Rising profits for RWE (ETR: RWE) and Innogy (ETR: IGY) as green energy looks to M&A
Yesterday was a good day at the opening of the Europe-wide Stoxx 600 index for RWE (ETR:RWE), the German energy group and its green energy subsidiary Innogy (ETR:ITY) as they took the two top spots at start of trading after the German utility company predicted higher profits this year.
RWE, like other German energy groups, has been hit hard by the country’s rapid move to green energy sources. But it said that that an improved performance from both its trading arm and from Innogy in which it maintains a 76.8 percent stake - would help its profits rise in 2017.
Innogy said its 2016 earnings fell 7 percent to €.4.2 billion, partly due to a decline in the amount of wind electricity it generated as a result of “low wind levels.” Formed from the greener businesses of RWE, including renewable power grids and retail energy sources, it had its first IPO last October, which raised £4.6 billion.
Today Innogy is Germany’s largest energy company by market value. Peter Terium, Innogy, chief executive, said: “We promised a lot for 2016, and we have kept those promises … We are proving that Innogy is a stable stock with a strong dividend.”
He confirmed that the company would pay out 70 -80 percent of adjusted net income as a dividend, and reiterated that investors “can expect higher earnings for 2017?.
Alongside other German utilities, RWE, has been hit by a green energy revolution that has seen Germany move towards renewables. Energy from wind and solar has squeezed the conventional power that RWE produces out of the market, while electricity prices are now so low that many coal and gas plants struggle to turn a profit, say reports. But, by placing its green energy and grid businesses into Innogy.
RWE has also responded in an innovative way.
Rolf Martin Schmitz, RWE CEO said: “We have done our homework. The task at hand is now to continue to build RWE on this solid foundation.” The company is reported as expecting core earnings (adjusted EBITDA) to reach €5.4 billion to €5.7 billion ($5.8-$6.1 billion) this year, compared with €5.4 billion in 2016.
As Innogy announced early this week that that it would pay a dividend of €1.60 a share, and RWE still owns a 76.8 percent stake in the company, it is now set for a pay-out of around €683 million.
There has been speculation that French energy group Engie SA (EPA:ENG) is weighing a bid for Innogy but as yet the company is not being drawn into speaking out on this option.
“RWE is back on track. We made major progress in reorganizing the business last year, which has enabled us to return to reliable planning while giving us room to maneuver when taking entrepreneurial action. The security and reliability of energy supply are becoming increasingly important to the success of the energy transition. We are adapting our strategy to this, evolving from an electricity producer into a provider of secured capacity. In doing so, we will make sure our current business remains powerful, continue to develop RWE in areas linked to its core business and work on solutions today for the security of the energy system of tomorrow," said Dr. Rolf Martin Schmitz, CEO.
The company has said it wants to be part of the strong growth of the Asian energy markets.
“Ultimately, RWE will be a driver of new solutions ensuring security of supply. Therefore, the company intends to participate in the development of storage and spur innovation in this area,” it says on its website.
Dina Medland is an independent writer, editor and commentator with a strong focus on issues around corporate governance, ethics, the workings of the boardroom and sustainable business. She is on the team of contributors to @ForbesEurope and is an ex-Financial Times staff member who has been a regular contributor in recent years. Further details about her background and a portfolio of work – including her commercially sponsored blog ‘Board Talk’ are available on her website http://www.dinamedland.com