RWE Posts Loss at U.K. Business After Customer Defections

  • Npower to cut 2,400 jobs in U.K. in recovery program
  • Second annual net loss since foundation of modern Germany

RWE AG’s U.K. unit will reduce its workforce by 21 percent after reporting a full-year loss and a customer exodus amid billing system failures. Germany’s biggest power producer posted its second net loss in three years.

Npower’s operating loss was 137 million euros ($151 million) compared with a profit of 227 million euros a year earlier, the Essen, Germany-based company said Tuesday in a statement. The group’s net loss amounted to 170 million euros compared with a profit of 1.7 billion euros in the previous period.

The company is restructuring its U.K. unit, shedding 2,400 staff as part of a two-year recovery program aimed at cutting costs and improving customer service in its second biggest market. Npower lost 207,000 electricity customers and 144,000 gas customers last year, about the same as in 2014.

“What happened there was a disaster,” Chief Executive Officer Peter Terium told reporters in Essen. “We hope to be out of the valley of tears in the U.K. by 2018,” he said.

Britain’s regulator in December said Npower was required to pay 26 million pounds for failing to treat customers fairly after billing issues affected more than half a million customers.

After “lots of problems with invoices and billing,” the restructuring program should bring the unit back to profit by 2018, Chief Financial Officer Bernhard Guenther said in an interview on Bloomberg Television.

The U.K. unit’s “low point is reached, now things will gradually get better,” said Sven Diermeier, an analyst at Independent Research, said by phone from Frankfurt.

RWE fell for a third day, sliding 4.4 percent to close at 10.79 euros in Frankfurt. The stock has dropped 7.9 percent this year, compared with a 9.8 percent decline in Germany’s benchmark DAX index.

Squeezed Margins

Chancellor Angela Merkel’s unprecedented shift to renewable energy squeezed margins at traditional coal and gas plants in Europe’s biggest power market. Utilities are also putting aside billions to pay for the nation’s exit from atomic energy within a decade. The company increased its respective provisions by 87 million euros to 10.5 billion euros in 2015 from a year earlier.

Adjusted net income before writedowns fell 12 percent last year to 1.13 billion euros on sales of 48.6 billion euros. Plunging electricity prices forced RWE to write down the value of its plants at home and in the U.K. by 2.1 billion euros. The company reiterated its 2016 forecast of adjusted net income of 500 million to 700 million euros.

RWE is pooling its renewables, grid and retail operations into a separate company, part of which it will sell in an initial public offering in the fourth quarter this year, it said Tuesday.

Competitor EON SE, which will also sell shares in a separate company holding its fossil-fuel plants later this year, is scheduled to report 2015 earnings on Wednesday.

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