German utility RWE beats profit expectations as power plants run longer

FRANKFURT (Reuters) - German utility RWE, which has struggled due to declining wholesale electricity prices and its aging power plants, slightly beat first-quarter core profit expectations on Monday as tighter capacity in Europe enabled it to raise production.

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Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) for January-March fell 6.5 percent to 2.13 billion euros ($2.3 bln), but that was higher than a Reuters poll forecast of 2.05 billion euros.

Hurt by years of declining wholesale electricity prices, RWE and its European peers have shut down tens of gigawatts’ worth of plant capacity, no longer able to turn a profit as solar and wind energy have pushed conventional sources out of the market.

However, prices recovered at the end of last year, when a cold winter coincided with extended French nuclear reactor outages, pushing up the price for power delivered in 2018 to 28.8 euros a megawatt hour (MWh), up 44 percent from 2016 lows.

“Because we have seen significant tightening in the first quarter, prices in reserve markets were much higher than usual and we have also operated more power plants than planned, mainly gas,” RWE’s Chief Financial Officer Markus Krebber told journalists.

“Basically, all available power plants ran straight for several weeks.”

RWE is trying to recover after reporting its biggest ever net loss for 2016. It has cut costs at its power plant business and listed its renewable and networks unit Innogy last year as it tries to adjust its business model.

Shares in the group, which have gained more than a third so far this year, rose 2.3 percent to the top of Frankfurt’s blue-chip index, with analysts at Jefferies keeping a “buy” rating after what they said was a “good start to the year”.

Adjusted EBITDA at RWE’s European Power segment, which comprises its gas, hard coal and biomass plants, rose 13 percent to 167 million euros in the first quarter.

The utility still expects the segment’s full-year profits to be significantly below 2016 levels, when adjusted EBITDA came in at 377 million euros, anticipating a further decline in margins for power production.

On a group level, RWE stuck to its full-year outlook, still expecting adjusted EBITDA of 5.4 billion to 5.7 billion euros and adjusted net income of 1 billion to 1.3 billion. It also confirmed plans to pay a dividend of 0.50 euro a share for 2017.

Additional reporting by Vera Eckert; Editing by Georgina Prodhan and Susan Fenton