Shareholders pile pressure on Germany's RWE to present strategy

Fri Sep 6, 2013 9:41am EDT

* Sector suffers from renewables, weak power prices

* Shareholders call for coherent strategy in market crisis

* Supervisory board to meet in Warsaw Sept. 19-20 -sources

By Christoph Steitz and Tom Käckenhoff

FRANKFURT/DUESSELDORF, Sept 6 (Reuters) - Concerned about a possible dividend cut, top shareholders of RWE are piling pressure on Germany's No.2 utility to present a convincing strategy on how to position itself as the country experiences a renewable energy boom.

Europe's largest economy has seen its energy sector slide into crisis following its decision to abandon nuclear power by 2022, as a massive expansion of solar energy has dealt a heavy blow to traditional utilities, forcing them to close plants generating thousands of megawatts.

This, as well as wholesale power prices plunging by about 15 percent since the start of the year, drove utilities' shares to 10-year lows last month.

Ahead of a meeting of the group's supervisory board on Sept. 19-20 in Warsaw, shareholders are voicing deep concern about RWE's future strategy, saying it took the group too long to face up to the challenge of renewable energy that has fundamentally changed Germany's energy market.

Sources familiar with the matter said that questions about the group's strategy would be on the agenda at the meeting.

"There are many abstract buzzwords, but no comprehensive concept," said a representative of RWE's municipal shareholders, declining to be named. "The company has to say where it sees itself in 2015."

Municipalities, among them highly indebted cities such as Dortmund, Essen and Muelheim an der Ruhr, hold about 24 percent of RWE and depend on the company's dividend payments, which are expected to decline in the future.

Burdened by a debt pile of 35 billion euros ($46 billion), RWE has little leeway for investing money in new business areas. It has been forced to cut costs, slash thousands of jobs and sell assets. It is currently attempting to sell its oil and gas exploration unit DEA, which accounted for nearly a quarter of 2012 group operating profit.

DOWNWARDS

The dividend may be next, many shareholders fear.

"Look at profits and shares and you can see it's been going in only one direction for years now: downwards," said Thomas Deser, senior fund manager at Union Investment, which holds 0.55 percent in RWE, according to Thomson Reuters data.

Since Germany decided to abandon nuclear power in 2011, shares in RWE have fallen more than 40 percent, but the group has kept its dividend for both 2011 and 2012 stable at 2.00 euros per share, targeting a payout ratio of 50-60 percent of recurrent net income.

Analysts at Commerzbank estimate that that ratio could be lowered to 40-50 percent.

With only a limited set of options left, RWE may have to look for growth in markets outside Europe, some shareholders say, a step it has so far ruled out - in contrast to E.ON , Germany's biggest utility.

"RWE could follow E.ON's example and expand in foreign markets that are not yet regulated to such a big extent," said Thomas Hechtfischer of shareholder rights group DSW, which represents less than 1 percent of RWE's voting rights.

"We are very much concerned about the share price and the dividend," he said.

E.ON aims to generate a quarter of its net profit in markets outside Europe, and plans to reach that goal during the second half of the decade, having expanded into Brazil and Turkey since the beginning of last year. ($1 = 0.7623 euros) (Editing by Pravin Char)

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