EON Posts Record Loss Amid Billions in Power Unit Writedowns

  • Net loss widens to 7.3 billion euros in third quarter
  • Operating environment remains difficult, CFO Sen says

EON SE posted its biggest quarterly net loss as Germany’s largest utility wrote down the value of power generation assets by billions of euros amid a plunge in wholesale power prices and a bleak future for fossil fuels.

Dusseldorf-based EON’s net loss widened to 7.25 billion euros ($7.8 billion) in the three-months to Sept. 30, an eight-fold jump from the same time a year earlier, derived from earnings published Wednesday. The utility reported impairments of 8.3 billion euros in the third quarter, it said in a statement.

Germany’s shift to renewable energy is hurting utilities from EON to RWE AG as margins get squeezed at traditional coal and gas-fired plants because green power gets priority access to the grid. EON, the third-worst performer in Germany’s DAX stock index this year, is responding by spinning off its fossil-fuel plants into a separate company. RWE in 2013 had its first annual loss since 1949.

“Stay clear of generators,” Ingo Becker, an analyst at Kepler Cheuvreux in Frankfurt, who has a “reduce” rating for EON and RWE, said Wednesday by e-mail. Germany’s power market is suffering from oversupply under an “unholy combination” of weak demand and conventional and renewable energy investment, he said.

German year-ahead wholesale power prices, a European benchmark, are trading at their lowest level in more than a decade. They averaged 30.87 euros a megawatt-hour in the third quarter, about 12 percent below last year’s level, according to broker data compiled by Bloomberg.

“Our operating environment remains very difficult,” Chief Financial Officer Michael Sen said in the statement. He sees further writedowns of about 500 million euros this year, he said in a conference call with reporters.

EON’s underlying net loss, which doesn’t include writedowns, almost doubled to 203 million euros in the third quarter on sales of 27 billion euros. Both numbers were calculated by subtracting first-half earnings from the published nine-month results.

Impairment Charges

The impairment charges are mainly from updated assumptions on long-term electricity and fuel prices, as well as the company’s regulatory environment and its implication for profitability, Chief Executive Officer Johannes Teyssen said in the interim report.

“The writedowns are severe,” said Thomas Deser, a fund manager at Union Investment, which holds EON shares. “Further writedowns on electricity generation are ruled out for the future,” reducing the risks for the Uniper spinoff, he said by phone from Frankfurt.

EON shares closed little changed in Frankfurt at 9.172 euros. The stock is down 35 percent this year, compared with a 2.6 percent decline in the Stoxx 600 Utilities Index and an 11.2 percent gain in Germany’s main DAX index.

EON’s underlying net income fell 30 percent to 962 million euros in the nine months through Sept. 30, EON said. The figure missed the 995 million-euro average estimate of five analysts surveyed by Bloomberg.

EON reiterated its forecast for underlying net income of 1.4 billion euros to 1.8 billion euros in 2015, for which it intends to pay a dividend of 50 cents a share.

Smaller competitor RWE is scheduled to report nine-month results on Thursday.

(An earlier version of this story corrected the DAX’s change this year.)

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