Exclusive E.ON Warns of Lower Earnings, Deteriorating Outlook Ahead of Breakup

Germany’s largest utility E.ON on Wednesday warned of declining earnings as its business slows faster than expected on plunging electricity and gas prices. The utility, based since the start of the year in Essen, said it expected its operating profit to fall by up to 21 percent this year from 2015. E.ON plans later this year to spin off its conventional gas and coal power generation businesses from its renewables business as Germany moves ahead with its forced shift into alternative energy. The glut of government-subsidized solar, wind and other renewable power has pushed down German wholesale electricity prices by a third since the start of 2015. “The difficult market environment will cause, in particular, free cash flow to be below earlier assumptions; future investments and dividends will have to reflect this,” E.ON said in a statement. E.ON said its expected its operating profit before interest, tax, depreciation and amortization to be between €6 billion and €6.5 billion, or $6.6 billion to $7.1 billion this year, up to 21 percent less the €7.6 billion the utility had in 2015. E.ON said it “expects its outlook to be significantly lower” amid accounting costs from the breakup of the group, which is scheduled to take place in the second half of this year. Amid writedowns on power plants, which have become less profitable or unprofitable as electricity prices have slumped, E.ON said it lost €900 million in the fourth quarter, compared with a net loss of €3.1 billion in the same period a year earlier. E.ON’s total loss in 2015 was €7 billion, the biggest ever made by the firm, according to Bloomberg. E.ON’s shares were down 2 percent in early trading at €8.20 per share in Frankfurt on Wednesday. The utility stock has lost almost 41 percent of its value the past twelve months, compared with a 16 percent drop in the German blue-chip DAX Index.