Essen, 10 August 2004
RWE reaffirms positive outlook for fiscal 2004
- Group operating result on course for single-digit growth in 2004
- Net income excluding goodwill amortization up 23% due to one-off effects
- Net debt once more significantly reduced
The RWE Group has reaffirmed its positive outlook for the entire 2004 fiscal year following its half-year results. The operating result was expected to increase by a single-digit percentage, despite divestments. The refinement of the Group’s focus was driven forward by the sales of HOCHTIEF and Heidelberger Druckmaschinen. The main performance goals for the first half-year were reached, and net debt was again substantially reduced.
Double-digit growth in Group operating result
Profitability improved further in the core business areas of energy and water. EBITDA was up by about 2% to €4,465 million. Excluding CONSOL, Heidelberger Druckmaschinen and currency effects, it rose some 7%. The Group operating result improved by about 12% to €3,281 million. Without consolidation and currency effects, the Group operating result climbed by 15%.
Net income climbs 23% excluding goodwill amortization
Net income at the Group level increased to €1,357 million, above all because of one-off effects such as increased capital gains from divestment, thereby exceeding the previous year’s corresponding figure by 23%. This does not take into consideration the effect represented by the abolition of goodwill amortization. Capital gains from divestment were a particularly positive influence, increasing the non-operating result. Capital gains from divestment, at €549 million, were €482 million above the previous year’s figure. This was due mainly to the sale of the remaining 18.5% stake in CONSOL (+€220 million) and the majority of the 50% stake in Heidelberger Druckmaschinen (+€200 million). Earnings per share were up by 23%, reaching €2.41(previous year’s corresponding figure: €1.96).
Revenue decreases due to consolidation effects
In the first half of 2004 RWE generated external revenue of €21.1 billion. This is 6% less than in the previous year’s corresponding period, and was primarily due to the deconsolidation of CONSOL and Heidelberger Druckmaschinen. In the first six months of 2003, CONSOL had revenues of €974 million. Until its deconsolidation in May of 2004, Heidelberger Druckmaschinen had made a contribution to revenues of €1,359 million (corresponding period from previous year: €1,924 million). Net of these effects, revenue improved slightly (+1%).
Cost-savings program a continued success
This year, RWE expects to conclude the cost-savings program launched in February 2000, that focuses on the German electricity business. As planned, annual costs will thus be reduced by a total of €2,555 million. To achieve this goal, a total of €250 million must be saved in 2004, of which €110 million was saved in the first half of the year. The cost savings target was increased to €3.2 billion per year through two further programs, announced last spring, that are set to go into full effect at the end of 2006. Through all three programs RWE saved a total of €150 million per year in the first half of 2004.
Financial structure optimized
In July RWE bought back bonds from the Debt Issuance Program of over €1.25 billion, and in the process of an exchange offer issued a new 10-year bond for the remaining €650 million. The objective behind the transaction was to reduce gross debt and smooth out RWE’s bond maturity profile. The bond buyback and exchange offer was made to holders of two bonds that mature in 2007 and 2008 with a total volume of €4.5 billion.
Net debt sinks further
Net debt dropped by €2.1 billion to €15.7 billion. In addition to cash flows from operating activities, this reduction was largely driven by proceeds from the sale of shares in Heidelberger Druckmaschinen and HOCHTIEF, as well as the divestment of the third CONSOL tranche. We have set ourselves the goal of reducing net debt to below €17 billion by the end of 2005. As announced, RWE will not use the proceeds from divestments of our non-core business to reduce net debt, but rather to provide the company with more financial flexibility to make value-enhancing investments in the core business.
Cash Flow slightly reduced through one-off effects
Cash flow from operating activities reached €2,257 million, which was €455 million below the figure for the corresponding period of 2003. Excluding CONSOL and one-off burdens to working capital (particularly tax payments for prior years), cash flow from operating activities was only slightly below the previous year’s corresponding figure. Free cash flow, which is defined as cash flows from operating activities minus capital expenditure on property, plant and equipment and intangible assets, fell from €897 million to €809 million. The reduction in capital expenditure on property, plant and equipment did not fully offset the decline in operating cash flow.
Workforce reduced through consolidation effects
As of June 30, 2004 the RWE Group employed a workforce of 101,660 people (full time equivalent), of whom 43,503, or 43%, worked outside of Germany. This figure represents a reduction from the end of 2003 of 25,368 employees, or a fifth. Excluding consolidation effects, the number of employees fell by 1,608, or 1.6%, in the half-year period. In Germany, the number was 1,321, or 2.2% of the workforce.
Outlook reaffirms positive prognosis for entire 2004 fiscal year
The key figures in the prognosis published in May of this year are reaffirmed: The Group operating result is expected to surpass the previous year’s value. RWE expects to post a single-digit gain in operating result despite deconsolidation. Even excluding Heidelberger Druckmaschinen and CONSOL from 2003 and 2004 figures, RWE is expected on current projections to close a single-digit percentage point above the previous year.
Net income is expected to increase by between 10% and 15% over the previous year’s figure net of goodwill amortization. Positive effects are expected in relation to the non-operating result, which is expected from the current perspective to improve even without the one-off benefits resulting from the abolition of goodwill amortization. In this regard, the absence of the high one-off expenses experienced in 2003 due to the Group reorganization and restructuring is a major effect. The financial result is also expected to improve. Investments are expected to be significantly reduced, particularly financial investments. Group revenues are expected to come in somewhere under the previous year’s figure of €43.9 billion. This is due primarily to the sale of CONSOL in the previous year and of Heidelberger Druckmaschinen in May 2004. Excluding currency effects and deconsolidation, RWE expects organic growth of revenues somewhere in the low single-digit percentage.
Comments on reporting procedures
After launching the Group’s reorganization on October 1, we had implemented all structural changes by the beginning of fiscal 2004. RWE Thames Water’s main water activities in Continental Europe and RWE Trading’s industrial customer business were incorporated into RWE Energy as of January 1, 2004. Business conducted by the former RWE Gas is now also integrated in RWE Energy. Moreover, RWE Trading took over the trading business of our UK energy company RWE Innogy, which has been operating under the new name “RWE npower” since the beginning of August.
In March 2004, the International Accounting Standards Board (IASB) published new accounting regulations. They stipulate that goodwill shall be subject to an impairment test at least once per year and shall no longer be amortized. We voluntarily adopted this regulation as of January 1, 2004, and therefore no longer amortize goodwill.
We sold the majority of our stakes in the HOCHTIEF construction group and Heidelberger Druckmaschinen at the end of February and the beginning of May. As a result, in 2004, HOCHTIEF has no longer been consolidated at equity. We deconsolidated Heidelberger Druckmaschinen in May 2004. Pursuant to International Financial Reporting Standards (IFRS), we are stating Heidelberger Druckmaschinen’s activities separately as operations that are to be discontinued (“discontinuing operations”) in our 2004 reports. We are still accounting for our remaining stakes in HOCHTIEF and Heidelberger Druckmaschinen as marketable securities.
This report 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 we have made based on information available to us at the time this document was prepared. In the event that the underlying assumptions do not materialize or additional risks arise, actual performance can deviate from the performance expected at present. Therefore, we cannot assume responsibility for the accuracy of these statements.
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