Germany’s largest utility E.ON AG is to lay off between 9000 and 11000 of its workforce, more than 10 percent of the total, and cut dividends. This measure is primarily a response to drastically reduced profits, down by 71% in first half 2011, following a German government decsion to close all nuclear reactors before 2022 and the profit forecasts that that policy decision entails.
Although group sales rose by approximately 20 percent year-on-year to roughly EUR53 billion, the first six months of 2011 recorded a huge drop inall key earnings indicators. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortisation) decreased by 45 percent to EUR4.3 billion, while adjusted net income fell by 71 percent year-on-year to EUR900 million. With an adjusted net income of minus EUR382 million in Q2/2011, E.ON has had to report the first quarterly loss in the company’s ten-year history. At EUR2.4 billion, the cash provided by operating activities of continuing operations was also significantly below the previous year’s figure of EUR5.6 billion.
The company is to try to make additional cost savings of EUR1.5 billion per year by no later than 2015 through simplification of group structure, which involves the lay-offs mentioned above, and reducing the target dividend for 2011 from EUR 1.3 to to 1.00.
The main reasons for the loss of earnings are given as amendment of the German Nuclear Energy Act, with the early unplanned shutdown of nuclear power plants in Germany, and the nuclear-fuel tax. This represents an adverse effect on the adjusted EBITDA of approximately EUR1.9 billion. Negative earnings from long-term gas procurement agreements and lower revenues from the power trading business also had an impact. In contrast, gas production, power generation in Russia and, in particular, renewable energy showed a positive development.
In view of the political intervention and the extremely difficult economic situation, E.ON has significantly reduced its overall earnings expectations for the year 2011. Based on the current business situation, E.ON now anticipates the group’s earnings to be reduced to adjusted EBITDA per year-end between EUR9.1 and EUR9.8 billion and an adjusted net income in a range from EUR2.1 billion to EUR2.6 billion.
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