Shares Slump

E.ON Reports Record €16 Billion Loss for 2016

Eon-Chef Johannes Teyssen
E.ON CEO Johannes Teyssen on Wednesday said Germany's largest utility lost a record €16 billion in 2016. Source: DPA / Soeren Stache

E.ON, Germany’s biggest utility, on Wednesday said it lost €16 billion in 2016, a one-year record, and announced plans to cut 1,300 jobs, most of them in Germany.

Shares of the Essen-based utility fell on news of last year’s loss, which was significantly bigger than most financial analysts had been expecting.

In a statement, E.ON said it planned to slash its dividend by more than half. E.ON shares fell 5 percent after opening in Frankfurt and were at €6.89, down 2 percent, at 13:43 p.m. CET.

The utility said it took nearly €900 million in write-downs in the fourth quarter, bringing its total writedowns to €25 billion since Germany announced plans to phase out nuclear power.

E.ON last year split off and sold shares in Uniper, a new unit that bundles its alternative energy, networks and retail activities in one business.

The utility has been hammered by Germany’s phase out nuclear power and last year split its renewables from its conventional businesses. The government’s decision to subsidize solar and wind producers led to a glut of energy in Germany, causing prices to fall by more than half.

In a statement, Johannes Teyssen, the E.ON chief executive, called 2016 a “transitional year.” Last year E.ON said its adjusted net income fell by 16 percent to €904 million.

“The impact on our balance sheet marks a turning point and clears E.ON’s way into the new energy world,” Mr. Teyssen said. “It enables us to focus all our energy on our three core businesses: energy networks, customer solutions, and renewables.”

The utility proposed to pay a 21-cent dividend for 2016, after paying 50 cents for 2015, and said it planned to raise the dividend to 30 cents for 2017. Over the medium-term, E.ON said it planned to reduce its €26.3 billion debt to about €20 billion.

The company said it would cut 1,000 jobs in Germany and 300 outside the country, which it said would generate €400 million in annual cost savings by 2018.

Marc Spieker, E.ON’s future chief financial officer, said the utility had now financially digested all of the costs associated with the nuclear power shutdown and transition to renewable energy.

“E.ON has now fully accounted for the impact of its new strategy,” Mr. Spieker said. “Its balance sheet for the 2016 financial year will be the last to reflect the burdens of the past. This clean break clears the way for the company’s healthy core operating businesses — energy networks, customer solutions, and renewables — to grow in the future.”

The utility said it had adjusted earnings before interest and taxes of €3.1 billion in 2016. For this year, E.ON said it expected EBIT to remain the same or decline to a range €2.8 billion to €3.1 billion.

E.ON’s shift to a greener world of power has been long and expensive with dramatic steps along the way, said David Elmes, a professor at Warwick Business School in the United Kingdom who heads a global energy research network.

Now, “E.ON would desperately like to draw a line under the old company that generated electricity from fossil fuels and now be seen as a new company with a mix of energy services and renewables,” Mr. Elmes said. “Today’s results throw many of the problems that change created into a huge loss, hoping markets will swallow it and let the new company flourish.”

The loss can be viewed against the background of a large and unprecedentedly rapid shift in energy use as major utilities across Europe shift their focus to more sustainable energy driven by government policies. “These set a pace of change which is faster than we’ve historically changed the energy we use,” Mr. Elmes said. Energy transitions can take 20 to 30 years, but “we’re making that change in half that time or less. That means there’s a cost and that’s part of the bills we pay.”

E.ON’s structure can be seen in the context of a broader debate on whether big power stations and centralized networks are the future, or whether we will see energy being made, stored and consumed more locally. “The new version of E.ON looks to move ahead with those ideas,” Mr. Elmes said.

 

Kevin O’Brien is editor in chief of Handelsblatt Global. To reach him: obrien@handelsblatt.com

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