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Outgoing RWE Chief Executive Sees Muted Criticism At AGM

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04/19/2012 | 03:13pm CEST

--RWE CEO sticks cautiously upbeat outlook for 2012, 2013

--Outgoing CEO Grossmann praised and criticized by shareholders

--Grossmann says RWE has filed nuclear exit constitutional complaint

(Rewrites throughout with detail, background.)

By Jan Hromadko


German utility RWE AG (>> RWE AG) expects to return to "long-term growth in net income" over the next few years after a dismal 2011 that saw earnings fall by more than 30% due mostly to the government's decision to accelerate its planned nuclear exit, said Chief Executive Juergen Grossmann Thursday.

Speaking to shareholders at the company's annual general meeting in Essen, outgoing CEO Grossmann reiterated the more optimistic tone RWE struck at the beginning of March, saying that earnings this year and next should remain stable.

He also said that RWE will stick to its plan to further reduce operating costs by around EUR1 billion through 2014 and sell assets worth EUR7 billion by the end of next year.

Grossmann said that assets that are "associated with high investment that would not deliver returns in the short-term" top RWE's list of disposals.

"In particular, this includes a number of gas and oil production projects of [upstream unit] RWE Dea," Grossmann said.

The company's shares have lost nearly 50% since the controversial Grossmann took charge of RWE in October 2007.

Shareholders acknowledged, however, that the bulk of the share price losses were incurred due to external factors such as the financial crisis and the subsequent sovereign debt crisis in the eurozone that hit energy demand and prices. Additionally, the German nuclear exit decision--which saw some of RWE's reactors shut-down immediately and permanently--triggered a further plunge of RWE's shares.

As in past years, RWE's annual general meeting was accompanied by protests from environmentalists. A few dozen protesters camped outside the venue from Wednesday evening. However, in contrast to last year, the general meeting and Grossmann's speech weren't interrupted by protesters.

While some shareholders praised Grossmann for safely steering the company through turbulent times, others voiced criticism of his performance.

Grossmann and his fellow executive board members were criticized for carrying a capital increase in December, which diluted existing shares more than was necessary, according Ingo Speich, portfolio manager at Union Investment.

"The timing [of the capital increase] was an impertinence for existing shareholders," said Speich.

RWE raised around EUR2.1 billion in the December capital increase--around EUR400 million less than it had hoped for--as part of a broader effort to reduce debt and repair its balance sheet after the nuclear exit in its home market.

One Frankfurt-based utilities analyst earlier this week said that Grossmann has failed to capitalize for his company on his broad political connections.

"One reason for Grossmann's appointment in 2007 was his vast network of political contacts," said the analyst who declined to be named.

Grossmann's fierce defense of atomic energy in the wake of the Japan reactor accidents in March 2011, had prompted anti-nuclear campaigners to give him the nickname "dinosaur" in reference to a fossil relict at a time when renewable energies are on the rise. .

But Grossman has said that depicting RWE as a nuclear company is unfair because it depends on nuclear for only about 20% of its power

Grossmann will leave the company at the end of June after nearly five years in charge of Germany's second-largest utility and will be replaced Dutchman Peter Terium, who previously pledged to continue with RWE's strategy of becoming "greener".

Grossmann also said RWE in February filed a constitutional complaint against the government's nuclear energy policy shift that heavily burdened RWE and other German reactor operators such as E.ON AG (>> E.ON AG).

E.ON had filed a separate constitutional complaint in November. Both companies argue that the nuclear exit decision has harmed their proprietary rights as they had to shut down reactors early.

The German nuclear reversal hit utilities' balance sheets, forcing them to increase provisions for the earlier decommissioning of reactors and write down the cost of nuclear fuel rods at reactors that have been shut.

A successful constitutional challenge could pave the way for damage claims from the utilities against the German government.

-By Jan Hromadko, Dow Jones Newswires; +49 69 29 725 503; jan.hromadko@dowjones.com

Stocks mentioned in the article : RWE AG, E.ON AG
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Financials (€)
Sales 2016 46 463 M
EBIT 2016 2 985 M
Net income 2016 606 M
Debt 2016 7 534 M
Yield 2016 2,27%
P/E ratio 2016 14,43
P/E ratio 2017 12,91
EV / Sales 2016 0,35x
EV / Sales 2017 0,35x
Capitalization 8 512 M
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Mean consensus HOLD
Number of Analysts 23
Average target price 14,4 €
Spread / Average Target 2,4%
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Peter Terium Chief Executive Officer
Werner Brandt Chairman-Supervisory Board
Rolf Martin Schmitz Chief Operating Officer
Bernhard Günther Chief Financial Officer
Frank-Detlef Drake VP, Head-Corporate Research & Development
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