- Operating result up 8%
- Dividend proposal of €3.50 per share
- Heavy burdens reduce earnings from 2011 onwards
- Investments cut – renewables remain an area for growth
After a very successful fiscal year 2010, in which RWE achieved record earnings and exceeded its targets, the company is now preparing itself for a more difficult market environment. While the largest investment programme in the history of the company is still ongoing, RWE finds itself confronted with substantial burdens: the tax on nuclear fuel will diminish earnings by an average of €600-700 million annually from 2011; fuel costs are rising while wholesale electricity prices are stagnating; in addition, full auctioning of CO2 allowances will start in 2013 and the gas market faces fundamental structural changes.
“It is the difficult years that show how successful a company really is”, said RWE’s CEO Juergen Grossmann. “We will not rest on our laurels simply because we had record results last year. Instead, we are rolling up our sleeves and have already initiated a whole host of measures.”
RWE will continue with the current growth programme and will commission gas and coal-fired power stations as well as renewable projects with a total capacity of 12,000 megawatts by mid 2014. The Group will proceed with determination on the modernisation of its power station fleet. For the years 2011 to 2013, the total volume of investment will be €18 billion, that is €3 billion less than was planned in the previous year. RWE is considering selling some investments and Group companies in order to counteract the anticipated rise of the leverage factor over the medium term. With these divestments, the Group plans to realise proceeds of up to €8 billion by 2013. In addition, the efficiency-enhancement programme will be expanded by €200 million to €1.4 billion by 2012.
Climate protection and resource conservation remain at the top of the agenda and expansion of renewables continues to be a cornerstone of the company’s strategy. The oil and gas production activities of RWE Dea also remain a growth area. This is why the significant cutback in planned investments will have no substantial impact on these two areas.
Earnings targets for 2010 exceeded
RWE can look back on 2010 as the most successful year in the history of the company. Compared to 2009, external revenue increased by 12% to €53.3 billion, the operating result rose by 8% to €7.7 billion and recurrent net income improved by 6% to €3.8 billion. These results are slightly higher than those forecast in February 2010. The number one success factor was German electricity generation. But the good results achieved by the other divisions, which – with the exception of RWE Supply & Trading – all closed fiscal 2010 with at least double digit growth rates, were also major contributors to these improvements.
The Supervisory Board and Executive Board will propose a dividend of €3.50 per share to the Annual General Meeting. With a dividend yield of 7.0% (based on the year-end closing price of ordinary shares), RWE remains one of the top shares in the DAX.
Electricity and gas sales up in 2010
In 2010, the economic recovery led to a rise in electricity sales. RWE sold 311 billion kWh, 10% more than in the previous year. This sharp rise is a reflection of the first full-year consolidation of Essent, among other things. But electricity sales by the Germany Division also rose considerably, by 5% to 113 billion kWh. Gas sales also increased group-wide by 19% to 395 billion kWh. The consolidation effect of Essent was even more noticeable here than in electricity sales: without Essent, sales would have risen by 2%.
With close to stable revenue of €19.5 billion, the Germany Division achieved an EBITDA of €6.7 billion, or a rise of 16%, in its “Power Generation” and “Sales and Distribution Networks” business areas. The operating result improved by 17% to €5.6 billion. The increased availability of the Biblis nuclear power plant had a positive effect on earnings, as did cost-saving measures in the area of “Sales and Distribution Networks”.
More electricity was sold to distributors as well as to industrial and corporate customers. In the private customer and small commercial enterprise segments, customer numbers declined, with the fully consolidated RWE companies supplying around 6.7 million customers with electricity at the end of 2010. eprimo, RWE’s sales subsidiary, extended its market position and recorded 736,000 electricity customers by the end of the year. Gas supplies to both industrial and corporate customers as well as to private and small commercial enterprises rose, while sales to distributors showed a decline in volume. The sales companies were supplying about 1.1 million customers with gas as at 31 December 2010.
The Netherlands/Belgium Division achieved revenue of €6.5 billion. A comparison with the figures for 2009 would not be meaningful, since the previous year’s figures only include this division for the fourth quarter. EBITDA totalled €660 million and the operating result reached €391 million. Due to the cold weather conditions, Essent achieved high earnings from its gas business in particular. As at 31 December 2010, this division was supplying 2.3 million customers with electricity and 2.0 million customers with gas.
The UK Division increased its earnings in spite of slightly reduced revenue of €7.8 billion. EBITDA rose by 13% to €504 million. The operating result improved by 10% to €272 million. Net of foreign exchange effects, the increase amounted to 6%. Cost reductions and the weather-related increased demand for gas had a positive effect on the result. While RWE npower’s position in the industrial and corporate electricity sector improved, it declined in the private and small commercial enterprise segment as a result of tough price competition. As at 31 December 2010, RWE npower was supplying 4 million customers with electricity, giving it a current market share of 14%. Some 2.6 million customers were supplied with gas by RWE npower.
Central Eastern and South Eastern Europe Division
Revenue rose by 1% to €5.3 billion. EBITDA also showed a positive trend, increasing by 12% to €1.4 billion, while the operating result rose by 11% to €1.2 billion. Earnings significantly exceeded expectations. This was primarily attributable to foreign exchange effects as well as higher earnings from Czech gas sales. In addition, the earnings of the Polish electricity business improved. In Hungary, the introduction of a special tax led to burdens on companies such as energy utilities.
An increase of 49% meant revenue from renewables rose to €366 million. EBITDA grew by 67% to €211 million thanks to the inclusion of Essent’s wind-power business. The operating result improved by 29% to €72 million. Comparatively low wind levels in the entire region of North Western Europe had a negative impact on earnings, but commissioning of the Rhyl Flats wind farm off the coast of Wales and the first full-year inclusion of Spanish wind power operator Danta de Energías had a positive effect. Anticipated burdens arose from ongoing investments with high run-up costs. Personnel costs also increased.
Upstream Gas & Oil Division
RWE Dea achieved a 12% increase in earnings to €1.4 billion, despite slightly reduced production volumes. Higher oil prices, the appreciation of the US dollar against the euro and lower exploration costs led to an improvement in financial performance. EBITDA rose by 42% to €619 million and the operating result increased by 50% to €305 million.
Trading/Gas Midstream Division
The inclusion of Essent’s trading business led to an increase in revenue in this division of 8% to €7.5 billion. However, Trading/Gas Midstream recorded an EBITDA of -€7 million and a loss of €21 million in its operating result. RWE Supply & Trading was successful in its energy trading, but did not manage to maintain its extraordinarily good performance of the previous year. The Gas midstream business benefited in 2009 from positive one-off effects, but it was confronted with some heavy burdens in 2010. While RWE Supply & Trading procures the majority of gas for Germany and the Czech Republic on the basis of long-term oil-indexed contracts, customers are increasingly focusing on the much lower prices on the liquid wholesale markets in the Netherlands and the UK. Since RWE Supply & Trading primarily settles gas supplies within the Group under wholesale market conditions, such price differences have a very negative impact on earnings.
On the balance sheet date, RWE employed 70,856 staff, 130 more than at the same time in the previous year. Some considerable shifts between divisions occurred, primarily as a result of some Essent activities being transferred to RWE Supply & Trading and RWE Innogy. As in previous years, the Group trained far more people than required for its own staffing needs. As at 31 December 2010, some 3,079 young people were engaged in vocational training with RWE.
Outlook for 2011 and medium term goals for 2013
Due to the burdens the energy industry will be faced with in the future, RWE is now forecasting a decrease of about 15% in EBITDA for 2011 compared to the record earnings achieved in 2010. The operating result, which includes depreciation and amortisation, will decline by around 20%. For recurrent net income, the basis for determining the dividend, RWE is anticipating a drop of about 30%.
The medium-term outlook remains cautious. In 2013, when free emissions rights will no longer be allocated to the energy industry, EBITDA will be in the order of €8 billion, and the operating result at around €5 billion. RWE expects recurrent net income to be about €2 billion. The effect on earnings from the planned divestments of up to €8 billion has been accounted for in the amounts of €1 billion for EBITDA, €0.7 billion for the operating result and €0.3 billion for recurrent net income.
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 RWE has made based on information available to the company 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, RWE cannot assume responsibility for the accuracy of these statements.