Reconciliation to net income

Positive one-off effects


The reconciliation from the operating result to net income is characterised by the positive impact of the fair valuation of commodity derivatives. In addition, the absence of burdens associated with the IPO of American Water had an effect on the year-on-year comparison. This is contrasted by higher interest expenses and a write-down on our investment in the US company Excelerate.

Non-operating result
€ million

Jan – Sep
2009

Jan – Sep
2008

+/–
€ million

Jan – Dec
2008

Capital gains

29

47

–18

89

Impairment losses

Restructuring, other

190

–553

743

–574

Non-operating result

219

–506

725

–485

The non-operating result amounted to € 219 million, which was € 725 million more than in the first three quarters of 2008. In detail, it developed as follows:

  • We did not realise any notable capital gains in the first nine months of 2009 (€ 29 million). The figure achieved a year earlier (€ 47 million) was also very low.

  • The result stated under “Restructuring, other” amounted to € 190 million. This represents a gain of € 743 million compared to the same period in 2008. The increase was mainly due to effects arising from the accounting treatment of derivative transactions, which are concluded to hedge the prices of forward contracts (underlying transactions). Pursuant to IFRS, these derivatives are accounted for at fair value at the corresponding balance sheet date, whereas the underlying transactions, which show the exact opposite movement, are only recognised with an effect on profit or loss later on, when they are realised. This results in short-term effects on earnings, which neutralise over time. The derivatives essentially related to the gas forward sales of RWE Supply & Trading and RWE Energy. On balance, changes in their fair value resulted in € 578 million in income, as compared to the expense of € 362 million incurred in the same period last year. The write-down of US$ 250 million (€ 182 million) on our at-equity investment in Excelerate countered this derivative effect. The US company, which specialises in liquefied natural gas (LNG) transports, has failed to meet our income expectations so far, because the conditions in the LNG market are currently difficult. The “Restructuring, other” item also includes the amortisation of RWE npower’s customer base. It amounted to € 189 million, which was lower than the figure for the first three quarters of 2008 (€ 214 million) due to currency effects. Changes made to nuclear and mining provisions resulted in € 136 million in income (first nine months of 2008: € 93 million).

Financial result
€ million

Jan – Sep
2009

Jan – Sep
2008

+/–
€ million

Jan – Dec
2008

Interest income

478

624

–146

807

Interest expense

–907

–660

–247

–965

Net interest

–429

–36

–393

–158

Interest accretion to non-current provisions

–676

–561

–115

–738

Other financial result

–333

–422

89

–579

Financial result

–1,438

–1,019

–419

–1,475

The financial result decreased by € 419 million to –€ 1,438 million. In detail, it developed as follows:

  • Net interest declined by € 393 million to –€ 429 million. Our debt level rose due to our growth investments and the refinancing of the Essent acquisition, causing the interest expense to increase commensurately. Burdens grew also as a result of fees paid for the loan granted to us by banks for the interim financing of the Essent acquisition.

  • The interest accretion to non-current provisions rose by € 115 million to € 676 million. One reason for this is that we expect to see a decline in income from our pension funds. When the interest accretion is calculated, this income is deducted.

  • The “Other financial result” totalled –€ 333 million (first three quarters of 2008: –€ 422 million). Burdens primarily stemmed from book losses realised on the sale of securities. In addition, we wrote down securities.

Our continuing operations generated income before tax amounting to € 4,315 million. This was slightly more than in the first nine months of 2008. The effective tax rate was 32 % (first three quarters of 2008: 28 %). Income from continuing operations after tax totalled € 2,947 million, slipping by 4 % year on year.

The RWE Group’s discontinued operations (American Water) made an earnings contribution of € 20 million. In the same period last year, we had recorded a loss of € 598 million resulting from the IPO of American Water in April 2008. When we placed 39.5 % of the shares in the company, the issue price was lower than the carrying amount, requiring us to recognise an impairment loss on the remaining shareholding.

The minority interest amounted to € 176 million, which was clearly lower than in the same period in 2008 (€ 248 million). Some RWE subsidiaries, in which third parties hold minority interests, recorded marked declines in earnings. This applies above all to our Hungarian supply companies.

Reconciliation to net income

 

Jan – Sep
2009

Jan – Sep
2008

+/–
in %

Jan – Dec
2008

Operating result

€ million

5,534

5,788

–4.4

6,826

Non-operating result

€ million

219

–506

–485

Financial result

€ million

–1,438

–1,019

–41.1

–1,475

Income from continuing operations before tax

€ million

4,315

4,263

1.2

4,866

Taxes on income

€ million

–1,368

–1,206

–13.4

–1,423

Income from continuing operations

€ million

2,947

3,057

–3.6

3,443

Income from discontinued operations

€ million

20

–598

–567

Income

€ million

2,967

2,459

20.7

2,876

 

 

 

 

 

 

Minority interest

€ million

176

248

–29.0

318

Net income

€ million

2,791

2,211

26.2

2,558

Recurrent net income

€ million

2,871

3,077

–6.7

3,367

Earnings per share

5.24

4.09

28.1

4.75

Recurrent net income per share

5.39

5.69

–5.3

6.25

Effective tax rate

%

32

28

29

Overall, this resulted in a significant improvement in the RWE Group’s net income, which rose by 26 % to € 2,791 million. Our earnings per share advanced from € 4.09 to € 5.24. The number of RWE shares outstanding decreased due to the share buyback conducted between February and May 2008. In the first nine months of 2009, they averaged 533.0 million, compared to 541.1 million in the same period last year.

The decisive figure for our dividend policy is recurrent net income, which does not contain the non-operating result. Major non-recurrent effects in the financial result, income taxes and income from discontinued operations are also excluded from this figure. In the first three quarters of 2009, recurrent net income totalled € 2,871 million, 7 % less than in the same period last year. We expect the figure for 2009 as a whole to be of the same order as last year’s.