E.ON Reels from Huge Loss, Spin-off Criticism

German utility group E.ON August 10 reported a huge €4.2bn net loss in 2Q 2016, compared to a €143mn loss a year ago, chiefly due to €4.4bn of impairment charges and provisions for Uniper, its fossil-fuel and nuclear* spin-off company, including gas storage write-downs and pension fund provisions.

Net loss for 1H 2016, again chiefly arising from Uniper, was €3bn – which in turn followed a net loss for calendar year 2015 of €7bn.

Income from core E.ON’s continuing operations in 2Q 2016 was €198mn, compared to €41mn in last year's 2Q. Adjusted 2Q earnings (Ebitda) though declined to €889mn, from €1.19bn, although the company affirmed its earlier forecast for full-year 2016 adjusted Ebit and adjusted net income.

Its €0.12bn sale of remaining North Sea assets to UK Premier Oil, announced in January, also resulted in a net book loss to E.ON upon completion in April of €100mn. E.ON sold its Norwegian upstream assets to Russian-controlled DEA last autumn for $1.6bn, but now said even that had made only a minimal net accounts gain upon completion.

E.ON's first half 2016 gas sales of 85.1 terawatt-hours (7.9bn m³) were 17% lower year on year, while power sales of 115.7 TWh were 14% lower.

E.ON CEO Johannes Teyssen (Photo credit: E.ON SE)

In a press briefing, E.ON CEO Johannes Teyssen was asked about a 2Q 2016 deal with Gazprom over gas imports, replying: “We’d rather refer you to Uniper on that; we did reach an agreement, it’s been implemented, and there are no further disputes between Uniper and Gazprom.”

Uniper’s listing in September remains “on schedule”, said Teyssen. But he was challenged by journalists on E.ON’s original market valuation for Uniper of €15.5bn, with some analysts now suggesting €5bn is more accurate. Teyssen said it may now be nearer €12bn. Uniper agreed €5bn worth of financing in June.

E.On’s results statement and briefing gave no indication of whether Uniper would retain a 25% interest in the Gazprom-led Yuzhno Russkoye gas field long-term – the German group’s sole remaining upstream asset – which Reuters reported last month might be put up for sale.

The German cabinet would shortly propose draft legislation regarding financing of some €10bn nuclear phase-out costs for the country’s power industry, said Teyssen, or €2bn more than E.ON had expected, but the firm was ready to follow the nuclear energy commission’s recommendations.

Teyssen also said E.ON awaits Germany’s Constitutional Court ruling on the nuclear fuel tax later in 2016. RWE and Vattenfall joined E.ON in challenging the tax, but another German nuclear generator EnBW did not.

A German cabinet decision next month on the regulated return on power and gas grid investments was also keenly awaited; roughly 7% is proposed, down from a little over 9%. E.ON, as a German networks operator, is “participating in the consultations”, said Teyssen.

On the UK’s June 23 vote to leave the EU, Teyssen said he was “disappointed” by the result – but hopes that both sides would negotiate to retain a common market for goods and services. A weaker pound impact on earnings is offset by the benefit to E.ON of its UK sterling-denominated debt. He also expressed relief that E.ON’s 10,000 employees in Turkey were not harmed in the July 15 coup attempt, and said the country’s stability was important to E.ON as a plant and grid operator there.

* E.On's Swedish nuclear interests will be spun off to Uniper, while German nuclear plants will stay part of E.On (although rebranded PreussenElektra).

Mark Smedley