RWE AG (RWE), Germany’s second-largest utility, said full-year profit dropped 34 percent, weighed down by the cost of phasing out nuclear power and losses at its natural-gas supply business.
Recurrent net income, the measure used to calculate the dividend, fell to 2.48 billion euros ($3.28 billion) from 3.75 billion euros a year earlier, the Essen-based company said today. That beat the 2.4 billion-euro median estimate of six analysts surveyed by Bloomberg. The shares rose to a 19-month high after the company improved its outlook for 2013 earnings.
An employee walks through RWE AG's Emsland gas fired-power station in Lingen, Germany. Photographer: Jock Fistick/Bloomberg
Angela Merkel, Germany's chancellor, ordered the permanent shutdown of all nuclear plants by 2022 in response to Japan’s Fukushima accident. Photographer: Jock Fistick/Bloomberg
Germany’s biggest utilities are overhauling their operations after Chancellor Angela Merkel ordered the permanent shutdown of all nuclear plants by 2022 in response to Japan’s Fukushima accident. Costs associated with nuclear shut-downs trimmed earnings by more than 1 billion euros, RWE said today. The company plans to divest 7 billion euros in assets between 2012 and 2013 and start cost-cutting measures totaling around 1 billion euros through 2014.
“We have introduced the necessary measures to get us through the trough quickly,” RWE Chief Executive Officer Juergen Grossman said in a statement. Grossman will be succeeded by Peter Terium in July. “I am optimistic that the program can be implemented in agreement with the workforce.”
RWE is selling assets such as its Czech NET4GAS gas-grid unit and a stake in local utility VSE. The company may also divest its interest in Berlinwasser Holding AG, part-owner of the German capital’s water utility. The 7 billion-euro disposal program, down from 11 billion euros in assets sales proposed last year, will be completed by the end of 2013, RWE said.
“Although the shift in RWE’s disposal program underlines our concerns over RWE’s growth beyond 2013, we believe RWE’s share price will react well to 2013 guidance at the upper end of expectations,” Bank of America Corp.’s Christopher Kuplent said in a note to investors.
Recurrent net income in 2012 and 2013 will be similar to 2011 earnings, boosted by increased oil and gas production at the company’s RWE Dea unit. The division contributed 558 million euros to the 2011 operating result. Nuclear taxes and oil price- linked gas contracts will continue to weigh on earnings, the company said.
RWE shares jumped as much as 1.86 euros, or 5.4 percent, to 36.35 euros and traded at 34.82 euros at 1:22 p.m. in Frankfurt. The stock has risen 22 percent since the beginning of January, valuing the company at 21.3 billion euros.
Improved operating procedures and reduced administration expenditures will save the company 750 million euros in 2013 and 250 million euros in 2014, RWE said. The utility is committed to a dividend payout ratio of 50 percent to 60 percent of recurrent net income and proposed a dividend of 2 euros a share, down from 3.50 euros a year earlier.
RWE’s cost-cutting program will “raise efficiency, which means to reach more with the same,” Terium told a press conference. “Second, it’s about reducing costs, and that can affect procurement or taking less capacity from third parties. Third, it may also affect jobs.”
Losses from the company’s mid-stream gas business widened to 800 million euros in 2011 from 21 million euros a year earlier. The unit is unlikely to recover before 2014, and will probably report a loss of about 500 million euros in 2012, according to Credit Suisse.
RWE is among European utilities fighting above-market gas- supply rates charged by OAO Gazprom (GAZP), Russia’s gas-export monopoly, and is in arbitration with the Moscow-based company. Gazprom Deputy Chairman Alexander Medvedev said in February he was “optimistic” about settling pricing disputes