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RWE will quickly get through the trough
- Reduction in results slightly lower than expected in 2011
- Outlook for 2013 raised
- Package of measures has positive impact
- New targets for efficiency enhancement and divestments
For RWE AG, fiscal 2011 was marked by difficult economic and political framework conditions. The German government's nuclear energy decisions alone had a negative impact on the result of well over €1 billion. In addition, the gap between the oil-indexed gas procurement prices and significantly lower sales prices on the wholesale market, coupled with persistently low margins in the electricity generating business all had an adverse effect on business performance.
Declines in all key parameters for the Group were as predicted for 2011. EBITDA decreased by 18% to €8.5 billion and the operating result declined by 24% to €5.8 billion. Recurrent net income - the key determinant of the dividend - fell by 34% to €2.5 billion and revenue dropped by 3% to €51.7 billion. These results are slightly ahead of RWE's forecast provided in August 2011.
RWE is sticking to its promised payout ratio of 50 to 60% of recurrent net income. The Supervisory and Executive Boards will therefore propose a dividend of €2 per share at the Annual General Meeting. This represents a dividend yield of 7.4% (based on the year-end price of the ordinary share).
"We have introduced the necessary measures to get us through the trough quickly", said RWE CEO Dr. Juergen Grossmann about the challenging years ahead. He explained that the first successful steps had been taken and some of these measures were already having an impact on the earnings situation, which was expected to stabilise during the current year. "We are therefore confident of maintaining the level of the previous year in 2012." This trend, explained Grossmann, would persist in 2013: "We will no longer receive any free CO2 allowances in 2013 and some earnings contributions will be lost as a result of the divestment programme. But we still expect to be on a par with the result of 2011 this year, too." For 2013 and 2014, RWE has set itself new cost reduction and efficiency enhancement targets. The total volume amounts to around €1 billion, three quarters of which should be achieved in 2013.
In addition, the Group has been able to reduce the overall volume of its divestment programme to a maximum of €7 billion. The scope and selection of divestment activities will largely depend on the contribution any such sale can make to improving the leverage ratio. This programme is to be implemented by the end of 2013.
"The measures we have introduced create scope for sustainable future action and further investments in the expansion of renewables", added Grossmann. "In 2011, we spent nearly €3 billion on environmental protection and we are proud to have received the award from the European School of Management and Technology in Berlin as Europe's most innovative energy utility." Last year, RWE invested around €150 million in over 200 research and development projects.
Electricity and gas generation and sales 2011
In 2011, electricity generation declined within the RWE Group by 9% to 205.7 billion kilowatt hours (kWh). The decrease is attributable to various factors. In Germany, the Biblis nuclear power station was shut down as part of the moratorium on nuclear energy, the company's gas power plants in the Netherlands operated at lower capacity utilisation and a large hard coal unit underwent a scheduled maintenance outage over a lengthy period; in the UK a major hard coal power station was taken off the grid for conversion to biomass, and two gas power plant units were out of operation while their transformers were being replaced by the manufacturer. Electricity sales, i.e. deliveries to external customers, amounted to 294.6 billion kWh, or 5% lower than in 2010.
Gas purchased from third parties declined by 19% to 322.2 billion kWh. The much milder weather conditions compared to the previous year led to a drop in demand for heating and there were competition-induced customer losses in the residential, commercial and industrial segments.
The operating result of €4.2 billion for this division was 25% below the level of the previous year. The decline was as high as 33% in electricity generation, primarily as a result of the effects of the German government's decisions on nuclear energy, but also due to the lower average prices RWE Power was able to achieve for electricity produced in 2011. The operating result achieved by the Sales/Distribution Networks Business Area fell by 4% to €1.5 billion. Higher expenditure on infrastructure improvements and reduced income as a result of lower gas throughput volumes had an impact here.
The operating result of this division dropped by 37% to €245 million. This is partly attributable to the fact that we started reporting parts of Essent's gas midstream business under RWE Supply & Trading in 2011. Essent also experienced a significant decline in electricity generating margins and sold less gas as a result of mild weather conditions.
Due to extensive measures to reduce costs and enhance efficiency, the operating result of this division rose by €85 to €357 million year on year. These improvements in the sales business and positive effects from commissioning of the Staythorpe gas power station were offset by the burden of increased expenditure for the government programmes to promote energy savings and significant margin declines in electricity generation.
Central Eastern and South Eastern Europe Division
The operating result of this division declined by 5% to €1.1 billion. In the Czech gas business, lower sales, reduced throughput volumes and declining transmission revenue had a negative impact on the result. In Hungary, electricity sales were lower compared to the previous year, due to competition.
A rise in generation output and the recent increase in electricity prices helped RWE Innogy to improve its operating result by €109 million to €181 million. However, the company's growth strategy continues to have a negative impact on the bottom line, as such investment projects go hand in hand with high run-up costs.
Upstream Gas & Oil Division
RWE Dea almost doubled its operating result to €558 million, due to increased gas and oil prices and a simultaneous rise in oil production. Exploration costs were virtually unchanged.
Trading/Gas Midstream Division
RWE Supply & Trading closed with an operating loss of €800 million, which was significantly higher than the figure for 2010 (- €21 million). On the one hand, its trading business performance was unusually weak. On the other hand, the difference between the price level of oil-indexed long-term supply contracts and the prices RWE is able to achieve when reselling on the market, also continues to hamper our gas midstream business.
The largest investment programme in Group history is on the finishing straight. Once again in 2011, investments of more than €7 billion were made, or 6% more than in the previous year. The main focus of capital expenditure on property, plant and equipment (€6.4 billion) remained on the expansion of electricity generating capacity, particularly in the field of renewables and low-carbon generating capacity.
As at 31 December 2011, RWE employed 72,068 people, or about 1,200 more than at year-end 2010. New positions were primarily created in the growth areas of renewables, energy efficiency and enhanced customer service. The Group continues to train more people than it requires to meet its own needs. At the end of 2011, over 3,000 young people were engaged in vocational training with RWE.
For 2012 and 2013, RWE anticipates an operating result in the order of 2011 - and this forecast already takes into consideration the dilutive earnings effects of the current divestment programme. Recurrent net income is also expected to show a stable trend. For the three-year period to 2014, investments totalling €16 billion are envisaged, about half of which are earmarked for growth projects. Investments and dividend payments are thus expected to exceed the funds available to the Group from ongoing operating activities. This situation will change by 2015 at the latest, when the power plant new-build programme has been completed.
This press release contains forward-looking 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.
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