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RWE Reaffirms 2010 Targets But Sees Tough 2011

RWE AG (RWE.XE) Thursday said it expects low electricity and gas prices, as well as "substantial burdens" from a tax on nuclear fuel in Germany, to hit profits from 2011.
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Πεμ, 11 Νοεμβρίου 2010 - 18:58
RWE AG (RWE.XE) Thursday said it expects low electricity and gas prices, as well as "substantial burdens" from a tax on nuclear fuel in Germany , to hit profits from 2011.

Germany 's second largest utility by market value behind E.ON AG (EOAN.XE) will implement countermeasures in response to tougher market conditions, said Chief Executive Juergen Grossmann in a letter to shareholders.

"However, one thing is already certain today: we will not be able to fully offset the future burden on our earnings," Grossman added.

RWE had previously said it may have to reduce capital expenditure and dividends, increase cost cuts and consider asset sales.

The company also reiterated it expects its earnings to rise in 2010 after reporting a 4.4% increase in third-quarter net profit helped by better power plant availability and acquisitions.

Full-year operating and recurring after tax earnings in 2010 are expected to grow about 5%, RWE said, reaffirming earlier guidance.

RWE shares were down EUR0.86, or , 1.7%, to EUR50.14 at 1246 GMT, while the German DAX traded flat. Year-to-date the shares lost more than 22% due to the uncertain growth prospects in a deteriorated market environment.

LBBW analysts, who has a buy recommendation on RWE shares, said that RWE's confirmed 2010 guidance implies that its fourth quarter performance will be weak, considering that operating profit grew around 11% on the year in the first nine months of the year.

RWE's comments echo those made by its main domestic rival E.ON, which said Wednesday it intends to sell more assets, reduce dividends and step up savings efforts.

RWE said the German tax on nuclear fuel rods will reduce operating profit by between EUR600 million and EUR700 million per year from 2011.

Like E.ON and other European utilities, RWE is suffering from relatively low power prices that haven't tracked the recovery of commodity prices and energy demand in the wake of the global recession last year. In its third-quarter results report RWE said that "upward trend [for electricity prices] can hardly be detected."

Similarly, utilities' earnings in the wholesale gas market have come under pressure "as realizable sales prices are, in some instances, much lower than the oil-indexed procurement costs."

In a conference call, Chief Financial Officer Rolf Pohlig said RWE has booked a "low three-figure million euro amount" in provisions for its Czech gas business in the third quarter of 2010 in response to the risks it faces in the midstream gas business.

E.ON--whose exposure to the gas market is much larger than RWE's as it imports more gas--Wednesday said it expects its wholesale gas business would be loss-making in the fourth quarter this year and in the full-year 2011.

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