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German Power Giant RWE Takes a Big Hit, Suspends Payouts

Feb. 17, 2016
Germany's power suppliers have been hurt in recent years by government plans to eliminate nuclear power by the next decade.

FRANKFURT—RWE, Germany's second-biggest power supplier, said Wednesday it will partially suspend dividend payouts after running up a loss in 2015 as a result of collapsing wholesale prices and weak profitability in the conventional power generation.

The announcement sent RWE shares into a nosedive on the Frankfurt stock exchange, where they were the biggest losers, plunging 12.4% to 10.34 euros while the DAX 30 index climbed 2.7 percent. 

Germany's power suppliers have been hit in recent years by government plans to eliminate nuclear power by the next decade and champion a so-called "energy transition" away from fossil fuels such as coal towards renewable energy sources such as the wind and the sun.

Power utilities have complained that the cost of having to close down their nuclear power plants and the heavy subsidies afforded to renewable energy have pushed them deeply into the red. 

RWE said in a statement it booked a net loss of 200 million euros ($223 million) in 2015 compared with net profit of 1.7 billion euros a year earlier.

The loss was due to a writedown of 2.1 billion euros on its power plants in Germany and Britain, RWE explained.

"The continued collapse of wholesale electricity prices came to bear, leading to an erosion of power plant margins," RWE said in a statement. 

"The prospects in the conventional power generation business have worsened further."

Adjusted for one-off effects, net profit amounted to 1.1 billion euros, at the lower end of forecasts, and underlying or operating profit totaled 3.89 billion euros, RWE said.

In the wake of the "unusually weak" bottom-line earnings, the management board "has decided to propose ... a suspension of the dividend payment to holders of common shares for fiscal 2015," RWE said.

Holders of preferred shares would still receive a payout of 0.13 euros per share. 

"The backdrop is the recent dramatic deterioration of the earnings prospects of conventional power generation," RWE said. 

"In light of the current economic prospects of conventional power generation, we reached a decision concerning the dividend today that did not come easily to us. We know that we might disappoint many shareholders. However, it is necessary in order to strengthen our company," said chief executive Peter Terium.

Profits Down This Year

Looking ahead to the current year, RWE said it is penciling in adjusted net profit of 500-700 million euros. 

"This represents a considerable decline compared to 2015," the group said.

"Besides the erosion of margins in conventional power generation, the absence of the positive special items recorded last year also comes to bear," it said.

RWE vowed to "tackle the operating and technical problems in the UK supply business with resolve, but anticipates burdens in this area again in 2016."

Net debt and headcount at group level were "unlikely to change significantly compared to 2015," it said. 

In December, RWE announced plans to spin off its renewables, grids and retail operations and take the unit public.

Bigger rival E.ON is similarly splitting its conventional and renewable energies operations into separate entities.

Copyright Agence France-Presse, 2016

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