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Germany's RWE sees tough years ahead

disclaimer: image is for illustration purposes only
by Staff Writers
Essen, Germany (UPI) Feb 25, 2011
German utility RWE said it expects three years of falling profits because of stagnant power prices, a painful tax on its nuclear reactors and higher costs related to the company's carbon dioxide footprint.

"It is the difficult years that show how successful a company really is", RWE Chief Executive Officer Juergen Grossmann said in a statement. "We will not rest on our laurels simply because we had record results last year. Instead, we are rolling up our sleeves and have already initiated a whole host of measures."

Those measures involve planned asset sales worth $11 billion and a stringent efficiency program aimed at reducing costs by $4 billion through 2013.

Despite these measures, RWE expects operating profit in 2011 to plummet 20 percent to $8.5 billion. This comes after a record 2010, when the utility posted an operating profit of $10.6 billion, the best result in the company's history.

RWE units in Europe sold more gas and electricity than in years before and profited from lucrative supply contracts struck before demand began to plummet because of the economic crisis.

The outlook for the period through 2013 is gloomier and RWE cites several reasons for the expected downturn.

The first is a nuclear fuel tax launched by the German government as part of a decision to extend the lifetime of the reactors in Germany by an average 12 years. In return for the longer running times, which are to hand utilities extra profits, the government wants cash from the utilities to plug budget holes.

RWE, which operates four reactors in Germany, says the tax will slash profits by up to $965 million a year for the next six years.

Starting in 2013, RWE will also feel the effect of its CO2 footprint, when companies have to pay for the greenhouse gases they emit. They currently get emission allowances for free under a Europe-wide emissions trading scheme. The utility from Essen, western Germany, has a large coal and gas portfolio and is Europe's largest corporate emitter of CO2.

RWE, which has performed considerably worse than the German stock index DAX in 2010, said it would propose a dividend of $4.83 per share, the same as in 2009. RWE shares dropped 5.18 percent in Thursday trading, the most on a single day in almost a year.

Germany's second largest utility when it comes to sales, RWE employs 70,000 people all over Europe.

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