- Operating result up 4%; 8% organic growth
- Net income rose 4% despite impairment loss for American Water
- Capex on property, plant and equipment shows organic increase of 15%
- Workforce remains stable
- Further performance growth expected in 2006
RWE fully achieved all its targets in fiscal 2005. Both the operating result and net income increased year-on-year. Earnings per share rose by 4.5%. Financial discipline bore positive results for the company as well. RWE reduced net financial debt to EUR 11.4 billion.
Operating result shows 8% organic growth
RWE produced further organic growth in fiscal 2005. Net of non-operating effects—i.e. excluding consolidation and currency effects – the operating result rose by 8%. Even including all one-off effects, RWE increased the Group’s operating result by 4% to EUR 6,201 million. This growth was primarily due to the good earnings performance of the Continental European energy business and ongoing efficiency improvements across all divisions.
Net of non-operating effects, EBITDA rose by 5%. At EUR 8,324 million, including all one-off effects, EBITDA was only marginally down year-on-year.
Net income improves by 4%
Net income rose by 4% to EUR 2,231 million. Apart from the positive operating performance, net income was marked by countervailing one-off effects that almost offset each other. One of the adverse non-recurrent effects was an impairment loss of EUR 759 million on American Water.
By contrast, the financial result was substantially more positive than in the previous year. This was primarily due to the sale of marketable securities. The reduced effective tax rate also had a positive effect on net income. Earnings per share increased from EUR 3.80 to EUR 3.97.
2006 ROCE target already exceeded
RWE significantly increased the value-added of the company for 2005. During the year under review, the ROCE, Return on Capital Employed, was 14.7%, which clearly surpassed the company’s return target of 14% for 2006. The Group’s cost of capital before tax amounts to 9%.
Dividend posts double-digit growth
In light of the company’s positive operating performance, the Supervisory and Executive Boards of RWE AG will propose to the Annual General Meeting that a dividend of EUR 1.75 be paid for fiscal 2005. The dividend proposal represents an increase of 17% over that of the previous year.
Equity up 17%
Equity totalled EUR 13.1 billion as of 31 December 2005. Compared with year-end 2004, this represents an increase of EUR 1.9 billion and adds to the company’s financial strength. Only three years ago, before the major undertaking to consolidate the business, equity amounted to €9 billion at the end of 2002.
Revenue posts organic growth of 10%
The RWE Group generated EUR 41.8 billion in external revenue in fiscal 2005. Net of non-recurrent effects, this corresponds to an increase of 10%. Including all one-off effects, revenue was slightly lower.
Cash flow 8% higher year-on-year
Cash flow from operating activities rose by 8% to EUR 5,304 million, despite the deconsolidation of Heidelberger Druckmaschinen and RWE Umwelt. However, one-off effects from working capital had impacted negatively on the figure for the previous year. The free cash flow—i.e. cash flow from operating activities minus capital expenditure on property, plant and equipment—was EUR 1,637 million, up by 9% over the previous year. This development was driven by the improvement in cash flow from operating activities.
Net financial debt declines to EUR 11.4 billion
RWE reduced net financial debt to EUR 11.4 billion at the end of fiscal 2005 from EUR 12.4 billion at the end of fiscal 2004. This decline was primarily due to the high level of free cash flow. The company also generated proceeds from divestments. Dividend payouts and fluctuations in currency exchange rates had an opposite effect.
Cost-savings goal achieved for 2005
RWE plans to reduce annual costs by EUR 680 million by the end of 2006 through two ongoing cost-reduction programmes. In fiscal 2005, the two programmes achieved savings of EUR 210 million. EUR 240 million had already been achieved in prior years, and another EUR 230 million is planned to be saved in 2006.
Capex on property, plant and equipment shows organic increase of 15% year-on-year
RWE’s capital expenditure amounted to EUR 4.1 billion in fiscal 2005. This corresponds to an increase of 11%. Funds for property, plant and equipment increased by 7%. Net of non-operating effects, capital expenditure on property, plant and equipment rose by 15%. Additional funds were primarily deployed for power plants and electricity grids. One-off effects resulted from deconsolidations, the balance-sheet reclassification of parts of the water business, and fluctuations in currency exchange rates.
Workforce stable net of one-off effects — training activity continues at high level
As of 31 December 2005, the RWE Group had 85,928 employees, slightly more than half of which worked in Germany. Net of consolidation effects, the number of employees increased by 393 compared with year-end 2004. Net of one-off effects, the workforce in Germany remained virtually unchanged. Compared with the end of fiscal 2004, 12,400 staff members were no longer included in the personnel figures due to divestments.
As in previous years, RWE offered young adults vocational training positions well beyond the company’s own requirements. During fiscal 2005, 3,115 young adults trained for a vocation of their choice at RWE. RWE's "I can do it!" initiative afforded approximately 100 young people who were not qualified to become apprentices the opportunity to obtain qualifications to allow them to enter the apprenticeship market.
A combination of earning power, stability and organic growth will continue to drive the performance of the Group during the new fiscal year.
In fiscal 2006, RWE expects its operating result to post growth between 5% to 10%. We forecast the Group to post a 10 to 20% increase in net income, since the non-operating result will no longer be impacted by negative one-off effects experienced in 2005.
Earnings will be burdened by higher costs for procuring fuel and CO2 allowances in the power generation business. Moreover, RWE will be exposed to risks from political intervention. Negative effects are expected to result primarily from the regulation of German electricity and gas networks. However, RWE intends to largely compensate for these burdens through efficiency enhancements and cost reductions. External revenue is expected to remain roughly on par with that of fiscal 2005.
RWE established capex programmes early on with the aim of replacing ageing power stations with new power plants that employ more efficient technology. Preparatory work on the 1,500 MW hard coal-fired power plant in Hamm will begin in 2006. RWE is also reviewing capex programmes to modernise its power plant portfolio in the UK market. Both the German and UK electricity markets are at the beginning of a long-term investment cycle. Details of major investments in the German network sector will be determined once the framework conditions of network regulation have been finalised.
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.