- Group operating result up 19%
- Capital expenditure on property, plant and equipment 19% higher year on year
- Net financial debt of €9.5 billion remains at a low level
- Risks from German grid regulation not yet fully quantifiable
The RWE Group's good business performance continued in the second quarter of 2006. In the first half of 2006, net income rose 16% and the operating result was up 19%. Earnings per share increased 16% to Euro 2.95. Due to seasonal and other effects, the trend in earnings cannot, however, be extrapolated for the year as a whole. In addition, the full scope of risk facing the Group from German grid regulation cannot be quantified as yet. Nevertheless, RWE expects continued earnings growth. This year, the Group plans a significant increase in capital expenditure on property, plant and equipment.
Operating result up 19%
EBITDA increased 14% to Euro 5,072 million. The operating result improved by 19% to Euro 4,104 million. RWE Power increased its operating result by 29% to Euro 1,690 million, RWE Energy by 19% to Euro 1,723 million. The operating result of the UK subsidiary RWE npower also improved significantly. Following a weak first quarter at RWE npower, the operating result for the first half year increased 30% to Euro 274 million. The operating result of the Water division decreased by 10% to Euro 555 million. The main reasons for this were consolidation and accounting effects.
Net income improves by 16%
The RWE Group increased net income by 16% to Euro 1,659 million in the first half of the year. This reflects both the positive trend of the operating result as well as the negative effects of the non-operating result.
Revenue up 17%
The RWE Group generated Euro 24,331 million in external revenue in the first half of the year. This represents a year-on-year increase of 17%. The Group achieved revenue gains in all divisions. In addition to higher prices for electricity, gas and water, positive volume effects in the gas business were the main contributing factors.
Capital expenditure on property, plant and equipment 19% higher year on year
In the first six months of this year, the RWE Group’s capital expenditure amounted to Euro 1,661 million. This is an increase of 16% year on year. Capital expenditure on property, plant and equipment increased by 19% to Euro 1,590 million. At RWE Power, the increase is mainly due to the construction of the highly efficient 2,100-MW twin-unit lignite power plant with optimised technology in Neurath. Furthermore, additional expenditure was made on the expansion of gas production in the UK and Egypt. The UK subsidiary RWE npower almost doubled capital expenditure on property, plant and equipment. The focus here was on retrofitting the coal-fired power plant at Aberthaw with a flue-gas desulphurisation unit. Capex was also increased in the Water division. The main focus of this investment was on further measures to upgrade the infrastructure in Greater London and the North American supply areas. RWE Energy was the only division in which capital expenditure on property, plant and equipment was slightly below the year-earlier level. This was due to shifts of capex projects to the warmer months, which could not be carried out during the cold winter season.
Cash flow higher year on year
In the first half of 2006, the RWE Group generated cash flow from operating activities amounting to Euro 3,359 million. This was a year-on-year increase of 13%, or Euro 394 million. This increase is primarily due to the positive earnings trend. However, there were also counteracting effects in the area of working capital. These were mainly caused by an increase in the RWE Group’s working capital in the first half of 2006, whereas during the same period of the previous year, the Group had reduced working capital.
Free cash flow-i.e. cash flow from operating activities minus capital expenditure on property, plant and equipment-increased by Euro 143 million, or 9%, to Euro 1,769 million year on year, despite the rise in capital expenditure. This increase was driven by the improvement in cash flow from operating activities.
Net financial debt reduced to Euro 9.5 billion
RWE reduced net financial debt by a further €1,988 million, or 17%, to Euro 9,450 million by 30 June 2006 compared with year-end 2005. This was primarily due to the company’s high level of free cash flow. Proceeds from divestments amounting to Euro 447 million also contributed to this reduction. Furthermore, deconsolidations also reduced financial liabilities by a total of Euro 501 million. Changes in exchange rates also had a debt-reducing effect.
Cost-reduction programmes: Euro 120 million saved in the first half
The Group aims to reduce annual costs by Euro 680 million through two ongoing programmes to be completed by the end of 2006. The savings target for the current fiscal year is Euro 230 million. RWE already achieved Euro 120 million of this sum in the first half of the year.
Workforce increases by 2% net of one-off effects
As of 30 June 2006, the RWE Group had 85,443 employees, 52% of whom worked in Germany. Net of one-off effects, staff numbers increased by 1,486, i.e. 1.8%. In Germany, a total of 423 new jobs were created. Acquisitions and divestments led to a net reduction of 1,971 employees. Compared with 31 December 2005, staff numbers decreased by a total of 485 employees, or 0.6%. In the middle of August, 900 apprentices will be joining RWE. This year again, the Group will be training far more apprentices than required to meet its own needs. Every year, some 3,000 young people train at RWE.
RWE currently expects the operating result and net income to remain within the range forecast in February 2006. The operating result is expected to increase by 5% to 10%. RWE expects net income generated by the Group to exceed the level achieved in 2005, due to the good operating performance. RWE’s last forecast saw an increase of between 10% and 20%. Now, however, the company anticipates that net income will come in at the lower end of this range. This is due to two factors: The RWE Group had to adjust its prognosis for the operating results of RWE Energy and the Water division. Moreover, the non-operating result is anticipated to improve less than planned.
The new forecast for net income applies as long as no additional countermeasures are required as a result of the reduction in German grid fees. The forecast already includes the first set of provisions accrued for this purpose. Since RWE may not be able to quantify the full impact of regulation until the fourth quarter, the company will not be able to decide on the extent of further measures or the corresponding provisions until we prepare the financial statements for the year.
The Group continues to expect that recurrent net income, which is adjusted for one-off effects and is the metric for determining the dividend payout, will rise by between 10% and 20%.
Net financial debt is anticipated to be in the order of Euro 10 billion. As a result of the divestment of non-core activities in the Water division and RWE Solutions, staff numbers will decrease. Excluding non-operating effects, however, they will rise slightly.
Capital expenditure on property, plant and equipment is expected to increase significantly this year. The strongest increase within the Group is planned for the German electricity generation business of RWE Power. The construction of the twin-unit lignite power plant in Neurath will be the focus here. Preparatory work on a 1,500-MW hard coal-fired power plant in Hamm is beginning this year. Furthermore, additional investment is planned for oil and gas production. RWE Energy will maintain its high capex budget, as long as the economic framework conditions do not undergo lasting negative changes resulting from decisions made by the German regulator. RWE npower will modernise and expand its power plant portfolio-more capital expenditure will be invested in this area than in 2005. The capex budget of the Water division will also be increased. The RWE Group expects total investment to be between Euro 4.5 billion and Euro 4.8 billion.
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 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 correctness of this information.