“E.ON is entering the new financial year with strong earnings and optimism,” E.ON CEO Johannes Teyssen said at the release of the company’s 2018 Annual Report. He added that carrying out the complex preparations for the planned takeover of innogy while simultaneously being very successful in the core business was anything but automatic. “This huge achievement was only possible because we have outstanding employees. I’m very proud of our team and E.ON’s performance culture,” Teyssen emphasized.
Earnings at upper end of forecast range
As anticipated, E.ON’s 2018 adjusted EBIT of €3 billion was only slightly (€85 million) below the prior-year figure of €3.1 billion and thus at the upper end of its forecast range. Due to a reduction in interest expenses and taxes, E.ON’s adjusted net income of €1.5 billion was slightly (about €100 million) above the prior-year figure of €1.4 billion and thus likewise at the upper end of our forecast range.
“2018 was another strong year,” CFO Marc Spieker said, adding that operating improvements in the companies core business were the most important earnings driver. “Our business is going well and delivers reliably—for our customers and our shareholders. We put in an outstanding operating and financial performance for the third year in a row. We’re going to continue this success story in the current year as well,” Spieker said.
Positive outlook and further dividend growth
Spieker said that for 2019 E.ON anticipates adjusted EBIT of €2.9 to €3.1 billion and adjusted net income of €1.4 to €1.6 billion. It intends for the dividend to increase further as well. Following 30 cents per share for 2017 and 43 cents per share for 2018 the company intends to pay shareholders a fixed dividend of 46 cents per share for the 2019 financial year. Spieker: “It’s important to us that our shareholders benefit from our company’s success and have planning certainty, particularly for 2019, the year of the transaction. That’s why now we’re already proposing a fixed dividend for the current year. The third dividend increase in a row reflects E.ON’s solid business performance. “Through 2020 we expect our current business portfolio to generate annual EBIT growth of 3 to 4 percent on average and our earnings per share to rise by an average of 5 to 10 percent,” Spieker said.
High level of efficiency in the network business
As forecast, adjusted EBIT of €1.8 billion at the Energy Networks segment was €190 million, or 9 percent, below the prior-year figure of €2 billion. The principal reasons were the non-recurrence of a positive regulatory one-off item recorded in the prior year, the sale of Hamburg Netz, and the beginning of the third regulatory period for gas in Germany. A reduction in earnings at the East-Central Europe/Turkey unit resulting from lower equity earnings on E.ON’s stake in Enerjisa Enerji in Turkey was another adverse factor. These items were partially offset by an improved gross margin in the power business in Sweden.
In the regulated networks business, efficiency plays a special role. The German Federal Network Agency’s most recent benchmarking assigned all of E.ON’s regional network companies a particularly high efficiency factor of 100 percent. As in previous years, this ranks them among the most efficient of Germany’s nearly 900 electricity network operators.
Significant growth in customer numbers in Germany
Adjusted EBIT at the Customer Solutions segment declined by €66 million to €413 million. The principal causes were challenging market conditions (particularly in the United Kingdom), a weather-driven reduction in power sales volume, regulatory items, and higher restructuring expenditures. Adjusted EBIT in Germany was significantly higher year on year, primarily because of the anticipated normalization of gross margin in the power and gas sales business.
E.ON maintained or enlarged the size of its customer base in nearly all of its markets, despite unrelentingly fierce competition. The company even added well over 100,000 retail customers on a net basis in Germany. This positive development is also reflected in customer satisfaction, which E.ON measures on a regular basis and which improved further.
Renewables’ earnings higher despite poor wind yield
The Renewables segment increased its adjusted EBIT by €67 million to €521 million. The principal factor was an increase in output due to the inclusion of new wind farms in the United States for the entire year for the first time and the commissioning of a new offshore wind farm in the United Kingdom.
Spieker pointed out that Renewables again delivered particularly strong earnings, even though the wind yield was relatively poor. “The Renewables segment’s great earnings performance demonstrates its employees’ undiminished motivation despite the upcoming transfer of this business to RWE,” Spieker emphasized.
Investments enhance infrastructure and enlarge earnings base
E.ON’s 2018 investments of just over €3.5 billion surpassed the prior-year figure of €3.3 billion by 6 percent. Energy Networks’ investments in particular were substantially above the prior-year level. For example, E.ON invested around €800 million in Germany alone to expand, digitalize, and renew its power grids, roughly €100 million than in the prior year. “This year we again want to increase the prior-year’s high level of investments in order further improve our earnings base,” Spieker said.
“Our networks are the backbone of the energy transformation. They connect a growing number of distributed generating units and are thus what makes a modern, climate-friendly energy world possible. By investing in further expansion and digital technology we want to make our networks robust enough to meet future challenges,” Teyssen said.
E.ON wants to tap future growth potential through continued high investments at Customer Solutions as well. The company’s main focus is on modernization and expansion at its heating business and on distributed generating units at customers’ facilities. “This will enable us to create the basis for stable future earnings in this business as well,” Spieker emphasized.
Debt again lower
As planned, E.ON has systematically reduced its economic net debt in substantial increments. Its debt, which stood at €26.3 billion in 2016, declined to €19.2 billion at year-end 2017 and just €16.6 billion at year-end 2018. “This enables us to enter the planned innogy takeover with a strong and healthy balance sheet,” Spieker said.
Preparations for the innogy takeover right on schedule
All aspects of the planned takeover of innogy remain on schedule. Filing the transaction with the European Commission in January marked an important milestone for E.ON. The opening of an in-depth investigation was anticipated in view of the planned transaction’s complexity. “This too was fully in line with our plans. We’re confident that we’ll obtain the necessary approvals in the second half of the year,” Teyssen said.
In the interim E.ON has made a series of decisions about the new E.ON’s organizational setup. These include that the company will continue to be called E.ON, have its headquarters in Essen, and have a very customer-proximate setup. These preparations will help the company complete the transaction more swiftly after the approval from Brussels.
Teyssen is satisfied with the discussions between the E.ON and innogy management teams: “We’re working together constructively in an atmosphere of mutual trust.” He added that this is a good basis for giving innogy’s employees a new home at E.ON with the best opportunities for the future. “I’m looking forward to our new colleagues,” Teyssen said.