RWE’s Quarterly Loss Narrows on Generation, Cost Cuts

  • Utility turns power generation into profit, has trading loss
  • Nuclear deal with government looks likely, CFO says on call

RWE AG’s second-quarter loss narrowed by 22 percent after an improved performance in the German utility’s power plant business, cost cuts and a one-time lower tax rate. Its shares rose the most in almost a month.

The Essen-based company reduced its adjusted net loss to 259 million euros ($289 million) in the three months through June, based on Bloomberg calculations using first-quarter and first-half numbers. RWE reiterated its forecast for an adjusted net income of 500 million euros to 700 million euros for this year.

Germany’s largest power producer is suffering from the impact of the nation’s unprecedented shift toward wind and solar generation, a policy that helped drive wholesale electricity prices to the lowest level in more than a decade and added billions in impairment costs for the country’s utilities. In response, RWE is pooling its renewables, grid and retail operations into a separate company called Innogy in which it will sell at least a 10 percent stake this year.

“RWE’s management has delivered a strong first-half performance in a challenging environment,” analysts at Jefferies Group LLC including Ahmed Farman said in a note to clients. “It appears to be managing the pressure in the generation business well through self-help measures and the group’s new corporate strategy is on track.”

The company’s conventional power generation business had an operating profit of 36 million euros in the second quarter compared with a loss of 151 million euros a year earlier, according to Bloomberg calculations.

RWE’s shares were the second biggest gainer on Germany’s main DAX index on Thursday, rising as much as 3.8 percent, or the most since July 13. The stock traded at 15.44 euros at 2:15 p.m. in Frankfurt after earlier sliding as much as 5.3 percent.

Adjusted net income rose to 598 million euros in the six months through June, missing a 640 million-euro average estimate of five analysts surveyed by Bloomberg.

Trading Loss

RWE cut the forecast for the trading, gas midstream unit to “significantly below 2015” earnings from “significantly above” after “significant” losses in its trading business in the second quarter.

The loss wasn’t connected to a particular person, but a position known to all, Chief Executive Officer Peter Terium said on a call with analysts, declining to provide further details.

The division posted an operating loss of 156 million euros in the first half, erasing a profit of 166 million euros in the first quarter.

“There has been quite a big miss on the trading division,” Deepa Venkateswaran, an analyst at Sanford C. Bernstein & Co., said by phone from London. “That is the negative surprise. If the trading doesn’t catch up in the next two quarters there is a little bit of risk over there on at least the Ebitda.”

Annual profit at RWE’s supply unit will probably be in line with last year, compared with a previous forecast of “moderately below” after a recovery in the U.K.

“Our competitive position in the U.K. residential sector has stabilized since the significant customer losses suffered last year,” Terium said in the statement.

RWE cut almost 500 jobs in the first half. The company benefited from a lower tax rate relating to the reorganization of the group.

Nuclear Deal

After competitor EON SE said Wednesday that the government delayed a deal on the funding of nuclear liability costs with the reactor operators to September, RWE said Thursday that the talks are constructive.

“It doesn’t look unlikely that ultimately some solution can be found which is acceptable to all parties,” Chief Financial Officer Bernhard Guenther told analysts on a call. A solution based on a commission-proposal in April would have to take RWE’s “financial restrictions” into account, Deputy CEO Rolf Martin Schmitz told reporters on a call.

Innogy Forecast

RWE reiterated its Aug. 1 forecast that Innogy’s earnings before interest, taxes, depreciation and amortization for this year to be lower than in 2015 and that there’ll be a potential recovery in 2017. While further stake sales are possible, RWE intends to keep a majority.

EON on Wednesday reported a net loss for the first half after taking billions of euros in charges linked to the listing next month of its Uniper unit that bundles together the fossil-fuel plants and trading business.

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