May 9, 2017 / 5:52 AM / 4 months ago

E.ON looks to turn around troubled British energy unit

E.ON headquarters in Essen, Germany, March 15, 2017. REUTERS/Thilo Schmuelgen

FRANKFURT (Reuters) - German energy company E.ON is increasing efforts to win customers in Britain, it said on Tuesday, hoping to reverse a drop in profits in its toughest retail market where a looming cap on prices risks adding to its headaches.

Accounting for 16 percent of its adjusted operating earnings (EBIT), E.ON saw profits at its British retail business plunge by 43 percent to 161 million euros ($175 million). Some traders said the decline could put its credit outlook at risk.

The main energy suppliers face growing competition in Britain and Prime Minister Theresa May has vowed to introduce a cap on domestic prices if she wins an election on June 8 after bills doubled over the past decade.

Higher procurement costs and a weaker pound following the Brexit vote last June also took their toll, E.ON said, adding that it moderately raised prices and cut costs to try to grow profits at the business.

“We’re also ramping up our sales activities in an effort to acquire new customers by offering attractive products and services,” Chief Financial Officer Marc Spieker told journalists on Tuesday.

“But the United Kingdom will remain a challenging market, as we have to expect additional interventionist policies.”

Data from energy regulator Ofgem showed the big six suppliers, including E.ON, had 85 percent of Britain’s retail electricity market in the last three months of 2016, down from around 99 percent five years ago.

The industry has argued that introducing a price cap at this point would reduce competition and damage investment in the industry.

“We have more than 50 suppliers in that arena, with churn rate of up to 20 percent, I mean tell me a sector which is more competitive,” Spieker told analysts.

E.ON shares were up 3 percent at the top of the DAX index, with traders and analysts pointing to relief over the group’s confirmed outlook for adjusted EBIT of 2.8-3.1 billion euros and adjusted net income of 1.2-1.45 billion in 2017.

“We wouldn’t see the guidance as risk-free,” one equity trader said, also pointing to prolonged maintenance at E.ON’s 1,480 megawatt Brokdorf nuclear reactor, which went offline in February and is currently expected to restart later this month.

Hit by a persistent industry downturn, E.ON is emerging from its largest-ever corporate restructuring that saw it spin off its ailing power plant and energy trading units, instead focusing on networks, renewables and retail operations.

Germany’s second-largest energy group after Innogy said its first-quarter adjusted operating profit (EBIT) fell by more than a third to 1.04 billion euros, below the 1.07 billion analyst average in a Reuters poll.

Adjusted EBIT at the group’s customer solutions unit, which is in charge of the group’s retail business, fell 44 percent in the first quarter to 330 million euros, hit by higher network fees, lower gas prices and costs to acquire new clients.

Additional reporting by Vera Eckert, Andrea Lentz; and Karolin Schaps; Editing by Keith Weir

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