RWE Spinoff New green utility hungry for growth

Innogy, spun off by RWE last year, is young, fresh and raring to expand. Sales director Martin Herrmann has his eye on new markets both at home and abroad.
Quelle: Pressebild
All powered up and ready to go. Quo vadis, Innogy?
(Source: Pressebild)

While still the head of RWE, Peter Terium made two big promises before splitting one of Germany's largest power companies into two.

First, the CEO predicted that the initial public offering of Innogy, RWE's clean, green spinoff, would bring billions to the highly indebted energy company, which had been weighed down by the costs of Germany's transition to renewables. The idea was that, free of burdens such as nuclear power plants and coal facilities, Innogy's marketing and networks could grow. “Innogy gives us the unique chance of beginning once again as a big energy company,” said Mr. Terium, who decided to manage the spinoff after its flotation.

Now Germany's newest green energy company, Innogy is also one of the largest energy providers in Europe. The company has some 16 million electricity customers and almost 7 million gas customers. In its domestic market alone, those numbers are 6.8 and 1.3 million, respectively. In comparison, E.ON, Innogy's biggest rival, has 21.4 million customers internationally, but only 6.1 million in Germany.

Mr. Terium reached his first goal fastest. When in October 2016 Innogy placed the first tranche of 23 percent, the shares were purchased for €4.6 billion – at the highest price.

Now one year after the formal spin-off, Innogy is focusing on the second goal: growth.

Innogy is active in eleven European countries – but Europe is much larger. Martin Herrmann, Innogy sales director

“We want to have a tenable position in every retail market,” Martin Herrmann, Innogy's sales director, told Handelsblatt. “That shouldn't be surprising in Germany and the Netherlands, where we are the market leader. But in other regions like Poland or Belgium, we have some catching up to do.”

RWE wasn't the only energy company to recently divide itself into two. Amid similar problems – writedowns on power stations and huge sums set aside for nuclear waste disposal to name but two – E.ON, formerly Germany's biggest power provider, also spun off part of its operations. The difference is that E.ON's new firm Uniper still encompasses the older part of its parent company's operations.

Not so for Innogy, which posted a net profit of €1.5 billion for 2016, thanks to the fact that RWE kept all the bad bits of the business.

Currently, Innogy and E.ON seek growth in exactly the same commercial areas: renewables, networks and marketing. Geographically, both companies are clearly rivals in some regions, such as Germany and the U.K., though only E.ON is present in Scandinavia.

Innogy's Mr. Herrmann said that could change. “Of course we can get involved in completely new markets,” he said. “Innogy is active in eleven European countries – but Europe is much larger.”

First and foremost, Mr. Herrmann is keen to expand in those countries where Innogy is already active but only has a substantial share in one sector. “In a few countries we’re strong with only one product, either electricity or gas. We want to catch up with the other product,” he explained.

The company could export its Eprimo model, under which Innogy complements sales through its regional companies with its national discount brand. RWE set up the company in 2005 in order to compete with the favorable rates and low costs of its internet rivals. So far, it has succeeded .

While aggressive newcomers like Teldafax and Flexstrom became overextended, Eprimo built up a stable customer base and has more than one million electricity customers, according to Mr. Herrmann. Including gas customers, the figure rises to 1.3 million. He is excited about the idea of introducing Eprimo abroad, though has not yet made any concrete plans.

Sales transactions are a stable pillar of the company’s business and contributed €1 billion to Innogy’s earnings before interest, taxes, depreciation and amortization (EBITDA) in 2016. That was almost a fourth of the overall operating profits of the company and 7 percent more than the previous year under the RWE banner. E.ON's figures are similarly strong, with EBITDA at €1.1 billion in the comparable field of customer solutions.

Because of its strong market position, Innogy can reckon with high revenues and achieve new growth by expanding into new markets. But huge leaps in classic sales aren’t to be expected; competition is tough in certain markets, such as the Netherlands where a price war is raging. Last year Innogy lost a good 200,000 Dutch customers and saw a slight downturn in operating profits.

So it's Mr. Hermann’s job to find new revenues and profits by marketing additional products and services, from smart homes to electromobility. As he explained, energy-plus-products help win customer loyalty, as well generate profit, helping Innogy towards its goal of earning more than €150 million in EBITDA by 2018.

These are still the early days but Mr. Herrmann is “satisfied” with the progress made by Innogy as a brand so far, which was launched last summer before the initial public offering. Surveys show it's recognized by 40 percent of Germans, with the figure rising to 77 percent in core areas.

In the future, Innogy will keep up the ads but is switching from an image-oriented campaign to focus on products.

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Jürgen Flauger covers the energy sector for Handelsblatt. To contact the author: [email protected]