RWE Suffers First Loss Since Founding of German Republic

RWE AG had its first full-year loss since the foundation of the Federal Republic of Germany in 1949 as slumping power prices led to billions of euros in writedowns.

The country’s largest power generator posted a net loss of 2.76 billion euros ($3.8 billion) on sales of 54.1 billion euros after a profit of 1.31 billion euros, it said in a statement. It wrote down 4.8 billion euros on assets, mainly power stations.

“Our power plants will earn even less in the coming years than we had feared,” Chief Executive Officer Peter Terium said in RWE’s annual report. “We had to take this into account.”

The historic loss, the first since West Germany was forged from U.S., British and French zones of occupation after World War II, follows Chancellor Angela Merkel’s transformation of the domestic energy market toward renewables and away from nuclear. A surge in wind and solar energy, now 23 percent of generation, has curbed prices, already weakened by Europe’s economic crisis.

“The difficult earnings situation in conventional electricity generation in Europe is clearly reflected in RWE AG’s financial results for fiscal 2013,” the Essen, Germany-based company said. RWE and rival EON SE are closing plants, cutting costs and dividends, and selling assets as wholesale power prices tumble, making much generation unprofitable.

RWE plans to close or mothball 6,590 megawatts of capacity, it said in an investor presentation, adding 2,325 megawatts to its target in August. It plans to cut investments to an annual 2 billion euros by 2016 from 4.62 billion euros last year.

Conventional Slump

The operating profit from conventional generation fell 58 percent to 1.38 billion euros, the presentation showed. Its share of the total fell more than half to 24 percent and will continue to drop to as little as 5 percent in the mid-term.

On the flipside, RWE sees no further negative impact from procurement contracts with OAO Gazprom until mid-2016 after an agreement reached last week, Terium said in Essen. RWE also hit its target to cut costs by 1 billion euros by the end of 2013, a year before planned, and now expects to attain 1.5 billion euros of savings by 2016 instead of 2017, it said in the statement.

“The fact that RWE over-achieved its efficiency target for 2013 by 250 million euros did, however, not result in higher than expected earnings,” Ingo Becker, an analyst at Kepler Cheuvreux, said by phone from Frankfurt.

The utility rose 2.1 percent to 29.305 euros by the close of Frankfurt trading, bringing gains this year to 10 percent.

Dividend Calculation

Recurrent net income, used to calculate dividends that were cut in half to 1 euro for 2013, fell to 2.31 billion euros from 2.46 billion euros, the company said. That missed the average 2.39 billion euro estimate of 18 analysts surveyed by Bloomberg.

The utility expects positive net income this year, Chief Financial Officer Bernhard Guenther said. It affirmed a forecast of recurrent net income falling to 1.3 billion euros to 1.5 billion euros this year, “the new normal,” Guenther said.

Earnings by that measure declined 29 percent to 399 million euros in the fourth quarter on sales of 14.2 billion euros, calculated by taking nine-month earnings from annual results.

RWE plans to close the sale of its Dea oil and gas unit by mid-year even with a gap between the price it wants and that of possible buyers, said Terium, who told an investor call atomic-fuel company Urenco Ltd. may be sold “hopefully in 2015.”

“The situation in Egypt where Dea has many of its reserves could impact the probability to achieve full value for the unit, which we continue to see at 5 billion euros,” Becker said.

RWE will seek approval at its annual general meeting for an option to increase capital, Guenther reiterated after one of its municipal shareholders said last month it would block the plan.

Before it's here, it's on the Bloomberg Terminal.