- Pension liabilities of EUR 8 billion externalised
- Positive outlook confirmed for 2007
The RWE Group further improved its earnings situation in the first quarter of 2007 compared to the same period in the previous year. The company continued to make gains in both operating result and net income. RWE also achieved a further reduction in net debt compared to the level reported at the end of the previous year. On 30 March 2007, the Group transferred around EUR 8 billion in pension obligations to the RWE Pensionstreuhand e.V., as part of a Contractual Trust Arrangement (CTA). Despite major political constraints, RWE confirms its positive forecast for fiscal 2007.
Operating result and EBITDA up compared to first quarter of 2006
EBITDA rose by 29% to EUR 3.2 billion. The Group operating result increased by 35% to EUR 2.8 billion. Consolidation, balance sheet and currency effects only had a minor impact on the development of earnings. However, for the full year, RWE anticipates significantly lower growth rates in Group operating result and EBITDA than in the first quarter. RWE Power was the division with the strongest increase. The Group generated higher income from the trading business in particular. The performance of UK subsidiary RWE npower also experienced above-average growth, after a particularly weak first quarter last year. RWE Energy’s contribution to the Group result declined. This effect was felt particularly strongly in Germany, where the result decreased by 19% due to network regulation.
Net income increases
Net income rose by 50% to EUR 1.6 billion. This was primarily due to the good operating performance. The improved financial result following the introduction of the CTA was
a further positive effect. Earnings per share increased from EUR 1.86 to EUR 2.79.
Revenue up on previous year’s first quarter
The RWE Group generated external revenue in the period under report of EUR 13.4 billion. This represents an increase of around 1% over the previous year. This rise was affected by deconsolidation effects primarily related to the sale of RWE Solutions in August 2006. RWE Energy experienced a decline in revenue due to reductions in grid fees and mild winter weather conditions. Organically, i.e. net of consolidation and exchange rate effects, revenue increased by 3%.
Cash flow down on previous year
In the first quarter, RWE generated cash flow from operating activities totalling EUR 908 million. This put the Group EUR 427 million below the first-quarter level of the previous year. This was mainly a result of changes in working capital. Free cash flow - or cash flow from operating activities minus capital expenditure on property, plant and equipment - at EUR 247 million was EUR 368 million below the year-earlier figure of EUR 615 million. This was due to the changes in working capital. The Group points out that, due to the high volatility of working capital, this cash flow trend cannot be extrapolated for the full year.
Net debt reduced to EUR 6.2 billion
Compared with the position at the end of the previous fiscal year, net debt, which also includes provisions for pensions, decreased by around EUR 0.7 billion to EUR 6.2 billion as at 31 March 2007.
Efficiency-enhancement programme launched
With a new efficiency-enhancement programme running through until the end of 2010,
RWE aims to strengthen its competitiveness. The company plans to use cost reductions and revenue gains to boost the annual result in 2007 by around EUR 100 million. The goal is to increase the annual operating result by a total of EUR 600 million from the end of 2010, the year when the programme ends.
Capital expenditure on property, plant and equipment in the energy business
up 28% on the first quarter of 2006
In the first quarter of 2007, RWE invested EUR 679 million. Excluding the water business, RWE increased capital expenditure on property, plant and equipment in all divisions by a total of 28%. The most significant single project is the construction of a 2,100-MW twin-unit lignite plant with optimised plant technology in Neurath. Work has just begun on the construction of a combined cycle gas turbine power plant in Lingen. Preparations are also underway for further new power plant projects in Germany. RWE is also making further investments in gas production. For RWE npower, the main focus of investments was on retrofitting the Aberthaw power plant with a flue gas desulphurisation unit.
RWE plans net increase in staff of 3000
As of 31 March 2007, the RWE Group employed 69443 employees, of which 55% worked in Germany. The workforce increased by 909 employees or 1.3% compared with the end of 2006. The RWE Power and RWE npower divisions were mainly responsible for this increase. Due to the planned sale of American Water, the total workforce is expected to decrease by year-end. Net of such one-off effects, however, the number of staff is forecast to rise by around 3000, of whom 1000 will be based in Germany. Outside of Germany, the majority of new jobs will be created in the UK. RWE npower plans to employ around 1800 additional staff in customer service and sales and marketing.
Outlook for 2007
The positive operating performance of the RWE Group is increasingly facing politically generated constraints and risks. Measures to offset the effects of German network regulation have already been initiated on the cost side. The German Federal Government’s plans to introduce more restrictive anti-trust legislation would undermine the framework conditions for urgently required power plant investment in Germany. In addition, RWE will have to purchase a substantially higher number of CO2 allowances starting next year.
The following prognosis is based on the assumption that RWE will be able to place the majority of American Water shares on the stock market by year-end. Consequently, American Water would be recorded as “Discontinued operations” in the annual financial statements.
Without American Water, Group revenue for 2007 is expected to be slightly above that of the previous year. As things stand, the RWE Group confirms its earnings forecast published in February. RWE anticipates an increase of 5 to 10% in EBITDA. As far as the operating result is concerned, the Group forecasts growth in the order of 10%.
By contrast, RWE expects net income to decrease sharply. The figure for the previous year benefited from one-off effects, particularly the sale of Thames Water. Recurrent net income, i.e. net income adjusted for one-off effects - the parameter for calculating the dividend - will nevertheless increase further, due to the good operating performance. An increase of around 10% is forecast.
Capital expenditure on property, plant and equipment up on previous year
RWE plans to substantially increase capital expenditure on property, plant and equipment during the current year. The Group expects that capital expenditure on property, plant and equipment excluding the water division will be in the order of EUR 4 billion in 2007. This would equate to an increase of more than 40% year on year.
This 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 materialise 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.