innogy confirms outlook for 2018
Earnings goal for adjusted net income in 2017 achieved:around 9 per cent up year on year at over EUR 1.2 billion
Attractive dividend: Executive Board and Supervisory Board of innogy SE will propose EUR 1.60 per share for fiscal 2017
Net investments of EUR 2 to 2.5 billion planned per year
For the current financial year, innogy SE expects adjusted EBIT of about EUR 2.7 billion and adjusted net income of over EUR 1.1 billion. The company thus confirms the outlook released in December 2017. In fiscal 2017, innogy improved its adjusted net income by 9 per cent, to over EUR 1.2 billion. The Executive Board and the Supervisory Board of innogy SE will propose a dividend of EUR 1.60 per share to the Annual General Meeting on 24 April 2018.
We’re consistently focusing innogy on the energy world of tomorrow. We are driving forward the expansion of renewables, investing in future-proof infrastructure, and are already leading in the area of e-mobility. Every year we intend to invest a total of around EUR 2 to 2.5 billion on a net basis to ensure value-added growth in the future. A prerequisite for this is that we continue to regularly review our costs: Going forward, we want to become even leaner and faster in order to remain competitive. By doing this, we are making innogy fit for future challenges, just like our customers, employees and shareholders expect us to. We will comment on the latest announcements by RWE AG and E.ON SE in due course.
In fiscal 2017, innogy achieved important milestones such as full financial independence and successfully drove forward major projects. This includes the fact that innogy achieved a significant auction success with the Triton Knoll offshore wind project in the United Kingdom. innogy also took the major strategic decision to merge its British retail business with SSE’s British retail and energy services activities. This is a logical step in view of the persistently difficult regulatory conditions in the UK retail business. This was one reason why a slight amendment to the 2017 forecasts for adjusted EBITDA and adjusted EBIT, to EUR 4.3 billion and EUR 2.8 billion, respectively, became necessary mid-December.
With gains of 3 per cent year on year, to EUR 4,331 million in adjusted EBITDA and EUR 2,816 million in adjusted EBIT, both earnings indicators correspond with the forecast. innogy also achieved the original target for adjusted net income that was published at the beginning of 2017. This was up 9 per cent on the previous year, to EUR 1,224 million.
Uwe Tigges: “At the beginning of the year we forecasted an adjusted net income of over EUR 1.2 billion as the basis for our dividend. We achieved this figure and it pays off for our investors. The Executive Board and the Supervisory Board of innogy SE will therefore propose to the Annual General Meeting that a dividend of EUR 1.60 per share be paid for fiscal 2017. We are thus adhering to our dividend pay-out ratio of 70 to 80 per cent of adjusted net income. This and our targeted leverage factor of around 4.0 are our key financial metrics.”
At the beginning of the year we forecasted an adjusted net income of over EUR 1.2 billion as the basis for our dividend. We achieved this figure and it pays off for our investors. The Executive Board and the Supervisory Board of innogy SE will therefore propose to the Annual General Meeting that a dividend of EUR 1.60 per share be paid for fiscal 2017. We are thus adhering to our dividend pay-out ratio of 70 to 80 per cent of adjusted net income. This and our targeted leverage factor of around 4.0 are our key financial metrics.
Focused growth and investment strategy
The three divisions, Renewables, Grid & Infrastructure and Retail, already represent the energy world of tomorrow. For the years 2018 to 2020, innogy has identified Group-wide investment opportunities totalling up to EUR 10 billion on a gross basis – with a focus on the core business of the three divisions. In addition, innogy is investing in the growth fields of solar, broadband and e-mobility. Delivering value-added growth in line with financial stability is the key driving force behind the implementation of this strategy. The key financial metrics guiding the company are the leverage factor (ratio of net debt to adjusted EBITDA) of around 4.0 and strict compliance with innogy’s ambitious hurdle rate framework. In its growth projects, innogy plans to take advantage of partnership models, including selling shares in its projects. Accordingly, for this year and the following two years, the company is planning investments totalling EUR 7 to 7.5 billion on a net basis, i.e. investments less the proceeds from the sale of stakes.
Additional cost discipline measures introduced
As part of its value-oriented growth strategy, innogy continues to keep a close eye on costs. Between 2012 and 2015, the company divisions that are now part of innogy already contributed around 25 per cent of the EUR 1.6 billion in efficiency improvements achieved at the RWE Group. Further substantial reductions of around EUR 400 million on a gross basis in controllable costs are planned through to the end of 2020. These savings will offset among other things inflation-related cost increases, negative margin effects in the retail business in particular, and increased expenditure on growth projects.
2018: Adjusted net income forecast of over EUR 1.1 billion
For the current fiscal year, innogy expects adjusted EBIT of about EUR 2.7 billion and adjusted net income of over EUR 1.1 billion. It thus confirms the outlook released on 13 December 2017. One reason why the outlook is below that for 2017 is higher spending on promising business areas such as Renewables, broadband and e-mobility. In addition, positive extraordinary items from 2017 are likely to be lower. The non-recurrence of positive one-off effects in 2017 is expected to lead to a weaker adjusted financial result in 2018. A normalised effective tax rate of 25 to 30 per cent will be applied in 2018 to determine adjusted net income.
The basis for the dividend payment is adjusted net income and innogy intends to continue paying out 70 to 80 per cent. The Executive Board and the Supervisory Board of innogy SE plan to decide in early 2019 on the exact amount of the dividend payment for fiscal 2018, which will be proposed to the Annual General Meeting in April 2019.
The Renewables division is expected to close fiscal 2018 on a par with last year. New generation capacities will have a positive influence on the result. Furthermore, higher revenue is expected from electricity sales for the portion of generation for which innogy does not receive fixed feed-in tariffs. The positive earnings effect from the first-time consolidation and revaluation of the Triton Knoll project, amounting to EUR 47 million, will, however, no longer apply. Additional costs for developing new projects are also expected.
For the Grid & Infrastructure division, a result below the previous year is expected. In addition to thenon-recurrence of positive extraordinary effects, the start of the new regulatory period for the German gas distribution network business in 2018 is likely to have a negative impact on the earnings.
For the Retail division, adjusted EBIT is forecasted to fall significantly short of last year. Key factors here are higher spending on promising projects, particularly for e-mobility and digitisation initiatives, as well as lower extraordinary effects. innogy will continue to concentrate on efficiency-enhancing measures to counter the mounting pressure on margins in all its retail markets. In the course of the year, the UK retail business is likely to be reported as a “discontinued operation”. As a result, its earnings will no longer be included in the Group figures for adjusted EBIT and adjusted net income but will be reported separately.
Business performance for 2017 in detail - in particular positive earnings development in the grid business
The grid business was the main driver of the earnings growth achieved in 2017. Adjusted EBIT for the Grid & Infrastructure division increased by 14 per cent to EUR 1,944 million. This was influenced mainly by lower costs to operate and maintain innogy’s networks in Germany. In addition, in the first quarter of 2016, provisions had been accrued in this segment for partial retirement measures. Among other things, cooler weather in Eastern Europe compared to the previous year had a positive impact on earnings.
In the Renewables division, adjusted EBIT declined slightly by 1 per cent to EUR 355 million. This is due to the sharp depreciation of sterling compared to the euro. In addition to low precipitation levels, the absence of positive one-off effects from the previous year had a negative impact. Conversely, increased electricity prices and the very high wind levels towards the end of the year had a positive impact, as did the commissioning of new onshore wind farms. The revaluation following the first-time full consolidation of the Triton Knoll offshore wind project after innogy increased its stake from 50 per cent to 100 per cent led to a positive one-off effect.
Adjusted EBIT for the Retail division declined by 5 per cent year on year, to EUR 800 million. For the Retail business in Germany, substantially lower contributions to earnings from the release of provisions for legal risks had a negative influence. Provisions for partial retirement measures were also accrued during the reporting period. In addition, higher costs for the expansion of the e-mobility business had an impact. In the Retail Netherlands/Belgium segment, it was possible to compensate for the negative effects of mounting competitive pressure and the related decline in customer numbers and sales by further reducing costs and implementing additional efficiency measures. The Retail business in Eastern Europe benefited from the cooler weather in the Czech Republic in particular, which helped to improve earnings compared to the previous year. The result for the Retail United Kingdom segment improved: The restructuring programme initiated at the beginning of 2016 led to a significant reduction in the cost base. However, the competitive situation in the UK retail business remains very tough and pressure on margins is high. The business continues to run at a deficit. The UK government has now initiated the legislative process to introduce a general price cap for standard variable tariffs. This has resulted in a significant additional increase in price pressure in the residential business in particular.
Dividend proposal of EUR 1.60 per share for fiscal 2017
The Executive Board and the Supervisory Board of innogy SE will propose to the Annual General Meeting on 24 April 2018 that a dividend of EUR 1.60 per dividend-bearing share be paid for fiscal 2017. This corresponds to a pay-out ratio of approximately 73 per cent of adjusted net income, and is therefore within the range of 70 to 80 per cent set by innogy as the target range for the dividend payment. Based on the share price at the end of the fiscal year, this equates to a dividend yield of around 4.9 per cent.
Power generation up compared to previous year
In the fiscal year that just ended, innogy produced 11.3 billion kWh of electricity, 5 per cent more than in 2016. The bulk of this – 10.2 billion kWh – came from renewables: 74 per cent from onshore and offshore wind farms, 24 per cent from run-of-river power stations, and 2 per cent from biomass and photovoltaic plants. Approximately 10 per cent stemmed from conventional electricity generation capacity, which innogy states via its fully consolidated subsidiaries.
Electricity sales up, gas supply volume down year on year
In 2017, innogy supplied 262.4 billion kWh of electricity to external customers, 8 per cent more than in 2016. The sales trend benefited from the acquisition of new customers in the distributor business and the strengthening of supply relationships with existing customers. However, declines in sales volumes were registered for residential and small commercial customers as a consequence of energy-efficiency measures. Gas sales fell by 6 per cent to 227.5 billion kWh compared to 2016. This was mainly due to the shrinking customer base.
Capital expenditure as in previous year
innogy’s capital expenditure amounted to EUR 2,166 million in 2017 and thus was at a similar level to the previous year. There was, however, a EUR 37 million increase in capital spending on financial assets, to EUR 327 million. The main factor behind this was the acquisition of the international solar and battery storage specialist Belectric. innogy spent EUR 1,839 million on property, plant and equipment and intangible assets. The expansion and modernisation of its grid infrastructure continue to be a key point in the company’s investing activity. Besides maintenance, the focus was on the connection of decentralised generation assets and network expansion in relation to the energy transition. In addition, innogy spent capital on various onshore wind projects in the United Kingdom and Germany. Additional capital was invested in the expansion of its broadband activities.
Net debt of EUR 15.6 billion at previous year’s level
As at 31 December 2017, net debt amounted to EUR 15.6 billion and was thus slightly lower than at the balance-sheet date for 2016. The increase in net financial debt was more than offset by the decline in pension provisions. During the reporting period, net financial debt increased by around EUR 0.7 billion to EUR 12.3 billion. Provisions for pensions declined from EUR 3.9 billion to EUR 3.1 billion. The increase in the discount rate in Germany from 1.8 per cent to 2.0 per cent played a major role in this regard, while the reduction in the discount rate in the United Kingdom from 2.6 per cent to 2.4 per cent had an opposite effect.
Leverage factor of 3.6.
innogy manages its indebtedness via the leverage factor, which is the ratio of net debt to adjusted EBITDA. This indicator is more useful than the absolute level of liabilities, as it considers the company’s earnings power and, in turn, its capacity to service debt. innogy is striving for a level of around 4.0. As at 31 December 2017, the leverage factor was 3.6.
Standard & Poor’s (S&P) raises innogy’s rating
Rating agency S&P reassessed innogy SE’s creditworthiness, upgrading the long-term debt rating and bond rating from BBB– and a positive outlook to BBB with a stable outlook. With this upgrade, S&P recognised innogy’s financial independence; all three major ratings agencies have now assigned it a solid investment-grade rating.
42,393 people working for innogy at end of 2017
As at 31 December 2017, innogy had 42,393 people on its payroll throughout the Group. Part-time positions were considered in these figures on a pro-rata basis. Last year, the net increase in headcount was 1,757. At the company’s German sites, the headcount rose by 1,423 from the end of the previous year to 21,976, and abroad by 334 to 20,417 employees.