Higher costs hit RWE earnings

RWE AG, Germany's second-largest utility, said first-quarter profit fell 48 percent as higher commodity costs narrowed margins on natural-gas sales and crimped earnings from trading.

Net income declined to 809 million euros from 1.57 billion euros a year earlier, the Essen-based company said yesterday.

Gas procurement costs rose from a year earlier, when RWE's resale prices exceeded those it charged in the United Kingdom and Germany later that year. Contributions from European power trading also fell from a year earlier.

"RWE were very proud of their trading result last year," said Christopher Kuplent, an analyst at Credit Suisse Group in London. "Getting that kind of result with higher commodity costs will be a lot tougher," according to Kuplent, who has a "neutral" rating on the stock.

Germany's Federal Network Agency told RWE on Jan 1 that 28 percent of the costs it uses to calculate grid tariffs didn't apply, according to Renate Hichert, a spokeswoman for the authority known as the Bundesnetzagentur. That ruling, which compares with an average 13 percent of costs in 2007, reduced the fees RWE was able to charge grid users, Hichert said.

RWE has fallen 19 percent in Frankfurt trading this year, more than the 11 percent decline of larger competitor E.ON AG.

E.ON net falls

Its Dusseldorf-based rival said yesterday first-quarter net income slumped 32 percent to 2.08 billion euros as gas sales failed to keep pace with rising wholesale costs for the fuel.

Npower, RWE's UK unit, reduced customer gas tariffs by 16 percent in the second quarter of last year, spokesman Leon Flexman said. The company raised retail prices 17 percent on Jan 5 as procurement costs increased, he added.

Contribution to operating profit from RWE Supply & Trading, the trading unit, fell 78 percent to 81 million euros from a year earlier, according to the statement. The utility calculates this profit by adding results from the utility's participations to its adjusted earnings before interest and tax

The company has said full-year net income will be "slightly" lower than in 2007 as it books a maximum 600 million-euro charge on lower-than-expected returns from the sale of shares in US unit American Water Works Co.

The company cut the volume of American Water's initial public offering as well as the price it had targeted. The unit sold for $21.50 a share, down from the $24 to $26 range RWE had planned.

The lower sale price was a result of less than "exuberant" investor interest, Boersen-Zeitung reported on April 22, citing Thomas Deser, a fund manager at Union Investment GmbH.

As long as the German utility can sell a majority stake in American Water by early next year, the reduction in the capital raised won't affect its dividend plans, according to spokeswoman Annett Urbaczka. RWE intends to pay out 70 to 80 percent of recurrent net income to shareholders in 2009, up from 60 percent this year.

Agencies

(China Daily 05/16/2008 page16)