Copy of the auditor s opinion

Transcription

1 PricewaterhouseCoopers PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Copy of the auditor s opinion RWE Trading GmbH Essen Annual financial statements as of December 31, 2007 Auditors Report

2 PricewaterhouseCoopers Contents Financial Statements Balance sheet as of December 31, 2007 Consolidated income statement for the period from January 1 to December 31, 2007 Notes for the fiscal year from January 1 to December 31, 2007 Auditors Report This auditor s opinion is only for use within the meaning of Sections 325 et seq. of the HGB.

3 Annual financial statements for the fiscal year from January 1 to December 31, 2007

4 RWE Trading GmbH Balance sheet as of December 31, 2007 Assets Equity and liabilities in million in million in million in million A. Fixed assets A. Equity I. Intangible assets I. Subscribed capital Concessions, industrial and similar rights and assets, and II. Capital reserve licenses in such rights and assets 2. Goodwill ,3 II. Tangible assets 1. Technical equipment and machinery Other equipment, operating and office equipment B. Provisions III. Long-term financial assets 1. Investments in affiliated companies Provisions for pensions and other employee benefits Participating interests Provisions for taxes Other loans Other provisions C. Liabilities B. Current assets 1. Trade accounts payable 2, ,541.3 I. Inventories 2. Liabilities to affiliated companies 2, , Merchandise (thereof to shareholders million; previous year: 2,123.4 million) II. Receivables and other assets 3. Other liabilities Trade receivables 2, ,095.5 (thereof from taxes 93.4 million; previous year: 37.1 million) 2. Receivables from affiliated companies 1, ,007.3 (thereof social security 0.3 million; previous year: 0.0 million) (thereof from shareholders 84.2 million; previous year: 0.0 5, ,812.3 million) 3. Other assets 1, , , ,710.9 III. Cash and cash equivalents C. Prepaid expenses (Contingent liabilities: 8.9 million; previous year: 25.5 million) 5, , , ,260.2

5 RWE Trading GmbH Income statement for the period from January 1 to December 31, in million in million 1. Revenues 1, , Natural gas tax VAT income (without natural gas tax) 1, , Other operating income Cost of materials a) Cost of merchandise b) Cost of purchased services Personnel expenses a) Salaries b) Social security, pension and other benefit costs (Thereof for pensions 5.5 million; previous year: 7.6 million) Depreciation/amortization on intangible fixed assets and tangible assets Other operating expenses Other interest and similar income (thereof from affiliated companies 22.0 million; previous year: 31.8 million) 10. Expenses from absorption of losses Interests and similar expenses (thereof to affiliated companies 69.1 million; previous year: million) 12. Profit from ordinary business activities Taxes on income and earnings Profits transferred under a profit and loss transfer agreement Net income

6 Notes for RWE Trading GmbH for the fiscal year from January 1 to December 31, 2007 RWE Trading GmbH (hereinafter RWE Trading ) has been registered with the commercial register in Essen with number HRB since July 11, The company s registered office is in Essen. The preparation of the annual financial statements for the past fiscal year was in line with the provisions of the Handelsgesetzbuch (HGB), the Gesetz betreffend die Gesellschaften mit beschränkter Haftung (GmbHG) and the Energiewirtschaftsgesetz (EnWG). RWE Trading s sole shareholder is RWE AG, Essen. RWE Trading is included in RWE AG s consolidated financial statements, which are prepared according to International Financial Reporting Standards (IFRS) as are to be applied in the EU. As a result, RWE Trading is thus generally released from the obligation of preparing its own consolidated financial statements. RWE AG s consolidated financial statements are submitted to the operator of the electronic federal gazette (Bundesanzeiger Verlagsgesellschaft mbh, Cologne) and are announced in the electronic federal gazette. There is a control and profit and loss transfer agreement between RWE AG and RWE Trading. RWE Trading prepares its annual financial statements in euros ( ); the amounts are stated in millions of euros ( million) with one decimal place.

7 I. Accounting and valuation policies Intangible assets are carried at amortized cost. Software is written down over three to five years using the straight line method. The goodwill carried under fixed assets is written down over a 15-year period using the straight line method in line with its anticipated useful life. Tangible assets are measured at cost less scheduled depreciation. They are depreciated in line with their useful lives as recognized for tax purposes. Tangible assets are subject to scheduled depreciation using the declining balance method to the extent permitted for taxation purposes. This is then changed to the straight line method once this leads to higher depreciation. In line with Section 6 (2) of the EStG, low-value assets are written off in full in their year of acquisition and carried as a disposal. Financial assets are valued at cost. In addition, intangible assets, tangible assets and financial assets are tested for impairment at the end of each fiscal year. If the fair value of the asset is less than the carrying amount, the asset is subject to unscheduled amortization/depreciation. Inventories are carried at cost using the average method, if necessary at their lower daily values. Receivables and other assets are carried at their face values. All recognizable individual risks and the general credit risk are taken into account using suitable writedowns. This also applies to the margin and collateral payments carried under other assets, which account for the bulk of this item.

8 In addition, CO2 certificates are carried under other assets. These are measured at cost. Lower values on the balance sheet date as a result of lower net realizable values are taken into count as part of a portfolio consideration. Cash and cash equivalents are carried at face value. Provisions for pensions are valued using the Teilwertverfahren (cost method) within the meaning of Section 6a of the EStG based on an interest rate of 5% (previous year: 5%) and Prof. Klaus Heubeck's 2005 mortality tables. Provisions for anniversaries are valued using the Teilwertverfahren (cost method) within the meaning of Section 6a of the EStG based on an interest rate of 5.5% (previous year: 5.5%) and Prof. Klaus Heubeck's 2005 mortality tables. Provisions for partial retirement are measured based on an interest rate of 5.5% (previous year: 5.5%) and taking biometric risks into account; a lump-sum deduction (2%) was used so that replacement payments of any subsidies were not taken into account. When measuring provisions, all recognizable risks were taken into account. The physical and derivative transactions concluded are measured off balance sheet as part of the portfolio consideration broken down into desks, each at their fair value. Portfolios in foreign currencies were translated using the closing rate on the balance sheet date. Instruments used for hedging are also included in the portfolio consideration. If the balance of all of the fair values in a portfolio is negative, a corresponding provision is formed. Portfolios with positive fair values are not taken

9 into account in the accounts. As part of the acquisition of the UK trading business of RWE Npower in 2004, acquisition and production costs were incurred for acquired pending transactions that are carried as other assets or other liabilities. The acquisition and production costs are amortized over the useful lives of the acquired contracts as they are realized. On the balance sheet date, the amortized costs are compared with the current fair values as part of the portfolio consideration described, and if necessary provisions for threatened losses are formed or their amounts are adjusted. All physical and derivative trading takes place according to limits that are independently monitored on a daily basis. In so doing, trading frameworks, responsibilities and controls are bindingly defined in internal guidelines. Liabilities are carried at their repayment amount. In order to increase the meaningfulness of the earnings at the company revenues and the cost of materials are disclosed net per commodity, i.e., they are disclosed in each case only in the amount of the margin. In the previous year, physical energy trading transactions and energy-related derivative transactions are carried separately. This differentiation was no longer made during the fiscal year, as the company is increasingly implementing trading transactions, irrespective of whether the transactions are fulfilled physically or financially. To aid comparison, we have adjusted the figures from the previous year accordingly. The associated gross amounts are disclosed under the notes to the income statement as supplementary information. Gains and losses from currency derivatives as well as other currency gains and losses are also disclosed net as other operating income or other operating expenses. Here too, the associated gross amounts are disclosed under the notes to the income statement as supplementary information. Currency conversion Transactions in foreign currencies are reported at the exchange rate on the date they are first booked (market or hedge rate). Losses from changes in exchange rates on

10 the balance sheet date are recognized in income. Foreign currency risks from trading transactions are hedged as part of the central cash and foreign currency management in the RWE Group by RWE AG s Treasury department using exchange rate hedges in the commodity s respective currency.

11 II. Notes to the balance sheet (1) Fixed assets The statement of changes to fixed assets is presented on page 8 of these Notes. Goodwill was subject to amortization of 25.0 million during the fiscal year. (2) Inventories Inventories comprise the following items: in million Coal Oil Gas (3) Receivables and other assets Thereof due > Thereof due > 1 in EUR million year year Trade receivables 2, , Receivables from 1, , affiliated companies Other assets 1, , , , Of the receivables from affiliated companies, 1,018.0 million (previous year: 1,007.1 million) relates to trade accounts receivable. Collateral of million (previous year: 1,828.1 million) is carried under other assets. This was deposited with OTC trading partners as collateral. In addition, initial or valuation margins for stock market transactions totaling 1,153.6 million is carried under other assets (previous year: million). In addition, amortized costs of 73.7 million (previous year: million) are carried under other assets. These were capitalized in connection with the purchase of RWE Npower s trading activities.

12 Statement of changes in fixed assets for RWE Trading GmbH in million Balance on Cost of acquisition Aggregate depreciation Carrying amounts Additions Disposals Balance on Balance on Disposal writedown Balance on Balance on Write downs during fiscal year Balance on Intangible assets Concessions, industrial and similar rights and assets and licenses in such rights and assets Goodwill Tangible assets Technical equipment and machinery Other equipment, operating and office equipment Long-term financial assets Investments in affiliated companies Participating interests Other loans

13 (4) Cash and cash equivalents Cash and cash equivalents comprise cash on hand and bank balances. RWE Trading has been included in RWE AG s central cash management since August 28, There is central liquidity pooling by RWE AG. Of the cash and cash equivalents, the availability of 1.0 million is restricted by way of a pledge agreement. (5) Prepaid expenses in million Advance rent payments Other (6) Equity in million Subscribed capital Capital reserve The capital reserve includes amounts within the meaning of Section 272 (2) No. 1 of the HGB. (7) Provisions for taxes The provisions for taxes of 79.7 million (previous year: 35.6 million) relate in full to RWE Trading s UK operating facility. (8) Other provisions in million Energy trading contracts Human resources Other

14 Of the provisions, million (previous year: million) relates to provisions for threatened losses from energy trading contracts. The provisions for personnel mostly include provisions for outstanding remuneration of million (previous year: million). The other provisions of 30.3 million (previous year: 19.7 million) include a provision in connection with the end of a gas procurement contract in the amount of 14.3 million (previous year: 15.1 million). (9) Liabilities in million Thereof due <= 1 year thereof due > 1 and <= 5 years Thereof due > 5 years Thereof due <= 1 year Thereof due > 1 year Trade accounts payable 2, , , , Liabilities to affiliated 2, , , , companies Of which to shareholders , , Other liabilities thereof from taxes thereof for social security , , , , Of the liabilities to affiliated companies, 1,238.0 million (previous year: million) relates to trade accounts payable. In addition, amortized costs of million (previous year: million) are carried under other liabilities. These were capitalized in connection with the purchase of RWE Npower s trading activities. In addition, margin payments received totaling million (previous year: 99.7 million) and collateral of million (previous year: 72.3 million) are carried under other liabilities. RWE Trading received the collateral as security from OTC trading partners. (10) Contingent liabilities The contingent liabilities of 8.9 million (previous year: 25.5 million) relate to various guarantee obligations. Of this total 8.9 million is in favor of affiliated companies (previous year: 16.5 million). As a result of the sale of a subsidiary,

15 RWE Trading is also liable for any subsequent tax demands that relate to the period through to the end of fiscal year 2006; the liability period ends on December 31, As a result of the transfer of certain retirement benefit obligations totaling 3.6 million to RWE Pensionsfonds AG during the fiscal year, there is a statutory subsequent injection obligation in the company's capacity as an employer in the event of any possible future undercoverage by the pension fund. In RWE Trading s operating facility in the United Kingdom, pension commitments are covered with pension funds. RWE Trading must proportionately bear any undercoverage in the pension funds. (11) Other financial obligations On the balance sheet date, RWE Trading had other financial obligations of 65.0 million (previous year: 26.8 million). Of this total, 57.7 million (previous year: 18.8 million) was to affiliated companies. These mostly relate to real estate obligations in the amount of 52.0 million (previous year: 13.3 million), and IT obligations in the amount of 13.0 million (previous year: 11.7 million). In the previous year, obligations of 1.7 million resulted from temporary employees. In addition, there is a profit and loss transfer agreement between RWE Trading and RWE Trading Services GmbH. In this agreement RWE Trading undertakes to settle any annual net losses. (12) Information in the notes on Section 285 No. 18 of the HGB At RWE Trading, derivative financial instruments are used as part of issued limits for proprietary trading purposes and to hedge currency and commodity risks. The

16 derivatives employed are mostly commodity futures and forwards, commodity options, commodity swaps and currency futures and forwards. Contracts for the acquisition or sale of goods, which hedge anticipated requirements for the purchase, sale or own use, are generally not commodity derivatives within the meaning of Section 285 of the HGB. The following table shows the derivative financial instruments on December 31, 2007: Category Nominal volume Fair value Carrying amounts Assets Equity and liabilities in million in million in million in million 1. Commodity derivatives 1.1 Electricity 50, Oil 15, Coal 6, Gas 19, Other commodity derivatives 4, Foreign exchange forwards 4, The high nominal volume of derivative financial instruments is offset on balance by comparatively low fair values, as the nominal volumes include a large number of contradictory trades that reduce the position. As a rule, the fair value corresponds to the market value of the derivative financial instruments to the extent that this can be reliably determined. If it is not possible to reliably determine the market value, the fair value is derived from the market value of similar financial instruments, or determined using generally recognized valuation methods (discounted cash flow method, option pricing models). When applying the valuation methods, in particular the interest structure curve, forward prices, market prices for commodities and past volatilities and similar parameters are taken into account. As a rule, the reliability of market values depends on the liquidity of the corresponding markets; in the commodities segment this tends to fall the larger the maturity of the derivatives. The carrying amounts mostly relate to the option premiums carried under other assets or other liabilities and the amortized costs of the trading contracts that were

17 transferred to RWE Trading as part of the acquisition of the UK trading business and which fulfill the conditions for derivative financial instruments within the meaning of Section 285 of the HGB. In addition, of the provisions, million (previous year: million) relates to provisions for threatened losses from energy trading contracts.

18 III. Notes to the income statement Please note that as a result of the mandatory upholding of the provisions of the German Commercial Code, changes in fair values from pending energy trading contracts are not carried in the annual financial statements. In fiscal year 2007 these total million (negative change) including the impact of changes in currency exchange rates. Revenues (positive overall result) and the cost of materials (negative overall result) include trade margins from energy trading transactions and energyrelated derivatives. The corresponding gross amounts total 51,780.6 million for revenues (previous year: 41,582.1 million) and 50,764.2 million for expenses for merchandise purchased as part of the cost of materials (previous year: 40,643.4 million). (1) Revenues Disclosure of the trade margin led to revenues being lower than gross revenues by 50,076.7 million in the fiscal year (previous year: 40,214.5 million). The net disclosure allows more realistic presentation of the revenue situation. Revenues (net) totaling 1,703.9 million (previous year: 1,367.6 million) are broken down into energies as follows: in million Electricity 1, ,272.8 Oil , ,367.6 In geographic terms, revenues of million (previous year: million) were recorded in Germany, million (previous year: million) in the EU and 33.7 million (previous year: 27.0 million) in the rest of Europe. Revenues also include the natural gas/electricity tax collected.

19 (2) Other operating income Other operating income of 15.3 million (previous year: 26.3 million) mostly comprises gains from various services totaling 8.6 million (previous year: 8.4 million). Gross income from the translation and realization of foreign currency transactions and profits from currency derivatives (totaling million; previous year: million) is netted with the corresponding other operating expenses for disclosure purposes. (3) Cost of materials The cost of materials totaling million (previous year: million) stems from the negative trading margins for the commodities gas at million (previous year: 73.1 million) and coal at million (previous year: million). (4) Personnel expenses On average over the year there were 511 employees at RWE Trading (previous year: 502), including 72 executives (previous year: 64). These figures are all full time equivalents. As part of a transfer of operations, 34 employees were transferred to RWE Systems UK Ltd. from our UK operating facility with effect from April 6, With effect from November 1, 2007, RWE Trading transferred specific retirement benefit obligations accounted for at RWE AG to RWE Pensionsfonds AG for a fee against a redemption premium as part of a declaration on joint liability. In future, payments for company pensions for this group of beneficiaries will be made by a pension fund which is not in the form of an insurance company. Expenses for retirement benefits were mostly impacted by the redemption premium paid during the

20 fiscal year. In contrast, in future fiscal years no further pension expenses will be incurred for the retirement benefit obligations transferred. Personnel expenses are composed of the following items: in million Salaries Social security, pension and other benefit costs Thereof pension expenses (5.6) (7.6) (5) Other operating expenses Other operating expenses of million (previous year: million) mostly comprise currency translation losses from foreign currency transactions. During the year under review, the balance of currency gains and losses including currency derivatives totaled million (previous year: 36.9 million). The corresponding gross income totaled million in the fiscal year (previous year: million). The corresponding gross expenses totaled million in the fiscal year (previous year: million). In addition, 30.5 million was spent on IT services (previous year: 15.9 million) and 9.1 million (previous year: 6.0 million) for personnel hire. (6) Other interest and similar income Of the other interest and similar income totaling 78.0 million (previous year: million), 22.0 million (previous year: 31.8 million) was due to affiliated companies. (7) Expenses from absorption of losses The expenses relate, in full, to the absorption of the loss from RWE Trading Services GmbH.

21 (8) Interest and similar expenses Of the other interest and similar expenses totaling 76.8 million (previous year: million), 69.1 million (previous year: million) was due to affiliated companies. (9) Taxes on income and earnings During the fiscal year, this relates to the income tax reclassification due to the pooling entity for RWE Trading s German operating facility of million (previous year: 72.7 million income tax reclassification) and the tax expense from the UK operating facility totaling million (previous year: 39.3 million). (10) Profits transferred under a profit and loss transfer agreement As part of the profit and loss transfer agreement, RWE AG absorbed the net profits which would have arisen without the profit and loss transfer.

22 IV. Other disclosures (1) Shareholdings in million Equity interest Equity Earnings Country Head office Total RWE Rhein Oel Limited* 1 UK London % RWE Trading Americas Inc. USA Houston % RWE Trading US Coal Limited UK Swindon % RWE Trading UK Limited UK London % RWE Trading New Business Ltd. UK London % RWE Trading Services GmbH * 2 D Essen % RWE Trading Services Ltd. UK Swindon % *1 = 2006 annual financial statements *2 = Profit and loss transfer agreement (2) Remuneration for management and the advisory council No information on remuneration for the management and former managing directors was provided within the meaning of Section 286 (4) of the HGB. Remuneration for the advisory council totaled 151 thousand in the fiscal year. On the balance sheet date, interest-free employee loans totaling 18 thousand had been made to members of the advisory council. (3) Other In May and December 2006, the EU Commission conducted subsequent reviews at several energy supply companies throughout Europe. This also affected companies in the RWE Group in Germany. The EU Commission then requested information on individual energy-market issues, including from RWE. The EU Commission will then further process this information.

23 (4) Transactions within the meaning of Section 10 (2) of the EnWG As a rule, RWET only concludes trade agreements as part of its ordinary energy supply activities or the procurement of fuel and emission rights with affiliated companies. One larger transaction which does not fall under ordinary activities with affiliated companies is the remuneration as part of the STPM (Short Term Position Management). According to the agreement concluded between RWE Trading and RWE Power, STPM is responsible for managing short-term positions in the group companies RWE Power AG, RWE Energy AG and RWE Trading for the purposes of optimizing contribution margins and risks. As part of this STPM agreement, RWE Trading paid RWE Power AG million in fiscal year 2007 (previous year: 94.0 million).

24 (5) Members of management Peter Terium Chairman Chief Executive Officer Dr. Bernhard Günther Chief Financial Officer - from November 1, 2007 Dr. Peter Kreuzberg Chief Commercial Officer

25 (6) Members of the Advisory Council Shareholder representatives Dr. Jürgen Großmann Chairman of the Advisory Council CEO of RWE AG, Essen since October 16, 2007 Harry Roels Chairman of the Advisory Council CEO of RWE AG, Essen up to October 15, 2007 Andrew Duff CEO of RWE npower plc., Swindon Paul Hagen Managing Partner HSBC Trinkaus & Burkhardt KGaA, Düsseldorf Dr. Johannes Lambertz Member of the Executive Board of RWE Power AG, Essen Dr. Andreas Radmacher Member of the Executive Board of RWE Energy AG, Dortmund

26 Employee representatives Klaus Reumer Deputy Chairman of the Advisory Council Bank merchant; Head of Accounting Germany Markus Möller Business administration graduate (FH); Trader Essen, February 4, The Management

27 Auditors Report We have audited the annual financial statements, comprising the balance sheet, income statement and notes, together with the bookkeeping system of RWE Trading GmbH, Essen, for the business year from January 1 to December 31, As required by Article 10 (4) EnWG ("Energiewirtschaftsgesetz", "German Energy Industry Law"), the audit also included the company's observance of obligations for the unbundling of internal accounting pursuant to Article 10 (3) EnWG. The maintenance of the books and records and the preparation of the annual financial statements in accordance with German commercial law, the use of the option in Section 263 (3) of the HGB (waiver of management report) as well as the observance of the obligations pursuant to Article 10 (3) EnWG are the responsibility of the company s managing directors. Our responsibility is to express an opinion on the annual financial statements, together with the bookkeeping system, and on the internal accounting pursuant to Article 10 (3) EnWG based on our audit. We conducted our audit of the annual financial statements in accordance with (Article) 317 HGB ("Handelsgesetzbuch": "German Commercial Code") and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the annual financial statements in accordance with (German) principles of proper accounting are detected with reasonable assurance and to obtain reasonable assurance about whether, in all material respects, the obligations pursuant to Article 10 (3) EnWG have been observed. Knowledge of the business activities and the economic and legal environment of the Company and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the books and records, the annual financial statements, as well as in the internal accounting pursuant to Article 10 (3) EnWG are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by the Company s managing directors, as well as evaluating the overall

28 presentation of the annual financial statements, and assessing whether the amounts stated and the classification of accounts in the internal accounting pursuant to Article 10 (3) EnWG are appropriate and comprehensible and whether the principle of consistency has been observed. We believe that our audit provides a reasonable basis for our opinion. Our audit of the annual financial statements, together with the bookkeeping system has not led to any reservations. In our opinion based on the findings of our audit, the annual financial statements comply with the legal requirements and give a true and fair view of the net assets, financial position and results of operations of the Company in accordance with (German) principles of proper accounting. On the date on which our audit ended, it was not possible to conclusively assess whether the exemption under Section 264 (3) of the HGB (waiver of the management report) was correctly used, as the conditions of No. 3 (inclusion in the parent company s consolidated financial statements) and No. 4 (statement of the exemption in the notes of the consolidated financial statements prepared and disclosed by the parent company and notification of the exemption in the electronic federal gazette) can only be fulfilled at a later date due to their nature. The audit of the observance of obligations for the unbundling of internal accounting pursuant to Article 10 (3) EnWG has not led to any reservations. Essen, February 5, PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft (Manfred Wiegand) Wirtschaftsprüfer (Markus Dittmann) Wirtschaftsprüfer