E.ON Profits Up with Innogy Assets

German utility E.ON reported May 12 better Q1 results this year than last owing to the recent asset swap with German utility Innogy. That was despite the “historically warm and dry first quarter, which had a tangible adverse impact on E.ON’s earnings,” principally in Germany, Sweden, the Netherlands and the UK, it said.

Overall, E.ON's first-quarter adjusted pre-tax earnings of just under €1.5 ($1.6)bn was €285mn higher than Q1 2019. Adjusted net income of €691mn was slightly above last year’s €650mn.

The Covid-19 pandemic had only a limited impact on the first quarter, and “at the first-quarter mark, however, the pandemic’s overall implications for the company cannot yet be reliably estimated.”

E.ON CEO Johannes Teyssen announced an additional €500mn in medium-term investments for projects with customers to promote a better energy system and climate protection. “We see interesting and promising projects with our customers in areas like the digital economy and eMobility, to which we want to provide additional support,” he said.

At the same time, Teyssen warned against higher carbon taxes: “The German government’s plan to introduce carbon pricing in all sectors of the economy, which we supported, was accompanied by the promise to reduce the levy on green electricity by at least €0.015/kWh to roughly €0.05/kWh.” In the wake of the corona crisis, by contrast, Germany’s renewables levy could jump up to €0.08/kWh, he said.

This would mean a jump in power prices in spring 2021 that would stifle any upturn in the already battered business sector. “Consequently, German policymakers need to translate their words into decisive deeds,” Teyssen continued.

In addition, Teyssen called for Germany’s planning and consents processes to be revamped, especially those for regional energy infrastructure and the modernisation of towns and municipalities. “After corona, Germany’s focus should be on creating the future, not preventing and delaying it, on speeding up consents processes by all means possible," he said.

E.ON’s sales almost doubled year on year, from €9.1bn to €17.7bn. Sales of €4.7bn at the energy networks segment surpassed the prior-year figure by €2.2bn. Customer supplies grew by €7.5bn to roughly €14.4bn, particularly in Germany, UK, the Netherlands, and Belgium.

Energy Networks’ adjusted pre-tax earnings (Ebit) of about €1.1bn was €0.4bn above the prior-year level, again principally because of Innogy. Customer Solutions’ adjusted Ebit rose €75mn year on year to €300mn. 

Unseasonably warm weather reduced E.ON’s Q1 earnings by a few hundred million euros but the lockdown response to Covid-19 only affected the final three weeks of the quarter. The adverse impact resulted from the resale of electricity, which had originally been procured for customers, at wholesale prices that are now significantly lower than when it was bought. E.ON expects an adverse impact in the high double-digit million euro range for the year as a whole.

The non-core business segment posted significantly higher earnings, primarily because of higher sales prices at PreussenElektra. This was partially offset by higher expenditures for residual power output rights.

Regulated businesses generate more than 80% of its earnings and are the focus of the company’s investments, it said. To satisfy the European Commission and allow the €25bn asset swap to proceed, it sold off some of its customer base but was careful to keep the networks intact. Fellow German utility RWE, which owned Innogy, became E.ON's largest shareholder, thereby retaining some after-sales value from Innogy.

In the first three months of 2020, investments in the core business and in the E.ON Group as a whole were significantly above the prior-year level. Most went toward the energy networks segment. Its investments nearly doubled year on year to €575mn. Higher investments for new connections as well as replacements and upgrades also contributed to the increase.