conditions. The increasing trend towards saving energy and the rise in network fees also had an earnings-reducing effect. By contrast, we spent less on implementing the Energy Companies Obligation (ECO) government programme. ECO requires the major electricity providers to finance measures to improve energy efficiency in homes. Due to the aforementioned burdens, RWE npower is also expected to close the year with an operating loss.
Central Eastern and South Eastern Europe: Here, the operating result increased by 34 % to €710 million, primarily due to the one-off income from the full consolidation and revaluation of VSE. In the Czech gas business, we benefited from the fact that the cooler weather invigorated sales and the regulatory framework for distribution system operators improved, but we experienced declines in storage margins. In Hungary, lower prices on the electricity market and expenses for power plant inspections led to earnings shortfalls at Mátra, which produces electricity from lignite. We now anticipate that the Central Eastern and South Eastern Europe Division will close 2015 clearly up year on year, as opposed to the moderate decline in earnings that was expected previously. This is primarily due to the change in the accounting treatment of VSE. However, we are also faring better than planned in operational terms: without the effect of VSE, we would probably achieve an operating result that matches that of 2014.
The non-operating result, in which we recognise certain one-off effects which are not related to operations or to the period being reviewed, deteriorated by €123 million to −€170 million. The fact that we formed provisions to cover legal risks associated with pending lawsuits and realised lower capital gains than in 2014 contributed to this. By contrast, the accounting treatment of certain derivatives, which we use to hedge price fluctuations, led to substantial income, whereas it resulted in a loss a year earlier.
| Financial result € million |
Jan – Sep 2015 |
Jan – Sep 2014 |
+/− € million |
Jan – Dec 2014 |
|---|---|---|---|---|
| Interest income | 185 | 152 | 33 | 218 |
| Interest expenses | −797 | −803 | 6 | −1,080 |
| Net interest | −612 | −651 | 39 | −862 |
| Interest accretion to non-current provisions | −637 | −755 | 118 | −1,114 |
| Other financial result | 125 | 15 | 110 | 128 |
| Financial result | −1,124 | −1,391 | 267 | −1,848 |
Our financial result improved by €267 million to −€1,124 million, principally because we recognised substantial income from the sale of securities in the other financial result. In addition, the interest accretion to non-current provisions declined, mainly due to exceptional effects of adjustments to the discount rates used to calculate provisions. Furthermore, net interest has improved slightly in 2015.
| Reconciliation to net income | Jan – Sep | Jan – Sep | +/− | Jan – Dec | |
|---|---|---|---|---|---|
| 2015 | 2014 | % | 2014 | ||
| EBITDA | € million | 4,403 | 4,700 | −6.3 | 7,131 |
| Operating depreciation and amortisation | € million | −1,755 | −1,792 | 2.1 | −3,114 |
| Operating result | € million | 2,648 | 2,908 | −8.9 | 4,017 |
| Non-operating result | € million | −170 | −47 | −261.7 | 77 |
| Financial result | € million | −1,124 | −1,391 | 19.2 | −1,848 |
| Income from continuing operations before tax | € million | 1,354 | 1,470 | −7.9 | 2,246 |
| Taxes on income | € million | −570 | −458 | −24.5 | −553 |
| Income from continuing operations | € million | 784 | 1,012 | −22.5 | 1,693 |
| Income from discontinued operations | € million | 1,524 | 235 | 548.5 | 364 |
| Income | € million | 2,308 | 1,247 | 85.1 | 2,057 |
| of which: | |||||
| Non-controlling interests | € million | 256 | 173 | 48.0 | 245 |
| RWE AG hybrid capital investors' interest | € million | 117 | 80 | 46.3 | 108 |
| Net income/income attributable to RWE AG shareholders | € million | 1,935 | 994 | 94.7 | 1,704 |
| Adjusted net income1 | € million | 545 | 763 | −28.6 | 1,282 |
| Earnings per share | € | 3.15 | 1.62 | 94.4 | 2.77 |
| Adjusted net income1 per share |
€ | 0.89 | 1.24 | −28.2 | 2.09 |
| Number of shares outstanding (average) | millions | 614.7 | 614.7 | – | 614.7 |
| Effective tax rate | % | 42 | 31 | – | 25 |
1 Formerly 'recurrent net income'; see commentary on page 19.
Income from continuing operations before tax decreased by 8 % to €1,354 million. Although we sold a large volume of securities tax-free in the period under review, our effective tax rate rose by eleven percentage points to 42 %. The backdrop to this is that we will probably recognise a tax loss in the RWE AG tax group in the 2015 financial statements and did not capitalise an appropriate amount of deferred taxes. Capitalising this amount of deferred taxes would only be possible if the tax loss could be offset by gains in RWE AG's tax group in the coming years. However, this is not foreseeable based on the current planning. We expect that the effective tax rate for fiscal 2015 will be far below the current level.
After taxes, our continuing operations generated income of €784 million. This corresponds to a 23 % decline compared to 2014.
Discontinued operations contributed €1,524 million to net income (first three quarters of 2014: €235 million). Most of this sum (€1,453 million) is attributable to the book gain on the sale of RWE Dea.
Non-controlling interests rose by 48 % to €256 million as some fully consolidated companies in which third parties hold stakes closed the period higher year on year. This relates primarily to our German regional utilities and is in part due to the aforementioned exceptional income from the sale of securities.
The portion of our earnings attributable to hybrid capital investors amounted to €117 million (first three quarters of 2014: €80 million). However, only the hybrid bonds classified as equity pursuant to IFRS are considered here: the €1,750 million and £750 million bonds, the first of which was redeemed as of 28 September 2015. These shares in earnings correspond to the finance costs after tax. Their increase compared to 2014 resulted from the fact that hybrid financing costs no longer have a tax-reducing effect, because RWE AG's tax group does not have any gains this year against which they could be offset.
The developments presented above are the reason why net income nearly doubled to €1,935 million compared to 2014. Based on the 614.7 million in RWE shares outstanding, this corresponds to earnings per share of €3.15 (first three quarters of 2014: €1.62).
Our adjusted net income amounted to €545 million. As set out on page 11, it does not include the full income of discontinued operations. Instead, it only contains the portion of the interest on the sale price of RWE Dea allocable to 2015. When calculating adjusted net income, we generally exclude one-off effects (e.g. the entire non-operating result) as well as the associated income taxes. Despite this, adjusted net income may include special items, for example resulting from asset impairments or restructuring expenses, which we have regularly recognised in the operating result since 2014. We therefore now refer to 'adjusted net income', which was previously called 'recurrent net income'. Compared to the first three quarters of last year, adjusted net income was down by 29 %. In addition to the significant deterioration in operating earnings, the increased effective tax rate came to bear.
| Capital expenditure | Jan – Sep | Jan – Sep | +/− | Jan – Dec |
|---|---|---|---|---|
| € million | 2015 | 2014 | € million | 2014 |
| Capital expenditure on property, plant and equipment | ||||
| and on intangible assets | 1,669 | 2,197 | −528 | 3,245 |
| of which: | ||||
| Conventional Power Generation | 508 | 831 | −323 | 1,086 |
| Supply/Distribution Networks Germany | 491 | 373 | 118 | 900 |
| Supply Netherlands/Belgium | 17 | 6 | 11 | 9 |
| Supply United Kingdom | 119 | 106 | 13 | 148 |
| Central Eastern and South Eastern Europe | 219 | 176 | 43 | 309 |
| Renewables | 282 | 650 | −368 | 723 |
| Trading/Gas Midstream | 8 | 9 | −1 | 11 |
| Other, consolidation | 25 | 46 | −21 | 59 |
| Capital expenditure on financial assets | 227 | 87 | 140 | 195 |
| Total capital expenditure | 1,896 | 2,284 | −388 | 3,440 |
At €1,896 million, our capital expenditure was 17 % lower than the figure recorded in the equivalent period last year. We spent €1,669 million on property, plant and equipment and intangible assets, 24 % less than in 2014. Capital expenditure on financial assets rose, but at €227 million it was of minor significance. There was a substantial decrease in spending in conventional electricity generation, which last year focused on two new hard coal power stations, one at Hamm in Germany and the other at Eemshaven in the Netherlands. Eemshaven is now producing electricity commercially. At Hamm, this only holds true for one unit, as the other one has experienced substantial delays. Capital expenditure in the Renewables Division also declined significantly. It was mainly dedicated to the new offshore wind farms Nordsee Ost near Heligoland and Gwynt y Môr off the coast of North Wales, which were inaugurated in May and June 2015, respectively. In the first three quarters of 2014, they were still under construction. We recorded a substantial increase in capital expenditure in the Supply/Distribution Networks Germany Division, which stepped up its measures to improve electricity and gas network infrastructure.
| Cash flow statement | Jan – Sep | Jan – Sep | +/− | Jan – Dec |
|---|---|---|---|---|
| € million | 2015 | 2014 | € million | 2014 |
| Funds from operations | 1,993 | 2,443 | −450 | 3,696 |
| Change in working capital | 184 | 2,316 | −2,132 | 1,860 |
| Cash flows from operating activities of continuing operations | 2,177 | 4,759 | −2,582 | 5,556 |
| Cash flows from investing activities of continuing operations | −507 | −3,170 | 2,663 | −4,194 |
| Cash flows from financing activities of continuing operations | −2,318 | −1,805 | −513 | −2,138 |
| Effects of changes in foreign exchange rates and other changes | ||||
| in value on cash and cash equivalents | 14 | 16 | −2 | 8 |
| Total net changes in cash and cash equivalents1 | −634 | −200 | −434 | −768 |
| Cash flows from operating activities of continuing operations | 2,177 | 4,759 | −2,582 | 5,556 |
| Minus capital expenditure on property, plant and equipment and on | ||||
| intangible assets | −1,669 | −2,197 | 528 | −3,245 |
| Free cash flow | 508 | 2,562 | −2,054 | 2,311 |
1 Including discontinued operations, cash and cash equivalents decreased by €610 million in the first three quarters of 2015 and by €205 million in the same period last year.
The cash flows from operating activities which we achieved from our continuing operations declined by €2,582 million to €2,177 million. This is largely due to payment flows which are reflected in changes in working capital. One example is the development of our receivables in the gas supply business. They typically rise in the winter and decline in the spring and summer months, because consumption fluctuates seasonally, whereas the advance payments from our customers are spread evenly over the year. On balance, receivables are usually down after the first three quarters. However, the decrease was much more substantial in 2014 than in 2015 due to the weather. Another reason for the drop in cash flows from operating activities is that we deferred the majority of our payments for the CO2 emission allowances required for 2014 to 2015. This also had an impact on working capital.
Investing activities of continued operations resulted in a net cash outflow of €507 million, €2,663 million less than in the same period last year. This can be traced back to the high proceeds from the sale of business activities, in particular of RWE Dea. However, we reinvested some of the funds in securities and other cash investments. Furthermore, we increased the funding of our pension commitments by transferring €1.3 billion in cash and cash equivalents to trusts and company pension institutions.
Financing activities of continuing operations led to a cash outflow of €2,318 million (first three quarters of 2014: €1,805 million). The main reason for this was that we redeemed a €2 billion bond in February and a €1,750 million hybrid bond in September, after having bought back paper associated with the first of these bonds with a nominal value of nearly €200 million in 2014. Dividends paid to RWE shareholders, co-owners of fully consolidated RWE companies and hybrid capital investors also reduced cash flows. A counteracting effect was felt from the fact that we issued three new hybrid bonds: two in April with volumes of €700 million and €550 million and one in July with a volume of US\$500 million. Furthermore, we increased our liabilities vis-à-vis banks and pledged less collateral in connection with forward transactions.
On balance, the presented cash flows from operating, investing and financing activities caused our cash and cash equivalents to drop by €634 million.
Deducting capital expenditure on property, plant and equipment and intangible assets from cash flows from the operating activities of continuing operations results in free cash flow. At €508 million, the latter was positive, but was clearly below last year's corresponding figure (€2,562 million).
| Net debt1 | 30 Sep 2015 | 31 Dec 2014 | +/− |
|---|---|---|---|
| € million | % | ||
| Cash and cash equivalents | 2,594 | 3,171 | −18.2 |
| Marketable securities | 7,271 | 4,777 | 52.2 |
| Other financial assets | 1,630 | 2,099 | −22.3 |
| Financial assets | 11,495 | 10,047 | 14.4 |
| Bonds, other notes payable, bank debt, commercial paper | 16,918 | 16,155 | 4.7 |
| Hedge transactions related to bonds1 | −155 | −38 | −307.9 |
| Other financial liabilities | 2,373 | 2,411 | −1.6 |
| Financial liabilities | 19,136 | 18,528 | 3.3 |
| Net financial debt | 7,641 | 8,481 | −9.9 |
| Provisions for pensions and similar obligations | 6,267 | 7,871 | −20.4 |
| Provisions for nuclear waste management | 10,527 | 10,367 | 1.5 |
| Mining provisions | 2,430 | 2,401 | 1.2 |
| Adjustment for hybrid capital (portion of relevance to the rating) | −1,032 | 766 | – |
| Plus 50 % of the hybrid capital stated as equity | 466 | 1,353 | −65.6 |
| Minus 50 % of the hybrid capital stated as debt | −1,498 | −587 | −155.2 |
| Net debt of continuing operations | 25,833 | 29,886 | −13.6 |
| Net debt of discontinued operations | – | 1,086 | – |
| Total net debt | 25,833 | 30,972 | −16.6 |
1 In 2015, we started recognising the effects of the limitation of currency risks to which our foreign-currency bonds are exposed in net debt. Figures for 2014 have been adjusted accordingly.
With effect from 30 September 2015, our net debt amounted to €25.8 billion, which was much less than as of 31 December 2014 (€31.0 billion). The main reason for this was the disposal of RWE Dea, which had an impact of €5.3 billion, including the interest on the sale price. Further disposals had a total debt-reducing effect of €1.0 billion, such as the divestment of the grid connection of our Welsh offshore wind farm Gwynt y Môr and the reduction of our stake in our Czech subsidiary RWE Grid Holding. We provided information on these transactions on pages 8 et seq. of the report on the first quarter of 2015. The positive free cash flow also contributed to the decline in net debt. The slight increase in the discount rates used to calculate provisions for pensions compared to those used in the 2014 financial statements was another contributing factor. The new rates are currently 2.3 % in Germany and 3.8 % in the United Kingdom (end of 2014: 2.1 % and 3.4 %, respectively). They reflect the most recent developments of market interest rates. Provisions for pensions were lower due to the interest rate adjustments. Another reason for their €1.6 billion decline was the €1.3 billion rise in the funding of our pension commitments. However, since this went hand in hand with corresponding cash outflows, it did not have an impact on net debt. The dividend payments and the appreciation of the British pound had a debt-increasing effect.
| Balance sheet structure | 30 Sep 2015 | 31 Dec 2014 | |||
|---|---|---|---|---|---|
| € million | % | € million | % | ||
| Assets | |||||
| Non-current assets | 54,846 | 67.7 | 54,224 | 62.8 | |
| of which: | |||||
| Intangible assets | 13,167 | 16.3 | 12,797 | 14.8 | |
| Property, plant and equipment | 31,633 | 39.1 | 31,059 | 36.0 | |
| Current assets | 26,149 | 32.3 | 32,092 | 37.2 | |
| of which: | |||||
| Receivables and other assets1 | 13,865 | 17.1 | 16,739 | 19.4 | |
| Assets held for sale | 334 | 0.4 | 5,540 | 6.4 | |
| Total | 80,995 | 100.0 | 86,316 | 100.0 | |
| Equity and liabilities | |||||
| Equity | 12,159 | 15.0 | 11,772 | 13.6 | |
| Non-current liabilities | 46,389 | 57.3 | 46,324 | 53.7 | |
| of which: | |||||
| Provisions | 25,295 | 31.2 | 27,540 | 31.9 | |
| Financial liabilities | 17,047 | 21.0 | 15,224 | 17.6 | |
| Current liabilities | 22,447 | 27.7 | 28,220 | 32.7 | |
| of which: | |||||
| Other liabilities2 | 14,481 | 17.9 | 16,739 | 19.4 | |
| Liabilities held for sale | 353 | 0.4 | 2,635 | 3.1 | |
| Total | 80,995 | 100.0 | 86,316 | 100.0 |
1 Including financial accounts receivable, trade accounts receivable and tax refund claims.
2 Including financial accounts payable and income tax liabilities.
As of 30 September 2015, we had a balance sheet total of €81.0 billion as opposed to €86.3 billion at the end of last year. The sale of RWE Dea removed €5.2 billion in assets held for sale and €2.6 billion in liabilities held for sale from the balance sheet. For 2015, we recognised a 10 % stake in the Gwynt y Môr offshore wind farm, which we sold to UK Green Investment Bank at the end of October (see page 9), in assets and liabilities held for sale. Therefore, our shareholding in Gwynt y Môr dropped from 60 % to 50 %. Further major changes occurred as derivative financial instruments dropped by €1.1 billion on the assets side and by €1.3 billion on the equity and liabilities side of the balance sheet. Moreover for seasonal reasons, receivables and trade accounts payable were each down by €1.1 billion. In addition, provisions for pensions declined by €1.6 billion, as mentioned earlier. Conversely, marketable securities rose by €2.6 billion. The RWE Group's equity grew by €0.4 billion compared to last year. Its share of the balance sheet total (equity ratio) was 15.0 %, which was 1.4 percentage points more than at the end of 2014.
| Workforce1 | 30 Sep 2015 | 31 Dec 2014 | +/− % |
|---|---|---|---|
| Conventional Power Generation | 14,010 | 14,776 | −5.2 |
| Supply/Distribution Networks Germany | 18,409 | 18,412 | 0.0 |
| Supply Netherlands/Belgium | 2,274 | 2,688 | −15.4 |
| Supply United Kingdom | 6,782 | 6,985 | −2.9 |
| Central Eastern and South Eastern Europe | 11,368 | 9,978 | 13.9 |
| Renewables | 889 | 989 | −10.1 |
| Trading/Gas Midstream | 1,282 | 1,338 | −4.2 |
| Other2 | 4,763 | 4,618 | 3.1 |
| RWE Group | 59,777 | 59,784 | – |
| of which: | |||
| In Germany | 35,464 | 36,411 | −2.6 |
| Outside of Germany | 24,313 | 23,373 | 4.0 |
1 Converted to full-time positions.
2 As of 30 September 2015, 2,031 thereof were accounted for by RWE Group Business Services (end of 2014: 1,681), 1,712 by RWE IT (end of 2014: 1,837), 649 by RWE Service (end of 2014: 703) and 272 by the holding company RWE AG (end of 2014: 299).
RWE had 59,777 people on its payroll as of 30 September 2015, roughly as many as at the end of 2014. Part-time positions were considered in these figures on a pro-rata basis. On balance, operating changes caused 1,468 employees to leave the Group, with streamlining measures playing a central role, especially in the Conventional Power Generation Division. In contrast, first-time consolidations and deconsolidations of companies had a positive net effect, contributing 1,461 staff members. The full consolidation of VSE alone added 1,565 employees. Conversely, the completion of the sale of RWE Dea in March has not had an effect on personnel in 2015, as we stopped reporting the employees of that company at the Group level in the middle of 2014. The number of people working at our German sites dropped by 947 to 35,464, whereas in other countries it rose by 940 to a total of 24,313.
We confirm the 2015 forecast for the RWE Group as a whole, which we published on pages 87 et seqq. of the 2014 Annual Report. As before, for the 2015 fiscal year we anticipate EBITDA of €6.1 billion to €6.4 billion, an operating result of €3.6 billion to €3.9 billion, and adjusted net income of €1.1 billion to €1.3 billion. We made three adjustments to the March forecast at the divisional level. They relate to Supply United Kingdom, Central Eastern and South Eastern Europe and Trading/Gas Midstream and have been presented on pages 16 et seq. We also published information on the gloomy prospects for UK energy supply in August.
| Outlook for fiscal 2015 | 2014 actual € million |
Forecast (Mar 2015) |
Adjusted forecast (Aug 2015) |
Adjusted forecast (Nov 2015) |
|---|---|---|---|---|
| EBITDA | 7,131 | €6.1 billion to €6.4 billion | – | – |
| Operating result | 4,017 | €3.6 billion to €3.9 billion | – | – |
| Conventional Power Generation | 979 | Significantly below previous year | – | – |
| Supply/Distribution Networks Germany | 1,871 | Moderately below previous year | – | – |
| Supply Netherlands/Belgium | 146 | Significantly above previous year | – | – |
| Supply United Kingdom | 227 | Moderately above previous year | Significantly below previous year |
– |
| Central Eastern and South Eastern Europe | 690 | Moderately below previous year | – | Significantly above previous year |
| Renewables | 186 | Significantly above previous year | – | – |
| Significantly below | ||||
| Trading/Gas Midstream | 274 | Moderately below previous year | – | previous year |
| Adjusted net income1 | 1,282 | €1.1 billion to €1.3 billion | – | – |
1 Formerly 'recurrent net income'; see commentary on page 19.
We expect our capital expenditure on property, plant and equipment and intangible assets for fiscal 2015 to total €2.5 billion to €3.0 billion. Our net debt, which has already decreased substantially due to the sale of RWE Dea, will also probably be far below the 2014 level (€31.0 billion) at the end of the year. However, the leverage factor, i.e. the ratio of net debt to EBITDA, is expected to be higher than last year (3.8). Furthermore, we anticipate that we will dedicate more funds to capital expenditure and dividend payments in 2015 than we will receive from operating activities, which will prevent us from achieving a budget surplus. One reason is negative special items relating to operating cash flows.
Despite ongoing efficiency-enhancing measures, which we are taking primarily in the Conventional Power Generation Division, we hardly expect headcount to change compared to its level at the end of 2014 (59,784). The main reason for this is the increase in personnel due to the full consolidation of the Slovak energy utility VSE. We had previously forecast a drop in staff because the effect of including VSE employees was not considered in our planning.
Uncertain political framework conditions, changing market structures and volatile electricity and fuel prices bring huge entrepreneurial challenges, making professional risk management more important than ever. To us, the systematic recording, assessment and control of risks is a key element of good corporate governance. It is equally important to identify and take advantage of opportunities.
We have reported on the organisation and processes of our risk management, the organisational units entrusted with it, the major risks and opportunities, and measures taken to control and monitor risks in detail on pages 75 et seqq. of our 2014 Annual Report. We are updating this as follows:
We control and monitor risks arising from the volatility of commodity prices and financial risks using indicators such as the value at risk (VaR). The VaR specifies the maximum loss from a risk position not exceeded with a given probability over a certain period of time. The VaR figures within the RWE Group are generally 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 maximum daily loss does not exceed the VaR.
The central risk controlling parameter for commodity positions is the global VaR, which is related to the trading business of RWE Supply&Trading and may not exceed €40 million. It averaged €16 million in the first three quarters of 2015 compared to €11 million in the same period last year. Its maximum daily value was €31 million (first three quarters of 2014: €18 million).
As regards interest risks, we differentiate between two categories. On the one hand, interest rate increases can lead to reductions in the price of securities held by RWE. This primarily relates to fixed-interest bonds. On the other hand, interest rate increases also cause our financing costs to rise. The VaR for our securities price risk associated with our capital investments in the first three quarters of 2015 averaged €11 million (first three quarters of 2014: €4 million). We measure the sensitivity of the interest expense with respect to rises in market interest rates 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 €4 million (first three quarters of 2014: €9 million).
The securities we hold in our portfolio include shares. The VaR for the risk associated with changes in share prices averaged €8 million (first three quarters of 2014: €5 million). The VaR for our foreign currency position remained below €1 million.
This report contains forward-looking statements regarding the future development of the RWE Group and its companies as well as the economic and political environment. 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 developments can deviate from the developments expected at present. Therefore, we cannot assume responsibility for the correctness of these statements.
| Jul – Sep | Jul – Sep | Jan – Sep | Jan – Sep | |
|---|---|---|---|---|
| € million | 2015 | 2014 | 2015 | 2014 |
| Revenue (including natural gas tax/electricity tax) | 10,271 | 10,201 | 35,409 | 35,288 |
| Natural gas tax/electricity tax | −395 | −403 | −1,603 | −1,643 |
| Revenue | 9,876 | 9,798 | 33,806 | 33,645 |
| Cost of materials | −7,185 | −7,287 | −25,135 | −24,802 |
| Staff costs | −1,175 | −1,201 | −3,545 | −3,643 |
| Depreciation, amortisation, and impairment losses | −599 | −637 | −1,755 | −1,792 |
| Other operating result | −158 | −332 | −1,321 | −945 |
| Income from investments accounted for using the equity method | 84 | 98 | 276 | 302 |
| Other income from investments | 52 | 13 | 152 | 96 |
| Financial income | 433 | 261 | 1,590 | 579 |
| Finance costs | −922 | −745 | −2,714 | −1,970 |
| Income from continuing operations before tax | 406 | −32 | 1,354 | 1,470 |
| Taxes on income | −116 | −46 | −570 | −458 |
| Income from continuing operations | 290 | −78 | 784 | 1,012 |
| Income from discontinued operations | 111 | 1,524 | 235 | |
| Income | 290 | 33 | 2,308 | 1,247 |
| of which: non-controlling interests | 60 | 35 | 256 | 173 |
| of which: RWE AG hybrid capital investors' interest | 37 | 28 | 117 | 80 |
| of which: net income/income attributable to RWE AG shareholders | 193 | −30 | 1,935 | 994 |
| Basic and diluted earnings per common and preferred share in € | 0.32 | −0.05 | 3.15 | 1.62 |
| of which: from continuing operations in € | 0.32 | −0.23 | 0.67 | 1.24 |
| of which: from discontinued operations in € | 0.18 | 2.48 | 0.38 |
| Jul – Sep | Jul – Sep | Jan – Sep | Jan – Sep | |
|---|---|---|---|---|
| € million | 2015 | 2014 | 2015 | 2014 |
| Income | 290 | 33 | 2,308 | 1,247 |
| Actuarial gains and losses of defined benefit pension plans and similar obligations | −105 | −729 | 503 | −1,055 |
| Income and expenses of investments accounted for using the equity method (pro rata) |
−2 | −12 | ||
| Income and expenses recognised in equity, not to be reclassified through profit | ||||
| or loss | −105 | −729 | 501 | −1,067 |
| Currency translation adjustment | −82 | 51 | 210 | 73 |
| Fair valuation of financial instruments available for sale | −102 | 10 | −389 | 49 |
| Fair valuation of financial instruments used for hedging purposes | −177 | 178 | 101 | −389 |
| Income and expenses of investments accounted for using the equity method (pro rata) |
42 | |||
| Income and expenses recognised in equity, to be reclassified through profit | ||||
| or loss in the future | −361 | 239 | −78 | −225 |
| Other comprehensive income | −466 | −490 | 423 | −1,292 |
| Total comprehensive income | −176 | −457 | 2,731 | −45 |
| of which: attributable to RWE AG shareholders | (−254) | (−486) | (2,358) | (−167) |
| of which: attributable to RWE AG hybrid capital investors | (37) | (28) | (117) | (80) |
| of which: attributable to non-controlling interests | (41) | (1) | (256) | (42) |
1 Figures stated after taxes.
| Assets | 30 Sep 2015 | 31 Dec 2014 |
|---|---|---|
| € million | ||
| Non-current assets | ||
| Intangible assets | 13,167 | 12,797 |
| Property, plant and equipment | 31,633 | 31,059 |
| Investment property | 74 | 83 |
| Investments accounted for using the equity method | 3,045 | 3,198 |
| Other financial assets | 824 | 958 |
| Receivables and other assets | 2,337 | 2,293 |
| Deferred taxes | 3,766 | 3,836 |
| 54,846 | 54,224 | |
| Current assets | ||
| Inventories | 2,297 | 2,232 |
| Trade accounts receivable | 5,405 | 6,512 |
| Receivables and other assets | 8,460 | 10,227 |
| Marketable securities | 7,059 | 4,410 |
| Cash and cash equivalents | 2,594 | 3,171 |
| Assets held for sale | 334 | 5,540 |
| 26,149 | 32,092 | |
| 80,995 | 86,316 | |
| Equity and liabilities | 30 Sep 2015 | 31 Dec 2014 |
| € million | ||
| Equity | ||
| RWE AG shareholders' interest | 9,209 | 7,388 |
| RWE AG hybrid capital investors' interest | 931 | 2,705 |
|---|---|---|
| Non-controlling interests | 2,019 | 1,679 |
| 12,159 | 11,772 | |
| Non-current liabilities | ||
| Provisions | 25,295 | 27,540 |
| Financial liabilities | 17,047 | 15,224 |
| Other liabilities | 2,678 | 2,695 |
| Deferred taxes | 1,369 | 865 |
| 46,389 | 46,324 | |
| Current liabilities | ||
| Provisions | 5,369 | 5,504 |
| Financial liabilities | 2,244 | 3,342 |
| Trade accounts payable | 5,238 | 6,309 |
| Other liabilities | 9,243 | 10,430 |
| Liabilities held for sale | 353 | 2,635 |
| 22,447 | 28,220 | |
| 80,995 | 86,316 |
| Jan – Sep | Jan – Sep | |
|---|---|---|
| € million | 2015 | 2014 |
| Income from continuing operations | 784 | 1,012 |
| Depreciation, amortisation, impairment losses/write-backs | 1,754 | 1,748 |
| Changes in provisions | 5 | −372 |
| Deferred taxes/non-cash income and expenses/income from disposal of non-current assets and marketable securities |
−550 | 55 |
| Change in working capital | 184 | 2,316 |
| Cash flows from operating activities of continuing operations | 2,177 | 4,759 |
| Cash flows from operating activities of discontinued operations | −125 | 609 |
| Cash flows from operating activities | 2,052 | 5,368 |
| Capital expenditure on non-current assets/acquisitions | −1,869 | −2,260 |
| Proceeds from disposal of assets/divestitures | 4,874 | 679 |
| Changes in marketable securities and cash investments | −3,512 | −1,589 |
| Cash flows from investing activities of continuing operations¹ | −507 | −3,170 |
| Cash flows from investing activities of discontinued operations | −111 | −498 |
| Cash flows from investing activities¹ | −618 | −3,668 |
| Cash flows from financing activities of continuing operations² | −2,318 | −1,805 |
| Cash flows from financing activities of discontinued operations | 260 | −116 |
| Cash flows from financing activities² | −2,058 | −1,921 |
| Net cash change in cash and cash equivalents | −624 | −221 |
| Effect of changes in foreign exchange rates and other changes in value on cash and cash | ||
| equivalents | 14 | 16 |
| Net change in cash and cash equivalents | −610 | −205 |
| Cash and cash equivalents at the beginning of the reporting period | 3,257 | 3,950 |
| of which: reported as "Assets held for sale" | −86 | |
| Cash and cash equivalents at the beginning of the reporting period as per the consolidated balance sheet |
3,171 | 3,950 |
| Cash and cash equivalents at the end of the reporting period | 2,647 | 3,745 |
| of which: reported as "Assets held for sale" | −53 | −7 |
| Cash and cash equivalents at the end of the reporting period as per the consolidated balance sheet |
2,594 | 3,738 |
1 In the first three quarters of 2015 after transfer to contractual trust arrangements (€1,261 million).
2 In the first three quarters of 2015, this comprises the repayment of hybrid capital classified as equity (€1,750 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 capital investors' interest |
Non controlling interests |
Total |
|---|---|---|---|---|---|---|---|
| Balance at 1 Jan 2014 | 3,959 | 5,062 | −1,283 | 7,738 | 2,701 | 1,698 | 12,137 |
| Capital paid in | 62 | 62 | |||||
| Dividends paid | −615 | −615 | −144 | −213 | −972 | ||
| Income | 994 | 994 | 80 | 173 | 1,247 | ||
| Other comprehensive income |
−936 | −225 | −1,161 | −131 | −1,292 | ||
| Total comprehensive income |
58 | −225 | −167 | 80 | 42 | −45 | |
| Other changes | −5 | −5 | 30 | 13 | 38 | ||
| Balance at 30 Sep 2014 | 3,959 | 4,500 | −1,508 | 6,951 | 2,667 | 1,602 | 11,220 |
| Balance at 1 Jan 2015 | 3,959 | 5,008 | −1,579 | 7,388 | 2,705 | 1,679 | 11,772 |
| Capital paid in/repaid | −1,750 | 1 | −1,749 | ||||
| Dividends paid | −615 | −615 | −153 | −220 | −988 | ||
| Income | 1,935 | 1,935 | 117 | 256 | 2,308 | ||
| Other comprehensive income |
500 | −77 | 423 | 423 | |||
| Total comprehensive income |
2,435 | −77 | 2,358 | 117 | 256 | 2,731 | |
| Other changes | 78 | 78 | 12 | 303 | 393 | ||
| Balance at 30 Sep 2015 | 3,959 | 6,906 | −1,656 | 9,209 | 931 | 2,019 | 12,159 |
RWE AG, headquartered at Opernplatz 1, 45128 Essen, Germany, is the parent company of the RWE Group ("RWE" or "Group").
The interim consolidated financial statements as of 30 September 2015 were approved for publication on 10 November 2015. They have been prepared in accordance with the International Financial Reporting Standards (IFRSs) applicable in the EU.
In line with IAS 34, the scope of reporting for the presentation of the interim consolidated financial statements for the period ended 30 September 2015 was condensed compared with the scope applied to the consolidated financial statements as of
The International Accounting Standards Board (IASB) and the IFRS Interpretations Committee (IFRS IC) have approved several amendments to existing International Financial Reporting Standards (IFRSs) and new IFRSs, which became effective for the RWE Group as of fiscal 2015:
31 December 2014. With the exception of the changes and new rules described below, this consolidated interim report was prepared using the accounting policies applied in the consolidated financial statements for the period ended 31 December 2014. For further information, please see the Group's 2014 Annual Report, which provides the basis for this interim consolidated report.
The discount rate applied to provisions for nuclear waste management and provisions for mining damage is 4.6 % (31 December 2014: 4.6 %). Provisions for pensions and similar obligations are discounted at an interest rate of 2.3 % in Germany and 3.8 % abroad (31 December 2014: 2.1 % and 3.4 %, respectively).
These new policies do not have any material effects on the RWE Group's consolidated financial statements.
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 2015 | 154 | 187 | 341 |
| First-time consolidations | 11 | 9 | 20 |
| Deconsolidations | −14 | −15 | −29 |
| Mergers | −5 | −11 | −16 |
| Balance at 30 Sep 2015 | 146 | 170 | 316 |
Furthermore, five companies are presented as joint operations.
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 2015 | 70 | 24 | 94 |
| Acquisitions | 1 | 1 | |
| Disposals | −2 | −1 | −3 |
| Other changes | −1 | −1 | |
| Balance at 30 Sep 2015 | 69 | 22 | 91 |
In July 2015, RWE gained control of WestEnergie GmbH, an investment which had previously been accounted for using the equity method, due to the expiry of a renouncement of a voting right. The company primarily operates electricity and gas distribution networks. The assumed assets and liabilities are presented in the following table:
| Balance-sheet items € million (pro-forma figures) |
IFRS carrying amounts (fair values) at first-time consolidation |
|---|---|
| Non-current assets | 152 |
| Current assets | 24 |
| Non-current liabilities | 31 |
| Current liabilities | 57 |
| Net assets | 88 |
| Non-controlling interests | −1 |
| Cost (not affecting cash) | 87 |
Východoslovenská energetika Holding a.s.
In August 2015, RWE gained control of Východoslovenská energetika Holding a.s., a company which had previously been accounted for using the equity method, due to a contractual arrangement. The company is the holding company of a group of companies that has an electricity and gas distribution business (including the operation of a distribution network system) in Slovakia.
The assumed assets and liabilities are presented in the following table:
| Balance-sheet items € million (pro-forma figures) |
IFRS carrying amounts (fair values) at first-time consolidation |
|---|---|
| Non-current assets | 772 |
| Current assets | 71 |
| Non-current liabilities | 157 |
| Current liabilities | 234 |
| Net assets | 452 |
| Non-controlling interests | −231 |
| Cost (not affecting cash) | 297 |
| Goodwill | 76 |
The contractual arrangement on which the acquisition of control is based includes an investment transaction that caused Czechbased RWE Česká republika a.s.'s net assets to increase by €44 million.
The fair value of the old shares amounted to €87 million. The measurement of the non-controlling interests was based on the pro-rated net assets of the company at first-time consolidation. 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 €1 million to the Group's revenue and −€2 million to the Group's income.
The initial accounting of the business combination has not been completed definitively due to the transaction's complex structure.
The fair value of the old shares amounted to €341 million. The first-time consolidation resulted in €185 million in income, which is recognised as €159 million in 'other operating income' and €26 million in 'income from investments accounted for using the equity method' on the income statement.
The fair value of the receivables included in non-current and current assets amounted to €67 million.
The measurement of the non-controlling interests was based on the pro-rated net assets of the group of companies at first-time consolidation. The goodwill is largely associated with expected future use and synergistic effects.
Since its first-time consolidation, the company has contributed €43 million to the Group's revenue and €4 million to the Group's income.
The initial accounting of the business combination has not been completed definitively due to the transaction's complex structure.
If all of the business combinations of the period under review had occurred as early as 1 January 2015, the Group's income would total €2,358 million and the Group's revenue would total €34,204 million.
At the beginning of January 2015, RWE Innogy sold the special purpose vessel "Victoria Mathias" used to install offshore wind farms to the Dutch company MPI Offshore. The installation ship, which was part of the Renewables Segment, was reported as of 31 December 2014 at a book value of €69 million in the balance sheet under "Assets held for sale".
For regulatory reasons, the Gwynt y Môr offshore wind farm, which belongs to the Renewables Segment, sold its selfconstructed network connection and a transformer station to the financial investors Balfour Beatty Investment Ltd. and Equitix Ltd. in February 2015. As of 31 December 2014, the book value of the network connection and transformer station was reported in the amount of €241 million in the balance sheet under "Assets held for sale".
In March 2015, a group of funds managed by Macquarie increased its stake in Czech-based RWE Grid Holding by 15 %. RWE currently owns an interest of 50.04 % in the company, which is assigned to the Central Eastern and South Eastern Europe Segment and pools RWE's Czech gas distribution network activities. With this sale, the share of equity attributable to RWE AG's shareholders increased by €97 million and the share of non-controlling interests increased by €73 million.
In March 2015, RWE Dea AG (Upstream Gas&Oil Segment), in which the Group's gas and oil production activities are pooled, was sold to the Luxembourg-based investment company LetterOne.
RWE Dea was accounted for as a discontinued operation until 28 February 2015, after which it was deconsolidated. The gain on the deconsolidation amounted to €1,453 million and has been recognised in "Income from discontinued operations" on the income statement.
Key figures for discontinued operations are presented in the following table:
| Key figures for discontinued operations € million |
Jan – Sep 2015 |
Jan – Sep 2014 |
|---|---|---|
| Revenue (including natural gas tax) | 285 | 1,500 |
| Expenses/income | 1,296 | 928 |
| Income from discontinued operations | ||
| before tax | 1,581 | 572 |
| Taxes on income | −57 | 337 |
| Income from discontinued operations | 1,524 | 235 |
Income and expenses directly recognised in equity cumulatively (accumulated other comprehensive income) of discontinued operations amounted to €0 million (31 December 2014: −€40 million).
Of the share of RWE AG shareholders in the sum of recognised income and expenses (total comprehensive income), €795 million (previous year: −€412 million) was allocable to continuing operations and €1,563 million (previous year: €245 million) was allocable to discontinued operations.
As of 31 December 2014, RWE Dea accounted for €4,418 million in non-current assets, €812 million in current assets, €1,490 million in non-current liabilities and €1,145 million in current liabilities.
In June 2015, an agreement was reached with UK Green Investment Bank on the sale of the RWE Innogy GyM 1 Ltd., which is assigned to the Renewables Segment and holds a 10 % stake in the Gwynt y Môr offshore wind farm. The sale was completed in October 2015.
With effect from 30 September 2015, the following assets and liabilities of RWE Innogy GyM 1 Ltd. were recognised as being held for sale on the balance sheet:
| Balance-sheet items € million |
30 Sep 2015 |
|---|---|
| Non-current assets | 262 |
| Current assets | 72 |
| Non-current liabilities | 14 |
| Current liabilities | 339 |
When the assets and liabilities were classified as being held for sale, impairment losses of the disposal group amounting to €22 million were recognised as other operating expenses.
Revenue generated by energy trading operations is stated as net figures, i.e. only reflecting realised gross margins.
Information was provided on share-based payment plans for executive staff at RWE AG and at subsidiaries in the consolidated financial statements for the period ended 31 December 2014.
RWE AG's 23 April 2015 Annual General Meeting decided to pay a dividend of €1.00 per individual, dividend-bearing share for
A hybrid bond classified as equity with a carrying amount of €1,750 million and a coupon of 4.625% p.a. was repaid in September 2015.
A six-year bond with a carrying amount of €1,801 million and a coupon of 5 % p.a. fell due in February 2015.
In April 2015, RWE AG issued two hybrid bonds with a total volume of €1,250 million and a tenor ending in 2075. The first hybrid bond, which amounts to €700 million, may be cancelled by RWE AG for the first time in 2020, and the second hybrid bond,
In the first quarter of 2015, another tranche was issued within the framework of the Long-Term Incentive Plan for executive staff ("Beat 2010").
fiscal 2014 (fiscal 2013: €1.00). The dividend payment totalled €615 million.
which amounts to €550 million, may be cancelled for the first time in 2025. They have coupons of 2.75 % p.a. and 3.5 % p.a., respectively.
In July 2015, RWE AG issued a hybrid bond with a volume of US\$500 million, a coupon of 6.625 % p.a. and a tenor of 60 years, which may be cancelled for the first time in 2026.
| Jan – Sep | Jan – Sep | ||
|---|---|---|---|
| 2015 | 2014 | ||
| Net income/income attributable to RWE AG shareholders | € million | 1,935 | 994 |
| Number of shares outstanding (weighted average) | thousands | 614,745 | 614,745 |
| Basic and diluted earnings per common and preferred share | € | 3.15 | 1.62 |
The RWE Group classifies associated companies and joint ventures as related parties. In the first three quarters of 2015, transactions concluded with material related parties generated €2,975 million in income (first three quarters of 2014: €3,180 million) and €2,042 million in expenses (first three quarters of 2014: €2,238 million). As of 30 September 2015, accounts receivable amounted to €705 million (31 December 2014: €600 million)
Financial instruments are divided into non-derivative and derivative. Non-derivative financial assets essentially include other non-current 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 non-derivative 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. 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 economy are made within the scope of a comprehensive process conducted by an independent
and accounts payable totalled €230 million (31 December 2014: €292 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 €1,130 million (31 December 2014: €1,212 million).
team with the involvement of both in-house and external experts. This team is overseen by RWE AG's Group Strategy Department. The assumptions are co-ordinated and agreed upon with the operating subsidiaries in a joint steering committee within the Group and approved as binding budgeting data by the Executive Board.
The fair values of groups of financial assets and financial liabilities are measured based on the net risk position for each 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, bank debt, and other financial liabilities. Their carrying amounts totalled €19,291 million (31 December 2014: €18,566 million) and their fair values totalled €20,733 million (31 December 2014: €21,183 million).
The following overview presents the main classifications of financial instruments measured at fair value in the fair value hierarchy prescribed by IFRS 7. In accordance with IFRS 13, the individual levels of the fair value hierarchy are defined as follows:
| Fair value hierarchy € million |
Total 30 Sep 2015 |
Level 1 | Level 2 | Level 3 | Total 31 Dec 2014 |
Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|---|---|---|
| Other financial assets | 824 | 39 | 208 | 577 | 958 | 39 | 364 | 555 |
| Derivatives (assets) | 6,428 | 6,373 | 55 | 7,491 | 7,422 | 69 | ||
| of which: used for hedging purposes |
(1,185) | (1,185) | (1,459) | (1,459) | ||||
| Securities | 7,059 | 6,198 | 861 | 4,410 | 1,967 | 2,443 | ||
| Assets held for sale | 142 | 142 | ||||||
| Derivatives (liabilities) | 6,079 | 6,062 | 17 | 7,408 | 7,404 | 4 | ||
| of which: used for hedging purposes |
(1,990) | (1,990) | (2,369) | (2,369) | ||||
| Liabilities held for sale | 93 | 93 |
| Level 3 financial instruments: | Balance at Changes in the |
Changes | Balance at | ||
|---|---|---|---|---|---|
| Development in 2015 | 1 Jan 2015 | scope of consoli dation, currency adjustments and |
Recognised in profit or loss |
With a cash effect |
30 Sep 2015 |
| € million | other | ||||
| Other financial assets | 555 | 18 | −23 | 27 | 577 |
| Derivatives (assets) | 69 | −1 | 23 | −36 | 55 |
| Derivatives (liabilities) | 4 | 17 | −4 | 17 |
| Level 3 financial instruments: | Balance at | Changes in the | Changes | Balance at | |
|---|---|---|---|---|---|
| Development in 2014 | 1 Jan 2014 | scope of consoli dation, currency adjustments and |
Recognised in profit or loss |
With a cash effect |
30 Sep 2014 |
| € million | other | ||||
| Other financial assets | 394 | 97 | 16 | 10 | 517 |
| Derivatives (assets) | 101 | −1 | −44 | 56 | |
| Derivatives (liabilities) | 6 | −1 | −2 | 3 |
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 – Sep | attributable to | Jan – Sep | attributable to |
| 2015 | financial instruments | 2014 | financial instruments | |
| held at the | held at the | |||
| € million | balance-sheet date | balance-sheet date | ||
| Revenue | 23 | 23 | 5 | 5 |
| Cost of materials | −17 | −17 | −5 | −17 |
| Other operating income/expenses | 13 | 6 | 16 | 7 |
| Income from investments | −29 | −1 | 1 | |
| Income from discontinued operations | −7 | |||
| −17 | 11 | 16 | −4 |
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.
The following is an overview of the financial assets and financial liabilities which are netted out in accordance with IAS 32 or are
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 €5 million or decline by €5 million.
subject to enforceable master netting agreements or similar arrangements.
| Netting of financial assets | Gross amounts | Amount | Net amounts | Related amounts not set off | Net total | |
|---|---|---|---|---|---|---|
| and financial liabilities as of 30 Sep 2015 € million |
recognised | set off | recognised | Cash collateral received/ pledged |
||
| Derivatives (assets) | 9,235 | −8,123 | 1,112 | −272 | 840 | |
| Derivatives (liabilities) | 8,726 | −7,821 | 905 | −91 | −621 | 193 |
| Netting of financial assets | Gross amounts Amount |
Net amounts | Related amounts not set off | Net total | ||
|---|---|---|---|---|---|---|
| and financial liabilities as of 31 Dec 2014 |
recognised | set off | recognised | Financial instruments |
Cash collateral received/ |
|
| € million | pledged | |||||
| Derivatives (assets) | 8,452 | −7,081 | 1,371 | −323 | 1,048 | |
| Derivatives (liabilities) | 8,210 | −6,921 | 1,289 | −188 | −918 | 183 |
The related amounts not set off include cash collateral received and pledged for over-the-counter transactions as well as collateral pledged in advance for exchange transactions, which may consist of securities transferred as collateral.
Information on events after the balance-sheet date is presented in the review of operations.
| 8 March 2016 | Annual report for fiscal 2015 |
|---|---|
| 20 April 2016 | Annual General Meeting |
| 21 April 2016 | Dividend payment |
| 12 May 2016 | Interim report on the first quarter of 2016 |
| 11 August 2016 | Interim report on the first half of 2016 |
| 14 November 2016 | Interim report on the first three quarters of 2016 |
This document was published on 12 November 2015. It is a translation of the German interim report on the first three quarters of 2015. In case of divergence from the German version, the German version shall prevail.
The Annual General Meeting and all events concerning the publication of the financial reports are broadcast live on the internet and recorded. We will keep the recordings on our website for at least twelve months.
Opernplatz 1 45128 Essen Germany T +49 201 12-00 F +49 201 12-15199 I www.rwe.com
Investor Relations T +49 201 12-15025 F +49 201 12-15033 I www.rwe.com/ir E [email protected]
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