In the first six months of 2011, E.ON, the Düsseldorf energy group, recorded a massive decrease for all key earnings indicators. While group sales rose by approximately 20 percent year-on-year to roughly EUR53 billion, the Adjusted EBITDA decreased by 45 percent to EUR4.3 billion. The main reasons for this are the amendment of the German Nuclear Energy Act with the early unplanned shutdowns of nuclear power plants in Germany and the nuclear-fuel tax. This represents an adverse effect on the Adjusted EBITDA of approximately EUR1.9 billion. Negative earnings from long-term gas procurement agreements and lower revenues from the power trading business also had an impact. In contrast, gas production, power generation in Russia and, in particular, Renewable Energies showed a positive development.
In the first half of 2011, the adjusted net income decreased by 71 percent year-on-year to EUR900 million. With an adjusted net income of minus EUR382 million in Q2/2011, E.ON has to report the first quarterly loss in the company’s ten-year history. At EUR2.4 billion, the cash provided by operating activities of continuing operations was also significantly below the previous year’s figure of EUR5.6 billion.
As of the cut-off date, June 30, 2011, E.ON Group’s economic net debt amounted to a total of approximately EUR33.6 billion. The financial liabilities decreased even more significantly. E.ON CEO, Johannes Teyssen, said: “Through our efficient and successful implementation of the disinvestment program, we were able to reduce our financial liabilities within a period of only one year by almost half. It now stands at slightly over EUR16 billion. As a consequence of our decisive action, our debt level is roughly half the amount of our major competitors.”
In view of the political interventions and the extremely difficult economic situation, E.ON is forced to significantly reduce the overall earnings expectations for the year of 2011. Based on the current business situation, E.ON now anticipates Group’s earnings to be reduced to adjusted EBITDA per year-end between EUR9.1 and EUR9.8 billion and an adjusted net income in a range from EUR2.1 billion to EUR2.6 billion.
Because of the significantly reduced anticipated earnings, the company is not in a position to further maintain the minimum dividend of EUR1.30 per share that was originally announced for 2011. E.ON is now planning to distribute a dividend for the year 2011 of EUR1.00 per share. Therefore, in general, the company continues to pursue its dividend policy of a distribution of 50 to 60 percent of the adjusted net income.
Deterioration of business environment will result in additional adverse effects on earnings also in the medium-term
E.ON expects that the determining trends underlying the development in the first six months of 2011 – overcapacities in the major European energy markets, technological change as well as foreseeable market interventions from politicians and regulators – will continue to cause considerable adverse effects on the business in the years to come. To ensure continued competitiveness, to gain room for further entrepreneurial measures and to secure as many jobs as possible in the long-term, E.ON intends to significantly reduce controllable costs. By no later than the end of 2015, E.ON plans to reduce its costs from currently around EUR11 billion to approximately EUR9.5 billion per year.
Organizational changes: Clearer, more efficient, faster
In order to achieve this goal, the Board of Management has made initial considerations and believes administrative structures should become significantly leaner and more efficient.
Speaking at the presentation of E.ON’s half-year results, Mr Teyssen said: “In recent years and in spite of numerous efforts, we have not succeeded in simplifying our administration structures. We need simpler, more transparent and less cost-intensive structures if we are to be successful in the future market. We cannot afford – not only, but particularly in Germany – any unnecessary management levels, processes and duplication of work. My objective is to create a new E.ON which is quicker and leaner, and which successfully operates globally with considerably lower costs. This is the only way for us to generate the necessary funds for future investments, to retain the trust of our shareholders - including more than 500,000 minor shareholders - and to secure many competitive jobs for our employees in Germany and abroad in the long term.”
With this new proposed approach, E.ON intends to create the foundation for working profitably in its core markets and to seize new income opportunities in fast-growing energy markets and segments, within and outside of Europe. Mr Teyssen emphasized that the ongoing work to identify and gain access to new growth regions was on schedule. As announced at its Corporate Strategy presentation in November last year, E.ON adheres to its objective to generate a quarter of the company’s earnings outside of Europe in the medium-term. “We have made good progress and I am confident we will achieve this objective. What is important is not the starting date for implementation but the value creation this opportunity will deliver,” said Mr Teyssen.
Initial considerations could affect 9,000 to 11,000 jobs
In order to secure E.ON’s future, Mr Teyssen and the Board of Management are convinced that it is necessary to quickly and permanently achieve a significant reduction of costs. He commented: “We’re not immune to negative changes in our markets, and especially in the political and regulatory environment. We simply must make use of the internal flexibility we have.”
A reduction of non-personnel costs alone could not achieve the necessary cost savings. Therefore, according to initial considerations of the Board of Management, on a group wide level 9,000 to 11,000 jobs, primarily in administrative functions, could be affected in the medium-term. Furthermore, the potential for efficiency enhancements in operational areas will be examined. E.ON plans to add detail to its considerations in the weeks to come. The decisions of the Supervisory Board regarding job implications are to be adopted in autumn.
E.ON facing major challenges, considers slashing up to 11,000 jobs