Half-year results Essent 2011
Both Essent and external conditions have changed significantly between HY1 2010 and HY1 2011. Essent recorded an operating result of €187 million, down 46% on last year’s corresponding figure. Drivers are the very positive results from Essent’s midstream gas activities which were still shown in our 2010 HY1 figures and which have partly been transferred to RWE Supply&Trading. Also, the exceptionally cold weather in early 2010 contributed to the very strong result in HY1 2010. In HY1 2011, the weather impact has been reversed with warmer than average temperatures. Net of the above mentioned effects, the HY1 2011 operating result is better than last year’s.
In addition, spreads have further weakened, significantly influencing the result in HY1 2011. However, despite the lower operating result, Essent had a productive year in which we resolved open issues from the past and prepared ourselves for the future, without losing sight of our ongoing operations, which we managed both effectively and efficiently.
- Solid performance despite decreases in sales and operating result
- Power production assets outperform market developments
- Synergies from merger with RWE are having positive impact
- Compared to last year, Essent delivered a better operating result after accounting for cold weather effects, transfer of part of the Midstream Gas activities and the negative spread development
- Targeted marketing campaigns successful in both Netherlands and Belgium
- Strong and standing commitment to sustainable energy production and energy consumption awareness
- Significant ongoing investments in efficient and clean new power plants: up to 40% reduction of CO2 emissions
Economic environment
The Dutch economy has shown a steady but fragile recovery, contributing to the growth in power demand of around 2%. Demand for gas in the first half year of 2011 compared with demand in the first half year of 2010 declined by around 12% due to the cold weather in 2010. The EHEC bacteria scare also had an impact on the highly energy-intensive horticultural sector. The spreads for hard coal and gas further declined and have significantly affected the profitability of our production fleet.
Financial results
The deteriorating dark spreads for hard coal, (-40%) and spark spreads for gas (-20%) since the acquisition by RWE triggered an impairment analysis. This analysis was carried out on the basis of the long-term economic outlook of RWE and focuses on the production assets of Essent. The outcome of the impairment analysis was that Essent has to impair an amount of €0.3 bn, 10% of the total asset value of €3bn. This 10% impairment is significantly lower than what would have been expected based on the spread development (-40% and -20%), highlighting the diversified and flexible nature of Essent’s production assets.
| Highlights | HY1 2011 | HY1 2010 | Difference ’11-‘10 |
|---|---|---|---|
| Financials (in € mln) | |||
| External revenue | 3.253 | 3.485 | -7% |
| Electricity | 1.160 | 1.074 | + 8% |
| Gas | 1.982 | 2.259 | -14% |
| Other | 111 | 160 | -31% |
| EBITDA | 291 | 467 | -38% |
| Operating result | 187 | 345 | -46% |
| Capital expenditure | 484 | 464 | +4% |
| Retail customers (x 1.000) | |||
| Electricity NL | 2.164 | 2.155 | +9 |
| Electricity B | 160 | 162 | -2 |
| Gas NL | 1.936 | 1.935 | +1 |
| Gas B | 61 | 56 | +5 |
| FTE’s | 3.888 | 3.899 | -11 |
Operational improvements
In reaction to the above-mentioned developments in our markets, Essent has taken action to remain successful. These business improvement activities are aimed at increasing efficiency and effectiveness of our operations as well as our processes. In addition, synergies from the merger with RWE are having a positive impact. One example of this is the successful cooperation with RWE npower on overhauls, resulting in significantly lower costs. But the successful integration of the RWE Energy Nederland organisation also led to lower costs.
Our production fleet is highly flexible with a good mix of gas- and coal-fired plants. Additional action has been taken to maximise the intrinsic value of this flexibility by shifting the focus more towards commercial availability while maintaining our solid technical availability. To support this process, Essent production and RWE Supply&Trading have consolidated their cooperation to maximise the value of the production fleet for RWE, by aligning timing, scope and duration of planned maintenance, to match the requirements of the RWE Group.
Proactive and successful problem-solving
Essent has been very successful in proactively solving a number of important issues in recent months. Most notably the agreement reached between RWE, Delta and the former shareholders of Essent regarding the transfer of the EPZ stake. Solving the EPZ issue was the final piece in RWE’s acquisition of Essent. As part of the agreement, all ongoing court cases will be terminated.
Commercial developments
In reaction to the competition in our markets, Essent embarked on a large-scale marketing campaign under the name “Essent levert” (Essent delivers). The objective is to reaffirm Essent as the energy provider in the Netherlands that is aiming to reduce its customers energy bill by being more energy conscious and efficient.
The Dutch consumer market is one of the most competitive consumer markets in Europe with a high degree of transparency and numerous newcomers competing for customers. In addition to its regular campaigns, Essent launched a number of targeted campaigns in 2011. These campaigns were all aimed at increasing energy consumption awareness and helping customers to lower their energy consumption, e.g.: Smart thermostat (Slimme Thermostaat), Home insulation campaign (Spouwmuur isolatie) and Usage manager online (VerbruiksManager). Results were very positive with new customers who signed-up and an improved recognition and brand awareness.
In the small and medium-sized enterprise segment Essent launched a similar campaign, the Energy Savings Scheme, which offered customers support and advice on how to become more energy efficient: Fluorescent save adapter (TL-bespaaradapter). Again, the impact of the campaign was positive with increased brand awareness and a nomination for an advertisement award.
A number of new products were also released in the business segment. For example the Energy Index, which offers online tracking of developments of energy markets to assist in taking lock-in decisions. Results were very positive with a combined 9% increase in spontaneous mentions of Essent and increased sign-up to, and traffic on, the Energy Index website.
Technical developments
Essent has been a market leader in the production and supply of green power and green gas for twenty years. In Europe, we are a frontrunner in the use of biomass, and we are the largest trader of wood pellets worldwide. Furthermore, Essent is the first player with a certification method for sustainable biomass, and as a part of RWE we have access to our own wood pellet plant in Georgia, USA.
Essent has accepted the challenge to promote biomass. Together with partners from the agri/food-, chemical-, paper- and energy sector we will work to establish commercial attractiveness and sustainability of the biomass value chain in support of a bio-based economy.
In addition to our marketing and sales efforts, it is important to know that Essent was and remains committed to investing significantly in the Netherlands in clean and efficient new production plants. The current new-build projects under construction are based on the best available technology and are among the most efficient plants in the world. This results in significantly lower CO2 emissions per MWh produced - up to 40% for our new builds Claus C (Maasbracht) and Moerdijk 2 (Moerdijk)- and underlines our commitment to a sustainable energy future. These new builds are a mix of gas-fired (Claus C and Moerdijk 2) and coal-fired plants (Eemshaven), safeguarding our natural hedge to commodity price changes and thus the security of supply for the Dutch and Belgian market.
Essent is also developing new and innovative ‘smart energy’ products to achieve its aim of helping its customers become energy efficient in and around the home. With the increase of decentralised energy production, it becomes even more important to match timing of production and usage of power (‘Powermatching’) without concessions to comfort at home. We work together with partners such as KEMA, TNO and Enexis on a second pilot, taking onboard the lessons learned from the first Powermatching pilot.
Essent is preparing for future emission restrictions and scarcity of fossil fuels by investing in electric transportation. The focus is on offering a full charging infrastructure, including charging stations, power and necessary services such as invoicing and usage of third-party loading infrastructure. The cooperation with RWE Effizienz has strengthened our leading position. Recent successes include the tender for the loading infrastructure in Amsterdam as well as the development of fast loading stations in Leeuwarden and Amsterdam and the cooperation with Renault.
Half-year results RWE Group
Published: 09 August 2011