March 10, 2015 / 9:39 AM / in 3 years

Germany's RWE sees no swift return to profit growth

Bernhard Guenther, Chief Financial Officer of German power supplier RWE AG, attends the company's annual results news conference in the western German city of Essen March 10, 2015. Germany's second biggest utilities on Tuesday reported its 2014 full-year results that is afflicted by tumbling power prices as a result of weak demand, overcapacity and the German energy transition that favours renewable energy. REUTERS/Wolfgang Rattay

ESSEN, Germany (Reuters) - Germany’s second-biggest utility RWE (RWEG.DE) warned profits and investments would fall further this year, offering little hope that group would emerge from a crisis in the industry and return to growth in the near future.

“The vale of tears has not yet been passed,” Chief Executive Peter Terium told journalists at the company’s annual press conference on Tuesday.

He was referring to a structural crisis for German utilities hit by weak demand for energy in Europe and a boom in renewable sources that are given priority access to power grids over conventional gas and coal-fired plants.

As a result, shares in RWE have lost more than 70 percent since 2007, destroying nearly 40 billion euros ($43 billion) in market value.

Terium said that up to 45 percent of the group’s conventional power plants were currently not earning any money, adding operating profit was expected to fall for a third consecutive year in 2015 as a result.

“It is now becoming more difficult every day to keep a gas or hard coal-fired power station commercially feasible,” Terium said.

Investments will decline to 2.5 billion-3.0 billion euros this year and to about 2 billion next year, down from 3.4 billion in 2014.

Shares in RWE, which were 1.6 percent lower at 8.40 a.m. EDT, trade at 12.8 times estimated forward earnings, lower than the 15.2 times average of major European rivals.

DEA DEAL

RWE, which last week closed a controversial 5.1 billion euro sale of its DEA oil and gas business to Russian tycoon Mikhail Fridman, forecast operating profit of 3.6 billion to 3.9 billion euros this year, down as much as 10 percent.

That is below an average forecast of 4.1 billion euros in a Reuters poll of analysts.

Long considered safe and stable dividend providers, RWE and German rivals E.ON (EONGn.DE) and EnBW (EBKG.DE) have embarked on restructuring programs marked by job cuts, lower shareholder payouts and asset sales.

RWE’s DEA sale generated concern in Britain, where the government is considering measures to force Fridman to sell the company’s North Sea assets to a third party because of fears that oil production at the fields could be halted if there are more Western sanctions against Russia over the Ukraine crisis.

CEO Terium confirmed the group would not join any legal action should Britain make such a decision.

The deal drew praise from analysts for its rich valuation, but the sale has robbed RWE of one of its cash cows, highlighting the group’s willingness to take drastic steps to lower its 31 billion euros of debt.

After halving its dividend to 1 euro per share for 2013, RWE said it would keep the payout stable for 2014. It aims to increase its targeted savings from an efficiency program to 2 billion from 2017, up 500 million euros from 2012.

Editing by Keith Weir

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