Germany’s RWE €2.8bn Net Loss for 2013 Troubles European Electricity Market

The challenge faced by Europe’s conventional electricity generators was starkly illustrated recently as RWE, Germany’s second-biggest utility by market value, reported a net loss of €2.8bn for 2013. It is the first time in 60 years that the power generator has posted an annual loss. In 2012, RWE reported net income of €1.3bn. Peter Terium, RWE’s chief executive, said: "We were late in entering the renewables market, possibly too late.”

Like other conventional power generators, RWE has been hit by the shift to renewable energy in Germany, where highly subsidised solar and wind energy is increasingly taking the place of fossil fuels. The expansion of clean energy has pushed conventional power plants out of the market, both in Germany and in neighbouring markets such as the Netherlands, RWE said. Renewables now account for 23 per cent of the electricity consumption of Europe’s biggest economy.

RWE is now looking for ways to raise cash, including asking shareholders for provisional approval for a share issue of up to 20 per cent of its existing share capital. It is also reducing headcount, cutting capital expenditure and seeking to dispose of assets including its oil and gas exploration unit RWE Dea, and its minority stake in the uranium enricher Urenco. Net debt stood at €30.7bn at the end of 2013 – three and a half times earnings before interest, tax depreciation and amortisation. RWE said it is seeking to cut debt to a maximum of three times ebitda. Overall, ebitda for 2013 was down 6 per cent to €8.8bn, and RWE said it expected a further substantial decrease in earnings in 2014. Its ebitda forecast for this year is currently between €7.6bn and €8.1bn.

Two weeks ago, French utility GDF Suez said that the crisis in Europe’s energy market showed no signs of abating, as it announced a €14.9bn impairment charge and warned it could cut its dividend. GDF declared a net loss for the full year of €9.3bn, compared with a €1.5bn profit the year before.

Vincent Gilles, head of European utilities research at Credit Suisse, said the chances of RWE achieving its planned disposals in the medium term were not good. "There’s no disposal of Dea as far as I can see in the near future, and Urenco not in this year,” he argued. "There’s 3.5 times net debt to ebitda, and collapsing ebitda, which points towards [a debt ratio of] more than 3.5 times. I fail to see the good news.” RWE’s loss corresponds to earnings per share of -€4.49, compared with €2.13 in 2012. The utility said this was attributable to impairment losses of around €4.8bn, mainly from conventional power generation. Ebitda for conventional power generation fell to €2.4bn for 2013, from €4.4bn the year before, a drop of around 44 per cent.

RWE said in its 2013 annual report: "Declining margins, especially of gas-fired power stations, have already caused us to recognise considerable impairments. Should market conditions continue to deteriorate, we will be at risk of having to perform further writedowns.” The utility further said that recurrent net income, which does not take into account one-off effects such as impairment losses, fell by 6 per cent to €2.3bn. It will propose a dividend of €1 per share at the annual general meeting in April, which represents around 27 per cent of recurrent net income. However, for the 2014 financial year onwards, dividend proposals will be based on a payout ratio of 40 to 50 per cent of recurrent net income. In the past, the range was typically 50 to 60 per cent.