Essen, 09 November 2004
RWE confident on results for fiscal 2004
- Net income improved by 10%
- Debt reduction goal achieved
- No. 1 electricity company in Dow Jones Sustainability Index World
After three successful quarters, RWE is confident that fiscal 2004 will be another successful year. The company expects to post single-digit percent growth in its operating result. Substantial goals set to increase performance in the first three quarters have been achieved. The highlight in the third quarter was the initiation of the sale of the environmental business. RWE thus completed focusing on its core business of energy and water. Net debt was reduced considerably. RWE has thus already achieved the target set for 2005.
Group operating result: Year-on-year improvement
At €6,213 million, EBITDA was roughly on par with last year’s level, despite deconsolidations. Net of deconsolidations and currency effects, EBITDA increased by 6%. The Group's operating result rose by 13% to €4,464 million. This was mainly driven by operating improvements in the energy business and higher income from investments. Net of deconsolidation and currency exchange effects, the operating result grew by 15%.
Net income: 10% increase
The RWE Group’s net income in the first three quarters amounts to €1,611 million. Compared with last year’s figure net of goodwill amortization, net income climbed by about 10%. Corresponding earnings per share increased from €2.59 to €2.86. This was due to organic growth as well as improvements in the non-operating and financial results. Two one-off charges had a counteracting effect: An exceptional impairment was recognized in preparation for the sale of RWE Umwelt. However, this effect had already largely been covered by provisions from previous periods. Provisions have also been made in advance for future portfolio adjustments.
Revenue: Decrease due to deconsolidation effects
RWE Group generated €29.9 billion in external revenue this reporting period. This represents a 6% decline from the corresponding period last year, and was primarily due to the deconsolidations of CONSOL and Heidelberger Druckmaschinen. In the first three quarters of 2003, US hard-coal and gas producer CONSOL Energy generated €1,455 million in external revenue. Heidelberger Druckmaschinen contributed €1,359 million to Group revenue until it was sold in May 2004. Net of deconsolidation effects, Group external revenue improved by 3%.
Cost-cutting programs: €260 million saved as of end September
The cost-cutting program initiated in February of 2000 focused on the German electricity business will be concluded in the current year. It will have reduced annual costs by a total of €2,555 million through 2004. To reach this goal, a total of €250 million in savings must be realized in 2004. Of that amount, €180 million was realized in the first three quarters. A second program aims to achieve substantial savings as a result of the Group’s reorganization to reduce annual costs by an additional €500 million by 2006. Here, RWE is focusing on improvements in material and personnel costs in the German energy business, savings in IT, and enhancing efficiency in the water business. The third program aims to tap synergies from major acquisitions already made. Pooling general back-office functions at the UK subsidiaries should lead to an annual €100-million reduction in costs by the end of 2006. A savings of €80 million is the goal that has been set for the Czech gas companies. €80 million stemmed from the second and third programs in the first three quarters of 2004. In sum, these three programs realized savings of €260 million in the period under review.
Net debt: Target for 2005 already achieved
RWE had announced its intention of reducing net debt to less than €17 billion by the end of 2005. This goal is based on certain currency exchange rates and excludes the effects from the disposals of HOCHTIEF, Heidelberg and RWE Umwelt. Based on these premises, net debt amounted to €16.8 billion as of September 30, 2004. Including proceeds from these disposals, net financial debt fell to €14.5 billion.
Cash flow: Slight decrease due to one-off effects
Cash flows from operating activities totaled €3,772 million. This corresponds to a decline of 5%, or €204 million, year-on-year. This was due primarily to the absence of cash flows from CONSOL and increased expenditure on restructuring. In addition, working capital was affected by higher income- and sales-tax payments made for assessment periods in prior years. Net of CONSOL and the one-off charges applied to working capital, cash flows from operating activities surpassed the high level achieved a year earlier.
Free cash flow (cash flows from operating activities minus capital expenditure on property, plant and equipment) rose from €1,011 million to €1,550 million, despite the slight decline in cash flows. This was due to the considerable decline in capital expenditure on property, plant and equipment.
Workforce decrease due to divestments
As of September 30, 2004, the RWE Group employed 99,890 people (full time equivalent), of whom 43,258, or 43%, worked outside Germany. RWE’s workforce thus decreased by 27,138 employees, or 21%, in comparison with December 31, 2003. Net of consolidation effects, the workforce declined by 3,628 staff members, or 3.5%. In Germany, the workforce was reduced by 3,157 employees, or 5.3%.
Sustainability: RWE leads Dow Jones Sustainability Index in its category
In the Dow Jones Sustainability Index World, RWE is the new No. 1 among electricity companies. RWE also occupies a leading position in the Dow Jones Sustainability Index STOXX. RWE is the only German utility to have been included in these indices every year without interruption since the first ranking in 1999. The index is a benchmark for sustainable management and corporate governance.
Outlook for the full 2004 fiscal year
RWE reaffirms the main points of the forecast it issued in August. Group operating result is expected to post a single-digit percent gain. This also applies if the effects stemming from Heidelberg and CONSOL are excluded.
EBITDA is expected to decrease slightly, primarily due to the deconsolidation of CONSOL. Net of this effect, EBITDA is expected to be on par with last year’s figure. The operating result is expected to grow more than EBITDA because of lower depreciation. Moreover, RWE expects to see a significant improvement in income from investments.
Net income is expected to exceed the figure achieved in 2003 (excluding goodwill amortization). RWE had originally expected net income to grow by 10% to 15%. Due to the aforementioned provisions for future portfolio adjustments and the impairment recognized for RWE Umwelt, the increase is expected to be around 10%.
Group revenue is expected to fall just short of the €43.9 billion generated in fiscal 2003. RWE anticipates a decrease of 5%. This is largely due to the deconsolidation of CONSOL and Heidelberger Druckmaschinen. Net of currency exchange effects and the deconsolidations, revenues for the 2004 financial year are expected to show organic growth of a low single-digit percentage.
RWE expects capital expenditure on property, plant and equipment and financial assets to be less than €4 billion in the current year. The decrease from fiscal 2003 will primarily stem from the significant reduction in capital expenditure on financial assets, which was impacted significantly in 2003 by the acquisition of American Water.
For a detailed report on the first three quarters of the RWE Group's 2004 fiscal year, please visit us on the Web at www.rwe.com.
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