RWE on course despite economic crisis

(PresseBox) ( Essen, )
- Operating result improves by 4%
- Recurrent net income up 5%
- Group workforce grows - 1,000 new jobs in Germany
- Operating result expected to grow by around 5% in 2010
- Promising earnings outlook through to 2013

RWE's robust business model kept the company on track in 2009, a year marked by economic difficulty. Electricity and gas operations proved comparatively crisisproof and the prudent sales and growth strategy paid off. Revenue declined slightly to €48 billion, while EBITDA grew by 4% to €9.2 billion. The operating result also improved by 4% to €7.1 billion, putting it slightly above the forecast for 2009. Recurrent net income, the key determinant of the dividend payment, rose by 5%. On this basis, the proposed dividend is €3.50 per share. This represents a payout ratio of 53% of recurrent net income. In the fourth quarter of 2009, Essent made its first contribution of €141 million to the operating result. RWE completed the takeover of Essent in September 2009.

Despite the economic crisis, RWE is maintaining its current investment programme and plans to commission more than 14,000 megawatts of new generation capacity by the end of 2013. This makes the Group one of the largest investors in the European energy sector. Dr. Juergen Grossmann, CEO of RWE AG, said: "Companies can only invest, create jobs and pay dividends if they have a firm grip on their core business. RWE has withstood the crisis and has even achieved slightly more than promised." He went on to say: "We remain on course for growth. Energy supply is all about having a longterm business model. We think in terms of decades, not years."

Decline in electricity and gas demand

As a result of the economic crisis, the demand for energy declined in all RWE markets. Electricity generated by the Group and externally procured totalled 300 billion kilowatt hours (kWh). This was 10% less than in 2008. Electricity sales declined by 11% to 283 billion kWh. In the last quarter of 2009, Essent contributed some 7 billion kWh to electricity sales. In the Germany division, however, electricity sales increased by 7% as new customers were acquired. Gas sales were slightly above the level of the previous year, at 332 billion kWh, thanks to the firsttime consolidation of Essent. However, net of this effect, they would have fallen by 7% due to the economic situation.

Capital expenditure increased - workforce up

RWE investments rose by €9.9 billion to €15.6 billion in 2009, primarily as a result of the acquisition of Essent. Capital expenditure on property, plant and equipment expanded by a third to €5.9 billion and this had a positive impact on the headcount. In the growth areas - principally at RWE Innogy and RWE Power - around 1,000 new jobs were created in Germany. As at the end of 2009, the RWE Group employed a total of 70,800 staff. The workforce grew by 7% compared to the previous year. This effect was largely driven by the addition of 4,300 employees through the takeover of Essent. RWE provides vocational training well in excess of its own staffing needs. As at 31 December 2009, some 3,100 young people were learning a profession at RWE in Germany.

New Group structure requires new reporting structure

The dissolution of the interim holding company RWE Energy went hand in hand with the restructuring of the Group as a whole. In Germany, the regional utilities RWE Rhein-Ruhr and RWE Westfalen- Weser-Ems were dissolved and their networks and sales operations pooled within the new companies RWE Rheinland Westfalen Netz and RWE Vertrieb. Together with RWE Power and the other German regional companies, they make up the Germany division of the Group. The international subsidiaries are now independently responsible for RWE's operating activities in each of their national markets. RWE Dea (upstream gas and oil), RWE Innogy (renewables) and RWE Supply & Trading (trading/gas midstream) have maintained their transnational setup.

Germany

The Germany division (power generation, sales and distribution networks) generated revenue of €19,4 billion in 2009 and achieved an operating result of €4.8 billion. Retail activities recorded significant customer growth through the launch of new products and RWE's retail subsidiary, eprimo. On balance, RWE gained some 90,000 new electricity and 36,000 new gas customers (residential and commercial) throughout Germany, while eprimo managed to expand its customer base to 626,000 electricity and 47,000 gas customers. The positive trend in customer growth has continued since the beginning of 2010. The increased willingness of residential and smaller commercial customers to switch providers shows that Germany has a healthy competitive market.

Competition also continues to grow in the generation and wholesale market. The fact that the EU Commission has unconditionally closed its RWErelated investigations into the electricity sector is compelling evidence of this, as are the latest findings of an analysis by a research institute of the European School of Management and Technology in Berlin on pricing within the European wholesale markets.

The Netherlands/Belgium

The new division consists of Essent and RWE Energy Nederland. It posted revenue of €1.8 billion in the fourth quarter of last year, of which €737 million were attributable to its electricity and €813 million to its gas business. The operating result was €180 million.

United Kingdom

Earnings for both electricity and gas were affected by declining sales. RWE npower experienced a drop in revenue of 9% to €7.8 billion. Net of exchange rate effects, however, revenue was slightly up. The operating result decreased by 54% to €247 million. While RWE npower had benefited from the power plant outages of its competitors in the previous year, high levels of power plant availability in the UK market in 2009 caused generation margins to come down considerably. This was compounded by high pressure on prices in the endcustomer market and the requirement imposed by the UK government on power suppliers to finance measures to promote household energy savings.

Central and Eastern Europe

Adjusted for exchange rate effects, total revenue generated by this division was essentially stable, at €5.3 billion. Volumerelated revenue losses in the Czech Republic and Hungary were offset by positive volume effects in Poland for example. RWE Gas Slovensko's start of business operations also made a favourable impact. The operating result rose by 16% to €1.1 billion - largely as a result of improved margins in the company's Czech gas business and Hungarian electricity generation.

Renewables

RWE Innogy's operating result of €56 million was 2% higher than in the previous year, despite the decline in revenue of 9% to €245 million. The high development and personnel costs associated with the investment programme were offset by positive effects such as the commissioning of new wind farms.

Upstream gas and oil

Declining gas and oil prices and lower production output caused RWE Dea's revenue to decline by a third to €1.2 billion. The upstream subsidiary suffered a 59% decrease in earnings to €203 million.

Trading/gas midstream

Revenue fell by 20% to €6.9 billion. This fall is largely due to the method applied when booking figures from electricity trading. Sales on the wholesale market of electricity generated by the Group are reflected in full as revenue earned by RWE Supply & Trading. Supply obligations fulfilled via market purchases are only recognised in terms of realised margins. RWE had procured a substantial amount of electricity from third parties in 2009. The earnings of RWE Supply & Trading doubled to €985 million. This occurred as a result of a successful trading strategy. In the year under review, the division also benefited from the fact that major forward transactions concluded in previous years only started to have an effect on the income statement in 2009. The margins achieved from such forward transactions can only be accounted for as profit or loss at the time of delivery of the electricity. In addition, optimisation of its gas portfolio made a major contribution to the earnings of this division.

Outlook for 2010 and mediumterm goals

The anticipated economic recovery will have an effect on energy demand, but only to a limited degree. This is because energyintensive industries will continue to feel the negative economic impact in 2010 and subsequent years. "We expect that it will take several years for the European economy to return to the level seen in 2008", said Juergen Grossmann. Demand for gas is more difficult to forecast as it depends on weather conditions, but in general terms, gas is becoming a more important fuel in power generation throughout Europe.

Following the acquisition of Essent, organic growth and CO2 reduction will be the main priorities. Investment in infrastructure is the key prerequisite in both cases. By investing an average of €7 billion per annum through to the end of 2013, RWE is continuing to implement the largest capex programme in the history of the Group. The first fullyear consolidation of Essent will have a positive effect in 2010. The operating result and recurrent net income are each expected to grow by about 5%.

The mediumterm forecast announced by RWE in 2009, not including Essent, has been reaffirmed with one exception: an increase of 5 to 10% had been forecast for the operating result. Due to delays in power plant and gas and oil production projects, as well as conservative assumptions regarding achievable electricity and gas margins, RWE expects the rate of increase to be at the lower end of this range. For this reason, RWE now anticipates an increase in recurrent net income of an average of 5% per annum instead of the around 10% previously expected.

In 2013, RWE expects to be able to exceed its 2009 earnings level, despite the full auctioning of CO2 allowances which is scheduled to begin that year. The dividend is expected to at least match the previous year's dividend for each fiscal year from 2010 to 2013 and to remain in the order of the regular RWE dividend payout ratio of 50 to 60% of recurrent net income.

RWE AG's annual report on fiscal 2009 will be posted at www.rwe.com at 10:00 a.m. CET.

The press conference will be broadcast live on www.rwe.com from 10.00 CET/09.00 GMT onwards, and the analyst conference will follow at 14.00 CET/13.00 GMT. All documents accompanying the events will be available on our website at 10.00 CET/ 9.00 GMT. The recording of the conferences will be available online for a further twelve months.

Photos of the Board members from the press conference and from the general press photo archives will be available for download from about midday on 25 February at www.rweimages.com using the access code BP10.

You can read up on various issues relating to the RWE Group by following this link to our editorial services: www.rwenews.com.

Forwardlooking statements

This press release contains forwardlooking statements regarding the future development of the RWE Group and its companies as well as economic and political developments. These statements are assessments that RWE has made based on information available to the company at the time this document was prepared. In the event that the underlying assumptions do not materialise or additional risks arise, actual performance can deviate from the performance expected at present. Therefore, RWE cannot assume responsibility for the accuracy of these statements.

Key Figures: See attached file
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