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RWE to cut 12,500 jobs
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February 24, 2000: 10:44 a.m. ET
German utility plans shake-up as shares drop on lower first-half net, grim outlook
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LONDON (CNNfn) - German utility giant RWE plans to cut 12,500 jobs and write off 1.8 billion euros ($1.8 billion) to pay for the restructuring aimed at counteracting the effects of a dramatic slump in electricity prices and ahead of its merger with smaller domestic rival VEW.
"Tough competition in the German electricity market and the concomitant decline in prices have caused the group's operating result to decline, and we are responding to this situation with a program of drastic measures," Dietmar Kuhnt, RWE's chief executive told a news conference Thursday.
The restructuring will take place before the end of June, while the job cuts will be made over the next 2-3 years. RWE will cut 10,850 from its own workforce, and VEW will cut another 1,650.
RWE said Wednesday its 4 billion euro merger with VEW will create a company with a combined workforce of around 170,000 and sales of 43 billion euros. Only France's EdF and Italy's Enel would be larger utilities in Europe.
As part of the restructuring, RWE will divest its specialty chemicals unit Condea, which has annual sales of 2.1 billion euros. The unit has plants in China, Italy and the town of Meerbusch near Duesseldorf. The company plans to sell non-core businesses with annual sales totaling at least three billion euros
Shares of RWE fell 6 percent to 34.3 euros in Frankfurt Thursday afternoon. The company reported after the market closed Wednesday that first-half earnings declined and were expected to fall further in the remainder of the fiscal year amid intensifying price pressures. Electricity prices fell about 30 percent last year.
RWE reported a 10.8 percent decline in first-half net profit to 428 million euros, citing an unexpectedly rapid drop in revenue from its electricity business. Operating profit was down 19 percent while sales slumped 10 percent. RWE said it expects the company's full-year operating profit to fall as much as 15 percent from the previous year.
"The operating profit forecast of a fall of up to 15 percent was a surprise for me, although there had been enough information available suggesting that price pressure was very strong," said Michael Broeker, an analyst at BNP in Frankfurt.
He said BNP was keeping its market performer rating on RWE, a stock which tumbled to a two-and-a-half-year low on Feb. 11 to 30.22 euros.
Earnings from petroleum, chemicals and environmental services were little changed from a year earlier.
RWE, which has pledged to invest up to around 30 billion euros on international acquisitions in the next 10 years, is reportedly in talks with several British utilities.
In a separate statement Thursday, RWE said it struck an e-business deal with Mannesmann, the telecom and engineering company bought this month by the U.K.'s Vodafone AirTouch, to jointly develop services such as online meter reading for electricity, gas and water customers. 
--from staff and wire reports
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