Innogy squeezed by cold front in Q3

Stiff competition and cold weather has caused Innogy to downgrade its guidance for certain parts of its business in its third quarter report.

Photo: RWE

German utility Innogy has booked a setback across the whole balance sheet in the third quarter of this year, in which the company's retail business in Germany and the Netherlands as well as its renewable energy generation weighs heavily upon the interim report.

The utility, originally a spin-off from RWE, saw its external revenue decline by 9.2 percent to EUR 23.7 billion thus far in 2018.

Earnings before interest and taxes landed 11 percent under last year's EUR 1.8 billion.

Innogy explains that cold winter weather has once again impacted its retail business with unforeseen commodity price hikes in the first quarter, pulling down the result. Similarly, the company cites "challenging market conditions due to powerful competitive pressure" in Germany and the Netherlands. In the latter market, Innogy informs that it has been affected by a net loss of customers from year to year. The adjusting operating result has fallen to EUR 525 million, corresponding to negative 23.7 percent.

At the same time, low wind speeds have blighted the group's renewable energy division, with the result reduced by 7.2 percent to EUR 180 million.

"Steadily mounting competition continues to pose considerable challenges to our retail business. For this reason and also due to the cold weather effect in the Netherlands in the first quarter, we have had to make a downward adjustment in our outlook for Retail. For the Renewables division, we also expect a lower result due to adverse weather conditions," writes Innogy SE CFO Bernhard Günther in a statement issued along with the Q3 report.

The downgrades mean that the two division's combined operating result will decrease by approximately EUR 100 million. This will, however, be offset by one-off effects in the grid and infrastructure business. The company thereby expects its aggregated result to be in line with earlier guidance.

Innogy is in the process of being purchased by German E.on in a complex trade with RWE.

While E.on made a spin-off of its oil and gas activities back in 2016, competitor RWE decided to separate its activities within production, distribution, and sales and electricity and gas form the parent company during the same year. In December, former Innogy CEO Peter Terium was obliged to resign from his position after having informed the market about a dire downgrade of the company's operating result. That was followed by a share price dive of around 17 percent.

Following a longer period of speculation, news emerged that E.on wanted to acquire Innogy, which has led to a restoration of the the company's equity valuation.

According to the purchase agreement, E.on will buy a 86.2 percent stake in Innogy, whereas RWE will take on E.on and Innogy's renewable energy division.

Innogy provides no further news of the M&A process in its Q3 report.

However, the company's same M&A department does inform that authorities have granted approval for the company's plan to merge its British electricity and gas activities with rival SSE's retail division.

On the other hand, construction of offshore wind farm Triton Knoll continues to progress, Innogy informs. The company sold a 41 percent share of the 800 MW facility to two Japanese energy companies and has started working on the onshore infrastructure that will service the wind farm.

English Edit: Daniel Frank Christensen

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