energy crisis RWE Dividend Plan Divides Board

Some shareholders are opposing RWE's plan to maintain its dividend and provide job guarantees amid the utility's financial crisis, Handelsblatt has learned.
Divisive dividends.

Major shareholders of RWE, Germany's second-largest utility, are at odds over its plan to maintain generous dividends and preserve job guarantees while struggling to survive Germany's transition to renewable energy, Handelsblatt has learned.

At a closed-door meeting of RWE's policy setting supervisory board last Friday, representatives of investors and labor fought over the proposal by RWE Chief Executive Peter Terium to appease unions and the utility's municipal shareholders, despite falling sales and mounting losses.

The shareholder panel -- which sets broad policy and hires and fires the chief executive -- were so divided that they could only agree on a vaguely worded compromise that left both labor and investor camps unhappy, according to people with knowledge of the meeting who declined to be identified.

Under the compromise, RWE's dividend will no longer be based on its net profit -- the tradition in the past -- but on the vaguely worded "total business situation,'' without any more specific guidelines or conditions. The panel is supposed to take the "previous year's dividend'' as a guideline in distributing new payouts.

The RWE chief financial officer, Bernhard Günther, explained to investors in a hastily arranged conference call that the new policy would provide more "flexibility'' and "continuity'' for RWE. But investors remained skeptical, and RWE shares fell 4 percent on Friday after the announcement. The share's decline continued into Monday.

RWE shares were recently down 1.5 percent at €26.57 in Frankfurt.

Last Wednesday, RWE managers agreed to recommend that the utility's shareholders -- in particular the municipalities along Germany's Rhine and Ruhr rivers that hold a blocking stake in RWE -- continue to receive €1 per share in dividends – like the year before – despite poor profit forecasts for 2014 and the years ahead.

Previously, RWE had paid 40 to 50 percent of its net profit in dividends.

All of Germany’s larger energy power companies are facing costly efforts in the wake of a new energy policy transformation in Germany

RWE and Germany's other big energy producers, E.ON and Vattenfall, which is owned by Sweden's royal family, are struggling to cope with the country's switch to renewable energy, which Chancellor Angela Merkel ordered in 2011 in the wake of Japan's Fukushima nuclear disaster.

Under the plan, Germany plans to replace its nuclear power plants with renewable wind and solar energy sources by 2022. The government has aggressively subsidized the construction of wind and solar energy facilities, which has led to a glut of electricity on the German market, causing the wholesale price of electricity to fall by half.

The development has translated into huge losses at RWE and the other utilities, which have responded by shuttering nuclear and coal-fired power plants -- some of them brand new -- which are no longer profitable under the changed economics of the German market.

 

Quelle: Bloomberg
Originally, Mr. Terium’s aim was to calm communal shareholders, who were still unsettled about last year’s dividend cutback.

 

German municipalities at RWE hold 24 percent and are an influential block of owners, many of whom are financially strapped and rely on the utility for dividends and to preserve jobs for their citizens. RWE was created through the merger of several municipal power plants in 1990.

Mr. Terium had sought to calm communal shareholders, who were still unsettled about last year’s dividend cutback, when RWE lowered its payment to €1 per share in 2013 from €2. Communal shareholders at the time agreed to accept the cuts to support the restructuring of the struggling company.

Ahead of the shareholder meeting last week, experts had expected RWE to reduce its dividends similar to its rival E.ON, which lowered its dividend payment to 50 cents from 60 cents.

 

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Jürgen Flauger is based in Düsseldorf and covers the energy sector for Handelsblatt, including electricity and gas providers, international market developments and energy policy. He previously worked for Reuters began his career at Handelsblatt as an editor in the 'companies and markets' section. Franziska Scheven is an editor at Handelsblatt Global Edition and contributed reporting to this story. To contact the author: [email protected]