RWE suspends dividend as its posts €637m loss, confirms Npower restructure, warns of worse to come in 2016

Catherine Neilan
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Energy giant RWE's share price fell this morning after suspending its dividend for 2015 and warning that results will get even worse before there is an improvement.

RWE has confirmed it will make 2,400 job cuts at the Big Six firm, after Npower notched up an operating loss of €137m (£106m).

RWE's share price fell on the open, down 2.3 per cent, although recovered during early trading to just below one per cent.

The figures

RWE has posted a €637m (£493m) annual group loss, compared with a profit of €2.25bn a year earlier. The group has suspended its dividend for the year.

The German energy group grew total revenues marginally from €48.47bn to €48.59bn, but income from continuing operations collapsed from €1.69bn to a loss of €1.24bn.

Chief executive Peter Terium admitted the group had been "unable to predict the continued decline in electricity forward prices and the €2.1bn in power plant impairments that we had to recognise as a result.

"Due to these and other exceptional burdens, net income was unusually weak, amounting to −€170m."

A rise in cost of materials and other operating expenses, as well as a jump in depreciation, amortisation and impairment losses to €5.5bn from €3.1bn the year, also before hurt the bottom line.

The group also warned that earnings would slump in the coming year, from €7.02bn in 2015 to €5.2bn-€5.5bn in 2016, while operating results would drop from €3.8bn to €2.8bn-€3.1bn.

Conventional power generation and renewables would come in "significantly below [the] previous year," it added.

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Why it's interesting

RWE has suffered a difficult year, and at least some of that pain has been focused on its UK arm Npower, which missed its "moderate" forecast and closed the year under review, with an operating loss of €137m, after the number of customers slid from 5.13m to 4.77m.

"The main reason for this is serious process and system-related problems in customer billing," RWE said. "Substantial earnings shortfalls also stemmed from the fact that residential and commercial customers switched providers or we were only able to retain such customers by offering them contracts with more favourable conditions. In addition, there is an increasing trend towards saving energy, which also hit us harder than expected."

As a result, Npower is being restructured and "may face additional burdens", Terium said.

What RWE said

Terium has admitted the business will continue to struggle throughout the current financial year because of the drop in wholesale electricity prices, and the UK arm Npower "may face additional burdens".

"However, we are in the process of radically restructuring the company with the goal of stabilising margins and raising its competitive position to the market average by 2018," he added - although noted that the company's earnings forecasts showed that "RWE has not yet reached the low point".

"There are many signs that times will remain ‘interesting’. However these times also bring positive aspects. They give us the opportunity to demonstrate what we are made of. We will prove that we can safely steer your and our company along this difficult course.

"To do this, we depend not only on our employees’ determination and professional expertise, but also on your backing as shareholders. I would greatly appreciate it if I could count on your patience and trust especially as we go through this difficult period. We will work hard to ensure that it is worth your while."

Of the dividend suspension, Terium acknowledged the "decision may disappoint you, our shareholders".

"You may feel that we are overreacting. But I assure you, this was necessary," he added. "A prudent dividend policy, which corresponds to what is feasible, is also in the interests of RWE’s owners. I would like to be absolutely clear: we are only talking about the dividend for the past financial year.

"Dividend payments in the years ahead will largely depend on the development of the economic and political environment, especially in conventional electricity generation. However, in this regard, the proverbial silver lining is not visible yet."

In short

RWE has had a tough year - but it's far from being out of the woods just yet.

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