Npower overhaul ‘already bearing fruit’

RWE has said the restructuring of its British supply business Npower is “already bearing fruit” despite reporting a drop in profits in the first half of 2016.

The group’s EBITDA for the six months to end of June fell by 5.5 per cent on the same period last year to €3 billion. Its operating profit dropped by 7.2 per cent €1.9 billion, and revenues declined by 3.8 per cent to €23.9 billion.

RWE pinned the falls on “significant unexpected losses” from its trading business in the second quarter. This was offset by a strong performance from its conventional generation business, which “posted a significant rise in its operating result” due to its “ongoing efficiency-enhancement programme” and property sales.

Its supply division also performed well due to lower gas and power prices, and in the UK it said the “comprehensive restructuring” of Npower is “already bearing fruit”. In March Npower announced it would make “extensive cost savings”, including cutting 2,400 jobs, after reporting a £99 million loss in 2015. 

 “The restructuring programme in our UK supply business has got off to a good start,” said RWE chief executive Peter Terium. “The operational improvements are on track, including those to meet the customer service goals agreed with the UK regulatory authority Ofgem. This is also increasingly reflected in our customer numbers: our competitive position in the UK residential sector has stabilised since the significant customer losses suffered last year.”

RWE said the wider reorganization of the group is also track, having reached some “important milestones”. In December it revealed it would follow in the footsteps of Eon by splitting its business in two.

The group’s new subsidiary for renewables, grids and retail began operating on the 1 April as planned. It is currently trading under the name ‘RWE International SE’ but will take up its definitive moniker ‘Innogy SE’ at the start of September. Around 10 per cent of the new company’s shares will be listed on the stock market by the end of the year.  

“At times, up to 1,500 people at RWE have been working on the group’s realignment,” said Terium. “Just six-and-a-half months after the supervisory board gave the go-ahead, the legal reorganisation has already been completed and the new brand has been launched.”

The group’s headcount fell by nearly 500 since the beginning of the year, largely due to “streamlining measures”, in particular in its conventional generation business.

Favourable market conditions for its gas-fired plants, especially those in the UK, helped push up the volume of power generated by the group during the period by 5.2 per cent year-on-year. Increased renewable generation also helped to push up power volumes, with newly commissioned wind farms making a key contribution. The volume of gas supplied fell by 7.2 per cent.

Capital investments fell 30 per cent year-on-year to €826 million. This was due to substantial investments in its Pembroke and Staythorpe gas-fired plants in the first half of 2015 as well as the completion of several offshore wind farms, including the Gwynt y Môr farm off the coast of North Wales.

RWE’s net debts rose by 11.1 per cent to almost €28.3 billion. The increase was attributed to a large negative free cash flow of around €1.7 billion. The group maintained its profit outlook for the full year. It expects to report an EBITDA of €5.2 billion to €5.5 billion and an operating profit of €2.8 billion to €3.1 billion. RWE said the poor performance of its trading business in the second quarter is likely to be counteracted by continued success from its supply division, again in the UK in particular.  

Analysts at investment firm Jefferies said: “RWE’s management has delivered a strong H1 performance in a challenging environment. It appears to be managing the pressure in the generation business well through self-help measures and the group’s new corporate strategy is on track.”