OREANDA-NEWS. Persistently low prices on the electricity markets are placing burdens on the entire energy sector, and thus also on RWE. However, in the first half of 2013, RWE was able to offset these burdens thanks to the positive outcome of the arbitration proceedings with Gazprom. Alongside a slight increase in revenue, to EUR 28.5 billion, EBITDA was up 9% to EUR 5.5 billion and the operating result increased by 12% to EUR 4.1 billion. In spite of this, net income fell by 38% to about EUR 1 billion. The main cause was the market-induced impairment loss of about EUR 800 million recognised for our Dutch generation portfolio. Recurrent net income was about EUR 2 billion. This 19% increase is attributable to the one-off effect of the positive Gazprom arbitration decision.

Power stations taken offline

Due to the continuing boom in solar energy, many power stations throughout the sector and across Europe are no longer profitable to operate. During the first half of 2013, the Conventional Power Generation Division's operating result fell by almost two-thirds. The massive reduction in power station margins is a major factor in this development. RWE can still benefit from the fact that it sold most of its electricity production two to three years in advance on the forward market at prices that were higher than they are now. However, this effect will decrease year by year. After a detailed analysis, the Group has decided to take a total of 3,100 MW of generation capacity offline in Germany and the Netherlands. Further power stations are being assessed and all options to improve the company's economic efficiency are being explored.

Electricity generation - Electricity sales - Gas sales

In the first half of 2013, RWE produced 111.3 billion kilowatt hours (kWh) of electricity. This is 1.2 billion kWh, or 1%, less than in the same period last year. Electricity sales to external customers declined by 4% to 135.9 billion kWh. The industrial and corporate customers segment experienced a significant decline after RWE stopped auctioning off electricity in Germany from 1 January 2013. In Germany, the Group was able to gain new customers in the distributor segment. RWE npower had to absorb competition-induced sales losses among its industrial and corporate customers. This also affected Essent in the Netherlands, although Essent was able to offset this to a certain extent with expansion in its Belgian residential customer business.

The cold weather conditions led to a 17% increase in gas sales, to 194.2 billion kWh. This was experienced in all of our European markets, although the positive effect in the Czech Republic was eroded by mounting competition. RWE was also able to achieve a substantial rise in its gas sales to distributors, especially in Germany.

Capital expenditure and cash flow

Following the completion of major projects in the power station modernisation and replacement programme, capital expenditure declined 16% year on year, to EUR 1.9 billion. The programme has almost reached completion, with the gas-fired power plant in Denizli, Turkey, beginning commercial operation at the beginning of August. Two dual-block hard coal power plants are still under construction, one at Hamm and another at Eemshaven. Cash flows from operating activities improved only slightly, to EUR 1.4 billion. Net of capital expenditure on property, plant and equipment and intangible assets, free cash flow was minus EUR 418 million. Though still negative, this is an improvement on the minus EUR 740 million for the same period last year.

Outlook

Because the increase in EBITDA and operating result is based on the one-off effect of the positive arbitration decision regarding a gas procurement contract with Gazprom, this cannot be extrapolated for the year as a whole. Nevertheless, the Group is confirming the forecast for 2013 as released in March of this year: RWE expects an operating result in the order of EUR 5.9 billion and recurrent net income in the order of EUR 2.4 billion.