- Recurrent net income improves by 9%
- Doubling of dividend proposed
- Preparations underway for Euro 25 billion investment programme
The RWE Group continued to improve its earnings in 2006 compared with the previous year. The operating result increased by 14% and recurrent net income rose by 9%. The successful divestment of Thames Water resulted in a positive net financial position for the first time since 2001. The Group expects further significant income growth for 2007. Over the next five years, RWE plans to invest a total of up to Euro 25 billion, political framework conditions allowing.
Operating result and EBITDA substantially higher than previous year
RWE increased its operating result by 14% to Euro 6.1 billion. This was driven by the Group’s positive operating performance, particularly in the area of power generation. Earnings were impacted negatively by German grid regulation and unscheduled power plant outages.
EBITDA increased by 11% to Euro 7.9 billion.
Recurrent net income improves by 9%
Recurrent net income, i.e. net income adjusted for one-off effects, is the key parameter for RWE’s dividend policy. In 2006, the Group increased recurrent net income by 9% to Euro 2.5 billion. Including all one-off effects, net income rose by 72% to Euro 3.9 billion. Major non-operating
one-off effects resulted for example from the divestment of Thames Water and changes in German tax legislation. As a result, earnings per share rose from Euro 3.97 to Euro 6.84.
Dividend proposal for 2006
On 18 April 2007, the Supervisory and Executive Boards of RWE AG will propose to the Annual General Meeting that a dividend of Euro 3.50 per share be paid for fiscal 2006. This is double the dividend paid the previous year and will lead to a dividend payout ratio of 80% of recurrent net income, which is at the upper end of the target ratio of 70 to 80% for fiscal 2006 and 2007.
External revenue posts growth of 12%
In 2006, the RWE Group generated Euro 44.3 billion in external revenue. Compared with the previous year, this represents 12% growth. Net of one-off effects and exchange rate fluctuations, external revenue increased by 16%.
Cash flow significantly higher year on year
In 2006, RWE achieved a cash flow from operating activities of Euro 6.8 billion. This corresponds to a year-on-year increase of 28%, which was largely driven by the positive earnings performance. In spite of significantly higher levels of capital expenditure, the free cash flow - i.e. cash flow from operating activities minus capital expenditure on property, plant and equipment - was up by €652 million, or 40%, to Euro 2.3 billion.
Positive net financial position after divestment of Thames Water
At the end of 2006, RWE had a positive net financial position of Euro 4.7 billion. In particular, the divestment of Thames Water significantly strengthened the company’s financial position. In 2006, proceeds from divestments totalled €8.8 billion. Deconsolidations reduced financial liabilities by Euro 4.8 billion. In addition to proceeds from divestments and the deconsolidation of financial liabilities, the high level of free cash flow led to a reduction in debt.
Capital expenditure on property, plant and equipment up 23% year on year
In the year under report, RWE invested Euro 4.7 billion, a 14% increase compared to 2005. Expenditure on property, plant and equipment increased by 23% to Euro 4.5 billion. Additional funds were primarily deployed in the construction of new power plants, the expansion and renewal of grids and improvements in the water infrastructure. By contrast, capital expenditure on financial assets decreased by Euro 242 million to Euro 234 million.
New efficiency-enhancement programme launched
At the close of 2006, the RWE Group brought both of its long-running cost-reduction programmes to a successful conclusion. As planned, the annual level of costs was reduced by Euro 680 million. RWE intends to continue improving its competitiveness by implementing a new efficiency-enhancement programme which will run until the end of 2010. The goal is to increase the operating result by Euro 600 million per year from the end of 2010 onwards. The programme is scheduled to contribute about Euro 100 million to the operating result already this year.
Workforce increases by 2% net of one-off effects
As of 31 December 2006, the RWE Group employed 68,534 people, more than half of whom worked in Germany. Net of one-off effects, the workforce increased by 1,585 employees, or 2%, compared with the end of 2005. The workforce in Germany grew by 336 employees. Some 2,845 young people were receiving vocational training at RWE at the end of 2006. As in previous years, the company provided vocational training well beyond the Group’s own requirements. As a result of company divestments, 19,028 staff members left the Group. The two major divestments were the deconsolidation of Thames Water (9,490 employees) and RWE Solutions (9,380 employees).
In its outlook for 2007, RWE assumes that it will sell a majority share of American Water by the end of the year, as planned. If this is the case, American Water will be reported as "discontinued operations." The US water utility would therefore no longer be included in the 2007 figures for revenues, EBITDA, operating result, non-operating result, financial result and taxes on income.
Without American Water, Group revenue for 2007 is anticipated to be slightly up year on year. The company expects EBITDA to rise by 5 to 10%. RWE intends to increase the operating result in the order of 10%. RWE expects net income to decrease substantially compared with the previous year, which benefited from one-off effects. Conversely, recurrent net income, which is adjusted for one-off effects, is expected to post a gain of some 10%.
In addition, RWE has new medium-term goals for organic growth: The company intends to increase the operating result by an average of 5% per year over the next few years. For fiscal 2007 and 2008, RWE plans an average rise of 10% per year in recurrent net income.
RWE is also planning a share buyback programme upon the deconsolidation of American Water, at which point in time the details of the exact procedure and the scope of the programme will be finalised and made public.
By keeping dividend payouts at a high level, RWE wants shareholders to continue to benefit from the successful development of the company in the future. A dividend payout of 70 to 80% of recurrent net income is planned for fiscal 2007, provided a majority share of American Water is sold successfully.
During the next five years, RWE intends to invest a total of up to €25 billion. Political framework conditions allowing, RWE will become Germany’s largest single private investor. In 2007, the Group intends to raise capital expenditure on property, plant and equipment in the energy business to a much higher level than was recorded in 2006. RWE plans the strongest growth in investment in the German power plant business. Expanding the gas business is another priority. Pipeline projects, new exploration as well as liquefied natural gas (LNG) activities will take centre stage. The newly established company, RWE Gas Midstream, is intended to serve as a platform for international growth in the LNG business. The Group also plans to maintain its high level of investment in the continental European network and sales businesses. Some 80% of spending on property, plant and equipment in this area has been earmarked for further modernisation or expansion of electricity grids and gas networks. The Group intends to expand its power plant portfolio in the UK. The planned construction of a combined cycle gas turbine power plant with a generating capacity of up to 2,000 MW is the most important project. Excluding the Water Division, the Group’s capital expenditure on property, plant and equipment for 2007 is expected to be in the order of Euro 4 billion.
In the course of the current fiscal year, RWE plans to remove around Euro 8 billion in provisions for pensions and the corresponding covering funds from the balance sheet in order to further improve the transparency of its pension obligations. This will occur through a Contractual Trust Arrangement and a Pensionsfonds*.
* A separate legal entity under the supervision of the German Federal Financial Supervisory Authority (BaFin); its legal standing differs from that of typical UK and US pension funds.
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.