RWE Aktiengesellschaft Subordinated Resettable Fixed Rate Notes of CHF 150,000,000

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1 Prospectus dated 23 July 2012 RWE Aktiengesellschaft Subordinated Resettable Fixed Rate Notes of CHF 150,000,000 Issuer s Name and registered office: Remuneration / Deferral of Remuneration at the option of the Issuer: Issue Price: Placement Price: Issue Date: 26 July Redemption: Early Redemption: RWE Aktiengesellschaft, Opernplatz 1, Essen, Federal Republic of Germany («RWE» or the «Issuer», together with its consolidated group companies, the «RWE Group»). 5% fixed rate, payable for the first time on 26 July 2013 and thereafter in arrears on 26 July in each year until 26 July If not called, the remuneration rate will be reset to the prevailing 5 year CHF mid swap rate plus a margin of (i) 4.657%, payable annually in arrears until 26 July 2022, (ii) 4.907%, payable annually in arrears until 26 July 2037, (iii) 5.657%, payable annually in arrears until 26 July 2072 (refer to 4 of the Terms and Conditions for full details, especially with regard to deferral of renumeration 4(5)). 101% of their aggregate nominal amount (before commission). The Placement Price of the Subordinated Notes will be fixed in accordance with supply and demand. 26 July 2072 (the «Maturity Date»), at par. On 26 July 2017 and 26 July 2022 and on each subsequent Remuneration Payment Date thereafter (in each case at the option of the Issuer), as well as following a Gross-up Event, an Accounting Event, a Tax Event, a Rating Agency Event or a Change of Control (refer to 5 of the Terms and Conditions for full details). Reopening of the Issue: The Issuer reserves the right to reopen this issue according to the Terms and Conditions of the Subordinated Notes. Denominations: Form of the Subordinated Notes: Status: Ranking on a winding-up: Listing: Governing Law and Jurisdiction: Sales Restrictions: Rating: CHF 5,000 nominal and multiples thereof. The Subordinated Notes will be represented by a Permanent Global Note. Noteholders do not have the right to request the printing and delivery of definitive subordinated notes. The Subordinated Notes constitute direct, unsecured and subordinated obligations of the Issuer (refer to 3 of the Terms and Conditions for full details). (i) senior only to the Issuer s share capital, (ii) pari passu among themselves and pari passu with any Parity Securities and (iii) junior to all other present and future obligations of the Issuer, whether subordinated or unsubordinated, except as otherwise provided by mandatory provisions of law or as expressly provided for by the terms of the relevant instrument (refer to 3 of the Terms and Conditions for full details). Listing will be applied for in accordance with the Standard for Bonds of the SIX Swiss Exchange. The Subordinated Notes are provisionally admitted for trading on the SIX Swiss Exchange with effect from 23 July The last trading date will be the third business day prior to the Maturity Date. The Subordinated Notes are governed by, and construed in accordance with German law. Place of jurisdiction for the Subordinated Notes and all related contractual documentation shall be Frankfurt am Main. In particular U.S.A., U.S. persons, United Kingdom, EEA and Japan. The Subordinated Notes are expected to be rated «Baa2» by Moody s, negative outlook. S&P is expected to publish a bond rating only after the Issue Date. Security Number/ / CH / ISIN/Common Code: UBS Investment Bank

2 SELLING RESTRICTIONS United States of America, U.S. Persons The Subordinated Notes are issued in bearer form and have not been and will not be registered under the U.S. Securities Act of 1933 (the Securities Act ) and may not be offered or sold within the United States of America (the United States ) or to, or for the account or benefit of, U.S. persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. (A) The Issuer and the Lead Manager have offered or sold the Subordinated Notes, and will offer and sell the Subordinated Notes (i) allotted to it for distribution at anytime and (ii) acquired otherwise until 4 September 2012 (40 days after the Issue Date) (the Restricted Period ), only in accordance with Rule 903 of Regulation S under the Securities Act. Terms used in this paragraph (A) have the meanings given to them by Regulation S. Accordingly, neither the Issuer, the Lead Manager and its affiliates nor any persons acting on its/their behalf have engaged or will engage in any directed selling efforts with respect to the Subordinated Notes, and they have complied and will comply with the offering restrictions requirement of Regulation S. The Lead Manager has agreed that, at or prior to confirmation of sale of the Subordinated Notes, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Subordinated Notes from it during the Restricted Period, a notice to substantially the following effect: The Subordinated Notes covered hereby have not been registered under the U.S. Securities Act of 1933 (the Securities Act ) and may not be offered and sold within the United States of America or to, or for the account or benefit of U.S. persons (i) allotted to the Banks as part of their original distribution at any time and (ii) otherwise acquired until 4 September 2012 except in either case in accordance with Regulation S under the Securities Act. Terms used above have the meanings given to them by Regulation S. (B) The Lead Manager has not entered and will not enter into any contractual arrangement (other than this Agreement) with respect to the distribution or delivery of the Subordinated Notes, except with its affiliates or with the prior written consent of the Issuer. (C) In addition, the Lead Manager: (1) except to the extent permitted under U.S. Treas. Reg (c)(2)(i)(D) (the D Rules ), (a) has neither offered to sell nor sold, and during the Restricted Period will neither offer to sell nor sell, the Subordinated Notes in bearer form to a person who is within the United States or its possessions or to a U.S. person, and (b) has not delivered and will not deliver, within the United States or its possessions, any Subordinated Notes in definitive bearer form that may be sold during the restricted period; (2) represents and agrees that it has, and throughout the restricted period will have, in effect procedures reasonably designed to ensure that its employees or agents who are directly engaged in selling the Subordinated Notes in bearer form are aware that such Subordinated Notes may not be offered or sold during the Restricted Period to a person who is within the United States or its possessions, or to a U.S. person, except as permitted by the D Rules; (3) if the Lead Manager is a U.S. person, such Lead Manager represents that it is acquiring the Subordinated Notes in bearer form for the purposes of resale in connection with the original issuance of the Subordinated Notes and if it retains the Subordinated Notes in bearer form for its own account, it will only do so in accordance with the requirements of U.S. Treas. Reg (c)(2)(i)(D)(6); and (4) with respect to each affiliate that acquires from the Lead Manager the Subordinated Notes in bearer form for the purpose of offering or selling such Subordinated Notes during the Restricted Period, the Lead Manager repeats and confirms the representations and agreements contained in clauses (1), (2), and (3) on behalf of such affiliate, Terms used in this paragraph (C) have the meanings given to them by the U.S. Internal Revenue Code and the regulations thereunder, including the D Rules. 2

3 European Economic Area In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State ), the Lead Manager has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date ) it has not made and will not make an offer of Subordinated Notes which are the subject of the offering contemplated by the Prospectus to the public in that Relevant Member State other than: (i) to any legal entity which is a qualified investor as defined in the Prospectus Directive; or (ii) at any time to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive). as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant Bank or Banks nominated by the Company for any such offer; or (iii) in any circumstances falling within Article 3(2) of the Prospectus Directive. provided that no such offer of Subordinated Notes shall require the Issuer or the Lead Manager to publish a prospectus pursuant to Article 3 of the Prospectus Directive, or supplement a prospectus pursuant to Article 16 of the Prospectus Directive. For the purposes of this provision, the expression an offer of Subordinated Notes to the public in relation to any Subordinated Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Subordinated Notes to be offered so as to enable an investor to decide to purchase or subscribe the Subordinated Notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU. United Kingdom The Lead Manager represents, warrants and agrees that: (a) it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 (the FSMA ) with respect to anything done by it in relation to the Subordinated Notes in, from or otherwise involving the United Kingdom; and (b) it has only communicated or caused to be communicated and it will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of any Subordinated Notes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer. Japan The Lead Manager acknowledges that the Subordinated Notes have not been and will not be registered under the Financial Instrument and Exchange Law of Japan (Law No. 25 of 1948, as amended) (the Financial Instrument and Exchange Law ). The Lead Manager represents and agrees that it will not offer or sell any Subordinated Notes, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organised under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan except only pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instrument and Exchange Law and any applicable laws, regulations and guidelines of Japan 3

4 FORWARD LOOKING STATEMENTS This Prospectus contains certain forward-looking statements. A forward-looking statement is a statement that does not relate to historical facts and events. They are based on analyses or forecasts of future results and estimates of amounts not yet determinable or foreseeable. These forward-looking statements are identified by the use of terms and phrases such as anticipate, believe, could, estimate, expect, intend, may, plan, predict, project, will and similar terms and phrases, including references and assumptions. This applies, in particular, to statements in this Prospectus containing information on future earning capacity, plans and expectations regarding RWE Group s business and management, its growth and profitability, and general economic and regulatory conditions and other factors that affect it. Forward-looking statements in this Prospectus are based on current estimates and assumptions that the Issuer makes to the best of its present knowledge. These forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results, including RWE Group s financial condition and results of operations, to differ materially from and be worse than results that have expressly or implicitly been assumed or described in these forward-looking statements. RWE Group s business is also subject to a number of risks and uncertainties that could cause a forward-looking statement, estimate or prediction in this Prospectus to become inaccurate. Accordingly, investors are strongly advised to read the following sections of this Prospectus: Risk Factors and Information about the Issuer. These sections include more detailed descriptions of factors that might have an impact on RWE Group s business and the markets in which it operates. In light of these risks, uncertainties and assumptions, future events described in this Prospectus may not occur. In addition, neither the Issuer nor the Lead Manager assume any obligation, except as required by law, to update any forward-looking statement or to conform these forward-looking statements to actual events or developments. 4

5 TABLE OF CONTENTS TABLE OF CONTENTS Selling Restrictions Forward Looking Statements Table of Contents Risk Factors General Information Information about the Subordinated Notes Information on the Issuer Responsibility Statement Terms and Conditions Annual Report 2011 of the RWE Group Annex A Financial Statements 2011 of RWE AG Annex B Report on the First Quarter 2012 of RWE Group Annex C 5

6 RISK FACTORS The following is a disclosure of risk factors that may affect the ability of RWE to fulfil their respective obligations under the Subordinated Notes and that are material to the Subordinated Notes in order to assess the market risks associated with the Subordinated Notes. Prospective investors should consider these risk factors prior to deciding to purchase the Subordinated Notes. The sequence in which the following risk factors are listed is not an indication of their likelihood to occur or of the extent of their commercial consequences. Prospective investors should consider all information provided in this Swiss listing prospectus (the «Prospectus») and consult with their own professional advisers (including their financial, accounting, legal and tax advisers) if they consider it necessary. In addition, investors should be aware that the risks described may combine and thus intensify one another. Words and expressions defined in Terms and Conditions of the Subordinated Notes below shall have the same meanings in this section. RISK FACTORS REGARDING THE SUBORDINATED NOTES Subordinated Notes may not be a suitable investment for all investors Each potential investor must make its own determination of the suitability of any such investment, with particular reference to its own investment objectives and experience, and any other factors which may be relevant to it in connection with such investment, either alone or with the help of a financial adviser. In particular, each potential investor should: (i) (ii) (iii) (iv) (v) have sufficient knowledge and experience to make a meaningful evaluation of the Subordinated Notes, the merits and risks of investing in the Subordinated Notes and the information contained or incorporated by reference in this Prospectus or any applicable supplement; have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation and the investment(s) it is considering, an investment in the Subordinated Notes and the impact the Subordinated Notes will have on its overall investment portfolio; have sufficient financial resources and liquidity to bear all of the risks of an investment in the Subordinated Notes; understand thoroughly the Terms and Conditions of the Subordinated Notes and be familiar with the behaviour of financial markets and of any financial variable which might have an impact on the return on the Subordinated Notes; and be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks; and prospective purchasers should also consult their own tax advisors as to the tax consequences of the purchase, ownership and disposition of Subordinated Notes. Payments of Remuneration under the Subordinated Notes may under certain circumstances be deferred at the election of the Issuer. The Issuer has the option to defer any payment of Remuneration on the Subordinated Notes if the requirements for deferral set out in 4(5) of the Terms and Conditions are satisfied. If the Issuer, who may do so at its own discretion, decides to defer a payment of Remuneration on the Subordinated Notes, payment of Remuneration so deferred must only be made if the specific requirements set out in 4(6)(b) of the Terms and Conditions are fulfilled. Any Remuneration deferred in such manner will not itself accrue interest. While the deferral of Remuneration payments continues, the Issuer is not prohibited from making payments on any instrument ranking senior to the Subordinated Notes. In such event the Holders are not entitled to claim immediate payment of Remuneration so deferred. 6

7 The Subordinated Notes are long-term securities. Holders have no right to call the Subordinated Notes for their redemption. The Subordinated Notes will be redeemed on 26 July 2072, and the Issuer is under no obligation to redeem the Subordinated Bonds at any time prior to such date. Holders have no right to call the Subordinated Notes for their redemption. Therefore, prospective investors should be aware that they may be required to bear the financial risks of an investment in the Subordinated Notes until 26 July The Issuer may redeem the Subordinated Notes under certain circumstances. Holders should be aware that the Subordinated Notes may be redeemed at the option of the Issuer (in whole but not in part) at their Aggregate Principal Amount plus any Remuneration accrued to but excluding the Redemption Date and any Deferred Remuneration Payments any time upon the occurrence of a Gross-up Event (as defined in 5(3) of the Terms and Conditions). In any such case, investors will not receive a Make-Whole Amount or any other compensation in light of the early redemption of the Subordinated Notes. The Subordinated Notes are also subject to early redemption (in whole, but not in part) at the Issuer s option before such dates upon the occurrence of an Accounting Event, a Tax Event (each as defined in 5(3) of the Terms and Conditions) or a Change of Control (as defined in 5(8) of the Terms and Conditions), the Subordinated Notes will be redeemed (i) at their Early Redemption Amount if such redemption occurs prior to the First Modified Reset Remuneration Date, or (ii) at their Aggregate Principal Amount plus any Remuneration accrued to but excluding the Redemption Date and any Deferred Remuneration Payments if such redemption occurs on or after the First Modified Reset Remuneration Date. Investors will, other than the Make-Whole Amount, not receive any compensation in light of the early redemption of the Subordinated Notes. Additionally, the Subordinated Notes are subject to early redemption (in whole, but not in part) at the Issuer s option before such dates upon the occurrence of a Rating Agency Event (as defined in 5(3) of the Terms and Conditions), at 101 per cent. of their Aggregate Principal Amount plus any Remuneration accrued to but excluding the Redemption Date and any Deferred Remuneration Payments (as set out in 5(2) of the Terms and Conditions). Investors will, other than the 101 per cent of the Aggregate Principal Amount, not receive any compensation in light of such early redemption of the Subordinated Notes. Further, in the event the Issuer and/or any Subsidiary (as defined in 3(1) of the Terms and Conditions) has purchased Subordinated Notes equal to at least 80 per cent. of the aggregate principal amount of the Subordinated Notes initially issued, the Issuer may call and redeem the remaining Subordinated Notes (in whole but not in part) upon giving not less than 30 and not more than 60 days irrevocable notice of redemption to the Holders in accordance with 11 (i) at their Early Redemption Amount if such redemption occurs prior to the First Modified Reset Remuneration Date, or (ii) at their outstanding Aggregate Principal Amount plus any Remuneration accrued to but excluding the Redemption Date and any outstanding Deferred Remuneration Payments if such redemption occurs on or after the First Modified Reset Remuneration Date. Investors will, other than the Make-Whole Amount, not receive any compensation in light of such early redemption of the Subordinated Notes. Claims under the Subordinated Notes are subordinated and only senior to the share capital of the Issuer. In any insolvency proceedings of the Issuer, the Holders may recover proportionally less than holders of unsubordinated and other subordinated liabilities of the Issuer and the remedies for Holders in the insolvency proceedings of the Issuer may be limited. The Issuer s obligations under the Subordinated Notes are, and will remain, subordinated to the full prior payment of all existing and future indebtedness of the Issuer. Accordingly, the claims under the Subordinated Notes will rank junior to all other creditors (the claims of which do not rank pari passu with the Holders claims) of the Issuer in the event of an insolvency or liquidation. Therefore, in liquidation or insolvency proceedings of the Issuer, the Holders will in all likelihood recover significantly less than the holders of unsubordinated and other subordinated liabilities of the Issuer. Holders will have limited ability to influence the outcome of any insolvency proceeding or a restructuring outside insolvency. In particular, in insolvency proceedings over the assets of the Issuer holders of subordinated debt, such as the Subordinated Notes, will not have any right to vote in the assembly of creditors (Gläubigerversammlung). Also the Subordinated Notes do not provide for any Holders meetings or resolutions of Holders outside of a meet- 7

8 ing. Accordingly, Holders of the Subordinated Notes have no influence on the outcome of a restructuring outside insolvency. Investors should take into consideration that unsubordinated liabilities may also arise out of events that are not reflected on the Issuer s balance sheet, including, without limitation, the issuance of guarantees or other payment undertakings. Claims of beneficiaries under such guarantees or other payment undertakings will, in winding-up or insolvency proceedings of the Issuer, become unsubordinated liabilities and will therefore be paid in full before payments are made to Holders. There is no limitation on the Issuer to incur additional indebtedness ranking senior or pari passu with the Subordinated Notes. The Issuer has not entered into any restrictive covenants in connection with the issuance of the Subordinated Notes regarding its ability to incur additional indebtedness ranking pari passu or senior to the obligations under or in connection with the Subordinated Notes. The incurrence of any such additional indebtedness may significantly increase the likelihood of a deferral of payments of Remuneration under the Subordinated Notes and/or may reduce the amount recoverable by Holders in the event of insolvency or liquidation of the Issuer. An active trading market for the Subordinated Notes may not develop. The Subordinated Notes constitute a new issue of securities. Prior to this offering, there has been no public market for the Subordinated Notes. Although application will be made for the Subordinated Notes to be listed on and to be admitted to trading on the SIX Swiss Exchange, there can be no assurance that an active public market for the Subordinated Notes will develop. Even if such a market were to develop, the Lead Manager is under no obligation to maintain such a market. In an illiquid market, an investor might not be able to sell his Subordinated Notes at all or at any time at fair market prices. The possibility to sell the Subordinated Notes might additionally be restricted due to country-specific reasons. Further, there can be no assurance that a market for the Subordinated Notes will not be subject to disruptions. Any such disruptions may have an adverse effect on the Holders. Resettable fixed rate securities have a market risk. A holder of fixed rate securities is particularly exposed to the risk that the price of such securities falls as a result of changes in the market interest rate. While the nominal remuneration rate of the Subordinated Notes is fixed until 26 July 2017 (with a reset of the initial fixed rate on 26 July 2017 as set out in 4(2) of the Terms and Conditions), the current interest rate on the capital market (the Market Interest Rate ) typically changes on a daily basis. As the Market Interest Rate changes, the price of the Subordinated Notes also changes, but in the opposite direction. If the Market Interest Rate increases, the price of the Subordinated Notes would typically fall. If the market interest rate falls, the price of the Subordinated Notes would typically increase. Holders should be aware that movements in these market interest rates can adversely affect the price of the Subordinated Notes and can lead to losses for the Holders if they sell the Subordinated Notes. Interest rate reset may result in a decline of yield. A holder of securities with a fixed interest rate which will be reset during the term of the securities (as will be the case for the Subordinated Notes on 26 July 2017 if not previously redeemed) is exposed to the risk of fluctuating interest rate levels and uncertain interest income. Fluctuating interest rate levels make it impossible to determine the yield of such floating interest rate securities in advance. The credit rating of the Subordinated Notes may not reflect all associated risks. The credit rating expected to be assigned to the Subordinated Notes may not reflect the potential impact of all risks related to their structure, market, the factors discussed above and other circumstances that may affect the market value of the Subordinated Notes. A credit rating is not a recommendation to buy, sell or hold Subordinated Notes and may be revised or withdrawn by the relevant rating agency at any time. 8

9 RISK FACTORS REGARDING RWE AKTIENGESELLSCHAFT AND RWE GROUP At present, there are no identifiable risks that could jeopardise the continued operation of RWE or RWE Group. However, there are a number of businesses or operational factors that can affect RWE Group s operations by having either a positive or a negative impact on revenue and results. These include: Changes in the general, political and economic climate As an energy company, RWE Group is especially dependent on reliable political framework conditions in the energy sector. However, due to the budgetary difficulties faced by numerous European countries, there is now an increased risk of governments imposing new burdens on the economy. This could affect companies that are bound to certain locations like RWE Group in particular. An example of this is the German nuclear fuel tax. As its legality is questionable, RWE Group has taken legal action concerning the fuel tax. Whilst the applications for interim measures against the tax were rejected by the German Federal Court of Finance (Bundesfinanzhof BFH ), the question of the legitimacy of the tax is still open. This decision must be made by the German Constitutional Court or the European Court of Justice in the so called main action. Until the decision is made, there will be substantial uncertainty, which will make RWE s planning difficult. Furthermore these huge imbalances in public budgets can negatively affect growth and investment climate not only in the so called peripheral states but throughout Europe. The sudden change of course in German energy policy following the reactor catastrophe at Fukushima proves that the risks in the utility sector have risen. The 13th amendment to the German Nuclear Energy Act from August 2011 reversed the lifetime extension for German nuclear power stations which entered into force in January In addition, the German government set deadlines for shutting down each individual reactor. The legally mandated shutdown of RWE s nuclear power plants in Biblis forces RWE to purchase electricity from other sources at conditions that may be much less favourable, in order to supply the generation that has already been sold forward. In view of the remaining lifetimes of the nuclear power stations that are still in operation, there is a risk that RWE may not be able to make full use of the legally determined residual generation volumes (determined by the German Nuclear Energy Act) before the shutdown deadline. RWE Group believes the 13th amendment to the German Nuclear Energy Act is unconstitutional because the operators of the reactors affected will not be compensated and the decommissioning dates were established without sound justification. Therefore, RWE Group filed an appeal before the German Constitutional Court in February In April 2011, RWE had already brought lawsuits before the Administrative Court of Justice in Kassel against the nuclear moratorium imposed on RWE s nuclear power plants Biblis A and B from March to June In addition to energy policy, the development of supply and demand on electricity and gas markets affects RWE Group s earning power in particular. Should the Eurozone s sovereign debt crisis lead to a recession, a decline in energy consumption and energy prices may be the consequence. Furthermore, RWE Group is witnessing structural changes on energy markets. For instance, the continued rise in the number of wind turbines and solar panels is crowding out gas and coal-based generation, the margins of which have come under pressure. If they continue to deteriorate, a curtailment of the profitability of RWE Group s large-scale new build projects may be one of the consequences. The gas market is also undergoing change. The increasing significance of liquid gas trading points and the expansion of shale gas production in the USA have made a major contribution to prices in gas trading decoupling themselves from those set in long-term agreements indexed to the price of oil, with the former being much lower than the latter since Changes in the price of commodities and products The development of prices on commodity markets greatly influences RWE Group s earnings, especially in the field of electricity generation. Decreasing electricity prices or rising fuel costs may lead to a decline in generation margin contributions and reduce the value of RWE Group s power plants. In RWE Group s upstream business, changes in the market price of oil and gas can influence RWE Group s earnings. Furthermore, unfavourable market developments can cause the costs RWE Group incurs to purchase electricity and gas to exceed the prices RWE Group can realise through sales to end-customers and distributors. This primarily relates to those of RWE Group s gas procurement contracts which are linked to the price of oil. Risks resulting from gas procurement contracts Some of RWE Group s gas purchases are based on long-term agreements linked to the price of oil. However, gas prices have been decoupled from the price of oil on international markets since the middle of 2009, falling below it significantly. As a result, the gas RWE Group buys may be more expensive than at gas wholesale market trading 9

10 hubs, exposing RWE Group to potential declines in margins and customer losses. This primarily affects RWE Group s German and Czech gas midstream activities. To obtain better purchase conditions, RWE Group entered both into contract renegotiations and arbitration proceedings with its gas suppliers. Their outcomes will have a substantial influence on RWE Group s medium-term earnings. The expectations are based on detailed legal assessments which RWE carried out in the run-up to the renegotiations. There is a risk that the outcomes of the price renegotiations may lag behind RWE Group s expectations. Risks resulting from CO2 emissions Lignite and hard coal power plants with relatively higher CO2 emission in relation to other fuel technology account for a significant portion of RWE Group s electricity generation portfolio. The costs RWE incurs to purchase CO2 certificates are, as a result, far above the sector average. In December 2008, the EU member states agreed that the Western European electricity sector will be allocated hardly any free certificates from 2013 onwards. This will cause RWE Group s CO2 costs to be much higher than in the current trading period, which will last until Regulatory risks As a utility, RWE Group plans its capital expenditure for periods extending over decades, making RWE Group especially dependent on reliable political framework conditions and regulation in the energy sector (see also changes in the general, political and economic climate above). The RWE Group s exposure to the constant change in the political, legal and social environment in which it does business can be expected to have a substantial impact on earnings. RWE is exposed to risks associated with approvals when building and operating production facilities. This particularly affects RWE s wind farms, opencast mines, grids and power plants. If their operation is interrupted or curtailed, this can result in significant production and earnings shortfalls. Furthermore, there is a danger of newbuild projects either receiving late or no approval, or of granted approvals being withdrawn. Depending on the construction progress made and the contractual obligations to suppliers, this can have a significant negative financial impact. In Germany, risks may also arise from the allegation of anti-competitive pricing practices, the legal framework of which became stricter at the end of The investigations into the wholesale electricity market initiated by the German Federal Cartel Office in the spring of 2009 ended without any violation of antitrust law having been identified. Legislative initiatives exist at national and European levels aiming to constantly monitor electricity generation and wholesale electricity markets, which could result in new transparency obligations for the companies. The incentive-based regulation of RWE s German electricity and gas network companies in effect since 2009 is also associated with earnings risks. In November 2011, the German Network Agency set the returns on equity (RoE) that electricity and gas network operators are allowed to earn for the upcoming five-year regulatory period beginning in 2013 (gas) and 2014 (electricity), respectively. The allowable annual RoE before corporate tax will be 9.05% for assets capitalised after 2005 and 7.14% for older assets. Operating and integration risks RWE Group operates technologically complex and interconnected production plants in all parts of RWE Group s value chain. Uninsured damage can be incurred amongst others by RWE s lignite mining equipment, upstream facilities, power stations, power plant components and grids. There is an increasing risk of outages in RWE Group s power plants due to the ageing of their components. In addition, the construction of new plants can be delayed due to accidents, faulty material or time-consuming approval procedures. RWE Group s entire business is exposed to the risk of facilities being damaged by force majeure such as severe weather conditions. Risks associated with corporate strategy, capital expenditure from 2012 to 2014 Decisions on capital expenditure on property, plant and equipment and acquisitions are associated with execution and implementation risks since capital is employed and tied up long term. For example, when a company is acquired, problems can arise in connection with the integration of employees, processes and technologies. 10

11 A main building block of RWE Group s strategy is capital expenditure on power plants and networks. In addition, RWE Group s investment activity centres on the expansion of its gas and oil production. For the three-year period through to 2014, RWE Group plans to spend a total of EUR 16 billion on property, plant and equipment. Ratings RWE has been assigned credit ratings by Moody s Investors Service, Inc. ( Moody s ) and Standard & Poor s Rating Services, a division of The McGraw-Hill Companies, Inc. ( Standard & Poor s ), respectively. Generally, a credit rating assesses the credit worthiness of an entity and informs an investor about the probability of the entity being able to service debt. It is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time. On 19 July 2011, Moody s revised its long term senior unsecured debt rating of RWE to A3 from A2 maintaining the negative outlook. Also the short term rating was reduced to P-2 from P-1. On 8 June 2011, Standard & Poor s lowered RWE s long term senior unsecured debt rating to A with negative outlook and the short term rating to A-2. Credit ratings play a critical role in determining the costs for borrowers accessing the capital market and the rate of interest they can achieve. A decrease in credit ratings either by Moody s and/or Standard & Poor s may increase borrowing costs or even jeopardise further issuance. The prices of the exisiting bonds may deteriorate following a downgrade. Financial risks Fluctuations in financial prices such as foreign exchange rates, interest rates, credit spreads or share prices can have a significant effect on RWE Group s earnings. Such fluctuations can severely impact RWE s results, capital and/or its liquidity position. Liquidity risks Liquidity risks consist of the danger of RWE Group s liquidity reserves no longer being sufficient to meet financial obligations in a timely manner. At RWE Group, such obligations result above all from the refinancing of due financial liabilities. Furthermore, RWE Group must put up collateral if trading contracts marked to market result in a loss. There is no certainty that RWE Group will always be able to raise funds in the equity, debt or money markets. Thus, risks arise in the process of ensuring sufficient liquidity is available to meet RWE Group s financial obligations on a timely basis. In general, there is a remote risk of a complete market shut down due to reasons within or outside of RWE Group s sphere of influence. Credit risks Business relations with financial institutions, trading partners, customers, banks and suppliers expose RWE Group to credit risks as they may not be able to fulfil their contractual obligations. Such risks apply especially in times of economic crisis. Country risks RWE Group operates in various jurisdictions in Western, Central, Central East and South Eastern Europe, North Africa, North America and some parts of Asia. It therefore faces risks like expropriation, war and terrorism or nontransferability of funds. RWE Group is following the political upheaval in North Africa very closely. RWE Dea is active in the region where it is conducting upstream projects. IT risks RWE Group s business processes are supported by efficient IT systems. Risks are associated with the availability of networks and IT solutions as well as with the security of RWE Group s data. RWE Group is exposed to IT risks during the development of IT solutions designed to support business processes. 11

12 Competition for qualified staff RWE Group competes with other companies for the best talent in an increasingly contested market. This is a constant challenge, especially in light of the ambitious organic earning growth targets. Legal risks Individual RWE Group companies are involved in litigation and arbitration proceedings due to their operations or sale of companies. Out-of-court claims have been filed against some of them. Furthermore, RWE Group companies are directly involved in various procedures with public authorities or are at least affected by their results. Some conciliation proceedings in connection with the legal structuring of companies are pending. They were initiated by external shareholders in order to examine the appropriateness of the conversion ratios and/or the amount of cash paid in compensation. If different legally enforceable decisions are reached, RWE will pay a cash compensation to the affected shareholders, including those who are not directly involved in the conciliation proceedings. Material contracts / Profit- and loss-pooling agreements RWE AG as controlling company is connected to essential group companies via Control and/or Profit and Loss Transfer Agreements according to which RWE AG is obliged to compensate losses of group companies (section 302 German Stock Company Act). In addition to that, similar contractual and/or statutory liabilities exist with regard to group companies abroad on the basis of the applicable national jurisdictions. 12

13 GENERAL INFORMATION Subordinated Notes The obligations of the Issuer under the Subordinated Notes constitute direct, unsecured and subordinated obligations of the Issuer and, in the event of the winding-up, dissolution or liquidation of the Issuer, rank (i) senior only to the Issuer s share capital, (ii) pari passu among themselves and pari passu with any Parity Securities (as defined in 3(1) of the Terms of the Notes) and, (iii) junior to all present and future other obligations of the Issuer, whether subordinated or unsubordinated, except as otherwise provided by mandatory provisions of law or as expressly provided for by the terms of the relevant instrument. The rights of the Holders towards the Issuer under the Subordinated Notes constitute direct, unsecured and subordinated rights and, in the event of the insolvency of the Issuer, composition or other proceedings for the avoidance of insolvency of the Issuer, rank (i) senior only to the Issuer s share capital, (ii) pari passu among themselves and pari passu with any Parity Securities (as defined in 3(1) of the Terms of the Notes) and, (iii) junior to all present and future other obligations of the Issuer, whether subordinated or unsubordinated, except as otherwise provided by mandatory provisions of law or as expressly provided for by the terms of the relevant instrument. In the case of (i) the winding-up, dissolution or liquidation of the Issuer, the obligations of the Issuer under the Subordinated Notes, and (ii) the insolvency of the Issuer or composition or other proceedings for the avoidance of insolvency of the Issuer, the rights of the Holders towards the Issuer shall be subordinated to the claims of all unsubordinated and subordinated creditors of the Issuer so that in any such case no amounts shall be payable in respect of the Subordinated Notes until the claims of all unsubordinated and subordinated creditors of the Issuer shall have first been satisfied in full. Notice to Investors This Swiss listing prospectus (the «Prospectus») shall be read and construed on the basis that the annexes hereto are deemed to be incorporated in, and to form part of, this Prospectus. The financial institution involved in the issuance and offering of these Subordinated Notes is a bank, which directly or indirectly has participated, or may participate, in financing transactions and/or banking business with the Issuer, which are not disclosed herein. Investors are advised to familiarise themselves with the entire content of this Prospectus. Documents Available Copies of this Prospectus are available at UBS Investment Bank, a business division of UBS AG, Prospectus Library, P.O Box, CH-8098 Zurich, Switzerland, or can be ordered by telephone ( ), fax ( ) or by swiss-prospectus@ubs.com. Prospectus This Prospectus is available in English language only and provides information about the Issuer and the Subordinated Notes. This Prospectus does not constitute an offer of, or an invitation to subscribe for or purchase, any Subordinated Notes. The distribution of this Prospectus and the offering of the Subordinated Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer to inform themselves about and to observe any such restrictions. The Subordinated Notes have not been and will not be registered under the Securities Act and include Subordinated Notes in bearer form that are subject to U.S. tax law requirements. Subject to certain exceptions, Subordinated Notes may not be offered, sold or delivered within the United States or to U.S. persons. For a further description of certain restrictions on offerings and sales of the Subordinated Notes and on distribution of this Prospectus, see Selling Restrictions on pages 2 and 3. 13

14 No person has been authorized to give any information or make any representation in connection with the offering of the Subordinated Notes other than as stated herein and any other information or representation if given or made should not be relied upon as having been authorised by the Issuer or the Lead Manager. Neither the delivery of this Prospectus, nor the issue of the Subordinated Notes nor any sale thereof shall, in any circumstances, create any implication that there has been no material adverse change in the affairs of the Issuer since the date hereof. European Union Savings Tax Directive On 3 June 2003, the Council of the European Union adopted a directive (Directive 2003/48/EC) on the taxation of savings income in form of interest (the «EU Savings Tax Directive»). Pursuant to the EU Savings Tax Directive, each member state of the European Union (the «EU») must require paying agents (within the meaning of such directive) established within its territory to provide to the competent authority of its state details of the payments of interest made to an individual resident in another EU member state as the beneficial owner of the interest, except that Luxembourg and Austria have chosen to operate instead a withholding system for a transitional period unless the beneficiary of the interest payment elects for the exchange of information. On 26 October 2004, the European Community and Switzerland entered into an agreement on the taxation of savings income by way of a withholding tax system and voluntary declaration in the case of transactions between parties in the EU member states and Switzerland. On the basis of such agreement, Switzerland has introduced a withholding tax on interest payments or other similar income paid by a paying agent within Switzerland to EU resident individuals as of 1 July The withholding tax is applied at a rate of 35 per cent. The beneficial owner of the interest payments may be entitled to a tax credit or refund of the withholding if certain conditions are met. Prospective purchasers of these Subordinated Notes should consult their advisors concerning the impact of the EU Savings Tax Directive. Notwithstanding the above, for the avoidance of doubt, should the Issuer, the Swiss Principal Paying Agent or any institution where the Subordinated Notes are deposited be required to withhold any amount as a direct or indirect consequence of the EU Saving Tax Directive, then, there is no requirement for the Issuer to pay any additional amounts relating to such withholding. 14

15 INFORMATION ABOUT THE SUBORDINATED NOTES Authorisation Pursuant to a resolution of the Executive Board of the Issuer dated 30 November 2010, a resolution of the Supervisory Board of the Issuer dated 17 December 2010 and the Subscription Agreement dated 23 July 2012 between the Issuer and UBS AG, the Issuer has decided to issue the Subordinated Notes of CHF 150,000,000 to be paid on 26 July Use of Net Proceeds The net proceeds of the Subordinated Notes, being the amount of CHF 148,750,000 (the «Net Proceeds») will be used by the Issuer for its corporate purposes. The Lead Manager shall not have any responsibility for, or be obliged to concern itself with, the application of the Net Proceeds of the Subordinated Notes. Notices All notices in relation to the Subordinated Notes will be published in electronic form on the internet site of the SIX Swiss Exchange under the section headed Official Notices ( Representation In accordance with Article 43 of the Listing Rules of the SIX Swiss Exchange, UBS AG has been appointed by the Issuer as representative to lodge the listing application with the SIX Swiss Exchange. 15

16 INFORMATION ABOUT THE ISSUER General Information RWE was founded on 25 April 1898 as Rheinisch-Westfälisches Elektrizitätswerk Aktiengesellschaft with its seat in Essen, Germany. RWE Aktiengesellschaft is incorporated in Germany and operates under German law. It has its seat and is registered in Essen, Germany (HRB 14525). The address of its registered office is Opernplatz 1, Essen, Germany (Telephone: +49 (0) ). Purpose RWE has the following corporate objectives (Art. 2 of the Articles of Incorporation): Generation and procurement of energy, including renewable energy; Extraction, procurement and processing of mineral resources and other raw materials; Supply and trading of energy; Construction, operation and use of energy transmission systems; Supply of water and treatment of wastewater; Provision of services in the aforementioned fields, including energy efficiency services. RWE has the authority to conclude all transactions which are connected with the objects of RWE or which are suited to serve its purpose directly or indirectly. It may also become active itself in the business fields mentioned above. RWE has the authority to incorporate, acquire or take interests in other enterprises, in particular if the purpose of such enterprises covers in part or in total the aforementioned business segments. RWE is entitled to combine enterprises in which it holds stakes under its unified control or restrict itself to the management of its holdings. RWE has the power to transfer or hive off its business operations in part or in total to affiliated companies. Organisational Structure - NET4GAS (Gas transmission system operator, Czech Rep, unbundled) - Internal Services RWE Group divisions (as of 31 March 2012) RWE Group is divided into seven divisions based on national and functional criteria with RWE as the parent company. As the group s head office it concentrates on group-managing tasks. These include amongst others strategy, planning, financing, legal services, accounting, controlling, communications and the group-wide development of top-level management. RWE s earnings are largely determined by the earnings generated by its subsidiaries. In Germany, RWE has two main reporting divisions; RWE Power which operates the German fossilfueled power plant fleet, including lignite mining; and RWE Deutschland which incorporates the German sales and distribution busineses, including RWE Vertrieb, several regional companies and RWE Effizienz. In the Benelux region, RWE operates Essent, the Dutch energy utility with generation and sales business that RWE acquired in Essents former wind power generation and the trading business, however, reports under the Renewables divisions and the Trading/ Gas Midstream division, respectively. In the UK, RWE npower consists of both a genera- 16

17 tion and a sales unit. RWE is also active in the Central Eastern and South Eastern Europe with RWE East. The Czech long-distance gas pipeline business, however, reports directly to RWE AG to comply with regulatory requirements. Further, RWE operates a pan-european Renewables division responsible for the construction and operation of plants generating electricity from renewable energy sources. RWE is also active in the upstream business, i.e. in the exploration and production of gas and oil with RWE Dea. Finally, RWE Supply & Trading incorporates the Group s trading activities as well as its gas midstream business. Trend Information There has been no material adverse change in the prospects of RWE since 31 December General economic environment The strong recovery witnessed in 2010 was followed by a slight decline in world economic growth in Stimulus packages ended in the USA and China, and the severe earthquake in March 2011 forced Japan into a temporary recession. The Eurozone s sovereign debt crisis also left its marks. In RWE s view, the weakening of global economic growth observed at the end of 2011 may well have continued in Based on initial estimates, the cumulative gross domestic product ( GDP ) achieved by all OECD countries in the first quarter 2012 was about 2% higher than a year earlier. The Eurozone continues to suffer from the sovereign debt crisis: its GDP probably shrank. Posting an estimated 1% growth, the German economy was fairly robust. In particular, consumer spending had a stabilising effect. In contrast, the Netherlands was unlikely to have been able to decouple itself from the European trend. According to the most recent data available, Dutch GDP decreased marginally. The United Kingdom still has not fully recovered from the crisis in the property sector. The government s austerity measures also had a dampening effect. UK GDP was down an estimated 0.2%. The countries of Central Eastern Europe got off to varying starts to the new year: whereas industrial production in both Poland and the Czech Republic advanced by more than 4%, it stagnated in Hungary. Accordingly, the growth of the economy as a whole in these countries is likely to have varied to the same extent. Economic Trends Based on initial forecasts, RWE Group expects global economic output to increase by 2.5% in 2012, as long as the Eurozone s sovereign debt crisis does not escalate. In the Eurozone, measures to consolidated the statebudgets will dampen growth. The cumulative GDP of all member states of the monetary union will probably not exceed last year s level. Germany s prospects are a little brighter. Following a 3% expansion last year, the German Council of Economic Experts is of the opinion that a gain of up to 1% is possible. It expects stimulus to mainly come from consumer spending. The basis for this are the encouraging employment situation and higher disposable income. The forecasts for the Netherlands and Belgium are more restrained: the GDP of these countries is to rise by 0.5% at best. Estimates for the United Kingdom are similar: austerity measures mandated by the government and the persistently weak property market will curtail consumer spending. Prospects in RWE Group s Central Eastern European markets have also clouded: whereas Poland s industrial output is likely to grow by more than 2%, in the Czech Republic, it will probably only expand marginally. Hungary is actually expected to see a decline in economic output. The weakening economy is clearly leaving its mark on international commodity markets. This is especially evident in hard coal quotations, which will probably be much lower than in 2011 for the full year as well. In contrast, developments in oil prices are influenced more by geopolitical factors most recently predominantly the Iran crisis. If the situation in this country becomes more tense, crude oil will probably become more expensive. Given that gas purchase agreements are still often indexed to oil prices, this would also have an impact on gas quotations. The development of the price of emission allowances will largely depend on whether the EU member states succeed in agreeing on more ambitious carbon reduction goals. However, none of these developments would have a material impact on RWE Group s earnings in the current year any more, because RWE Group has sold forward nearly all its electricity generation for 2012 and has secured the prices of the required fuel and emission allowances. Part of RWE Group s generation for the two coming years has also already been placed on the market. The portions already sold forward in Germany amount to more than 60% (2013) and more than 30% (2014). These figures represent the situation as of 31 March RWE Group has also limited the price risk associated with its oil and gas production through forward sales. Germany accelerates nuclear phase-out On 30 June 2011, in reaction to the disaster at the Japanese nuclear power plant at Fukushima, the German Lower House passed an amendment to the German Nuclear Energy Act («NEA»), which came into force in August

18 The lifetime extension for nuclear power stations introduced last year was made obsolete. The situation is exacerbated by the fact that shut-off deadlines have been set for each reactor. The eight reactors, which were ordered to cease operation for an initial period of three months (nuclear moratorium in March 2011) including RWE s Biblis A and B units, have been forbidden to generate electricity since the amendment to the NEA entered into force. The nine remaining German nuclear power stations must be taken offline by the end of 2015 (Grafenrheinfeld), 2017 (Gundremmingen B), 2019 (Philippsburg II), 2021 (Grohnde, Brokdorf, Gundremmingen C) and 2022 (Isar II, Neckarwestheim II, Emsland). Of the aforementioned plants, Gundremmingen B and C as well as Emsland are majority-owned by RWE. RWE believes the amendment to the NEA is unconstitutional because the plant operators will not be compensated and the shut-down dates were established without sound reasoning. Therefore, RWE lodged a constitutional complaint in February The rescission of the lifetime extension eliminates the payments the nuclear power plant operators would have had to make to the climate and energy fund. It was to be funded with the additional profits that would have been achieved if the nuclear power stations had been allowed to run longer than originally planned. The German government decided to maintain the new tax on nuclear fuel despite the heavy additional burdens placed on the operators of nuclear power plants by the about-turn in German energy policy. The levy was introduced with effect from 1 January 2011 and will expire at the end of RWE Group has taken legal action concerning the new nuclear fuel tax as it is of the opinion that the nuclear fuel tax does not comply with EU Law and the German constitution. The applications for interim measures against the nuclear fuel tax were rejected by the German federal court of finance («BFH») in March The BFH decisions overruled the rulings by the financial courts of Hamburg and Munich in favour of the utilities which granted temporary legal protection from the tax pending a final decision. The BFH expressly left open the question of the legitimacy of the nuclear fuel tax. This decision must be made by the German Constitutional Court or the European Court of Justice in the so called main action. The nuclear phase-out is accompanied by a set of laws, which were also approved at the end of June 2011 and are designed to promote the intensified use of renewable energy, efficiency-enhancing measures and an accelerated expansion of the network infrastructure. For example, the German Renewable Energy Act («REA») now includes a model for promoting offshore wind turbines, which increases profitability in the initial years of operation. Gas procurement contract renegotiations Some of RWE Group s gas purchases are based on long-term agreements linked to the price of oil. However, gas prices have been decoupled from the price of oil on international markets since 2009, falling below it significantly. As a result, the gas RWE Group purchases may be more expensive than at the gas wholesale market trading hubs, exposing RWE Group to potential declines in margins and customer losses. This primarily affects RWE Group s German and Czech gas midstream activities. To obtain better purchase conditions, RWE Group entered both into contract renegotiations and arbitration proceedings with its gas suppliers. Their outcomes will have a substantial influence on RWE Group s medium-term earnings. Political Framework of CO2 Emission Trading The legal framework for the allocation of emission allowances in the second CO2 trading period, which runs from 2008 to 2012, was established in In December 2008, the EU member states agreed that the Western European electricity sector will hardly be allocated any free certificates from 2013 onwards. This will cause RWE Group s CO2 costs for the next CO2 trading period to be much higher than in the current CO2 trading as from 1 January 2013, power producers like RWE Group will have to buy almost all the CO2 certificates they need. Slight decline in returns on equity for network capex in Germany In early November 2011, the German Network Agency set the returns on equity («RoE») that electricity and gas network operators are allowed to earn for the upcoming five-year regulatory period. The allowable annual RoE before corporate tax will be 9.05% for assets capitalised after 2005 and 7.14% for old assets. The new rates become effective as of 1 January 2013 for gas network operators and as of 1 January 2014 for electricity network operators. The current allowed returns on equity are 9.29% and 7.56%, respectively. 18

19 United Kingdom: UK electricity market on the verge of fundamental reform In May 2012, the British governing coalition of conservatives and liberals published a draft Energy Bill to reform the electricity market, with which it mainly intends to spur climate protection. The draft Energy Bill was accompanied by a policy update document, setting out the government s latest thinking. However, key details of the comprehensive electricity market reform remain to be specified. Further design details are expected later this year and government will submit a final Bill to parliament in autumn By reforming the electricity market, the government aims to reduce the CO2 intensity of UK electricity production from approximately 0.5 metric tons of carbon dioxide per megawatt hour at present to 0.1 by Another goal is to increase the share of energy demand covered by renewables to at least 15% and to have them account for at least 30% of electricity generated in The reform package set out in the draft Energy Bill and associated policy document includes the introduction of a new low carbon support mechanism, a feed-in tariff with contract for difference, which aims to stabilise the revenues to new build renewable and nuclear generation plant. Additionally, the draft Energy Bill confers powers to introduce a capacity market, which could be put in place as early as Energy utilities could then be compensated for the provision of secured power station capacity even when the plants do not generate electricity. As part of the package, the British government has already legislated for a tax on fossil fuel, which will be introduced in April Besides the costs incurred for emission allowances, operators of coal and gas-fired power plants would then have to should additional burdens. The amount of the tax will depend on the CO2 intensity of the fuel. At the end of March 2012, RWE announced that it would sell Horizon Nuclear Power Ltd., a joint venture for the development, construction and operation of nuclear power stations in the UK. RWE Group strategy RWE Group ranks among Europe s five leading electricity and gas companies with activities in numerous countries and along the entire value-added chain. Europe remains the regional point of focus of RWE Group s electricity and gas business. The most important markets are Germany, the United Kingdom, the Benelux countries as well as Central Eastern and South Eastern Europe. RWE Group wants to safeguard the earnings in its mature core markets, namely Germany, the United Kingdom and the Netherlands, and aims to achieve organic growth primarily in Central Eastern and South Eastern Europe. In these countries, the energy consumption trend is still dynamic compared to the markets in the northeast of Europe and there is still some ground to make up in terms of infrastructure. RWE Group s integrated business model and its presence in various markets help to offset earning fluctuations in individual divisions and countries and stabilise the Group s earnings. RWE Group intends to remain present along the energy sector s entire value-added chain, as an integrated business model is the basis for generating stable income. The company will maintain its balanced portfolio of regulated (e.g. the network business) and non-regulated activities (e.g. the generation of freely marketed electricity). Projects are evaluated based on the contribution they make to increasing the value of the company. This is the basis for generating profitable growth. RWE Group intends to increase the share of renewable generation capacity to at least 20% by At the end of 2011, it amounted to 8%. Additionally, RWE Group wants to have lowered the CO2 emissions of its power plant fleet per megawatt hour (MWh) by more than 20% compared to 2005 by In the baseline year, RWE Group emitted 0.79 metric tons of CO2 per MWh. The target is 0.62 metric tons. The nuclear phase out in Germany eliminated a major component of RWE Group s CO2 reduction strategy so far. The company is now focusing above all on the expansion of renewable energy. From 2012 to 2014, RWE Group intends to spend about EUR 4 billion on this. The construction of highly efficient coal and gas-fired power stations that replace emissionintensive plants also contributes to lowering RWE Group s CO2 intensity. RWE Group is investing approximately EUR 12 billion for this within the scope of the new build programme launched in 2006 and scheduled for completion in Networks are also of great importance in the conversion of energy supply with the goal of increasing resource conservation. The rising amounts of electricity fed into the grid from weather-dependent sources such as wind and solar power as well as the mounting number of small, decentralised generation units faces RWE Group as distribution system operator with huge challenges. Substantial investments are required in the maintenance and expansion of distribution networks to keep the system stable. RWE plans to spend a total of EUR

20 billion on this from 2012 to One of the focal points is the development and use of new control technologies enabling the more effective and flexible use of networks. RWE announced measures to strengthen financial power Not least due to the considerable earnings shortfalls resulting from the resolutions passed by the German government on nuclear energy, in August 2011, RWE adopted a package of measures designed to strengthen its financial power and offer new growth prospects. A key component of this package are divestments. In the meantime, RWE presented the activities it may consider selling and set-up the divestment process. Another part of the package of measures is a leaner capital expenditure budget in the future. Moreover, RWE raised the target figure for the ongoing efficiency-enhancement programme. The company intends to make an annual earnings contribution that rises to EUR 1.5 billion by the end of 2012 compared to the 2006 level. A new efficiency programme is already being prepared to save another EUR 1 billion by the end of The overall package also includes capital measures: In December 2011, RWE placed 52.3 million new and 28.1 million RWE common shares held as treasury stock. The issue price of EUR 26 per share resulted in gross proceeds from the issuance of some EUR 2.1 billion. In addition to the equity measure, RWE announced to issue hybrid capital of up to a volume of EUR 2 billion equivalent. Within this hybrid programme, RWE already issued a CHF 250 million hybrid bond (October 2011); a GBP 750 million hybrid bond (March 2012) and a US dollar 500 million hybrid (March 2012). In June 2012, the latter was tapped with a volume of another US dollar 500 million. With the issuance of this CHF 150 million hybrid bond, RWE s hybrid programme will be completed. RWE s financing RWE Group primarily meets its financing needs with the cash flows from its operating activities. Another source of financing are proceeds from divestments. As mentioned above, RWE Group introduced a package of measures including divestments designed to strengthen its financial power. Additionally, RWE Group has access to a number of flexible financing instruments. The most important are the Debt Issuance Programme for longterm refinancing on the capital market, a commercial paper programme of US$ 5.0 billion and last but not least an undrawn EUR 4.0 billion credit line committed by an international bank group maturing not earlier than November Management and Supervisory Bodies The Executive Board manages RWE business. The Supervisory Board advises the Executive Board and monitors its management of RWE. Supervisory Board Dr. Manfred Schneider Cologne Chairman Former Chairman of Board of Management of Bayer AG Frank Bsirske (*) Berlin Deputy Chairman Chairman of ver.di Vereinte Dienstleistungsgewerkschaft Dr. Paul Achleitner Munich Member of the Executive Board of Allianz SE Werner Bischoff (*) Monheim am Rhein Former Member of the Main Executive Board of IG Bergbau, Chemie, Energie Carl-Ludwig von Boehm-Bezing Bad Soden Former member of the Executive Board of Deutsche Bank AG 20