RWE Profit Disappoints, Targets 5% Rise per Year


Profits from RWE disappointed expectations and Germany's second-largest utility said it plans to increase operating profit by 5 percent a year on average through 2012 by investing more in power plants.

The company plans to spend more than 30 billion euros ($44.21 billion) in the period on power stations and grids, a fifth more than previously envisaged, resulting in a rise in recurrent net income by as much as 10 percent a year, it said on Friday.

Full-year operating profit was 6.5 billion euros, the company said, falling short of the 6.9 billion euros expected on average by 13 analysts polled by Reuters.

Shares closed lower by 5.7 percent, while the DAX index was lower by 1.4 percent.

Chief Executive Juergen Grossmann, in his fifth month at the helm of RWE, is setting out a strategy to boost earnings by building more power plants and investing in renewables, similar to that of larger competitor E.ON.

Utility shares have soared in the past five years, often ruling out large takeovers as a means of expansion, Grossmann had said.

Today's announcement is one of the first glimpses capital markets have had of targets from Grossman, who turned unlisted steelmill Georgsmarienhuette into a cash cow.

While RWE shares rose in the first months of his tenure, shareholders were disappointed when Grossmann said on Wednesday the company plans to buy back shares worth 2.5 billion euros and to reduce its dividend.

The share buyback is about a third of a similar program by larger German competitor E.ON, the investment program about half of E.ON's 60 billion euro initiative.

Going East

Grossmann reiterated he is looking east for takeovers, saying that he considers expanding in more markets in south-east Europe than Greece and Turkey, where RWE has already begun to look for cooperations.

"RWE is looking into its options in Russia," he said.

To uphold profitability at Europe's largest emitter of carbon dioxide, Grossmann plans to triple the generation capacity from renewable energy sources from some 1.3 gigawatt by 2012, he said on Wednesday.

Emissions are becoming increasingly costly as the European Union limits the number of certificates allowing companies to emit the greenhouse gas.

Net income at 2.7 billion euros for 2007 also missed expectations of analysts who on average had estimated net profit of 3.2 billion euros.