E.ON’s results for the 2013 financial year were in line with expectations. EBITDA1 declined by 14 percent year on year to €9.3 billion. It was therefore inside the company’s forecast range, as was underlying net income of €2.2 billion. Cost savings delivered by the E.ON 2.0 program and higher earnings at the Exploration & Production segments had a positive impact on earnings. Negative factors included the absence of earnings streams from divested companies and the market situation in fossil-fueled power generation. In addition, 2012 had benefited from a one-off payment relating to the renegotiation of gas-procurement contracts; this payment did not recur in 2013. E.ON recorded underlying net income per share of roughly €1.18. Management is proposing a dividend of €0.60 per share.
“Our 2013 results clearly reflect the negative effects of a difficult economic and regulatory environment in Europe. In particular, the ramifications of policy decisions in Germany and the related insufficient market prices for conventional energy continue to have an adverse impact on our generation portfolio, which has long been a mainstay of our business. That is why in 2013 we further intensified our efforts to systematically adapt E.ON to the rapidly changing market situation,” E.ON CEO Johannes Teyssen said at the company’s earnings presentation in Düsseldorf. Teyssen talked in detail about the measures the company is taking to respond to persistent market dislocations. “Our E.ON 2.0 program, which we launched back in 2011, is right on schedule. We are achieving lasting cost reductions across our company and tangibly improving our efficiency. By the end of 2014 we will have initiated and largely completed most of its main measures. We will achieve our targets.”
E.ON continually scrutinizes the profitability of its conventional generation assets and, if necessary, withdraws them temporarily or permanently. So far the company has decided to shut down nearly 13 gigawatts of capacity, which is more than a quarter of its conventional fleet in Europe.
E.ON further optimized its business portfolio in 2013. In has now generated about €20 billion from the sale of noncore assets, thereby surpassing its original target of €15 billion by a wide margin. These successful divestments give E.ON financial flexibility and enable it to focus even more closely on current challenges and opportunities.
E.ON’s economic net debt declined by approximately €3.8 billion, from -€35.8 billion at year-end 2012 to -€32 billion at year-end 2013. Its net financial position improved from -€14.4 to -€11.5 billion. The main reason for the improvement was that substantial disposal proceeds along with positive cash flow of €6.4 billion were fully sufficient to cover investment expenditures and E.ON SE’s dividend payout. E.ON plans to generate positive free cash flow (defined as operating cash flow minus investments and dividends) starting in 2015, in part by enhancing efficiency and sharpening the focus of its investments.
In the next few years E.ON’s business will only generate limited funds for new investments. Alongside necessary maintenance and network investments, going forward the company will focus in particular on expanding growth businesses like renewables and distributed-energy solutions. “We are investing very carefully and selectively in our new businesses and keeping risks to a minimum,” Teyssen said. “But I would like to add that not making investments is not an option for us. Our company’s transformation must continue, particularly in difficult times. It’s the only way for us to lay the foundation for future earnings.”
E.ON is maintaining its transparent, consistent dividend policy in 2013 as well and has reiterated its target of payout ratio of 50 to 60 percent of underlying net income. At the Annual Shareholders Meeting, the Board of Management and Supervisory Board will propose a dividend of €0.60 per share for the 2013 financial year, which corresponds to a payout ratio of 51 percent of underlying net income. Furthermore, shareholders will be offered the option to exchange the cash dividend partially into E.ON shares. E.ON plans for its dividend payout to be within this target range in the future as well.
Under the new Board of Management compensation plan, which was approved at last year’s Annual Shareholders Meeting by a more than 90 percent majority, the earnings decline is appropriately reflected and, on a like-for-like basis, leads to a roughly 25 percent decline in bonuses. For example, the CEO’s effective compensation for 2013 declined by just under €1 million. Furthermore, all members of the Board of Management must invest one third of their annual bonus in the company for four years and therefore depend, like shareholders, to a significant degree on the company's value performance.
In view of a continued difficult business environment, E.ON expects full-year 2014 EBITDA1 to be between €8 and €8.6 billion and underlying net income to be between €1.5 and €1.9 billion. The forecast factors in the loss of earnings streams through asset sales under the company’s divestment program. The start of the new power regulation period in Germany and earnings declines at the Russia unit (due to adverse currency-translation effects) and at the Global Commodities unit are further adverse factors. The positive factors include the expansion of production at Exploration & Production and further cost reductions from the E.ON 2.0 efficiency-enhancement program.1 Adjusted for extraordinary effects. This press release may contain forward-looking statements based on current assumptions and forecasts made by E.ON Group management and other information currently available to E.ON. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. E.ON SE does not intend, and does not assume any liability whatsoever, to update these forward-looking statements or to conform them to future events or developments.