Keener competition on Europe’s power and gas markets, continued high energy prices worldwide, and growing regulatory pressure are increasingly prominent features of E.ON’s operating environment. In this difficult environment, E.ON, Europe’s largest investor-owned energy company, continued its positive performance. E.ON’s results for the first quarter of 2008 maintained the high level of the prior-year quarter. E.ON increased sales by 8 percent year on year to €22.8 billion (prior year: €21.1 billion), while adjusted EBIT of €3.3 billion was nearly on par with the prior-year level. E.ON’s adjusted net income declined by 7 percent to €1.8 billion, while its investments were up sharply, rising 72 percent to €2 billion.
Eastern Europe and Nordic again post higher results
At the start of 2008, E.ON combined all of its European trading activities in power, gas, coal, oil, and CO2 emission allowances to create its new Energy Trading market unit. It also combined its renewables operations (with the exception of hydroelectricity) and climate-protection activities. These operations are now led by E.ON Climate and Renewables which plans to grow globally. Due to these significant changes to its organizational structure, a detailed comparison with prior-year figures would have limited informational value.
The Central Europe market unit recorded an adjusted EBIT of €1,601 million, surpassing the prior-year figure (€1,432 million) by 12 percent. Increased sales at the Hungarian electricity business and other operations along with higher natural gas sales volumes in Western Europe were partially mitigated by the substantial adverse effects of the shutdowns at Krümmel and Brunsbüttel nuclear power stations.
Pan-European Gas’s adjusted EBIT fell by 10 percent, from €1,126 million to €1,019 million. Lower earnings in the Downstream Shareholdings business were primarily responsible for the decline, which could not be fully offset by higher earnings at the E.ON Földgaz Group in Hungary. Despite a weather-driven increase in sales volumes, midstream adjusted EBIT was also below the prior-year figure because E.ON could not yet pass significantly higher gas procurement prices through to customers.
U.K.’s adjusted EBIT of €269 million was 38 percent below the prior-year figure (€436 million). Key factors were the stronger euro, lower retail margins, and the transfer of energy trading and renewables operations to E.ON’s new market units. Nordic’s adjusted EBIT rose by 23 percent to €353 million (€287 million). Positive factors included higher earnings from power generation and rate adjustments in the retail business. U.S. Midwest’s adjusted EBIT improved by 5 percent to €98 million (€93 million), primarily due to slightly higher retail electric and gas margins. Energy Trading recorded an adjusted EBIT of -€80 million, which is predominantly attributable to seasonal fluctuations in the optimization portfolio for Germany. Margins reflect the higher procurement prices of the winter months and average annual prices on the sales. E.ON therefore expects an earnings improvement in the summer months. Adjusted EBIT shown under Corporate Center/New Markets amounted to €19 million, with the Climate & Renewables, Italy, and Russia market units contributing €26 million, €58 million, and -€9 million, respectively.
Adjusted net income declined by 7 percent to €1.8 billion. Unlike adjusted EBIT, this figure reflects the interest payments for E.ON’s comprehensive investment program which will not serve to increase the company’s earnings until sometime in the future. By contrast, cash provided by operating activities for the first three months of 2008 rose by 8 percent year on year to €2.6 billion. Economic net debt of €23.7 billion at March 31, 2008, was roughly on par with the figure as of December 31, 2007 (€24.1 billion).
Outlook
Following its positive performance in the first quarter, E.ON expects adjusted EBIT for full year 2008 to again surpass the high prior-year figure and to increase by 5 to 10 percent. E.ON’s forecast reflects its expectation to acquire a substantial portfolio of assets from Enel and Acciona in the second half of 2008. Further earnings drivers will be operational improvements in E.ON’s electricity business as well as the ongoing implementation of efficiency-oriented measures. E.ON anticipates a slight increase in adjusted net income for 2008, with operating improvements partially offset by higher interest expenses.
Successful start in new organizational structure
E.ON’s first quarter results for the first time include its new market units for energy trading and renewables, as well as its energy business in Italy and its newly acquired electricity business in Russia. This is clear evidence of the company’s increasingly pan-European structure. E.ON CEO Wulf H. Bernotat said: “The end of the first quarter isn’t the end of the year. But I can already say that we’re making rapid progress expanding E.ON internationally, implementing our strategy, and giving our company a new, more agile organizational structure. It will enable us to do an even better job of seizing the earnings and growth opportunities created by the ongoing integration of Europe’s energy markets.”
At the start of 2008, E.ON’s new Energy Trading market unit took over responsibility for managing all of the E.ON Group’s energy trading operations and will even more systematically seize new earnings opportunities in the commodity trading business. The Climate & Renewables market unit also got off to a successful start in January 2008. In just a short time, E.ON achieved the smooth integration of its renewables operations and employees worldwide and also considerably expanded its renewables generating capacity, particularly in wind power. E.ON is already the world’s seventh-largest wind-power company and aims to rapidly rank among the leaders.
Wulf H. Bernotat stated: “The rapid way we’re implementing our clear strategy provides impressive evidence of E.ON’s huge potential and commercial possibilities. We’re sending a message to all our stakeholders—particularly our employees and the capital markets—that E.ON is committed to growth and performance. E.ON’s positive development in the current year confirms that we’re on the right strategic course.”
