Germany: E.ON Continues Its Positive Performance

With a strong first half of 2012, E.ON continues its positive performance and confirms its full-year forecast. E.ON’s first-half EBITDA rose by €2.4 billion year on year to roughly €6.7 billion, its underlying net income by €2.4 billion to roughly €3.3 billion.

 “Our solid first-half results demonstrate that we’re meeting our existing challenges decisively. We successfully renegotiated our gas-procurement contracts, and the transformation of our company through our E.ON efficiency-enhancement program is moving forward according to plan,” said E.ON CEO Dr. Johannes Teyssen as he pre-sented the company’s results.

E.ON’s first-half sales rose by 23 percent year on year to €65.4 billion. As in previous quarters, the increase in sales in the Optimization & Trading segment was particularly significant. This growth continued to reflect the effects of the increase in trading activity to optimize E.ON’s generation fleet and, in particular, an altered gas hedging strategy. An increase in generating capacity led to higher sales in the Renewables and Russia segments as well. The Generation segment posted lower sales, owing mainly to the absence of output from nuclear power stations in Germany that were mandatorily shut down in 2011 and to an overall decline in output in the company’s generation portfolio in Europe.

E.ON’s EBITDA increased by €2.4 billion to roughly €6.7 billion, owing mainly to the following factors:

•  The absence of an adverse one-off effect, recorded in the second quarter of 2011, relating to Germany’s accelerated phaseout of nuclear energy had a positive impact on E.ON’s first-half earnings in the amount of €1.5 billion.
• The successful renegotiation of all currently oil-indexed offtake under E.ON’s long-term gas procurement contracts resulted in a positive earnings effect of €1.2 billion relative to the prior-year period.
• Earnings in Russia were up by 39 percent to €0.4 billion because of an increase in installed generating capacity
• Earnings in the Renewables segment were down €0.1 billion compared to the prior year period. This resulted principally from an increase in provisions for repairs at Happurg pumped-storage hydro station and to lower transfer prices in the hydro-power business. From an operating perspective, earnings at E.ON’s wind and solar business were 15 percent higher due to an increase in installed capacity.
• Lower prices and narrower margins caused earnings in the Generation segment to decline by roughly €0.4 billion.
• In addition, higher payments of Germany’s nuclear-fuel tax relative to the prior year reduced Generation’s earnings by roughly €0.4 billion.
• Earnings were €0.1 billion lower in the Exploration & Production segment owing to a decline in production at E.ON’s North Sea fields caused by shut-ins at Njord and Elgin fields. These production declines were only partially offset by positive price effects and by earnings from Yuzhno Russkoye gas field in Russia.

E.ON’s underlying net income rose by €2.4 billion to roughly €3.3 billion, mainly because of the increase in EBITDA. Slightly lower depreciation charges and a slightly improved economic interest expense were also positive factors. These were partially offset by an increased absolute tax expense.

E.ON’s first-half investments in property, plant, and equipment, intangible assets, and shareholdings totaled €2.7 billion, a 10-percent increase from the prior-year figure.

E.ON’s operating cash flow increased by 5 percent year on year to €2.5 billion. The significant increase in EBITDA and positive effects from a decline in working capital were partially offset by adverse effects that included significant withholding tax pay-ment. In addition, payments resulting from E.ON’s agreement with Gazprom will not take place until the third quarter. The absence of an adverse one-off effect recorded in 2011 relating to the amendment of Germany’s Nuclear Energy Act had a positive im-pact on EBITDA but was not cash-effective.

E.ON’s economic net debt stood at €41.1 billion at the end of the first half, about €4.7 billion more than at year-end 2011. It was adversely affected by the company’s divi-dend payout and investment expenditures as well as by a significant increase in provi-sions for pensions resulting from lower discount rates. Disposal proceeds and operating cash flow were positive factors. As already noted for operating cash flow, payments anticipated in the second half of the year will have a significantly positive impact on E.ON’s net debt.

On the basis of its current business portfolio, E.ON continues to expect its full-year 2012 EBITDA to be between €10.4 and €11 billion and its underlying net income to be between €4.1 and €4.5 billion.

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Offshore WIND staff, August 13, 2012