RWE: earnings forecast for 2016 confirmed
Operating result for first quarter of 2016 up 7% year on year
In the first three months of 2016, the RWE Group’s EBITDA rose 5% compared to the previous year’s period, to €2.3 billion, and its operating result was up 7% to €1.7 billion. This was partly attributable to energy trading, which made an unusually high earnings contribution: the operating result for the Trading/Gas Midstream Division increased to €166 million (previous year €7 million). Revenues from energy trading are, however, subject to major fluctuations during the year.
'Overall, we have achieved a thoroughly respectable result for the first quarter,' said Dr Bernhard Günther, Chief Financial Officer of RWE AG. 'Our three future-oriented divisions, Renewables, Grids and Retail, are developing well. We confirm our earnings forecast for 2016.'
Development in the Renewables Division was pleasing. The commissioning of the new offshore wind farms Nordsee Ost and Gwynt y Môr, in particular, had a positive effect on the result. The result for the same period in the previous year still included one-off income from the divestment of the Gwynt y Môr grid infrastructure. The result for this segment is therefore virtually unchanged compared to 2015. Günther explained: 'Net of one-off effects, the Renewables Division would have posted a much higher result than in the previous year.'
As expected, the operating result in the conventional power generation business dropped considerably, falling by 20% to €354 million. The main reason for this is that lower wholesale prices were realised for electricity generation than in 2015. This was contrasted by lower fuel purchase prices, which caused the market conditions for our gas-fired power plants to be slightly more favourable and their utilisation to improve accordingly, primarily in the UK.
The Supply Division posted an operating result of €543 million, marginally less than in 2015 (€555 million). One reason was that, in the German retail business, rises in up-front costs (network usage fees, taxes and levies) were only partly offset by price increases. In addition, the UK experienced a marked decline in residential customer numbers from the start of 2015.
In the Grids/Participations/Other Division, increased expenditure on grid infrastructure maintenance was offset by the effect of revaluing the company’s participation in German distribution system operator WestEnergie GmbH. The operating result in this division was thus up slightly year on year (€583 million compared to €575 million).
Adjusted net income slightly down year on year
Despite higher operating income, adjusted net income decreased by 2% year on year to €857 million. This was mainly due to the deterioration of the financial result, since the previous year’s figures still included high profits from the sale of securities. External revenue fell 6% to €13.7 billion.
Increase in net debt to €27.9 Billion
As at 31 March 2016, the RWE Group’s net debt amounted to €27.9 billion, which was significantly higher than at 31 December 2015 (€25.1 billion). This was primarily due to negative free cash flow. Changes in market interest rates also made it necessary to increase provisions for pensions compared to the end of 2015.
Drop in capital expenditure on power generation capacity
At €373 million, the RWE Group’s capital expenditure in the first quarter was 10% lower than the figure recorded in the equivalent period last year. A significant decline was recorded in capital expenditure on property, plant and equipment in the Conventional Power Generation Division, after substantial investments had been made in the UK gas-fired power stations Pembroke and Staythorpe last year. Capital spent in the Renewables Division was also down due to the completion of Nordsee Ost and Gwynt y Môr in the previous year. In contrast, there was an increase in capital expenditure on grid infrastructure.
Expectations unchanged for development of earnings in 2016
RWE confirms its earnings outlook for the RWE Group’s business performance this year, as published in March 2016. There is one change compared to the March outlook, relating to net debt, where it was previously anticipated that the figures would be in the order of the previous year (€25.1 billion). A moderate rise in net debt is now expected, on account of the increase in provisions for pensions due to the latest decrease in interest rates.
The Group still anticipates that EBITDA will be unchanged, at between €5.2 billion and €5.5 billion, and that its operating result will total between €2.8 billion and €3.1 billion. Adjusted net income is likely to be in the range of €0.5 billion to €0.7 billion.
At first glance, these figures appear quite conservative in light of the result for the first quarter. In the energy sector, however, the first quarter is traditionally strong, and its figures cannot be extrapolated to provide a reliable estimate for the year as a whole.
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