Return on capital employed increased to 17.2 %

Our strategy centres on increasing the company’s value. Additional value is created when the return on capital employed (ROCE) exceeds the cost of capital. We increased the value of the company considerably in 2008 again. ROCE was 17.2 %, clearly surpassing the Group’s cost of capital before tax, which was 8.5 % for 2008. In 2007, we still used a Group cost of capital of 9 %. We reduced it because corporate tax reforms in Germany and the UK had led to lower tax rates. As a result of this adjustment to the cost of capital before tax, the cost of capital after tax remained unchanged, at 6.0 % for the RWE Group for both years.

Our strong organic performance is reflected primarily in the development of absolute value added, the central controlling instrument for all of the RWE Group’s activities. It is an important criterion for assessing investments and the parameter for determining our executives’ bonus payments. Absolute value added is obtained by multiplying the difference between ROCE and cost of capital by capital employed. In fiscal 2008, the RWE Group’s value added amounted to €3,453 million. This is 16 % more than in 2007 (€2,970 million). This reflects the improved operating result and is in part due to the reduction in the cost of capital before taxes which had a positive effect on all divisions.

Value added by RWE Power totalled €1,915 million, representing the largest contribution within the RWE Group. This was an increase of €626 million year on year, and was primarily due to the improved earnings of our German power generation operations.

RWE Dea made a value contribution of €277 million. This is a year-on-year increase of €11 million, which is largely due to the reduction in the cost of capital. As RWE Dea steps up its capital expenditure on exploration, its ROCE is negatively affected. Capex immediately increases capital employed, whereas it takes some time for development to bring discoveries onstream and increase earnings.

Value added by RWE Supply & Trading amounted to €331 million. This was €191 million below the comparable figure for 2007. One reason was the decline in the operating result. Another factor was the increase in capital employed, in part due to the acquisition of a 50 % stake in the LNG Glossary transportation company Excelerate.

RWE Energy made a value contribution of €731 million, surpassing the year-earlier figure by €263 million. Major drivers were the positive earnings trend and the reduction in the cost of capital.

Value added by RWE npower amounted to €30 million, despite a significant drop in earnings. Sterling’s weakness–one of the main reasons for the decline in earnings–led to a reduction in capital employed as well. This had a stabilizing effect.

In its year of inception, RWE Innogy was unable to earn its cost of capital. The company’s value contribution amounted to -€66 million. This is because the extensive investments in the expansion of our renewables-based generation portfolio have not yet resulted in commensurate earnings contributions.

Detailed information on the calculation of the value management concept’s key figures can be found in the chapter value management of this report.