RWE: Accelerated nuclear phase-out plans in Germany bring further financial pressure

Source: RWE

Decisions taken by the German government to accelerate the nuclear phase-out have further exacerbated the economic framework conditions for RWE. This is already reflected in the company’s earnings performance in the first six months of the 2011 fiscal year. Including the nuclear fuel tax, the financial burdens now total some €900 million. While Group revenue at €27 billion was at almost the same level as in the first half of last year, EBITDA fell by 25% to €4.6 billion. The operating result decreased by 33% to €3.3 billion. Recurrent net income declined by 39% to just under €1.7 billion. Recurrent net income per share was €3.13 (compared to €5.15 in the year-earlier period).

“The decisions made by the German government have led to substantial financial burdens. However, the German government’s energy concept also presents us with opportunities which we would like to make use of,” said Dr. Juergen Grossmann, CEO of RWE AG. “At the core of our strategy – to be more sustainable, more international and more robust – lie efficiency enhancement and the carbon footprint of our generation portfolio.”

Electricity and gas sales

In the first half of 2011, RWE produced 104.3 billion kilowatt hours (kWh) of electricity, 7% less than in the same period of 2010. The main reason for this was the shut-down of the Biblis nuclear power station as part of the nuclear energy moratorium imposed by the German government. Electricity sales of 154 billion kWh were at almost the same level as a year earlier. The positive effects of the strong business cycle and the successful acquisition of industrial and commercial customers as well as distributors in Germany were offset by weather-related volumelosses in business with households and smaller commercial enterprises in particular. The number of RWE customers in Germany rose to 6.9 million, due to the first-time full consolidation of NVV, the Moenchengladbach-based regional utility. NVV serves 360,000 electricity and 137,000 gas customers. There was a noticeable drop in gas sales by RWE in the first half of 2011, with an 18% decrease taking the total down to 185.3 billion kWh. Milder weather conditions were the primary reason, as well as customer losses due to competition.

Operating result reflects government-imposed burdens

The earnings of the Group were substantially weaker than in the first half of 2010. The decreases in all relevant financial indicators – EBITDA, the operating result and recurrent net income – were more significant than originally forecast in February 2011 for the year as a whole. This was primarily due to the rescission of the lifetime extension for German nuclear power plants. Together with the nuclear fuel tax, it led to a decrease in the operating result of about €900 million compared to the same period in 2010. Due to the earlier than expected exit from nuclear energy, the company has had to increase provisions for decommissioning and dismantling its power plants. In addition, lower electricity generation margins and an unusually weak performance in our trading business led to a significant earnings shortfall. Some positive earnings effects were achieved in the UK supply business through adjustments to electricity and gas tariffs at the start of the year and cost reductions as well as through the higher oil and gas prices realised by RWE Dea. The operating result fell by 33% to €3.3 billion. Net of major consolidation and foreign exchange effects, this represents a decrease of 35%.

Capital expenditure on property, plant and equipment remains high 

With an increase of 8% to €2.7 billion, capital expenditure on property, plant and equipment in the first half of 2011 remained high.The expansion and modernisation of the Group’s electricity generation capacity are the main focus. The most important projects are lignite and hard coal units in Neurath, Hamm and Eemshaven, as well as gas-fired power plants in the Netherlands, UK and Turkey. Wind power projects were the main focus of the ongoing expansion of renewables in the first half of 2011. RWE Innogy also invested in special ships to transport and install offshore wind turbines.

As at 30 June 2011, RWE employed 72,700 staff, 1,844 more than at the end of 2010. In addition to new positions in most Group divisions, this figure includes 1,057 employees from the NVV Group, which has now been fully consolidated by RWE. As a result of the sale of Thyssengas, some 289 employees left the RWE workforce.


RWE is making a downward adjustment to its earnings forecast of February 2011. This is due to the unforeseen burdens imposed by the sudden change in German energy policy. The improved earnings prospects for RWE Dea, RWE npower and the Central Eastern and South Eastern Europe Division will not be sufficient to offset these burdens. Group EBITDA is expected to be approx. 20% below last year’s level. In February, we forecast a decrease of about 15%. We now anticipate that the operating result will decline by approx. 25% instead of – as previously predicted – approx. 20%, while for recurrent net income the forecast is now a drop of approx. 35% instead of approx. 30%.

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