RWEOY Rwe Ag (PK)

By Monica Houston-Waesch 

FRANKFURT -- German power utility RWE AG's earnings fell by more than two thirds in the first half of the year partly on losses at its trading business in the second quarter, the company said on Thursday.

Net profit plunged to EUR457 million ($510.3 million) in the six months to the end of June from EUR1.74 billion in the year-earlier period, which was boosted by around EUR1.5 billion in gains from the sale of its RWE Dea oil and gas unit. RWE's operating profit fell 7% to about EUR1.9 billion in the first half.

Like other utilities in Germany and parts of Europe, RWE has been hurt by low wholesale electricity prices amid a power glut spawned by a rise in renewable energy and low commodity prices. In addition, uncertainty surrounding nuclear liabilities is weighing on German operators.

RWE's results could spark downward revisions to market consensus estimates, although RWE confirmed its own guidance for the year, investment bank Bryan, Garnier & Co. said in a research note. Recent gains for the stock aren't justified, it added. After tumbling over 5% at the open, RWE shares were up 2.5% at midday.

Despite a successful start to the year, RWE's trading business suffered "significant unexpected losses in the second quarter," RWE said.

The trading division's operating loss was EUR156 million in the first half, versus profit of EUR73 million in the year-earlier period.

"There was nothing irregular, everything was very transparent, but as it is in this business, sometimes you get it right and sometimes you don't, " Chief Executive Peter Terium said in a conference call.

He declined to say whether trading positions will continue to burden the company during the remainder of the year, but RWE said the division will end the year "much lower" than in 2015, after previously expecting improvement.

"You can assume that price fluctuations in coal and power prices played a role," Mr. Terium added.

Net debt widened to EUR28.3 billion at the end of June, compared with EUR25.5 billion at the end of December, due to negative free cash flow and additional pension provisions, given low interest rates.

Mr. Terium repeated that the U.K.'s decision to leave the EU was "manageable" and the turnaround at its operations there is on track. Given customer gains in June and July, fully offsetting customer losses in the first half, the company expects its U.K. operations to be back in the black in 2017, he said.

Turning to Germany, Mr. Terium said there is little clarity on the amount RWE will need to pay into a state fund to finance nuclear waste, noting many details remain unclear. RWE has nuclear provisions of around EUR4.8 billion. Unlike its rival E.ON, which has hinted a capital increase could be needed to finance additional risk provisions for the fund, RWE said it had no immediate plans to raise capital. RWE suspended its common dividend for 2015, and said it would only review a dividend policy for 2016 once its nuclear obligations are concrete.

During the first six months of the year, electricity sales rose 4%, offset by a 7% decline in gas sales volumes. Group revenue fell to about EUR23.9 billion, from EUR24.8 billion in the first six months of 2015.

Adjusted net income rose 10% to EUR598 million, due to a low tax rate and a one-off effect of deferred taxes related to the group's restructuring. Cost management at RWE's conventional power generation and the one-off sale of property also supported earnings.

RWE said plans were on track to spin off its renewable energy, power grid and retail operations into a new company, Innogy SE, later this year.

RWE confirmed its full-year outlook, despite worsening prospects for its trading division, tweaking its guidance for its supply division a bit higher. RWE still expects an operating result of between EUR2.8 billion and EUR3.1 billion for the year, and adjusted after-tax profit of EUR500 million to EUR700 million.

--Jenny Busche contributed to this article.

Write to Monica Houston-Waesch at nikki.houston@wsj.com

(END) Dow Jones Newswires

August 12, 2016 02:48 ET (06:48 GMT)

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