E.ON SE

Earnings Release • Aug 10, 2011

News Details

Corporate | 10 August 2011 07:29

E.ON AG: E.ON faces major challenges

E.ON AG / Key word(s): Interim Report/Half Year Results

10.08.2011 / 07:29

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E.ON faces major challenges

* Q2 / 2011: First-time loss for E.ON in adjusted net income

* First six months of 2011: Adjusted EBITDA decreases by 45 percent to
EUR4.3 billion, adjusted net income falls by 71 percent year-on-year to
EUR900 million

* Considerations for additional cost savings of EUR1.5 billion per year by
no later than 2015 through simplification of group structure

* Possibly 9,000 to 11,000 jobs could be affected

* Forecast 2011: Adjusted EBITDA between EUR9.1 and EUR9.8 billion and
adjusted net income in an expected range from EUR2.1 billion to EUR2.6
billion

* Target dividend 2011 reduced to EUR1.00

In the first six months of 2011, E.ON the Düsseldorf energy group, recorded
a massive decrease for all key earnings indicators. While group sales rose
by approximately 20 percent year-on-year to roughly EUR53 billion, the
Adjusted EBITDA decreased by 45 percent to EUR4.3 billion. The main reasons
for this are the amendment of the German Nuclear Energy Act with the early
unplanned shutdowns 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 Energies showed a positive development.

In the first half of 2011, the adjusted net income decreased by 71 percent
year-on-year to EUR900 million. With an adjusted net income of minus EUR382
million in Q2/2011, E.ON has 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.

As of the cut-off date, June 30, 2011, E.ON Group's economic net debt
amounted to a total of approximately EUR33.6 billion. The financial
liabilities decreased even more significantly. E.ON CEO, Johannes Teyssen,
said: 'Through our efficient and successful implementation of the
disinvestment program, we were able to reduce our financial liabilities
within a period of only one year by almost half. It now stands at slightly
over EUR16 billion. As a consequence of our decisive action, our debt level
is roughly half the amount of our major competitors.'

In view of the political interventions and the extremely difficult economic
situation, E.ON is forced to significantly reduce the overall earnings
expectations for the year of 2011. Based on the current business
situation, E.ON now anticipates 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.

Because of the significantly reduced anticipated earnings, the company is
not in a position to further maintain the minimum dividend of EUR1.30 per
share that was originally announced for 2011. E.ON is now planning to
distribute a dividend for the year 2011 of EUR1.00 per share. Therefore, in
general, the company continues to pursue its dividend policy of a
distribution of 50 to 60 percent of the adjusted net income.

Deterioration of business environment will result in additional adverse
effects on earnings, also in the medium-term

E.ON expects that the determining trends underlying the development in the
first six months of 2011 - overcapacities in the major European energy
markets, technological change as well as foreseeable market interventions
from politicians and regulators - will continue to cause considerable
adverse effects on the business in the years to come. To ensure continued
competitiveness, to gain room for further entrepreneurial measures and to
secure as many jobs as possible in the long-term, E.ON intends to
significantly reduce controllable costs. By no later than the end of 2015,
E.ON plans to reduce its costs from currently around EUR11 billion to
approximately EUR 9.5 billion per year.

Organizational changes: Clearer, more efficient, faster

In order to achieve this goal, the Board of Management has made initial
considerations and believes administrative structures should become
significantly leaner and more efficient.

Speaking at the presentation of E.ON's half-year results, Mr Teyssen said:
'In recent years and in spite of numerous efforts, we have not succeeded in
simplifying our administration structures. We need simpler, more
transparent and less cost-intensive structures if we are to be successful
in the future market. We cannot afford - not only, but particularly in
Germany - any unnecessary management levels, processes and duplication of
work. My objective is to create a new E.ON which is quicker and leaner, and
which successfully operates globally with considerably lower costs. This is
the only way for us to generate the necessary funds for future investments,
to retain the trust of our shareholders - including more than 500,000 minor
shareholders - and to secure many competitive jobs for our employees in
Germany and abroad in the long term.'

With this new proposed approach, E.ON intends to create the foundation for
working profitably in its core markets and to seize new income
opportunities in fast-growing energy markets and segments, within and
outside of Europe. Mr Teyssen emphasized that the ongoing work to identify
and gain access to new growth regions was on schedule. As announced at its
Corporate Strategy presentation in November last year, E.ON adheres to its
objective to generate a quarter of the company's earnings outside of Europe
in the medium-term. 'We have made good progress and I am confident we will
achieve this objective. What is important is not the starting date for
implementation but the value creation this opportunity will deliver,' said
Mr Teyssen.

Initial considerations could affect 9,000 to 11,000 jobs

In order to secure E.ON's future, Mr Teyssen and the Board of Management
are convinced that it is necessary to quickly and permanently achieve a
significant reduction of costs. He commented: 'We're not immune to
negative changes in our markets, and especially in the political and
regulatory environment. We simply must make use of the internal flexibility
we have.'

A reduction of non-personnel costs alone could not achieve the necessary
cost savings. Therefore, according to initial considerations of the Board
of Management, on a group wide level 9,000 to 11,000 jobs, primarily in
administrative functions, could be affected in the medium-term.
Furthermore,the potential for efficiency enhancements in operational areas
will be examined. E.ON plans to add detail to its considerations in the
weeks to come. The decisions of the Supervisory Board regarding job
implications are to be adopted in autumn.

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This press release may contain forward-looking statements based on current
assumptions and forecasts made by E.ON Group management and other
information currently available to E.ON. Various known and unknown risks,
uncertainties and other factors could lead to material differences between
the actual future results, financial situation, development or performance
of the company and the estimates given here. E.ON AG does not intend, and
does not assume any liability whatsoever, to update these forward-looking
statements or to conform them to future events or developments.

End of Corporate News

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Language: English
Company: E.ON AG
E.ON-Platz 1
40479 Düsseldorf
Germany
Phone: +49 (0)211 4579-0
Fax: +49 (0)211 45 79-5 01
E-mail: investorrelations@eon.com
Internet: www.eon.com
ISIN: DE000ENAG999
WKN: ENAG99
Listed: Regulierter Markt in Berlin, Düsseldorf, Frankfurt (Prime
Standard), Hamburg, Hannover, München, Stuttgart;
Terminbörse EUREX; Mailand

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134959 10.08.2011