Germany: RWE earnings drop 18% on nuclear phase-out

RWE, the German utility, reported an 18 per cent drop in full-year earnings, weighed down by the cost of phasing out nuclear power in its home market and losses in its energy trading and wholesale gas business. But the company forecast greater stability for the next two years.

Juergen Grossmann, RWE’s outgoing chief executive, said that “2011 was a difficult financial year” but that the company had introduced “the necessary measures to get us through the trough quickly”.

He predicted, however, that earnings in 2012 and 2013 would be about the same as in 2011.

Peter Terium, his successor who takes over in the summer, said the future looked “much brighter” than it did six months ago. Shares in RWE fell 0.14 per cent to close at €34.45.

Germany’s utilities have seen their operations heavily affected by Berlin’s decision to close all nuclear power plants by 2022 in the wake of the Fukushima nuclear accident in Japan last year. RWE, which is trying to move away form a heavy reliance on nuclear and coal-fired power generation and invest more in renewable sources, said that decision alone had a “negative impact on the result of well over €1bn” as the shut down started.

The company also gave an update on its plans to reduce its €29.9bn of net debt. Due to increased cost cutting, it will sell fewer assets than initially planned, reducing the targeted proceeds from disposals from €11bn through 2013 to €7bn. The decision means that it now plans to keep its DEA oil and gas exploration unit. RWE also set a new cost reduction target of roughly €1bn for 2013 and 2014.

The company said recurrent net income – which strips out non-recurring items and is the key determinant of the dividend – fell 34 per cent to €2.5bn and revenue dropped 3 per cent to €51.7bn.

Earnings before interest, tax, depreciation and amortisation dropped 18 per cent to €8.5bn. It is recommending a dividend of €2 a share, down from €3.50 a share in 2010.

RWE’s energy trading and wholesale gas business recorded an operating loss of €800m in 2011 due in part to the difference between more expensive long-term oil-indexed gas procurement contracts with producers such as Russia’s Gazprom and much lower selling prices in Europe. The company is in talks with producers to secure cheaper gas.

In the UK, RWE Npower, one of the Big Six energy suppliers, unveiled a 34 per cent rise in annual profits to £313m. Utilities have come under pressure in the UK for raising tariffs over the winter. Npower lifted average prices for gas by 15.7 per cent and electricity by 7.2 per cent last autumn although it has since lowered its gas bills by 5 per cent. The uplift in profit was driven by improved income from its power generation assets as well as higher cost savings.

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