EON Profit Drops as U.K. Business, Pension Costs Weigh

(Bloomberg) --

EON SE stuck to its 2019 guidance even as profits dropped and debt increased, with the German utility warning its U.K. business faces challenges from price caps and nimbler, smaller competitors.

• Adjusted earnings before interest and taxes fell to 542 million euros ($607 million) in the second quarter, from 658 million euros in the same period in 2018. Net debt rose by about 3.6 billion euros to 20.2 billion euros.
• At the company’s U.K. retail business, adjusted Ebit fell to 12 million euros from 54 million euros the previous year.

Key Insights

• EON’s U.K. retail business continues to feel the heat from a price cap introduced in January and stiff competition. British homeowners, disgruntled at higher bills, are readily switching suppliers and EON lost 400,000 customers in the first half of the year, Chief Financial Officer Mark Spieker said on a press call following publication of earnings figures.
• The company said it expects its transaction to acquire Innogy, currently under review by European competition authorities, to close in September. The Brussels-based regulator has a Sept. 20 deadline to finish its review. The transaction is part of a complex asset swap agreed with RWE AG on in March 2018 that would make EON the main grid operator in Europe’s biggest power market.
• The company said a “significant decline” in interest rates meant it had to set aside more money to meet pension obligations. Some analysts are uneasy about the company’s rising debt at a time when investment related to Germany’s energy transition is expected to rise.

Market Reaction

• EON fell 0.3% in Frankfurt. Shares have gained 5.1% this year.

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• Adjusted net income for 2019 still seen between 1.4 billion euros and 1.6 billion euros, similar to 2018 result of 1.5 billion euros. Adjusted Ebit seen between 2.9 billion euros and 3.1 billion euros. Dividend proposal of 46 cents per share.
• Link to statement

--With assistance from Andrew Blackman.

To contact the reporter on this story: William Wilkes in Frankfurt at wwilkes1@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Lars Paulsson, Andrew Reierson

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