Essen, 12 August 2003
Core Business Secures Double-Digit Earnings Growth
- Core businesses boost operating result by 46%
- New Group structure beginning October 1, 2003
- Net debt reduction program ahead of schedule?new target for 2005
RWE boosted its operating result by some 35% in the first half of 2003. The Group's core businesses recorded an even more remarkable 46% surge in earnings. This underscores that RWE's core-business strategy, with its clear focus on electricity, gas, water and environmental services, guarantees success even in periods of unsatisfactory economic developments. Our performance benefited foremost from the consolidation of American Water, UK-based Innogy and our Czech gas business, which were not included in the first half of 2002. The operating result was adversely affected by the unfavorable exchange rates for the pound and the dollar. Even without the large-scale acquisitions and currency effects, RWE's core businesses would have closed the reporting period about 13% up year-on-year.
This trend was largely due to our strong electricity and gas operations. Our non-core businesses recorded an operating loss of €54 million, mainly because of the weak economic situation in Heidelberger Druckmaschinen's market.
EBITDA climbed 32% above the previous year’s figure to €4,376 million. Net income reflects the planned expenditure to finance our strong external growth. These figures include the full impact of associated goodwill amortization and financing interest for the first time. Furthermore, the previous year's corresponding figure was extraordinarily high, owing to gains on divestments. Before goodwill amortization, this resulted in a moderate 3.7% rise in net income to €1.1 billion. Including goodwill amortization, net income was down an expected 24% to €621 million. In sum, this translates into €1.96 in earnings per share before goodwill amortization and €1.10 in EPS after goodwill amortization.
Core businesses recorded a 36% surge in external net sales to €20.5 billion. This performance benefited from the first-time consolidation of American Water, Innogy, the Czech gas business, Polish-based STOEN and Dutch-based Obragas. Group external net sales were down 10.8% to €22.4 billion, due to our exit from the Shell & DEA Oil joint venture effective July 1, 2002. By contrast, oil downstream activities contributed €7.7 billion in revenue in the first half of 2002. In addition, sales were adversely affected by the substantial shortfall at Heidelberger Druckmaschinen as well as currency effects.
RWE's capital spending totaled €6.8 billion in the period under review? down nearly 46% on the previous year's corresponding figure. This decline was due to the fact that capital expenditure on financial assets was substantially down year-on-year.
As of June 30, 2003, the Group employed 138,877 people, 54.3% of whom worked in Germany. This corresponds to an increase of 7,112, or 5.4%, compared with the end of 2002. Net of first-time consolidations and deconsolidations, the workforce shrank by just under 1%.
Cost savings on target
RWE's cost-savings program aims to save €300 million in costs in 2003. Some €160 million of this target was already reached in the first half of this year. The program, initiated in 2000, focuses on our German electricity operations and envisions reducing annual costs by €2,555 million by the end of 2004. RWE has already realized about €2.1 billion, or 83%, of this target as of June 30, 2003. Furthermore, once the Group's structure has been optimized, an additional €300 million in annual cost savings potential will be accessible, which is to be fully realized by 2006.
Net debt reduction program ahead of schedule?new target for 2005
Our debt reduction program envisions lowering our net debt to less than €24 billion by the end of 2003. RWE has already significantly exceeded this goal, reducing debt to €22.3 billion as of June 30. Here, we benefited from currency effects. In light of this development, the Group adjusted its debt target for 2005 from €22 billion to under €20 billion. This figure is based on the currency exchange rates valid on June 30, 2003 and the assumption of divestments in our core businesses, but not in our non-core businesses.
New Group structure beginning October 1, 2003
The municipal shareholders of RWE AG have supported the optimization of the new Group structure, announced in June, since the very beginning. But the municipal shareholders of RWE Gas continue to withhold their approval in regard to the way in which the existence of RWE Gas will be affected. The RWE Gas municipal shareholders hold a 20.03 percent stake in the company, and as a result of certain RWE Gas General Assembly mandates, have a blocking minority. Regardless of the outcome of ongoing negotiations with the RWE Gas minority shareholders, RWE AG is maintaining a clear focus on its goal. It remains committed to implementing its new structure on October 1. The two new regional companies will be established under the names of RWE Rhein-Ruhr, headquartered in Essen, for the central region; and RWE Westfalen-Weser-Ems, headquartered in Dortmund, for the northern region.
This means that RWE Westfalen-Weser-Ems, which is the most affected by the negotiations with minority shareholders in six regions, will begin operations. Starting on October 1, this region will be responsible for electricity sales, electricity distribution grids and network services. The initial structure will be designed to incorporate the gas business at a later date.
Accordingly, we have reconsidered our decisions on the executive level of RWE Westfalen- Weser-Ems. In order that the company can take up operations on October 1, the following executives have been chosen to serve on the board: Dr. Wolfgang Kässer (will serve as CEO while also serving on the Board of RWE Energy), Dr. Knut Zschiedrich (CFO), Dietrich Freudenberger (board member in charge of sales), and Heinz Fennekold (will be the board member in charge of human resources, while also serving on the board of RWE Energy).
RWE Gas and its interests will be coordinated by RWE Energy as of October 1. Through this optimized Group structure, effective on October 1, we will immediately be able to access 90 percent of the synergy potential we expected.
Outlook for the full 2003 financial year
RWE anticipates increasing its operating result by a low double-digit figure for fiscal 2003 as a whole. This growth will be exclusively driven by our core businesses. It will primarily stem from the aforementioned consolidations. Excluding these effects, the Group's operating result is likely to be slightly below the previous year's level, owing to the continued deterioration of our non-core business. By contrast, the company expects its core businesses to increase earnings even net of consolidation effects, which are expected to be even higher if there are no negative currency effects. This rise is due to the positive earnings situation in our electricity and gas operations. We expect our net income after goodwill amortization to decrease by 25% to 30% year-on-year, as planned, due to the effects of acquisitions. Excluding goodwill amortization, net income will be roughly on par with the previous year. We can thus confirm our stable net income forecast, despite the €250 million one-off expense associated with the new Group structure.
Please contact our Investor Relations Team with any questions that you may have:
Altenessener Straße 27
T +49 (0) 201-5179-3112
c/o RWE Supply & Trading
60 Threadneedle Street
London EC2R 8HP
T +44 (0) 20 7015 5459
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