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EON First-Half Profit Falls 21% on Prices, Weak Ruble

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EON SE, Germany’s largest utility, said first-half profit fell 21 percent on lower wholesale power prices and a weak ruble.

Underlying net income declined to 1.17 billion euros ($1.3 billion) from 1.48 billion euros a year earlier, the Dusseldorf-based company said Wednesday. Earnings at EON’s power generation and Russian businesses each slid more than a third.

Germany’s unprecedented shift to renewable energy has forced EON and its peers to close nuclear reactors and undermined power prices, hurting the profitability of traditional utilities. EON plans to spin off its fossil-fuel plants into a separate company called Uniper headed by former Chief Financial Officer Klaus Schaefer.

“The profits for European electricity suppliers in the first half are all below last year’s level,” Thomas Deser, a fund manager at Union Investment, an EON investor, said by phone from Frankfurt. “That no forecast has been cut, however, shows that by now they all have a somewhat reliable assessment of the earnings situation.”

EON reiterated its 2015 forecast for underlying net income of 1.4 billion to 1.8 billion euros and intends to pay an unchanged dividend of 50 euro cents per share for the year. Underlying profit beat the 1.15 billion-euro average of seven estimates compiled by Bloomberg.

EON rose as much as 1.3 percent, the biggest increase in a week, and traded up 0.3 percent at 11.735 euros by 1:25 p.m. in Frankfurt, the only gainer in the German benchmark DAX Index. The shares have declined 17 percent this year compared with a 28 percent drop in competitor RWE AG.

Conventional Plants

Today’s figures “reflect the difficult situation of conventional power plants,” EON Chief Executive Officer Johannes Teyssen said in a letter to shareholders.

The company is making “rapid progress” in its transformation as 350 senior leadership positions have been filled and 1,300 entities assigned to EON or Uniper, Teyssen said.

There’s no “uncontrollable obstacle visible that would hinder us” from breaking up the company, he said on an investor call. Any possible changes such as atomic power legislation would “lead us to a more optimized delivery fashion but it would not alter our core believe on deliverability.”

EON, which seeks a Uniper listing in the second half of 2016, giving a majority of the company to EON’s shareholders, won’t start to divest the remaining stake of the spinoff company before 2018, he also said.

Russia Deterioration

German year-ahead wholesale power prices averaged 32.04 euros a megawatt-hour in the first half and were 9.2 percent below last year’s level, according to broker data compiled by Bloomberg.

First-half earnings before interest and tax at EON’s power generation unit fell 37 percent from a year earlier to 456 million euros. Its Russian operations’ earnings slumped 39 percent to 119 million euros as the ruble weakened more than 30 percent against the euro in the past year.

“For the Russian business, a deterioration is to be expected which may affect EON’s full-year profit,” Union Investment’s Deser said.

EON reported unadjusted net income of 1.32 billion euros for the first half. Sales rose 4.6 percent to 57.3 billion euros from a year earlier.

In the three months through June, underlying net income decreased 46 percent on sales of 26.8 billion euros. Both numbers were calculated by subtracting first-quarter earnings from the published half-year results.

Smaller competitor RWE is scheduled to report first-half results Thursday.

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