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E.ON: New corporate strategy
E.ON to focus on renewables, distribution
networks, and customer solutions and to spin off the majority of a new,
publicly listed company specializing in power generation, global energy
trading, and exploration and production
Nov. 30, 2014 + + + E.ON sets new strategic course
and will set up its businesses differently, making them viable for the
future ... Disposal of Spanish assets will increase financial flexibility
for the new setup; divestment of E.ON’s activities in Italy being
evaluated, the exploration and production business in the North Sea under
strategic review ... Fourth-quarter impairment charges of about €4.5
billion anticipated due to altered market environment ... Outlook for 2014
EBITDA and underlying net income confirmed
Fixed dividend of €0.50 per
share intended for the 2014 and 2015 financial years.
E.ON will
focus on renewables, distribution networks, and customer solutions and
combine its conventional generation, global energy trading, and
exploration and production businesses in a new, independent company (“New
Company”), a majority of which will be spun off to E.ON SE shareholders.
This new organizational setup is the logical consequence of the new
strategy that the E.ON SE Supervisory Board decided on at its meeting
today.
E.ON Supervisory Board Chairman Werner Wenning said about
the decision: “I’m pleased that the Supervisory Board unanimously approved
the Board of Management’s proposed new strategy, which will give our
employees and our investors clear prospects in two strong companies that
are viable for the future.”
“We are convinced that it’s necessary
to respond to dramatically altered global energy markets, technical
innovation, and more diverse customer expectations with a bold new
beginning. E.ON’s existing broad business model can no longer properly
address these new challenges. Therefore, we want to set up our business
significantly different. E.ON will tap the growth potential created by the
transformation of the energy world. Alongside it we’re going to create a
solid, independent company that will safeguard security of supply for the
transformation. These two missions are so fundamentally different that two
separate, distinctly focused companies offer the best prospects for the
future,” E.ON SE CEO Johannes Teyssen said.
In 2015 E.ON will take
necessary preparatory steps for the New Company’s public listing. Both
E.ON and the New Company will be solidly financed, be positioned to secure
jobs, and have prospects for creating new jobs in the future. “We firmly
believe that creating two independent companies, each with a distinct
profile and mission, is the best way to secure our employees’ jobs. Our
new strategy therefore isn’t a job-cutting program,” Teyssen said.
E.ON: customer-oriented, sustainable, innovative
E.ON SE will focus on
the new energy world and customer businesses. It will have three core
businesses: renewables, distribution networks, and customer solutions.
These businesses fit together and reinforce each other, creating a
business portfolio with stable earnings and strong growth potential. About
40,000 employees will be assigned to the distinctly focused company,
which, by concentrating on customers’ future needs, will ensure that
employees have good development opportunities in a multinational energy
corporation.
In its new setup E.ON will provide innovative
solutions to meet the needs of its roughly 33 million customers. It will
take new approaches to further developing each of its three core
businesses. For this purpose E.ON will increase its investments already
for the next year by about €0.5 billion compared to the previously planned
2015 capex of €4.3 billion. E.ON will place a particular emphasis on
expanding its wind business in Europe and in other selected target
markets. It will also strengthen its solar business. It will upgrade its
energy distribution networks in its European markets and also in Turkey
and make them smarter so that customers can take advantage of new products
and services in areas like energy efficiency and distributed generation.
Thanks to numerous initiatives and competitive products and services,
E.ON has substantially enhanced customer satisfaction in its core markets.
The current year is the first in some time in which E.ON has enlarged its
customer base in Germany. Through co-investments, E.ON already partners
with European and American start-ups that are developing promising energy
solutions that incorporate technologies of the future. In addition, the
company’s “:agile” program supports innovative business ideas developed by
employees and others and helps the entrepreneurs realize their vision.
E.ON will position itself as a pioneer in innovative, customer-oriented
solutions. It will identify trends and technical advances early and draw
on them to develop solutions for customers. “These efforts will be guided
by one objective: we want to be best in class in customer satisfaction in
all our target markets,” Teyssen said.
New impetus for the
conventional energy world
“The transformation of the energy system will
continue to require reliable backup capacity well into the future as well
as access to global markets for energy products. With a portfolio
consisting of conventional power generation, global energy trading, and
exploration and production, the New Company will focus precisely on
meeting these needs,” Teyssen said. He added that the New Company’s clear
focus will put it in an excellent position to lead the necessary
consolidation of power generation in Europe and to offer attractive
services for the system needs of the future.
Over the past decade
E.ON has established leading positions in conventional power generation in
Europe and Russia. In recent years E.ON has systematically optimized its
generation fleet and production costs, laying the foundation for
sustainable profitability. A strong natural gas portfolio—which
encompasses exploration and production, gas transport pipelines to Europe,
long-term gas procurement contracts, and substantial storage capacity in
Germany—makes E.ON one of the leading players in the natural gas business
of the future. These power and gas activities will continue to have E.ON’s
well-established trading unit as their interface with global commodity
markets and European trading platforms. The New Company, which will have
its headquarters in Germany’s Rhine-Ruhr region and offer good prospects
to about 20,000 employees, will create a better platform for securing jobs
in an altered market environment.
Partner for regulators and
policymakers
E.ON’s strategic transformation represents an important
and attractive opportunity for regulators and policymakers as well. E.ON
is clearly separating power and gas production and trading from its
end-customer businesses, thereby making both even more transparent for
regulators. The new setup will enable E.ON to accelerate the deployment of
new technologies and at the same time make a significant contribution to
supply security. Both parts of today’s E.ON will be developed in ways that
ensure their future viability.
New setup will secure jobs
In
keeping with E.ON’s long tradition of social partnership, management will
work closely with employee representatives to work out the details of the
new setup and to implement it. Under the new setup, E.ON’s current
businesses will be continued in two companies that are viable for the
future, thereby improving the conditions for securing jobs. The spinoff
will not be accompanied by a job-cutting program. E.ON’s proven tradition
of codetermination will continue, including for employees outside Germany.
New setup built on robust financial foundation, ensuring stability and
value
The first step of the spinoff will involve E.ON transferring a
majority of New Company’s capital stock to its shareholders, with the
result that New Company will be deconsolidated. E.ON intends—over the
medium term and in a way that puts minimum pressure on the stock price—to
sell the shares of its remaining minority. This will enhance E.ON’s
financial flexibility for future growth investments.
E.ON’s
financial flexibility is further enhanced by the divestment of its entire
businesses in Spain and Portugal, which it has agreed to sell to
Macquarie, an Australian investment firm, for an enterprise value of €2.5
billion. The new owner will operate and further develop E.ON’s
conventional and renewable operations in both countries and be the future
partner for its distribution and retail customers there. “We are pleased
that in Macquarie we have found a good employer for our people. Macquarie
has already proven its trustworthiness in the acquisition of our gas
transmission business in Germany,” Teyssen said. In addition, prior to
implementing the new setup, E.ON is exploring the disposal of its
activities in Italy and will conduct a strategic review of its exploration
and production business in the North Sea.
All of the current
Group’s bonds will remain at E.ON, giving the Group’s lenders a proven,
strong, growth-oriented counterparty.
The New Company will be set
up with a strong net financial position, ensuring that it can obtain a
solid investment-grade rating.
Existing provisions for the
dismantling and disposal of nuclear and conventional assets will be fully
covered in New Company’s balance sheet. Because it will not have any of
the Group’s existing capital-market liabilities and thanks to its solid
financing, the publicly listed New Company will be financially robust.
Shareholders to receive attractive investments in distinctly focused
companies
E.ON and New Company’s respective business portfolios will
differ considerably in terms of growth, risk, innovation tempo, and cash
flow profile. Each company will face different strategic challenges and
will therefore have different requirements for capital. The new setup will
create another attractive stock. The two publicly listed companies will
appeal to different investor groups. E.ON SE will offer its investors
attractive earnings with low volatility and clear growth opportunities.
New Company’s investors will benefit from the cash flow from its current
business portfolio in Europe and Russia and from additional opportunities
created by the anticipated restructuring of generation markets in Europe.
E.ON is therefore convinced that the new setup will offer E.ON’s current
shareholders additional value potential.
New setup to be
implemented by 2016
The New Company’s business units do not yet
constitute a corporation. In 2014 and 2015 E.ON will therefore take the
necessary legal steps to combine these units. To ensure reporting
continuity, E.ON’s current reporting units will, for the time being,
remain unchanged.
The implementation of the new setup will be
accompanied by certain costs and taxes, the details of which cannot be
clarified until preparatory work is conducted in the year ahead. E.ON does
not anticipate a lasting increase to its cost base, since new costs will
be offset by the reduced requirements of the two companies’ simpler
organizational setup.
E.ON expects to carry out the spinoff after
approval by the E.ON Shareholders Meeting in 2016.
Altered market
environment necessitates in impairment charges
As part of the process
of preparing the annual financial statements and the new medium-term plan,
the E.ON Board of Management recently tested the Group’s assets for
impairment. Beyond the roughly €700 million in impairment charges already
disclosed in the first three quarters, E.ON expects to record additional
impairment charges of about €4.5 billion in 2014, primarily on its
operations in Southern Europe and on generation assets. Although not
cash-effective, the impairment charges will result in E.ON reporting
substantial negative net income. However, E.ON expressly reaffirmed its
forecast for full-year 2014 EBITDA and underlying net income.
Dividend proposal for the 2014 and 2015 financial years creates
transparency for investors
In view of these strategic developments, the
company’s restructuring, and the related foreseeable uncertainties, the
Supervisory Board agreed to the E.ON Board of Management’s proposal that
the company should pay a fixed dividend of €0.50 per share for both the
2014 and 2015 financial years. The dividend proposal applies regardless of
issues such as the possible consequences of portfolio streamlining, the
accounting treatment of the new setup, and the outcome of the pending
court cases regarding Germany’s nuclear-fuel tax.
Source: E.ON
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