© Reuters. FILE PHOTO: Brown coal fired power plants of RWE, one of Europe’s biggest utilities in Neurath near Cologne

By Christoph Steitz

FRANKFURT (Reuters) – RWE forecast core earnings could fall by a fifth this year, as Germany’s largest electricity producer struggles to halt a decline in profitability at its conventional power plants and grapples with Germany’s plan to phase out coal.

RWE is in the process of taking over the renewable activities of rival E.ON and subsidiary Innogy, turning it into Europe’s No.3 green energy group behind Spain’s Iberdrola (MC:) and Italy’s Enel (MI:).

It is also facing margin erosion at its large fleet of coal- and gas-fired power plants, which have also come under pressure following proposals by a government-appointed commission to exit coal as an energy source by 2038.

“The Commission clearly spoke out against forced layoffs and leaving people in the lurch,” Chief Executive Rolf Martin Schmitz said. “But we need some more details, as there are still a lot of questions that require answers.”

Finance chief Markus Krebber said it would not be easy to keep profitability at the group’s conventional power plants stable.

Shares in the company were down 2.5 percent in early trade.

RWE expects adjusted core earnings of 1.2-1.5 billion euros ($1.4-$1.7 billion) this year after a decline of 29 percent to 1.5 billion euros in 2018. Adjusted net income is seen at 300-600 million euros, compared with 591 million in 2018.

Jefferies analysts said the guidance was 8 percent below consensus, adding it could be partly explained by higher costs for IT and the pending integration of the renewable units of E.ON and Innogy.

“But the driver for the remaining difference is unclear to us, and so it is difficult to say if the 8 percent miss is on an underlying basis or a more conservative stance from the management,” they wrote.

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2019-03-14