- Group operating result up 16% primarily due to
one-off seasonal effects
- Capital expenditure on property, plant and equipment
14% higher year on year
- Net financial debt reduced to €9.4 billion
The unexpectedly long winter had a positive effect on RWE’s results in the first quarter of 2006. The Group improved its earnings situation due to the positive operating performance generated by the energy business in Continental Europe. Both net income and the operating result rose. At the same time, the company invested heavily in security of supply and its leading market position. Earnings per share were up about 7% to €1.86. For the time being, RWE maintains its forecast for the current fiscal year.
Earnings influenced by seasonal effects
EBITDA increased 14% to €2,768 million. The operating result rose 16% to €2,256 million. However, an unusually long and cold winter led to one-off seasonal effects. This performance trend, therefore, cannot be extrapolated for the full year. The Group posted the strongest growth at RWE Power and RWE Energy. RWE npower closed the quarter significantly down year on year due to one-off effects; however, the division expects to compensate for this in the quarters ahead. The water division was slightly up on the year-earlier level.
Net income up 7%
In the first quarter, RWE was able to increase consolidated net income by 7% to €1,048 million. Strong organic development was contrasted in particular by lower capital gains realised as a result of fewer divestments. The non-operating result decreased to –€60 million. The financial result declined by €66 million to –€587 million. In the first quarter, the effective
tax rate rose to 32%. Earnings per share increased from €1.73 to €1.86.
Free cash flow below high year-earlier level
In the first quarter of 2006, cash flow from operating activities totalled €1,335 million, and was thus €214 million lower than in the same period last year. Free cash flow—i.e. cash flow from operating activities minus capital expenditure on property, plant and equipment—amounted to €615 million, down from the €917 million achieved a year earlier. The decrease in the two cash flow figures is primarily due to negative effects in working capital. There are generally significant fluctuations in working capital over the course of the year in relation to the balance-sheet date. Higher capital expenditure on property, plant and equipment also had an impact on free cash flow.
Revenue up 25%
The RWE Group generated external revenue of €13.8 billion in the first quarter. Compared with the same period last year, this represents a 25% increase. All divisions reported significant growth. The seasonal effects mentioned above contributed to this performance. Electricity sales rose by 6% and gas sales increased by 11% over the previous year. Organically, i.e. excluding one-off effects and currency exchange fluctuations, external revenue rose by 27%.
Net financial debt reduced to €9.4 billion
By 31 March 2006, RWE had decreased its net financial debt by another €2 billion to €9.4 billion, compared with the end of 2005. This was mainly due to the company’s high level of free cash flow. In addition, around €400 million in financial liabilities ceased to apply due to deconsolidations. Changes in foreign exchange rates also had a debt-reducing effect.
Capital expenditure on property, plant and equipment 14% higher year on year
With capital expenditure totalling €730 million, the RWE Group invested 5% more than in the first quarter of 2005. Capital expenditure on property, plant and equipment rose by 14% to €720 million. This increase is largely due to the modernisation of the German power plant portfolio. The most important project in the power generation business is the construction of a highly efficient 2,100-MW twin-unit lignite plant in Neurath. In the German power and gas network businesses, capital expenditure on property, plant and equipment was below the level of the previous year for the first quarter. This was due to the fact that a long period of cold weather conditions led to a delay in implementing measures to enhance network infrastructure. However, over the full year, RWE intends to invest a higher sum than in 2005 as long as regulatory decisions do not have a lasting negative impact on the business environment.
Cost-reduction programmes: €60 million saved in the first quarter
The Group aims to reduce annual costs by €680 million within the scope of two ongoing programmes, which will end at the close of 2006. The savings target for the current fiscal year is €230 million. RWE already achieved €60 million of this sum in the first quarter.
Workforce increased slightly net of one-off effects
As of 31 March 2006, the RWE Group had 85,406 employees, of which 51% were working in Germany. Net of consolidation effects, the number of employees increased by 0.7%. In net terms, 1,128 employees left the Group as a result of company acquisitions and divestments. Compared with 31 December 2005, the workforce decreased by 522 employees, i.e. 0.6%.
Outlook for 2006
The RWE Group confirms its earnings forecast for 2006. The company is confident that it will be able to further improve all key financial indicators compared with the previous year. This forecast, however, only applies as long as there is no regulatory intervention in the German network business that would lead to burdens on earnings above our current expectations.
The operating result is expected to grow between 5% and 10%. Burdens on earnings are likely to stem from both German electricity and gas network regulation and high procurement costs for fuel. Since electricity production for 2006 was largely sold forward in 2005, the impact of the recent substantial decline in CO2 allowance prices will be minimal in the current fiscal year.
Net income is forecast to rise by 10% to 20%. This will primarily result from a reduction in burdens on the non-operating result, which was significantly influenced by one-off effects in 2005.
During the current year, RWE plans to substantially increase capital expenditure on property, plant and equipment by modernising its power plant portfolio. RWE also intends to increase investment in its network business as long as regulatory decisions do not have a lasting negative impact on the business environment. Including the water division, capital expenditure on property, plant and equipment is expected to be in the range of €4.5 to €4.8 billion.
The budget for research and development has been increased for the current year and activities in this area have been intensified. The programme focuses on measures to enhance efficiency and reduce power plant emissions as well as on decentralised power supply and biomass-based electricity generation.
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 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.