E.ON making progress with restructuring, confirms forecast
E.ON have made very good progress in implementing its strategy and reorganizing.
- Trough reached in 2011, positive forecast confirmed
- Dividend proposal of €1 per share ensures attractive dividend yield
- Transformation into European Company (SE) recommended
- Implementation of strategy and efficiency enhancement making good progress
“Despite a difficult business environment, we have made very good progress in
implementing our strategy and reorganizing our company. We moved resolutely forward on our consolidation course; the worst adverse effects are behind us. E.ON 2.0, our efficiency-enhancement program, is making good. The earnings growth at our renewables business and our power generation business in Russia demonstrate that we entered the right growth businesses. We’re also moving swiftly forward in establishing operations outside Europe, as demonstrated by our joint venture in Brazil. In addition, our agreement with Statoil helps relieve the situation in our wholesale gas business, which remains difficult. There are therefore a number of positive signals that make me confident that we can post an earnings increase in 2012, an increase that will continue in subsequent years.” This was E.ON CEO Johannes Teyssen’s analysis of the company’s current situation. He made the remarks today at E.ON’s 2012 Annual Shareholders Meeting in Essen, Germany. Teyssen thus affirmed E.ON’s current strategy and its full-year 2012 forecast.
2011 earnings down, attractive dividend yield
In 2011, E.ON recorded its first-ever decline in earnings. Although E.ON’s sales rose by 22 percent to about €113 billion, its EBITDA of about €9.3 billion was 30 percent below the prior-year figure. The principal reasons for the decline were an €2.5 billion adverse effect relating the immediate shutdown of nuclear power stations in Germany and the nuclear-fuel tax, a roughly €1 billion earnings reduction from the marketing of E.ON’s generation portfolio in Europe, and a roughly €0.7 earnings reduction in the gas wholesale business due to continued margin pressure.
The earnings performance of E.ON’s growth businesses continued to be positive. The Renewables unit grew its EBITDA by 21 percent to around €1.5 billion, mainly because of an increase in installed wind and solar capacity. Earnings in Russia improved by about 35 percent to about €0.6 billion, owing primarily to an increase in generating capacity and wider power margins. Upstream gas earnings rose to roughly €0.8 billion due to positive price and volume effects. In addition, E.ON’s ongoing efficiency-enhancement programs delivered lasting earnings effects totaling €0.4 billion in 2011.
On the basis of these results, the Board of Management and Supervisory Board have recommended to the Annual Shareholders Meeting, being held today in Essen, the payment of a dividend of €1 per share. With this dividend, E.ON stock would continue to have one of the highest dividend yields among DAX companies.
Restructuring moving forward
E.ON moved resolutely forward in 2011 on the course to transform itself from a primarily European energy utility into an increasingly global, specialized provider of energy solutions.
As part of its refocusing effort in Europe, E.ON will accelerate the expansion of its renewables capacity. It has earmarked more than €2 billion for the construction of three large offshore wind farms in the North Sea and Baltic Sea. One of these is Amrumbank West, a deepwater wind farm in Germany that will enter service in 2015 and produce enough electricity to power about 300,000 households. Going forward, E.ON intends to commission a new offshore wind farm in Europe every 18 months.
As planned, E.ON is also increasing its activities in growth markets outside Europe. Alongside its successful businesses in North America (wind farms) and Russia (large-scale conventional power stations), E.ON will now enter Brazil as its next growth market. Through a joint venture with Brazil’s MPX, E.ON plans to build conventional power stations and renewables facilities with a total capacity of roughly 11 gigawatts. E.ON is also conducting, promising talks with partners in Turkey and India about opportunities for cooperation.
In addition, E.ON has laid the groundwork for lasting efficiency enhancements. In mid-January, it reached an agreement with trade unions ver.di and IGBCE on a collective-bargaining contract for the implementation of E.ON 2.0 in Germany. The contract establishes mechanisms and a framework for the staff reductions that are necessary at E.ON. The agreement pays the way for E.ON to implement E.ON 2.0 as planned and to achieve its goal of reducing controllable costs to €9.5 billion annually by 2015. This will give E.ON flexibility for its investments in the future and thus also for long-term employment opportunities.
Transformation into SE proposed
The planned transformation of E.ON AG into a European Company (SE) is a reflection of the increasing internationalization of E.ON’s workforce, customers, and shareholders. The Board of Management and Supervisory Board have therefore proposed that shareholders vote on the transformation, new Articles of Association, and the six shareholder representatives for the SE Supervisory Board at today’s Annual Shareholders Meeting. E.ON has reached a mutually acceptable agreement with E.ON companies and work councils in Germany on key issues. Over the next six months, the details will be negotiated with employee representatives from all European countries. E.ON expects the transformation to take effect, and for E.ON SE to be fully functional, at the end of this year. At that time, the six employee representatives will be added to the SE Supervisory Board. Until then, the current Supervisory Board will continue to carry out its duties.
For the first quarter of 2012, the E.ON Group expects its EBITDA to be around €3.8 billion and underlying net income to be around €1.7 billion.
From today’s perspective, E.ON expects full-year 2012 EBITDA to be between €9.6 and €10.2 billion and full-year underlying net income to be between€2.3 and €2.7 billion. E.ON continues to plan to pay a dividend of €1.10 per share for the 2012 financial year.
For 2013, E.ON expects EBITDA of €11.6 to €12.3 billion and underlying net income of €3.2 to €3.7 billion. It continues to plan to pay a dividend of at least €1.10 per share for the 2013 financial year.