RWE Zero Dividend Makes Shareholders Victims of Power Plunge

  • Utility's stock slides 12 percent in Frankfurt trading
  • Municipal holders weigh all options for dividend payment

RWE AG suspended its dividend payments to most shareholders for the first time in at least half a century as plunging electricity prices forced the German utility to write down the value of its power plants at home and in the U.K. Its shares slumped the most since 1999.

The move by Germany’s biggest generator shows the depth of the problems the company is facing, with wholesale power prices languishing near their lowest level since 2002. Chancellor Angela Merkel’s unprecedented shift to renewable energy has squeezed margins at traditional coal and gas plants in Europe’s biggest power market. Utilities are also putting aside billions to pay for the nation’s exit from atomic energy by 2022.

While the cut in the ordinary share dividend will be a blow to all owners of the stock, it will hit municipal shareholders particularly hard as they rely on the annual payments to fund public amenities ranging from schools to hospitals. The Essen-based company will pay 5.07 million euros ($5.64 million) in dividends on its preferred stock this year, compared with 615 million euros it paid on all its shares a year earlier, Vera Buecker, a spokeswoman for RWE, said by phone on Wednesday. Municipal shareholders own 23 percent of the company.

“For municipal shareholders it’s a nasty shock,” Thomas Deser, a fund manager at Union Investment that holds RWE shares, said by phone from Frankfurt. “Now investments in balance sheet stability are necessary in face of falling electricity prices.”

RWE posted a net loss of about 200 million euros in 2015 as it logged an impairment of 2.1 billion euros for the declining value of its power plants, the company said in a statement. Operating profit of 3.8 billion euros and adjusted net income of 1.1 billion euros were within the company’s forecast range.

“We’re completely floored,” Ernst Gerlach, a director of Verband der kommunalen RWE-Aktionaere GmbH, an association that represents municipal investors, said by phone from Essen.

Municipal shareholders will consider all options to make RWE pay a dividend, according to Lars Martin Klieve, the treasurer for Essen, who says the city holds 3 percent of the company’s shares, on which it has already written down more than 800 million euros in the past three years. RWE’s earnings are enough to allow a dividend for last year, he said by phone.

RWE fell 12 percent to 10.335 euros, its lowest closing price since Dec. 14 in Frankfurt. The company expects adjusted net income of 500 million euros to 700 million euros this year and forecasts a drop in the operating result to as low as 2.8 billion euros, it said in the statement.

“It’s an adaption to the realities: The company must invest, cut costs,” Guido Hoymann, an analyst at B. Metzler Seel. Sohn & Co. KG, said by phone from Frankfurt. “That isn’t compatible with a dividend payment, which also can’t be justified given a possible compromise” with the government on the funding of Germany’s nuclear cleanup costs.

Nuclear Burden

A German government-assigned commission has signaled it’s willing to have taxpayers share some of the expenses for disposing of nuclear waste that are burdening utilities such as RWE and E.ON SE as the country moves to exit its atomic-power era, shutting the last reactor by 2022, people familiar with the discussions said last week. The utilities have been lobbying for a sharp delineation of their total liabilities amid concern that disposal costs might soar, making them inviable as public companies.

RWE said in December that it’s pooling its renewables, grid and retail operations into a separate company, part of which it will sell in an initial public offering at the end of 2016.
The company will pay 13 euro cents a share for its 39 million preferred shares.

“We know that we might disappoint many shareholders with today’s decision,” Chief Executive Officer Peter Terium said in the statement. “However, it is necessary in order to strengthen our company.”

EON, which will also sell shares in a separate company holding its fossil-fuel plants later this year, confirmed Wednesday it will pay a dividend of 50 euro cents for 2015.

RWE increased its cost-cutting target to 2.5 billion euros by 2018 from a previous goal of 2 billion euros by 2017, 1.6 billion euros of which were reached at the end of last year.

RWE will harness all its forces “to master the crisis in conventional power generation, while seizing the business opportunities we are offered by the structural change in the energy sector,” Terium said. “We are working on this with resolve.”

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