RWE to slash admin costs by 30 per cent

German energy giant RWE plans to slash its administrative costs by as much 30 per cent through a new series of measures to be implemented from the middle of the month, targeting the company’s administrative processes.

The Npower parent company reportedly distributed the plans of its ‘Lean Steering’ programme internally, saying a second wave of cost cutting would follow in June, according to German media reports.

RWE’s chief executive Peter Terium outlined plans for greater cost efficiencies in its latest financial statement, but according to reports the memo claims these are “not enough” to bring the group back on track as market conditions across Europe become increasingly difficult for large generators.

UK-based utilities analysts at Citi said the new Lean Steering 2.0 might not be enough, and say they favour shares in rival German energy company Eon which is undertaking a more radical overhaul of the corporate structure.

“A mid-April start date, based on what the paper says, would be very strong execution in our view, so we could even potentially see some of the savings come in earlier. In our opinion though, with power prices at current levels, cost-cutting alone cannot turn around the financial outlook of the group,” a Citi investor note said Monday morning.

RWE have said that an Eon-style business split could be considered, but is not currently on the table. But a similar route may prove inevitable if its current plans are not able to yield results, the investors said.

“We prefer Eon over RWE on evaluation of earnings risks and due to our ongoing concern on RWE’s balance sheet. We still see no scope for RWE to mimic Eon’s split up, but could see each of its individual parts potentially fitting into other companies. If power market conditions do not improve and RWE doesn’t raise fresh capital, such a drastic option might have to be considered a possibility in a couple of years,” Citi said.

The analysts note that both Germany companies should benefit from increasing clarity of the policy landscape in the coming months as the government is poised to publish its energy policy white paper this spring, and a fix for the EU carbon market nears conclusion.