Outlook for 2009

Economic forecast for 2009: Eurozone economy set to shrink by 4 %

Our prognoses indicate that world economic output may decline by more than 2 % this year. The situation in the Eurozone will remain difficult for the duration of the year. According to our recent estimates, real gross domestic product (GDP) in this part of the world will decline by approximately 4 %. For Germany, a drop of up to 5 % cannot be ruled out. As in the Eurozone, corporate investment in property, plant and equipment is set to decrease by a double-digit percentage in Germany. Foreign trade, traditionally the engine of Germany’s economy, is affected to a similar degree. According to estimates, exports will fall more than 15 % behind last year’s level. In the fourth quarter, the German economy is likely to continue the course for growth, which it embarked on half way through the year. However, this should not hide the fact that it may take years for real economic output to return to the levels seen before the crisis. In the UK, 2009 GDP is expected to drop by approximately 5 %. The country is especially hard hit by the financial crisis and continues to face the weakness of the housing sector. Economic performance in the UK was apparently still on the decline in the third quarter, but indicators are pointing to a recovery by year-end. Central Eastern European countries exhibit different economic developments. Czech GDP is expected to fall by nearly 4 %, owing to the country’s strong orientation towards foreign trade. In Hungary, economic output may shrink by as much as 6 %, since the country’s dependency on exports is compounded by weak consumer spending. A substantial decrease is also forecast for Slovakia. In contrast, Poland may actually post a marginal increase, driven by robust consumption.

Marked drop in fuel prices

The price of a barrel of Brent crude has recovered recently, temporarily surpassing the 80-dollar mark. However, the average for the whole year will be markedly down on the comparable figure for 2008 (US$ 97). The same holds true for gas, hard coal and CO2 emission allowances. Quotations on the Dutch TTF gas market are still very low, despite firmer oil prices. At the end of October, a metric ton of hard coal sold for US$ 76 in Rotterdam spot trading (including freight and insurance), compared with last year’s average of US$ 148. At the same point in time, emission allowances for 2009 were quoted at € 15 per metric ton of CO2 (average for 2008: € 22).

Owing to early forward sales, earnings from power generation remain stable

The significant decrease in commodity prices will cause RWE Dea’s gas and oil production revenue to drop. However, this will not significantly affect earnings from our 2009 electricity generation. RWE Power has sold forward almost all its German production for 2009. More than 90 % has been sold for 2010, more than 65 % for 2011, and more than 30 % for 2012. The realised wholesale prices were much higher than those currently observed. In principle, when concluding these forward contracts, we purchase the required fuel or hedge its price when the contract is signed. This also applies to CO2 certificates. As a result, costs incurred to purchase gas, hard coal and emission allowances have largely been influenced by the high level of forward prices in the past, as has our electricity revenue. We have no fuel price risk exposure from lignite since we produce this fuel in our own opencast mines. The uranium required to run our nuclear power stations has been secured via long-term purchase agreements. In the nuclear power generation sector, fuel procurement costs typically account for just a small portion of total generation costs.

We expect the price of commodities, and therefore of electricity, to return far above the current level over the medium term. Market signals also indicate this. For instance, the crude oil forward price curve is currently on a steep upward trend. In other words, the more distant the delivery period, the higher the price level. This also applies to electricity. As of the end of October, the base-load forward for 2010 was quoted at € 49 per MWh. The same contract for the following years traded at € 55 (2011), € 58 (2012), and € 62 (2013).

Financial statements for fiscal 2009 to reflect new Group structure

The new Group structure introduced in the report on the first quarter of 2009 has been largely implemented. It is now more aligned with national markets. Our German supply and grid businesses have been streamlined. The two regional companies RWE Rhein-Ruhr and RWE Westfalen-Weser-Ems have been merged to form a supply company (RWE Vertrieb AG) and a distribution grid company (RWE Rheinland Westfalen Netz AG). The holding company RWE Energy is no longer in operation. We will transfer our entire business in the Netherlands and Belgium to Essent, which was consolidated for the first time effective September 30. The reorganisation leads to the reporting structure illustrated below, to which we will adhere for the first time in the 2009 financial statements. Prior-year figures will be adjusted to ensure comparability. However, our forecast for the full 2009 financial year is still based on the old segment structure.

€ million


Updated 2009 forecast vs 2008
without Essent

Effect from Essent


Figures adjusted; see commentary Notes on reporting.

External revenue


Below previous year

+ approx. € 1.5 billion



In the order of last year’s level

+ approx. € 150 million

Operating result


In the order of last year’s level

+ approx. € 100 million

RWE Power


Above previous year

RWE Innogy


Below previous year



Significantly below previous year

RWE Supply & Trading


Significantly above previous year

RWE Energy


Matching previous year’s level

RWE npower


Significantly below previous year

Recurrent net income


In the order of last year’s level

Slightly positive effect

Revenue set to decline in operating terms

We expect the RWE Group’s external revenue in 2009 — excluding Essent — to be below last year’s level. We anticipate that the Dutch energy utility will generate approximately € 1.5 billion in external revenue in the fourth quarter. The fact that RWE Supply & Trading will sell less electricity produced in-house on the wholesale market than in 2008 will have a revenue-reducing effect. Furthermore, we anticipate a cyclically and competition-induced decrease from business with our gas supply to end customers and distributors. This will be contrasted by higher revenue in the German electricity supply business. Drivers will be the price adjustments implemented in reaction to higher procurement costs, with growth in sales also playing a role.

Previous earnings forecast confirmed

The world financial and economic crises will affect our business operations to a relatively small extent this year. The RWE Group’s earnings are expected to maintain their high level. However, we expect to see significant additional burdens in our electricity generation business compared with 2008. The main reasons are the long outages of the two power plant units at Biblis and higher fuel procurement costs. These are contrasted by the positive effects of higher realised electricity wholesale prices. In our UK electricity and gas business, we expect significantly depressed earnings resulting from pressure on prices and costs. Our upstream activities will also experience a significant drop owing to lower oil and gas prices. We will probably be able to stabilise our earnings in the regulated German grid business through further cost reductions. As explained in the chapter efficiency-enhancement programme, we expect our efficiency-enhancement programme to make an increasing contribution to earnings.

We confirm the earnings forecast we issued in February 2009. Excluding Essent, EBITDA and the operating result are expected to be of last year’s order (€ 8,773 million and € 6,826 million). The consolidation of Essent, effective September 30, 2009, will have another positive effect. In the fourth quarter, the company is anticipated to generate some € 150 million in EBITDA and an operating result of about € 100 million.

Excluding Essent, we expect that recurrent net income will also be of last year’s order (€ 3,367 million). The inclusion of the Dutch energy utility will lead to mutually opposing effects: The operating result it will contribute in the fourth quarter will be contrasted by acquisition financing costs in the same period. Overall, we expect to see a slightly positive effect.

Dividend payout ratio between 50 % and 60 %

Our dividend proposal for fiscal 2009 will return to the regular payout ratio of 50 % to 60 %, following the increased payout ratio for 2008. The basis for calculating the payout ratio is recurrent net income, which is adjusted for one-off effects.

Capital expenditure markedly up year on year

The RWE Group will nearly triple capital expenditure compared to 2008. This is mainly due to the acquisition of Essent. Spending on property, plant and equipment will also rise considerably. All divisions have increased their outlay. We reported on major investment initiatives in the chapter capital expenditure. Excluding Essent, the Groups 2009 capital expenditure on property, plant and equipment is likely to be in the order of € 6 billion. The Dutch utility will add approximately € 300 million to € 400 million in investment.

Net debt much higher than 2008 due to Essent acquisition

In the financial statements for fiscal 2009, our net debt will be significantly higher than in 2008. Besides the acquisition of Essent, the strong rise in capital expenditure and the record dividend payment in April will contribute to this. This will be contrasted by a continued high level of cash flows from operating activities and the deconsolidation of American Water. At the end of 2009, the ratio of net debt to EBITDA (“leverage factor”) is likely to be in the middle of our target corridor of 2.8 to 3.4. We used Essent’s expected full-year EBITDA as a basis for this forecast.

Our good reputation as a bond issuer means we always have access to short- and long-term sources of finance. Only € 0.2 billion in bonds will have matured by the end of 2009.

Workforce set to grow significantly

Our headcount at the end of 2009 will be much higher than last year. Again, Essent’s consolidation for the first time will be the decisive factor. Our intensified investment programme also requires additional employees.

Research and development: 2009 budget of about € 100 million

We intend to step up our research and development activities along the entire value chain. To this end, a budget of about € 100 million has been earmarked in 2009. More than half of it is being dedicated to projects to improve the efficiency and reduce the emissions of our electricity generation activities.