By Christoph Steitz
FRANKFURT (Reuters) - German energy company Innogy on Wednesday trimmed its operating profit forecast for 2017, citing a persistently difficult market environment for npower, its ailing British retail energy supply business.
Having for years struggled with fierce competition in the local retail market, Innogy last month agreed to merge npower with the British retail unit of SSE (LON:SSE), hoping to rid itself of the struggling business in the mid-term.
"Unfortunately, the intensity of competition has not eased during the fourth quarter," Chief Financial Officer Bernhard Guenther told journalists during a call, adding that cutting costs was not enough to offset the tough market environment.
As a result, the company lowered its 2017 target for adjusted operating profit (EBIT) to 2.8 billion euros (£2.5 billion) from 2.9 billion.
Innogy also gave its first forecast for 2018, saying it expected adjusted EBIT of about 2.7 billion euros and adjusted net income of more than 1.1 billion euros. Innogy forecasts adjusted net income of more than 1.2 billion euros this year.
The expected profit decline in 2018 is mainly due to increased spending on networks, broadband technology and renewables, which will rise by more than a quarter to more than 3 billion euros, the group said.
"Even if this will weigh on our earnings short-term, I am convinced that this is the right strategy for setting up Innogy optimally for the future," Chief Executive Peter Terium said.
SHARES DROP
Shares in Innogy fell as much as 13.6 percent, their biggest intra-day loss since it was carved out of utility RWE and listed last year. It was the stock's lowest level in nearly seven months.
"Given the current level of the broader market, shares are much more vulnerable to negative news; all the more so when there is a downward trend, as is the case with RWE," a local trader said.
RWE, which still owns a 76.8 percent stake in Innogy, fell as much as 13.4 percent. The group confirmed its 2017 outlook and said Innogy's downgrade would have no impact on its dividend or dividend yield.
Between the two groups, 4.7 billion euros in market capitalisation was lost by late afternoon.
Innogy, which focuses on energy networks, renewable power generation and retail business, had previously cut 480 million euros off the value of npower, warning that more impairment charges could come.